SHOULDER INNOVATIONS, INC.

Current report

Investing in our common stock involves a high degree of risk. Risk factors describing the major risks to our business can be found under Part I, Item 1A, “Risk Factors” in the Company’s 2025 Annual Report. You should consider carefully the risks and uncertainties described therein, together with all of the other information in this Quarterly Report, including Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed financial statements and related notes, before deciding whether to purchase shares of our common stock. Our business, financial condition, results of operations and prospects could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of these risks actually occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. Unless otherwise indicated, references in these risk factors to our business being harmed will include harm to our business, reputation, brand, financial condition, results of operations, and prospects. In such event, the market price of shares of our common stock could decline, and you could lose all or part of your investment.

Previous report

Our business involves a high degree of risk. You should carefully consider each of the following risk factors and all other information set forth in this Quarterly Report on Form 10-Q and our other filings with the SEC. The risks and uncertainties described below are not the only ones we face. If any of the following risks and uncertainties develop into actual events or circumstances, they could have a material adverse effect on our business, financial condition and results of operations. You should carefully read the following risk factors, together with our unaudited condensed financial statements and the related notes and all other information included in this Quarterly Report on Form 10-Q and our other filings with the SEC. In that event, the market price of our common stock could decline, and you could lose all your investments.

Previous report

We are an early-stage company with a history of significant net losses, we expect to incur operating losses in the future and we may not be able to achieve or sustain profitability.

Previous report

We have incurred annual net losses since our inception, and we expect to incur additional substantial losses in the foreseeable future. For the nine months ended September 30, 2025 and 2024, we had a net loss of $32,587 thousand and $11,827 thousand, respectively. As of September 30, 2025, we had an accumulated deficit of $89,628 thousand. To date, we have financed our operations primarily through equity and debt financings and from sales of our shoulder replacement implants. The losses and accumulated deficit have primarily been due to the substantial investments we have made to develop our implant systems, costs related to our sales and marketing efforts and general research and development expenses, including costs related to regulatory initiatives to obtain marketing approval. These investments may be more costly than we expect, and if we do not achieve the benefits anticipated from these investments, or if the realization of these benefits is delayed or not enough to offset our higher operating expenses, such investments may not result in increased revenue or growth in our business, which will lead to increased net losses. In addition, as a public company we incur significant legal, accounting and other expenses that we did not incur as a private company. Accordingly, we expect to continue to incur operating losses for the foreseeable future. Our failure to achieve and sustain profitability in the future will make it more difficult to finance our business and accomplish our strategic objectives, which would have a material adverse effect on our business, financial condition and results of operations and cause the market price of our common stock to decline. In addition, failure of our solutions to significantly penetrate the target markets would negatively affect our business, financial condition and results of operations.

Previous report

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

Previous report

We have experienced recent rapid growth and anticipate further growth in the future. This growth has placed significant demands on our management, financial, operational, technological and other resources, and we expect that our future growth will continue to place significant demands on our management and other resources and will require us to continue developing and improving our operational, financial and other internal controls. In particular, continued growth increases the challenges involved in a number of areas, including managing our supplier relationships and ensuring adequate inventory is available, recruiting and retaining sufficient skilled personnel for our dedicated commercial leadership team, contracting with independent distributors to market our implant systems, providing adequate training and supervision to maintain our high-quality standards and preserving our culture and values. We may not be able to address these challenges in a cost-effective manner, or at all. To achieve our revenue goals, we must also successfully increase our supply of implants and other products, components and instruments from third-party manufacturers to meet expected customer demand. In the future, we may experience difficulties with quality control, component supply and shortages of qualified personnel, among other problems. These problems could result in delays in product availability and increases in expenses. Any such delay or increased expense could adversely affect our business, financial condition and results of operations. In addition, rapid and significant growth will place a strain on our administrative and operational infrastructure. In order to manage our operations and growth, we will need to continue to improve our operational and management controls, hiring process, reporting and information technology systems and financial internal control procedures. If we do not effectively manage our growth, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy customer requirements or maintain high-quality product offerings, which could have a material adverse effect on our business, financial condition and results of operations.

