NOTE 3. ASSET ACQUISITION

On January 10, 2025, the Company entered into an Agreement and Plan of Merger, as amended by the First Amendment on March 28, 2025, by the Second Amendment on June 10, 2025, by the Third Amendment on July 18, 2025, by the Fourth Amendment on July 29, 2025, and by the Fifth Amendment dated September 17, 2025 (as amended, collectively, the “Merger Agreement”) with Decoy Therapeutics MergerSub I, Inc. (“MergerSub I”), Decoy Therapeutics MergerSub II, LLC (“MergerSub II”), and Legacy Decoy. On November 12, 2025 (the "Merger Date"), pursuant to the Merger Agreement, MergerSub I merged with and into Legacy Decoy, and immediately thereafter Legacy Decoy merged with and into MergerSub II (the “Merger”), resulting in the Decoy business becoming a wholly owned subsidiary of the Company.

In connection with the Merger, the Company issued 877.709 shares of Series A Non-Voting Convertible Preferred Stock (the "Series A Stock") and 796.306 shares of Series B Non-Voting Convertible Preferred Stock (the "Series B Stock") to former Legacy Decoy stockholders and debtholders. In connection with the adjustment to the conversion ratio in the certificate of designations for the Series A and Series B Preferred stock triggered by the Offering, the number of Company common shares underlying the issued and reserved shares of Series A and Series B Preferred Stock is 401,126. The shares of Series A Preferred Stock and Series B Preferred Stock are not convertible into common stock until such time as the Company’s stockholders approve such conversion in accordance with Nasdaq Rule 5635 and the approval of the Company’s initial listing application with Nasdaq.

In accordance with the ASC Topic 805, Business Combinations, the Company first evaluated the initial screen test to determine if substantially all of the fair value of the gross assets acquired from Decoy was concentrated in a single asset or a group of similar assets. The Company concluded that substantially all of the fair value of the gross assets being acquired from Decoy was concentrated in the in-process research and development (IPR&D) related to a single asset. Accordingly, the Company accounted for the acquisition as an asset acquisition. In accordance with the asset acquisition method of accounting, the cost of the asset acquisition, which reflects the consideration transferred, (i) was allocated to the assets acquired and liabilities assumed on a relative fair value basis, (ii) no goodwill was recorded and (iii) all direct transaction costs were included in the total consideration transferred.

Consideration Transferred and Purchase Price Allocation

As illustrated further below, the $8.5 million of the consideration transferred that was allocated to the IPR&D represents the residual portion of the total cost of the Merger, including consideration transferred and liabilities assumed, after allocating amounts to all other acquired assets based on their estimated relative fair values. In accordance with ASC 730, Research and Development, the entire amount allocated to IPR&D was immediately expensed on the Merger Date, as the IPR&D was determined to have no future alternative use at the closing of the Merger. The following is the total consideration transferred and allocation of the purchase consideration for the acquisition based on the relative fair value of the net assets acquired by the Company.