8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 14, 2018 (October 10, 2018)

WRIGHT MEDICAL GROUP N.V.

(Exact name of registrant as specified in its charter)

The Netherlands	1-35065	98-0509600
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

Prins Bernhardplein 200 1097 JB Amsterdam, The Netherlands	None
(Address of principal executive offices)	(Zip Code)

(+ 31) 20 521 4777

(Registrant’s telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

EXPLANATORY NOTE

On October 10, 2018, Wright Medical Group N.V. (Wright) filed a Current Report on Form 8-K with the Securities and Exchange Commission (Initial Form 8-K) reporting the acquisition of Cartiva, Inc. (Cartiva) pursuant to the Agreement and Plan of Merger dated as of August 24, 2018 by and among Wright Medical Group, Inc., Braves WMS, Inc., Wright, Cartiva and Fortis Advisors LLC. Wright is filing this Amendment No. 1 (Amendment No. 1) to the Initial Form 8-K to amend and supplement the Initial Form 8-K to include financial statements and pro forma condensed combined financial statements as required by Item 9.01(a) and Item 9.01(b) of Form 8-K.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

The unaudited interim financial statements of Cartiva as of September 30, 2018 and for the nine months ended September 30, 2018 and 2017, and the notes related thereto, are filed as Exhibit 99.1 to this Amendment No. 1 and incorporated herein by reference. The audited financial statements of Cartiva as of and for the year ended December 31, 2017, and the notes related thereto, are filed as Exhibit 99.2 to this Amendment No. 1 and incorporated herein by reference.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed combined balance sheet as of September 30, 2018 and unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2018 and the year ended December 31, 2017 and the notes to such unaudited pro forma condensed combined financial statements, all giving effect to the acquisition of Cartiva, are attached hereto as Exhibit 99.3 to this Amendment No. 1 and incorporated herein by reference.

(c) Shell Company Information.

Not applicable.

(d) Exhibits.

The following exhibits are being filed or furnished with this Current Report on Form 8-K/A:

Exhibit No.	Description
2.1	Agreement and Plan of Merger dated as of August 24, 2018 by and among Wright Medical Group, Inc., Braves WMS, Inc., Wright Medical Group N.V., Cartiva, Inc., and Fortis Advisors LLC
23.1	Consent of Bennett Thrasher LLP, Independent Auditors
99.1	Unaudited interim financial statements of Cartiva, Inc. as of September 30, 2018 and for the nine months ended September 30, 2018 and 2017
99.2	Audited financial statements of Cartiva, Inc. as of and for the year ended December 31, 2017
99.3	Unaudited pro forma condensed combined financial statements as of and for the nine months ended September 30, 2018 and the year ended December 31, 2017

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: December 14, 2018

WRIGHT MEDICAL GROUP N.V.
By:	/s/ Lance A. Berry
Name: Lance A. Berry
Title:   Senior Vice President and Chief Financial Officer

EX-23.1

Exhibit 23.1

CONSENT OF INDENDENT AUDITOR

We hereby consent to the inclusion of our report dated May 24, 2018 relating to the financial statements of Cartiva, Inc. as of and for the year ended December 31, 2017 appearing in this Current Report on Form 8-K/A and incorporated by reference in Wright Medical Group N.V.’s Registration Statements on Form S-3 (No. 333-222057, 333-211115, and 333-208072) and Form S-8 (No. 333-212381, 333-207230, 333-207231, 333-182452, 333-172553, and 333-219112).

/s/ Bennett Thrasher LLP

Atlanta, Georgia

December 13, 2018

EX-99.1

Exhibit 99.1

Cartiva, Inc.

Financial Statements as of September 30, 2018 and for the Nine Months Ended September 30, 2018 and 2017

Cartiva, Inc.

Unaudited Balance Sheets

September 30, 2018

	2018
Assets
Current assets:
Cash and cash equivalents	$	13,832,832
Accounts receivable, net		4,670,278
Inventory		1,143,732
Prepaid expenses and other current assets		450,134
Total current assets		20,096,976
Property and equipment, net		1,489,541
Other assets		80,036
Total assets	$	21,666,553
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	371,431
Accrued expenses		2,533,584
Current portion of long-term debt		2,200,000
Total current liabilities		5,105,015
Long-term debt, net		2,617,989
Total liabilities		7,723,004
Commitments and Contingencies
Stockholders’ equity:
Convertible preferred stock, $0.0001 par value: 69,903,035 shares authorized; 68,213,933 shares issued and outstanding		6,822
Common stock, $0.0001 par value: 100,000,000 shares authorized; 7,755,283 shares issued and outstanding		761
Additional paid-in capital		28,450,283
Accumulated deficit		(14,514,317	)
Total stockholders’ equity		13,943,549
Total liabilities and stockholders’ equity	$	21,666,553

See accompanying notes.

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Cartiva, Inc.

Unaudited Statements of Operations

For the Nine Months Ended September 30, 2018 and 2017

	2018		2017
REVENUE	$	24,714,204	$	12,720,564
COST OF REVENUE		1,280,550		665,695
GROSS MARGIN		23,433,654		12,054,869
OPERATING EXPENSES:
General and administrative		5,155,062		2,247,672
Sales and marketing		10,365,316		5,837,448
Research and development		3,352,314		2,445,029
Total operating expenses		18,872,692		10,530,149
Net income from operations		4,560,962		1,524,720
Interest expense		94,493		179,110
Net income before taxes		4,466,469		1,345,610
Provision for taxes		148,718		2,350
Net income	$	4,317,751	$	1,343,260

See accompanying notes.

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Cartiva, Inc.

Unaudited Statements of Cash Flows

For the Nine Months Ended September 30, 2018 and 2017

	2018			2017
Cash flows from operating activities:
Net income	$	4,317,751		$	1,343,260
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		443,959			358,707
Stock-based compensation		203,767			168,908
Non-cash interest expense		91,157			91,157
Loss on sale of fixed assets		37,000			—
Changes in assets and liabilities:
Accounts receivable		2,690,570			(3,087,891	)
Inventory		(677,846	)		(132,002	)
Prepaid expenses and other current assets		(224,912	)		63,961
Other assets		232,114			(45,000	)
Accounts payable		(227,015	)		62,011
Accrued liabilities		(1,518,185	)		916,805
Net cash provided by (used in) operating activities		5,368,360			(260,082	)
Cash flows from investing activities:
Proceeds from sale of fixed assets		3,000			—
Purchases of property and equipment		(1,132,072	)		(430,014	)
Net cash used in investing activities		(1,129,072	)		(430,014	)
Cash flows from financing activities:
Proceeds from long-term debt		—			250,000
Principal payments of long-term debt		(549,999	)		—
Purchase and retirement of common stock		—			(12,000	)
Proceeds from sale of preferred stock		—			(7,965	)
Proceeds from exercise of stock options		766,614			14,300
Net cash provided by financing activities		216,615			244,335
Net change in cash and cash equivalents		4,455,903			(445,761	)
Cash and cash equivalents - beginning of period		9,376,929			7,720,410
Cash and cash equivalents - end of period	$	13,832,832		$	7,274,649

See accompanying notes.

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CARTIVA, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2018 AND FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2018 AND 2017

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business — Cartiva, Inc., (the “Company”), a Delaware corporation, is a medical device company focused on the development, manufacturing and marketing of products for the treatment of osteoarthritis of the extremities. The Company’s first commercialized product is Cartiva Synthetic Cartilage Implant (“SCI”), an implant designed to replace the damaged cartilage surface of arthritic joints. In July 2016, the Company received pre-market approval from the U.S. Food and Drug Administration (“FDA”) for the use of Cartiva SCI in the treatment of osteoarthritis at the base of the great toe. The Company commenced selling Cartiva SCI in the United States following FDA approval.

Basis of Presentation — The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.

Subsequent Events — The Company evaluates events and transactions occurring subsequent to the date of the accompanying balance sheets for potential recognition or disclosure in the financial statements. All subsequent events requiring recognition or disclosure have been incorporated into the accompanying financial statements.

Use of Estimates — Preparation of the accompanying financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition — The Company’s revenues are primarily generated through two types of customers, hospitals and surgery centers and stocking distributors, with the majority of its revenue derived from sales to hospitals and surgery centers. The Company’s products are sold through a network of employees and independent sales representatives in the United States and by stocking distributors outside the United States. In the United States, the Company generates a significant portion of its revenue from consigned inventory maintained by its independent sales representatives. For these products, the Company records revenues when it receives appropriate notification that the product has been used or surgically implanted in a patient. For all other transactions, the Company recognizes revenue when title to the goods and risk of loss transfer to customers, provided there are no remaining performance obligations that will affect the customer’s final acceptance of the sale.

