10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2013

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________________________ to ___________________________________

Commission File Number: 001-33966

MAKO Surgical Corp.
(Exact name of registrant as specified in its charter)

Delaware	20-1901148
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2555 Davie Road, Fort Lauderdale, Florida 33317
(Address of Principal Executive Offices) (Zip Code)

(954) 927-2044

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x Accelerated Filer o Non-accelerated Filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Number of shares outstanding of each of the issuer’s classes of common stock as of October 28, 2013:

	Class	Outstanding at October 28, 2013
Common Stock		51,479,936

MAKO Surgical Corp.

INDEX TO FORM 10-Q

		Page No.
	Part I – Financial Information
Item 1	Financial Statements (unaudited)	1
	Condensed Balance Sheets as of September 30, 2013 and December 31, 2012	1
	Condensed Statements of Operations for the three months and nine months ended September 30, 2013 and 2012	2
	Condensed Statements of Comprehensive Loss for the three months and nine months ended September 30, 2013 and 2012	3
	Condensed Statements of Cash Flows for the nine months ended September 30, 2013 and 2012	4
	Notes to Condensed Financial Statements	5
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4	Controls and Procedures	32
	Part II – Other Information
Item 1	Legal Proceedings	33
Item 1A	Risk Factors	35
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3	Defaults Upon Senior Securities	38
Item 4	Mine Safety Disclosures	38
Item 5	Other Information	38
Item 6	Exhibits	38
Signatures		39
Exhibit Index		40

i

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

MAKO SURGICAL CORP.

Condensed Balance Sheets
(in thousands, except share and per share data)
(Unaudited)

	September 30,			December 31,
	2013			2012
ASSETS
Current Assets:
Cash and cash equivalents	$	12,939		$	61,367
Short-term investments		39,938			11,899
Accounts receivable, net of allowances of $703 and $381, at September 30, 2013 and December 31, 2012, respectively		16,382			22,389
Inventory		24,589			25,080
Deferred cost of revenue		1,348			967
Financing commitment asset (Note 8)		—			7,608
Prepaid and other current assets		3,295			1,972
Total current assets		98,491			131,282
Long-term investments		3,403			—
Cost method investment (Note 4)		4,181			4,181
Property and equipment, net		22,451			22,996
Intangible assets, net		5,298			5,657
Other assets		2,790			2,786
Total assets	$	136,614		$	166,902
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	1,036		$	2,267
Accrued compensation and employee benefits		4,818			4,298
Other accrued liabilities		15,101			8,727
Deferred revenue		9,839			9,973
Warrant liability		8,029			—
Total current liabilities		38,823			25,265
Deferred revenue, non-current		755			800
Total liabilities		39,578			26,065
Commitments and contingencies (Note 7)		—			—
Stockholders’ Equity:
Preferred stock, $0.001 par value; 27,000,000 authorized; 0 shares issued and outstanding as of September 30, 2013 and December 31, 2012		—			—
Common stock, $0.001 par value; 135,000,000 authorized; 47,189,076 and 46,601,252 shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively (excludes 12,500 and 421,999 unvested shares of restricted stock as of September 30, 2013 and December 31, 2012, respectively)		47			47
Additional paid-in capital		369,194			362,364
Accumulated deficit		(272,180	)		(221,576	)
Accumulated other comprehensive income (loss)		(25	)		2
Total stockholders’ equity		97,036			140,837
Total liabilities and stockholders’ equity	$	136,614		$	166,902

See accompanying notes.

1

MAKO SURGICAL CORP.

Condensed Statements of Operations
(in thousands, except per share data)
(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue:
Procedures	$	16,224		$	12,042		$	47,438		$	36,622
Systems		2,695			14,413			17,425			28,467
Service		3,843			2,722			10,933			7,402
Total revenue		22,762			29,177			75,796			72,491
Cost of revenue:
Procedures		4,139			6,226			15,755			12,001
Systems		1,773			5,453			7,353			10,697
Service		522			295			1,306			1,127
Total cost of revenue		6,434			11,974			24,414			23,825
Gross profit		16,328			17,203			51,382			48,666
Operating costs and expenses:
Selling, general and administrative (exclusive of depreciation and amortization)		22,556			19,794			64,535			57,953
Research and development (exclusive of depreciation and amortization)		6,235			4,973			16,881			15,071
Merger transaction expenses		6,611			—			6,611			—
Depreciation and amortization		2,174			1,787			6,323			5,244
Total operating costs and expenses		37,576			26,554			94,350			78,268
Loss from operations		(21,248	)		(9,351	)		(42,968	)		(29,602	)
Other income (expense), net		(8	)		2,842			(7,621	)		2,867
Loss before income taxes		(21,256	)		(6,509	)		(50,589	)		(26,735	)
Income tax expense		—			45			15			84
Net loss	$	(21,256	)	$	(6,554	)	$	(50,604	)	$	(26,819	)
Net loss per share - Basic and diluted	$	(0.45	)	$	(0.15	)	$	(1.08	)	$	(0.64	)
Weighted average common shares outstanding - Basic and diluted		47,036			42,306			46,926			42,054

See accompanying notes.

2

MAKO SURGICAL CORP.

Condensed Statements of Comprehensive Loss
(in thousands)
(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net Loss	$	(21,256	)	$	(6,554	)	$	(50,604	)	$	(26,819	)
Other comprehensive income (loss):
Unrealized income (loss) on available-for-sale securities		25			(11	)		(27	)		(42	)
Comprehensive loss	$	(21,231	)	$	(6,565	)	$	(50,631	)	$	(26,861	)

See accompanying notes.

3

MAKO SURGICAL CORP.

Condensed Statements of Cash Flows
(in thousands, except share data)
(Unaudited)

	Nine Months Ended September 30,
	2013			2012
Operating activities:
Net loss	$	(50,604	)	$	(26,819	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		5,395			4,281
Amortization of intangible assets		1,357			1,269
Stock-based compensation		8,972			10,418
Provision for inventory reserve		4,549			3,262
Amortization of premium on investment securities		209			297
Loss on asset impairment		2,465			828
Provision for doubtful accounts		337			245
Issuance of stock under development agreement		1,361			681
Non-cash changes under credit facility		7,608			(3,204	)
Changes in operating assets and liabilities:
Accounts receivable		5,670			939
Inventory		(6,101	)		(10,568	)
Deferred cost of revenue		(381	)		(384	)
Prepaid and other current assets		(1,323	)		(2,540	)
Other assets		(4	)		(37	)
Accounts payable		(1,231	)		(1,734	)
Accrued compensation and employee benefits		520			(5,287	)
Other accrued liabilities		7,374			(2,545	)
Deferred revenue		(179	)		3,215
Net cash used in operating activities		(14,006	)		(27,683	)
Investing activities:
Purchase of investments		(59,219	)		(3,159	)
Proceeds from sales and maturities of investments		27,541			30,813
Acquisition of property and equipment		(5,272	)		(7,325	)
Acquisition of intangible assets		(998	)		(65	)
Net cash provided by (used in) investing activities		(37,948	)		20,264
Financing activities:
Payment under credit facility (Note 8)		(1,000	)		—
Proceeds from employee stock purchase plan		1,241			1,344
Exercise of common stock options and warrants for cash		3,441			3,989
Payment of payroll taxes relating to vesting of restricted stock		(156	)		(172	)
Net cash provided by financing activities		3,526			5,161
Net decrease in cash and cash equivalents		(48,428	)		(2,258	)
Cash and cash equivalents at beginning of period		61,367			13,438
Cash and cash equivalents at end of period	$	12,939		$	11,180
Non-cash investing and financing activities:
Receipt of 13,110 and 4,556 shares of common stock delivered in payment of payroll taxes for the nine months ended September 30, 2013 and 2012, respectively	$	156		$	172
Transfers of inventory to property and equipment		2,043			2,273
Issuance of stock under development agreement		1,361			681
Reclassification of warrants under credit facility (Note 8)		8,029			—

See accompanying notes.

4

MAKO SURGICAL CORP.

Notes to Condensed Financial Statements
September 30, 2013
(Unaudited)

1. Organization and Basis of Presentation

          MAKO Surgical Corp. (the “Company” or “MAKO”) is an emerging medical device company that markets its RIO® Robotic Arm Interactive Orthopedic system, joint specific applications for the knee and hip, and proprietary RESTORIS® implants for orthopedic procedures called MAKOplasty®. The Company is headquartered in Fort Lauderdale, Florida and its common stock is listed on The NASDAQ Global Select Market under the ticker symbol “MAKO.”

Merger Agreement with Stryker Corporation

          On September 25, 2013, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Stryker Corporation, a Michigan corporation (“Stryker”), and Lauderdale Merger Corporation, a Delaware corporation and wholly-owned subsidiary of Stryker (“Merger Sub”).

          The Merger Agreement provides, among other things and subject to the terms and conditions set forth therein, that Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and a wholly owned subsidiary of Stryker, and that, at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.001 per share, of the Company outstanding immediately prior to the Effective Time (other than dissenting shares and shares owned by the Company, Stryker or Merger Sub or any of their subsidiaries) will be automatically converted into the right to receive $30.00 in cash, without interest (the “Merger Consideration”).

          Pursuant to the Merger Agreement, as of the Effective Time, (1) each option to purchase a share of the Company’s common stock that is outstanding immediately prior to the Effective Time will become fully vested and be converted into the right to receive a cash payment equal to the Merger Consideration, net of the exercise price, (2) each award of restricted shares of the Company’s common stock that is outstanding immediately prior to the Effective Time will become fully vested and be converted into the right to receive a cash payment equal to the product of the Merger Consideration and the number of shares subject to the award, and (3) each unexercised Company warrant that is outstanding immediately prior to the Effective Time will, in accordance with the terms of the applicable Company warrant, no longer be exercisable for any capital stock of the surviving corporation, but will only be exercisable or canceled, as applicable, in accordance with the terms of the applicable Company warrant in exchange for the Merger Consideration.

          The Board of Directors of the Company (the “Board”) has unanimously approved the Merger Agreement, the Merger and the other transactions contemplated thereby. The closing of the Merger is subject to the adoption of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote (the “Company Stockholder Approval”). The closing of the Merger is also subject to various customary conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; the absence of any newly enacted law, injunction or order prohibiting the Merger; the accuracy of the representations and warranties contained in the Merger Agreement (generally subject to a material adverse effect qualification); compliance with the covenants and agreements in the Merger Agreement in all material respects; and, until August 31, 2014, the absence of certain pending actions by governmental entities against the parties to the Merger Agreement or their subsidiaries. The closing of the Merger is not subject to a financing condition.

          The Company has made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants (1) to conduct its business in the ordinary course during the period between the execution of the Merger Agreement and the closing of the Merger, (2) not to engage in specified types of transactions during this period unless agreed to in writing by Stryker, (3) to convene and hold a meeting of its stockholders for the purpose of obtaining the Company Stockholder Approval and (4) subject to certain exceptions, not to withdraw, modify or qualify in a manner adverse to Stryker or Merger Sub the recommendation of the Board that the Company’s stockholders approve the adoption of the Merger Agreement.

5

          The Merger Agreement contains certain termination rights, including the right of the Company to terminate the Merger Agreement to accept an unsolicited superior proposal from a third party. The Merger Agreement provides that, upon termination of the Merger Agreement by the Company in order to accept a superior proposal, a termination fee of $61.0 million will be payable by the Company to Stryker. The termination fee is also payable under certain other limited circumstances, including if Stryker terminates the Merger Agreement due to the Board’s change of recommendation in favor of the Merger or the Company’s failure to include the Board’s recommendation in favor of the Merger in the proxy statement. In addition, subject to certain exceptions and limitations, either party may terminate the Merger Agreement if the Merger is not consummated by September 30, 2014.

          The Company retained J.P. Morgan as its financial advisor in connection with the proposed Merger and to deliver a fairness opinion in connection with the proposed Merger. The Company has agreed to pay J.P. Morgan an aggregate fee of approximately $19.0 million, of which approximately $16.0 million will be payable upon completion of the Merger, and of which $3.0 million was earned upon delivery of J.P. Morgan’s opinion and was not contingent on the consummation of any transaction. The $3.0 million was recorded to expense in merger transaction expenses in the condensed statement of operations for the three months ended September 30, 2013. In addition, the Company has agreed to reimburse J.P Morgan for its reasonable expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the Federal securities laws.

Basis of Presentation

          In the opinion of management, the accompanying unaudited condensed financial statements (“condensed financial statements”) of the Company have been prepared on a basis consistent with the Company’s December 31, 2012 audited financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. These condensed financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission and, therefore, omit certain information and footnote disclosure necessary to present the statements in accordance with accounting principles generally accepted in the United States. These quarterly condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2012 (the “Form 10-K”). The results of operations for the three and nine months ended September 30, 2013 may not be indicative of the results to be expected for the entire year or any future periods.

Liquidity and Operations

          In executing its current business plan, the Company believes its existing cash, cash equivalents and investment balances will be sufficient to meet its anticipated cash requirements for at least the next twelve months. To the extent the Company’s available cash, cash equivalents and investment balances are insufficient to satisfy its operating requirements, the Company will need to seek additional sources of funds, including selling additional equity, debt or other securities, or modify its current business plan. The sale of additional equity or convertible debt securities may result in dilution to the Company’s current stockholders. If the Company raises additional funds through the issuance of debt securities, these securities may have rights senior to those of its common stock and could contain covenants that could restrict the Company’s operations and ability to issue dividends. The Company may also require additional capital beyond its currently forecasted amounts. Any required additional capital, whether forecasted or not, may not be available on reasonable terms, or at all. If the Company is unable to obtain additional financing, the Company may be required to reduce the scope of, delay or eliminate some or all of its planned research, development and commercialization activities, which could materially harm its business and results of operations.

Concentrations of Credit Risk and Other Risks and Uncertainties

          Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, investments, and accounts receivable. The Company’s cash and cash equivalents are held in demand and money market accounts at four large financial institutions. The Company’s investments are held in a variety of interest bearing instruments, including notes and bonds from U.S. government agencies and certificates of deposit at four large financial institutions. Such deposits are generally in excess of insured limits. The Company has not experienced any historical losses on its deposits of cash and cash equivalents.

          The Company may perform credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. The Company provides an allowance for doubtful accounts when collections become doubtful but has not experienced any significant credit losses to date.

6

          The Company is subject to risks common to emerging companies in the medical device industry including, but not limited to: new technological innovations, dependence on key personnel, dependence on key suppliers, changes in general economic conditions and interest rates, protection of proprietary technology, compliance with new and established domestic and foreign government regulations and taxes, uncertainty of widespread market acceptance of products, unanticipated changes in the timing of the sales cycle for the Company’s products or the vetting process undertaken by prospective customers, access to credit for capital purchases by the Company’s customers, product liability, the need to obtain additional financing and reliance on single source suppliers for implant products and certain components of the RIO® Robotic Arm Interactive Orthopedic system (“RIO”). The Company’s products include components subject to rapid technological change. Certain components used in manufacturing have relatively few alternative sources of supply and establishing additional or replacement suppliers for such components cannot be accomplished quickly. The inability of any of these suppliers to fulfill the Company’s supply requirements may negatively impact future operating results. While the Company has ongoing programs to minimize the adverse effect of such uncertainty and considers technological change in estimating the net realizable value of its inventory, uncertainty continues to exist.

          The Company expects to derive most of its revenue from capital sales of its RIO, current and future MAKOplasty applications to the RIO (together with the RIO, the “RIO system”), recurring sales of implants and disposable products required for each MAKOplasty procedure, and service plans that are sold with the RIO system. If the Company is unable to achieve broad commercial acceptance of MAKOplasty or maintain or obtain regulatory clearances or approvals for current and future products, including other orthopedic products, its revenue would be adversely affected and the Company may not become profitable.

          The Company’s current versions of its RIO system, its MAKOplasty partial knee and total hip arthroplasty (“THA”) RIO applications, its RESTORIS® MCK multicompartmental knee implant systems and RESTORIS total hip implant systems have been cleared by the U.S. Food and Drug Administration (“FDA”). Certain products currently under development by the Company will require clearance or approval by the FDA or other international regulatory agencies prior to commercial sale. There can be no assurance that the Company’s products will receive the necessary clearances or approvals. If the Company were to be denied any such clearance or approval or such clearance or approval were delayed, it could have a material adverse impact on the Company.

Reclassifications

          The Company reclassified depreciation expense for certain property and equipment from selling, general and administrative expense to depreciation and amortization expense in the prior period’s statement of operations to conform to the current period’s presentation. This change in presentation only affects the components of operating costs and expenses and does not affect total operating costs and expenses, revenue, cost of revenue, net loss or cash flows. Conforming changes have been made for all prior periods presented, as follows (in thousands):

(in thousands)	Three Months Ended September 30, 2012							Nine Months Ended September 30, 2012
	As Previously Reported		Amount Reclassified			As Reported Herein		As Previously Reported		Amount Reclassified			As Reported Herein
Selling, general and administrative	$	20,258	$	(464	)	$	19,794	$	59,330	$	(1,377	)	$	57,953
Research and development		4,973		—			4,973		15,071		—			15,071
Merger transaction expenses		—		—			—		—		—			—
Depreciation and amortization		1,323		464			1,787		3,867		1,377			5,244
Total operating costs and expenses	$	26,554	$	—		$	26,554	$	78,268	$	—		$	78,268

2. Summary of Significant Accounting Policies

Revenue Recognition

          Revenue is generated: from (1) unit sales of the RIO system, including associated applications, instrumentation, installation services and training; (2) sales of implants and disposable products utilized in MAKOplasty procedures; and (3) sales of maintenance services. The Company recognizes revenue in accordance with ASC 605-10, Revenue Recognition, when persuasive evidence of an arrangement exists, the fee is fixed or determinable, collection of the fee is probable and delivery has occurred. For all sales, the Company uses either a signed agreement or a binding purchase order as evidence of an arrangement.

          The Company’s multiple-element arrangements are generally comprised of the following elements that qualify as separate units of accounting: (1) sales of RIO systems and applications; (2) sales of implants and disposable products; and (3) sales of maintenance services. The Company’s revenue recognition policies generally result in revenue recognition at the following points:

1. RIO system sales: Revenues related to RIO system sales are recognized upon installation of the system, training of at least one surgeon, which typically occurs prior to or concurrent with the RIO system installation, and customer acceptance, if required. Applications sold separately to existing customers are recognized on the same basis as RIO system sales (e.g., upon installation of the application, training of at least one surgeon and customer acceptance, if required).

7

2.	Procedure revenue: Revenues from the sale of implants and disposable products utilized in MAKOplasty procedures are recognized at the time of sale (i.e., at the time of the related surgical procedure).
3.	Service revenue: Revenues from maintenance services are deferred and recognized ratably over the service period until no further obligation exists. Maintenance services include preventative maintenance and repair on the RIO system hardware, when-and-if-available software and hardware reliability upgrades (i.e., bug fixes) and telephone troubleshooting support.

          Sales of the Company’s RIO system generally include a one-year service obligation for maintenance (the “Service Obligation”). Upon recognition of a RIO system’s revenue in accordance with the Company’s revenue recognition policies, the Company defers a portion of the RIO system consideration attributable to the Service Obligation and recognizes it on a straight-line basis over the service period as a component of revenue – service in the statement of operations. Costs associated with providing maintenance services are expensed to cost of revenue – service as incurred.

          The Company allocates arrangement consideration to the RIO systems and associated instrumentation, its implants and disposables and its maintenance services based upon the relative selling-price method. Under this method, revenue is allocated at the time of sale to all deliverables based on their relative selling price using a specific hierarchy. The hierarchy is as follows: vendor-specific objective evidence (“VSOE”) of fair value of the respective elements, third-party evidence of selling price, or best estimate of selling price (“ESP”).

          The Company allocates arrangement consideration using ESP for its RIO system, ESP for its implants and disposable products and VSOE of fair value for its maintenance services. VSOE of fair value is based on the price charged when the element is sold separately. ESP is established by determining the price at which the Company would transact a sale if the product was sold on a stand-alone basis. The Company determines ESP for its products by considering multiple factors including, but not limited to, geographies, type of customer, and market conditions. The Company regularly reviews ESP and maintains internal controls over the establishment and updates of these estimates.

Deferred Revenue and Deferred Cost of Revenue

          Deferred revenue consists of deferred service revenue, deferred system revenue and deferred procedure revenue. Deferred service revenue results from the advance payment for maintenance services to be delivered over a period of time, usually in one-year increments. Deferred system revenue arises from timing differences between the installation of RIO systems and satisfaction of all revenue recognition criteria consistent with the Company’s revenue recognition policy. Deferred procedure revenue arises from sales to independent international distributors which provide for a right of return. No revenue is recognized for these sales until the right of return expires or is waived. Deferred revenue expected to be realized within one year is classified as a current liability. Deferred cost of revenue consists of the direct costs associated with the manufacture of RIO systems and implants and disposable products for which the revenue has been deferred in accordance with the Company’s revenue recognition policy. The deferred revenue balance as of September 30, 2013 consisted primarily of deferred service revenue for maintenance services.

Fair Value of Financial Instruments

          Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair value due to their short maturities.

Inventory

          Inventory is stated at the lower of cost or market value on a first-in, first-out basis. Inventory costs include direct materials, direct labor and manufacturing overhead. The Company reviews its inventory periodically to determine net realizable value and considers product upgrades and new product introductions in its periodic review of realizability. During the nine months ended September 30, 2013, the Company increased its inventory reserve by $4.5 million, or $(0.10) per basic and diluted share for excess hip implant inventory. The inventory valuation adjustment was charged to cost of revenue – procedures in the condensed statement of operations. Inventory valuation reserves are determined based on the Company’s assessment of the forecasted demand for its products and the on hand quantities of inventory. Depending on demand for the Company’s products, technical obsolescence and new product introductions, future valuation adjustments of the Company’s inventory may occur. These factors are impacted by market and economic conditions, technology changes and new product introductions and require estimates that may include uncertain elements.

8

Impairment of Long-Lived Assets

          The Company evaluates its long-lived assets for indicators of impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. During the nine months ended September 30, 2013, the Company incurred asset impairments of $2.5 million, or $(0.05) per basic and diluted share. The impairment charge was primarily related to excess hip implant instruments used to perform THA procedures and was charged to selling, general and administrative expense in the condensed statement of operations. Depending on the operating performance and projected undiscounted cash flows associated with the related assets, future impairment charges of the Company’s long-lived assets may occur.

Recent Accounting Pronouncements

          Effective January 1, 2013, the Company adopted accounting guidance which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income (loss) by component. The adoption did not have a material impact on the Company’s results of operation or financial position.

Net Loss Per Share

          The Company calculates net loss per share in accordance with ASC 260, Earnings per Share. Basic earnings per share (“EPS”) is calculated by dividing the net income or loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income or loss by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents outstanding for the period determined using the treasury stock method. The following table sets forth potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented:

(in thousands)	September 30,
	2013		2012
Stock options outstanding		6,513		5,396
Warrants to purchase common stock		1,211		1,211
Unvested restricted stock		13		431
Total		7,737		7,038

3. Available-For-Sale Investments

          The Company’s investments are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses included in accumulated other comprehensive income (loss) within stockholders’ equity. Realized gains and losses, interest and dividends, amortization of premium and discount on investment securities and declines in value determined to be other-than-temporary on available-for-sale securities are included in other income (expense), net. During the three and nine months ended September 30, 2013 and 2012, realized gains and losses recognized on the sale of investments were not significant. The cost of securities sold is based on the specific identification method.

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          The amortized cost and fair value of short and long-term investments, with gross unrealized gains and losses, were as follows:

          As of September 30, 2013

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments:
U.S. government agencies	$	21,000	$	7	$	(6	)	$	21,001
Certificates of deposit		18,953		—		(16	)		18,937
Long-term investments:
U.S. government agencies		504		—		(2	)		502
Certificates of deposit		2,909		2		(10	)		2,901
Total investments	$	43,366	$	9	$	(34	)	$	43,341

          As of December 31, 2012

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments:
U.S. government agencies	$	1,704	$	1	$	—		$	1,705
Certificates of deposit		10,193		7		(6	)		10,194
Total investments	$	11,897	$	8	$	(6	)	$	11,899

          As of September 30, 2013 and December 31, 2012, all short-term investments had maturity dates of less than one year. As of September 30, 2013, all long-term investments had maturity dates between one and two years.

