Note 5 - GKCE Acquisition

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Business Combination Disclosure [Text Block]

NOTE 5 - GKCE ACQUISITION

On June 18, 2019, the Company entered into a Stock Purchase Agreement to acquire Gamma Knife Center Ecuador S.A. (“GKCE”) from GKCE’s selling majority shareholders. GKCE is a well-established Gamma Knife operation founded in 2009 as a private clinic to introduce advanced stereotactic radiosurgery into Ecuador and continues to operate the only Gamma Knife unit in the country. The Company acquired GKCE for the continued expansion of its business internationally.

On June 12, 2020 (the “Closing Date”), the Company acquired approximately 98% of the total outstanding shares of GKCE. As of December 31, 2021, the Company acquired approximately 99.3% of the total outstanding shares of GKCE and intends to acquire the remaining 0.7% at a later date. The fair value of the non-controlling interests (“NCI”) on the Closing Date was approximately $58,000, which was consistent with the purchase price in the executed NCI agreements. The total purchase consideration for 100% of the outstanding shares of GKCE was $2,883,000, which included $2,000,000 of base purchase price, and certain price adjustments for current assets and liabilities and tax withholding.  During the year ended  December 31, 2021, accounting for the Closing Date accounts receivable balances, allowance on the uncollected accounts receivable balances, and related liabilities, was completed.  

The base purchase price of $2,000,000 was paid with $575,000 of cash and $1,425,000 from the DFC Loan. The DFC Loan is denominated in U.S. dollars, which is also the currency of Ecuador. The price adjustments were paid by the Company in the post-closing period with the adjustments related to the amount of working capital that GKCE had as of the Closing Date. The first price adjustment for working capital as of the Closing Date was approximately $515,000, which was paid by the Company in August 2020. The Company estimated an additional contingent consideration of approximately $368,000 would be remitted to the seller based on the collection of Closing Date accounts receivable balances, net of related costs, during the three-month, six-month and twelve-month periods after the Closing Date. As of December 31, 2021, $368,000 of the contingent consideration was paid and no further payment is required. The Company reviewed historical patient treatments, invoice, and collection data from GKCE to determine an appropriate estimate of the contingent consideration at the Closing Date.

The acquisition has been accounted for according to ASC 805 using the acquisition method of accounting. Under the acquisition method of accounting, all assets acquired, including goodwill and other intangible assets, should be stated at fair value at the time of acquisition. The acquisition accounting was final during the year ended December 31, 2021. During the measurement period, which can be no more than one year from the Closing Date, the Company obtained information to assist in determining the final fair value of assets acquired. The assets acquired were recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. 

The fair value of assets acquired and liabilities assumed were as follows:

	June 12, 2020
Cash and cash equivalents	$	432,000
Accounts receivable		854,000
Prepaid expense and other		22,000
Building		385,000
Land		19,000
Medical equipment		319,000
Purchased intangible assets		78,000
Goodwill		1,265,000
Total assets acquired	$	3,374,000
Accounts payable	$	(193,000	)
Income taxes payable		(141,000	)
Deferred income taxes		(66,000	)
Employee compensation and benefits		(91,000	)
Total liabilities assumed		(491,000	)
Consideration allocated to assets acquired and liabilities assumed	$	2,883,000
First working capital payment	$	(515,000	)
Subsequent working capital payment		(368,000	)
Base purchase consideration	$	2,000,000

The Company has allocated the purchase price of GKCE to the tangible assets, liabilities, and intangible asset acquired, based on their estimated fair values. Goodwill represents the excess of the purchase price consideration over the fair value of the identifiable tangible and intangible assets assumed. The Company believes the amount of goodwill resulting from the acquisition is primarily attributable to expected synergies from an assembled and trained workforce and enhanced opportunities for growth and innovation. The goodwill resulting from the acquisition is not tax deductible.

The value of the acquired tangible assets acquired are as follows:

	Fair Value		Useful Life (in Years)
Building	$	385,000		20
Land		19,000
Medical equipment		302,000		2
Other fixed assets		17,000		2
Total tangible assets	$	723,000

The Company also acquired intangible assets with a fair value of $78,000. The intangible asset identified was GKCE's trade name and the Company assigned an indefinite useful life to the asset.

The Company incurred costs related to the acquisition of approximately $162,000 for the year ended December 31, 2020. All acquisition related costs were expensed as incurred and have been recorded in selling and administrative expense in the Company's consolidated statement of operations.

The revenue and earnings of GKCE have been included in the Company’s consolidated results since the Closing Date and are not material to the Company’s consolidated financial results. Historical financial statements and pro forma results of the operations of GKCE as of the Acquisition occurred earlier than the Closing Date have not been presented, as the applicable significance thresholds are not exceeded by the Acquisition and the corresponding requirements to provide historical financial statements and corresponding pro forma financial information are not applicable to the Acquisition. In addition, the Company believes that the financial impact of the Acquisition to the Company’s consolidated financial statements is not material and such historical financial information and pro forma financial information would not be meaningful for investors and financial statement users.