BUSINESS COMBINATIONS Business Combinations OttrCare On May 7, 2019, the Company acquired 100% of the outstanding common stock of OttrCare for total consideration of $16.1 million. OttrCare was formed in 1993 and is a leading provider of organ transplant patient tracking software. The Ottr software provides comprehensive solutions for transplant patient management and enables integration with EMR systems providing patient surveillance management tools and outcomes data to transplant centers. The Company accounted for the transaction as a business combination using the acquisition method of accounting. Results of operations of OttrCare have been included with the Companys results since the date of the acquisition. Acquisition-related costs of $0.6 million associated with the acquisition were expensed as incurred, and classified as part of general and administrative expenses in the consolidated statement of operations. Goodwill of $10.2 million arising from the acquisition primarily consists of synergies from integrating the Ottr software with transplant center EMR systems and the current testing solutions offered by the Company. Goodwill synergies also arise from acquired workforce know-how of transplant centers workflow. None of the goodwill is expected to be deductible for income tax purposes. All of the goodwill has been assigned to the Companys existing operating segment. The following table summarizes the consideration paid for OttrCare and the provisional amounts of the assets acquired and liabilities assumed recognized at their estimated fair value at the acquisition date (in thousands): Total Consideration Cash $ 16,037 Accrued purchase consideration 111 Total consideration $ 16,148 Recognized amounts of identifiable assets acquired and liabilities assumed Current assets $ 1,525 Fixed assets 35 Identifiable intangible assets 6,600 Current liabilities (2,210) Total identifiable net assets acquired 5,950 Goodwill 10,198 Total consideration $ 16,148 The allocation of the purchase price to assets acquired and liabilities assumed was based on the Companys best estimate of the fair value of such assets and liabilities as of the acquisition date. The fair value of the acquired current liabilities as of June 30, 2019 included a preliminary deferred revenue balance of $2.3 million. During the three months ended September 30, 2019, the Company recorded an adjustment of $0.5 million to the initial valuation amount of deferred revenue, decreasing its balance to $1.8 million as of the acquisition date. This change is a result of updated assumptions and methodologies for acquired software maintenance contracts. As part of this adjustment, goodwill decreased by approximately $0.6 million. At the acquisition date, the Company estimated net deferred tax assets of approximately $0.2 million arising from temporary differences related to assets acquired and liabilities assumed. The Company estimated that OttrCare had net operating losses (NOLs) carryforward of approximately $6.9 million, $4.3 million of which will begin to expire in 2033, and the remaining $2.6 million will be carried forward indefinitely. A full valuation allowance of $0.2 million was recognized as of the acquisition date resulting in no impact from deferred taxes to OttrCares opening balance. An Internal Revenue Code Section 382 study for NOLs was finalized during the third quarter of 2019 and deferred taxes acquired were finalized as of December 31, 2019. The following table summarizes the fair values of the intangible assets acquired as of the acquisition date ($ in thousands): Estimated Fair Value Estimated Useful Lives (Years) Customer relationships $ 4,200 15 Developed technology 2,300 10 Trademark 100 2 Total $ 6,600 Customer relationships acquired by the Company represent the fair value of future projected revenue that is expected to be derived from sales of OttrCares products to existing customers. The customer relationships fair value has been estimated utilizing a multi-period excess earnings method under the income approach, which reflects the present value of the projected cash flows that are expected to be generated by the customer relationships, less charges representing the contribution of other assets to those cash flows that use projected cash flows with and without the intangible asset in place. The economic useful life was determined based on the distribution of the present value of the cash flows attributable to the intangible asset. The acquired developed technology represents the fair value of OttrCares proprietary software. The trademark acquired consists primarily of the OttrCare brand and markings. The fair value of both the developed technology and the trademark were determined using the relief-from-royalty method under the income approach. This method considers the value of the asset to be the value of the royalty payments from which the Company is relieved due to its ownership of the asset. The royalty rates of 15.0% and 1.0% were used to estimate the fair value of the developed technology and the trademark, respectively. The Company utilized a discount rate of 14.5% in estimating the fair value of these three intangible assets. As of December 31, 2019, OttrCares digital revenue of $3.4 million was included in the Companys consolidated statement of operations from the acquisition date of May 7, 2019. Unaudited supplemental pro forma information is not disclosed because it is considered immaterial. XynManagement On August 26, 2019, the Company acquired 100% of the outstanding common stock of XynManagement for total cash consideration of $2.0 million. As a result of the acquisition, the Company recognized contingent consideration of $1.4 million, including liability and equity components, goodwill of $1.7 million and intangible assets of $2.1 million. Goodwill synergies arise from acquired workforce know-how of transplant centers workflow. The goodwill for this acquisition is not deductible for income tax purposes. Contingent consideration relates to potential future cash payments upon reaching specified revenue and non-financial targets. The fair value of contingent consideration was determined using the Monte Carlo simulation model.