UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 8-K/A
(Amendment No. 3)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
______________________
Date of Report (Date of earliest event reported): June 4, 2019
| OrthoPediatrics Corp. | ||
| (Exact name of registrant as specified in its charter) | ||
| Delaware | ||
| (State or other jurisdiction of incorporation) | ||
| 001-38242 | 26-1761833 | ||||
| (Commission File Number) | (I.R.S. Employer Identification Number) | ||||
| 2850 Frontier Drive Warsaw, Indiana | 46582 | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
Registrant’s telephone number, including area code: (574) 268-6379
| Not Applicable | ||
| (Former name or former address, if changed since last report) | ||
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Common Stock, $0.00025 par value per share | KIDS | Nasdaq Global Market | ||||||||||||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||||
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 under the Securities Act (17 CFR 230.405) or Rule 12b-2 under the Exchange Act (17 CFR 240.12b-2).
Emerging growth company [X]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [X]
EXPLANATORY NOTE
On June 4, 2019, OrthoPediatrics Corp. (the “Company”) filed a Current Report on Form 8-K (the “Original 8-K”) disclosing, among other things, that the Company had acquired (the “Acquisition”), on such date, all of the issued and outstanding shares of stock of Vilex in Tennessee, Inc., a Tennessee corporation (“Vilex”), and all of the issued and outstanding units of membership interests in Orthex, LLC, a Florida limited liability company (“Orthex” and, together with Vilex, the "Vilex Companies").
On August 20, 2019, an Amendment No. 1 to the Original 8-K (“Amendment No. 1”) was filed for the purpose of satisfying the Company’s undertaking to file the financial statements and pro forma financial information relating to the Acquisition, as required by Item 9.01 of Form 8-K. On December 10, 2019, Amendment No. 2 to the Original 8-K (“Amendment No. 2”) updated such pro forma financial information through September 30, 2019. This Amendment No. 3 to the Original 8-K (“Amendment No. 3”) updates such pro forma financial information through December 31, 2019 as required by Article 11 of Regulation S-X. Any information required to be set forth in the Original 8-K, Amendment No. 1 or Amendment No. 2 which is not being amended or supplemented pursuant to this Amendment No. 3 is hereby incorporated by reference.
Item 9.01. Financial Statements and Exhibits.
(b) Pro Forma Financial Information.
The pro forma financial information for the year ended December 31, 2019 is filed as Exhibit 99.1 to this Amendment No. 3 and is incorporated by reference herein.
(d) Exhibits.
| Exhibit No. | Description | |||||||
* * * * *
SIGNATURE
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 hereunto duly authorized.
| OrthoPediatrics Corp. | ||||||||
| Date: March 13, 2020 | By: | /s/ Daniel J. Gerritzen | ||||||
| Daniel J. Gerritzen, General Counsel and Secretary | ||||||||
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On June 4, 2019, OrthoPediatrics Corp. (the "Company") entered into an Equity Interest Purchase Agreement (the "Purchase Agreement") with the stockholders of Vilex in Tennessee, Inc., a Tennessee Corporation ("Vilex"), and the members of Orthex, LLC, a Florida limited liability company ("Orthex"), providing for the purchase by the Company of all of the issued and outstanding shares of stock of Vilex and all of the issued and outstanding units of membership interests in Orthex (the "Acquisition") from such stockholders and members, respectively (collectively, the "Sellers"). Orthex and Vilex (together, the "Vilex Companies") are primarily manufacturers of foot and ankle surgical implants, including cannulated screws, fusion devices, surgical staples and bone plates, as well as Orthex Hexapod technology which is used to treat pediatric congenital deformities and limb length discrepancies.
Concurrently with the execution and delivery of the Purchase Agreement, on June 4, 2019, the Company completed its acquisition of the Vilex Companies by paying (a) $50 million of cash, as adjusted for estimated working capital, and (b) 245,352 shares of common stock, $0.00025 par value per share, of the Company (“Common Stock”), to the Sellers. The shares of Common Stock were valued at $40.76 per share (which amount represents the volume weighted average trading price during the thirty day trading period ending on May 30, 2019). In addition, $3 million of the cash consideration was deposited into escrow for a period of up to twenty (20) months to cover certain indemnification obligations of the Sellers and to secure certain closing adjustments.