The Company records revenues from sales to its stocking distributors outside the United States at the time the product is shipped to the distributor. Stocking distributors, who sell the products to their customers, take title to the products and assume all risks of ownership. The Company’s distributors are obligated to pay within specified terms regardless of when, if ever, they sell the products. The distributor can only reject products for an obvious defect or shipping error, generally within 30 days of receipt, and in such cases, replacement products would be sent. Since the distributor’s remedy is the replacement of the product and not a refund or credit, the Company does not defer revenue associated with these sales. The Company’s standard sales arrangements in the United States do not have a return provision.

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Accounts Receivable —The Company maintains allowances for estimated losses resulting from the inability of its customers to make required payments. At September 30, 2018, the allowance for doubtful accounts was $1,373,000.

Inventories —Inventories consisted of the following at September 30,:

	2018
Raw materials	$	186,568
Finished goods		957,164
Total inventories	$	1,143,732

2. DEBT

As of September 30, 2018, all outstanding debt relates to the Company’s loan agreement with Silicon Valley Bank (“SVB”) and is net of debt issuance costs and discounts of $132,011.

3. RELATED PARTY TRANSACTIONS

The Company is related to Carticept Medical, Inc. (“Carticept”) through common ownership. Prior to December 31, 2017, the Company and Carticept were party to certain agreements related to shared employees and activities. For the nine months ended September 30, 2017, the Company incurred expense of $412,213 pursuant to the agreements.

4. LICENSE AGREEMENT

The Company is party to a royalty agreement related to the sale of products incorporating certain intellectual property. Royalty expense was $682,963 and $335,041 during the nine months ended September 30, 2018 and 2017, respectively.

*  *  *  *  *  *

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EX-99.2

Exhibit 99.2

Cartiva, Inc.

Financial Statements as of and for the Year Ended December 31, 2017 and Independent Auditor’s Report

CARTIVA, INC.

TABLE OF CONTENTS

	Page
INDEPENDENT AUDITOR’S REPORT		1
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2017
Balance Sheet		2
Statement of Operations		3
Statement of Stockholders’ Equity		4
Statement of Cash Flows		5
NOTES TO FINANCIAL STATEMENTS		6-20

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and Stockholders of Cartiva, Inc.:

We have audited the accompanying financial statements of Cartiva, Inc. (the Company), which comprise the balance sheet as of December 31, 2017 and the related statements of operations, stockholders’ equity, and cash flows for the year then ended, and related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cartiva, Inc. as of December 31, 2017 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Bennett Thrasher LLP

Atlanta, Georgia

May 24, 2018

Cartiva, Inc.

Balance Sheet

December 31, 2017

Assets
Current assets:
Cash and cash equivalents	$	9,376,929
Accounts receivable, net		7,360,848
Inventory		465,886
Prepaid expenses and other current assets		225,222
Total current assets		17,428,885
Property and equipment, net		754,202
Intangible assets, net		87,226
Other assets		312,150
Total assets	$	18,582,463
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	598,446
Accrued expenses		4,060,186
Due to related party		—
Current portion of long-term debt		1,100,000
Total current liabilities		5,758,632
Long-term debt, net		4,176,831
Total liabilities		9,935,463
Commitments and Contingencies (Note 2)
Stockholders’ equity:
Convertible preferred stock, $0.0001 par value: 69,903,035 shares authorized; 68,213,933 shares issued and outstanding at December 31, 2017		6,822
Common stock, $0.0001 par value: 100,000,000 shares authorized; 1,502,729 shares issued and outstanding at December 31, 2017		136
Additional paid-in capital		27,472,110
Accumulated deficit		(18,832,068	)
Total stockholders’ equity		8,647,000
Total liabilities and stockholders’ equity	$	18,582,463
See accompanying notes.

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Cartiva, Inc.

Statement of Operations

For the Year Ended December 31, 2017

REVENUE	$	24,122,214
COST OF REVENUE		1,185,289
GROSS MARGIN		22,936,925
OPERATING EXPENSES:
General and administrative		3,859,120
Sales and marketing		10,177,029
Research and development		3,479,723
Total operating expenses		17,515,872
Net income from operations		5,421,053
Interest expense		227,897
Net income before taxes		5,193,156
Provision for taxes		102,408
Net income	$	5,090,748
See accompanying notes.

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Cartiva, Inc.

Statement of Stockholders’ Equity

For the Year Ended December 31, 2017

	Common					Series A Convertible				Series B Convertible				Series C Convertible				Series D Convertible				Series E Convertible				Additional						Total
	Stock					Preferred Stock				Preferred Stock				Preferred Stock				Preferred Stock				Preferred Stock				Paid-In			Accumulated			Stockholders’
	Shares			Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Equity
Balance, December 31, 2016		1,364,479			114		2,298,309		230		1,739,125		174		26,542,882		2,654		20,966,949		2,097		16,666,668		1,667		27,227,893			(23,922,816	)		3,312,013
Shares issued under stock plan		144,250			22		—		—		—		—		—		—		—		—		—		—		21,622			—			21,644
Repurchase and retirement of common stock		(6,000	)		—		—		—		—		—		—		—		—		—		—		—		(12,000	)		—			(12,000	)
Stock based compensation		—			—		—		—		—		—		—		—		—		—		—		—		234,595			—			234,595
Net income		—			—		—		—		—		—		—		—		—		—		—		—		—			5,090,748			5,090,748
Balance, December 31, 2017		1,502,729		$	136		2,298,309	$	230		1,739,125	$	174		26,542,882	$	2,654		20,966,949	$	2,097		16,666,668	$	1,667	$	27,472,110		$	(18,832,068	)	$	8,647,000

See accompanying notes.

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Cartiva, Inc.

Statement of Cash Flows

For the Year Ended December 31, 2017

Cash flows from operating activities:
Net income	$	5,090,748
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts		448,000
Depreciation and amortization		548,389
Stock based compensation		234,595
Non-cash interest expense		121,543
Changes in assets and liabilities:
Accounts receivable		(6,853,901	)
Inventory		(213,425	)
Prepaid expenses and other current assets		13,606
Other assets		(297,965	)
Accounts payable		377,764
Accrued liabilities		2,500,162
Due to related party		(30,727	)
Net cash provided by operating activities		1,938,789
Cash flows from investing activities:
Purchases of property and equipment		(542,160	)
Net cash used in investing activities		(542,160	)
Cash flows from financing activities:
Net proceeds from long-term debt		250,000
Purchase and retirement of common stock		(12,000	)
Proceeds from exercise of stock options		21,890
Net cash provided by financing activities		259,890
Net change in cash and cash equivalents		1,656,519
Cash and cash equivalents - beginning of year		7,720,410
Cash and cash equivalents - end of year	$	9,376,929
See accompanying notes.

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CARTIVA, INC.

NOTES TO FINANCIAL STATEMENTS

AS OF AND FOR THE YEAR ENDED

DECEMBER 31, 2017

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business — Cartiva, Inc., (the “Company”), a Delaware corporation, is a medical device company focused on the development, manufacturing and marketing of products for the treatment of osteoarthritis of the extremities. The Company’s first commercialized product is Cartiva Synthetic Cartilage Implant (“SCI”), an implant designed to replace the damaged cartilage surface of arthritic joints. In July 2016, the Company received pre-market approval from the U.S. Food and Drug Administration (“FDA”) for the use of Cartiva SCI in the treatment of osteoarthritis at the base of the great toe. The Company commenced selling Cartiva SCI in the United States following FDA approval.

In January 2014, the Company acquired certain assets of Anulex Technologies, Inc. (“Anulex”). The primary assets acquired related to the ProxiFuse Hammertoe Compression System, an implant used for the correction of hammertoe deformities (“ProxiFuse”). In December 2014, the Company received marketing clearance from the FDA for ProxiFuse.

Spin-out From Carticept Medical, Inc. — The Company was incorporated as a wholly-owned subsidiary of Carticept Medical, Inc. (“Carticept”) on August 2, 2011. On December 29, 2011, the Company and Carticept entered into a stock purchase agreement (the “Stock Purchase Agreement”), pursuant to which Carticept purchased from the Company shares of the Company’s capital stock (the “Capital Stock”) in exchange for the execution and delivery of a Technology and Asset Assignment Agreement (the “Assignment Agreement”), pursuant to which Carticept assigned to the Company, Carticept’s synthetic cartilage implant program, including all related assets, contracts and obligations, together with cash of $2,900,000.

On December 29, 2011, Carticept spun off the Company by distributing 100% of the Capital Stock as a stock dividend on the outstanding shares of Carticept’s capital stock (the “Spin-out”). In the Spin-out, each stockholder of Carticept received one share of Capital Stock for each share of Carticept stock owned as of December 19, 2011.

