CARTIVA, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2018 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
| 1. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization and Nature of Business —Cartiva, Inc., (the “Company”), a Delaware corporation, is a medical device company focused on the development, manufacturing and marketing of products for the treatment of osteoarthritis of the extremities. The Company’s first commercialized product is Cartiva Synthetic Cartilage Implant (“SCI”), an implant designed to replace the damaged cartilage surface of arthritic joints. In July 2016, the Company receivedpre-market approval from the U.S. Food and Drug Administration (“FDA”) for the use of Cartiva SCI in the treatment of osteoarthritis at the base of the great toe. The Company commenced selling Cartiva SCI in the United States following FDA approval.
Basis of Presentation — The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.
Subsequent Events — The Company evaluates events and transactions occurring subsequent to the date of the accompanying balance sheets for potential recognition or disclosure in the financial statements. All subsequent events requiring recognition or disclosure have been incorporated into the accompanying financial statements.
Use of Estimates — Preparation of the accompanying financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition— The Company’s revenues are primarily generated through two types of customers, hospitals and surgery centers and stocking distributors, with the majority of its revenue derived from sales to hospitals and surgery centers. The Company’s products are sold through a network of employees and independent sales representatives in the United States and by stocking distributors outside the United States. In the United States, the Company generates a significant portion of its revenue from consigned inventory maintained by its independent sales representatives. For these products, the Company records revenues when it receives appropriate notification that the product has been used or surgically implanted in a patient. For all other transactions, the Company recognizes revenue when title to the goods and risk of loss transfer to customers, provided there are no remaining performance obligations that will affect the customer’s final acceptance of the sale.
The Company records revenues from sales to its stocking distributors outside the United States at the time the product is shipped to the distributor. Stocking distributors, who sell the products to their customers, take title to the products and assume all risks of ownership. The Company’s distributors are obligated to pay within specified terms regardless of when, if ever, they sell the products. The distributor can only reject products for an obvious defect or shipping error, generally within 30 days of receipt, and in such cases, replacement products would be sent. Since the distributor’s remedy is the replacement of the product and not a refund or credit, the Company does not defer revenue associated with these sales. The Company’s standard sales arrangements in the United States do not have a return provision.
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