4. Cost Method Investment

          The Company has a minority equity interest in Pipeline Biomedical Holdings, Inc. (“Pipeline”) which the Company accounts for as a cost method investment under ASC 325-20, Cost Method Investments. The carrying amount of the equity interest in Pipeline consists of 1,137,513 shares of Pipeline common stock that are subject to redemption and conversion into an exclusive, limited distribution rights agreement for certain Pipeline technology in certain instances. The carrying amount of the equity interest in Pipeline is $4.2 million and is included in cost method investment on the balance sheet. It is not practical to estimate the fair value of the equity interest in Pipeline as Pipeline’s securities are not publicly traded. The Company reviews the equity interest in Pipeline for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. No events or circumstances indicated that the equity interest in Pipeline was impaired as of September 30, 2013. See Note 11 for more information regarding the redemption of the Company’s minority equity interest in Pipeline in October 2013.

5. Fair Value Measurements

          A three-tier fair value hierarchy is utilized to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels are as follows:

• Level 1 Inputs – unadjusted quoted prices in active markets for identical assets or liabilities;

• Level 2 Inputs – inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly; and

• Level 3 Inputs – unobservable inputs for the asset or liability.

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          The fair values of the Company’s financial assets measured on a recurring basis are summarized below:

(in thousands)	September 30, 2013		Fair Value Measurements at the Reporting Date Using
			Level 1		Level 2		Level 3
Short-term investments:
U.S. government agencies	$	21,001	$	20,497	$	504	$	—
Certificates of deposit		18,937		—		18,937		—
Long-term investments:
U.S. government agencies		502		—		502		—
Certificates of deposit		2,901		—		2,901		—
Total assets	$	43,341	$	20,497	$	22,844	$	—
Warrant liability:
Warrant liability		8,029		—		—		8,029
Total liabilities	$	8,029	$	—	$	—	$	8,029

(in thousands)	December 31, 2012		Fair Value Measurements at the Reporting Date Using
			Level 1		Level 2		Level 3
Short-term investments:
U.S. government agencies	$	1,705	$	1,001	$	704	$	—
Certificates of deposit		10,194		—		10,194		—
Financing commitment asset		7,608		—		—		7,608
Total assets	$	19,507	$	1,001	$	10,898	$	7,608

          The Company’s Level 2 assets consist of certificates of deposit and U.S. government agency securities. Level 2 securities are priced based on quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable market inputs for similar securities. There have been no transfers between Level 1 and Level 2 and no transfers to or from Level 3 of the fair value measurement hierarchy. See Note 8 for more information regarding the Company’s financing commitment asset and warrant liability.

          The table below provides a reconciliation of the financing commitment asset measured at fair value on a recurring basis which use Level 3 inputs for the nine months ended September 30, 2013.

(in thousands)	Fair Value Measurements Level 3
	Nine Months Ended September 30, 2013
Balance at December 31, 2012	$	7,608
Change in value of financing commitment asset reported in other income (expense)		(7,608	)
Balance at September 30, 2013	$	—

          The table below provides a reconciliation of the warrant liability measured at fair value on a recurring basis which use Level 3 inputs for the nine months ended September 30, 2013.

(in thousands)	Fair Value Measurements Level 3
	Nine Months Ended September 30, 2013
Balance at December 31, 2012	$	—
Transfers into Level 3		8,029
Balance at September 30, 2013	$	8,029

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6. Inventory

          Inventory consisted of the following:

(in thousands)	September 30, 2013		December 31, 2012
Inventory:
Raw materials	$	3,236	$	4,351
Work-in-process		1,345		1,159
Finished goods		20,008		19,570
Total inventory	$	24,589	$	25,080

          See Note 2 for a discussion of the inventory valuation adjustment for the nine months ended September 30, 2013.

7. Commitments and Contingencies

Purchase Commitments

          At September 30, 2013, the Company was committed to make future purchases for inventory and other items that occur in the ordinary course of business under various purchase arrangements with fixed purchase provisions aggregating $7.7 million.

Contractual Obligations

          On September 25, 2013, the Company entered into the Merger Agreement with Stryker. Upon a change of control event, the Company has a contingent obligation to make one-time payments of up to $18.0 million under certain royalty bearing arrangements related to its intellectual property rights. The contingent obligation to pay up to $18.0 million is generally in lieu of paying ongoing, periodic royalty payments. In addition, the Company retained J.P. Morgan as its financial advisor in connection with the proposed Merger and to deliver a fairness opinion in connection with the proposed Merger. The Company has agreed to pay J.P. Morgan an aggregate fee of approximately $19.0 million, of which approximately $16.0 million will be payable upon completion of the Merger, and of which $3.0 million was earned upon delivery of J.P. Morgan’s opinion and was not contingent on the consummation of any transaction.

Legal Proceedings

          In May 2012, two shareholder complaints were filed in the U.S. District Court for the Southern District of Florida against the Company and certain of its officers and directors as purported class actions on behalf of all purchasers of the Company’s common stock between January 9, 2012 and May 7, 2012. The cases were filed under the captions James H. Harrison, Jr. v. MAKO Surgical Corp. et al., No. 12-cv-60875 and Brian Parker v. MAKO Surgical Corp. et al., No. 12-cv-60954. The court consolidated the Harrison and Parker complaints under the caption In re MAKO Surgical Corp. Securities Litigation, No. 12-60875-CIV-Cohn/Seltzer, and appointed Oklahoma Firefighters Pension and Retirement System and Baltimore County Employees’ Retirement System to serve as co-lead plaintiffs. In September 2012, the co-lead plaintiffs filed an amended complaint that expanded the proposed class period through July 9, 2012. The amended complaint alleged the Company, its Chief Executive Officer, President and Chairman, Maurice R. Ferré, M.D., and its Chief Financial Officer, Fritz L. LaPorte, violated federal securities laws by making misrepresentations and omissions during the proposed class period about the Company’s financial guidance for 2012 that artificially inflated the Company’s stock price. The amended complaint sought an unspecified amount of compensatory damages, interest, attorneys’ and expert fees, and costs. In October 2012, the Company, Dr. Ferré, and Mr. LaPorte filed a motion to dismiss the amended complaint in its entirety. On May 15, 2013, the court granted the motion to dismiss and found that the challenged statements in the amended complaint were not material misrepresentations or omissions but rather were forward-looking statements accompanied by meaningful cautionary language and thus not actionable. In its order, the court gave co-lead plaintiffs an opportunity to request leave to file a second amended complaint, which they declined. Accordingly, on June 14, 2013 the court closed the case and entered final judgment for the Company, Dr. Ferré and Mr. LaPorte. No appeal was filed and the time for filing an appeal has expired.

          Additionally, in June and July 2012, four shareholder derivative complaints were filed against the Company, as nominal defendant, and its Board, as well as Dr. Ferré and, in two cases, Mr. LaPorte. Those complaints allege that the Company’s directors and certain officers violated their fiduciary duties, wasted corporate assets and were unjustly enriched by allowing the Company to make misrepresentations or omissions that exposed the Company to damages in an earlier filed securities class action and damage to the Company’s goodwill.

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          Two of the derivative actions were filed in the Seventeenth Judicial Circuit in and for Broward County, Florida and have been consolidated under the caption In re MAKO Surgical Corporation Shareholder Derivative Litigation, No. 12-cv-16221. By order dated July 3, 2012, the court stayed In re MAKO Surgical Corporation Shareholder Derivative Litigation pending a ruling on the motion to dismiss filed in the earlier-filed class action. On June 20, 2013, this case was voluntarily dismissed.

          The two other derivative actions were filed in the U.S. District Court for the Southern District of Florida under the captions Todd Deehl v. Ferré et al., No. 12-cv-61238 and Robert Bardagy v. Ferré et al., No. 12-cv-61380. On August 29, 2012, the court consolidated these two federal cases under the caption In re MAKO Surgical Corp. Derivative Litig., Case No. 12-61238-CIV-COHN-SELTZER and approved the filing of a consolidated complaint. The consolidated complaint alleged that the Company’s directors and two of its officers breached fiduciary duties, wasted corporate assets and were unjustly enriched by issuing, or allowing the issuance of, annual sales guidance for 2012 that they allegedly knew lacked any reasonable basis. The consolidated complaint sought an unspecified amount of damages, attorneys’ and expert fees, costs and corporate reforms to allegedly improve the Company’s corporate governance and internal procedures. On October 31, 2012, the Company and the individual defendants each filed motions to dismiss the consolidated complaint. On June 6, 2013, the court granted the Company’s motion to dismiss on the grounds that the plaintiff failed to comply with applicable law by serving a pre-suit demand on the Board or by adequately alleging that doing so would be futile. The court gave the plaintiff until June 27, 2013 to file a motion seeking leave to file a second amended complaint.

           On June 14, 2013, the plaintiff in the federal court derivative action made a demand on the Company to inspect its books and records. Because the Company believed the plaintiff had not stated a proper purpose for the requested inspection, it denied this inspection request.

           On June 27, 2013, the plaintiff filed a motion requesting sixty additional days to file a motion for leave to amend the consolidated complaint, alleging the intent to pursue a legal action in Delaware or Florida in order to inspect the Company’s books and records for the purpose of establishing futility of a pre-suit demand. On July 15, 2013, the Company and the individual defendants filed a motion opposing the plaintiff’s request for additional time. On August 15, 2013, the court entered an order denying plaintiffs’ motion for an extension of time to file a motion for leave to amend the complaint and dismissing the case without prejudice. To date, plaintiff has not filed any action regarding his purported inspection rights or refiled a derivative action.

          In addition, on October 31, 2012, the Board appointed a demand review committee, consisting of two independent directors, to review, investigate, and prepare a report and recommendation to the full Board regarding the claims raised in the consolidated federal derivative action, as well as a demand made on the Board by two Company shareholders, Amy and Charles Miller, challenging the Company’s sales projections for 2012 and statements about its future financial outlook and demanding that the Board file suit on behalf of the Company. On November 19, 2012, upon recommendation of the demand review committee, the Company and the individual defendants filed a joint motion to stay the consolidated federal derivative action pending the completion of the demand review committee’s investigation. When the court dismissed the federal derivative action, it also denied the motion to stay as moot. The demand review committee has not yet completed its review, investigation and report.

          In connection with the proposed Merger between the Company and Stryker, the Company and the members of its Board have been named as defendants in nine putative stockholder class actions complaints challenging the transaction, three filed in the Court of Chancery in the State of Delaware (the “Delaware Actions”), and six filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida (the “Florida Actions”). The lawsuits generally allege that the individual defendants breached their fiduciary duties by, among other things, failing to obtain sufficient value for the Company’s stockholders in the transaction and agreeing to certain terms in the Merger Agreement that allegedly restrict the individual defendants’ ability to obtain a more favorable offer. The complaints also allege that the Company, Stryker, and/or Merger Sub aided and abetted these purported breaches of fiduciary duties. The relief sought includes, among other things, injunctive relief, unspecified compensatory and/or rescissory damages, attorney’s fees, other expenses, and costs.

          On October 9, 2013, two of the three Delaware Actions were consolidated and, on October 18, 2013, the third Delaware Action was consolidated with the previous two. The six Florida Actions were consolidated on October 21, 2013. Prior to the consolidation, on October 16, 2013, defendants filed a motion to proceed in one jurisdiction in both the Florida and Delaware courts, in which the motion defendants sought to have all actions related to the proposed transaction litigated in only one of the two fora.

          Following consolidation, on October 21, 2013, plaintiffs in the Delaware Actions filed a consolidated amended complaint in which they allege, in addition to the claims set out in the original complaints, that the Company’s directors also breached their fiduciary duties by failing to disclose purportedly material information to the Company’s stockholders in the preliminary proxy filed by the Company with the SEC on October 16, 2013. On October 22, 2013, plaintiffs in the Florida Actions likewise filed a consolidated amended complaint that added allegations regarding purported omissions in the preliminary proxy.

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          On October 22, 2013 and October 23, 2013, respectively, plaintiffs in both the Florida and Delaware Actions moved for expedited proceedings, and plaintiffs in the Delaware action also moved for a preliminary injunction to prevent the closing of the proposed transaction. On October 24, 2013, defendants filed an opposition to the expedited proceedings in the Florida Actions. On October 25, 2013, the Florida court heard argument on defendants’ motion to proceed in one forum and determined that Florida litigation would proceed. Shortly thereafter, the Florida court scheduled a preliminary injunction hearing for November 27, 2013.

           On October 29, 2013, the Delaware court held a hearing on the defendant’s motion to proceed in one forum, and while reserving judgment, noted that it was inclined to let the Delaware Actions proceed. On October 31, 2013, the Florida court issued a Sua Sponte Order of Reconsideration and Staying Consolidated Actions, staying all proceedings in the Florida Actions (including the preliminary injunction hearing previously set for November 27, 2013). On November 4, 2013, the Delaware court heard the argument on plaintiffs’ motion for expedited proceedings and on November 5, 2013, that court granted expedited proceedings in connection with certain of plaintiffs’ claims.

          The Company continues to believe these lawsuits are meritless.

           The Company has recorded $1.3 million to expense, $500,000 of which was incurred in prior periods, in selling, general and administrative expenses to cover the insurance deductible for the Company’s directors’ and officers’ insurance policies related to the above actions.

Contingencies

          The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the Company’s views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company’s accrued liabilities would be recorded in the period in which such determination is made. For the matters referenced in the paragraph below, the amount of liability is not probable or the amount cannot be reasonably estimated; and, therefore, accruals have not been made. In addition, in accordance with the relevant authoritative guidance, for matters which the likelihood of material loss is at least reasonably possible, the Company provides disclosure of the possible loss or range of loss; however, if a reasonable estimate cannot be made, the Company will provide disclosure to that effect.

          In addition to the matters discussed in “Legal Proceedings” above, the Company is a defendant in various litigation matters generally arising in the normal course of business. Although it is difficult to predict the ultimate outcomes of these matters, the Company believes that it is not reasonably possible that the ultimate outcomes of these ordinary course litigation matters will materially and adversely affect its business, financial position, results of operations or cash flows.

8. Credit Facility

          On May 7, 2012, the Company entered into a Facility Agreement with affiliates of Deerfield Management Company, L.P. (“Deerfield”), as amended on June 28, 2012, pursuant to which Deerfield agreed to loan the Company up to $50 million, subject to the terms and conditions set forth in the Facility Agreement. Under the terms of the Facility Agreement, the Company had the flexibility, but was not required, to draw down on the Facility Agreement in $10 million increments (the “Financing Commitment”) at any time until May 15, 2013 (the “Draw Period”). No funds were drawn under the Facility Agreement which expired on May 15, 2013.

          In exchange for the Financing Commitment, on May 7, 2012, the Company issued to Deerfield warrants to purchase 275,000 shares of the Company’s common stock at an exercise price of $27.70 per share. The warrants issued under the Facility Agreement expire on the seventh anniversary of its issuance. As of September 30, 2013, all 275,000 warrants were outstanding and exercisable. Each $10 million disbursement would have been accompanied by the issuance to Deerfield of warrants to purchase 140,000 shares of the Company’s common stock, at an exercise price equal to a 20% premium to the mean closing price of the Company’s common stock over the five trading days following receipt by Deerfield of the draw notice.

          The Company was required to pay Deerfield a fee of $1.0 million (the “Facility Fee”) if no funds were drawn under the Facility Agreement, which it paid in the second quarter of 2013. The Company recorded $1.0 million to expense for the Facility Fee in other income (expense), net in the statement of operations during the year ended December 31, 2012, as the Company determined it was probable that it would be required to pay the Facility Fee.

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          The Financing Commitment was classified as a current asset on the condensed balance sheet and was considered a derivative as the Company could have put additional warrants and debt to Deerfield. The Financing Commitment was revalued each subsequent balance sheet date until the Draw Period expired, with any changes in the fair value between reporting periods recorded in other income (expense), net in the condensed statement of operations. The fair value of the Financing Commitment on December 31, 2012 was $7.6 million and the fair value of the Financing Commitment on March 31, 2013 was $6.9 million. Upon the expiration of the Draw Period on May 15, 2013, the Financing Commitment had no value and the $7.6 million change in the fair value of the Financing Commitment for the nine months ended September 30, 2013 (of which $661,000 and $6.9 million was incurred in the first and second quarter of 2013, respectively) was recorded in other income (expense), net in the condensed statement of operations.

          The warrants to purchase 275,000 shares of the Company’s common stock were valued as of June 28, 2012 using a Monte Carlo simulation model with the following assumptions: expected life of 6.86 years, risk free rate of 1.05%, expected volatility of 63.54% and no expected dividend yield. The value of the Financing Commitment was determined using Level 3 inputs, or significant unobservable inputs. The value of the Financing Commitment at December 31, 2012 was determined by estimating the value of being able to borrow $50 million at a 6.75% interest rate (the “Loan Value”) net of the estimated value of the additional 700,000 warrants to be issued upon borrowing. The Loan Value was discounted using a market yield of 18%. The estimated value of the additional warrants to be issued was valued using a Monte Carlo simulation model with the following assumptions: expected life of 7.0 years, risk free rate of 1.21%, expected volatility of 63.02% and no expected dividend yield. The most significant unobservable input in estimating the value of the Financing Commitment was the 18% market yield. A 100 basis point change in the market yield input could change the value of the Financing Commitment by approximately $1.0 million.

          The holder of a warrant may exercise the warrant either for cash or on a cashless basis. In connection with certain Major Transactions, as defined in the warrant, including a change of control of the Company or the sale of more than 50% of the Company’s assets, the holder may have the option to receive, in exchange for the warrant, a number of shares of common stock equal to the Black-Scholes value of the warrant, as defined in the warrant, divided by the closing price of the common stock on the trading day before closing. In certain circumstances, all or a portion of such payment may be made in cash rather than in shares of common stock. In connection with certain “events of default,” as defined in the Facility Agreement, the holder may have the option to receive, in exchange for the warrant, a number of shares of common stock equal to the Black-Scholes value of the warrant, as defined in the warrant, divided by the volume weighted average price for the five trading days prior to the applicable Default Notice, as defined in the warrant.

          Prior to the Board’s approval of the Merger Agreement in September 2013, the warrants to purchase 275,000 shares of the Company’s common stock qualified for treatment as equity and the fair value of the warrants of $3.6 million on June 28, 2012 were classified as additional paid-in capital on the condensed balance sheet. Certain provisions in the Facility Agreement provided for cash redemption upon certain contingent events, including a Merger Agreement. Since the warrants fall under the scope of ASC 480, Distinguishing Liabilities from Equity, liability classification is required upon occurrence of a contingently redeemable event. Subsequent to the Board’s approval of the Merger Agreement, the warrants do not meet the criteria for equity treatment and therefore have been reclassified as a liability. The warrants were reclassified at fair value on the date of the Board’s approval of the Merger Agreement from additional paid-in capital to warrant liability in the condensed balance sheet. The fair value of the warrants of $8.0 million on September 30, 2013 are classified as warrant liability in the condensed balance sheet. The change in fair value of the warrant liability from Board’s approval of the Merger Agreement to September 30, 2013 was not significant. The warrant liability is subject to re-measurement at each balance sheet date until settled, and any change in fair value is recognized in the Company’s condensed statement of operations.

          The warrants to purchase 275,000 shares of the Company’s common stock were valued as of September 30, 2013 using a Black-Scholes valuation model with the following assumptions: expected life of 5.62 years, risk free rate of 1.77%, expected volatility of 213.09%, expected stock price of $30.00 and no expected dividend yield. The fair value of the warrants of $8.0 million as of September 30, 2013, is the product of the Black-Scholes value of the warrants and a discount equal to the discount of the closing price of the Company’s common stock on September 30, 2013 relative to the Merger Consideration. The most significant unobservable input in estimating the fair value of the warrants was the discount rate. A 100 basis point change in the discount rate input could change the fair value of the warrants by approximately $80,000.

9. Stockholders’ Equity

Preferred Stock

          As of September 30, 2013 and December 31, 2012, the Company was authorized to issue 27,000,000 shares of $0.001 par value preferred stock. As of September 30, 2013 and December 31, 2012, there were no shares of preferred stock issued or outstanding.

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Common Stock

          As of September 30, 2013 and December 31, 2012, the Company was authorized to issue 135,000,000 shares of $0.001 par value common stock. Common stockholders are entitled to dividends as and if declared by the Board, subject to the rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date on the common stock. Each share of common stock is entitled to one vote on matters submitted to a vote of stockholders.

Stock Option Plans and Stock-Based Compensation

          The Company recognizes compensation expense for its stock-based awards in accordance with ASC 718, Compensation-Stock Compensation. ASC 718 requires the recognition of compensation expense, using a fair value based method, for costs related to all stock-based payments including stock options. ASC 718 requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model.

          During the three months ended September 30, 2013 and 2012, stock-based compensation expense was $3.1 million and $4.3 million, respectively. Included within stock-based compensation expense for the three months ended September 30, 2013 were $2.9 million related to stock option grants, $85,000 related to restricted stock grants, and $78,000 related to employee stock purchases under the 2008 Employee Stock Purchase Plan. During the nine months ended September 30, 2013 and 2012, stock-based compensation expense was $9.0 million and $10.4 million, respectively. Included within stock-based compensation expense for the nine months ended September 30, 2013 were $8.0 million related to stock option grants, $618,000 related to restricted stock grants, and $304,000 related to employee stock purchases under the 2008 Employee Stock Purchase Plan.

          The Company’s 2004 Stock Incentive Plan (the “2004 Plan”), its 2008 Omnibus Incentive Plan (the “2008 Plan,” and together with the 2004 Plan, the “Plans”), and its 2008 Employee Stock Purchase Plan are described in the notes to financial statements in the Form 10-K. Generally, the Company’s outstanding stock options vest over four years. Stock options granted to certain non-employee directors generally vest over one year. Continued vesting typically terminates when the employment or consulting relationship ends. Vesting generally begins on the date of grant.

          The 2008 Plan contains an evergreen provision whereby the authorized shares increase on January 1st of each year in an amount equal to the least of (1) 4% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding year, (2) 2.5 million shares and (3) a number of shares determined by the Board that is lesser than (1) and (2). The number of additional shares authorized under the 2008 Plan on January 1, 2013 was approximately 1,881,000.

          Under the terms of the Plans, the maximum term of options intended to be incentive stock options granted to persons who own at least 10% of the voting power of all outstanding stock on the date of grant is 5 years. The maximum term of all other options is 10 years. Options issued under the 2008 Plan that are forfeited or expire will again be made available for issuing grants under the 2008 Plan. Options issued under the 2004 Plan that are forfeited or expire will not be made available for issuing grants under the 2008 Plan. All future equity awards will be made under the Company’s 2008 Plan.

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          Activity under the Plans is summarized as follows:

(in thousands, except per share data)				Outstanding Options
	Shares/Options Available For Grant			Number of Options			Weighted Average Exercise Price
Balance at December 31, 2012		884			5,450		$	16.65
Shares reserved		1,881			—			—
Shares surrendered under the 2008 Plan		13			—			—
Options granted		(1,956	)		1,956			11.53
Options exercised		—			(439	)		7.66
Options forfeited under the 2004 Plan		—			(7	)		11.12
Options forfeited under the 2008 Plan		447			(447	)		22.31
Restricted stock forfeited under the 2008 Plan		375			—			—
Balance at September 30, 2013		1,644			6,513		$	15.34

          In addition to the options issued under the Plans, the Company issued options to purchase 40,000 shares of its common stock under agreements for consulting services (the “Service Options”). As of September 30, 2013, 14,125 Service Options were vested and exercisable and 36,000 Service Options were outstanding with a weighted average exercise price of $11.04.

          The Company records stock-based compensation expense on a straight-line basis over the vesting period. As of September 30, 2013, there was total unrecognized compensation cost of approximately $21.8 million, net of estimated forfeitures, related to non-vested stock-based payments (including stock option grants, restricted stock grants and compensation expense relating to shares issued under the 2008 Employee Stock Purchase Plan). The unrecognized compensation cost will be adjusted for future changes in estimated forfeitures, and is expected to be recognized over a remaining weighted average period of 2.5 years as of September 30, 2013.

          The estimated grant date fair values of the employee stock options were calculated using the Black-Scholes valuation model, based on the following assumptions:

	Nine Months Ended September 30,
	2013			2012
Risk-free interest rate		0.04% - 2.40	%		0.91% - 1.40	%
Expected life		6.25 years			6.25 years
Expected dividends		—			—
Expected volatility		46.64% - 94.30	%		47.52% - 48.62	%

          During the nine months ended September 30, 2013, 375,000 shares of restricted stock subject to performance conditions were forfeited as the performance conditions were not achieved on the measurement date of March 31, 2013. As of September 30, 2013, 12,500 shares of restricted stock were unvested and outstanding. During the nine months ended September 30, 2013, 13,110 shares of common stock were surrendered to the Company to cover payroll taxes associated with the taxable income from the vesting of restricted stock previously granted.

          See Note 1 for information regarding the treatment of the Company’s stock-based instruments pursuant to the proposed Merger.