Vilex Divestiture
Because the current product line of the Vilex Companies also included adult offerings that were not core to the Company’s pediatrics business, the Company's Board of Directors authorized the Company to take the steps necessary to divest those non-core product lines of the Vilex Companies. On December 31, 2019, the Company divested substantially all the assets relating to Vilex's adult product offerings to a wholly-owned subsidiary of Squadron Capital LLC ("Squadron"), the Company's largest investor, in exchange for a $25 million reduction in the amount owed to Squadron under the Term Loan B described below. As part of the sale, the Company also entered into (i) an exclusive license arrangement with Squadron providing for perpetual access to certain intellectual property and (ii) an exclusive mutual distribution agreement with Squadron permitting both companies to distribute certain of the other's products. As a result, the Company has disclosed Vilex as a discontinued operation within its audited consolidated financial statements as of and for the year ended December 31, 2019, and its unaudited proforma condensed combined financial statements below.
Debt Financing for Acquisition
In order to finance a portion of the cash consideration for the Acquisition, the Company entered into a First Amendment (the “Amendment”) to its Fourth Amended and Restated Loan and Security Agreement (as so amended, the “Loan Agreement”), with Squadron. The Loan Agreement provided for a new $30 million term loan facility (the “Term Loan B”) in addition to the existing $20 million term loan facility (the “Term Loan A”) and $15 million revolving credit facility that were established previously by Squadron. The term loan and revolving credit facilities under the Loan Agreement provide for interest only payments with interest rates equal to the greater of (a) three month LIBOR plus 8.61%, and (b) 10.00%. The Term Loan B, which would have matured no later than May 31, 2020, was paid in full on December 31, 2019 using $25 million received in exchange for the divestiture of the adult product offerings of Vilex and the related license agreement, and $5 million from the revolving credit facility. The maturity date for each of the Term Loan A and the revolving credit facility is January 31, 2023.
As provided in the Amendment, Orthex became a “Borrower” under the Loan Agreement and, as such, granted to Squadron a security interest in all of its personal property as collateral for all borrowing under the Loan Agreement. In connection with the Amendment, the Company granted a security interest in (a) the units of membership interests in Orthex held by the Company, and (b) the shares of stock of Vilex held by the Company, as collateral for borrowings under the Loan Agreement. Borrowings under the Loan Agreement are secured by substantially all of the Company’s assets and are unconditionally guaranteed by each of its subsidiaries with the exception of Vilex.
The following unaudited pro forma condensed combined financial statements give effect to the Vilex Companies' acquisition on June 4, 2019 and include adjustments for the following:
•certain reclassifications to conform historical financial statement presentation of the Company and the Vilex Companies;
•the proceeds and uses of the Term Loan B and related interest expense;
•application of the acquisition method of accounting under the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification, which we refer to as ASC 805, “Business Combinations,” to reflect estimated acquisition consideration of approximately $60 million (approximately $10 million in share consideration based on the weighted average trading price during the thirty day trading period ending on May 30, 2019 and approximately $50 million of cash consideration), in exchange for 100% of all outstanding equity securities of the Vilex Companies (there are no outstanding equity securities of the Vilex Companies owned by any person other than the Company as of June 4, 2019);
•transaction costs in connection with the acquisition;
•the fair value of the identifiable intangible assets based on valuations using a combination of the income and cost approach, including trademarks/names, patents, internally developed software, customer relationships and non-competition agreements; and
•the estimated impact of divestiture of Vilex.
The following unaudited pro forma condensed combined financial statements and related notes are based on and should be read in conjunction with (i) the historical audited consolidated financial statements of the Company as of and for the years ended December 31, 2019 and 2018 and the related notes included in the Company's Annual Report on Form 10-K, (ii) the historical unaudited condensed combined financial statements of the Vilex Companies as of and for the three months ended March 31, 2019 and the related notes for the quarterly period ended March 31, 2019, which financial statements are filed as Exhibit 99.2 to the Amendment No. 1, and (iii) the historical audited combined financial statements of the Vilex Companies and the related notes for the years ended December 31, 2018 and 2017, which financial statements are filed as Exhibit 99.1 to the Amendment No. 1.