Previous report

We have a significant amount of debt, which may affect our ability to operate our business and secure additional financing in the future.

Previous report

As of September 30, 2025, we had an aggregate of approximately $15,000 thousand in principal outstanding under Trinity Loan Agreement. The Trinity Loan Agreement, which we entered into in August 2023, as amended by the First Amendment to the Loan and Security Agreement on April 23, 2024 and the Second Amendment to the Loan and Security Agreement on July 21, 2025, consists of term loans of up to $45,000 thousand and bears interest at an annual rate equal to the greater of the prime rate plus 3.50% and 11.00%. Under 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 must make interest payments under the Trinity Loan Agreement, which has diverted and will continue to divert resources from other activities. For the nine months ended September 30, 2025, we incurred interest expense, net of $661 thousand, which included payments made under the Trinity Loan Agreement. Our obligations under the Trinity Loan Agreement are collateralized by substantially all of our assets, including intellectual property, and we are subject to customary affirmative and negative covenants limiting our ability to, among other things, relocate or dispose of assets, undergo a change in control, merge or consolidate, enter into certain transactions with affiliates, make acquisitions, incur debt, pay dividends, grant liens, store certain amounts of inventory or equipment with third parties and make investments, in each case subject to certain exceptions.

Previous report

The covenants related to the Trinity Loan Agreement, as well as any future financing agreements into which we may enter, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies.

Previous report

While we have not previously breached and are not currently in breach of these or any other covenants contained in our Trinity Loan Agreement or other debt arrangements, there can be no guarantee that we will not breach these covenants in the future. Our ability to comply with these covenants may be affected by events beyond our control, and future breaches of any of these covenants could result in a default under the Trinity Loan Agreement. If not waived, future defaults could cause all of the outstanding indebtedness under the Trinity Loan Agreement to become immediately due and payable and terminate commitments to extend further credit and foreclose on the collateral granted to it to collateralize such indebtedness. If we do not have or are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either upon maturity or in the event of a default, our assets could be foreclosed upon and we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our ability to operate and continue our business as a going concern.

Previous report

If we default under the Trinity Loan Agreement, Trinity Capital on behalf of the lenders will be able to declare all obligations immediately due and payable and take control of our pledged assets, potentially requiring us to renegotiate our agreement on terms less favorable to us or to immediately cease operations. Further, if we are liquidated, the lenders’ rights to repayment would be senior to the rights of the holders of our common shares to receive any proceeds from the liquidation. The lenders could declare a default under the Trinity Loan Agreement upon the occurrence of specific events such as our failure to pay or our failure to comply with specified covenants, thereby requiring us to repay the loan immediately. Any declaration by the lenders of an event of default could significantly harm our business and prospects and could cause the price of our common shares to decline.

Previous report

In order to service this indebtedness and any additional indebtedness we may incur in the future, we need to generate cash from our operating activities. Our ability to generate cash is subject, in part, to our ability to successfully execute our business strategy, as well as general economic, financial, competitive, regulatory and other factors beyond our control. We cannot assure you that our business will be able to generate sufficient cash flow from operations or that future borrowings or other financings will be available to us in an amount sufficient to enable us to service our indebtedness and fund our other liquidity needs. To the extent we are required to use cash from operations or the proceeds of any future financing to service our indebtedness instead of funding working capital, capital expenditures or other general corporate purposes, we will be less able to plan for, or react to, changes in our business, industry and in the economy generally. This may place us at a competitive disadvantage compared to our competitors that have less indebtedness.

Previous report

Also, the anticipated benefit of any strategic alliance, joint venture or acquisition may not materialize or such strategic alliance, joint venture or acquisition may be prohibited. The Trinity Loan Agreement restricts our ability to pursue certain mergers, acquisitions, amalgamations or consolidations that we may believe to be in our best interest. Additionally, future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition.

Previous report

We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results.