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Warrants

          In December 2004, the Company issued warrants to purchase 462,716 shares of common stock at a purchase price of $0.03 per share. The warrants were immediately exercisable at an exercise price of $3.00 per share, with the exercise period expiring in December 2014. As of September 30, 2013, 194,059 warrants were outstanding and exercisable.

          In October 2008, the Company issued warrants to purchase 1,290,323 shares of common stock at a purchase price of $0.125 per share and an exercise price of $7.44 per share. The warrants became exercisable on April 29, 2009 and have a seven-year term. As of September 30, 2013, 598,741 warrants were outstanding and exercisable.

          In October 2008, the Company issued warrants to purchase 322,581 shares of common stock at a purchase price of $0.125 per share and an exercise price of $6.20 per share. These warrants became exercisable on December 31, 2009 and have a seven-year term. As of September 30, 2013, 143,157 warrants were outstanding and exercisable.

          In May 2012, the Company issued warrants to purchase 275,000 shares of common stock at an exercise price of $27.70 per share. These warrants became exercisable on May 7, 2012 and have a seven-year term. As of September 30, 2013, all 275,000 warrants were outstanding and exercisable.

          See Note 1 for information regarding the treatment of the outstanding warrants pursuant to the proposed Merger.

10. Income Taxes

          The Company accounts for income taxes under ASC 740, Income Taxes. Deferred income taxes are determined based upon differences between financial reporting and income tax bases of assets and liabilities and are measured using the enacted income tax rates and laws that will be in effect when the differences are expected to reverse. The Company recognizes any interest and penalties related to unrecognized tax benefits as a component of income tax expense.

          Due to uncertainty surrounding realization of the deferred income tax assets in future periods, the Company has recorded a 100% valuation allowance against its net deferred tax assets. If it is determined in the future that it is more likely than not that the deferred income tax assets are realizable, the valuation allowance will be reduced.

11. Subsequent Event

          On October 1, 2013, the Company entered into an Asset Purchase Agreement with Pipeline and on October 8, 2013, pursuant to the terms of the Asset Purchase Agreement, the Company completed the acquisition of substantially all of Pipeline’s business dedicated to the design, development, manufacture and commercialization of orthopedic devices and related instruments for use with robotic devices and manual medical procedures (the “Transaction”).

          The purchase price for the Transaction consisted of a credit for a cash down payment previously paid to Pipeline in the amount of $2.5 million and the Company’s issuance at closing to Pipeline of an aggregate of 3,953,771 unregistered shares of common stock of the Company. The Company also entered into employment and consulting arrangements with certain key employees of the acquired business.

          In connection with the Transaction, the Company’s 1,137,513 shares of Pipeline common stock were redeemed and converted into an exclusive, limited distribution rights agreement for certain Pipeline technology.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

          In this report, “MAKO Surgical,” “MAKO,” the “Company,” “we,” “us” and “our” refer to MAKO Surgical Corp.

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this report. This report contains forward-looking statements regarding, among other things, statements related to expectations, goals, plans, objectives and future events. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Securities Exchange Act of 1934 and the Private Securities Reform Act of 1995. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” “outlook,” “guidance” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Examples of such statements include, but are not limited to, statements about our ability to complete the Merger with Stryker Corporation; the nature, timing and number of planned new product introductions; market acceptance of MAKOplasty, including our RIO® Robotic Arm Interactive Orthopedic system, or RIO, joint specific applications for the knee and hip, and our RESTORIS family of implant systems; the effect of anticipated changes in the size, health and activities of population on the demand for our products; assumptions and estimates regarding the size and growth of certain market segments; our ability and intent to expand into international markets; the timing and anticipated outcome of clinical studies; assumptions concerning anticipated product developments and emerging technologies; the future availability from third parties, including single source suppliers, of development services and implants for and components of our RIO; the viability of maintaining our licensed intellectual property or our ability to obtain additional licenses necessary to our growth; the anticipated adequacy of our capital resources to meet the needs of our business; our continued investment in new products and technologies; the ultimate marketability of newly launched products and products currently being developed; the ability to implement new technologies successfully; our ability to sustain, and our goals for, sales and earnings growth, including projections regarding RIO system installations and post-installation system utilization; our success in achieving timely approval or clearance of products with domestic and foreign regulatory entities; our compliance with domestic and foreign regulatory requirements, including Medical Device Reporting requirements and other required reporting to the United States Food and Drug Administration; the stability of certain domestic and foreign economic markets; the impact of anticipated changes in the U.S. healthcare industry and the medical device industry and our ability to react to and capitalize on those changes; future declarations of cash dividends; and the impact of any managerial changes. These statements are based on the current estimates and assumptions of our management as of the date of this report and are subject to risks, uncertainties, changes in circumstances, assumptions and other factors that may cause actual results to differ materially from those indicated by forward-looking statements, many of which are beyond our ability to control or predict. Such factors, among others, may have a material adverse effect on our business, financial condition and results of operations and may include the following:

• the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement with Stryker Corporation;

• the failure to complete or a delay in the completion of the proposed Merger with Stryker for any reason including, without limitation, the failure to obtain the required vote of our stockholders to adopt the Merger Agreement, the failure to obtain the required regulatory approval, or the failure to satisfy any of the other closing conditions of the Merger;

• risks related to disruption of management’s attention from our ongoing business operations due to the pendency of the Merger or the integration of the acquired business of Pipeline Biomedical Holdings, Inc.;

• the effect of the announcement of the Merger or the integration of the acquired business of Pipeline on our ability to maintain relationships with our customers and suppliers and maintain our operating results and business generally;

• the potentially significant impact of a continued economic downturn or delayed economic recovery on the ability of our customers to secure adequate funding, including access to credit, for the purchase of our products or cause our customers to delay a purchasing decision;

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• changes in general economic conditions and credit conditions;

• changes in the availability of capital and financing sources for our company and our customers;

• unanticipated changes in the timing and duration of the sales cycle for our products or the vetting process undertaken by prospective customers;

• changes in competitive conditions and prices in our markets;

• changes in the relationship between supply of and demand for our products;

• fluctuations in costs and availability of raw materials, finished goods (including from sole-sourced suppliers), and labor;

• changes in other significant operating expenses;

• slowdowns, delays, or inefficiencies in our product research and development efforts;

• unanticipated issues relating to intended product launches;

• decreases in sales of our principal product lines;

• decreases in utilization of our principal product lines or in procedure volume or system utilizations;

• increases in expenditures related to increased or changing governmental regulation or taxation of our business, both nationally and internationally;

• unanticipated issues in complying with domestic or foreign regulatory requirements related to MAKO’s current or future products, including initiating and communicating product actions or product recalls and meeting Medical Device Reporting requirements and other requirements of the United States Food and Drug Administration, or securing regulatory clearance or approvals for new products or upgrades or changes to our current products;

• developments adversely affecting our current and potential sales activities outside the United States;

• increases in cost containment efforts by group purchasing organizations;

• the impact of the United States healthcare reform legislation enacted in March 2010 on hospital spending, reimbursement, and the taxing of medical device companies;

• unanticipated changes in reimbursement to our customers for our products;

• any unanticipated impact arising out of the legal proceedings that have been or may be instituted against us and others relating to the Merger, as well as any other litigation, inquiry, or investigation brought against us;

• any negative impact from the generation or interpretation of clinical study results related to MAKOplasty;

• loss of key management and other personnel or inability to attract and/or retain such management and other personnel including as a result of the planned Merger;

• increases in costs of retaining a direct sales force and building a distributor network;

• unanticipated issues related to, or unanticipated changes in or difficulties associated with, the recruitment of agents and distributors of our products; and

• unanticipated intellectual property expenditures required to develop, market, protect, and defend our products or market position.

          These and other risks are described in greater detail under Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q, and Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2012. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We do not undertake any obligation to release any revisions to these forward-looking statements publicly to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

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          We have received or applied for trademark registration of and/or claim trademark rights, including in the following marks: “MAKOplasty^®,” “RIO^®” and “RESTORIS^®,” as well as in the MAKO Surgical Corp. “MAKO” logo, whether standing alone or in connection with the words “MAKO Surgical Corp.”

Overview

          We are an emerging medical device company that markets our RIO Robotic-Arm Interactive Orthopedic system, joint specific applications for the knee and hip, and proprietary RESTORIS implants for orthopedic procedures. We offer MAKOplasty, an innovative, restorative surgical solution that enables orthopedic surgeons to consistently, reproducibly and precisely treat patient specific osteoarthritic disease. Our common stock is listed on The NASDAQ Global Select Market under the ticker symbol “MAKO.”

          We have incurred net losses in each year since our inception and, as of September 30, 2013, we had an accumulated deficit of $272.2 million. We expect to continue to incur significant operating losses as we increase our sales and marketing activities and otherwise continue to invest capital in the development and expansion of our products and our business generally. We expect that our selling, general and administrative expenses will continue to increase to support the sales and marketing efforts associated with the growing commercialization of MAKOplasty and to support our continued growth in operations. We also expect our research and development expenses to increase as we continue to expand our research and development activities, including the support of existing products and the research and development of potential future products.

Recent business events and key milestones in the development of our business include the following:

          • During the nine month period ended September 30, 2013, we sold nineteen RIO systems, comprised of fifteen domestic commercial sales, three international commercial sales and one international demonstration sale, and six MAKOplasty total hip arthroplasty applications, or THA applications, to existing RIO customers. We deferred recognition of one international commercial sale and one international demonstration sale as all revenue recognition criteria consistent with the Company’s revenue recognition policy had not been satisfied as of September 30, 2013. We also recognized the revenue associated with two previously deferred international commercial RIO system sales during the nine months ended September 30, 2013, as all revenue recognition criteria consistent with the Company’s revenue recognition policy had been satisfied.

          • As of September 30, 2013, our worldwide commercial installed base was 174 systems and our domestic commercial installed base was 166 systems. Of the installed base of 174 systems, 115 systems, or 66% of our worldwide commercial installed base, have the MAKOplasty THA application.

          • A total of 9,521 MAKOplasty procedures were performed worldwide during the nine month period ended September 30, 2013, representing a 30% increase over the same period in 2012.

          • As further discussed below, on September 25, 2013, we entered into an Agreement and Plan of Merger with Stryker Corporation.

          • On October 8, 2013, pursuant to an Asset Purchase Agreement, we completed the acquisition of substantially all of Pipeline Biomedical Holdings, Inc.’s business dedicated to the design, development, manufacture and commercialization of orthopedic devices and related instruments for use with robotic devices and manual medical procedures.

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          We believe that the keys to continuing to grow our business are expanding the acceptance and application of MAKOplasty for partial knee resurfacing procedures, gaining market acceptance for our MAKOplasty THA application and associated implant systems and introducing other potential future applications. To successfully commercialize our products and continue to grow our business, we must gain broad market acceptance for MAKOplasty procedures.

Merger Agreement with Stryker Corporation

          On September 25, 2013, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Stryker Corporation, a Michigan corporation, or Stryker, and Lauderdale Merger Corporation, a Delaware corporation and wholly-owned subsidiary of Stryker, or Merger Sub.

          The Merger Agreement provides, among other things and subject to the terms and conditions set forth therein, that Merger Sub will be merged with and into the Company, or the Merger, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Stryker, and that, at the effective time of the Merger, or the Effective Time, each share of our common stock, par value $0.001 per share, outstanding immediately prior to the Effective Time (other than dissenting shares and shares owned by the Company, Stryker or Merger Sub or any of their subsidiaries) will be automatically converted into the right to receive $30.00 in cash, without interest, or the Merger Consideration.

          Pursuant to the Merger Agreement, as of the Effective Time, (1) each option to purchase a share of our common stock that is outstanding immediately prior to the Effective Time will become fully vested and be converted into the right to receive a cash payment equal to the Merger Consideration, net of the exercise price, (2) each award of restricted shares of our common stock that is outstanding immediately prior to the Effective Time will become fully vested and be converted into the right to receive a cash payment equal to the product of the Merger Consideration and the number of shares subject to the award, and (3) each unexercised Company warrant that is outstanding immediately prior to the Effective Time will, in accordance with the terms of the applicable warrant, no longer be exercisable for any capital stock of the surviving corporation, but will only be exercisable or canceled, as applicable, in accordance with the terms of the applicable warrant in exchange for the Merger Consideration.

          Our Board of Directors, or the Board, has unanimously approved the Merger Agreement, the Merger and the other transactions contemplated thereby. The closing of the Merger is subject to the adoption of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote, or the Company Stockholder Approval. The closing of the Merger is also subject to various customary conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; the absence of any newly enacted law, injunction or order prohibiting the Merger; the accuracy of the representations and warranties contained in the Merger Agreement (generally subject to a material adverse effect qualification); compliance with the covenants and agreements in the Merger Agreement in all material respects; and, until August 31, 2014, the absence of certain pending actions by governmental entities against the parties to the Merger Agreement or their subsidiaries. The closing of the Merger is not subject to a financing condition.

          We have made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants (1) to conduct its business in the ordinary course during the period between the execution of the Merger Agreement and the closing of the Merger, (2) not to engage in specified types of transactions during this period unless agreed to in writing by Stryker, (3) to convene and hold a meeting of our stockholders for the purpose of obtaining the Company Stockholder Approval and (4) subject to certain exceptions, not to withdraw, modify or qualify in a manner adverse to Stryker or Merger Sub the recommendation of the Board that the our stockholders approve the adoption of the Merger Agreement.

           The Merger Agreement contains certain termination rights, including our right to terminate the Merger Agreement to accept an unsolicited superior proposal from a third party. The Merger Agreement provides that, upon termination of the Merger Agreement by us in order to accept a superior proposal, a termination fee of $61.0 million will be payable by us to Stryker. The termination fee is also payable under certain other limited circumstances, including if Stryker terminates the Merger Agreement due to the Board’s change of recommendation in favor of the Merger or our failure to include the Board’s recommendation in favor of the Merger in the proxy statement. In addition, subject to certain exceptions and limitations, either party may terminate the Merger Agreement if the Merger is not consummated by September 30, 2014.

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          We retained J.P. Morgan as our financial advisor in connection with the proposed Merger and to deliver a fairness opinion in connection with the proposed Merger. We have agreed to pay J.P. Morgan an aggregate fee of approximately $19.0 million, of which approximately $16.0 million will be payable upon completion of the Merger, and of which $3.0 million was earned upon delivery of J.P. Morgan’s opinion and was not contingent on the consummation of any transaction. The $3.0 million was recorded to expense in merger transaction expenses in the condensed statement of operations for the three months ended September 30, 2013. In addition, we have agreed to reimburse J.P Morgan for its reasonable expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the Federal securities laws.

Factors That May Influence Future Results of Operations

          The following is a description of factors that may influence our future results of operations, including significant trends and challenges that we believe are important to an understanding of our business and results of operations.

Revenue

          Revenue is generated from: (1) sales of RIO systems and applications, (2) sales of implants and disposable products utilized in MAKOplasty procedures; and (3) sales of maintenance services. Future revenue from sales of our products is difficult to predict and we expect that it will only modestly reduce our continuing losses resulting from selling, general and administrative expenses, research and development expenses and other activities for approximately the next two years. Our future revenue may also be adversely affected by the current general economic conditions and the resulting tightening of the credit markets, which may cause purchasing decisions to be delayed or cause our customers to experience difficulties in securing adequate funding to buy our products.

          The generation of recurring revenue through sales of our implants, disposable products and maintenance contracts is an important part of the MAKOplasty business model. We anticipate that recurring revenue will constitute an increasing percentage of our total revenue as we leverage each new installation of our RIO system to generate recurring sales of implants and disposable products and as we expand our RIO applications and implant product offerings, including our MAKOplasty THA application.

Cost of Revenue

          Cost of revenue primarily consists of the direct costs associated with the manufacture of RIO systems, implants and disposable products for which revenue has been recognized in accordance with our revenue recognition policy. Costs associated with providing maintenance services are expensed as incurred. Cost of revenue also includes the allocation of manufacturing overhead costs, freight, royalties related to the sale of products covered by licensing arrangements and valuation adjustments for obsolete, impaired or excess inventory.

Selling, General and Administrative Expenses

          Our selling, general and administrative expenses consist primarily of expenses relating to compensation, including the direct salary and benefit cost for sales, marketing, training, clinical research, operations, regulatory, quality, finance, legal, executive, and administrative personnel, including stock-based compensation. Other significant expenses include costs associated with sales and marketing activities, marketing and advertising materials, training, insurance, professional fees for legal and accounting services, consulting fees, travel expenses, facility and related operating costs and recruiting and other human resources expenses. Our selling, general and administrative expenses also include the expense relating to the new medical device tax, which became effective January 1, 2013. Our selling, general and administrative expenses are expected to continue to increase due to the planned increase in the number of activities necessary to support the sales and marketing efforts associated with the growing commercialization of MAKOplasty. In addition, we expect to incur additional costs associated with securing, protecting and defending our intellectual property rights as necessary and advisable to support our current and future product offerings.

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          We reclassified depreciation expense for certain property and equipment from selling, general and administrative expense to depreciation and amortization expense in the prior period’s statement of operations to conform to the current period’s presentation as discussed in Note 1 to the Financial Statements. This change in presentation only affects the components of operating costs and expenses and does not affect total operating costs and expenses, revenue, cost of revenue, net loss or cash flows.

Research and Development Expenses

          Costs related to research, design and development of products are charged to research and development expense as incurred. These costs include direct salary and benefit costs for research and development employees including stock-based compensation, cost for materials used in research and development activities and costs for outside services. We expect our research and development expenses to increase as we continue to expand our research and development activities, including the support of existing products and the research and development of potential future products.

Critical Accounting Policies

          There have been no significant changes in our critical accounting policies during the nine months ended September 30, 2013 as compared to the critical accounting policies described in our Form 10-K for the year ended December 31, 2012.

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Results of Operations for the Three and Nine Months Ended September 30, 2013 and 2012

(dollars in thousands)	Three Months Ended September 30,												Nine Months Ended September 30,
	2013			2012			Change			% of Change			2013			2012			Change			% of Change
Revenue:
Procedures	$	16,224		$	12,042		$	4,182			35	%	$	47,438		$	36,622		$	10,816			30	%
Systems		2,695			14,413			(11,718	)		(81	%)		17,425			28,467			(11,042	)		(39	%)
Service		3,843			2,722			1,121			41	%		10,933			7,402			3,531			48	%
Total revenue		22,762			29,177			(6,415	)		(22	%)		75,796			72,491			3,305			5	%
Cost of revenue:
Procedures		4,139			6,226			(2,087	)		(34	%)		15,755			12,001			3,754			31	%
Systems		1,773			5,453			(3,680	)		(67	%)		7,353			10,697			(3,344	)		(31	%)
Service		522			295			227			77	%		1,306			1,127			179			16	%
Total cost of revenue		6,434			11,974			(5,540	)		(46	%)		24,414			23,825			589			2	%
Gross profit		16,328			17,203			(875	)		(5	%)		51,382			48,666			2,716			6	%
Operating costs and expenses:
Selling, general and administrative (exclusive of depreciation and amortization)		22,556			19,794			2,762			14	%		64,535			57,953			6,582			11	%
Research and development (exclusive of depreciation and amortization)		6,235			4,973			1,262			25	%		16,881			15,071			1,810			12	%
Merger transaction expenses		6,611			—			6,611			100	%		6,611			—			6,611			100	%
Depreciation and amortization		2,174			1,787			387			22	%		6,323			5,244			1,079			21	%
Total operating costs and expenses		37,576			26,554			11,022			42	%		94,350			78,268			16,082			21	%
Loss from operations		(21,248	)		(9,351	)		(11,897	)		127	%		(42,968	)		(29,602	)		(13,366	)		45	%
Other income (expense), net		(8	)		2,842			(2,850	)		(100	%)		(7,621	)		2,867			(10,488	)		(366	%)
Loss before income taxes		(21,256	)		(6,509	)		(14,747	)		227	%		(50,589	)		(26,735	)		(23,854	)		89	%
Income tax expense		—			45			(45	)		(100	%)		15			84			(69	)		(82	%)
Net loss	$	(21,256	)	$	(6,554	)	$	(14,702	)		224	%	$	(50,604	)	$	(26,819	)	$	(23,785	)		89	%

Revenue

          Revenue was $22.8 million for the three months ended September 30, 2013, compared to $29.2 million for the three months ended September 30, 2012. The decrease in revenue of $6.4 million, or 22%, was primarily due to an $11.7 million, or 81%, decrease in system revenue, which was partially offset by a $4.2 million, or 35%, increase in procedure revenue and a $1.1 million, or 41%, increase in service revenue.

          The $11.7 million decrease in system revenue was attributable to the recognition of $2.7 million of revenue from two commercial unit sales of our RIO system, both of which included MAKOplasty THA applications, two MAKOplasty THA application sales to existing customers, and recognition of one previously deferred international commercial RIO system sale during the three months ended September 30, 2013, as compared to the recognition of $14.4 million of revenue from fifteen commercial unit sales of our RIO system, eleven of which included MAKOplasty THA applications, and three MAKOplasty THA application sales to existing customers during the three months ended September 30, 2012. System revenue for the three months ended September 30, 2013 was reduced by $246,000 for the deferral of system revenue primarily related to our service obligation for maintenance, as compared to the deferral of $2.2 million during the three months ended September 30, 2012. Revenues deferred for the service obligation will be recognized in service revenue over the period maintenance services are performed, which is generally twelve months. In addition to the two commercial unit sales of our RIO system recognized during the three months ended September 30, 2013, we had one international commercial sale and one international demonstration sale of our RIO system for which we deferred revenue recognition as all revenue recognition criteria consistent with the Company’s revenue recognition policy had not been satisfied as of September 30, 2013.

           The $4.2 million increase in procedure revenue was attributable to an increase in the number of MAKOplasty procedures performed during the three months ended September 30, 2013 to 3,259 as compared to 2,413 during the three months ended September 30, 2012. The 35% increase in the number of MAKOplasty procedures performed was primarily due to the continued adoption of MAKOplasty, driven by the growth of our commercial installed base of RIO systems and relatively consistent average monthly utilization per commercial site.

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          The $1.1 million increase in service revenue was attributable to an increase in customer sites under maintenance contracts as our installed base of RIO systems increases.

          Revenue was $75.8 million for the nine months ended September 30, 2013, compared to $72.5 million for the nine months ended September 30, 2012. The increase in revenue of $3.3 million, or 5%, was primarily due to a $10.8 million, or 30%, increase in procedure revenue and a $3.5 million, or 48%, increase in service revenue, which was partially offset by an $11.0 million, or 39%, decrease in system revenue.

          The $10.8 million increase in procedure revenue was attributable to an increase in the number of MAKOplasty procedures performed during the nine months ended September 30, 2013 to 9,521 as compared to 7,300 during the nine months ended September 30, 2012. The 30% increase in the number of MAKOplasty procedures performed was primarily due to the continued adoption of MAKOplasty, driven by the growth of our commercial installed base of RIO systems and relatively consistent average monthly utilization per commercial site.

          The $11.0 million decrease in system revenue was attributable to the recognition of $17.4 million of revenue from seventeen commercial unit sales of our RIO system, including two international commercial sales, thirteen of which included MAKOplasty THA applications, six MAKOplasty THA application sales to existing customers, and recognition of two previously deferred international commercial RIO system sales during the nine months ended September 30, 2013, as compared to the recognition of $28.5 million of revenue from twenty-nine commercial unit sales of our RIO system, including one international commercial sale, twenty-two of which included MAKOplasty THA applications, and fourteen MAKOplasty THA application sales to existing customers during the nine months ended September 30, 2012. System revenue for the nine months ended September 30, 2013 was reduced by $2.0 million for the deferral of system revenue primarily related to our service obligation for maintenance, as compared to the deferral of $4.2 million during the nine months ended September 30, 2012. Revenues deferred for the service obligation will be recognized in service revenue over the period maintenance services are performed, which is generally twelve months. In addition to the seventeen commercial unit sales of our RIO system recognized during the nine months ended September 30, 2013, we had one international commercial sale and one international demonstration sale of our RIO system for which we deferred revenue recognition as all revenue recognition criteria consistent with the Company’s revenue recognition policy had not been satisfied as of September 30, 2013.

          The $3.5 million increase in service revenue was attributable to an increase in customer sites under maintenance contracts as our installed base of RIO systems increases.

          We expect our revenue to increase in future periods as the number of MAKOplasty procedures performed increases and the installed base of RIO systems covered under maintenance contracts increases.

