On May 11, 2020, the Company completed its acquisition of certain Intrauterine Health products consisting of the Genesys HTA System, Symphion Tissue Removal System, and the Resectr Tissue Resection Device (the acquired IUH products) from BSC. This transaction was accounted for as a business combination.

The acquisition included transition services that were provided to Minerva by BSC—these services were to transition the processes necessary to conduct business activities including operating, management, and administrative activities. Also, the Company acquired all supply and consulting contracts relating to the acquired IUH products.

The Company accounted for the acquisition of the acquired IUH products under the acquisition method, that requires the assets and liabilities assumed at the date of acquisition to be recorded in the financial statements at their respective fair values at the acquisition date. The excess of fair value of the acquired net assets over the purchase price reflected a bargain purchase gain of $0.6 million. The acquired IUH products results of operations are included in the 2020 financial statements from the date of acquisition. The revenue for the acquired IUH products contributed $16.9 million, or 44.7%, of the total revenue from the acquisition date of May 12, 2020 to December 31, 2020.

The determination of the estimated fair value of the acquired assets and liabilities requires management to make significant estimates and assumptions. The Company determined the fair value by applying established valuation techniques, based on information that management believed to be relevant to this determination. The Company assessed the fair values of acquired intangible assets, inventory, fixed assets, warranty liability, and purchase consideration including equity-based consideration and contingent consideration.

The summary of the purchase consideration is as follows (in thousands, except shares and per share amounts):


Description		Amount
Closing stock consideration —1,331,411 shares of Series D redeemable convertible preferred stock at $2.06 per share	$	2,737
Cash consideration		15,000
Delayed cash consideration		15,000
Development Milestone payment (a)		8,615
Revenue Milestone payments (b)		15,227
Total purchase consideration	$	56,579

The Company estimated the fair value of shares of Series D redeemable convertible preferred stock as $2.06 per share, or $2.7 million, at the closing date. The Company used the market approach for guideline public companies, guideline transactions, and discounted cash flow methods equally weighted to estimate the total Company’s equity fair value and used the option pricing model to identify the fair value of the newly issued Series D redeemable convertible preferred stock.

(a)

Development milestone payment—The Company is required to deliver a development-based milestone payment equal to $10.0 million, which was earned when BSC delivered into finished goods inventory the required amount of Symphion controllers, at least 50% of which fully incorporated certain design revisions (the Development Milestone). As of the acquisition date, the Company estimated that there was a 90.0% probability that the Development Milestone would be achieved within 16 months, and the earliest it would be achieved would be the end of March 2021, with May 2021 being the most likely timeframe when the Development Milestone would be achieved. The Company has agreed that this milestone was earned. The Company recorded its estimate of the fair value of the contingent consideration liability for the Development Milestone payment utilizing a discounted cash flow model to determine the present value of the expected value of Development Milestone payment. The Development Milestone was paid in November 2021 upon the completion of the Company's IPO, together with the delayed cash purchase consideration.

(b)

Revenue milestone payments—The Company is required to make two revenue milestone payments to BSC, which are contingent on the achievement of certain revenue levels from the acquired product lines in 2021 and 2022. The first revenue milestone payment of $5.0 million is payable if net revenue from the acquired IUH products is less than or equal to $30.0 million in calendar year 2021, and an additional $5.0 million if net revenue is greater than $30.0 million in calendar year 2021 (the First Revenue Milestone). The First Revenue Milestone payment of $5.0 million will be paid within the first three months of 2022. The second revenue milestone payment of $5.0 million is payable if net revenue from the acquired IUH products exceeds $30.0 million in calendar year 2022 or $10.0 million if net revenue is greater than $37.0 million in calendar year 2022 (the Second Revenue Milestone). As of December 31, 2020, based on the revenue forecast of the acquired product lines through 2022, the Company ran a Monte Carlo simulation to estimate risk-neutral future revenue outcomes based on the estimated discount rate applicable to the revenue and the revenue volatility selected based on the guideline public companies. The Company recorded its estimate of the fair value of the contingent consideration liability for revenue milestone payments utilizing the discounted cash flow model to determine the present value of the expected value of the future Revenue Milestone Payments. As of December 31, 2021, the Company recorded its fair value estimate of the contingent consideration liability utilizing the probability of achieving the defined Revenue milestone payments based primarily on updated revenue forecasts.

The estimated fair value of the contingent consideration was based on significant inputs not observable in the market and thus represented a Level 3 measurement as defined in ASC Topic 820, Fair Value Measurement. The fair value measurement for the revenue milestones is directly impacted by the Company’s estimate of future incremental revenue growth of the business. Accordingly, if actual revenue growth is higher or lower than the estimates within the fair value measurement, the Company would record additional charges or benefits, respectively. Each reporting period, the Company will be required to remeasure the fair value of the contingent consideration liability as assumptions change with the change in fair value recorded in general and administrative expenses in the statements of operations.

