Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial statements and accompanying notes and the information contained in other sections of this Annual Report, particularly under the headings "Risk Factors" and "Business." It contains forward-looking statements that involve risks and uncertainties, and is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those anticipated by our management in these forward-looking statements as a result of various factors, including those discussed below and in this filing, particularly under the heading "Risk Factors."

Overview

We are a holding company that is the sole owner of SynCardia. The business of our company is carried out by SynCardia, and thus most of the information set forth in this Annual Report relates to the business of SynCardia.

Our long-term mission is to build a portfolio of medical technology companies active in the cardiovascular space. We intend to achieve this goal by acquiring, developing, or by in-licensing of promising technologies or assets with a focus on approved devices, or devices close to being approved. We manufacture and sell an FDA approved implantable Total Artificial Heart designed to temporarily replace the full function of a human heart in patients suffering from advanced heart failure. Our product development roadmap is focused on developing, manufacturing, and commercializing successive generations of the SynCardia TAH to further improve clinical outcomes, usability, and patient quality of life.

The SynCardia TAH is the only total artificial heart that is approved and commercially available in the United States as a bridge to heart transplant, and it is also available in a number of other countries around the world under special exemptions or compassionate use. The system is comprised of an implant which is surgically placed inside the human body, and which is powered by an external driver. The SynCardia TAH replaces the functionality of both the left and right ventricles of the heart as well as all four heart valves. Almost all other commercially available devices that claim to be an "artificial heart" are VADs which do not replace the heart. To date, over 2,100 SynCardia TAHs have been implanted in 27 countries globally, including the US, France, Germany, Australia, United Kingdom, Canada, Italy, Turkey, Kuwait, and Saudi Arabia.

Components of Our Results of Operations

Revenues

We generate revenue from the sale of our total artificial heart for patients, rental of Freedom drivers, and from training and certification services, which are required before the first time a transplant center may deploy a SynCardia TAH. Revenue includes sales and services to appropriate patient aftercare ("Centers") located in the United States as well as Centers domiciled in foreign countries.

Cost of Revenues

Cost of revenues includes product costs, labor, overhead, inbound freight, and other product-related costs including excess inventory and obsolescence charges.

Research and Development Costs

Included in research and development costs are wages, stock-based compensation and benefits of employees performing research and development, and other operational costs related to our research and development activities, including facility-related expenses, allocation of corporate costs, and external costs of outside contractors. While research and development supply expense are isolated by product, personnel are not. Research and Development personnel do not work on current product production, therefore labor expense is not isolated by product.

Selling, General and Administrative

Selling, general and administrative expenses consist primarily of personnel-related expenses for executives, human resources, finance, and other general and administrative employees, including salary and stock-based compensation, professional services costs and allocation of facility and overhead costs.

We anticipate that our general and administrative expenses will increase in the future in connection with one-time costs of becoming a public company as well as ongoing costs of operating as a public company, including expanding headcount and increased fees for directors and outside advisors. We expect to incur significant costs to comply with corporate governance, internal controls, and similar requirements applicable to public companies. Additionally, we expect to incur increased costs associated with establishing sales, marketing, and revenue growth.

Other Income (Expenses), net

Other income (expenses), net, primarily consists of financing charges, interest expense, derivative loss, change in fair value of senior secured note, warrants, and various immaterial income and expense items.

Provision for Income Taxes

We are subject to U.S. federal and state income taxes and foreign taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax laws.

Provision for income taxes primarily relates to state income taxes.

Results of Operations

Comparison of Year Ended December 31, 2025 and 2024

The following table summarizes our results of operations (in thousands, except percentages):