Cost of Revenue and Gross Profit

          Cost of revenue was $6.4 million for the three months ended September 30, 2013, compared to $12.0 million for the three months ended September 30, 2012. The decrease in cost of revenue of $5.5 million, or 46%, was primarily due to the recognition of three unit sales of our RIO system and two MAKOplasty THA application sales to existing customers during the three months ended September 30, 2013 as compared to recognition of fifteen unit sales of our RIO system and three MAKOplasty THA application sales to existing customers during the three months ended September 30, 2012 and a $3.1 million inventory valuation adjustment for excess hip implant inventory during the three months ended September 30, 2012.

          Cost of revenue was $24.4 million for the nine months ended September 30, 2013, compared to $23.8 million for the nine months ended September 30, 2012. The increase in cost of revenue of $589,000, or 2%, was primarily due to an increase in MAKOplasty procedures performed and a $4.5 million inventory valuation adjustment for excess hip implant inventory as discussed below during the nine months ended September 30, 2013 as compared to a $3.3 million inventory valuation adjustment for excess hip implant inventory during the nine months ended September 30, 2012, which was partially offset by fewer RIO systems sold during the nine months ended September 30, 2013 compared to same period in 2012.

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          During the nine months ended September 30, 2013, we increased our inventory reserve by $4.5 million, or $(0.10) per basic and diluted share, of which $4.1 million was incurred in the second quarter of 2013, for excess hip implant inventory related to our RESTORIS Trinity Cup, RESTORIS Metafix Femoral Stem implant system and our RESTORIS Z implant system. The valuation adjustment was primarily due to the greater than anticipated adoption of our RESTORIS PST Cup and Tapered Femoral Stem hip implant system, or RESTORIS PST implant system, which we commercially launched in October 2012, as a percent of total THA procedures. In the second and third quarter of 2013, over 75% of our THA procedure volume was performed with our RESTORIS PST implant system and we expect that it will continue to grow in the future as a percentage of total THA procedures. The inventory valuation adjustment was charged to cost of revenue – procedures in the condensed statement of operations. Depending on demand for our products, technical obsolescence and new product introductions, future valuation adjustments of our inventory may occur.

          We expect our cost of revenue to increase in future periods as the number of MAKOplasty procedures performed increases and the installed base of RIO systems covered under maintenance contracts increases.

          Gross profit for the three months ended September 30, 2013 was $16.3 million compared to a gross profit of $17.2 million for the three months ended September 30, 2012. Total gross margin for the three months ended September 30, 2013 was 72%, including a 74% margin on procedure revenue, a 34% margin on system revenue and an 86% margin on service revenue compared to a gross margin of 59% for the three months ended September 30, 2012, including a 48% margin on procedure revenue, a 62% margin on system revenue and an 89% margin on service revenue. The increase in margin on procedure revenue was primarily attributable to the $3.1 million inventory valuation adjustment for excess hip implant inventory during the three months ended September 30, 2012. The decrease in margin on system revenue was primarily attributable to fewer RIO systems sold which resulted higher indirect costs per system during the three months ended September 30, 2013 compared to the same period in 2012. The margin on service revenue for the three months ended September 30, 2013 was consistent with the margin on service revenue for the three months ended September 30, 2012.

          Gross profit for the nine months ended September 30, 2013 was $51.4 million compared to a gross profit of $48.7 million for the nine months ended September 30, 2012. Total gross margin for the nine months ended September 30, 2013 was 68%, including a 67% margin on procedure revenue, a 58% margin on system revenue and an 88% margin on service revenue compared to a gross margin of 67% for the nine months ended September 30, 2012, including a 67% margin on procedure revenue, a 62% margin on system revenue and an 85% margin on service revenue. The margin on procedure revenue for the nine months ended September 30, 2013 was consistent with the margin on procedure revenue for the nine months ended September 30, 2012. The decrease in margin on system revenue was primary attributable to fewer RIO systems sold which resulted higher indirect costs per system during the nine months ended September 30, 2013 compared to the same period in 2012. The margin on service revenue for the nine months ended September 30, 2013 was consistent with the margin on service revenue for the nine months ended September 30, 2012.

Selling, General and Administrative

          Selling, general and administrative expense for the three and nine months ended September 30, 2013 were $22.6 million and $64.5 million, respectively, compared to $19.8 million and $58.0 million, respectively, for the three and nine months ended September 30, 2012. The increase of $2.8 million, or 14%, for the three months ended September 30, 2013 and $6.6 million, or 11%, for the nine months ended September 30, 2013, was primarily due to the impact of the new medical device excise tax ($288,000 and $1.0 million for the three and nine months ended September 30, 2013, respectively), which became effective January 1, 2013, the recognition of a $2.0 million payment to Pipeline in connection with negotiation of the Asset Purchase Agreement we entered into with Pipeline in October 2013 as discussed in Note 11 to the Financial Statements, and an increase in legal costs associated with (1) asserting our intellectual property rights and (2) to cover our insurance deductible related to the actions discussed in Note 7 to the Financial Statements. Selling, general and administrative expense for the nine months ended September 30, 2013 was also impacted by an asset impairment charge for excess hip implant instruments as discussed below. Selling, general and administrative expense for the three and nine months ended September 30, 2013 included $2.5 million and $7.2 million, respectively, of stock-based compensation expense compared to $3.7 million and $8.7 million, respectively, for the three and nine months ended September 30, 2012. The decrease in stock-based compensation expense was primarily due to $1.1 million of stock-based compensation recognized for the accelerated vesting of options occurring upon the resignation of our former Senior Vice President of Sales and Marketing on July 17, 2012. We expect our selling, general and administrative expenses to continue to increase due to our planned increase in the number of activities necessary to support the sales and marketing efforts associated with the growing commercialization of our products.

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          During the nine months ended September 30, 2013, we incurred asset impairments of $2.5 million, or $(0.05) per basic and diluted share, compared to $828,000 for the nine months ended September 30, 2012. The $2.5 million impairment for the nine months ended September 30, 2013 was primarily related to excess hip implant instruments associated with our to our RESTORIS Trinity Cup, RESTORIS Metafix Femoral Stem implant system and our RESTORIS Z implant system. The impairment charge was primarily due to greater than anticipated adoption of our RESTORIS PST implant system as a percent of total THA procedures as discussed in “Cost of Revenue and Gross Profit” above. The $2.5 million impairment charge was charged to selling, general and administrative expense in the condensed statement of operations.

Research and Development

          Research and development expense for the three and nine months ended September 30, 2013 was $6.2 million and $16.9 million, respectively, compared to $5.0 million and $15.1 million, respectively, for the three and nine months ended September 30, 2012. The increase of $1.3 million, or 25%, for the three months ended September 30, 2013 and $1.8 million, or 12%, for the nine months ended September 30, 2013 was primarily due to $778,000 of expense recognized related to 203,417 shares of our common stock we issued to Pipeline on October 1, 2010 under the Strategic Alliance Agreement with Pipeline. The shares issued to Pipeline were being recognized on a straight line basis over the period Pipeline was performing development services under the Strategic Alliance Agreement. We recognized the remaining $778,000 of previously unrecognized expense related to the shares issued to Pipeline as of September 30, 2013 as we determined it was probable no further development services would be performed under the Strategic Alliance Agreement. The increase in research and development expense for the three and nine months ended September 30, 2013 was also due to an increase in research and development activities associated with on-going development of our RIO system and applications, our RESTORIS family of implant systems, and potential future products. We expect our research and development expense to increase as we continue to expand our research and development activities, including the support of existing products and the research and development of potential future products.

Merger Transaction Expenses

          During the three and nine months ended September 30, 2013, we recognized $6.6 million of transaction costs related to the Merger Agreement with Stryker as discussed in “Merger Agreement with Stryker Corporation” above. These costs consisted of $3.6 million for legal services and $3.0 million for financial advisory services from J.P. Morgan that have been incurred as a result of the proposed Merger.

Depreciation and Amortization

          Depreciation and amortization expense for the three and nine months ended September 30, 2013 was $2.2 million and $6.3 million, respectively, compared to $1.8 million and $5.2 million, respectively, for the three and nine months ended September 30, 2012. The increase of $387,000, or 22%, for the three months ended September 30, 2013 and $1.1 million, or 21%, for the nine months ended September 30, 2013 was primarily due to an increase in depreciation of property and equipment as a result of purchases made during 2012 and 2013 for implant instrumentation to support the growth in our installed base of RIO systems and purchases to support the growth in our business and the expansion of our training facilities in 2012 to support such growth.

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Other income (expense), net

          Other income (expense), net for the three and nine months ended September 30, 2013 was $8,000 and $7.6 million of expense, respectively, compared to $2.8 million and $2.9 million of income, respectively, for the three and nine months ended September 30, 2012. The increase in expense of $2.9 million and $10.5 million for the three and nine months ended September 30, 2013, respectively, was primarily due to non-cash expense recognized on the change in fair value of our Financing Commitment as discussed in Note 8 to the Financial Statements.

Income Taxes

          No federal income taxes were recognized for the three and nine months ended September 30, 2013 and 2012, due to net operating losses in each period. State and local income taxes for the three and nine months ended September 30, 2013 was $0 and $15,000, respectively, compared to $45,000 and $84,000, respectively, for the three and nine months ended September 30, 2012. Income taxes recognized to date have not been significant due to net operating losses we have incurred in each period since our inception. In addition, no deferred income taxes were recorded for the three and nine months ended September 30, 2013 and 2012, as all income tax benefits were fully offset by a valuation allowance against our net deferred income tax assets.

Liquidity and Capital Resources

(dollars in thousands)	Nine Months Ended September 30,
	2013			2012			Change			% of Change
Net cash used in operating activities	$	(14,006	)	$	(27,683	)	$	13,677			(49%)
Net cash provided by (used in) investing activities		(37,948	)		20,264			(58,212	)		(287%)
Net cash provided by financing activities		3,526			5,161			(1,635	)		(32%)
Net decrease in cash and cash equivalents	$	(48,428	)	$	(2,258	)	$	(46,170	)		2,045%

          We have incurred net losses and negative cash flow from operating activities for each period since our inception in November 2004. As of September 30, 2013, we had an accumulated deficit of $272.2 million and have financed our net losses principally through the sale of our equity securities.

          As of September 30, 2013, we had $56.3 million in cash, cash equivalents and available-for-sale investments. Our cash and investments classified as available-for-sale are held in a variety of interest bearing instruments, including notes and bonds from U.S. government agencies and certificates of deposit.

          On May 7, 2012, we entered into a Facility Agreement with affiliates of Deerfield Management Company, L.P., or Deerfield, as amended on June 28, 2012, pursuant to which Deerfield agreed to loan us up to $50 million, subject to the terms and conditions set forth in the Facility Agreement. Under the terms of the agreement, we had the flexibility, but were not required, to draw down on the Facility Agreement in $10 million increments at any time until May 15, 2013. No funds were drawn under the Facility Agreement which expired on May 15, 2013. We were required to pay Deerfield a fee of $1.0 million if no funds were drawn under the Facility Agreement, which we paid in the second quarter of 2013.

Net Cash Used in Operating Activities

          Net cash used in operating activities primarily reflects the net loss for those periods, which was reduced in part by non-cash items, such as depreciation and amortization, stock-based compensation, non-cash changes under the credit facility, and the inventory valuation adjustments and asset impairments discussed in “Results of Operations for the Three and Nine Months Ended September 30, 2013 and 2012” above. Net cash used in operating activities was also affected by changes in operating assets and liabilities. Included in changes in operating assets and liabilities for the nine months ended September 30, 2013 are $6.1 million of increases to inventory necessitated by increased sales of implants and disposable products and the commercial launch of our RESTORIS PST implant system for use with our MAKOplasty THA application, which was partially offset by $5.7 million of decreases in accounts receivable due primarily to collections of sales recognized in the prior year and $7.4 million of increases in other accrued liabilities, $6.6 million of which is associated with costs incurred in connection with the Merger Agreement with Stryker as discussed in “Merger Agreement with Stryker Corporation” above. Included in changes in operating assets and liabilities for the nine months ended September 30, 2012 are $10.6 million of increases to inventory necessitated by the anticipated increased sales of implants and disposable products and the commercial launch of our MAKOplasty THA application and $5.3 million of decreases to accrued compensation and employee benefits, which were partially offset by $3.2 million of increases to deferred revenue primarily related to the first year warranty and maintenance services provided by MAKO.

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Net Cash Provided by (Used in) Investing Activities

          Net cash used in investing activities for the nine months ended September 30, 2013 was primarily attributable to the purchase of investments of $59.2 million and purchases of property and equipment of $5.3 million primarily associated with implant instrumentation to support the commercialization of our total hip implant systems and computer equipment and software to support the growth in our business, which was partially offset by proceeds of $27.5 million from sales and maturities of investments. Net cash provided by investing activities for the nine months ended September 30, 2012 was primarily attributable to proceeds of $30.8 million from sales and maturities of investments, which was partially offset by the purchase of investments of $3.2 million and purchases of property and equipment of $7.3 million primarily associated with implant instrumentation to support the commercialization of our total hip implant systems and the growth in our business.

Net Cash Provided by Financing Activities

          Net cash provided by our financing activities for the nine months ended September 30, 2013 and 2012 was primarily attributable to proceeds received under our employee stock purchase plan of $1.2 million and $1.3 million, respectively, and to proceeds received on the exercise of stock options and warrants of $3.4 million and $4.0 million, respectively, which was partially offset by a $1.0 million cash payment to Deerfield under our credit facility for the nine months ended September 30, 2013.

Operating Capital and Capital Expenditure Requirements

          To date, we have not achieved profitability. We anticipate that we will continue to incur substantial net losses for approximately the next two years as we expand our sales and marketing capabilities in the orthopedic products market, continue to commercialize our RIO system and MAKOplasty applications, including our MAKOplasty THA application, and our implant systems, continue research and development of existing and future products, and continue development of the corporate infrastructure required to sell and market our products and support operations. We also expect to experience increased cash requirements for inventory and property and equipment in conjunction with the continued commercialization of our RIO system and implant systems, and introducing new and potential future applications including our MAKO-branded RESTORIS PST implant system, which we commercially released in October 2012.

          In executing our current business plan, we believe our cash, cash equivalents and investment balances as of September 30, 2013, and interest income we earn on these balances, will be sufficient to meet our anticipated cash requirements for at least the next twelve months. To the extent our available cash, cash equivalents and investment balances are insufficient to satisfy our operating requirements, we will need to seek additional sources of funds, including selling additional equity, debt or other securities, or modify our current business plan. However, our ability to sell additional equity, debt or other securities, or to otherwise incur new debt, is limited by our Merger Agreement for our proposed Merger with Stryker. If we are able to sell additional equity or convertible debt securities, the sale of such securities may result in dilution to our current stockholders. If we raise additional funds through the issuance of debt securities, these securities may have rights senior to those of our common stock and could contain covenants that could restrict our operations and ability to issue dividends. We may also require additional capital beyond our currently forecasted amounts. Any required additional capital, whether forecasted or not, may not be available on reasonable terms, or at all. If we are unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned research, development and commercialization activities, which could materially harm our business and results of operations.

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          Because of the numerous risks and uncertainties associated with the development of medical devices and the current economic situation, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to complete the development of our products and successfully deliver commercial products to the market. Our future capital requirements will depend on many factors, including but not limited to the following:

• the revenue generated by sales of our current and future products;

• the expenses we incur in selling and marketing our products and supporting our growth;

• the costs and timing of domestic and foreign regulatory clearance or approvals for new products or upgrades or changes to our products;

• the expenses we incur in complying with domestic or foreign regulatory requirements imposed on medical device companies;

• the rate of progress, cost and success or failure of on-going development activities;

• the emergence of competing or complementary technological developments;

• the expenses we may incur in finding additional or alternate sources of supply for any single source suppliers in the event such suppliers are no longer able to fulfill our supply requirements;

• the costs of filing, prosecuting, defending and enforcing any patent or license claims and other intellectual property rights, or participating in litigation related activities;

• the terms and timing of any collaborative, licensing, or other arrangements that we may establish;

• the impact of the United States healthcare reform legislation enacted in March 2010 on hospital spending, reimbursement, and the taxing of medical device companies;

• the acquisition of businesses, products and technologies; and

• general economic conditions and interest rates.

Contractual Obligations

          At September 30, 2013, we were committed to make future purchases for inventory and other items that occur in the ordinary course of business under various purchase arrangements with fixed purchase provisions aggregating $7.7 million.

          In June 2013, we entered into a License Agreement for certain exclusive intellectual property rights which requires minimum payments of approximately $1.0 million annually. The initial term of the License Agreement ends in June 2016 and may be renewed for additional periods.

          On September 25, 2013, we entered into a Merger Agreement with Stryker. Upon a change of control event, we have a contingent obligation to make one-time payments of up to $18.0 million under certain royalty bearing arrangements related to our intellectual property rights. The contingent obligation to pay up to $18.0 million is generally in lieu of paying ongoing, periodic royalty payments. In addition, we retained J.P. Morgan as our financial advisor in connection with the proposed Merger and to deliver a fairness opinion in connection with the proposed Merger. We agreed to pay J.P. Morgan an aggregate fee of approximately $19.0 million, of which approximately $16.0 million will be payable upon completion of the Merger, and of which $3.0 million was earned upon delivery of J.P. Morgan’s opinion and was not contingent on the consummation of any transaction. The $3.0 million was recorded as merger transaction expenses for the three months ended September 30, 2013.

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          Other than as described above and scheduled payments through September 30, 2013, there have been no significant changes in our contractual obligations during the nine months ended September 30, 2013 as compared to the contractual obligations described in our Form 10-K for the year ended December 31, 2012.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

          There have been no material changes from the quantitative and qualitative disclosures about market risk disclosed in item 7A of Part II of our Form 10-K for the year ended December 31, 2012.

ITEM 4. CONTROLS AND PROCEDURES.

          Disclosure Controls and Procedures.

          In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, or the Exchange Act, our management evaluated, with the participation of our chief executive officer and chief financial officer, or the Certifying Officers, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2013. Based upon their evaluation of these disclosure controls and procedures, our Certifying Officers concluded that the disclosure controls and procedures were effective as of September 30, 2013 to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Securities and Exchange Commission, and to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

          We believe that a controls system, no matter how well designed and operated, is based in part upon certain assumptions about the likelihood of future events, and therefore can only provide reasonable, not absolute, assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting.

          There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

          In May 2012, two shareholder complaints were filed in the U.S. District Court for the Southern District of Florida against the Company and certain of its officers and directors as purported class actions on behalf of all purchasers of the Company’s common stock between January 9, 2012 and May 7, 2012. The cases were filed under the captions James H. Harrison, Jr. v. MAKO Surgical Corp. et al., No. 12-cv-60875 and Brian Parker v. MAKO Surgical Corp. et al., No. 12-cv-60954. The court consolidated the Harrison and Parker complaints under the caption In re MAKO Surgical Corp. Securities Litigation, No. 12-60875-CIV-Cohn/Seltzer, and appointed Oklahoma Firefighters Pension and Retirement System and Baltimore County Employees’ Retirement System to serve as co-lead plaintiffs. In September 2012, the co-lead plaintiffs filed an amended complaint that expanded the proposed class period through July 9, 2012. The amended complaint alleged the Company, its Chief Executive Officer, President and Chairman, Maurice R. Ferré, M.D., and its Chief Financial Officer, Fritz L. LaPorte, violated federal securities laws by making misrepresentations and omissions during the proposed class period about the Company’s financial guidance for 2012 that artificially inflated the Company’s stock price. The amended complaint sought an unspecified amount of compensatory damages, interest, attorneys’ and expert fees, and costs. In October 2012, the Company, Dr. Ferré, and Mr. LaPorte filed a motion to dismiss the amended complaint in its entirety. On May 15, 2013, the court granted the motion to dismiss and found that the challenged statements in the amended complaint were not material misrepresentations or omissions but rather were forward-looking statements accompanied by meaningful cautionary language and thus not actionable. In its order, the court gave co-lead plaintiffs an opportunity to request leave to file a second amended complaint, which they declined. Accordingly, on June 14, 2013 the court closed the case and entered final judgment for the Company, Dr. Ferré and Mr. LaPorte. No appeal was filed and the time for filing an appeal has expired.

          Additionally, in June and July 2012, four shareholder derivative complaints were filed against the Company, as nominal defendant, and its Board of Directors (the “Board”), as well as Dr. Ferré and, in two cases, Mr. LaPorte. Those complaints allege that the Company’s directors and certain officers violated their fiduciary duties, wasted corporate assets and were unjustly enriched by allowing the Company to make misrepresentations or omissions that exposed the Company to damages in an earlier-filed securities class action and damage to the Company’s goodwill.

          Two of the derivative actions were filed in the Seventeenth Judicial Circuit in and for Broward County, Florida and have been consolidated under the caption In re MAKO Surgical Corporation Shareholder Derivative Litigation, No. 12-cv-16221. By order dated July 3, 2012, the court stayed In re MAKO Surgical Corporation Shareholder Derivative Litigation pending a ruling on the motion to dismiss filed in the In re MAKO Surgical Corp. Securities Litigation class action. On June 20, 2013, this case was voluntarily dismissed.

          The two other derivative actions were filed in the U.S. District Court for the Southern District of Florida under the captions Todd Deehl v. Ferré et al., No. 12-cv-61238 and Robert Bardagy v. Ferré et al., No. 12-cv-61380. On August 29, 2012, the court consolidated these two federal cases under the caption In re MAKO Surgical Corp. Derivative Litig., Case No. 12-61238-CIV-COHN-SELTZER and approved the filing of a consolidated complaint. The consolidated complaint alleged that the Company’s directors and two of its officers breached fiduciary duties, wasted corporate assets and were unjustly enriched by issuing, or allowing the issuance of, annual sales guidance for 2012 that they allegedly knew lacked any reasonable basis. The consolidated complaint sought an unspecified amount of damages, attorneys’ and expert fees, costs and corporate reforms to allegedly improve the Company’s corporate governance and internal procedures. On October 31, 2012, the Company and the individual defendants each filed motions to dismiss the consolidated complaint. On June 6, 2013, the court granted the Company’s motion to dismiss on the grounds that the plaintiff failed to comply with applicable law by serving a pre-suit demand on the Board or by adequately alleging that doing so would be futile. The court gave the plaintiff until June 27, 2013 to file a motion seeking leave to file a second amended complaint.

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          On June 14, 2013, the plaintiff in the federal court derivative action made a demand on the Company to inspect its books and records. Because the Company believed the plaintiff had not stated a proper purpose for the requested inspection, it denied this inspection request.

          On June 27, 2013, the plaintiff filed a motion requesting sixty additional days to file a motion for leave to amend the consolidated complaint, alleging the intent to pursue a legal action in Delaware or Florida in order to inspect the Company’s books and records for the purpose of establishing futility of a pre-suit demand.. On July 15, 2013, the Company and the individual defendants filed a motion opposing the plaintiff’s request for additional time. On August 15, 2013, the court entered an order denying plaintiffs’ motion for an extension of time to file a motion for leave to amend the complaint and dismissing the case without prejudice. To date, plaintiff has not filed any action regarding his purported inspection rights or refiled a derivative action.

          In addition, on October 31, 2012, the Board appointed a demand review committee, consisting of two independent directors, to review, investigate, and prepare a report and recommendation to the full Board regarding the claims raised in the consolidated federal derivative action, as well as a demand made on the Board by two Company shareholders, Amy and Charles Miller, challenging the Company’s sales projections for 2012 and statements about its future financial outlook and demanding that the Board file suit on behalf of the Company. On November 19, 2012, upon recommendation of the demand review committee, the Company and the individual defendants filed a joint motion to stay the consolidated federal derivative action pending the completion of the demand review committee’s investigation. When the court dismissed the federal derivative action, it also denied the motion to stay as moot. The demand review committee has not yet completed its review, investigation and report.

          In connection with the proposed Merger between the Company and Stryker, the Company and the members of the Board have been named as defendants in nine putative stockholder class actions complaints challenging the transaction, three filed in the Court of Chancery in the State of Delaware (the “Delaware Actions”), and six filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida (the “Florida Actions”). The lawsuits generally allege that the individual defendants breached their fiduciary duties by, among other things, failing to obtain sufficient value for the Company’s stockholders in the transaction and agreeing to certain terms in the merger agreement that allegedly restrict the individual defendants’ ability to obtain a more favorable offer. The complaints also allege that the Company, Stryker, and/or Merger Sub aided and abetted these purported breaches of fiduciary duties. The relief sought includes, among other things, injunctive relief, unspecified compensatory and/or rescissory damages, attorney’s fees, other expenses, and costs.

          On October 9, 2013, two of the three Delaware Actions were consolidated and, on October 18, 2013, the third Delaware Action was consolidated with the previous two. The six Florida Actions were consolidated on October 21, 2013. Prior to the consolidation, on October 16, 2013, defendants filed a motion to proceed in one jurisdiction in both the Florida and Delaware courts, in which the motion defendants sought to have all actions related to the proposed transaction litigated in only one of the two fora.