The following table summarizes the allocation of the purchase price based on the estimated fair values of the acquired assets and assumed liabilities as of May 12, 2020 (in thousands):


Net assets acquired:
Inventory	$	7,846
Other receivable		271
Property and equipment		999
Trade names		3,969
Customer relationships		13,466
Developed technology		30,819
Warranty liability		(16)
Deferred tax liability		(132)
Negative goodwill		(643)
Purchase price	$	56,579

Negative goodwill of $0.6 million represents the excess of the fair value of assets acquired and liabilities assumed over the purchase consideration. The Company recorded negative goodwill of $0.6 million as a bargain purchase gain in the statements of operations at the acquisition closing date. Before recognizing a gain on bargain purchase, the Company reassessed and concluded that it had identified all of the assets acquired and all of the liabilities assumed. In addition, the Company reviewed the procedures used to measure the amounts to be recognized with respect to identifiable assets acquired and liabilities assumed, as well as the aggregate consideration transferred. The objective of the review was to ensure that the measurements appropriately reflected all available information as of the acquisition date. Based on this review, the Company concluded that the fair value of the consideration transferred in the acquisition of IUH products was less than the fair value of the net identifiable assets acquired, resulting in the $0.6 million gain recognized in connection with the acquisition. The bargain purchase gain resulted primarily from a favorable fair value at the date of acquisition as compared with the Company’s purchase price. The Company identified the following primary factors leading to the bargain purchase gain, which presented the Company with a favorable environment to negotiate pricing and purchase terms, which environment may not have been available had these factors not been present: (1) the Company believes it was the only party desiring to purchase the business; (2) BSC desired to sell the business as evidenced by their reduction in resources and staff dedicated to the business during the 12 months prior to the acquisition; and (3) overall economic environment around the uncertainty of when or if the business would recover from revenue declines resulting from hospital and ASCs restrictions due to COVID-19.

Negative goodwill is not taxable and acquired intangible assets are deductible for income tax purposes. Allocating the bargain purchase price to the assets acquired under the residual method results in a deferred tax liability of $0.1 million which represents the book to tax differences on other assets and liabilities acquired.

Acquired inventory included raw material and finished goods inventory. The fair value of finished goods inventory was measured by using a top-down approach, which starts with a market participant‘s estimated selling price, adjusted for both (1) the costs of the selling effort and (2) an approximately normal profit for the selling effort. The acquisition-date fair value of finished goods inventory was $4.3 million.

Raw materials inventory was measured at fair value as of the acquisition date applying a bottom-up approach, which uses a market method for valuation if observable market prices are available or a cost approach if they are not. It is assumed in the measurement of a raw material’s fair value that the transaction to sell the raw material occurs in the principal market or, in the absence of a principal market, the most advantageous market. The fair value of raw materials inventory was determined to be its replacement cost. The acquisition-date fair value of raw materials inventory was $3.6 million.

The fair value of identifiable intangible assets acquired of $48.3 million was determined by the Company, with the assistance of a third-party appraiser, primarily using variations of the income valuation approaches, which is based on the present value of the future after-tax cash flows attributable to each identifiable intangible asset. Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the contributory asset charges.

The components of identifiable intangible assets acquired were as follows (in thousands):


	Useful lives (in years)(4)		Value as of closing date of acquisition
Trademarks(1)	6.5	$	3,969
Developed technology(2)	10		30,819
Customer relationships(3)	3		13,466
Total identifiable intangible assets acquired		$	48,254

(1)

The relief from royalty method of the income approach was used to estimate the fair value of the trademarks.

(2)

Developing technology was valued using the excess earnings method

(3)

Customer relationship assets represent the expected profits to be generated from the customer contracts, incorporating estimated customer retention rates.

(4)

The estimated useful lives were determined based on the future economic benefit expected to be received from the assets.

Transaction costs associated with the acquisition were $1.0 million during the year ended December 31, 2020 and were expensed as incurred in general and administrative expenses in the statements of operations.

In May and September 2021, the Company amended the Asset Purchase Agreement with BSC to modify the delayed consideration payment and contingent consideration due as follows: (1) the timing of the delayed $15.0 million payment was deferred from May 11, 2021 to the earlier of 15 days post-IPO or November 1, 2021; (2) the timing of the $10.0 million Development Milestone payment was changed to 15 days post-IPO or, if the IPO has not been completed by November 1, 2021, upon the earlier of the closing of the Company’s first financing after November 1, 2021 or the date that the first Revenue Milestone Payment is due and it was agreed that the Development Milestone payment was achieved; and (3) the first Revenue Milestone Payment was modified from either $5.0 million if net revenue from the acquired IUH products exceeds $26.0 million in 2021 or $10.0 million if net revenue exceeds $30.0 million in 2021, to either $5.0 million if revenue from acquired IUH products in 2021 is less than $30.0 million or $10.0 million if more than $30.0 million in 2021.

As a result, fair value of contingent consideration changed by $0.4 million which was recognized in general and administrative expense in the statement of operations for the year ended December 31, 2021.

In November 2021, the Company paid BSC $15.0 million and $10.0 million for the delayed cash purchase consideration and Development Milestone payment, respectively.

The unaudited pro forma revenue and net loss for the year ended December 31, 2020 assuming the acquisition had occurred on January 1, 2019 was $44.7 million and $17.3 million respectively.

The unaudited pro forma information was determined based on the historical GAAP results of the Company and abbreviated financial information of IUH products acquired from BSC. The unaudited pro forma results are not necessarily indicative of what the Company’s results of operations would have been if the acquisition was completed on January 1, 2019, nor do they give effect to synergies, cost savings, fair market value adjustments, and other changes expected to result from the acquisition. Accordingly, the pro forma financial results do not purport to be indicative of results of operations as of the date hereof, for any period ended on the date hereof, or for any other future date or period. The unaudited pro forma net loss for year ended December 31, 2020 includes pro forma adjustments of $3.1 million relating to the adjustment for the amortization of the intangible assets from January 1, 2020 through May 12, 2020 and the reduction of $1.0 million in transaction costs, which were assumed to have been incurred at the inception of the acquisition.