Basis of Presentation — The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.

Subsequent Events — The Company evaluates events and transactions occurring subsequent to the date of the accompanying balance sheets for potential recognition or disclosure in the financial statements. All subsequent events requiring recognition or disclosure have been incorporated into the accompanying financial statements.

Use of Estimates — Preparation of the accompanying financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

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Revenue Recognition — The Company’s revenues are primarily generated through two types of customers, hospitals and surgery centers and stocking distributors, with the majority of its revenue derived from sales to hospitals and surgery centers. The Company’s products are sold through a network of employees and independent sales representatives in the United States and by stocking distributors outside the United States. In the United States, the Company generates a significant portion of its revenue from consigned inventory maintained by its independent sales representatives. For these products, the Company records revenues when it receives appropriate notification that the product has been used or surgically implanted in a patient. For all other transactions, the Company recognizes revenue when title to the goods and risk of loss transfer to customers, provided there are no remaining performance obligations that will affect the customer’s final acceptance of the sale.

The Company records revenues from sales to its stocking distributors outside the United States at the time the product is shipped to the distributor. Stocking distributors, who sell the products to their customers, take title to the products and assume all risks of ownership. The Company’s distributors are obligated to pay within specified terms regardless of when, if ever, they sell the products. The distributor can only reject products for an obvious defect or shipping error, generally within 30 days of receipt, and in such cases, replacement products would be sent. Since the distributor’s remedy is the replacement of the product and not a refund or credit, the Company does not defer revenue associated with these sales. The Company’s standard sales arrangements in the United States do not have a return provision.

Freight revenue billed to customers is included in revenue, and expenses incurred for shipping products to customers are included in cost of revenue. Freight revenue was immaterial in 2017. Freight expense was $119,933 in 2017.

Cash and Cash Equivalents — Cash and cash equivalents consist of bank deposits and highly liquid investments with maturities of three months or less at the date of purchase.

Cash and cash equivalents include a sweep account, which consists of two money market accounts (see fair value table), and automatically sweeps the Company’s operating account to maintain a bank balance of $200,000 which could and does frequently result in a negative book balance in the operating account. Consequently, at times, the Company’s cash balance can be less than the total within its two money market accounts.

Concentration of Credit Risk — Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents. The Company’s cash and cash equivalents at December 31, 2017 were invested in money market accounts that can be withdrawn without penalty at any time. On occasion, the Company may maintain cash balances in excess of federally insured limits in a reputable financial institution. The Company believes that the financial position of the depository institution holding its deposits significantly reduces its exposure to credit risk.

Accounts Receivable — In the ordinary course of business, the Company grants credit to its customers, the majority of which are hospitals and surgery centers. The Company’s collection history has been favorable with minimal bad debts to date from these customers. The Company maintains allowances for estimated losses resulting from the inability of its customers to make required payments. The Company analyzes its accounts receivable, historical bad debt experience, customer concentrations, customer creditworthiness and current economic trends when evaluating the adequacy of its allowance for doubtful accounts. At December 31, 2017, the allowance for doubtful accounts was $473,000.

Fair Value Measurements — The Company applies Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”).

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Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

ASC 820 establishes a three-level hierarchy to prioritize the inputs to valuation techniques used to measure fair value. Financial assets and financial liabilities are categorized within the valuation hierarchy based upon the lowest level of input that is significant to the measurement of fair value.

The three levels of the fair value hierarchy are defined as follows:

• Level 1 inputs are quoted prices in active markets for identical assets or liabilities.

• Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.

• Level 3 inputs are unobservable inputs for the asset or liability.

The following fair value table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis:

Type of Instruments

	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Money market funds	$	9,799,619	$	—	$	—	$	9,799,619
Total assets at fair value	$	9,799,619	$	—	$	—	$	9,799,619

Valuation of Inventories — Inventories are stated at the lower of cost or market on a first-in, first-out method. Adjustments to reduce carrying costs to their net realizable values are recorded for obsolete material or shrinkage. The Company makes judgments regarding the carrying value of its inventories based on current market conditions. Market conditions may change depending upon competitive product introductions, consumer demand and reimbursement criteria in the medical community. If market conditions change or if the introduction of new products by the Company impacts the market for previously released products, the Company may be required to write down the carrying cost of its inventories.

Inventories consisted of the following at December 31, 2017:

Raw materials	$	154,125
Finished goods		311,761
Total inventories	$	465,886

Property and Equipment — Property and equipment are stated at historical cost. Expenditures for maintenance and repairs are charged to expense as incurred; additions and improvements are capitalized. Depreciation expense is calculated on a straight-line basis over the estimated useful lives of the assets, which range from two to five years.

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The Company reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated future undiscounted cash flows relating to the asset are less than the asset’s carrying amount. An impairment loss is measured as the amount by which the carrying amount of an asset exceeds its fair value. No impairment losses were recognized during 2017.

Property and equipment, net consisted of the following at December 31, 2017:

Furniture, fixtures and equipment	$	173,024
Laboratory equipment		315,578
Leasehold improvements		60,477
Surgical instruments		828,135
Manufacturing and warehouse equipment		241,770
Total property and equipment, at cost		1,618,984
Less accumulated depreciation and amortization		864,782
Property and equipment, net	$	754,202

Depreciation expense related to property and equipment was $395,915 for 2017.

Intangible Assets — Intangible assets primarily consist of license agreements, unpatented technology and know-how originally acquired by Carticept in a 2008 acquisition, which were assigned to the Company pursuant to the Assignment Agreement. The Company amortizes intangible assets that have finite lives using the straight-line method over the lesser of the related contractual life or expected useful life of the asset. Amortization is recorded over lives ranging from five to ten years.

Intangible assets, net consisted of the following at December 31, 2017:

Finite lived intangible assets	$	1,730,573
Less accumulated amortization		1,643,347
	$	87,226

Accrued Liabilities — Accrued liabilities consisted of the following at December 31, 2017:

Personnel costs	$	2,143,809
Commissions		1,237,971
Accrued interest		275,000
Other		403,406
	$	4,060,186

Stock-Based Compensation — The Company accounts for grants of stock options based on their grant date fair value and recognizes compensation expense over their vesting period. The Company estimates the fair value of stock options as of the date of grant using the Black-Scholes option pricing model, which requires management to make assumptions with respect to the expected term of the option, the expected volatility of the underlying common stock consistent with the expected life of the option, risk-free interest rates and expected dividends.

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Stock-based compensation expense represents the cost of the grant date fair value of employee stock option grants recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis, net of estimated forfeitures. The expense is adjusted for actual forfeitures at year end. Stock-based compensation expense recognized in the financial statements is based on awards that are ultimately expected to vest.

For stock option grants with performance-based milestones, the expense is recorded over the remaining service period after the point when the achievement of the milestone is probable or the performance condition has been achieved.

Research and Development Costs — The Company’s research and development expenses consist of product development, preclinical, clinical and regulatory expenses and salaries and related benefits. All research and development costs are expensed as incurred.

Patent Costs — All costs related to filing and pursuing patent applications are expensed as incurred as recoverability of such expenditures is uncertain.

Income Taxes — In accordance with ASC Topic 740 (“ASC 740”), Income Taxes, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities. The Company records a valuation allowance against its net deferred tax asset to reduce the net carrying value to an amount that is more likely than not to be realized.

Income tax positions are considered for uncertainty in accordance with the provisions of ASC 740. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position; therefore, no ASC 740 liabilities have been recorded.

The Company will recognize accrued interest and penalties related to unrecognized tax benefits as interest expense and income tax expense, respectively, in the statements of operations. As of December 31, 2017, no such accruals for interest or penalties had been made.

Significant management judgment is involved in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. Due to uncertainties with respect to the realization of deferred tax assets due to the history of operating losses, a valuation allowance has been established against the entire net deferred tax asset balance. The valuation allowance is based on management’s estimates of taxable income in the jurisdictions in which the Company operates and the period over which deferred tax assets will be recoverable. In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, a change in the valuation allowance may be needed, which could materially impact the Company’s financial position and results of operations.

Recent Accounting Pronouncements — From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

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2. COMMITMENTS AND CONTINGENCIES

Operating Leases — The Company leases office and manufacturing space under non-cancellable leases. Rent expense under the Company’s facility leases are accounted for on a straight-line basis over the lease terms. The amount of the excess of straight-line rent expense over scheduled payments is recorded in accrued liabilities. Rent expense was approximately $110,000 for 2017.