          Following consolidation, on October 21, 2013, plaintiffs in the Delaware Actions filed a consolidated amended complaint in which they allege, in addition to the claims set out in the original complaints, that the Company’s directors also breached their fiduciary duties by failing to disclose purportedly material information to the Company’s stockholders in the preliminary proxy filed by the Company with the SEC on October 16, 2013. On October 22, 2013, plaintiffs in the Florida Actions likewise filed a consolidated amended complaint that added allegations regarding purported omissions in the preliminary proxy.

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          On October 22, 2013 and October 23, 2013, respectively, plaintiffs in both the Florida and Delaware Actions moved for expedited proceedings, and plaintiffs in the Delaware action also moved for a preliminary injunction to prevent the closing of the proposed transaction. On October 24, 2013, defendants filed an opposition to the expedited proceedings in the Florida Actions. On October 25, 2013, the Florida court heard argument on defendants’ motion to proceed in one forum and determined that Florida litigation would proceed. Shortly thereafter, the Florida court scheduled a preliminary injunction hearing for November 27, 2013.

          On October 29, 2013, the Delaware court held a hearing on the defendant’s motion to proceed in one forum, and while reserving judgment, noted that it was inclined to let the Delaware Actions proceed. On October 31, 2013, the Florida court issued a Sua Sponte Order of Reconsideration and Staying Consolidated Actions, staying all proceedings in the Florida Actions (including the preliminary injunction hearing previously set for November 27, 2013). On November 4, 2013, the Delaware court heard argument on plaintiffs’ motion for expedited proceedings and on November 5, 2013, that court granted expedited proceedings in connection with certain of plaintiffs’ claims.

          The Company continues to believe these lawsuits are meritless.

ITEM 1A. RISK FACTORS.

There have been no material changes to the disclosure regarding risk factors presented in Item 1A to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, except for the addition or revision, as the case may be, of the risk factors presented below.

Risks Related to the Merger

          The announcement and pendency of our proposed Merger could adversely affect our business, financial results and operations.

          The announcement and pendency of the proposed Merger could cause disruptions in and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and employees, which could have a significant negative impact on our future revenues and results of operations, regardless of whether the Merger is completed. In particular, we could potentially lose important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the proposed transaction. We could also potentially lose customers or suppliers, new distribution contracts could be delayed or decreased and we may have difficulty in hiring new key employees. In addition, we have diverted, and will continue to divert, significant management resources towards the completion of the Merger, which could have a significant negative impact on our future revenues and results of operations.

          We are also subject to restrictions, without the consent of Stryker, on the conduct of our business prior to the completion of the Merger as provided in the Merger Agreement generally requiring us to conduct our business only in the ordinary course and subject to specific limitations, including, among other things, certain restrictions on our ability to make certain capital expenditures, investments and acquisitions, sell, transfer or dispose of our assets, amend our organizational documents and enter into or modify certain contracts. These restrictions could prevent us from pursuing otherwise attractive business opportunities, limit our ability to respond effectively to competitive pressures, industry developments and future opportunities and may otherwise have a negative impact on our future revenues and results of operations.

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          Failure to complete the proposed Merger could adversely affect our business and the market price of our common stock.

          There is no assurance that the closing of the Merger will occur. Completion of the Merger is subject to various conditions, including the adoption of the Merger Agreement by the holders of a majority of our outstanding shares of common stock, and certain other conditions, including, among other things, the absence of laws or orders restraining or prohibiting the Merger and the receipt of certain regulatory approvals. We cannot predict with certainty whether and when any of these conditions will be satisfied. In addition, the Merger Agreement may be terminated under certain specified circumstances, including, but not limited to, a change in the recommendation of the Board or a termination of the Merger Agreement by the Company to enter into an agreement for a superior proposal, as defined in the Merger Agreement. If the Merger is not completed, and there are no other parties willing and able to acquire us at a price of $30 per share or higher and on other terms acceptable to us, our stock price will likely decline as our stock has recently traded at prices based on the proposed per share price for the Merger. In addition, we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed Merger, as well as the diversion of management resources, for which we will have received little or no benefit if the closing of the Merger does not occur. Many of the fees and costs will be payable by us even if the Merger is not completed and may relate to activities that we would not have undertaken other than to complete the Merger. A failed transaction may result in negative publicity and a negative impression of us in the investment community. If the Merger Agreement is not adopted by our stockholders, or if the Merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to us will be offered or that our business, prospects or results of operations will not be adversely affected. Upon any termination of the Merger Agreement, we would not be entitled to receive a termination fee. The occurrence of any of these events individually or in combination could have a material adverse impact on our results of operations and our stock price.

          The Merger Agreement contains provisions that could discourage or make it difficult for a third party to acquire us prior to the completion of the proposed Merger.

          The Merger Agreement contains provisions that restrict our ability to entertain a third-party proposal to acquire us. These provisions include the general prohibition on our soliciting or participating in discussions or negotiations regarding any alternative acquisition proposal, subject to certain exceptions, and the requirement that we pay a termination fee of $61 million if the Merger Agreement is terminated by the Company in order to accept a superior proposal. These provisions might discourage an otherwise-interested third party from considering or proposing to acquire us, even if the potential transaction may be deemed of greater value than the proposed Merger to our stockholders. Furthermore, even if a third party elects to propose an acquisition, the termination fee payable in certain circumstances may result in that third party offering a lower value to our stockholders than such third party might otherwise have offered.

          If the Merger is not completed or we are not otherwise acquired, we may consider other strategic alternatives which are subject to risks and uncertainties.

          If the Merger is not completed, the Board may review and consider various alternatives available to us, including, among others, continuing as a standalone public company with no material changes to our business or seeking an alternate transaction. These strategic or other alternatives available to us may involve various additional risks to our business, including, among others, distraction of our management team and associated expenses as described above in connection with the proposed Merger, and risks and uncertainties related to our ability to complete any such alternatives and other variables which may adversely affect our operations.

          Putative stockholder class actions challenging the Merger have been filed, and an unfavorable judgment or ruling in any of these lawsuits could prevent or delay the completion of the Merger and/or result in substantial costs.

          Putative class actions challenging the Merger have been filed on behalf of our stockholders in multiple jurisdictions. Additional lawsuits related to the Merger may be filed against us, Stryker and our respective affiliates and directors. If dismissals are not obtained or a settlement is not reached, these lawsuits could prevent or delay completion of Merger and/or result in substantial costs to us, including any costs associated with the indemnification of our directors.

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Risks Related to Our Business

          We may attempt to acquire new products or technologies, such as our acquisition of the acquired business of Pipeline Biomedical Holdings, Inc., and if we are unable to successfully complete these acquisitions or to integrate acquired businesses, products, technologies or employees, we may fail to realize expected benefits or harm our existing business.

Our success will depend, in part, on our ability to expand our product offerings and grow our business in response to changing technologies, customer demands and competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses, products or technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time consuming and costly, and we may not be able to successfully complete identified acquisitions. Furthermore, even if we successfully complete an acquisition, such as with our acquisition of substantially all of the assets of Pipeline Biomedical Holdings, Inc. dedicated to the design, development, manufacture and commercialization of orthopedic devices and related instruments for use with robotic devices and manual medical procedures, which was completed on October 8, 2013, we may not be able to successfully integrate newly acquired organizations, products or technologies into our operations, and the process of integration could be expensive and time consuming and may strain our resources. Consequently, we may not achieve anticipated benefits of the acquisitions, which could harm our existing business. In addition, future acquisitions could result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities or expenses, or other charges such as in-process research and development, any of which could harm our business and materially adversely affect our financial results or cause a reduction in the price of our common stock.

37

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(c) Issuer Purchases of Equity Securities

          The following table summarizes the repurchases of the Company’s common stock during the three month period ended September 30, 2013:

	Total Number of Shares Purchased(1)		Average Price Paid per Share(1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
Period
July 1 to 31, 2013		—	$	—		—	$	—
August 1 to 31, 2013		2,622		15.62		—		—
September 1 to 30, 2013		—		—		—		—
		2,622	$	15.62		—	$	—

(1) Represents the surrender of shares of common stock to the Company to satisfy the tax withholding obligations associated with the vesting of restricted stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

          None

ITEM 4. MINE SAFETY DISCLOSURES

          Not applicable

ITEM 5. OTHER INFORMATION.

          Not applicable

ITEM 6. EXHIBITS.

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated September 25, 2013, by and among Stryker Corporation, Lauderdale Merger Corporation and MAKO Surgical Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K as filed on September 27, 2013)†
2.2	Asset Purchase Agreement, dated October 1, 2013, by and between Pipeline Biomedical Holdings, Inc. and MAKO Surgical Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K as filed on October 2, 2013)†
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350
101	The following materials from MAKO Surgical Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Balance Sheets, (ii) Condensed Statements of Operations, (iii) Condensed Statements of Cash Flows, and (iv) Notes to Condensed Financial Statements

^† Schedules and other similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules and attachments upon request by the U.S. Securities and Exchange Commission.

38

SIGNATURES

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

	MAKO Surgical Corp.
Date: November 5, 2013	By:	/s/ Fritz L. LaPorte
		Fritz L. LaPorte
		Senior Vice President of Finance and
		Administration, Chief Financial Officer and Treasurer
		(Principal Financial Officer and Authorized Signatory)

39

EXHIBIT INDEX

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated September 25, 2013, by and among Stryker Corporation, Lauderdale Merger Corporation and MAKO Surgical Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K as filed on September 27, 2013)†
2.2	Asset Purchase Agreement, dated October 1, 2013, by and between Pipeline Biomedical Holdings, Inc. and MAKO Surgical Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K as filed on October 2, 2013)†
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350
101	The following materials from MAKO Surgical Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Balance Sheets, (ii) Condensed Statements of Operations, (iii) Condensed Statements of Cash Flows, and (iv) Notes to Condensed Financial Statements

^† Schedules and other similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules and attachments upon request by the U.S. Securities and Exchange Commission.

40

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Maurice R. Ferré, M.D., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of MAKO Surgical Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

          (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

          (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 5, 2013	/s/ Maurice R. Ferré, M.D.
	Maurice R. Ferré, M.D.
	President, Chief Executive Officer and Chairman of the Board
	(Principal Executive Officer)

41

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Fritz L. LaPorte, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of MAKO Surgical Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

          (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

          (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 5, 2013	/s/ Fritz L. LaPorte
	Fritz L. LaPorte
	Senior Vice President of Finance and Administration, Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)

42

EX-32.1

Exhibit 32.1

CERTIFICATION

          Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Maurice R. Ferré, M.D., in his capacity as President, Chief Executive Officer and Chairman of MAKO Surgical Corp., hereby certifies that, to the best of his knowledge:

(i)	the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 to which this Certification is attached as Exhibit 32.1 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act, and
(ii)	the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of MAKO Surgical Corp.

November 5, 2013	/s/ Maurice R. Ferré, M.D.
	Maurice R. Ferré, M.D.
	President, Chief Executive Officer and Chairman of the Board
	(Principal Executive Officer)

          This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of MAKO Surgical Corp. under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

43

EX-32.2

Exhibit 32.2

CERTIFICATION

          Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Fritz L. LaPorte, in his capacity as Senior Vice President of Finance and Administration, Chief Financial Officer and Treasurer of MAKO Surgical Corp., hereby certifies that, to the best of his knowledge:

(i)	the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 to which this Certification is attached as Exhibit 32.2 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act, and
(ii)	the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of MAKO Surgical Corp.

November 5, 2013	/s/ Fritz L. LaPorte
	Fritz L. LaPorte
	Senior Vice President of Finance and Administration, Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)

          This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of MAKO Surgical Corp. under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

44

XML

Income Taxes

9 Months Ended

Sep. 30, 2013

Income Taxes [Abstract]

Income Taxes

10.  Income Taxes

The Company accounts for income taxes under ASC 740, Income Taxes. Deferred income taxes are determined based upon differences between financial reporting and income tax bases of assets and liabilities and are measured using the enacted income tax rates and laws that will be in effect when the differences are expected to reverse. The Company recognizes any interest and penalties related to unrecognized tax benefits as a component of income tax expense.  

Due to uncertainty surrounding realization of the deferred income tax assets in future periods, the Company has recorded a 100% valuation allowance against its net deferred tax assets. If it is determined in the future that it is more likely than not that the deferred income tax assets are realizable, the valuation allowance will be reduced.

XML

Condensed Statements Of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Revenue:
Procedures	$ 16,224	$ 12,042	$ 47,438	$ 36,622
Systems	2,695	14,413	17,425	28,467
Service	3,843	2,722	10,933	7,402
Total revenue	22,762	29,177	75,796	72,491
Cost of revenue:
Procedures	4,139	6,226	15,755	12,001
Systems	1,773	5,453	7,353	10,697
Service	522	295	1,306	1,127
Total cost of revenue	6,434	11,974	24,414	23,825
Gross profit	16,328	17,203	51,382	48,666
Operating costs and expenses:
Selling, general and administrative (exclusive of depreciation and amortization)	22,556	19,794	64,535	57,953
Research and development (exclusive of depreciation and amortization)	6,235	4,973	16,881	15,071
Merger transaction expenses	6,611		6,611
Depreciation and amortization	2,174	1,787	6,323	5,244
Total operating costs and expenses	37,576	26,554	94,350	78,268
Loss from operations	(21,248)	(9,351)	(42,968)	(29,602)
Other income (expense), net	(8)	2,842	(7,621)	2,867
Loss before income taxes	(21,256)	(6,509)	(50,589)	(26,735)
Income tax expense		45	15	84
Net loss	$ (21,256)	$ (6,554)	$ (50,604)	$ (26,819)
Net loss per share - Basic and diluted	$ (0.45)	$ (0.15)	$ (1.08)	$ (0.64)
Weighted average common shares outstanding - Basic and diluted	47,036	42,306	46,926	42,054

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Available-For-Sale Investments

9 Months Ended

Sep. 30, 2013

Available-For-Sale Investments [Abstract]

Available-For-Sale Investments

3.  Available-For-Sale Investments  

The Company’s investments are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses included in accumulated other comprehensive income (loss) within stockholders’ equity. Realized gains and losses, interest and dividends, amortization of premium and discount on investment securities and declines in value determined to be other-than-temporary on available-for-sale securities are included in other income (expense), net. During the three and nine months ended September 30, 2013 and 2012, realized gains and losses recognized on the sale of investments were not significant. The cost of securities sold is based on the specific identification method.   

The amortized cost and fair value of short and long-term investments, with gross unrealized gains and losses, were as follows:  

As of September 30, 2013

(in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Short-term investments:
U.S. government agencies	$	21,000	$	7	$	(6)	$	21,001
Certificates of deposit		18,953		–		(16)		18,937
Long-term investments:
U.S. government agencies		504		–		(2)		502
Certificates of deposit		2,909		2		(10)		2,901
Total investments	$	43,366	$	9	$	(34)	$	43,341

As of December 31, 2012

(in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Short-term investments:
U.S. government agencies	$	1,704	$	1	$	–	$	1,705
Certificates of deposit		10,193		7		(6)		10,194
Total investments	$	11,897	$	8	$	(6)	$	11,899

As of September 30, 2013 and December 31, 2012, all short-term investments had maturity dates of less than one year. As of September 30, 2013, all long-term investments had maturity dates between one and two years. 

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2013

Fair Value Measurements [Abstract]

Fair Values Of The Investments Based On The Level Of Inputs

(in thousands)			Fair Value Measurements at the Reporting Date Using
	September 30,
	2013		Level 1		Level 2		Level 3
Short-term investments:
U.S. government agencies	$	21,001	$	20,497	$	504	$	–
Certificates of deposit		18,937		–		18,937		–
Long-term investments:
U.S. government agencies		502		–		502		–
Certificates of deposit		2,901		–		2,901		–
Total assets	$	43,341	$	20,497	$	22,844	$	–
Warrant liability:
Warrant liability		8,029		–		–		8,029
Total liabilities	$	8,029	$	–	$	–	$	8,029

(in thousands)			Fair Value Measurements at the Reporting Date Using
	December 31,
	2012		Level 1		Level 2		Level 3
Short-term investments:
U.S. government agencies	$	1,705	$	1,001	$	704	$	–
Certificates of deposit		10,194		–		10,194		–
Financing commitment asset		7,608		–		–		7,608
Total assets	$	19,507	$	1,001	$	10,898	$	7,608

Reconciliation Of Fair Value Of Financing Commitments

(in thousands)	Fair Value Measurements
	Level 3
	Nine Months Ended
	September 30, 2013
Balance at December 31, 2012	$	7,608
Change in value of financing commitment asset reported in other income (expense)		(7,608)
Balance at September 30, 2013	$	–

Reconciliation Of Fair Value Of Warrant Liability

(in thousands)	Fair Value Measurements
	Level 3
	Nine Months Ended
	September 30, 2013
Balance at December 31, 2012	$	–
Transfers into Level 3		8,029
Balance at September 30, 2013	$	8,029

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Subsequent Event

9 Months Ended

Sep. 30, 2013

Subsequent Event [Abstract]

Subsequent Event

11. Subsequent Event

On October 1, 2013, the Company entered into an Asset Purchase Agreement with Pipeline and on October 8, 2013, pursuant to the terms of the Asset Purchase Agreement, the Company completed the acquisition of substantially all of Pipeline’s business dedicated to the design, development, manufacture and commercialization of orthopedic devices and related instruments for use with robotic devices and manual medical procedures (the “Transaction”).

The purchase price for the Transaction consisted of a credit for a cash down payment previously paid to Pipeline in the amount of $2.5 million and the Company’s issuance at closing to Pipeline of an aggregate of 3,953,771 unregistered shares of common stock of the Company. The Company also entered into employment and consulting arrangements with certain key employees of the acquired business.

In connection with the Transaction, the Company’s 1,137,513 shares of Pipeline common stock were redeemed and converted into an exclusive, limited distribution rights agreement for certain Pipeline technology.

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Stockholders' Equity (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended						9 Months Ended		3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended				1 Months Ended	9 Months Ended	1 Months Ended	9 Months Ended	1 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013 item	Sep. 30, 2012	Sep. 25, 2013	May 15, 2013	Dec. 31, 2012	May 07, 2012	Sep. 30, 2013 Agreement For Consulting Services [Member]	Sep. 30, 2013 2008 Plan [Member]	Sep. 30, 2013 Stock Options Outstanding [Member]	Sep. 30, 2013 Stock Options Outstanding [Member]	Sep. 30, 2013 Restricted Stock [Member]	Sep. 30, 2013 Restricted Stock [Member]	Sep. 30, 2013 2008 Employee Stock Purchase Plan [Member]	Sep. 30, 2013 2008 Employee Stock Purchase Plan [Member]	Sep. 30, 2013 Other Options [Member]	Sep. 30, 2013 Non-Employee Directors [Member] Stock Option Outstanding [Member]	Sep. 30, 2013 Chief Executive Officer [Member]	Dec. 31, 2004 Warrants Expire On December 2014, Exercisable Upon Issue [Member]	Sep. 30, 2013 Warrants Expire On December 2014, Exercisable Upon Issue [Member]	Oct. 31, 2008 Seven-Year Term Warrants Become Exercisable On April 29, 2009 [Member]	Sep. 30, 2013 Seven-Year Term Warrants Become Exercisable On April 29, 2009 [Member]	Oct. 31, 2008 Seven-Year Term Warrants Become Exercisable On December 31, 2009 [Member]	Sep. 30, 2013 Seven-Year Term Warrants Become Exercisable On December 31, 2009 [Member]	Sep. 30, 2013 Seven Year Term Warrants Become Exercisable On May 7, 2012 [Member]	May 31, 2012 Seven Year Term Warrants Become Exercisable On May 7, 2012 [Member]
Stockholders Equity [Line Items]
Preferred stock authorized to issue	27,000,000		27,000,000				27,000,000
Preferred stock, par value	$ 0.001		$ 0.001				$ 0.001
Preferred stock, shares issued	0		0				0
Preferred stock, shares outstanding	0		0				0
Common stock, shares authorized	135,000,000		135,000,000				135,000,000
Common stock, par value	$ 0.001		$ 0.001		$ 0.001		$ 0.001
Voting right on each share of common stock, entitled number			1
Restricted stock forfeited during period														375,000
Restricted stock unvested and outstanding	12,500		12,500				421,999						12,500	12,500
Common stock surrendered to cover payroll taxes			13,110	4,556															13,110
Stock-based compensation expense	$ 3,100,000	$ 4,300,000	$ 9,000,000	$ 10,400,000							$ 2,900,000	$ 8,000,000	$ 85,000	$ 618,000	$ 78,000	$ 304,000
Maximum percentage of increase in shares authorized										4.00%
Maximum number of increase in shares authorized										2,500,000
Additional shares authorized during the period under the plan										1,881,000
Voting power on outstanding stock, intended to be incentive stock option, percentage										10.00%
Stock options vesting period												4 years						1 year
Term of the stock options												5 years					10 years
Options issued under an agreement for consulting services									40,000
Service options vested and exercisable									14,125
Service options outstanding									36,000
Service options exercise price									$ 11.04
Unrecognized compensation cost net of estimated forfeitures, related to non-vested stock-based payments	$ 21,800,000		$ 21,800,000
Weighted average period of unrecognized compensation cost expected to be recognized with changes in estimated forfeitures			2 years 6 months
Warrants, purchase number of shares of common stock						140,000		275,000												462,716		1,290,323		322,581			275,000
Warrants, purchase price of common stock																				$ 0.03		$ 0.125		$ 0.125
Warrants, exercise price	$ 30.00		$ 30.00					$ 27.70												$ 3.00		$ 7.44		$ 6.20			$ 27.70
Warrants, expiration date																					December 2014
Warrants become exercisable, date																							Apr. 29, 2009		Dec. 31, 2009	May 07, 2012
Warrants, exercisable term																							7 years		7 years	7 years
Common stock warrants, outstanding and exercisable																					194,059		598,741		143,157	275,000

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Organization And Basis Of Presentation (Narrative) (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013 entity	Sep. 25, 2013	Dec. 31, 2012
Business Acquisition [Line Items]
Common stock, par value	$ 0.001	$ 0.001	$ 0.001	$ 0.001
Merger transaction expenses	$ 6,611,000	$ 6,611,000
Cash and cash equivalents held in demand and money market accounts, financial institutions		4
Investments held in interest bearing instruments, financial institutions		4
Stryker Corporation [Member]
Business Acquisition [Line Items]
Cash to be received, per share, when converted			$ 30.00
Termination fee, payable if agreement is terminated in order to accept a superior proposal		61,000,000
J.P. Morgan [Member]
Business Acquisition [Line Items]
Aggregate fee		19,000,000
Aggregate fee, payable upon completion of merger		16,000,000
Aggregate fee, earned upon delivery of opinion		3,000,000
Merger transaction expenses	$ 3,000,000

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2013

Stockholders' Equity [Abstract]

Summarized Incentive Plans Activity

(in thousands, except per share data)			Outstanding Options
	Shares/Options		Number of		Weighted Average
	Available For Grant		Options		Exercise Price
Balance at December 31, 2012		884		5,450	$	16.65
Shares reserved		1,881		–		–
Shares surrendered under the 2008 Plan		13		–		–
Options granted		(1,956)		1,956		11.53
Options exercised		–		(439)		7.66
Options forfeited under the 2004 Plan		–		(7)		11.12
Options forfeited under the 2008 Plan		447		(447)		22.31
Restricted stock forfeited under the 2008 Plan		375		–		–
Balance at September 30, 2013		1,644		6,513	$	15.34

Assumptions For Estimated Grant Date Fair Values Of Stock Options Calculated Using Black-Scholes Valuation

	Nine Months Ended September 30,
	2013		2012
Risk-free interest rate		0.04% - 2.40%		0.91% - 1.40%
Expected life		6.25 years		6.25 years
Expected dividends		-		-
Expected volatility		46.64% - 94.30%		47.52% - 48.62%

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Fair Value Measurements (Reconciliation Of Fair Value Of Warrant Liability) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Fair Value Measurements [Abstract]
Balance at December 31, 2012
Transfers into Level 3	8,029
Balance at September 30, 2013	$ 8,029

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Stockholders' Equity (Assumptions For Estimated Grant Date Fair Values Of Stock Options Calculated Using Black-Scholes Valuation) (Details)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Stockholders' Equity [Abstract]
Risk-free interest rate, minimum	0.04%	0.91%
Risk-free interest rate, maximum	2.40%	1.40%
Expected life, years	6 years 3 months	6 years 3 months
Expected volatility, minimum	46.64%	47.52%
Expected volatility, maximum	94.30%	48.62%

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Cost Method Investment (Details) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Cost Method Investment [Line Items]
Cost Method Investments	$ 4,181	$ 4,181
Pipeline [Member]
Cost Method Investment [Line Items]
Common stock that are subject to redemption and conversion into an exclusive, limited distribution rights agreement, shares	1,137,513

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Inventory (Tables)

9 Months Ended

Sep. 30, 2013

Inventory [Abstract]

Inventory Components

(in thousands)	September 30,		December 31,
	2013		2012
Inventory:
Raw materials	$	3,236	$	4,351
Work-in-process		1,345		1,159
Finished goods		20,008		19,570
Total inventory	$	24,589	$	25,080

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Condensed Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Operating activities:
Net loss	$ (50,604)	$ (26,819)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	5,395	4,281
Amortization of intangible assets	1,357	1,269
Stock-based compensation	8,972	10,418
Provision for inventory reserve	4,549	3,262
Amortization of premium on investment securities	209	297
Loss on asset impairment	2,465	828
Provision for doubtful accounts	337	245
Issuance of stock under development agreement	1,361	681
Non-cash changes under credit facility	7,608	(3,204)
Changes in operating assets and liabilities:
Accounts receivable	5,670	939
Inventory	(6,101)	(10,568)
Deferred cost of revenue	(381)	(384)
Prepaid and other current assets	(1,323)	(2,540)
Other assets	(4)	(37)
Accounts payable	(1,231)	(1,734)
Accrued compensation and employee benefits	520	(5,287)
Other accrued liabilities	7,374	(2,545)
Deferred revenue	(179)	3,215
Net cash used in operating activities	(14,006)	(27,683)
Investing activities:
Purchase of investments	(59,219)	(3,159)
Proceeds from sales and maturities of investments	27,541	30,813
Acquisition of property and equipment	(5,272)	(7,325)
Acquisition of intangible assets	(998)	(65)
Net cash provided by (used in) investing activities	(37,948)	20,264
Financing activities:
Payment under credit facility (Note 8)	(1,000)
Proceeds from employee stock purchase plan	1,241	1,344
Exercise of common stock options and warrants for cash	3,441	3,989
Payment of payroll taxes relating to vesting of restricted stock	(156)	(172)
Net cash provided by financing activities	3,526	5,161
Net decrease in cash and cash equivalents	(48,428)	(2,258)
Cash and cash equivalents at beginning of period	61,367	13,438
Cash and cash equivalents at end of period	12,939	11,180
Non-cash investing and financing activities:
Receipt of 13,110 and 4,556 shares of common stock delivered in payment of payroll taxes for the nine months ended September 30, 2013 and 2012, respectively	156	172
Transfers of inventory to property and equipment	2,043	2,273
Issuance of stock under development agreement	1,361	681
Reclassification of warrants under credit facility (Note 8)	$ 8,029

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Organization And Basis Of Presentation

9 Months Ended

Sep. 30, 2013

Organization And Basis Of Presentation [Abstract]

Organization And Basis Of Presentation

1.  Organization and Basis of Presentation

MAKO Surgical Corp. (the “Company” or “MAKO”) is an emerging medical device company that markets its RIO® Robotic Arm Interactive Orthopedic system, joint specific applications for the knee and hip, and proprietary RESTORIS® implants for orthopedic procedures called MAKOplasty®. The Company is headquartered in Fort Lauderdale, Florida and its common stock is listed on The NASDAQ Global Select Market under the ticker symbol “MAKO.”  