The unaudited pro forma condensed combined statements of operations for the years ended December 31, 2019 and 2018 combine the historical consolidated statements of operations of the Company and the combined statements of income of the Vilex Companies that are included in the applicable 2019 full year financial statements, giving effect to the acquisition as if it had been completed on January 1, 2018. A consolidated balance sheet as of December 31, 2019, including the assets and liabilities of the Vilex Companies, is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 5, 2020.
The historical financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (i) directly attributable to the acquisition, (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined statement of earnings, expected to have a continuing effect on the combined results of the Company and the Vilex Companies. The unaudited pro forma condensed combined financial statements contained herein do not reflect the costs of any integration activities or benefits that may result from the realization of future cost savings from operating efficiencies, or any other synergies that may result from the acquisition.
The unaudited pro forma condensed combined financial statements and related notes are being provided for illustrative purposes only and do not purport to represent what the combined company’s actual results of operations or financial position would have been had the acquisition been completed on the dates indicated, nor are they necessarily indicative of the combined company’s future results of operations or financial position for any future period.
The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting under U.S. GAAP. The acquisition method of accounting is dependent upon certain procedures, such as valuations, appraisals, and discussions and input from the Vilex Companies management, which have to be performed to obtain the necessary information to recognize the acquired assets and liabilities at fair value.
The value of the total acquisition consideration was determined based on (i) the volume weighted average trading price during the thirty day trading period ending on May 30, 2019, and (ii) the outstanding funded indebtedness of the Vilex Companies required to be repaid as of the closing date.
As a result of the foregoing, the pro forma adjustments are preliminary, subject to finalization of certain tax matters, and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and the final acquisition accounting will arise, and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined company’s future results of operations and financial position.
Any changes in the fair values of the net assets or total purchase consideration as compared with the information shown in the unaudited pro forma condensed combined financial statements may change the amount of the total purchase consideration allocated to goodwill and other assets and liabilities and may impact the combined company’s statement of operations. The final purchase consideration allocation may be materially different than the preliminary purchase consideration allocation presented in the unaudited pro forma condensed combined financial statements.
OrthoPediatrics Corp.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2019
(In thousands, except per share amounts)
| OrthoPediatrics Corp. | Vilex Companies | Subtotal OrthoPediatrics Corp. | Pro Forma | Total OrthoPediatrics Corp. | ||||||||||||||||||||||||||||||||||||||||||||||
| Historical | Historical | Pro Forma | Pro Forma | Preliminary Pro Forma | Vilex Divestiture | Pro Forma | ||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | January 1 - March 31, 2019 | April 1 - June 4, 2019 | Financing Adjustments | Acquisition Adjustments | Combined | Adjustments | Combined | |||||||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 72,552 | $ | 2,761 | $ | 1,749 | $ | — | $ | — | $ | 77,062 | $ | (2,574) | $ | 74,488 | ||||||||||||||||||||||||||||||||||
| Cost of revenue | 17,933 | 643 | 2 | 672 | — | — | 19,248 | (885) | 18,363 | |||||||||||||||||||||||||||||||||||||||||
| Gross profit | 54,619 | 2,118 | 1,077 | — | — | 57,814 | (1,689) | 56,125 | ||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales and marketing | 31,284 | 769 | 554 | — | — | 32,607 | (982) | 31,625 | ||||||||||||||||||||||||||||||||||||||||||
| General and administrative | 26,664 | 733 | 2 | 513 | — | (180) | 4(a) | 27,730 | (1,154) | 26,576 | ||||||||||||||||||||||||||||||||||||||||