The total future minimum rental payments under non-cancellable operating leases are as follows at December 31, 2017:

2018	$	206,314
2019		131,554
2020		117,060
2021		120,572
2022		124,189
Thereafter		31,275
	$	730,964

Indemnification — ASC Topic 460, Guarantees, requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligations it assumes under that guarantee.

The Company, as permitted under Delaware law and in accordance with its bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The Company has entered into indemnification agreements with its directors and certain officers. The maximum amount of potential future indemnification is unlimited; however, the Company has director and officer insurance that limits its exposure and may enable it to recover a portion of any future amounts paid. Additionally, the Company has indemnified certain parties in the ordinary course of contractual relationships. The Company believes the fair value for these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations as of December 31, 2017.

3. LOAN AGREEMENTS

In December 2013, the Company entered into a loan and security agreement (the “2013 Loan Agreement”) with Silicon Valley Bank (“SVB”), which entitled the Company to borrow up to $1,500,000. In July 2015, the Company and SVB amended the 2013 Loan Agreement (the “2015 Loan Agreement” and, together with the 2013 Loan Agreement, the “Loan Agreements”), which increased the total maximum borrowings to $5,250,000. To secure the repayment of any amounts borrowed under the Loan Agreements, the Company granted to SVB a first priority security interest in all of the Company’s assets, other than intellectual property.

In connection with the 2013 Loan Agreement, the Company paid SVB a facility fee of $7,500. Additionally, the Company granted warrants to purchase an aggregate of up to 200,000 shares of the Company’s Series C Preferred Stock for $0.2208 per share. The Company estimated the relative fair value received by SVB using the Black-Scholes option pricing model to be $29,693. In accordance with ASC 835-30-45-1A, the relative fair value was treated as a discount on the loan and amortized to interest expense until such time as the 2013 Loan Agreement was amended, at which time the unamortized balance was expensed.

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In connection with the 2015 Loan Agreement, the Company granted warrants to purchase an aggregate of up to 388,506 shares of the Company’s Series D Preferred Stock for $0.4054 per share. The Company estimated the relative fair value received by SVB using the Black-Scholes option pricing model to be $114,526. In accordance with ASC 835-30-45-1A, the relative fair value was treated as a discount on the loan and amortized to interest expense over the term of the loan.

The Company also agreed to customary affirmative and negative covenants and events of default in connection with the Loan Agreements. As of December 31, 2016, the Company was in compliance with such covenants.

In January 2017, the Company and SVB amended and restated the loan agreement (the “2017 Loan Agreement”), which increased the total borrowings to $5,500,000 at closing and reduced the floating interest rate to Prime minus 1.75%. The 2017 Loan Agreement extends the interest only payments through June 30, 2018, followed by 30 equal payments of principal plus accrued interest. A final payment of $275,000 is payable at maturity on June 1, 2020. Debt issuance costs are treated as a discount on the loan and amortized to interest expense over the term of the loan. The $262,500 final payment due under the 2013 Loan Agreement was paid at the closing of the 2017 Loan Agreement.

The 2017 Loan Agreement provides the Company with two $1.5 million tranches of additional optional term loan debt that each become available upon the achievement of certain revenue milestones and are available through June 30, 2018 with respect to the first tranche and December 31, 2018 with respect to the second tranche. If the Company draws either of the optional tranches, the interest only period on all outstanding term loan debt would be extended to December 31, 2018, followed by 24 equal installments of principal and accrued interest. The Company would be required to issue additional warrants upon the drawing of either of the tranches. While the Company has achieved the revenue milestones required to draw both tranches, it has not done so to date.

The 2017 Loan Agreement also provided for a working capital line of credit of up to $2.0 million, based on a percentage of the Company’s eligible accounts receivable, as defined in the loan agreement. The facility becomes available upon the achievement of a certain revenue milestone, which was met in 2017. To date, there have been no draws on the line of credit.

In addition to customary affirmative and negative covenants and events of default, the Company agreed to a minimum revenue financial covenant to be tested initially at December 31, 2017 and monthly thereafter. As of December 31, 2017, the Company was in compliance with all covenants under the 2017 Loan Agreement.

The balance payable under the Loan Agreements was as follows as of December 31, 2017:

Loan Payable	$	5,500,000
Debt issuance costs		(183,333	)
Discount		(39,836	)
Less current maturities		(1,100,000	)
Long-term debt, excluding current maturities	$	4,176,831

Future Maturities

2018	$	1,100,000
2019		2,200,000
2020		2,200,000
	$	5,500,000

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4. INCOME TAXES

At December 31, 2017, the Company has federal net operating loss (“NOL”) carryforwards of $17,260,589 available to offset future taxable income expiring beginning in 2032 through 2037. Additionally, the Company has $435,309 in research and development (“R&D”) tax credits that expire beginning in 2032 through 2037 unless utilized earlier. Section 382 of the Internal Revenue Code (“IRC”) contains provisions that may limit the utilization of NOL and R&D tax credit carryforwards in any given year as a result of significant changes in ownership interests that may have occurred or may occur in future periods.

Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using tax rates in effect for the year in which the differences are expected to reverse.

Income tax expense differs from the “expected” income tax expense for the periods (computed by applying the statutory Federal corporate tax rate of 34% to earnings before income taxes) as follows:

	2017			Percent
Computed “expected” tax expense	$	1,760,625			34.00	%
Increase (decrease) in tax expense resulting from:
State tax expense, net of Federal benefit		160,318			3.10	%
Permanent items		83,558			1.61	%
Tax act rate change		2,472,493			47.75	%
Decrease in valuation allowance		(4,300,771	)		-83.05	%
Other, net		(73,815	)		-1.43	%
Actual tax expense	$	102,408			1.98	%

Significant components of the Company’s deferred income tax assets included the following at December 31, 2017:

Deferred tax asset:
Net operating loss and research credit carryforwards	$	3,721,491
Research & development and AMT credit carryforwards		435,309
Intangible assets		309,725
Fixed assets		(31,975	)
Other		164,173
Gross deferred income tax assets		4,598,723
Less: valuation allowance for deferred income tax assets		(4,598,723	)
Net deferred income tax assets	$	—

The Company has established a valuation allowance equal to the amount of its deferred tax asset owing to uncertainties with respect to its ability to generate future taxable income sufficient to realize the assets, thus the Company believes it is unlikely that the above deferred tax assets will be realized.

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Furthermore, on December 22, 2017, the U.S. government enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to reducing the U.S. Federal corporate tax rate from 34% to 21%. Consequently, the Company recorded a decrease related to deferred tax assets and liabilities of $2,489,035 and $16,542, respectively, with a corresponding net adjustment to deferred income tax expense of $2,472,493 for the year ended December 31, 2017.

The Company has evaluated the impact of accounting for the uncertainty in income taxes on its financial statements. The Company believes that its income tax filing positions are more likely than not of being sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position; therefore, no liabilities and no related penalties and interest have been recorded. The Company does not anticipate any material changes to its uncertain tax positions within the next 12 months.

5. STOCKHOLDERS’ EQUITY

Common Stock — Under the terms of its Restated Certificate of Incorporation, the Company is authorized to issue up to 100,000,000 shares of common stock. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding. No cash dividends had been declared or paid as of December 31, 2017.

Convertible Preferred Stock — Under the terms of its Restated Certificate of Incorporation, the Company is authorized to issue up to 69,903,035 shares of preferred stock (“Preferred Stock”), with 2,298,309 being designated as Series A Preferred Stock (“Series A Preferred Stock”), 1,739,125 being designated as Series B Preferred Stock (“Series B Preferred Stock”), 27,093,479 being designated as Series C Preferred Stock (“Series C Preferred Stock”), 21,355,455 being designated as Series D Preferred Stock (“Series D Preferred Stock”) and 17,416,667 being designated as Series E Preferred Stock (“Series E Preferred Stock”). The Series A Preferred Stock and the Series B Preferred Stock were originally issued to Carticept pursuant to the terms of the Stock Purchase Agreement (Note 1). The rights, preferences, privileges and restrictions of the Preferred Stock are as set forth in the Company’s Restated Certificate of Incorporation.

During 2013 and 2014, the Company sold 19,749,403 and 6,793,479 shares of Series C Preferred Stock at a price of $0.2208 per share for net proceeds of $4,319,285 and $1,484,260, respectively, after deducting expenses of the offerings.

During 2015, the Company sold 20,966,949 shares of Series D Preferred Stock at a price of $0.4054 per share, resulting in net proceeds of $8,468,683, after deducting expenses of the offering.

During 2016, the Company sold 16,666,668 shares of Series E Preferred Stock at a price of $0.51 per share, resulting in net proceeds of $8,469,827.