Merger Agreement with Stryker Corporation

On September 25, 2013, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Stryker Corporation, a Michigan corporation (“Stryker”), and Lauderdale Merger Corporation, a Delaware corporation and wholly-owned subsidiary of Stryker (“Merger Sub”).

The Merger Agreement provides, among other things and subject to the terms and conditions set forth therein, that Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and a wholly owned subsidiary of Stryker, and that, at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.001 per share, of the Company outstanding immediately prior to the Effective Time (other than dissenting shares and shares owned by the Company, Stryker or Merger Sub or any of their subsidiaries) will be automatically converted into the right to receive $30.00 in cash, without interest (the “Merger Consideration”).

Pursuant to the Merger Agreement, as of the Effective Time, (1) each option to purchase a share of the Company’s common stock that is outstanding immediately prior to the Effective Time will become fully vested and be converted into the right to receive a cash payment equal to the Merger Consideration, net of the exercise price, (2) each award of restricted shares of the Company’s common stock that is outstanding immediately prior to the Effective Time will become fully vested and be converted into the right to receive a cash payment equal to the product of the Merger Consideration and the number of shares subject to the award, and (3) each unexercised Company warrant that is outstanding immediately prior to the Effective Time will, in accordance with the terms of the applicable Company warrant, no longer be exercisable for any capital stock of the surviving corporation, but will only be exercisable or canceled, as applicable, in accordance with the terms of the applicable Company warrant in exchange for the Merger Consideration.

The Board of Directors of the Company (the “Board”) has unanimously approved the Merger Agreement, the Merger and the other transactions contemplated thereby. The closing of the Merger is subject to the adoption of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote (the “Company Stockholder Approval”). The closing of the Merger is also subject to various customary conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; the absence of any newly enacted law, injunction or order prohibiting the Merger; the accuracy of the representations and warranties contained in the Merger Agreement (generally subject to a material adverse effect qualification); compliance with the covenants and agreements in the Merger Agreement in all material respects; and, until August 31, 2014, the absence of certain pending actions by governmental entities against the parties to the Merger Agreement or their subsidiaries. The closing of the Merger is not subject to a financing condition.

The Company has made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants (1) to conduct its business in the ordinary course during the period between the execution of the Merger Agreement and the closing of the Merger, (2) not to engage in specified types of transactions during this period unless agreed to in writing by Stryker, (3) to convene and hold a meeting of its stockholders for the purpose of obtaining the Company Stockholder Approval and (4) subject to certain exceptions, not to withdraw, modify or qualify in a manner adverse to Stryker or Merger Sub the recommendation of the Board that the Company’s stockholders approve the adoption of the Merger Agreement.

The Merger Agreement contains certain termination rights, including the right of the Company to terminate the Merger Agreement to accept an unsolicited superior proposal from a third party. The Merger Agreement provides that, upon termination of the Merger Agreement by the Company in order to accept a superior proposal, a termination fee of $61.0 million will be payable by the Company to Stryker. The termination fee is also payable under certain other limited circumstances, including if Stryker terminates the Merger Agreement due to the Board’s change of recommendation in favor of the Merger or the Company’s failure to include the Board’s recommendation in favor of the Merger in the proxy statement. In addition, subject to certain exceptions and limitations, either party may terminate the Merger Agreement if the Merger is not consummated by September 30, 2014.

The Company retained J.P. Morgan as its financial advisor in connection with the proposed Merger and to deliver a fairness opinion in connection with the proposed Merger. The Company has agreed to pay J.P. Morgan an aggregate fee of approximately $19.0 million, of which approximately $16.0 million will be payable upon completion of the Merger, and of which $3.0 million was earned upon delivery of J.P. Morgan’s opinion and was not contingent on the consummation of any transaction. The $3.0 million was recorded to expense in merger transaction expenses in the condensed statement of operations for the three months ended September 30, 2013. In addition, the Company has agreed to reimburse J.P Morgan for its reasonable expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the Federal securities laws. 

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed financial statements (“condensed financial statements”) of the Company have been prepared on a basis consistent with the Company’s December 31, 2012 audited financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. These condensed financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission and, therefore, omit certain information and footnote disclosure necessary to present the statements in accordance with accounting principles generally accepted in the United States. These quarterly condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2012 (the “Form 10-K”). The results of operations for the three and nine months ended September 30, 2013 may not be indicative of the results to be expected for the entire year or any future periods.   

Liquidity and Operations

In executing its current business plan, the Company believes its existing cash, cash equivalents and investment balances will be sufficient to meet its anticipated cash requirements for at least the next twelve months. To the extent the Company’s available cash, cash equivalents and investment balances are insufficient to satisfy its operating requirements, the Company will need to seek additional sources of funds, including selling additional equity, debt or other securities, or modify its current business plan. The sale of additional equity or convertible debt securities may result in dilution to the Company’s current stockholders. If the Company raises additional funds through the issuance of debt securities, these securities may have rights senior to those of its common stock and could contain covenants that could restrict the Company’s operations and ability to issue dividends. The Company may also require additional capital beyond its currently forecasted amounts. Any required additional capital, whether forecasted or not, may not be available on reasonable terms, or at all. If the Company is unable to obtain additional financing, the Company may be required to reduce the scope of, delay or eliminate some or all of its planned research, development and commercialization activities, which could materially harm its business and results of operations.  

Concentrations of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, investments, and accounts receivable. The Company’s cash and cash equivalents are held in demand and money market accounts at four large financial institutions. The Company’s investments are held in a variety of interest bearing instruments, including notes and bonds from U.S. government agencies and certificates of deposit at four large financial institutions. Such deposits are generally in excess of insured limits. The Company has not experienced any historical losses on its deposits of cash and cash equivalents.  

The Company may perform credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. The Company provides an allowance for doubtful accounts when collections become doubtful but has not experienced any significant credit losses to date.  

The Company is subject to risks common to emerging companies in the medical device industry including, but not limited to: new technological innovations, dependence on key personnel, dependence on key suppliers, changes in general economic conditions and interest rates, protection of proprietary technology, compliance with new and established domestic and foreign government regulations and taxes, uncertainty of widespread market acceptance of products, unanticipated changes in the timing of the sales cycle for the Company’s products or the vetting process undertaken by prospective customers, access to credit for capital purchases by the Company’s customers, product liability, the need to obtain additional financing and reliance on single source suppliers for implant products and certain components of the RIO® Robotic Arm Interactive Orthopedic system (“RIO”). The Company’s products include components subject to rapid technological change. Certain components used in manufacturing have relatively few alternative sources of supply and establishing additional or replacement suppliers for such components cannot be accomplished quickly. The inability of any of these suppliers to fulfill the Company’s supply requirements may negatively impact future operating results. While the Company has ongoing programs to minimize the adverse effect of such uncertainty and considers technological change in estimating the net realizable value of its inventory, uncertainty continues to exist.  

The Company expects to derive most of its revenue from capital sales of its RIO, current and future MAKOplasty applications to the RIO (together with the RIO, the “RIO system”), recurring sales of implants and disposable products required for each MAKOplasty procedure, and service plans that are sold with the RIO system. If the Company is unable to achieve broad commercial acceptance of MAKOplasty or maintain or obtain regulatory clearances or approvals for current and future products, including other orthopedic products, its revenue would be adversely affected and the Company may not become profitable.  

The Company’s current versions of its RIO system, its MAKOplasty partial knee and total hip arthroplasty (“THA”) RIO applications, its RESTORIS® MCK multicompartmental knee implant systems and RESTORIS total hip implant systems have been cleared by the U.S. Food and Drug Administration (“FDA”). Certain products currently under development by the Company will require clearance or approval by the FDA or other international regulatory agencies prior to commercial sale. There can be no assurance that the Company’s products will receive the necessary clearances or approvals. If the Company were to be denied any such clearance or approval or such clearance or approval were delayed, it could have a material adverse impact on the Company.

Reclassifications

The Company reclassified depreciation expense for certain property and equipment from selling, general and administrative expense to depreciation and amortization expense in the prior period’s statement of operations to conform to the current period’s presentation. This change in presentation only affects the components of operating costs and expenses and does not affect total operating costs and expenses, revenue, cost of revenue, net loss or cash flows. Conforming changes have been made for all prior periods presented, as follows (in thousands):

(in thousands)	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
		As Previously		Amount		As Reported		As Previously		Amount		As Reported
	Reported		Reclassified		Herein		Reported		Reclassified		Herein
Selling, general and administrative	$	20,258	$	(464)	$	19,794	$	59,330	$	(1,377)	$	57,953
Research and development		4,973		–		4,973		15,071		–		15,071
Merger transaction expenses		–		–		–		–		–		–
Depreciation and amortization		1,323		464		1,787		3,867		1,377		5,244
Total operating costs and expenses	$	26,554	$	–	$	26,554	$	78,268	$	–	$	78,268

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Cost Method Investment

9 Months Ended

Sep. 30, 2013

Cost Method Investment [Abstract]

Cost Method Investment

4.  Cost Method Investment 

The Company has a minority equity interest in Pipeline Biomedical Holdings, Inc. (“Pipeline”) which the Company accounts for as a cost method investment under ASC 325-20, Cost Method Investments. The carrying amount of the equity interest in Pipeline consists of 1,137,513 shares of Pipeline common stock that are subject to redemption and conversion into an exclusive, limited distribution rights agreement for certain Pipeline technology in certain instances. The carrying amount of the equity interest in Pipeline is $4.2 million and is included in cost method investment on the balance sheet. It is not practical to estimate the fair value of the equity interest in Pipeline as Pipeline’s securities are not publicly traded. The Company reviews the equity interest in Pipeline for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. No events or circumstances indicated that the equity interest in Pipeline was impaired as of September 30, 2013. See Note 11 for more information regarding the redemption of the Company’s minority equity interest in Pipeline in October 2013.

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Summary Of Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Summary Of Significant Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

2.  Summary of Significant Accounting Policies

Revenue Recognition

Revenue is generated: from (1) unit sales of the RIO system, including associated applications, instrumentation, installation services and training; (2) sales of implants and disposable products utilized in MAKOplasty procedures; and (3) sales of maintenance services. The Company recognizes revenue in accordance with ASC 605-10, Revenue Recognition, when persuasive evidence of an arrangement exists, the fee is fixed or determinable, collection of the fee is probable and delivery has occurred. For all sales, the Company uses either a signed agreement or a binding purchase order as evidence of an arrangement.  

The Company’s multiple-element arrangements are generally comprised of the following elements that qualify as separate units of accounting: (1) sales of RIO systems and applications; (2) sales of implants and disposable products; and (3) sales of maintenance services. The Company’s revenue recognition policies generally result in revenue recognition at the following points:  

1.	RIO system sales: Revenues related to RIO system sales are recognized upon installation of the system, training of at least one surgeon, which typically occurs prior to or concurrent with the RIO system installation, and customer acceptance, if required. Applications sold separately to existing customers are recognized on the same basis as RIO system sales (e.g., upon installation of the application, training of at least one surgeon and customer acceptance, if required).
2.	Procedure revenue: Revenues from the sale of implants and disposable products utilized in MAKOplasty procedures are recognized at the time of sale (i.e., at the time of the related surgical procedure).
3.	Service revenue: Revenues from maintenance services are deferred and recognized ratably over the service period until no further obligation exists. Maintenance services include preventative maintenance and repair on the RIO system hardware, when-and-if-available software and hardware reliability upgrades (i.e., bug fixes) and telephone troubleshooting support.

Sales of the Company’s RIO system generally include a one-year service obligation for maintenance (the “Service Obligation”). Upon recognition of a RIO system’s revenue in accordance with the Company’s revenue recognition policies, the Company defers a portion of the RIO system consideration attributable to the Service Obligation and recognizes it on a straight-line basis over the service period as a component of revenue – service in the statement of operations. Costs associated with providing maintenance services are expensed to cost of revenue – service as incurred.  

The Company allocates arrangement consideration to the RIO systems and associated instrumentation, its implants and disposables and its maintenance services based upon the relative selling-price method. Under this method, revenue is allocated at the time of sale to all deliverables based on their relative selling price using a specific hierarchy. The hierarchy is as follows: vendor-specific objective evidence (“VSOE”) of fair value of the respective elements, third-party evidence of selling price, or best estimate of selling price (“ESP”).   

The Company allocates arrangement consideration using ESP for its RIO system, ESP for its implants and disposable products and VSOE of fair value for its maintenance services. VSOE of fair value is based on the price charged when the element is sold separately. ESP is established by determining the price at which the Company would transact a sale if the product was sold on a stand-alone basis. The Company determines ESP for its products by considering multiple factors including, but not limited to, geographies, type of customer, and market conditions. The Company regularly reviews ESP and maintains internal controls over the establishment and updates of these estimates.   

Deferred Revenue and Deferred Cost of Revenue

Deferred revenue consists of deferred service revenue, deferred system revenue and deferred procedure revenue. Deferred service revenue results from the advance payment for maintenance services to be delivered over a period of time, usually in one-year increments. Deferred system revenue arises from timing differences between the installation of RIO systems and satisfaction of all revenue recognition criteria consistent with the Company’s revenue recognition policy. Deferred procedure revenue arises from sales to independent international distributors which provide for a right of return. No revenue is recognized for these sales until the right of return expires or is waived. Deferred revenue expected to be realized within one year is classified as a current liability. Deferred cost of revenue consists of the direct costs associated with the manufacture of RIO systems and implants and disposable products for which the revenue has been deferred in accordance with the Company’s revenue recognition policy. The deferred revenue balance as of September 30, 2013 consisted primarily of deferred service revenue for maintenance services.  

Fair Value of Financial Instruments

Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair value due to their short maturities.

Inventory  

Inventory is stated at the lower of cost or market value on a first-in, first-out basis. Inventory costs include direct materials, direct labor and manufacturing overhead. The Company reviews its inventory periodically to determine net realizable value and considers product upgrades and new product introductions in its periodic review of realizability. During the nine months ended September 30, 2013, the Company increased its inventory reserve by $4.5 million, or $(0.10) per basic and diluted share for excess hip implant inventory. The inventory valuation adjustment was charged to cost of revenue – procedures in the condensed statement of operations. Inventory valuation reserves are determined based on the Company’s assessment of the forecasted demand for its products and the on hand quantities of inventory. Depending on demand for the Company’s products, technical obsolescence and new product introductions, future valuation adjustments of the Company’s inventory may occur. These factors are impacted by market and economic conditions, technology changes and new product introductions and require estimates that may include uncertain elements.   

Impairment of Long-Lived Assets  

The Company evaluates its long-lived assets for indicators of impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. During the nine months ended September 30, 2013, the Company incurred asset impairments of $2.5 million, or $(0.05) per basic and diluted share. The impairment charge was primarily related to excess hip implant instruments used to perform THA procedures and was charged to selling, general and administrative expense in the condensed statement of operations. Depending on the operating performance and projected undiscounted cash flows associated with the related assets, future impairment charges of the Company’s long-lived assets may occur.

Recent Accounting Pronouncements

Effective January 1, 2013, the Company adopted accounting guidance which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income (loss) by component. The adoption did not have a material impact on the Company’s results of operation or financial position.

Net Loss Per Share

The Company calculates net loss per share in accordance with ASC 260, Earnings per Share. Basic earnings per share (“EPS”) is calculated by dividing the net income or loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income or loss by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents outstanding for the period determined using the treasury stock method. The following table sets forth potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented:  

(in thousands)	September 30,
	2013		2012
Stock options outstanding		6,513		5,396
Warrants to purchase common stock		1,211		1,211
Unvested restricted stock		13		431
Total		7,737		7,038

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Income Taxes (Details)	9 Months Ended
	Sep. 30, 2013
Income Taxes [Abstract]
Deferred tax assets net, valuation allowance, percentage	100.00%

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Organization And Basis Of Presentation (Schedule Of Reclassified Depreciation Expense For Certain Property And Equipment) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Selling, general and administrative	$ 22,556,000	$ 19,794,000	$ 64,535,000	$ 57,953,000
Research and development	6,235,000	4,973,000	16,881,000	15,071,000
Merger transaction expenses	6,611,000		6,611,000
Depreciation and amortization	2,174,000	1,787,000	6,323,000	5,244,000
Total operating costs and expenses	37,576,000	26,554,000	94,350,000	78,268,000
As Previously Reported [Member]
Selling, general and administrative		20,258,000		59,330,000
Research and development		4,973,000		15,071,000
Depreciation and amortization		1,323,000		3,867,000
Total operating costs and expenses		26,554,000		78,268,000
Amount Reclassified [Member]
Selling, general and administrative		(464,000)		(1,377,000)
Depreciation and amortization		464,000		1,377,000
As Reported Herein [Member]
Selling, general and administrative		19,794,000		57,953,000
Research and development		4,973,000		15,071,000
Depreciation and amortization		1,787,000		5,244,000
Total operating costs and expenses		$ 26,554,000		$ 78,268,000

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Fair Value Measurements (Fair Values Of The Investments Based On The Level Of Inputs) (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Fair Value Of Investments [Line Items]
Financial assets, Fair Value	$ 43,341	$ 19,507
Financial liabilities, Fair Value	8,029
U.S. Government Agencies [Member] | Short-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value	21,001	1,705
U.S. Government Agencies [Member] | Long-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value	502
Certificates Of Deposit [Member] | Short-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value	18,937	10,194
Certificates Of Deposit [Member] | Long-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value	2,901
Financing Commitment Asset [Member]
Fair Value Of Investments [Line Items]
Financing commitment, Fair Value		7,608
Warrant Liability [Member]
Fair Value Of Investments [Line Items]
Financial liabilities, Fair Value	8,029
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value	20,497	1,001
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member] | U.S. Government Agencies [Member] | Short-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value	20,497	1,001
Significant Other Observable Inputs (Level 2) [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value	22,844	10,898
Significant Other Observable Inputs (Level 2) [Member] | U.S. Government Agencies [Member] | Short-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value	504	704
Significant Other Observable Inputs (Level 2) [Member] | U.S. Government Agencies [Member] | Long-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value	502
Significant Other Observable Inputs (Level 2) [Member] | Certificates Of Deposit [Member] | Short-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value	18,937	10,194
Significant Other Observable Inputs (Level 2) [Member] | Certificates Of Deposit [Member] | Long-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value	2,901
Significant Unobservable Inputs (Level 3) [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value		7,608
Financial liabilities, Fair Value	8,029
Significant Unobservable Inputs (Level 3) [Member] | U.S. Government Agencies [Member] | Short-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value
Significant Unobservable Inputs (Level 3) [Member] | U.S. Government Agencies [Member] | Long-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value
Significant Unobservable Inputs (Level 3) [Member] | Certificates Of Deposit [Member] | Short-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value
Significant Unobservable Inputs (Level 3) [Member] | Certificates Of Deposit [Member] | Long-Term Investments [Member]
Fair Value Of Investments [Line Items]
Financial assets, Fair Value
Significant Unobservable Inputs (Level 3) [Member] | Financing Commitment Asset [Member]
Fair Value Of Investments [Line Items]
Financing commitment, Fair Value		7,608
Significant Unobservable Inputs (Level 3) [Member] | Warrant Liability [Member]
Fair Value Of Investments [Line Items]
Financial liabilities, Fair Value	$ 8,029

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Credit Facility (Details) (USD $)	0 Months Ended		3 Months Ended		9 Months Ended	12 Months Ended				12 Months Ended
	May 15, 2013	Jun. 28, 2012	Jun. 30, 2013	Mar. 31, 2013	Sep. 30, 2013	Dec. 31, 2012	May 07, 2012	Sep. 30, 2013 Seven Year Term Warrants Become Exercisable On May 7, 2012 [Member]	May 31, 2012 Seven Year Term Warrants Become Exercisable On May 7, 2012 [Member]	Dec. 31, 2012 Additional Issue Of Warrants [Member]
Class of Warrant or Right [Line Items]
Date Company entered Facility Agreement with Deerfield					May 07, 2012
Maximum borrowing capacity under Facility from Deerfield							$ 50,000,000
Increments which may be drawn under the credit facility	10,000,000
Per annum interest rate						6.75%
Facility fees for no draw	1,000,000
Facility fee expense						1,000,000
Shares issued to Deerfield via warrants	140,000						275,000		275,000
Per share price for warrants to convert to shares					$ 30.00		$ 27.70		$ 27.70
Warrant value		3,600,000
Common stock warrants, outstanding and exercisable								275,000
Threshold percent of per share closing price for warrants	20.00%
Number of days after draw notice for warrant exchange	5 days
Warrants risk free rate		1.05%			1.77%					1.21%
Volatility rate of warrants		63.54%			213.09%					63.02%
Expected life of warrants		6 years 10 months 10 days			5 years 7 months 13 days
Expected life of additional warrants										7 years
Market yield discount on Loan Value						18.00%
Change in fair value of Financing Commitment			(6,900,000)	(661,000)	(7,600,000)
Basis point change in market yield input that could effect Financing Commitment					1.00%	1.00%
Financing Commitment fair value	0			6,900,000		7,608,000
Potential change of Financing Commitment due to 100 base point change in market yield input						1,000,000
Potential change of fair value of warrants due to 100 base point change in discount rate input					80,000
Additional warrants that may be issued under credit facility						700,000
Percentage of assets that must be sold in order for the holder of the warrant to have the option to receive a number of shares of common stock equal to the Black-Scholes value of the warrant					50.00%
Warrant liability					$ 8,029,000

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Condensed Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Condensed Balance Sheets [Abstract]
Account receivable, allowances	$ 703	$ 381
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	27,000,000	27,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	135,000,000	135,000,000
Common stock, shares issued	47,189,076	46,601,252
Common stock, shares outstanding	47,189,076	46,601,252
Unvested shares of restricted stock	12,500	421,999

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Commitments And Contingencies

9 Months Ended

Sep. 30, 2013

Commitments And Contingencies [Abstract]

Commitments And Contingencies

7.  Commitments and Contingencies

Purchase Commitments

At September 30, 2013, the Company was committed to make future purchases for inventory and other items that occur in the ordinary course of business under various purchase arrangements with fixed purchase provisions aggregating $7.7 million.   