		Year ended December 31								Change
		2025				2024				$				%
Revenues, net:
Products		$	4,746			$	4,254			$	492				12	%
Rentals			194				137				57				42	%
Total revenues			4,940				4,391				549				13	%
Cost of revenues:
Products			3,432				2,494				938				38	%
Rentals			1,712				2,009				(297	)			(15	)%
Total cost of revenues			5,144				4,503				641				14	%
Gross loss			(204	)			(112	)			(92	)			82	%
Operating expenses:
Research and development costs			3,049				3,380				(331	)			(10	)%
Selling, general and administrative expenses			10,004				10,220				(216	)			(2	)%
Total operating expenses			13,053				13,600				(547	)			(4	)%
Operating loss			(13,257	)			(13,712	)			455				(3	)%
Other expense:
Derivative loss			(7,040	)			(4,291	)			(2,749	)			64	%
Interest expense			(5,393	)			(3,067	)			(2,326	)			76	%
Change in fair value of senior secured note payable and warrant liabilities			1,017				-				1,017				100	%
Financing charges			(2,294	)			-				(2,294	)			100	%
Total other expense, net			(13,710	)			(7,358	)			(6,352	)			86	%
Loss before income tax provision			(26,967	)			(21,070	)			(5,897	)			28	%
Provision (benefit) for income taxes			35				(15	)			50				(333	)%
Net loss		$	(27,002	)		$	(21,055	)		$	(5,947	)			28	%

Revenues

Total revenues increased by $0.5 million or 13% for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The increase is due to an increase in USA sales of $1.0 million, offset by a decrease in the rest of the world sales of $0.1 million, and by a decrease in Europe sales of $0.4 million.

Cost of Revenues

Total cost of revenues increased by $0.6 million, or 14%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The increase in cost of revenues for the year ended December 31, 2025, was mainly due to product cost increase of $937,000, offset with decrease of driver service cost of $280,000.

The cost of products pertains to the various components of the SynCardia TAH system. These may include, but are not limited to, the following: (i) TAH Kit 70cc, (ii) TAH Kit 50cc, (iii) C2 driver and handpump ("C2 driver"), (iv) Companion Cart Hospital ("Cart"), and (v) Companion Caddy ("Caddy"). Product revenue is earned upon the sale of a TAH Kit 70cc or a TAH Kit 50cc to the hospital. The C2 driver, Cart, and Caddy are equipment used within the hospital to operate and calibrate the TAH and do not represent a distinct performance obligation, as the customer cannot benefit from the TAH Kit without the C2 driver, Cart, or Caddy. This equipment is not rented but is provided free of charge to the hospital. The C2 driver, caddy and cart remain in the hospital and are used for multiple patients before maintenance is required. The C2 driver maintenance costs, as well as labor costs of the C2 driver technicians, are included in the Cost of revenues: Products and are expensed as incurred.

The rental costs are mainly related to machine maintenance to maintain reliability and is incurred on a time schedule that is dependent on the amount of time the driver is actually used. The driver may be used for multiple patients before maintenance service is required. Rental revenue is earned over the period of usage when a patient is discharged from a hospital with a Freedom Driver. Rental Revenue is recognized when it becomes likely that we will receive payment. The timing differences between usage and payment receipt generally do not correlate to the cost of service maintenance, resulting in negative gross margins. Our total cost of revenue as a percentage of total sales for the year ended December 31, 2025, and 2024 was 104% and 103%, respectively.

Research and Development Expenses

Research and development expenses decreased by $0.3 million, or 10%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The decrease was primarily attributable to reduced activity and phase scheduling in the new product research. We do not track expenses by product candidate. While research and development supply expense are isolated by product, personnel are not. Research and Development personnel do not work on current product production, therefore labor expense is not isolated by product.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $0.2 million, or 2%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The decrease was primarily attributable to a reduction of $0.2 million in salaries.

Total Other Expenses

Total other expenses increased by $6.4 million, or 86%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The increase was attributed to interest expense and derivative (non-cash) accounting for the issued convertible note, warrants issued, financing costs associated issuance of the senior secured note.

Liquidity and Capital Resources

Funding Requirements and Going Concern

We have incurred operating losses since inception, including net losses of $27.0 million and $21.1 million for the years ended December 31, 2025 and 2024, respectively. While we already have FDA-approved products that are generating commercial revenue, the business needs to scale up in order to offset a large, fixed overhead cost from our site in Tucson, AZ. Moreover, we are also investing heavily in the development of updates and next generation devices and therefore expect to continue to incur significant expenses and operating losses for the foreseeable future. Furthermore, we expect to incur additional expenses with transitioning to, and operating as, a public company.

Until such a time as we can sufficiently grow product and rental revenue, we expect to finance our cash needs through a combination of equity and debt financing, or other capital sources, including with related parties. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our stockholders will be diluted. The terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we are unable to raise sufficient funds through equity or debt financing, we may be required to delay, limit, curtail or terminate our product development or future growth efforts. Additionally, we may never become profitable, or if we do, may not be able to sustain profitability on a recurring basis.