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Convertible preferred stock was comprised of the following at December 31, 2017:    

Series	Shares Designated		Shares Issued and Outstanding		Original Issue Price		Non-Cumulative Annual Dividends Per Share		Liquidation Preference Per Share		Conversion Price/ Per Share		Participation Cap Per Share
Series A		2,298,309		2,298,309	$	1.80	$	0.14	$	1.80	$	1.80	$	3.60
Series B		1,739,125		1,739,125	$	2.10	$	0.17	$	2.10	$	2.10	$	4.20
Series C		27,093,479		26,542,882	$	0.22	$	0.02	$	0.22	$	0.22	$	0.44
Series D		21,355,455		20,966,949	$	0.41	$	0.03	$	0.41	$	0.41	$	0.81
Series E		17,416,667		16,666,668	$	0.51	$	0.04	$	0.51	$	0.51	$	1.02

Dividends — The holders of Preferred Stock are entitled to receive dividends, out of any assets legally available, prior and in preference to any declaration or payment of any dividend on the common stock of the Company, at the rate stated in the table above. Dividends are payable when, as and if declared by the Board of Directors, and are not cumulative. As of December 31, 2017, no cash dividends had been declared.

Liquidation — In the event of any liquidation, dissolution or winding up of the Company or other liquidation event as defined in the Company’s Restated Certificate of Incorporation (a “Liquidation Event”), the holders of Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock are entitled to receive, prior and in preference to any distribution of the proceeds of such Liquidation Event to the holders of Series A Preferred Stock, Series B Preferred Stock and common stock, an amount per share as shown in the table above, plus any declared but unpaid dividends on such share. If, upon the occurrence of a Liquidation Event, the proceeds distributed among the holders of the Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock are insufficient to permit the payment to the holders of the full preferential amounts, then the entire proceeds shall be distributed ratably among the holders of the Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock in proportion to the full preferential amount that each holder is otherwise entitled to receive.

If, in the event of a Liquidation Event there are proceeds remaining after payment in full of the Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock liquidation preference amounts, the holders of Series A Preferred Stock and Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of the remaining proceeds to the holders of common stock, an amount per share as shown in the table above, plus any declared but unpaid dividends on such share. If, upon the occurrence of a Liquidation Event, the proceeds distributed among the holders of the Series A Preferred Stock and Series B Preferred Stock are insufficient to permit the payment to the holders of the full preferential amounts, then the entire proceeds shall be distributed ratably among the holders of the Series A Preferred Stock and Series B Preferred Stock in proportion to the full preferential amount that each holder is otherwise entitled to receive.

If, in the event of a Liquidation Event there are proceeds remaining after payment in full of the preferred liquidation preference amounts, the remaining proceeds will be paid ratably to all holders of preferred and common stock; provided, however, that the maximum per share amount payable to holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock in connection with a Liquidation Event, including dividends, is the participation cap as stated in the table above.

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Voting — The holder of each share of Preferred Stock is entitled to one vote for each share of common stock into which such Preferred Stock could be converted, except as otherwise required by law, and has full voting rights and powers equal to the voting rights and powers of holders of common stock. Notwithstanding the foregoing and as long as 5,500,000 shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock remain outstanding (as adjusted for any stock splits, stock dividends, combinations, or the like), the holders of Preferred Stock, voting together, as an individual class and not as separate series, are entitled to elect two directors of the Company. The holders of common stock, voting separately as an individual class, are entitled to elect two directors of the Company, and the holders of common stock and Preferred Stock, voting together as a single class on an as-converted basis, are entitled to elect any remaining directors of the Company.

Conversion — Each outstanding share of Preferred Stock, at the option of the holder, is convertible into the number of fully paid and non-assessable shares of common stock that results from dividing the applicable original issue price for such series by the applicable conversion price for such series. The conversion price of the Preferred Stock is subject to adjustment from time to time. The original issue price and the conversion price per share of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock are stated in the table above.

All outstanding shares of Preferred Stock shall automatically be converted to common stock at the then effective conversion rate immediately upon the closing of a firm commitment underwritten public offering, pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of common stock in which (i) the public offering price equals or exceeds $0.51 per share (adjusted to reflect subsequent stock dividends, stock splits or recapitalization) for any such offering closing and (ii) the aggregate price paid for such shares by the public is not less than $25 million.

Alternatively, each share of Preferred Stock will automatically convert to common stock upon the agreement of a majority of the then outstanding shares of Preferred Stock (voting together as a single class on an as-converted basis). At December 31, 2017, the Company had reserved 68,963,932 shares of common stock in the event of conversion.

Right of First Offer — Subject to certain limited exceptions, for each future sale by the Company of shares of its capital stock, the Company granted to each investor that holds at least 1,000,000 shares of Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations or the like) (each a “Major Investor”) the right to purchase up to that portion of shares that equals the proportion that the number of shares of common stock issued or issuable upon conversion of the Preferred Stock then held, by such Major Investor (assuming full conversion and exercise of all convertible and exercisable securities then outstanding), bears to the total number of shares of common stock issued and outstanding (assuming full conversion and exercise of all convertible and exercisable securities then outstanding). In the event that any Major Investor fails to exercise its right of first offer, the exercising Major Investors shall be entitled to obtain that portion of the shares not subscribed for by the non-exercising Major Investor that equals the proportion that the number of shares of common stock issued or issuable upon conversion of the Preferred Stock then held by such exercising Major Investor bears to the total number of shares of common stock issued or issuable upon conversion of the Preferred Stock then held by all such exercising Major Investors.

Registration Rights — The holders of the Company’s common stock issuable upon the conversion of the Company’s Preferred Stock are entitled to certain registration rights. These registration rights are subject to certain conditions and limitations, including the right of the underwriters of an offering to limit the number of shares included in any such registration under certain circumstances.

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The Company is generally required to pay all expenses incurred in connection with registrations effected in connection with such rights, excluding underwriting discounts and commissions.

Transferability — The Company, its founders and the preferred stockholders have entered into a right of first refusal and co-sale agreement. This agreement provides for certain restrictions on the transfer of common stock held by the founders, as well as certain repurchase rights and rights to participate in the sale of common stock held by the founders. The agreement provides that if any founder proposes to sell founder shares, certain preferred stockholders, meeting specified conditions, have the right to purchase founders’ shares on a pro-rata basis, as defined. This agreement terminates upon the completion of a qualified initial public offering.

Common Shares Reserved for Issuance — Shares of common stock reserved for future issuance consisted of the following at December 31, 2017:

Conversion of Series A Preferred Stock	2,298,309
Conversion of Series B Preferred Stock	1,739,125
Conversion of Series C Preferred Stock	26,542,882
Conversion of Series D Preferred Stock	20,966,949
Conversion of Series E Preferred Stock	17,416,667
Warrants outstanding	588,506
Stock options outstanding	15,578,679
Stock options and awards available for grant	2,243,038
Total	87,374,155

6. STOCK PLAN

2012 Stock Plan — Under the Company’s 2012 Stock Plan (the “Stock Plan”), the Company’s Board of Directors may issue incentive stock options to employees and nonqualified stock options to directors, consultants or employees of the Company.

The Board of Directors has the authority to determine to whom options will be granted, the number of shares, the term and the exercise price. The options are exercisable at times and increments as specified by the Board of Directors and generally expire ten years from date of grant. Certain options granted under the Stock Plan contain terms that provide for the accelerated vesting of options or shares following a change in control, as defined.

Stock options granted under the Stock Plan provide certain option holders the right to elect to exercise unvested options in exchange for restricted common stock. Restricted shares are subject to a right of repurchase by the Company at the lower of the fair market value of the shares at the time of repurchase or the original issuance price upon termination of the holder’s service. This right typically lapses 25% on the first anniversary of the vesting start date and in 36 equal monthly amounts thereafter for initial grants, and ratably over 48 months for subsequent grants. These repurchase terms are considered to be a forfeiture and the cash received for the exercise of unvested options is treated as a refundable deposit shown as a liability in the accompanying financial statements.

During 2015, the Company granted 1,775,000 options that provide for 24-month vesting commencing upon the achievement of predetermined performance objectives, which were all achieved in 2016.

During 2016, the Company granted 75,000 options that provide for 24-month vesting commencing upon the achievement of predetermined performance objectives.

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Information about aggregate restricted common stock issued under the Stock Plan and subject to the Company’s repurchase rights during the year ended December 31, 2017 is summarized as follows:

Unvested restricted shares - beginning of year	247,444
Restricted shares issued upon exercise of unvested options	197,747
Restricted share repurchased	—
Shares vested	(194,112	)
Unvested restricted shares - end of year	251,079

Should an option expire or terminate for any reason prior to exercise in full or be canceled in accordance with the provisions of the Stock Plan, the shares subject to the portion of the option not exercised or canceled will be available for subsequent issuance under the Stock Plan. Likewise, restricted shares repurchased by the Company are available for subsequent issuance under the Stock Plan.

