Acquisition of Xoft

6 Months Ended

Jun. 30, 2011

Note 3

- Acquisition of Xoft

On December 30, 2010, the Company completed its acquisition of Xoft, Inc. (“Xoft”), a privately held company based in California. Xoft designs, develops, manufactures, markets and sells electronic brachytherapy (eBx) products for the treatment of breast and other cancers, used in a broad range of clinical settings. The acquisition was made pursuant to an Agreement and Plan of Merger dated December 15, 2010, by and between the Company, XAC, Inc., a wholly-owned subsidiary of the Company (“the Merger Sub”), Xoft and Jeffrey Bird as the representative of the stockholders of Xoft (“the Merger Agreement”). Upon the terms of the Merger Agreement, Xoft was merged with and into the Merger Sub with the Merger Sub surviving the merger (the “Merger”).

The Company acquired 100% of the outstanding stock of Xoft in exchange for 8,348,501 shares of the Company’s common stock and approximately $1.2 million in cash, of which approximately $0.9 million was accrued at December 31, 2010, and paid in January 2011. The total consideration at closing was approximately $12.9 million based on a per share value of $1.40, the closing price of the Company’s common stock on the closing date. The Company also paid certain transaction expenses of Xoft totaling approximately $1.0 million which were accrued as of December 31, 2010 and paid in January 2011. Following completion of the Merger, Xoft stockholders owned approximately 15.4% of the Company’s outstanding common stock.

Under the Merger Agreement, there is an additional earn-out potential for the sellers that is tied to cumulative net revenue of Xoft products over the next three years, payable at the end of that period. The threshold for earn-out consideration begins at $50 million of cumulative revenue of “Xoft Products” (as defined in the Merger Agreement) from January 1, 2011 through December 31, 2013. The “targeted” earn-out cash consideration of $20.0 million will occur at $76.0 million of cumulative revenue of Xoft Products and the maximum earn-out consideration of $40.0 million would be achieved at $104.0 million of cumulative revenue of Xoft Products over the three year period.

At closing, 10% of the cash amount and 10% of the amount of the Company’s common stock comprising the merger consideration was placed in escrow. It will remain in escrow for a period of 15 months following the closing of the Merger to secure post-closing indemnification obligations of Xoft stockholders.

The purchase price of $17.8 million, which includes $12.9 million of merger consideration and $4.9 million of contingent consideration, has been allocated to net assets acquired based upon the estimated fair value of those assets. At June 30, 2011 the Company has estimated the fair value of the contingent consideration at approximately $3.8 million, which is included in long term liabilities. The change in fair value of approximately $1.1 million has been included in the statement of operations for the three months ended June 30, 2011.

The following is a summary of the preliminary allocation of the total purchase price based on the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition and the amortizable lives of the intangible assets:


				Estimated
	Amount			Amortizable
	(000’s) .			Life
Current assets	$	4,030
Property and equipment		1,951
Identifiable intangible assets		13,700		15 Years
Patent license		100		6 Years
Other assets		643
Goodwill		4,142
Current liabilities		(5,196	)
Long-term liabilities		(1,591	)

Purchase price	$	17,779

The goodwill of $4.1 million is not deductible for income tax purposes.

The unaudited proforma operating results for the Company for the three and six months ended June 30, 2010, assuming the acquisition of Xoft occurred as of January 1, 2010 are as follows:


	Three months			Six months
	ended June 30,			ended June 30,
	2010			2010
	(In thousands, except for per share data)
Revenue	$	8,353		$	16,054
Loss from operations		(8,340	)		(12,746	)
Net loss		(8,617	)		(13,137	)
Net loss per share:
Basic and Diluted	$	(0.16	)	$	(0.24	)