| Research and development | 5,748 | 20 | 2 | 71 | — | — | 5,839 | (24) | 5,815 | |||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 63,696 | 1,522 | 1,138 | — | (180) | 66,176 | (2,160) | 64,016 | ||||||||||||||||||||||||||||||||||||||||||
| Operating income (loss) | (9,077) | 596 | (61) | — | 180 | (8,362) | 471 | (7,891) | ||||||||||||||||||||||||||||||||||||||||||
| Other expenses (income): | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense (income) | 3,538 | 66 | 69 | 1,588 | 4(b) | (135) | 4(b) | 5,126 | — | 5,126 | ||||||||||||||||||||||||||||||||||||||||
| Other expense | 70 | — | — | — | — | 70 | — | 70 | ||||||||||||||||||||||||||||||||||||||||||
| Total other expenses (income) | 3,608 | 66 | 69 | 1,588 | (135) | 5,196 | — | 5,196 | ||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | (12,685) | $ | 530 | $ | (130) | $ | (1,588) | $ | 315 | $ | (13,558) | $ | 471 | $ | (13,087) | ||||||||||||||||||||||||||||||||||
| Net gain from discontinued operations | $ | (1,046) | $ | — | $ | — | $ | — | $ | — | $ | (1,046) | $ | — | $ | (1,046) | ||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | (13,731) | $ | 530 | $ | (130) | $ | (1,588) | $ | 315 | $ | (14,604) | $ | 471 | $ | (14,133) | ||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | (13,731) | $ | 530 | $ | (130) | $ | (1,588) | $ | 315 | $ | (14,604) | $ | 471 | $ | (14,133) | ||||||||||||||||||||||||||||||||||
| Weighted average common shares - basic and diluted | 14,624,194 | 14,727,712 | 4(c) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss from continuing operations per share attributable to common stockholders - basic and diluted | $ | (0.87) | $ | (0.89) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss from discontinued operations per share attributable to common stockholders - basic and diluted | $ | (0.07) | $ | (0.07) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss per share attributable to common stockholders - basic and diluted | $ | (0.94) | $ | (0.96) | ||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited pro forma condensed combined financial information.
OrthoPediatrics Corp.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2018
(In thousands, except per share amounts)
| OrthoPediatrics Corp. | Vilex Companies | Subtotal OrthoPediatrics Corp. | Pro Forma | Total OrthoPediatrics Corp. | ||||||||||||||||||||||||||||||||||||||||
| Historical | Historical | Pro Forma | Pro Forma | Preliminary Pro Forma | Vilex Divestiture | Pro Forma | ||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | December 31, 2018 | Financing Adjustments | Acquisition Adjustments | Combined | Adjustments | Combined | ||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 57,559 | $ | 11,794 | $ | — | $ | — | $ | 69,353 | $ | (6,746) | $ | 62,607 | ||||||||||||||||||||||||||||||
| Cost of revenue | 14,879 | 2,368 | 2 | — | — | 17,247 | (905) | 16,342 | ||||||||||||||||||||||||||||||||||||
| Gross profit | 42,680 | 9,426 | — | — | 52,106 | (5,841) | 46,265 | |||||||||||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||
| Sales and marketing | 26,563 | 3,023 | — | — | 29,586 | (2,108) | 27,478 | |||||||||||||||||||||||||||||||||||||
| General and administrative | 20,938 | 3,080 | 2 | — | 914 | 4(a) | 24,932 | (2,204) | 22,728 | |||||||||||||||||||||||||||||||||||
| Research and development | 4,732 | 261 | 2 | — | — | 4,993 | (67) | 4,926 | ||||||||||||||||||||||||||||||||||||
| Total operating expenses | 52,233 | 6,364 | — | 914 | 59,511 | (4,379) | 55,132 | |||||||||||||||||||||||||||||||||||||
| Operating income (loss) | (9,553) | 3,062 | — | (914) | (7,405) | (1,462) | (8,867) | |||||||||||||||||||||||||||||||||||||
| Other expenses (income): | ||||||||||||||||||||||||||||||||||||||||||||
| Interest expense (income) | 2,255 | 264 | 2,971 | 4(b) | (265) | 4(b) | 5,225 | — | 5,225 | |||||||||||||||||||||||||||||||||||
| Other expense | 217 | — | — | — | 217 | — | 217 | |||||||||||||||||||||||||||||||||||||
| Total other expenses (income) | 2,472 | 264 | 2,971 | (265) | 5,442 | — | 5,442 | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | (12,025) | $ | 2,798 | $ | (2,971) | $ | (649) | $ | (12,847) | $ | (1,462) | $ | (14,309) | ||||||||||||||||||||||||||||||
| Weighted average common shares - basic and diluted | 12,567,387 | 12,812,739 | 4(c) | |||||||||||||||||||||||||||||||||||||||||
| Net loss per share attributable to common stockholders - basic and diluted | $ | (0.96) | $ | (1.12) | ||||||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited pro forma condensed combined financial information.