Stock option activity under the Stock Plan is summarized as follows for 2017:

	Shares			Weighted- Average Exercise Price
Outstanding, Beginning of Year		13,349,229		$	0.08
Granted		2,373,700			0.12
Exercised		(144,250	)		0.11
Canceled		—			—
Outstanding — End of Year		15,578,679			0.08
Exercisable — End of Year		15,578,679		$	0.08

The following table summarizes information about all options outstanding at December 31, 2017:

Exercise Price	Options Outstanding		Weighted- Average Remaining Contractual Life (Years)		Options Exercisable
$0.04		3,759,500		5.8		3,759,500
0.05		110,000		7.1		110,000
0.10		9,448,229		8.2		9,448,229
0.12		2,184,450		9.6		2,184,450
0.15		15,000		8.4		15,000
0.30		61,500		4.1		61,500
Total		15,578,679		7.2		15,578,679

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Stock-Based Compensation — The weighted-average grant date fair value of options granted to employees and directors for the year ended December 31, 2017 was $195,439. The fair value of stock options was estimated using the Black-Scholes option-pricing model based on the assumptions noted in the following table:

Risk-free interest rate	2.34	%
Dividend yield	0.00	%
Expected life of options (years)	6.25
Volatility	70.00	%

The stock option compensation expense related to share-based compensation arrangements was $234,595 for 2017. As of December 31, 2017, there was $352,615 in unrecognized compensation to be recognized in future periods.

7. AGREEMENTS AND TRANSACTIONS WITH CARTICEPT

In connection with the Spin-out, the Company and Carticept entered into an intercompany services agreement (the “Services Agreement”) that provided for various general and administrative services to be provided to the Company by Carticept, including the furnishing of office space and equipment, general office infrastructure, general accounting services and other services as mutually agreed. The Company and Carticept also entered into an employee leasing agreement (the “Employee Agreement”) pursuant to which certain officers and employees of Carticept provided management and other services to the Company on a cost-plus basis. The Company paid to Carticept specified amounts under the Services Agreement and Employee Agreement, including, without limitation, allocated salaries, rent, general administration and utilities.

Effective August 1, 2015, 13 employees terminated their employment with Carticept and commenced employment with the Company. As a result, in September 2015, the Company and Carticept mutually terminated the Employee Agreement and entered into (i) a consulting agreement pursuant to which Carticept would provide certain services to the Company (the “Carticept Consulting Agreement”) and, (ii) a consulting agreement pursuant to which the Company would provide certain services to Carticept (the “Cartiva Consulting Agreement”). Effective September 24, 2015, the parties amended and restated the Services Agreement.

The amended and restated Services Agreement could be terminated at any time by either party upon at least sixty days prior written notice to the other party and the Carticept Consulting Agreement and Cartiva Consulting Agreement could be terminated at any time by either party upon at least fourteen days prior written notice to the other party.

Charges under the Services Agreement, the Employee Agreement and the Cartiva Consulting Agreement were as follows for the year ended December 31, 2017:

Intercompany Services Agreement	$	152,107
Consulting Agreement		281,696
Total	$	433,803

During 2017, the Company billed Carticept $190,935 for services provided under the Cartiva Consulting Agreement, of which $0 was receivable from Carticept at December 31, 2017.

Effective December 31, 2017, the Company and Carticept mutually agreed to terminate the Services Agreement, the Carticept Consulting Agreement and the Cartiva Consulting Agreement, ceasing all contractual relationships between the two companies.

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8. LICENSES AND OTHER AGREEMENTS

Georgia Tech Research Corporation —The Company is party to a license agreement with Georgia Tech Research Corporation (“GTRC”) for the commercialization of certain inventions owned by GTRC. Under the terms of the agreement, the Company is obligated to pay royalties on the commercial sales of any product incorporating the inventions. As of December 31, 2017, no commercial sales utilizing these inventions have been made and therefore no royalties have been earned under this agreement.

The Company is also party to a fully-paid, royalty-free license agreement with GTRC for the commercialization of certain other inventions owned by GTRC (the “2008 GTRC Agreement”) and three sublicense agreements. These sublicense agreements provide the sublicensees with exclusive, fully-paid, royalty-free rights to intellectual property covered by the 2008 GTRC Agreement in various fields of use.

SaluMedica, LLC — The Company is party to a sublicense agreement with SaluMedica, LLC (“SaluMedica”) that provides SaluMedica with the exclusive, fully-paid, royalty-free rights to intellectual property covered by the 2008 GTRC Agreement in a specific field of use.

The Company is party to a royalty agreement pursuant to which the Company pays royalties to SaluMedica in connection with the sale of products incorporating certain intellectual property covered by the 2008 GTRC Agreement. Royalty expense incurred under this royalty agreement was $620,857 during 2017.

Anulex Technologies, Inc. — Pursuant to the terms of the asset purchase agreement with Anulex (Notes 1), the Company assumed certain license agreements which could require the payment of royalties to the royalty holders upon commercial sales of the products subject to the agreement. As of December 31, 2017, no such sales have occurred.

9. EMPLOYEE RETIREMENT PLAN

The Company maintains a defined contribution 401(k) savings plan (the “Plan”) for all eligible employees. The Plan provides for a deferral of the employees’ qualifying compensation under Section 401(k) of the IRC. The Plan also provides for a discretionary match of employee compensation to be determined by the Board of Directors on a yearly basis. The Company made no contributions during 2017. In November 2017, the Company amended the Plan to provide for certain employer matching contributions commencing January 1, 2018.

*  *  *  *  *  *

- 20 -

EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

On October 10, 2018, Wright Medical Group, Inc., a Delaware corporation (the Company), completed its previously announced acquisition of Cartiva, Inc., a Delaware corporation (Cartiva). Pursuant to the terms of the Agreement and Plan of Merger (the Merger Agreement), dated August 24, 2018, by and among the Company, Braves WMS, Inc., a Delaware corporation (the Merger Sub), Wright Medical Group N.V., a Dutch public limited liability company (naamloze vennootschap) (Wright), for the limited purposes referenced in the Merger Agreement, Cartiva, and Fortis Advisors LLC, a Delaware limited liability company, as representative of the stockholders of Cartiva, Merger Sub merged with and into Cartiva, with Cartiva continuing as the surviving entity and a wholly owned subsidiary of the Company (the Merger). The aggregate purchase price for the Merger was $435 million payable in cash (the Purchase Price), subject to certain adjustments set forth in the Merger Agreement.

At the effective time of the Merger (the Effective Time), in accordance with the Merger Agreement and subject to the terms and conditions of the Merger Agreement, among other things, (i) each share of Cartiva capital stock (other than shares held by Cartiva and shares owned by stockholders who have properly exercised and perfected appraisal rights under Delaware law) that was issued and outstanding immediately prior to the Effective Time was converted to the right to receive a pro rata share of the Purchase Price (the Per Share Amount), subject to the withholding of cash to be held in escrow for certain indemnification obligations and cash for certain expenses and subject to certain adjustments set forth in the Merger Agreement; and (ii) each option and each warrant to purchase shares of Cartiva’s capital stock that was issued and outstanding immediately prior to the Effective Time was converted to the right to receive the amount by which the Per Share Amount exceeded the exercise price per share attributable to such option or warrant, as applicable, subject to the withholding of cash to be held in escrow for certain indemnification obligations and cash for certain expenses and subject to certain adjustments set forth in the Merger Agreement.

The unaudited pro forma condensed combined balance sheet at September 30, 2018 gives effect to the Merger as if it had occurred on September 30, 2018. The unaudited pro forma condensed combined statements of operations for the fiscal year ended December 31, 2017 and nine months ended September 30, 2018 are presented as if the Merger was consummated on December 26, 2016, the beginning of Wright’s fiscal year 2017. The unaudited pro forma condensed combined financial statements (pro forma financial statements) are based on the historical consolidated financial position and results of operations of Wright and Cartiva. The following should be read in conjunction with the historical unaudited condensed consolidated financial statements of Wright for the nine months ended September 30, 2018 included in its Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission on November 8, 2018 and in conjunction with the historical consolidated financial statements of Wright included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and in conjunction with the historical financial statements of Cartiva included in exhibits 99.1 and 99.2 of this Current Report on Form 8-K/A.

