5. BUSINESS COMBINATION

On April 14, 2016, the Company acquired 98.3% of the outstanding common stock of Allenex. Allenex is a transplant diagnostic company based in Stockholm, Sweden that develops, manufactures, and sells products that help match donor organs with potential recipients prior to transplantation. The acquisition of Allenex creates an international transplant diagnostics company with product offerings along the pre- and post-transplant continuum. The combined company has a presence and direct distribution channels in the US and Europe, with additional third party distributors in Europe and other markets around the world. Under the terms of the Conditional Share Purchase Agreements entered into on December 16, 2015, as amended and the tender offer prospectus dated March 7, 2016, and as a result of the tender offer, the aggregate purchase consideration paid by the Company was approximately $34.1 million and consisted of (i) $26.9 million of cash, of which approximately $5.7 million was deferred purchase consideration payable to the Majority Shareholders by no later than March 31, 2017, and (ii) the issuance of 1,375,029 shares of the Company’s common stock valued at $7.2 million. Of the total cash consideration, $8.0 million of cash payable to the Majority Shareholders was deposited into an escrow account by the Company and subsequently invested in the Company by the Majority Shareholders through a purchase of the Company’s equity securities in the Subsequent Financing. Upon the completion of the Subsequent Financing, certain contingencies in the Conditional Share Purchase Agreements were waived, and the deferred purchase consideration is payable to the Majority Shareholders by no later than March 31, 2017. The Company determined at the date of the acquisition that these contingencies would be waived. The Company intends to complete compulsory acquisition proceedings under Swedish law to purchase the remaining shares of Allenex. On June 8, 2016, the Company delisted Allenex’s common stock from Nasdaq Stockholm.

The cash portion of the acquisition purchase price was paid from the Company’s general working capital. The acquisition of Allenex required and the Company obtained, a consent from East West Bank (the “Consent”), as the lender under the Company’s Loan and Security Agreement, dated January 30, 2015, as amended (the “Loan Agreement”). The Consent was contingent upon the closing of a private placement financing for aggregate cash proceeds of at least $12.0 million and separately depositing into an escrow account cash of $8.0 million relating to a commitment by the Majority Shareholders to purchase the Company’s equity securities in the Subsequent Financing, all of which occurred on April 14, 2016. Pursuant to the Consent, the Company is also required to raise another $20.0 million through one or more equity financings by March 31, 2017, prior to paying the $5.7 million of deferred purchase price consideration to the Majority Shareholders.

The Company has accounted for this transaction as a business combination in exchange for total consideration of approximately $34.1 million. Under business combination accounting, the total purchase price was allocated to Allenex’s net tangible and identifiable intangible assets based on their estimated fair values as of April 14, 2016 as set forth in the table below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The preliminary allocation of the purchase price was based upon a valuation, and the Company’s estimates and assumptions are subject to change. The primary areas of the purchase price allocation that are not yet finalized relate to valuation of acquired inventory, income and non-income based taxes and residual goodwill. Total acquisition-related expenses for the three and six months ended June 30, 2016 were $1.6 million and $3.8 million, respectively.

The amounts recorded for certain assets and liabilities are preliminary in nature and are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the acquisition date. The final determination of the fair values of certain assets and liabilities will be completed within the measurement period of up to one year from the acquisition date, as permitted under U.S. GAAP. Any potential adjustments made could be material in relation to the values presented in the table below.

The preliminary fair values of the assets acquired and liabilities assumed are as follows (in thousands):

	Total
Cash	$	596
Accounts receivable		1,608
Prepaid and other assets		1,092
Inventory		9,733
Property, plant and equipment		1,057
Intangible assets		31,560
Goodwill		16,786
Deferred tax liability		(8,525	)
Assumed liabilities		(19,833	)
Total preliminary acquisition consideration	$	34,074

The fair value of the remaining 1.7% of noncontrolling interest in Allenex was estimated to be $0.6 million as of April 14, 2016. The fair value of the noncontrolling interest was determined based on the number of outstanding shares comprising the noncontrolling interest and Allenex’s stock price of SEK 2.48 per share as of the acquisition date. The noncontrolling interest was presented as a component of stockholders’ equity on the Company’s condensed consolidated balance sheets.

Noncontrolling interest as of June 30, 2016 was as follows (in thousands):

	June 30, 2016
Beginning noncontrolling interest	$	—
Noncontrolloing interest investment		634
Loss attributable to noncontrolling interest		(23	)
Ending noncontrolling interest	$	611

The following table presents details of the identified intangible assets acquired at the acquisition date (in thousands):

	Estimated Fair Value		Estimated Useful Life (Years)
Customer relationships	$	12,650		15
Developed technology		11,650		10
Acquired in-process technology		4,510		—
Trademarks		2,260		15
Acquired contracts		490		2
Total	$	31,560

Goodwill of $16.8 million recorded from the acquisition of Allenex is primarily related to expected synergies. The goodwill resulting from the acquisition is not deductible for tax purposes.

Allenex’s post-acquisition results of operations for the period from April 14, 2016 through June 30, 2016 are included in the Company’s condensed consolidated statements of operations. Since the acquisition date, total revenue of Allenex for the period from April 14, 2016 through June 30, 2016 was $3.5 million. Net loss for Allenex for the period from April 14, 2016 through June 30, 2016 was $1.4 million.

Pro Forma Impact of the Acquisition of Allenex

The following table presents pro forma results of operations and gives effect to the Allenex transaction as if the transaction had been consummated on January 1, 2015. The unaudited pro forma results of operations have been prepared for comparative purposes only and are not necessarily indicative of what would have occurred had the business combination been completed at the beginning of the period or of the results that may occur in the future. Furthermore, the pro forma financial information does not reflect the impact of any reorganization or operating efficiencies resulting from combining the two companies.

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Revenue:
Testing revenue	$	7,246		$	7,044		$	13,698		$	14,140
Product revenue		4,027			4,024			7,887			8,062
Other revenue		100			163			288			356
Total revenue	$	11,373		$	11,231		$	21,873		$	22,558
Net loss	$	(8,809	)	$	(5,097	)	$	(15,123	)	$	(8,504	)
Weighted-average shares used to compute basic net loss per common share		11,835,405			11,835,405			11,824,993			11,824,993
Net loss per common share - basic and diluted	$	(0.74	)	$	(0.43	)	$	(1.28	)	$	(0.72	)

The unaudited pro forma financial information for the three and six months ended June 30, 2016 and 2015 is prepared using the acquisition method of accounting and has been adjusted to give effect to the pro forma events that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The pro forma adjustments directly attributable to the acquisition exclude acquisition-related expenses of $3.8 million and debt financing costs of $2.9 million relating to a six-month bridge loan with Oberland Capital SA Davos LLC (“Oberland”) that did not materialize, together with the consequential tax effects.