ORTHOPEDIATRICS CORP
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
1.Basis of pro forma presentation
The accompanying unaudited pro forma condensed combined financial statements and related notes were prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined statements of operations for the years ended December 31, 2019 and 2018 combine the historical consolidated statements of operations of the Company and the combined statements of income of the Vilex Companies included in the applicable 2019 full year financial statements, and the internal books and records of the Vilex Companies prepared on a basis consistent with the Vilex Companies' audited financial statements, giving effect to the acquisition as if it had been completed on January 1, 2018. Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for the Company's consolidated balance sheet at December 31, 2019. , which includes the assets and liabilities of Orthex. Substantially all the assets relating to Vilex were divested on December 31, 2019.
The Company's and the Vilex Companies' historical financial statements were prepared in accordance with U.S. GAAP and presented in U.S. dollars. As discussed in Note 2, certain reclassifications were made to align the Company's and the Vilex Companies' financial statement presentation. The Company has not identified all adjustments necessary to conform the Vilex Companies' accounting policies to the Company's accounting policies. There were no material transactions and balances between the Company and the Vilex Companies as of and for the years ended December 31, 2019 and 2018.
The accompanying unaudited pro forma condensed combined financial statements and related notes were prepared using the acquisition method of accounting under the provisions of ASC 805, with the Company considered the acquirer of the Vilex Companies. ASC 805 requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. For purposes of the unaudited pro forma condensed combined balance sheet, the purchase consideration has been allocated to the assets acquired and liabilities assumed of the Vilex Companies based upon management’s preliminary estimate of their fair values as of December 31, 2019. Any differences between the fair value of the consideration transferred and the fair value of the assets acquired and liabilities assumed has been recorded as goodwill. Accordingly, the purchase price allocation and related adjustments reflected in these unaudited pro forma condensed combined financial statements are preliminary and subject to revision for certain tax matters.
All amounts presented within these Notes to Unaudited Pro Forma Condensed Combined Financial Statements are in thousands, except per share data or as denoted otherwise.
2. Vilex and OrthoPediatrics reclassification adjustments
During the preparation of these unaudited pro forma condensed combined financial statements, management reviewed the Vilex Companies' financial information to identify differences in accounting policies as compared to those of the Company and differences in financial statement presentation as compared to the presentation of the Company. The Company reclassified $53 and $354 of expenses for the years ended December 31, 2019 and 2018, respectively, related to regulatory and research and development from cost of revenue to operating expenses in the unaudited pro forma condensed combined statements of operations to conform with the Company's presentation.
3. Preliminary purchase price allocation
Refer to the table below for the preliminary calculation of estimated value of the acquisition consideration:
| (in thousands, except per share amounts) | NOTE | Amount (Rounded) | |||||||||||||||
| Cash consideration: | |||||||||||||||||
| Cash consideration paid to Vilex and Orthex stockholders pursuant to the equity interest purchase agreement | $ | 40,210 | |||||||||||||||
| Share consideration: | |||||||||||||||||
| OrthoPediatrics common shares issued | 245,352 | ||||||||||||||||
| Volume weighted average share price of OrthoPediatrics for the 30 days ending on May 30, 2019 | $ | 40.76 | |||||||||||||||
| Estimated value of OrthoPediatrics common shares issued to Vilex and Orthex equity holders pursuant to the equity interest purchase agreement | 10,000 | ||||||||||||||||
| Estimated repayment of the Vilex Companies funded indebtedness (including accrued interest) | (i) | 6,529 | |||||||||||||||
| Estimated payment of Vilex Companies transaction related costs | 261 | ||||||||||||||||
| Fund escrow and payment of related agent fees | (ii) | 3,001 | |||||||||||||||
| Working capital adjustment | 183 | ||||||||||||||||
| Preliminary fair value of estimated total acquisition consideration | $ | 60,184 | |||||||||||||||
(i) Per the equity interest purchase agreement, the Company was required to pay each person to whom either or both of the Vilex Companies owes funded indebtedness as of closing.
(ii) Per the equity interest purchase agreement, $3,000 was deposited into escrow for a period of up to twenty months to cover certain indemnification obligations of the Vilex Companies and to secure certain closing adjustments.