Contractual Obligations  

On September 25, 2013, the Company entered into the Merger Agreement with Stryker. Upon a change of control event, the Company has a contingent obligation to make one-time payments of up to $18.0 million under certain royalty bearing arrangements related to its intellectual property rights. The contingent obligation to pay up to $18.0 million is generally in lieu of paying ongoing, periodic royalty payments. In addition, the Company retained J.P. Morgan as its financial advisor in connection with the proposed Merger and to deliver a fairness opinion in connection with the proposed Merger. The Company has agreed to pay J.P. Morgan an aggregate fee of approximately $19.0 million, of which approximately $16.0 million will be payable upon completion of the Merger, and of which $3.0 million was earned upon delivery of J.P. Morgan’s opinion and was not contingent on the consummation of any transaction.

Legal Proceedings 

In May 2012, two shareholder complaints were filed in the U.S. District Court for the Southern District of Florida against the Company and certain of its officers and directors as purported class actions on behalf of all purchasers of the Company’s common stock between January 9, 2012 and May 7, 2012. The cases were filed under the captions James H. Harrison, Jr. v. MAKO Surgical Corp. et al., No. 12-cv-60875 and Brian Parker v. MAKO Surgical Corp. et al., No. 12-cv-60954. The court consolidated the Harrison and Parker complaints under the caption In re MAKO Surgical Corp. Securities Litigation, No. 12-60875-CIV-Cohn/Seltzer, and appointed Oklahoma Firefighters Pension and Retirement System and Baltimore County Employees’ Retirement System to serve as co-lead plaintiffs. In September 2012, the co-lead plaintiffs filed an amended complaint that expanded the proposed class period through July 9, 2012. The amended complaint alleged the Company, its Chief Executive Officer, President and Chairman, Maurice R. Ferré, M.D., and its Chief Financial Officer, Fritz L. LaPorte, violated federal securities laws by making misrepresentations and omissions during the proposed class period about the Company’s financial guidance for 2012 that artificially inflated the Company’s stock price. The amended complaint sought an unspecified amount of compensatory damages, interest, attorneys’ and expert fees, and costs. In October 2012, the Company, Dr. Ferré, and Mr. LaPorte filed a motion to dismiss the amended complaint in its entirety. On May 15, 2013, the court granted the motion to dismiss and found that the challenged statements in the amended complaint were not material misrepresentations or omissions but rather were forward-looking statements accompanied by meaningful cautionary language and thus not actionable. In its order, the court gave co-lead plaintiffs an opportunity to request leave to file a second amended complaint, which they declined. Accordingly, on June 14, 2013 the court closed the case and entered final judgment for the Company, Dr. Ferré and Mr. LaPorte. No appeal was filed and the time for filing an appeal has expired.

Additionally, in June and July 2012, four shareholder derivative complaints were filed against the Company, as nominal defendant, and its Board, as well as Dr. Ferré and, in two cases, Mr. LaPorte. Those complaints allege that the Company’s directors and certain officers violated their fiduciary duties, wasted corporate assets and were unjustly enriched by allowing the Company to make misrepresentations or omissions that exposed the Company to damages in an earlier filed securities class action and damage to the Company’s goodwill.

Two of the derivative actions were filed in the Seventeenth Judicial Circuit in and for Broward County, Florida and have been consolidated under the caption In re MAKO Surgical Corporation Shareholder Derivative Litigation, No. 12-cv-16221. By order dated July 3, 2012, the court stayed In re MAKO Surgical Corporation Shareholder Derivative Litigation pending a ruling on the motion to dismiss filed in the earlier-filed class action. On June 20, 2013, this case was voluntarily dismissed.

The two other derivative actions were filed in the U.S. District Court for the Southern District of Florida under the captions Todd Deehl v. Ferré et al., No. 12-cv-61238 and Robert Bardagy v. Ferré et al., No. 12-cv-61380. On August 29, 2012, the court consolidated these two federal cases under the caption In re MAKO Surgical Corp. Derivative Litig.¸ Case No. 12-61238-CIV-COHN-SELTZER and approved the filing of a consolidated complaint. The consolidated complaint alleged that the Company’s directors and two of its officers breached fiduciary duties, wasted corporate assets and were unjustly enriched by issuing, or allowing the issuance of, annual sales guidance for 2012 that they allegedly knew lacked any reasonable basis. The consolidated complaint sought an unspecified amount of damages, attorneys’ and expert fees, costs and corporate reforms to allegedly improve the Company’s corporate governance and internal procedures. On October 31, 2012, the Company and the individual defendants each filed motions to dismiss the consolidated complaint. On June 6, 2013, the court granted the Company’s motion to dismiss on the grounds that the plaintiff failed to comply with applicable law by serving a pre-suit demand on the Board or by adequately alleging that doing so would be futile. The court gave the plaintiff until June 27, 2013 to file a motion seeking leave to file a second amended complaint.

 On June 14, 2013, the plaintiff in the federal court derivative action made a demand on the Company to inspect its books and records. Because the Company believed the plaintiff had not stated a proper purpose for the requested inspection, it denied this inspection request.

 On June 27, 2013, the plaintiff filed a motion requesting sixty additional days to file a motion for leave to amend the consolidated complaint, alleging the intent to pursue a legal action in Delaware or Florida in order to inspect the Company’s books and records for the purpose of establishing futility of a pre-suit demand. On July 15, 2013, the Company and the individual defendants filed a motion opposing the plaintiff’s request for additional time. On August 15, 2013, the court entered an order denying plaintiffs' motion for an extension of time to file a motion for leave to amend the complaint and dismissing the case without prejudice.  To date, plaintiff has not filed any action regarding his purported inspection rights or refiled a derivative action.

In addition, on October 31, 2012, the Board appointed a demand review committee, consisting of two independent directors, to review, investigate, and prepare a report and recommendation to the full Board regarding the claims raised in the consolidated federal derivative action, as well as a demand made on the Board by two Company shareholders, Amy and Charles Miller, challenging the Company’s sales projections for 2012 and statements about its future financial outlook and demanding that the Board file suit on behalf of the Company. On November 19, 2012, upon recommendation of the demand review committee, the Company and the individual defendants filed a joint motion to stay the consolidated federal derivative action pending the completion of the demand review committee’s investigation. When the court dismissed the federal derivative action, it also denied the motion to stay as moot. The demand review committee has not yet completed its review, investigation and report.

In connection with the proposed Merger between the Company and Stryker, the Company and the members of its Board have been named as defendants in nine putative stockholder class actions complaints challenging the transaction, three filed in the Court of Chancery in the State of Delaware (the “Delaware Actions”), and six filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida (the “Florida Actions”).  The lawsuits generally allege that the individual defendants breached their fiduciary duties by, among other things, failing to obtain sufficient value for the Company’s stockholders in the transaction and agreeing to certain terms in the Merger Agreement that allegedly restrict the individual defendants’ ability to obtain a more favorable offer.  The complaints also allege that the Company, Stryker, and/or Merger Sub aided and abetted these purported breaches of fiduciary duties.  The relief sought includes, among other things, injunctive relief, unspecified compensatory and/or rescissory damages, attorney’s fees, other expenses, and costs. 

On October 9, 2013, two of the three Delaware Actions were consolidated and, on October 18, 2013, the third Delaware Action was consolidated with the previous two.  The six Florida Actions were consolidated on October 21, 2013.  Prior to the consolidation, on October 16, 2013, defendants filed a motion to proceed in one jurisdiction in both the Florida and Delaware courts, in which the motion defendants sought to have all actions related to the proposed transaction litigated in only one of the two fora.

Following consolidation, on October 21, 2013, plaintiffs in the Delaware Actions filed a consolidated amended complaint in which they allege, in addition to the claims set out in the original complaints, that the Company’s directors also breached their fiduciary duties by failing to disclose purportedly material information to the Company’s stockholders in the preliminary proxy filed by the Company with the SEC on October 16, 2013.  On October 22, 2013, plaintiffs in the Florida Actions likewise filed a consolidated amended complaint that added allegations regarding purported omissions in the preliminary proxy.

On October 22, 2013 and October 23, 2013, respectively, plaintiffs in both the Florida and Delaware Actions moved for expedited proceedings, and plaintiffs in the Delaware action also moved for a preliminary injunction to prevent the closing of the proposed transaction.  On October 24, 2013, defendants filed an opposition to the expedited proceedings in the Florida Actions.  On October 25, 2013, the Florida court heard argument on defendants’ motion to proceed in one forum and determined that Florida litigation would proceed.   Shortly thereafter, the Florida court scheduled a preliminary injunction hearing for November 27, 2013. 

On October 29, 2013, the Delaware court held a hearing on the defendant’s motion to proceed in one forum, and while reserving judgment, noted that it was inclined to let the Delaware Actions proceed.  On October 31, 2013, the Florida court issued a Sua Sponte Order of Reconsideration and Staying Consolidated Actions, staying all proceedings in the Florida Actions (including the preliminary injunction hearing previously set for November 27, 2013).  On November 4, 2013, the Delaware court heard argument on plaintiffs’ motion for expedited proceedings and on November 5, 2013, that court granted expedited proceedings in connection with certain of plaintiffs’ claims.

The Company continues to believe these lawsuits are meritless.

The Company has recorded $1.3 million to expense, $500,000 of which was incurred in prior periods, in selling, general and administrative expenses to cover the insurance deductible for the Company’s directors’ and officers’ insurance policies related to the above actions.

Contingencies

The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the Company's views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made. For the matters referenced in the paragraph below, the amount of liability is not probable or the amount cannot be reasonably estimated; and, therefore, accruals have not been made. In addition, in accordance with the relevant authoritative guidance, for matters which the likelihood of material loss is at least reasonably possible, the Company provides disclosure of the possible loss or range of loss; however, if a reasonable estimate cannot be made, the Company will provide disclosure to that effect.  

In addition to the matters discussed in “Legal Proceedings” above, the Company is a defendant in various litigation matters generally arising in the normal course of business. Although it is difficult to predict the ultimate outcomes of these matters, the Company believes that it is not reasonably possible that the ultimate outcomes of these ordinary course litigation matters will materially and adversely affect its business, financial position, results of operations or cash flows.

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Condensed Statements Of Comprehensive Loss (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Condensed Statement Of Other Comprehensive Loss [Abstract]
Net loss	$ (21,256)	$ (6,554)	$ (50,604)	$ (26,819)
Other comprehensive income (loss):
Unrealized income (loss) on available-for-sale securities	25	(11)	(27)	(42)
Comprehensive loss	$ (21,231)	$ (6,565)	$ (50,631)	$ (26,861)

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Condensed Balance Sheets (USD $)	Sep. 30, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 12,939,000	$ 61,367,000
Short-term investments	39,938,000	11,899,000
Accounts receivable, net of allowances of $703 and $381, at September 30, 2013 and December 31, 2012, respectively	16,382,000	22,389,000
Inventory	24,589,000	25,080,000
Deferred cost of revenue	1,348,000	967,000
Financing commitment asset (Note 8)		7,608,000
Prepaids and other current assets	3,295,000	1,972,000
Total current assets	98,491,000	131,282,000
Long-term investments	3,403,000
Cost method investment (Note 4)	4,181,000	4,181,000
Property and equipment, net	22,451,000	22,996,000
Intangible assets, net	5,298,000	5,657,000
Other assets	2,790,000	2,786,000
Total assets	136,614,000	166,902,000
Current liabilities:
Accounts payable	1,036,000	2,267,000
Accrued compensation and employee benefits	4,818,000	4,298,000
Other accrued liabilities	15,101,000	8,727,000
Deferred revenue	9,839,000	9,973,000
Warrant liability	8,029,000
Total current liabilities	38,823,000	25,265,000
Deferred revenue, non-current	755,000	800,000
Total liabilities	39,578,000	26,065,000
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, $0.001 par value; 27,000,000 authorized; 0 shares issued and outstanding as of September 30, 2013 and December 31, 2012
Common stock, $0.001 par value; 135,000,000 authorized; 47,189,076 and 46,601,252 shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively	47,000	47,000
Additional paid-in capital	369,194,000	362,364,000
Accumulated deficit	(272,180,000)	(221,576,000)
Accumulated other comprehensive income (loss)	(25,000)	2,000
Total stockholders' equity	97,036,000	140,837,000
Total liabilities and stockholders' equity	$ 136,614,000	$ 166,902,000

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Summary Of Significant Accounting Policies (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2013 item	Sep. 30, 2012
Summary Of Significant Policies [Line Items]
Revenue recognition on RIO system sale, number of surgeons trained, minimum	1
Time period for deferred service revenue	1 year
Expected time period to realize deferred revenue	1 year
RIO system warranty period	1 year
Provision for inventory reserve	$ 4,549	$ 3,262
Basic and diluted earnings per share write-off amount for inventory reserve	$ (0.10)
Asset impairments	$ 2,465	$ 828
Basic and diluted earnings per share asset impairments charges	$ (0.05)
Total	7,737	7,038
Stock Options Outstanding [Member]
Summary Of Significant Policies [Line Items]
Total	6,513	5,396
Warrants To Purchase Common Stock [Member]
Summary Of Significant Policies [Line Items]
Total	1,211	1,211
Restricted Stock [Member]
Summary Of Significant Policies [Line Items]
Total	13	431

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Available-For-Sale Investments (Tables)

9 Months Ended

Sep. 30, 2013

Available-For-Sale Investments [Abstract]

Amortized Cost And Fair Value Of Short And Long-Term Investments With Gross Unrealized Gains And Losses

As of September 30, 2013

(in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Short-term investments:
U.S. government agencies	$	21,000	$	7	$	(6)	$	21,001
Certificates of deposit		18,953		–		(16)		18,937
Long-term investments:
U.S. government agencies		504		–		(2)		502
Certificates of deposit		2,909		2		(10)		2,901
Total investments	$	43,366	$	9	$	(34)	$	43,341

As of December 31, 2012

(in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Short-term investments:
U.S. government agencies	$	1,704	$	1	$	–	$	1,705
Certificates of deposit		10,193		7		(6)		10,194
Total investments	$	11,897	$	8	$	(6)	$	11,899

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Stockholders' Equity (Summarized Incentive Plans Activity) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares/Options Available For Grant, Balance	884
Shares/Options Available For Grant, Shares reserved	1,881
Shares/Options Available For Grant, Shares settled under the 2008 plan	13
Shares/Options Available For Grant, Options granted	(1,956)
Share/Options Available For Grant, Options exercised
Shares/Options Available For Grant, Balance	1,644
Number of Options Outstanding, Balance	5,450
Number of Options Outstanding, Shares reserved
Number of Options Outstanding, Shares settled under the 2008 Plan
Number of Options Outstanding, Options granted	1,956
Number of Options Outstanding, Options exercised	(439)
Number of Options Outstanding, Balance	6,513
Weighted Average Exercise Price of Options Outstanding, Balance	$ 16.65
Weighted Average Exercise Price of Options Outstanding, Shares reserved
Weighted Average Exercise Price of Options Outstanding, Shares settled under the 2008 plan
Weighted Average Exercise Price of Options Outstanding, Options granted	$ 11.53
Weighted Average Exercise Price of Options Outstanding, Options exercised	$ 7.66
Weighted Average Exercise Price of Options Outstanding, Balance	$ 15.34
2004 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares/Options Available For Grant, Options forfeited
Number of Options Outstanding, Options forfeited	(7)
Weighted Average Exercise Price of Options Outstanding, Options forfeited	$ 11.12
2008 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares/Options Available For Grant, Options forfeited	447
Shares/Options Available For Grant, Restricted stock issued, Forfeited	375
Number of Options Outstanding, Options forfeited	(447)
Weighted Average Exercise Price of Options Outstanding, Options forfeited	$ 22.31

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Inventory (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Inventory [Abstract]
Raw materials	$ 3,236	$ 4,351
Work-in-process	1,345	1,159
Finished goods	20,008	19,570
Total inventory	$ 24,589	$ 25,080

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Commitments And Contingencies (Details) (USD $)	0 Months Ended		2 Months Ended	3 Months Ended		9 Months Ended			12 Months Ended	1 Months Ended	2 Months Ended	0 Months Ended	9 Months Ended					0 Months Ended	9 Months Ended	0 Months Ended	9 Months Ended
	Jun. 27, 2013	Oct. 31, 2012 item	Jul. 31, 2012 item	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013 Insurance Deductible Expense [Member]	Dec. 31, 2012 Insurance Deductible Expense [Member]	May 31, 2012 Officers And Directors [Member] item	Jul. 31, 2012 Fritz L. LaPorte [Member] item	Aug. 29, 2012 U.S. District Court For The Southern District Of Florida [Member] item	Sep. 30, 2013 U.S. District Court For The Southern District Of Florida [Member] item	Sep. 30, 2013 Seventeenth Judicial Circuit In And For Broward County, Florida [Member] item	Sep. 30, 2013 J.P. Morgan [Member]	Sep. 30, 2013 Stryker Corporation [Member] item	Sep. 25, 2013 Stryker Corporation [Member]	Oct. 21, 2013 Stryker Corporation [Member] Seventeenth Judicial Circuit In And For Broward County, Florida [Member] item	Sep. 30, 2013 Stryker Corporation [Member] Seventeenth Judicial Circuit In And For Broward County, Florida [Member] item	Oct. 09, 2013 Stryker Corporation [Member] Court Of Chancery In State Of Delaware [Member] item	Sep. 30, 2013 Stryker Corporation [Member] Court Of Chancery In State Of Delaware [Member] item
Commitments And Contingencies [Line Items]
Committed future purchases for inventory, aggregate amount				$ 7,700,000		$ 7,700,000
Contingent obligation in lieu of periodic royalty payments																	18,000,000
Aggregate fee															19,000,000
Aggregate fee, payable upon completion of merger															16,000,000
Aggregate fee, earned upon delivery of opinion															3,000,000
Number of shareholder complaints filed			4							2	2		2	2
Number of federal cases consolidated by Court into single complaint												2						6		2
Number of company officers named in complaint												2
Additional period requested to file motion for leave to amend the consolidated complaint	60 days
Number of independent directors appointed to demand review committee		2
Number of shareholders submitting demand made on Board		2
Number of putative stockholder class actions complaints																9			6		3
Selling, general and administrative				$ 22,556,000	$ 19,794,000	$ 64,535,000	$ 57,953,000	$ 1,300,000	$ 500,000

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Inventory

9 Months Ended

Sep. 30, 2013

Inventory [Abstract]

Inventory

6.  Inventory  

Inventory consisted of the following:  

(in thousands)	September 30,		December 31,
	2013		2012
Inventory:
Raw materials	$	3,236	$	4,351
Work-in-process		1,345		1,159
Finished goods		20,008		19,570
Total inventory	$	24,589	$	25,080

See Note 2 for a discussion of the inventory valuation adjustment for the nine months ended September 30, 2013.

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Available-For-Sale Investments (Details) (USD $) In Thousands, unless otherwise specified			9 Months Ended							9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2013 Short-Term Investments [Member]	Sep. 30, 2013 U.S. Government Agencies [Member] Short-Term Investments [Member]	Dec. 31, 2012 U.S. Government Agencies [Member] Short-Term Investments [Member]	Sep. 30, 2013 U.S. Government Agencies [Member] Long-Term Investments [Member]	Sep. 30, 2013 Certificates Of Deposit [Member] Short-Term Investments [Member]	Dec. 31, 2012 Certificates Of Deposit [Member] Short-Term Investments [Member]	Sep. 30, 2013 Certificates Of Deposit [Member] Long-Term Investments [Member]	Sep. 30, 2013 Maximum [Member] Long-Term Investments [Member]	Sep. 30, 2013 Minimum [Member] Long-Term Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 43,366	$ 11,897		$ 21,000	$ 1,704	$ 504	$ 18,953	$ 10,193	$ 2,909
Gross Unrealized Gains	9	8		7	1			7	2
Gross Unrealized Losses	(34)	(6)		(6)		(2)	(16)	(6)	(10)
Fair Value	$ 43,341	$ 11,899		$ 21,001	$ 1,705	$ 502	$ 18,937	$ 10,194	$ 2,901
Maturity date time period for short-term investments			1 year
Maturity date time period for long-term investments										2 years	1 year

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Subsequent Event (Details) (Subsequent Event [Member], USD $) In Millions, except Share data, unless otherwise specified	Oct. 08, 2013
Subsequent Event [Member]
Subsequent Event [Line Items]
Pipeline credit	$ 2.5
Issued unregistered common stock shares for transaction with Pipeline	3,953,771
Shares redeemed and converted into an exclusive, limited distribution rights agreement for certain Pipeline technology	1,137,513

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Stockholders' Equity

9 Months Ended

Sep. 30, 2013

Stockholders' Equity [Abstract]

Stockholders' Equity

9.  Stockholders’ Equity

Preferred Stock  

As of September 30, 2013 and December 31, 2012, the Company was authorized to issue 27,000,000 shares of $0.001 par value preferred stock. As of September 30, 2013 and December 31, 2012, there were no shares of preferred stock issued or outstanding.   

Common Stock

As of September 30, 2013 and December 31, 2012, the Company was authorized to issue 135,000,000 shares of $0.001 par value common stock. Common stockholders are entitled to dividends as and if declared by the Board, subject to the rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date on the common stock. Each share of common stock is entitled to one vote on matters submitted to a vote of stockholders.  

Stock Option Plans and Stock-Based Compensation

The Company recognizes compensation expense for its stock-based awards in accordance with ASC 718, Compensation-Stock Compensation. ASC 718 requires the recognition of compensation expense, using a fair value based method, for costs related to all stock-based payments including stock options. ASC 718 requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model.   

During the three months ended September 30, 2013 and 2012, stock-based compensation expense was $3.1 million and $4.3 million, respectively. Included within stock-based compensation expense for the three months ended September 30, 2013 were $2.9 million related to stock option grants, $85,000 related to restricted stock grants, and $78,000 related to employee stock purchases under the 2008 Employee Stock Purchase Plan. During the nine months ended September 30, 2013 and 2012, stock-based compensation expense was $9.0 millionand $10.4 million, respectively. Included within stock-based compensation expense for the nine months ended September 30, 2013 were $8.0 million related to stock option grants, $618,000 related to restricted stock grants, and $304,000 related to employee stock purchases under the 2008 Employee Stock Purchase Plan.

The Company’s 2004 Stock Incentive Plan (the “2004 Plan”), its 2008 Omnibus Incentive Plan (the “2008 Plan,” and together with the 2004 Plan, the “Plans”), and its 2008 Employee Stock Purchase Plan are described in the notes to financial statements in the Form 10-K. Generally, the Company’s outstanding stock options vest over four years. Stock options granted to certain non-employee directors generally vest over one year. Continued vesting typically terminates when the employment or consulting relationship ends. Vesting generally begins on the date of grant.  

The 2008 Plan contains an evergreen provision whereby the authorized shares increase on January 1st of each year in an amount equal to the least of (1) 4% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding year, (2) 2.5 million shares and (3) a number of shares determined by the Board that is lesser than (1) and (2). The number of additional shares authorized under the 2008 Plan on January 1, 2013 was approximately 1,881,000.  

Under the terms of the Plans, the maximum term of options intended to be incentive stock options granted to persons who own at least 10% of the voting power of all outstanding stock on the date of grant is 5 years. The maximum term of all other options is 10 years. Options issued under the 2008 Plan that are forfeited or expire will again be made available for issuing grants under the 2008 Plan. Options issued under the 2004 Plan that are forfeited or expire will not be made available for issuing grants under the 2008 Plan. All future equity awards will be made under the Company’s 2008 Plan.   