The preliminary allocation of the purchase price used in the unaudited pro forma financial statements is based upon preliminary estimates. The preliminary estimated fair values of certain assets and liabilities have been determined with the assistance of a third-party valuation firm and such firm’s preliminary work. Wright’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date) as it finalizes the valuations of certain tangible and intangible assets acquired and liabilities assumed in connection with the Merger. The primary areas of the purchase price allocation that are not yet finalized relate to identifiable intangible assets and goodwill.

The pro forma financial statements were prepared in accordance with Article 11 of Regulation S-X. The pro forma adjustments reflecting the completion of the Merger are based upon the acquisition method of accounting in accordance with U.S. generally accepted accounting principles (U.S. GAAP), and upon the assumptions set forth in the notes to the pro forma financial statements.

The pro forma financial statements are not intended to represent or be indicative of the consolidated results of operations or financial position that would have been reported had the Merger been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of Wright. The pro forma financial statements are based upon available information and certain assumptions that Wright’s management believes are reasonable.

The historical financial data has been adjusted to give pro forma effect to events that are (1) directly attributable to the Merger, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. The pro forma financial statements do not reflect any revenue enhancements, anticipated synergies or dis-synergies, operating efficiencies, or cost savings that may be achieved. The allocation of the purchase price to the assets and liabilities acquired reflected in the pro forma financial data is preliminary and is based on Wright’s management’s estimates of the fair value and useful lives of the assets acquired and liabilities assumed. Accordingly, the actual financial position and results of operations may differ from these pro forma amounts as additional information becomes available and as additional analyses are performed. The final valuations may result in material changes to the preliminary estimated purchase price allocation.

The pro forma adjustments included in this document are subject to modification depending on changes in the final fair value determination for assets acquired and liabilities assumed, and as additional information becomes available and additional analyses are performed. The final allocation of the purchase price will be determined after the completion of analyses to determine the fair value of Cartiva’s tangible and identifiable intangible assets and liabilities as of the date the Merger was completed. Increases or decreases in the fair values of the net assets as compared with the information shown in the pro forma financial statements may change the amount of the purchase price allocated to goodwill and other assets and liabilities and may impact Wright’s consolidated statements of operations due to adjustments in yield and/or amortization of the adjusted assets or liabilities. The final adjustments may be materially different from the pro forma financial statements presented.

The unaudited pro forma shareholders’ equity and net loss from continuing operations are qualified by the statements set forth under this caption and should not be considered indicative of the market value of Wright ordinary shares or the actual or future results of operations of Wright for any period. Actual results may be materially different than the pro forma information presented.

Wright Medical Group N.V.

Pro Forma Condensed Combined Balance Sheet

As of September 30, 2018

(In thousands)

(unaudited)

	Historical Wright Medical Group N.V			Historical Cartiva			Acquisition adjustments (Note 3)					Pro forma condensed combined
Assets:
Current assets:
Cash and cash equivalents	$	694,903		$	13,833		$	(434,597	)	3	(h)	$	255,136
								(8,786	)	3	(d)
								(5,399	)	3	(f)
								(4,818	)	3	(b)
Accounts receivables, net		122,595			4,670			—					127,265
Inventories		179,494			1,144			1,409		3	(g)		182,047
Prepaid expenses		14,935			430			—					15,365
Other current assets		311,808			20			—					311,828
Total current assets		1,323,735			20,097			(452,191	)				891,641
Property, plant, and equipment, net		221,175			1,490			—					222,665
Goodwill		921,376			—			347,030		3	(c)		1,268,406
Intangible assets, net		209,590			—			81,000		3	(a)		290,590
Deferred income taxes		905			—			—					905
Other assets		162,514			80			—					162,594
Total assets	$	2,839,295		$	21,667		$	24,161				$	2,836,801
Liabilities and shareholders’ equity:
Current liabilities:
Accounts payable	$	45,057		$	371			—				$	45,428
Accrued expenses and other current liabilities		506,322			2,534			—					508,856
Current portion of long-term obligations		514,930			2,200			(2,200	)	3	(b)		514,930
Total current liabilities		1,066,309			5,105			(2,200	)				1,069,214
Long-term debt and capital lease obligations		586,582			2,618			(2,618	)	3	(b)		586,582
Deferred income taxes		12,312			—			—					12,312
Other liabilities		215,594			—			—					215,594
Total liabilities		1,880,797			7,723			(4,818	)				1,883,702
Shareholders’ equity:
Ordinary shares		4,573			8			(8	)	3	(e)		4,573
Additional paid-in capital		2,495,851			28,450			(28,450	)	3	(e)		2,495,851
Accumulated other comprehensive income		2,648			—			—					2,648
(Accumulated deficit) retained earnings		(1,544,574	)		(14,514	)		14,514		3	(e)		(1,549,973	)
								(5,399	)	3	(f)
Total shareholders’ equity		958,498			13,944			(19,343	)				953,099
Total liabilities and shareholders’ equity	$	2,839,295		$	21,667		$	(24,161	)			$	2,836,801

See accompanying notes to the unaudited pro forma condensed combined financial statements

Wright Medical Group N.V.

Pro Forma Condensed Combined Statement of Operations

Nine Months Ended September 30, 2018

(In thousands, except per share data)

(unaudited)

	Historical Wright Medical Group N.V			Historical Cartiva		Acquisition adjustments (Note 4)					Pro forma condensed combined
Net sales	$	598,043		$	24,714	$	—				$	622,757
Cost of sales		131,004			1,281		—					132,285
Gross profit		467,039			23,433		—					490,472
Operating expenses:
Selling, general and administrative		417,297			15,521		(700	)	4	(b)		432,118
Research and development		42,393			3,352		—					45,745
Amortization of intangible assets		19,031			—		5,600		4	(a)		24,631
Total operating expenses		478,721			18,873		4,900					502,494
Operating (loss) income		(11,682	)		4,560		(4,900	)				(12,022	)
Interest expense, net		60,243			94		—					60,337
Other expense, net		75,649			—		—					75,649
(Loss) income from continuing operations before income taxes		(147,574	)		4,466		(4,900	)				(148,008	)
(Benefit) provision for income taxes		(1,217	)		148		—					(1,069	)
Net (loss) income from continuing operations		(146,357	)		4,318		(4,900	)				(146,939	)
Net loss from continuing operations per share-basic and diluted	$	(1.35	)								$	(1.18	)
Weighted-average number of ordinary shares outstanding-basic and diluted		108,348										124,458

See accompanying notes to the unaudited pro forma condensed combined financial statements

Wright Medical Group N.V.

Pro Forma Condensed Combined Statement of Operations

Fiscal year ended December 31, 2017

(In thousands, except per share data)

(unaudited)

	Historical Wright Medical Group N.V			Historical Cartiva		Acquisition adjustments (Note 4)			Pro forma condensed combined
Net sales	$	744,989		$	24,122	$	—		$	769,111
Cost of sales		160,947			1,185		—			162,132
Gross profit		584,042			22,937		—			606,979
Operating expenses:
Selling, general and administrative		525,222			14,036		—			539,258
Research and development		50,115			3,480		—			53,595
Amortization of intangible assets		28,396			—		7,467	4(a)		35,863
Total operating expenses		603,733			17,516		7,467			628,716
Operating (loss) income		(19,691	)		5,421		(7,467	)		(21,737	)
Interest expense, net		74,644			228		—			74,872
Other expense, net		5,570			—		—			5,570
(Loss) income from continuing operations before income taxes		(99,905	)		5,193		(7,467	)		(102,179	)
(Benefit) provision for income taxes		(34,968	)		102		—			(34,866	)
Net (loss) income from continuing operations		(64,937	)		5,091		(7,467	)		(67,313	)
Net loss from continuing operations per share-basic and diluted	$	(0.62	)						$	(0.55	)
Weighted-average number of ordinary shares outstanding-basic and diluted		104,531								122,780

See accompanying notes to the unaudited pro forma condensed combined financial statements

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1. Description of Merger

The Merger Agreement provided for the business combination of Wright and Cartiva. Pursuant to the terms of the Merger Agreement, by and among the Company, the Merger Sub, Wright, Cartiva, and Fortis Advisors LLC, a Delaware limited liability company, as representative of the stockholders of Cartiva, Merger Sub merged with and into Cartiva, with Cartiva continuing as the surviving entity and a wholly owned subsidiary of the Company.

At the Effective Time, in accordance with the Merger Agreement and subject to the terms and conditions of the Merger Agreement, among other things, (i) each share of Cartiva capital stock (other than shares held by Cartiva and shares owned by stockholders who have properly exercised and perfected appraisal rights under Delaware law) that was issued and outstanding immediately prior to the Effective Time was converted to the right to receive the Per Share Amount, subject to the withholding of cash to be held in escrow for certain indemnification obligations and cash for certain expenses and subject to certain adjustments set forth in the Merger Agreement; and (ii) each option and each warrant to purchase shares of Cartiva’s capital stock that was issued and outstanding immediately prior to the Effective Time was converted to the right to receive the amount by which the Per Share Amount exceeded the exercise price per share attributable to such option or warrant, as applicable, subject to the withholding of cash to be held in escrow for certain indemnification obligations and cash for certain expenses and subject to certain adjustments set forth in the Merger Agreement.

