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Note 3 - Business Combinations | 3 Months Ended
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Mar. 31, 2022
Notes to Financial Statements |
Business Combination Disclosure [Text Block] |
3. | Business Combinations
Parcus Medical, LLC On January 24, 2020, the Company completed the acquisition of Parcus Medical pursuant to the terms of the Agreement and Plan of Merger, dated as of January 4, 2020 (the “Parcus Medical Merger Agreement”). Parcus Medical is a sports medicine implant and instrumentation solutions provider focused on surgical repair and reconstruction of soft tissue. Consideration Transferred Pursuant to the Parcus Medical Merger Agreement, the Company acquired all outstanding equity of Parcus Medical for estimated total purchase consideration of $75.1 million, as of January 24, 2020, which consisted of:
Cash consideration |  | $ | 32,794 |
Deferred consideration |  |  | 1,642 |
Estimated fair value of contingent consideration |  |  | 40,700 |
Estimated total purchase consideration |  | $ | 75,136 |
Pursuant to the Parcus Medical Merger Agreement, contingent consideration represents additional payments that the Company may be required to make in the future which could total up to $60.0 million depending on the level of net sales of Parcus Medical products generated in 2020 through 2022. The fair value of contingent consideration related to net sales as of January 24, 2020, and at each reporting date, was determined based on a Monte Carlo simulation model in an option pricing framework, whereby a range of possible scenarios were simulated. The unobservable inputs used in the fair value determination are the net sales estimates, the weighted average cost of capital used for the Monte Carlo simulation, discount rate and the periods in which the milestones are expected to be achieved. The discount rates used as of March 31, 2022 ranged from 3.2% - 4.1%. The weighted average cost of capital was 11.5% as of March 31, 2022. The deferred consideration related to certain purchase price holdbacks was resolved within one year of the acquisition date in accordance with the Parcus Merger. The liability for contingent consideration was included in current liabilities on the condensed consolidated balance sheets and will be remeasured at each reporting period until the contingency is resolved. As of March 31, 2022, the net sales related contingent consideration amounted to $4.3 million which was included in current liabilities. As of March 31, 2022 the Company did not expect any further milestones to be achieved. Acquisition-related costs were not included as a component of consideration transferred but were expensed in the periods in which the costs are incurred. The Company incurred approximately $1.9 million in transaction costs related to the Parcus Medical acquisition during the three-month period ending March 31, 2020. The transaction costs subsequent to March 31, 2020 were immaterial. Fair Value of Net Assets Acquired The estimate of fair value as of the acquisition date required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable, however, actual results may differ from these estimates. The allocation of purchase price to the identifiable assets acquired and liabilities assumed was based on estimates of fair value as of January 24, 2020, and was as follows:
Recognized identifiable assets acquired and liabilities assumed: |  |  |  |
Cash and cash equivalents |  | $ | 196 |
Accounts receivable |  |  | 2,029 |
Inventories |  |  | 10,968 |
Prepaid expenses and other current assets |  |  | 364 |
Property and equipment, net |  |  | 1,099 |
Right-of-use assets |  |  | 944 |
Intangible assets |  |  | 44,000 |
Accounts payable, accrued expenses and other current liabilities |  |  | (2,763 | )
Other long-term liabilities |  |  | (594 | )
Lease liabilities |  |  | (735 | )
Net assets acquired |  |  | 55,508 |
Goodwill |  |  | 19,628 |
Estimated total purchase consideration |  | $ | 75,136 |
Subsequent to the acquisition date, during the three-month period ended September 30, 2020, the Company completed the identification and confirmation of Parcus Medical inventory in the possession of its direct and distributor sales force, which resulted in an increase to the fair value of inventory of $1.9 million as of the January 24, 2020 acquisition date. As a result, the Company recorded this addition to inventory with a corresponding reduction to goodwill as a measurement period adjustment which was reflected to the Goodwill amount included in the table above. The acquired intangible assets based on estimates of fair value as of January 24, 2020 were as follows:
Developed technology |  | $ | 41,100 |
Trade name |  |  | 1,800 |
Customer relationships |  |  | 1,100 |
Total acquired intangible assets |  | $ | 44,000 |
The fair value of developed technology will be amortized over a useful life of 15 years, the fair value of customer relationships over 10 years, and the fair value of the trade name over 5 years. The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and assigned to the newly established reporting unit for Parcus Medical and Arthrosurface. The goodwill was impaired in 2020 and there was no remaining goodwill as of December 31, 2020. Arthrosurface, Inc. On February 3, 2020, the Company completed the acquisition of Arthrosurface pursuant to the terms of the Agreement and Plan of Merger, dated as of January 4, 2020 (the “Arthrosurface Merger Agreement”). Arthrosurface is a joint preservation technology company specializing in less invasive, bone-preserving partial and total joint replacement solutions. Consideration Transferred Pursuant to the Arthrosurface Merger Agreement, the Company acquired all outstanding equity of Arthrosurface for estimated total purchase consideration of $90.3 million, as of February 3, 2020 which consisted of:
Cash consideration |  | $ | 61,909 |
Estimated fair value of contingent consideration |  |  | 28,376 |
Estimated total purchase consideration |  | $ | 90,285 |
Pursuant to the Arthrosurface Merger Agreement, the Company could be required to make future payments of up to $40.0 million depending on the achievement of regulatory milestones and the level of net sales of Arthrosurface products from 2020 through 2021. The fair value of contingent consideration related to regulatory milestones as of February 3, 2020 was determined through a scenario-based discounted cash flow analysis using scenario probabilities and regulatory milestone dates. The fair value of contingent consideration related to net sales achievement as of February 3, 2020 was determined based upon a Monte Carlo simulation approach at acquisition date, whereby a range of possible scenarios were simulated. The Company paid $5.0 million in October 2020 and $10.0 million in July 2021 based upon the achievement of two distinct regulatory milestones. As of December 31, 2021, there were no milestones remaining. Acquisition-related costs were not included as a component of consideration transferred but were expensed in the periods in which the costs are incurred. The Company incurred approximately $2.2 million in transaction costs related to the Arthrosurface acquisition during the three-month period ending March 31, 2020. The transaction costs subsequent to March 31, 2020 were immaterial. Fair Value of Net Assets Acquired The estimate of fair value required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates. The allocation of purchase price to the identifiable assets acquired and liabilities assumed was based on estimates of fair value as of February 3, 2020, as follows:
Recognized identifiable assets acquired and liabilities assumed: |  |  |  |
Cash and cash equivalents |  | $ | 1,072 |
Accounts receivable |  |  | 5,368 |
Inventories |  |  | 15,652 |
Prepaid expenses and other current assets |  |  | 535 |
Property, plant and equipment |  |  | 3,394 |
Other long-term assets |  |  | 7,548 |
Intangible assets |  |  | 48,900 |
Accounts payable, accrued expenses and other liabilities |  |  | (3,929 | )
Deferred tax liabilities |  |  | (11,147 | )
Net assets acquired |  |  | 67,393 |
Goodwill |  |  | 22,892 |
Estimated total purchase consideration |  | $ | 90,285 |
Intangible assets acquired consist of: |  |  |  |
Developed technology |  | $ | 37,000 |
Trade name |  |  | 3,400 |
Customer relationships |  |  | 7,900 |
IPR&D |  |  | 600 |
Total acquired intangible assets |  | $ | 48,900 |
The fair value of developed technology will be amortized over an estimated useful life of 15 years, the fair value of customer relationships over 10 years, and the fair value of trade names over 5 years. A total of $0.6 million represents the fair value of IPR&D with an indefinite useful life which was impaired during the quarter ended December 31, 2021. The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and assigned to the newly established reporting unit for Parcus Medical and Arthrosurface. The Goodwill was impaired in 2020 and there was no remaining goodwill as of December 31, 2020.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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