Previous report

We may acquire other complementary companies, products or technologies, through the licensing of products or technologies from third parties or other strategic alliances, and the failure to manage acquisitions, investments, licenses or other strategic alliances, or the failure to integrate them with our existing business could fail to result in a commercial product or net sales, divert our management’s attention, result in additional dilution to our stockholders, cause us to incur significant expense and otherwise disrupt our business.

Previous report

Our success depends on our ability to continually enhance and broaden our system offerings in response to changing surgeon and patient needs, competitive technologies and market pressures. Accordingly, from time to time we may consider opportunities to acquire, make investments in or license other technologies, products and businesses that may enhance our capabilities, complement our existing products and technologies or expand the breadth of our markets or customer base. Although we currently have no agreements or commitments to complete any such transactions, we may in the future seek to acquire or invest in businesses, applications or technologies that we believe could complement or expand our portfolio, enhance our technical capabilities or otherwise offer growth opportunities. However, we cannot assure you that we would be able to successfully complete any acquisition we choose to pursue on favorable terms, if at all, or that we would be able to successfully integrate any acquired business, product or technology in a cost-effective and non-disruptive manner. Potential and completed acquisitions, strategic investments, licenses and other alliances involve numerous risks, including:

Previous report

•adverse effects on existing business relationships with suppliers, independent distributors, health care facilities, shoulder specialists and other health care providers;

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•potential loss of key employees of acquired businesses;

Previous report

•unanticipated or undisclosed liabilities of any target; and

Previous report

•increased legal and accounting costs relating to the acquisitions or compliance with regulatory matters.

Previous report

If we do acquire, make investments in or license other technologies, products and businesses, we may not ultimately obtain the expected benefits of such acquisition or investment, strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by our customers, investors and industry analysts.

Previous report

To date, the growth of our operations has been wholly organic, and we have limited experience in acquiring other businesses or technologies. We do not know if we will be able to identify acquisitions or strategic relationships we deem suitable, whether we will be able to successfully complete any such transactions on favorable terms, if at all, or whether we will be able to successfully integrate any acquired personnel, operations and technologies, or effectively manage the combined business following an acquisition. Our ability to successfully grow through strategic transactions depends upon our ability to identify, negotiate, complete and integrate suitable target businesses, technologies or products and to obtain any necessary financing. Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of debt, which could harm our operating results. To finance any acquisitions, investments or strategic alliances, we may choose to issue shares of our common stock as consideration, which could dilute the ownership of our stockholders. If the price of our common stock is low or volatile, we may be unable to consummate any acquisitions, investments or strategic alliances using our common stock as consideration. Additional funds may not be available on terms that are favorable to us, or at all. In addition, if an acquired business fails to meet our expectations, our business, financial condition and results of operations may be negatively affected. These efforts could be expensive and time-consuming and may disrupt our ongoing business and prevent management from focusing on our operations.

Previous report

We may require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may require us to delay, scale back, or cease our innovation efforts or operations.

Previous report

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

Previous report

Risks Related to Our Business and Industry

Previous report

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

Previous report

Our existing implant systems are, and any new products or procedures we develop and commercialize will be, subject to intense competition. There are a number of competing products that can be used in shoulder arthroplasty procedures. The industry in which we operate is competitive, subject to change and sensitive to the introduction of new products, procedures or other market activities of industry participants. Our ability to compete successfully will depend on our ability to continue to train surgeons on the use of our implant systems and other technologies for shoulder surgical care and gain their acceptance of our systems or ecosystem, develop additional products to improve shoulder surgical care and expand our offerings that reach the market in a timely manner, receive adequate coverage and reimbursement from third-party payors and provide systems, technologies and instrumentation that are easier to use, safer, less invasive and perceived to be more effective than the products of our competitors. In addition, our ability to increase our customer base and achieve broader market acceptance of our products will depend to a significant extent on our ability to expand our marketing efforts. We plan to dedicate significant resources to our marketing and surgeon-to-surgeon collaboration programs, but if our marketing efforts and expenditures do not generate a corresponding increase in net revenue, it will negatively affect our business, financial condition and results of operations. In addition, we believe that developing and maintaining broad awareness of our systems in a cost-effective manner is critical to achieving broad acceptance and expanding our business in our target markets. Promotion activities may not generate sufficient or any awareness or increase net revenue, and even if they do, any increase in net revenue may not offset the costs and expenses we incur in building our brand and conducting such promotion activities. If we fail to successfully promote, maintain and protect our brand, we may fail to attract or retain the physician acceptance necessary to realize a sufficient return on our brand building efforts, or to achieve a level of brand awareness that supports broad adoption of our systems.