The preliminary estimated acquisition consideration as shown in the table above is allocated to the tangible and intangible assets acquired and liabilities assumed of the Vilex Companies based on their preliminary estimated fair values. The following table sets forth a preliminary allocation of the acquisition consideration to the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of the Vilex Companies using the Vilex Companies' unaudited combined balance sheet as of June 4, 2019, with the excess recorded to goodwill:
| Description | Amount | |||||||
| (in thousands) | ||||||||
| Preliminary fair value of estimated total acquisition consideration | $ | 60,184 | ||||||
| Assets | ||||||||
| Cash | 348 | |||||||
| Accounts receivable - trade | 2,088 | |||||||
| Inventories | 3,652 | |||||||
| Prepaid expenses and other current assets | 12 | |||||||
| Property and equipment | 7,540 | |||||||
| Intangible assets | 18,770 | |||||||
| Operating lease right-of-lease asset | 323 | |||||||
| Total assets | 32,733 | |||||||
| Liabilities | ||||||||
| Accounts payable and accrued liabilities | 563 | |||||||
| Operating lease liabilities | 323 | |||||||
| Deferred tax liability | 1,175 | |||||||
| Other long-term liabilities | 68 | |||||||
| Total liabilities | 2,129 | |||||||
| Less: total net assets | 30,604 | |||||||
| Goodwill | $ | 29,580 | ||||||
4. Adjustments to the unaudited pro forma condensed combined statement of operations
Refer to the items below for a reconciliation of the adjustments reflected in the unaudited pro forma condensed combined statements of operations:
(a) General and administrative operating expenses have been adjusted as follows:
Intangible asset amortization
Represents the removal of $20 and $48 of amortization expense on the historical Vilex Companies' intangible assets offset by $873 and $873 of amortization expense on the newly acquired intangible assets for the years ended December 31, 2019 and 2018, respectively. The newly acquired intangible assets consist of trademarks/names, patents, internally developed software, customer relationships and non-competition agreements and are amortized on estimated useful lives ranging from 5 to 15 years. The trademarks/names have an indefinite life.
Operating lease right-of-use
Additional expenses of $89 and $89 were recorded related to the operating lease right-of-use asset amortization recorded as rent expense for the years ended December 31, 2019 and 2018, respectively.
Transaction costs
One-time transaction costs of $385 incurred by the Vilex Companies and $737 incurred by the Company related to the acquisition of the Vilex Companies were removed in the year ended December 31, 2019. No transaction costs were incurred or adjusted during the year ended December 31, 2018.
(b) Historical interest expense has been adjusted as follows:
Interest expense on Term Loan A and B: pro forma financing adjustment
Represents the increased interest expense for the years ended December 31, 2019 and 2018 of approximately $1,588 and $2,971, respectively. For these unaudited pro forma condensed combined financial statements, the Company assumes the Term Loan A and B has a weighted average interest rate of 10.94%. Based on the principal amounts of Term Loan B assumed to be issued, a 1/8% increase (decrease) in the annual interest rates on the debt assumed to be issued would cause the net earnings to (decrease) increase for the years ended December 31, 2019 and 2018 by ($63) and $63, respectively.
Elimination of historical Vilex Companies interest expense - pro forma acquisition adjustment
Represents the elimination of interest expense on the existing Vilex Companies loans which were paid in full with the acquisition proceeds, decreasing interest expense by $135 and $265 for the years ended December 31, 2019 and 2018, respectively.
(c) The pro forma basic and diluted earnings per share calculations are based on the basic and diluted weighted average shares of the Company plus shares issued as part of the acquisition. The pro forma basic and diluted weighted average shares outstanding are a combination of historical weighted average shares of the Company's common stock and the share impact of the acquisition. The 103,518 incremental shares in the year ended December 31, 2019 gives effect to the 245,352 shares issued as consideration for the purchase of the Vilex Companies as if they had been issued on January 1, 2019 as opposed to June 4, 2019.
| Pro forma basic weighted average shares | Year Ended December 31, 2019 | Year Ended December 31, 2018 | ||||||||||||
| Historical OrthoPediatrics weighted average shares outstanding - basic and diluted | 14,624,194 | 12,567,387 | ||||||||||||
| Shares of OrthoPediatrics common stock issued to Vilex Companies equity holders pursuant to the acquisition | 103,518 | 245,352 | ||||||||||||
| Pro forma weighted average shares - basic and diluted | 14,727,712 | 12,812,739 | ||||||||||||