Acquisition of Pharos Assets and Liabilities

9 Months Ended

Sep. 30, 2021

Acquisition of Pharos Assets and Liabilities [Abstract]

Acquisition of Pharos Assets and Liabilities

Note 4

Acquisition of Pharos Assets and Liabilities

In August 2021, the Company acquired certain assets and liabilities related to the U.S. dermatology Pharos business from Ra Medical Systems, Inc. (“Ra Medical”). Ra Medical’s Pharos excimer laser system holds FDA clearance to treat chronic skin diseases, including psoriasis, vitiligo, atopic dermatitis and leukoderma. The acquisition of these assets and liabilities allows the Company to market its full business solutions to Ra Medical’s existing customer base comprised of 400 dermatology practices offering opportunities to increase its recurring revenue base and a pathway to gain additional placements for the Company’s XTRAC excimer laser system.

The purchase price of $3,700 was paid in cash at the time of acquisition. In addition, the Company assumed certain extended warranty service contracts associated with acquired laser system products. Concurrent with the purchase of the net assets, the Company and Ra Medical entered into a services agreement whereby Ra Medical will provide certain transitional services for the Company as it integrates the acquired assets into the Company. The Company determined this transaction represented an asset acquisition as substantially all of the value was in the acquired customer list intangible asset as defined by ASC 805, Business Combinations (“ASC 805”). The purchase price was allocated, on a relative fair basis, to the acquired inventory, customer lists and deferred revenue as follows (in thousands):

Consideration:
Cash payment	$	3,700
Transaction costs		57
Total consideration	$	3,757
Assets acquired:
Inventory	$	284
Customer lists		5,314
Total assets acquired	$	5,598
Liabilities assumed:
Deferred revenues - service contracts	$	1,841
Total liabilities assumed	$	1,841
Net assets acquired	$	3,757

The customer lists intangible asset is being amortized on a straight-line basis over a period of twelve years. As the transaction was accounted for as an asset acquisition, the Company allocated consideration paid to the inventory acquired and the deferred revenue assumed with the remaining consideration paid allocated to the customer lists intangible asset which also equal its estimated fair value. The intangible asset was valued using an excess earnings model. Significant assumptions used in the excess earnings model include estimated customer sales growth, customer attrition, and weighted average cost of capital of 3%, 5% and 17%, respectively.