Previous report

We compete with large, multinational companies, as well as with smaller orthopedic companies that offer innovations and improvements on traditional shoulder implants and technologies. For example, we compete with Arthrex, Enovis, Exectech, Johnson & Johnson, Smith & Nephew, Stryker, and Zimmer Biomet. Furthermore, conditions in our market could change rapidly and significantly as a result of technological advancements, partnerships, or acquisitions by competitors. We have seen and continue to see consolidation amongst our competitors. If our competitors have greater resources and access to funding than us, they may be able to finance the development of new technologies and products before we are able to do so, which may allow them to gain market share or enter new markets before us or provide lower-priced or better-quality offerings.

Previous report

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

Previous report

We also compete with our competitors to engage the services of independent distributors, both those presently working with us and those with whom we hope to work with as we expand. These independent distributors may also sell shoulder care products that our competitors offer. In addition, we compete with our competitors in acquiring technologies and technology licenses complementary to our products or procedures or advantageous to our business. If we are unable to compete successfully against our existing or potential competitors, our business, financial condition and results of operations may be adversely affected, and we may not be able to grow at our expected rate, if at all.

Previous report

If we fail to develop and retain an effective commercial organization, or if we are unable to successfully expand our organization, it could negatively impact our sales, and we may not generate sufficient net revenue to sustain profitability.

Previous report

Our net revenue and profitability is directly dependent upon the sales and marketing efforts of our commercial organization. Our commercial organization is comprised of a team of dedicated commercial leaders, our CEME team and a network of independent distributors. In order to expand our business, we plan to expand our dedicated commercial leadership team with individuals who have strong technical backgrounds specializing in sales and marketing of products for shoulder arthroplasty procedures and within the shoulder surgical care market. As we increase our marketing efforts, we will need to retain, develop and grow the number of team members that we employ. We intend to invest in recruiting and training dedicated commercial leadership team members and clinical representatives as we expand our business. There is significant competition for personnel experienced in relevant medical device sales and in shoulder surgical care in particular. Once hired, the training process can be lengthy because it requires significant education for new dedicate commercial leadership team members and clinical specialists to achieve the level of clinical competency and expertise that is expected by surgeons that use our systems. In addition, team members typically require at least one year if not longer in the field to grow their network of accounts and achieve the productivity levels we expect them to reach in any individual territory. Our future success will depend largely on our ability to continue to hire, train, retain and motivate skilled members of our commercial organization with significant technical knowledge. If we are unable to attract, motivate, develop and retain a sufficient number of such team members, or if these team members do not achieve the productivity levels we expect them to reach, our net revenue will not grow at the rate we expect and our financial performance will suffer. Also, to the extent we hire personnel from our competitors, we may have to wait until applicable non-competition provisions have expired before deploying such personnel in restricted territories or incur costs to relocate personnel outside of such territories, and we have been in the past, and may be subject to future allegations that these new hires have been improperly solicited, and that they have divulged to us proprietary or other confidential information of their former employers. Additionally, because the market for our target team members is competitive, our competitors may try to hire our team members from us. If successful, we would be required to dedicate resources to recruiting, filling and training those vacant positions. Any of these risks may adversely affect our business.

Previous report

We rely in part on independent distributors to sell our products to our customers, and if we are unable to maintain and expand our network of independent distributors, we may be unable to generate anticipated sales.

