A troubled spinal imaging-focused artificial intelligence firm has filed for chapter 11 bankruptcy protection, the company announced Tuesday.

Surgalign said it has entered into an agreement to sell “substantially all” of its hardware and biologics business to Xtant Medical Holdings for $5 million. The publicly traded, Deerfield, Illinois-based vendor plans to pursue an auction of its assets through the bankruptcy proceedings, designating Xtant as the preferred bidder.

“The company has filed a series of motions with the bankruptcy court seeking to ensure the continuation of normal operations during this process,” it said in a June 20 announcement. “[Surgalign] believes that it has sufficient liquidity to conduct its businesses in an uninterrupted manner and fund the chapter 11 proceedings, including the sale of its assets.”

Richard R. Allen first founded the firm in 1998, according to Crunchbase. Surgalign sells a suite of solutions including its HOLO AI Insights, which analyzes standard lumbar spine MRIs, providing quantitative measurements of 16 different anatomic structures. Those are then used to turn imaging data into “structured data sets of clinically relevant biomarkers in patient populations.” The HOLO product line is part of Suralign's digital health business, which is not included in the Xtant sale. Leaders have reached out to potential purchasers and are currently in discussions with several, according to court documents. 

"Surgalign and its advisors will continue to actively market the digital health business, including facilitating due diligence requests and management meetings, among other things, to facilitate a value-maximizing sale of the digital health business," Surgalign said. 

The company also sold off its spinal implant product line to Xtant Medical for $17 million in March, hoping to raise cash.

The bankruptcy filing comes after the Nasdaq informed Surgalign in April that it was no longer in compliance with the $10 million minimum stockholders’ equity requirement for continued listing on the exchange. Leaders reported quarterly results in May, losing $10.8 million before adjusting for interest, taxes, depreciation and amortization. That’s compared to EBITDA losses of $9.1 million in Q4 of 2022 and $13.3 million in Q1 of 2022.

“The company continues to implement a corporate-wide review of its organizational structure, processes and costs, along with continued product rationalization initiatives,” Surgalign said at the time. “The restructuring plan began during the fourth quarter of 2022 and continues today.”

Its board of directors—which includes RadNet Chief Financial Officer Mark Stolper—approved the plan back in November. The reorganization plan included making cuts to save upward of $35 million and executing an undisclosed number of layoffs.

Surgalign and seven of its debt holders each filed voluntary petitions for relief under chapter 11 on June 19 in a Texas bankruptcy court. The company is defaulting on two separate loans each totaling $5.12 million, according to a June 19 filing with the U.S. Securities and Exchange Commission. In a separate SEC filing, Surgalign said it laid off 25 employees on June 16, saving approximately $3.5 million over the next 12 months.