Annual report [Section 13 and 15(d), not S-K Item 405]

Business Combination

v3.26.1
Business Combination
 12 Months Ended
Dec. 31, 2025
Business Combination [Abstract]  
Business Combination
3.
Business Combination

On November 20, 2025, the Company acquired all of the outstanding equity interests of IRRAS Holdings, Inc., or IRRAS, a medical technology company focused on neurocritical care. The total consideration for the acquisition, payable as of closing, was $5.0 million in cash and 1,325,000 shares of the Company's common stock, subject to certain adjustments including for indebtedness, working capital, and the satisfaction of indemnification obligations. As described below, the former equityholders of IRRAS are also eligible for earnout cash payments.

Of the total consideration, payable as of closing, (i) the Company paid $5.0 million on behalf of IRRAS directly to third parties to satisfy IRRAS' outstanding liabilities, (ii) the Company paid the former equityholders of IRRAS cash consideration of $0.02 million, and (iii) the Company paid or will pay the former equityholders of IRRAS equity consideration of $17.8 million in the form of 1,319,010 shares of the Company's common stock, subject to adjustment for the satisfaction of indemnification obligations. As the cash paid on behalf of IRRAS to satisfy its outstanding liabilities was paid directly to third parties, such amount is not reflected as consideration transferred to the former equityholders of IRRAS for purposes of the purchase price allocation.

Of the $17.8 million of equity consideration, up to 0.4 million shares of the Company's common stock remain to be issued, consisting of (i) shares issuable to the extent not applied to satisfy the indemnification obligations of the former equityholders of IRRAS, which shares may be issued, in whole or in part, sixteen months following the closing of the acquisition, subject to the terms of the merger agreement, and (ii) shares that will be issued as soon as practicable following receipt of documentation required to complete the issuances from the parties entitled to such shares.

The Company also agreed to pay the former equityholders of IRRAS a contingent cash payment equal to 25% of that portion of net sales of IRRAS products that exceeds (a) $13.0 million in 2026, (b) $17.0 million in 2027, and (c) $22.0 million in 2028, in each case, within 90 days after the end of the applicable year. The Company determined that the fair value of the earnout liability is nominal as of the acquisition date of closing and as of December 31, 2025.

The Company recognized transaction costs related to legal fees, of $0.4 million in the year ended December 31, 2025. These costs are reported in general and administrative expenses in the consolidated statements of operations.

The components of preliminary fair value of consideration transferred are as follows (in thousands):

Consideration Transferred

 

 

 

   Cash consideration paid to the former equityholders of IRRAS

 

$

15

 

   Stock consideration to the former equityholders of IRRAS

 

 

17,820

 

      Total consideration transferred

 

$

17,835

 

 

The acquisition of IRRAS was accounted for as a business combination using the acquisition method of accounting. The acquisition method requires, among other things, that assets acquired, and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The following table summarizes the preliminary purchase price allocation as of the acquisition date (in thousands):

Net Assets Acquired

 

Fair Value

 

   Cash, cash equivalents, and restricted cash

 

$

1,152

 

   Accounts receivable, net

 

 

1,588

 

   Inventory, net

 

 

2,005

 

   Prepaid expenses and other current assets

 

 

414

 

   Property, plant, and equipment

 

 

50

 

   Operating right-of-use asset

 

 

2,670

 

   Intangible assets

 

 

14,090

 

   Goodwill

 

 

7,472

 

      Total assets acquired

 

$

29,441

 

 

 

 

 

   Accounts payable

 

 

1,249

 

   Accrued compensation

 

 

2,329

 

   Other accrued liabilities

 

 

5,004

 

   Operating lease liability, current portion

 

 

218

 

   Operating lease liability

 

 

2,452

 

   Deferred tax liabilities, net

 

 

354

 

      Total liabilities acquired

 

$

11,606

 

 

 

 

 

Net assets acquired

 

$

17,835

 

 

Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired in addition to liabilities assumed arising from the business combination. The Company believes the goodwill related to the acquisition was attributable to the expected synergies, value of the assembled workforce, and the collective experience of the management team with regards to its operations, customers, and industry.

The estimated fair values of identifiable intangible assets were determined using the “income approach” which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the more significant assumptions inherent in the development of these asset valuations include the estimated net cash flows for each year for each asset or product, the appropriate discount rate necessary to measure the risk inherent in each future cash flow stream, the life cycle of each asset, the potential regulatory and commercial success risk, and competitive trends impacting the assets.

The following table summarizes the preliminary valuation of acquired intangible assets and estimated useful lives as of the acquisition date ($ in thousands):

 

 

Useful life
(in years)

 

Fair Value
(in thousands)

 

Developed Technology

 

10

 

$

11,890

 

Customer Relationships

 

6

 

 

1,650

 

Trademark/Trade Name

 

1

 

 

550

 

     Total identifiable intangible assets

 

 

 

$

14,090

 

 

The Company's financial results for the year ended December 31, 2025 reflect inclusion of the business operations of IRRAS from the closing date of the acquisition, November 20, 2025. The Company’s consolidated results of operations since the closing date include $1.2 million of revenue and $2.5 million in net loss attributable to IRRAS' operations.

Pro Forma Financial Information

The unaudited pro forma combined financial information was prepared using the acquisition method of accounting and was based on the historical financial information of the Company and the acquired assets of IRRAS. In order to reflect the occurrence of the acquisition on January 1, 2024 as required, the unaudited pro forma financial information includes adjustments to reflect (i) incremental amortization expense incurred based on the fair values of the identifiable intangible assets acquired, (ii) the additional interest expense associated with the issuance of debt to finance the acquisition, and (iii) the additional cost associated with the fair value adjustment to inventory.

The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations would have been, had the acquisition been completed on January 1, 2024. In addition, the unaudited pro forma financial information is not a projection of future results of operations of the combined company nor does it reflect the expected realization of any synergies or cost savings associated with the acquisition.

The following table presents the unaudited pro forma combined results of the Company and the acquired assets of IRRAS for the years ended December 31, 2025 and 2024, as if the acquisition had occurred on January 1, 2024:

 

 

December 31,

 

(in thousands)

 

2025

 

 

2024

 

Net revenues

 

$

44,457

 

 

$

36,880

 

Net loss

 

$

36,041

 

 

$

30,574