Previous report

Within our commercial organization and as part of our commercial approach, we use independent distributors to sell our implant systems to hospitals, ASCs and other end users and to assist us in promoting market acceptance of, and creating demand for, our systems. If we are unable to come to commercially reasonable terms with a distributor and/or its agents, we may not generate the expected level of sales and may need to spend more of our capital resources to hire sales personnel as employees or to engage one or more alternative distributors in a particular region or market. In addition, our independent distributors that we contract with are not all exclusive to us and there is a risk that an independent distributor will give higher priority to the products of other medical device companies, including products directly competitive with our systems or may be required by larger medical devices companies to stop offering our systems. Though we have established initiatives to further focus our independent distributor channel on our systems, these initiatives may not translate to an increase in sales or penetration or may underperform relative to our expectations. In addition, we may not have insight into competitive lines at our distributors, including other commercial arrangements between such distributors and our competitors to sell our competitor’s products. As such, there can be no assurance that an agent will devote the resources necessary to provide effective sales and promotional support to our systems. In addition, if an agent terminates its relationship with us and is retained by one of our competitors, we may be unable to prevent them from helping competitors solicit business from our existing customers and surgeons, which could adversely affect our sales and growth. In addition to expanding our internal commercial team members, we expect to continue to utilize and expand our relationships with independent distributors and agents to meet our growing business needs and accomplish our business strategies.

Previous report

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

Previous report

Our estimates of our addressable market are based on publicly-available information, a number of internal and third-party estimates and assumptions, including the prevalence of aTSA and rTSA procedures and management’s knowledge and experience in the shoulder surgical care market. For example, we believe that the aging of the general population and increasingly active lifestyles will continue and that these trends will increase the demand for effective devices and implant systems to be used in connection with shoulder arthroplasty procedures. Furthermore, we currently only operate in the United States, which is the largest market for shoulder arthroplasties, and any contraction in this market or incorrect assumptions about the current and future development of the market would have a material impact on our results of operations and financial condition. While we believe our assumptions and the data underlying our estimates are reasonable, these assumptions and our estimates may not be correct. The projected growth of annual shoulder arthroplasty procedures, including in ASCs, and demand for our systems could materially differ from actual demand if our assumptions regarding these trends and acceptance of our systems by the medical community prove to be incorrect or do not materialize, or if non-surgical treatments or other surgical techniques gain more widespread acceptance as a viable alternative to our systems or products. In addition, even if the number of people who undergo shoulder arthroplasty procedures increases as we expect, technological or medical advances could provide alternatives to address shoulder conditions and reduce demand for shoulder arthroplasty procedures or for our particular systems. As a result, our estimates of the addressable market for our current or future products may prove to be incorrect. Even if the total addressable market for our current and future products is as large as we have estimated, we may not be able to penetrate this market to capture additional market share for the reasons discussed in this “Risk Factors” section. The estimated market opportunities included in this Quarterly Report on Form 10-Q represent the total overall revenue opportunity that we believe is available for our systems if 100% market share is achieved by us, and are not a representation that we will achieve any such market share. If the actual number of people who suffer from shoulder conditions who would benefit from shoulder arthroplasty procedures with our systems, the price at which we can sell our current and future products or the addressable market for our systems and future products is smaller than we estimate, or if the total addressable market is as large as we have estimated but we are unable to capture additional market share, it could have a material adverse effect on our business, financial condition and results of operations.

Previous report

Our business is dependent upon the adoption of our implant systems by hospitals, ASCs, surgeons and patients.

Previous report

Our future growth and profitability depend on our ability to increase physician awareness of our implant systems or ecosystem and on the willingness of surgeons and hospitals and ASCs to adopt our implant systems. Surgeons may not adopt our technologies unless they are able to determine, based on experience, clinical data, medical society and peer-surgeon recommendations and other analyses, that our implant systems provide a safe and effective treatment for shoulder care. Even if we can raise awareness among surgeons, such surgeons, hospitals and ASCs may be slow in changing their medical treatment practices and may be hesitant to select our systems for a variety of reasons, including:

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•lack of experience with us and concerns that we are relatively new to market;

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•long-standing relationships with companies and distributors that sell other products;

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•lack of availability of adequate third-party payor coverage or reimbursement;