Acquisition of TheraClear Assets |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of TheraClear Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of TheraClear Assets |
Note 4
Acquisition of TheraClear
Assets:
In January 2022, the Company acquired
certain assets related to the TheraClear Devices from Theravant Corporation (“Theravant”). The TheraClear asset acquisition will allow the Company to further develop, commercialize and market the TheraClear Devices that are used for acne treatment,
as well as advance the TheraClear technology into multiple other devices that can be used to treat a range of additional indications.
The Company made an upfront cash payment of
$500 and issued to Theravant 358,367
shares of common stock with an aggregate value of $500 as of the closing date in connection with the TheraClear asset acquisition.
Theravant is eligible to receive up to $3,000 in future earnout payments upon the achievement of certain annual net revenue milestones,
up to $20,000 in future royalty payments based upon a percentage of gross profit from future domestic sales ranging from 10-20%, 25% of gross profit from international sales over the subsequent four-year period, and up to $1,000 in future milestone payments upon the achievement of certain
development and commercialization related targets.
The Company determined this transaction
represented an asset acquisition as substantially all of the value was in the TheraClear technology intangible asset as defined by ASC 805, Business Combinations.
The purchase price was allocated, on a
relative fair value basis, to the technology intangible asset and acquired inventories as follows:
The
technology intangible asset is being amortized on a straight-line basis over a period of ten years, to be updated for subsequent
changes in the contingent consideration that is allocated to its carrying value. The intangible asset was valued using the relief from royalty method. Significant assumptions used in the relief from royalty method include a 14.5% weighted average cost of capital and 15.0%
of revenues for the royalty rate. The net book value of acquired inventories approximated its fair value. To calculate the fair value of the earnout using Monte Carlo simulations, Company projections were utilized to develop expected revenues
and gross profits based on the risk inherent in the projections using the Geometric-Brownian motion for the earnout periods and related earnout payments. Significant assumptions used in the Geometric-Brownian motion analysis include projected
revenues, projected gross profit, risk free rate of return of 1.6%, revenue volatility of 45.0%, and a cost of equity of 10.5%. Due to uncertainties
associated with the development of a new product line and the use of estimates and assumptions to determine the fair value of the contingent consideration, the amount ultimately paid in connection with the earnout may differ from the estimated
fair value at the acquisition date. A revaluation of the contingent consideration would only be required if there is a significant change to the underlying valuation assumptions. The contingent consideration will be adjusted when the
contingency is resolved and the consideration is paid or becomes payable. Any difference between the cash payment and the amount accrued for contingent consideration will result in an adjustment to the technology intangible asset. Contingent
consideration expected to be paid within the next year is classified as current on the condensed consolidated balance sheet.
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