The aggregate purchase price for the Merger was $435 million payable in cash, subject to certain adjustments set forth in the Merger Agreement. Total consideration transferred of $434.6 million is the preliminary purchase price and is subject to additional working capital adjustments. The purchase price was funded through an equity offering of 18.2 million shares on August 24, 2018.

2. Basis of Presentation

The pro forma financial statements were prepared using the acquisition method of accounting and based on the historical financial information of Wright and Cartiva. The acquisition method of accounting in accordance with ASC 805, “Business Combinations” (ASC 805), requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The acquisition method of accounting, in accordance with ASC 805, uses the fair value concepts defined in ASC 820, “Fair Value Measurement” (ASC 820). The historical consolidated financial information has been adjusted in the pro forma financial statements to give effect to pro forma events that are (1) directly attributable to the Merger, (2) factually supportable, and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the consolidated results.

ASC 820 defines fair value, establishes the framework for measuring fair value for any asset acquired or liability assumed under U.S. GAAP, expands disclosures about fair value measurements, and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measurements. Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of an asset or liability. Market participants are assumed to be buyers or sellers in the most advantageous market for the asset or liability. Fair value measurement for an asset assumes the highest and best use by these market participants, and as a result, assets may be required to be recorded which are not intended to be used or sold. Additionally, the fair value may not reflect Wright management’s intended use for those assets. Fair value measurements can be highly subjective and it is possible the application of reasonable judgment could develop different assumptions resulting in a range of alternative estimates using the same facts and circumstances.

Assets acquired and liabilities assumed in a business combination that arise from contingencies must be recognized at fair value if the fair value can be reasonably estimated. If the fair value of an asset or liability that arises from a contingency cannot be determined, the asset or liability would be recognized in accordance with ASC 450, “Disclosure of Certain Loss Contingencies” (ASC 450). If the fair value is not determinable and the ASC 450 criteria are not met, no asset or liability would be recognized. At this time, to the extent contingencies exist, Wright management does not have sufficient information to determine the fair value of Cartiva’s contingencies acquired. If information becomes available, which would permit Wright management to determine the fair value of these acquired contingencies, these amounts will be adjusted in accordance with ASC 820. Wright has a valuation allowance on its deferred tax assets and, for purposes of these pro forma financial statements, anticipates the provision of a valuation allowance on the deferred tax effects of the pro forma adjustments. As such, Wright expects the net impact to the pro forma financial statements to be immaterial.

The pro forma financial statements have been prepared in accordance with U.S. GAAP. These pro forma financial statements include the accounts of Cartiva presented on a calendar year-end and Wright, which is determined on a 52-week basis consisting of four 13-week quarters, with year-end falling on the Sunday nearest to December 31. Both companies had a balance sheet date of December 31, 2017 and September 30, 2018. However, the 2017 fiscal period began on December 26, 2016 for Wright and January 1, 2017 for Cartiva. There were no material intervening events that occurred involving the two entities between December 26, 2016 and January 1, 2017.

3. Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments

The estimated pro forma adjustments as a result of recording assets acquired and liabilities assumed at their respective fair values in accordance with ASC 805 discussed below are preliminary. An independent third-party valuation firm assisted in performing the preliminary valuation. Wright’s management assumes responsibility for the valuation performed by these appraisers. The final valuation of acquired assets and liabilities assumed will be determined at a later date and is dependent on a number of factors, including the final evaluation of the fair value of Cartiva’s tangible and identifiable intangible assets acquired and liabilities assumed. The final valuation of assets acquired and liabilities assumed may be materially different than the fair value of assets acquired and liabilities assumed resulting from the estimated pro forma adjustments.

The following presents the preliminary consideration and estimated fair value of Cartiva’s assets acquired and liabilities assumed as if the Merger had closed on September 30, 2018 (in thousands):

	Note			Amount
Purchase Price				$	434,597
Recognized amounts of identifiable assets acquired and liabilities assumed
Book value of net assets acquired as of September 30, 2018					13,944
Less: Transaction costs expected to be incurred by Cartiva					(8,786	)
Adjusted book value of net assets assumed					5,158
Adjustments to book value of net assets acquired:
Identifiable intangible assets at fair value		3	(a)		81,000
Increase inventory to fair value		3	(g)		1,409
Goodwill				$	347,030

a. For purposes of the pro forma financial statements, the general categories of the acquired identifiable intangible assets are expected to be the following:

• Customer relationships;

• Developed technology; and

• In-process research and development (IPRD).

The following presents the the preliminary fair value of those identifiable intangible assets (in thousands):

	Amount
Identifiable intangible assets
Customer relationships	$	52,000
Developed technology		28,000
IPRD		1,000
Estimated fair value of identified intangible assets	$	81,000

Some of the more significant assumptions inherent in the development of identifiable intangible asset fair values, from the perspective of a market participant, include: the amount and timing of projected future cash flows (including revenue, cost of sales, research and development costs, sales and marketing expenses, capital expenditures, and working capital requirements) as well as estimated contributory asset charges; the discount rate selected to measure inherent risk of future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, among other factors. These assumptions will be adjusted accordingly, if the final identifiable intangible asset valuation generates results that differ from this estimate or if the above scope of intangible assets is modified, including corresponding useful lives and related amortization methods. The final valuation will be completed within 12 months of the completion of the Merger.

b. Pursuant to Wright’s credit agreement with Midcap Financial Trust, Cartiva was required to pay off the outstanding principal of its bank term debt. The pro forma financial statements are adjusted to represent the payment of the bank term debt. Interest was deemed to be immaterial.

c. Reflects the preliminary fair value of goodwill related to the Merger of $347.0 million.

d. Represents $8.8 million of estimated transaction costs incurred by Cartiva subsequent to September 30, 2018, which would have reduced net assets acquired.

e. Represents the elimination of Cartiva’s historical additional paid-in capital, accumulated other comprehensive income, and retained earnings (accumulated deficit).

f. Represents $5.4 million of estimated acquisition-related transaction costs incurred by Wright subsequent to September 30, 2018, which would have reduced cash with a corresponding increase to accumulated deficit.

g. To record an estimated $1.4 million increase to Cartiva’s inventory to present inventory at estimated fair value. The pro forma unaudited condensed combined statement of operations does not reflect the amortization of the inventory fair value increase since it is not expected to have a continuing impact on the consolidated results. This charge will be included in the combined company’s consolidated statement of operations subsequent to the Merger and is expected to be released over the normal sales cycle, estimated to be approximately twelve months.

h. Represents cash paid to Cartiva stockholders in the amount of $434.6 million.

4. Unaudited Pro Forma Condensed Combined Statement of Operations Adjustments

a. To record estimated pro forma amortization expense of $5.6 million and $7.5 million for the nine months ended September 30, 2018 and fiscal year ended December 31, 2017, respectively, associated with the pro forma adjustment for finite-lived intangible assets discussed in Note 3(a).

The following pro forma amortization has been estimated on a preliminary basis, using the straight-line method over the estimated useful life (in thousands, except estimated useful life):

	Estimated Fair Value		Estimated Useful Life		Nine Months Ended September 30, 2018		Fiscal Year Ended December 31, 2017
Customer relationships	$	52,000		15	$	2,600	$	3,467
Developed technology		28,000		7		3,000		4,000
Pro forma amortization expense					$	5,600	$	7,467

b. Certain merger-related transaction costs have been expensed in Wright’s and Cartiva’s historical statements of operations. As merger-related transaction costs are non-recurring items, they have not been reflected in the unaudited pro forma condensed combined statements of operations. An adjustment totaling $0.7 million has been reflected in the unaudited pro forma condensed combined statement of operations to remove merger-related transaction costs of $0.6 million that were expensed by Wright and $0.1 million that were expensed by Cartiva during the nine months ended September 30, 2018.

5. Net Loss Per Share

Pro forma net loss from continuing operations per share for the nine months ended September 30, 2018 and fiscal year ended December 31, 2017 have been calculated based on the estimated weighted average number of Wright ordinary shares outstanding on a pro forma basis. The pro forma weighted average shares outstanding have been calculated as if the 18.2 million shares issued in connection with the August 24, 2018 equity offering, which funded the Merger, had been issued and outstanding as of December 26, 2016, the beginning of fiscal year 2017.