We have considered that our long-term operations anticipate continuing net losses and the need for potential debt or equity financing. However, there can be no assurances that additional funding or other sources of capital will be available on terms acceptable to us, or at all. If additional capital is not secured when required, we may need to delay or curtail our operations until such funding is received. If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected. As a result of these conditions, we have concluded that there is substantial doubt over our ability to continue as a going concern as conditions and events, considered in the aggregate, indicate it is probable we will be unable to meet our obligations as they become due within one year after the date that the consolidated financial statements included in this filing are issued. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The financial information and consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to increase sales and raise additional funds and financing including through 2026 based on our current business plan, and expectations and assumptions considering current macroeconomic conditions. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth herein, in the section of our Annual Report, entitled "Risk Factors."

Sources of Liquidity

To date, we have funded our operations primarily with the proceeds from the Initial Public Offering ("IPO"), consummated on September 2, 2025, Series A-1 Preferred Stock, loans from related parties, debt financing, warrants and convertible notes issued to related parties and other investors. See also Part II. Item 5-Use of Proceeds, above.

Cash Flows

The following table shows a summary of our cash flows (in thousands):

		Year Ended December 31,
	2025			2024
Net cash used in operating activities	$	(15,673	)	$	(11,874	)
Net cash used in investing activities	$	-		$	-
Net cash provided by financing activities	$	27,078		$	11,741

Net cash used in operating activities

Net cash used in operating activities of $15.7 million for the year ended December 31, 2025, was primarily attributable to Picard's net loss of $27.0 million after offsetting non-cash expenses related to depreciation and amortization, stock-based compensation, derivative loss, change in fair value of senior secured note and warrant liabilities, financing charges from issuance of senior secured note, inventory provision, and amortization of discount on debt issued and amortization of right of use assets totaling approximately $14.5 million and a decrease in accounts payable of $3.2 million.

Net cash used in operating activities of $11.9 million for the year ended December 31, 2024, was primarily attributable to Picard's net loss of $21.1 million after offsetting accounts payable totaling approximately $2.2 million and non-cash expenses related to depreciation and amortization, stock-based compensation, and derivative liabilities totaling approximately $7.8 million.

Net cash used in investing activities

There was no net cash used in investing activities for the years ended December 31, 2025 and 2024.

Net cash provided by financing activities

Net cash provided by financing activities was $27.1 million for the year ended December 31, 2025, which primarily consisted of net proceeds of $2.0 million from the issuance of convertible notes, $17.4 million from the issuance and subscriptions of common stock in connection with our IPO, $12.0 million net proceeds from senior secured note and warrants, and offset by $4.3 million net payments of related party loans.

Net cash provided by financing activities was $11.7 million for the year ended December 31, 2024, which primarily consisted of net proceeds of $3.7 million from the issuance of convertible notes and $8.1 million net of related party loans.

Contractual obligations and Commitments

In February 2015, we entered into an operating lease agreement for office space located in Tucson, Arizona with a lease term of approximately five years. Rent payments commenced in February 2015. The lease terminated on December 31, 2021, and was subsequently renewed from February 1, 2022, until January 31, 2027. The first 5.5 months of the renewed term were rent-free and rent payments escalate annually by 2.5%.

Off-Balance Sheet Arrangements

As of December 31, 2025 and 2024, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for changes that would affect the reported amounts. These estimates are based on management's historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates. A discussion of recent accounting pronouncements and our significant accounting policies can be found in Note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements included in this annual report. None of those policies are deemed to be critical accounting policies nor critical accounting estimates.

Emerging Growth Company and Smaller Reporting Company Status

Section 107 of the JOBS Act provides that an emerging growthy company can take advantage of the extended transition period provided in Section 13(a) of the Exchange Act for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates for such new or revised standards. We may elect to comply with public company effective dates at any time, and such election would be irrevocable pursuant to Section 107(b) of the JOBS Act.

We are also a "smaller reporting company" as defined in Regulation S-K under the Securities Act and may elect to take advantage of certain of the scaled disclosures available to smaller reporting companies. We may be a smaller reporting company even after we are no longer an "emerging growth company."