In light of the rapidly evolving crisis, the Company is also filing this Current Report on Form 8-K for the purpose of supplementing the risk factors disclosed in Item 1A of its Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The following risk factor should be read in conjunction with the risk factors described in the Annual Report on Form 10-K.
The novel coronavirus pandemic (COVID-19) and the response to it have reduced demand for our products, and as a result we have reduced our production capacity, and these circumstances may have a material adverse effect on our business, operations and financial condition.
In December 2019, an outbreak of respiratory illness caused by a novel coronavirus began in Wuhan, China. As of March 2020, that outbreak has led to more than three hundred thousand confirmed cases worldwide, with many countries throughout the world confirming cases. The World Health Organization has declared the outbreak a pandemic and a global public health emergency. In addition to those who have been directly affected, millions more have been affected by government efforts in the United States, the European Union and around the world to slow the spread of the pandemic through quarantines, travel restrictions, heightened border scrutiny and other measures. The pandemic and measures taken in response by governments, private industry, individuals and others have also had significant direct and indirect adverse impacts on businesses and commerce as supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services has spiked, while demand for other goods and services has decreased significantly.
The future progression of the pandemic and its effects on our business and operations are highly uncertain. We have experienced significantly decreased demand for our products and expect further unpredictable and potentially significant reductions in demand for our products as healthcare providers and individuals de-prioritize and defer medical procedures that are not deemed to be a high priority, such as joint replacement procedures, which will have a material adverse effect on our business, operations and financial condition. Additionally, as a result of these reductions in demand, we anticipate that we may not be able to meet the trailing six months’ revenue test under the 2019 Secured Loan Agreement. We are initiating discussions with Inn
ovatus with the goal of adjusting the revenue covenants as provided for under the 2019 Secured Loan Agreement, but there can be no guarantee that these discussions will be successful. For more information regarding the risks related to our 2019 Secured Loan Agreement, see “-Our existing and any future indebtedness could adversely affect our ability to operate our business.”
On March 20, 2020, we provided notice to our employees of a furlough of approximately 80 employees effective as of March 23, 2020 to help address decreased demand for our products. The furlough will result in limited production capacity at our manufacturing facilities, but sufficient to meet expected demand. While we do not currently anticipate significant interruptions in our supply chain, additional quarantines, travel restrictions and other measures may significantly impact the ability of employees of our third-party suppliers to get to their places of work to manufacture the key components and materials necessary for our products. We have experienced and may experience further shortages of mask and gown consumables used in our clean room processes, which may further limit our production capacity and further delay the joint replacement procedures in which our products are used. Our employee furlough and any delay or shortage of such components or materials or delays in delivering our products may result in our inability to satisfy consumer demand for our products in a timely manner or at all, which could harm our reputation, future sales, profitability and financial condition.
The coronavirus pandemic continues to rapidly evolve. There may be other material adverse impacts on our business, operations and financial condition that are unpredictable at this time, including delays in the development and regulatory approval of new products and difficulties in retaining qualified personnel, sales representatives and distributors during the pandemic and once it subsides Company to list any other potential material adverse impacts it is aware of.. The extent to which the pandemic may impact our business will depend on future developments, such as the duration of the pandemic, quarantines, travel restrictions and other measures in the United States, the European Union and around the world, business closures or business disruptions and the effectiveness of actions taken to contain the pandemic.