NOTE 3 – RECONSOLIDATION OF OCTOMERA LLC

On June 30, 2023, the Company and MM entered into Amendment No. 1 to the Second Amended and Restated Limited Liability Company Agreement (the “LLC Agreement Amendment”) to amend Octomera’s board composition. Pursuant to the LLC Agreement Amendment, the board of managers of Octomera (the “Octomera Board”) will be comprised of five managers, two of which will be appointed by the Company, one of which will be an industry expert appointed by MM, and two of which will be appointed by MM. The change was effective immediately. As a result of the amendment to the composition of the Octomera Board pursuant to the LLC Agreement Amendment described above, the Company deconsolidated Octomera from its consolidated financial statements as of June 30, 2023 (“date of deconsolidation”) and recorded its equity interest in Octomera as an equity method investment Prior to the date of deconsolidation the MM investment in Octomera was presented as a redeemable non-controlling interest on the Company’s balance sheet, and outside of permanent equity.

On January 29, 2024, the Company and MM entered into a UPA pursuant to which the Company acquired all of the preferred units of Octomera owned by MM and the Company and MM agreed to the following:

Fair Value of Consideration Transferred

Accounting guidance provides that the allocation of the purchase price may be adjusted for up to one year from the date of the acquisition to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. The primary area of the purchase price allocation that is not yet finalized is related to intangible assets, property, plant and equipment, and certain other assets and tax matters and the related impact on goodwill.

In evaluating the fair value of the Octomera Equity Investment under the income approach, the Company used a discounted cash flow model of the business, adjusted to the Company’s share in the investment. Key assumptions used to determine the estimated fair value included: (a) internal cash flows forecasts for 5 years following the assessment date, including expected revenue growth, costs to produce, operating profit margins and estimated capital needs; (b) an estimated terminal value using a terminal year long-term future growth determined based on the growth prospects of the reporting units; and (c) a discount rate which reflects the weighted average cost of capital adjusted for the relevant risk associated with the Company’s reporting unit operations and the uncertainty inherent in the Company’s internally developed forecasts. The allocation of the purchase price to the net assets acquired and liabilities assumed resulted in the recognition of other intangible assets, net, which comprised of technology. The useful life of the technology for amortization purposes was determined by considering the period of expected cash flows generated by the assets used to measure the fair value of the intangible assets, adjusted as appropriate for the entity-specific factors including legal, regulatory, contractual, competitive, economic, or other factors that may limit the useful life of intangible assets.

The following table summarizes the allocation of purchase price to the fair values of the assets acquired and liabilities assumed as of the Transaction date:

SCHEDULE OF PURCHASE PRICE  TO THE FAIR VALUES OF THE ASSETS ACQUIRED AND LIABILITIES ASSUMED 

The allocation of the purchase price to the net assets acquired and liabilities assumed resulted in the recognition of an intangible asset know-how of $1,728 and a liability to MM in the amount of $4,643. The know-how has a useful life of 10 years. The useful life of the intangible asset for amortization purposes was determined considering the period of expected cash flows generated by the assets used to measure the fair value of the intangible asset adjusted as appropriate for the entity-specific factors, including legal, regulatory, contractual, competitive, economic or other factors that may limit the useful life of intangible assets.

Key inputs for the fair values valuation are summarized below.

SCHEDULE OF KEY INPUTS FOR THE FAIR VALUES VALUATION 

The Company incurred transaction costs of approximately $50 and $0 during the year ended December 31, 2024 respectively, which were included in general and administrative expenses in the condensed consolidated statements of operations.

The revenues and net loss of Octomera from January 1, 2024 until the reconsolidation date were $23 and $1,244 respectively.

Fair value assumptions used in accounting for contingent consideration

On January 29, 2024, in connection with the PPA study of Octomera LLC, the Company recognized a contingent consideration to pay MM based on two components:

1. Royalties based on revenues in 2025, 2026 and 2027, and;

2. An earnout amount, which is dependent on a future triggering event being either an IPO or exit.

The estimated fair value of the contingent consideration is based on management’s assessment of whether, and at what level, the financial metrics will be achieved, and the present value factors associated with the timing of the payments. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 fair value measurement and used the Monte Carlo pricing model to calculate the fair value, which was $4,643 as of January 29, 2024. As of December 31, 2024, the fair value was $0, primarily as the Company does not expect significant revenue (see note 1). Changes in the fair value of contingent consideration are recorded in operating expenses. The total revaluation income for the period ended December 31, 2024 was $4,643.

Key inputs for the simulation are summarized below.

SCHEDULE OF KEY INPUTS