Activity under the Plans is summarized as follows:   

(in thousands, except per share data)			Outstanding Options
	Shares/Options		Number of		Weighted Average
	Available For Grant		Options		Exercise Price
Balance at December 31, 2012		884		5,450	$	16.65
Shares reserved		1,881		–		–
Shares surrendered under the 2008 Plan		13		–		–
Options granted		(1,956)		1,956		11.53
Options exercised		–		(439)		7.66
Options forfeited under the 2004 Plan		–		(7)		11.12
Options forfeited under the 2008 Plan		447		(447)		22.31
Restricted stock forfeited under the 2008 Plan		375		–		–
Balance at September 30, 2013		1,644		6,513	$	15.34

In addition to the options issued under the Plans, the Company issued options to purchase 40,000 shares of its common stock under agreements for consulting services (the “Service Options”). As of September 30, 2013, 14,125 Service Options were vested and exercisable and 36,000 Service Options were outstanding with a weighted average exercise price of $11.04.

The Company records stock-based compensation expense on a straight-line basis over the vesting period. As of September 30, 2013, there was total unrecognized compensation cost of approximately $21.8 million, net of estimated forfeitures, related to non-vested stock-based payments (including stock option grants, restricted stock grants and compensation expense relating to shares issued under the 2008 Employee Stock Purchase Plan). The unrecognized compensation cost will be adjusted for future changes in estimated forfeitures, and is expected to be recognized over a remaining weighted average period of 2.5 years as of September 30, 2013.   

The estimated grant date fair values of the employee stock options were calculated using the Black-Scholes valuation model, based on the following assumptions:  

	Nine Months Ended September 30,
	2013		2012
Risk-free interest rate		0.04% - 2.40%		0.91% - 1.40%
Expected life		6.25 years		6.25 years
Expected dividends		-		-
Expected volatility		46.64% - 94.30%		47.52% - 48.62%

During the nine months ended September 30, 2013,  375,000 shares of restricted stock subject to performance conditions were forfeited as the performance conditions were not achieved on the measurement date of March 31, 2013. As of September 30, 2013,  12,500 shares of restricted stock were unvested and outstanding. During the nine months ended September 30, 2013,  13,110 shares of common stock were surrendered to the Company to cover payroll taxes associated with the taxable income from the vesting of restricted stock previously granted.   

See Note 1 for information regarding the treatment of the Company’s stock-based instruments pursuant to the proposed Merger.

Warrants

In December 2004, the Company issued warrants to purchase 462,716 shares of common stock at a purchase price of $0.03 per share. The warrants were immediately exercisable at an exercise price of $3.00 per share, with the exercise period expiring in December 2014. As of September 30, 2013,  194,059 warrants were outstanding and exercisable.

In October 2008, the Company issued warrants to purchase 1,290,323 shares of common stock at a purchase price of $0.125 per share and an exercise price of $7.44 per share. The warrants became exercisable on April 29, 2009 and have a seven-year term. As of September 30, 2013,  598,741 warrants were outstanding and exercisable.   

In October 2008, the Company issued warrants to purchase 322,581 shares of common stock at a purchase price of $0.125 per share and an exercise price of $6.20 per share. These warrants became exercisable on December 31, 2009 and have a seven-year term. As of September 30, 2013,  143,157 warrants were outstanding and exercisable.   

In May 2012, the Company issued warrants to purchase 275,000 shares of common stock at an exercise price of $27.70 per share. These warrants became exercisable on May 7, 2012 and have a seven-year term. As of September 30, 2013, all 275,000 warrants were outstanding and exercisable.

See Note 1 for information regarding the treatment of the outstanding warrants pursuant to the proposed Merger.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Measurements [Abstract]

Fair Value Measurements

5.  Fair Value Measurements 

A three-tier fair value hierarchy is utilized to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels are as follows: 

· Level 1 Inputs – unadjusted quoted prices in active markets for identical assets or liabilities; 

· Level 2 Inputs – inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly; and 

· Level 3 Inputs – unobservable inputs for the asset or liability. 

The fair values of the Company’s financial assets measured on a recurring basis are summarized below:  

(in thousands)			Fair Value Measurements at the Reporting Date Using
	September 30,
	2013		Level 1		Level 2		Level 3
Short-term investments:
U.S. government agencies	$	21,001	$	20,497	$	504	$	–
Certificates of deposit		18,937		–		18,937		–
Long-term investments:
U.S. government agencies		502		–		502		–
Certificates of deposit		2,901		–		2,901		–
Total assets	$	43,341	$	20,497	$	22,844	$	–
Warrant liability:
Warrant liability		8,029		–		–		8,029
Total liabilities	$	8,029	$	–	$	–	$	8,029

(in thousands)			Fair Value Measurements at the Reporting Date Using
	December 31,
	2012		Level 1		Level 2		Level 3
Short-term investments:
U.S. government agencies	$	1,705	$	1,001	$	704	$	–
Certificates of deposit		10,194		–		10,194		–
Financing commitment asset		7,608		–		–		7,608
Total assets	$	19,507	$	1,001	$	10,898	$	7,608

The Company’s Level 2 assets consist of certificates of deposit and U.S. government agency securities. Level 2 securities are priced based on quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable market inputs for similar securities. There have been no transfers between Level 1 and Level 2 and no transfers to or from Level 3 of the fair value measurement hierarchy. See Note 8 for more information regarding the Company’s financing commitment asset and warrant liability.  

The table below provides a reconciliation of the financing commitment asset measured at fair value on a recurring basis which use Level 3 inputs for the nine months ended September 30, 2013. 

(in thousands)	Fair Value Measurements
	Level 3
	Nine Months Ended
	September 30, 2013
Balance at December 31, 2012	$	7,608
Change in value of financing commitment asset reported in other income (expense)		(7,608)
Balance at September 30, 2013	$	–

The table below provides a reconciliation of the warrant liability measured at fair value on a recurring basis which use Level 3 inputs for the nine months ended September 30, 2013. 

(in thousands)	Fair Value Measurements
	Level 3
	Nine Months Ended
	September 30, 2013
Balance at December 31, 2012	$	–
Transfers into Level 3		8,029
Balance at September 30, 2013	$	8,029

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Condensed Statements Of Cash Flows (Parenthetical)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Condensed Statements Of Cash Flows [Abstract]
Receipt of common stock delivered in payment of payroll taxes, shares	13,110	4,556

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Fair Value Measurements (Reconciliation Of Fair Value Of Financing Commitments) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Fair Value Measurements [Abstract]
Balance at December 31, 2012	$ 7,608
Change in value of financing commitment asset reported in other income (expense)	(7,608)
Balance at September 30, 2013

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Organization And Basis Of Presentation (Policy)

9 Months Ended

Sep. 30, 2013

Organization And Basis Of Presentation [Abstract]

Basis Of Presentation

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed financial statements (“condensed financial statements”) of the Company have been prepared on a basis consistent with the Company’s December 31, 2012 audited financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. These condensed financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission and, therefore, omit certain information and footnote disclosure necessary to present the statements in accordance with accounting principles generally accepted in the United States. These quarterly condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2012 (the “Form 10-K”). The results of operations for the three and nine months ended September 30, 2013 may not be indicative of the results to be expected for the entire year or any future periods.   

Liquidity And Operations

Liquidity and Operations

In executing its current business plan, the Company believes its existing cash, cash equivalents and investment balances will be sufficient to meet its anticipated cash requirements for at least the next twelve months. To the extent the Company’s available cash, cash equivalents and investment balances are insufficient to satisfy its operating requirements, the Company will need to seek additional sources of funds, including selling additional equity, debt or other securities, or modify its current business plan. The sale of additional equity or convertible debt securities may result in dilution to the Company’s current stockholders. If the Company raises additional funds through the issuance of debt securities, these securities may have rights senior to those of its common stock and could contain covenants that could restrict the Company’s operations and ability to issue dividends. The Company may also require additional capital beyond its currently forecasted amounts. Any required additional capital, whether forecasted or not, may not be available on reasonable terms, or at all. If the Company is unable to obtain additional financing, the Company may be required to reduce the scope of, delay or eliminate some or all of its planned research, development and commercialization activities, which could materially harm its business and results of operations.  

Concentrations Of Credit Risk And Other Risks And Uncertainties

Concentrations of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, investments, and accounts receivable. The Company’s cash and cash equivalents are held in demand and money market accounts at four large financial institutions. The Company’s investments are held in a variety of interest bearing instruments, including notes and bonds from U.S. government agencies and certificates of deposit at four large financial institutions. Such deposits are generally in excess of insured limits. The Company has not experienced any historical losses on its deposits of cash and cash equivalents.  

The Company may perform credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. The Company provides an allowance for doubtful accounts when collections become doubtful but has not experienced any significant credit losses to date.  

The Company is subject to risks common to emerging companies in the medical device industry including, but not limited to: new technological innovations, dependence on key personnel, dependence on key suppliers, changes in general economic conditions and interest rates, protection of proprietary technology, compliance with new and established domestic and foreign government regulations and taxes, uncertainty of widespread market acceptance of products, unanticipated changes in the timing of the sales cycle for the Company’s products or the vetting process undertaken by prospective customers, access to credit for capital purchases by the Company’s customers, product liability, the need to obtain additional financing and reliance on single source suppliers for implant products and certain components of the RIO® Robotic Arm Interactive Orthopedic system (“RIO”). The Company’s products include components subject to rapid technological change. Certain components used in manufacturing have relatively few alternative sources of supply and establishing additional or replacement suppliers for such components cannot be accomplished quickly. The inability of any of these suppliers to fulfill the Company’s supply requirements may negatively impact future operating results. While the Company has ongoing programs to minimize the adverse effect of such uncertainty and considers technological change in estimating the net realizable value of its inventory, uncertainty continues to exist.  

The Company expects to derive most of its revenue from capital sales of its RIO, current and future MAKOplasty applications to the RIO (together with the RIO, the “RIO system”), recurring sales of implants and disposable products required for each MAKOplasty procedure, and service plans that are sold with the RIO system. If the Company is unable to achieve broad commercial acceptance of MAKOplasty or maintain or obtain regulatory clearances or approvals for current and future products, including other orthopedic products, its revenue would be adversely affected and the Company may not become profitable.  

The Company’s current versions of its RIO system, its MAKOplasty partial knee and total hip arthroplasty (“THA”) RIO applications, its RESTORIS® MCK multicompartmental knee implant systems and RESTORIS total hip implant systems have been cleared by the U.S. Food and Drug Administration (“FDA”). Certain products currently under development by the Company will require clearance or approval by the FDA or other international regulatory agencies prior to commercial sale. There can be no assurance that the Company’s products will receive the necessary clearances or approvals. If the Company were to be denied any such clearance or approval or such clearance or approval were delayed, it could have a material adverse impact on the Company.

Reclassifications

Reclassifications

The Company reclassified depreciation expense for certain property and equipment from selling, general and administrative expense to depreciation and amortization expense in the prior period’s statement of operations to conform to the current period’s presentation. This change in presentation only affects the components of operating costs and expenses and does not affect total operating costs and expenses, revenue, cost of revenue, net loss or cash flows. Conforming changes have been made for all prior periods presented, as follows (in thousands):

(in thousands)	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
		As Previously		Amount		As Reported		As Previously		Amount		As Reported
	Reported		Reclassified		Herein		Reported		Reclassified		Herein
Selling, general and administrative	$	20,258	$	(464)	$	19,794	$	59,330	$	(1,377)	$	57,953
Research and development		4,973		–		4,973		15,071		–		15,071
Merger transaction expenses		–		–		–		–		–		–
Depreciation and amortization		1,323		464		1,787		3,867		1,377		5,244
Total operating costs and expenses	$	26,554	$	–	$	26,554	$	78,268	$	–	$	78,268

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Credit Facility

9 Months Ended

Sep. 30, 2013

Credit Facility [Abstract]

Credit Facility

8.  Credit Facility  

On May 7, 2012, the Company entered into a Facility Agreement with affiliates of Deerfield Management Company, L.P. (“Deerfield”), as amended on June 28, 2012, pursuant to which Deerfield agreed to loan the Company up to $50 million, subject to the terms and conditions set forth in the Facility Agreement. Under the terms of the Facility Agreement, the Company had the flexibility, but was not required, to draw down on the Facility Agreement in $10 million increments (the “Financing Commitment”) at any time until May 15, 2013 (the “Draw Period”). No funds were drawn under the Facility Agreement which expired on May 15, 2013.

In exchange for the Financing Commitment, on May 7, 2012, the Company issued to Deerfield warrants to purchase 275,000 shares of the Company’s common stock at an exercise price of $27.70 per share. The warrants issued under the Facility Agreement expire on the seventh anniversary of its issuance. As of September 30, 2013, all 275,000 warrants were outstanding and exercisable. Each $10 million disbursement would have been accompanied by the issuance to Deerfield of warrants to purchase 140,000 shares of the Company’s common stock, at an exercise price equal to a 20% premium to the mean closing price of the Company’s common stock over the five trading days following receipt by Deerfield of the draw notice.

The Company was required to pay Deerfield a fee of $1.0 million (the “Facility Fee”) if no funds were drawn under the Facility Agreement, which it paid in the second quarter of 2013. The Company recorded $1.0 million to expense for the Facility Fee in other income (expense), net in the statement of operations during the year ended December 31, 2012, as the Company determined it was probable that it would be required to pay the Facility Fee.  

The Financing Commitment was classified as a current asset on the condensed balance sheet and was considered a derivative as the Company could have put additional warrants and debt to Deerfield. The Financing Commitment was revalued each subsequent balance sheet date until the Draw Period expired, with any changes in the fair value between reporting periods recorded in other income (expense), net in the condensed statement of operations. The fair value of the Financing Commitment on December 31, 2012 was $7.6 million and the fair value of the Financing Commitment on March 31, 2013 was $6.9 million. Upon the expiration of the Draw Period on May 15, 2013, the Financing Commitment had no value and the $7.6 million change in the fair value of the Financing Commitment for the nine months ended September 30, 2013 (of which $661,000 and $6.9 million was incurred in the first and second quarter of 2013, respectively) was recorded in other income (expense), net in the condensed statement of operations.

The warrants to purchase 275,000 shares of the Company’s common stock were valued as of June 28, 2012 using a Monte Carlo simulation model with the following assumptions: expected life of 6.86 years, risk free rate of 1.05%, expected volatility of 63.54% and no expected dividend yield. The value of the Financing Commitment was determined using Level 3 inputs, or significant unobservable inputs. The value of the Financing Commitment at December 31, 2012 was determined by estimating the value of being able to borrow $50 million at a 6.75% interest rate (the “Loan Value”) net of the estimated value of the additional 700,000 warrants to be issued upon borrowing. The Loan Value was discounted using a market yield of 18%. The estimated value of the additional warrants to be issued was valued using a Monte Carlo simulation model with the following assumptions: expected life of 7.0 years, risk free rate of 1.21%, expected volatility of 63.02% and no expected dividend yield. The most significant unobservable input in estimating the value of the Financing Commitment was the 18% market yield. A 100 basis point change in the market yield input could change the value of the Financing Commitment by approximately $1.0 million.  

The holder of a warrant may exercise the warrant either for cash or on a cashless basis. In connection with certain Major Transactions, as defined in the warrant, including a change of control of the Company or the sale of more than 50% of the Company’s assets, the holder may have the option to receive, in exchange for the warrant, a number of shares of common stock equal to the Black-Scholes value of the warrant, as defined in the warrant, divided by the closing price of the common stock on the trading day before closing. In certain circumstances, all or a portion of such payment may be made in cash rather than in shares of common stock. In connection with certain “events of default,” as defined in the Facility Agreement, the holder may have the option to receive, in exchange for the warrant, a number of shares of common stock equal to the Black-Scholes value of the warrant, as defined in the warrant, divided by the volume weighted average price for the five trading days prior to the applicable Default Notice, as defined in the warrant.

Prior to the Board’s approval of the Merger Agreement in September 2013, the warrants to purchase 275,000 shares of the Company’s common stock qualified for treatment as equity and the fair value of the warrants of $3.6 million on June 28, 2012 were classified as additional paid-in capital on the condensed balance sheet. Certain provisions in the Facility Agreement provided for cash redemption upon certain contingent events, including a Merger Agreement. Since the warrants fall under the scope of ASC 480, Distinguishing Liabilities from Equity, liability classification is required upon occurrence of a contingently redeemable event. Subsequent to the Board’s approval of the Merger Agreement, the warrants do not meet the criteria for equity treatment and therefore have been reclassified as a liability. The warrants were reclassified at fair value on the date of the Board’s approval of the Merger Agreement from additional paid-in capital to warrant liability in the condensed balance sheet. The fair value of the warrants of $8.0 million on September 30, 2013 are classified as warrant liability in the condensed balance sheet. The change in fair value of the warrant liability from Board’s approval of the Merger Agreement to September 30, 2013 was not significant. The warrant liability is subject to re-measurement at each balance sheet date until settled, and any change in fair value is recognized in the Company’s condensed statement of operations.

The warrants to purchase 275,000 shares of the Company’s common stock were valued as of September 30, 2013 using a Black-Scholes valuation model with the following assumptions: expected life of 5.62 years, risk free rate of 1.77%, expected volatility of 213.09%, expected stock price of $30.00 and no expected dividend yield. The fair value of the warrants of $8.0 million as of September 30, 2013, is the product of the Black-Scholes value of the warrants and a discount equal to the discount of the closing price of the Company’s common stock on September 30, 2013 relative to the Merger Consideration. The most significant unobservable input in estimating the fair value of the warrants was the discount rate. A 100 basis point change in the discount rate input could change the fair value of the warrants by approximately $80,000.

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Summary Of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2013

Summary Of Significant Accounting Policies [Abstract]

Potential Shares Of Common Stock Not Included In Calculation Of Diluted Net Loss Per Share

(in thousands)	September 30,
	2013		2012
Stock options outstanding		6,513		5,396
Warrants to purchase common stock		1,211		1,211
Unvested restricted stock		13		431
Total		7,737		7,038

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Summary Of Significant Accounting Policies (Policy)

9 Months Ended

Sep. 30, 2013

Summary Of Significant Accounting Policies [Abstract]

Revenue Recognition

Revenue Recognition

Revenue is generated: from (1) unit sales of the RIO system, including associated applications, instrumentation, installation services and training; (2) sales of implants and disposable products utilized in MAKOplasty procedures; and (3) sales of maintenance services. The Company recognizes revenue in accordance with ASC 605-10, Revenue Recognition, when persuasive evidence of an arrangement exists, the fee is fixed or determinable, collection of the fee is probable and delivery has occurred. For all sales, the Company uses either a signed agreement or a binding purchase order as evidence of an arrangement.  

The Company’s multiple-element arrangements are generally comprised of the following elements that qualify as separate units of accounting: (1) sales of RIO systems and applications; (2) sales of implants and disposable products; and (3) sales of maintenance services. The Company’s revenue recognition policies generally result in revenue recognition at the following points:  

1.	RIO system sales: Revenues related to RIO system sales are recognized upon installation of the system, training of at least one surgeon, which typically occurs prior to or concurrent with the RIO system installation, and customer acceptance, if required. Applications sold separately to existing customers are recognized on the same basis as RIO system sales (e.g., upon installation of the application, training of at least one surgeon and customer acceptance, if required).
2.	Procedure revenue: Revenues from the sale of implants and disposable products utilized in MAKOplasty procedures are recognized at the time of sale (i.e., at the time of the related surgical procedure).
3.	Service revenue: Revenues from maintenance services are deferred and recognized ratably over the service period until no further obligation exists. Maintenance services include preventative maintenance and repair on the RIO system hardware, when-and-if-available software and hardware reliability upgrades (i.e., bug fixes) and telephone troubleshooting support.

Sales of the Company’s RIO system generally include a one-year service obligation for maintenance (the “Service Obligation”). Upon recognition of a RIO system’s revenue in accordance with the Company’s revenue recognition policies, the Company defers a portion of the RIO system consideration attributable to the Service Obligation and recognizes it on a straight-line basis over the service period as a component of revenue – service in the statement of operations. Costs associated with providing maintenance services are expensed to cost of revenue – service as incurred.  

The Company allocates arrangement consideration to the RIO systems and associated instrumentation, its implants and disposables and its maintenance services based upon the relative selling-price method. Under this method, revenue is allocated at the time of sale to all deliverables based on their relative selling price using a specific hierarchy. The hierarchy is as follows: vendor-specific objective evidence (“VSOE”) of fair value of the respective elements, third-party evidence of selling price, or best estimate of selling price (“ESP”).   

The Company allocates arrangement consideration using ESP for its RIO system, ESP for its implants and disposable products and VSOE of fair value for its maintenance services. VSOE of fair value is based on the price charged when the element is sold separately. ESP is established by determining the price at which the Company would transact a sale if the product was sold on a stand-alone basis. The Company determines ESP for its products by considering multiple factors including, but not limited to, geographies, type of customer, and market conditions. The Company regularly reviews ESP and maintains internal controls over the establishment and updates of these estimates.   

Deferred Revenue And Deferred Cost Of Revenue

Deferred Revenue and Deferred Cost of Revenue

Deferred revenue consists of deferred service revenue, deferred system revenue and deferred procedure revenue. Deferred service revenue results from the advance payment for maintenance services to be delivered over a period of time, usually in one-year increments. Deferred system revenue arises from timing differences between the installation of RIO systems and satisfaction of all revenue recognition criteria consistent with the Company’s revenue recognition policy. Deferred procedure revenue arises from sales to independent international distributors which provide for a right of return. No revenue is recognized for these sales until the right of return expires or is waived. Deferred revenue expected to be realized within one year is classified as a current liability. Deferred cost of revenue consists of the direct costs associated with the manufacture of RIO systems and implants and disposable products for which the revenue has been deferred in accordance with the Company’s revenue recognition policy. The deferred revenue balance as of September 30, 2013 consisted primarily of deferred service revenue for maintenance services.  

Fair Value Of Financial Instruments

Fair Value of Financial Instruments

Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair value due to their short maturities.

Inventory

Inventory  

Inventory is stated at the lower of cost or market value on a first-in, first-out basis. Inventory costs include direct materials, direct labor and manufacturing overhead. The Company reviews its inventory periodically to determine net realizable value and considers product upgrades and new product introductions in its periodic review of realizability. During the nine months ended September 30, 2013, the Company increased its inventory reserve by $4.5 million, or $(0.10) per basic and diluted share for excess hip implant inventory. The inventory valuation adjustment was charged to cost of revenue – procedures in the condensed statement of operations. Inventory valuation reserves are determined based on the Company’s assessment of the forecasted demand for its products and the on hand quantities of inventory. Depending on demand for the Company’s products, technical obsolescence and new product introductions, future valuation adjustments of the Company’s inventory may occur. These factors are impacted by market and economic conditions, technology changes and new product introductions and require estimates that may include uncertain elements.   

Impairment Of Long-Lived Assets

Impairment of Long-Lived Assets  

The Company evaluates its long-lived assets for indicators of impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. During the nine months ended September 30, 2013, the Company incurred asset impairments of $2.5 million, or $(0.05) per basic and diluted share. The impairment charge was primarily related to excess hip implant instruments used to perform THA procedures and was charged to selling, general and administrative expense in the condensed statement of operations. Depending on the operating performance and projected undiscounted cash flows associated with the related assets, future impairment charges of the Company’s long-lived assets may occur.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Effective January 1, 2013, the Company adopted accounting guidance which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income (loss) by component. The adoption did not have a material impact on the Company’s results of operation or financial position.

Net Loss Per Share

Net Loss Per Share

The Company calculates net loss per share in accordance with ASC 260, Earnings per Share. Basic earnings per share (“EPS”) is calculated by dividing the net income or loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income or loss by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents outstanding for the period determined using the treasury stock method. The following table sets forth potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented:  

(in thousands)	September 30,
	2013		2012
Stock options outstanding		6,513		5,396
Warrants to purchase common stock		1,211		1,211
Unvested restricted stock		13		431
Total		7,737		7,038

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Document And Entity Information	9 Months Ended
	Sep. 30, 2013	Oct. 28, 2013
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Entity Registrant Name	MAKO Surgical Corp.
Entity Central Index Key	0001411861
Trading Symbol	MAKO
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		51,479,936

XML

Organization And Basis Of Presentation (Tables)

9 Months Ended

Sep. 30, 2013

Organization And Basis Of Presentation [Abstract]

Schedule Of Reclassified Depreciation Expense For Certain Property And Equipment

(in thousands)	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
		As Previously		Amount		As Reported		As Previously		Amount		As Reported
	Reported		Reclassified		Herein		Reported		Reclassified		Herein
Selling, general and administrative	$	20,258	$	(464)	$	19,794	$	59,330	$	(1,377)	$	57,953
Research and development		4,973		–		4,973		15,071		–		15,071
Merger transaction expenses		–		–		–		–		–		–
Depreciation and amortization		1,323		464		1,787		3,867		1,377		5,244
Total operating costs and expenses	$	26,554	$	–	$	26,554	$	78,268	$	–	$	78,268