On March 15, 2018, the Company entered into a definitive merger agreement (the “Merger Agreement”) to acquire 100% of the outstanding stock of Spinal Kinetics Inc. (“Spinal Kinetics”), a privately held developer and manufacturer of artificial cervical and lumbar discs, to strengthen the Company’s product portfolio and fill a strategic gap in the Spinal Implants business. On April 30, 2018, the Company completed the acquisition and all outstanding shares of Spinal Kinetics’ capital stock were converted into the right to receive at the closing an aggregate of $45.0 million in net cash, subject to certain adjustments, plus potential milestone payments of up to $60.0 million in cash. The Company made the closing payments from cash on hand on April 30, 2018. The results of operations for Spinal Kinetics have been included in the Company’s financial results since the acquisition date, April 30, 2018.

The acquisition date fair value of the consideration transferred was $76.1 million, which consisted of the following:

The contingent consideration consists of potential future milestone payments of up to $60.0 million in cash. The milestone payments include (i) up to $15.0 million if the U.S. Food and Drug Administration (the “FDA”) grants approval of Spinal Kinetics’ M6-C artificial cervical disc (the “FDA Milestone”) and (ii) revenue-based milestone payments of up to $45.0 million in connection with future sales of the M6-C artificial cervical disc and the M6-L artificial lumbar disc. Milestones must be achieved within five years of April 30, 2018 to trigger applicable payments. The fair value of the contingent consideration arrangement at the acquisition date was $25.5 million and was $28.2 million as of September 30, 2018; however, the actual amount ultimately paid could be higher or lower than the fair value of the contingent consideration. The increase in fair value of $2.7 million was recorded as an operating expense labeled changes in fair value of contingent consideration. For additional discussion regarding the valuation of the contingent consideration, see Note 5.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date. A final determination of the allocation of the purchase price to assets acquired and liabilities assumed has not been made and the following should be considered preliminary. The final determination is subject to completion of the Company’s valuation of the assets acquired and liabilities assumed, which it expects to complete within one year of the acquisition date.

(U.S. Dollars, in thousands)	As of April 30, 2018		Assigned Useful Life
Assets acquired
Cash and cash equivalents	$	6,785
Restricted cash		30
Accounts receivable		1,705
Inventories		8,175
Prepaid expenses and other current assets		315
Property, plant and equipment		2,285
Other long-term assets		320
Developed technology		12,400	10 years
In-process research and development ("IPR&D")		26,800	Indefinite
Tradename		100	2 years
Deferred income taxes		3,483
Total identifiable assets acquired	$	62,398

Liabilities assumed
Accounts payable	$	351
Other current liabilities		2,873
Other long-term liabilities		301
Total liabilities assumed		3,525
Goodwill		17,182
Total fair value of consideration transferred	$	76,055

The purchase price exceeded the fair value of the net tangible and identifiable intangible assets acquired from Spinal Kinetics. As a result, the Company recorded goodwill in connection with the acquisition. Specifically, the goodwill includes the assembled workforce and synergies associated with the combined entity and is not expected to be deductible for tax purposes. The $17.2 million of goodwill recognized was assigned to the Spinal Implants reporting segment.

The IPR&D intangible asset is considered an indefinite-lived asset until the completion or abandonment of the associated research and development efforts. Accordingly, during the development period after the acquisition, this asset is not amortized but, instead, is subject to impairment review and testing provisions. Upon completion of the IPR&D project, which the Company currently expects to occur mid-2019, the Company will determine the useful life of the asset and begin amortization.

The Company recognized $0.3 million and $3.3 million of acquisition related costs that were expensed during the three and nine months ended September 30, 2018, respectively. These costs are included in the condensed consolidated statements of operations and comprehensive income (loss) within general and administrative expenses. The Company’s results of operations included $2.9 million and $5.2 million of revenue from Spinal Kinetics from the date of acquisition for the three and nine months ended September 30, 2018 and net loss of $2.1 million and $3.5 million from the date of acquisition for the three and nine months ended September 30, 2018 in the condensed consolidated statements of operations and comprehensive income (loss).

The following table presents the unaudited pro forma results for the three and nine months ended September 30, 2018 and 2017, which combines the historical results of operations of Orthofix and Spinal Kinetics as though the companies had been combined as of January 1, 2017. The unaudited pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at such time.

	Three Months Ended September 30,				Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2018		2017		2018		2017
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net sales	$	111,708	$	109,019	$	336,882	$	328,182
Net income from continuing operations		78		1,415		7,055		448