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Note 4 - Intangible Assets and Goodwill

6 Months Ended

Jun. 30, 2022

Intangible Assets Disclosure [Text Block]

NOTE 4 – INTANGIBLE ASSETS AND GOODWILL

The components of intangible assets were as follows:

	As of June 30, 2022							As of December 31, 2021
	Gross Carrying Costs		Accumulated Amortization			Net Carrying Amount		Gross Carrying Costs		Accumulated Amortization			Impairment			Net Carrying Amount
Patents & Trademarks	$	488,724	$	(241,583	)	$	247,141	$	453,314	$	(230,572	)	$	-		$	222,742
Developed Technology		3,500,000		(211,458	)		3,288,542		6,382,000		(432,733	)		(2,485,725	)		3,463,542
Customer Relationships		200,000		(12,083	)		187,917		645,000		(410,000	)		(37,083	)		197,917
Tradename		80,000		(12,963	)		67,037		478,000		(29,343	)		(370,740	)		77,917
Total	$	4,268,724	$	(478,087	)	$	3,790,637	$	7,958,314	$	(1,102,648	)	$	(2,893,548	)	$	3,962,118

The impairment loss recognized during the year ended December 31, 2021 adjusted the carrying amounts of the long-lived assets. As a result, the gross carrying cost shown as of June 30, 2022 reflects the new cost basis per ASC 360-10-35-20. Amortization expense was $103,366 and $83,086 during the three months ended June 30, 2022 and 2021, respectively and $206,890 and $166,133 during the six months ended June 30, 2022 and 2021, respectively.

The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2020:

Year ending December 31,	Expense
2022	$	207,068
2023		414,139
2024		414,139
2025		412,056
2026		394,139
Thereafter		1,949,096
Total	$	3,790,637

The Company concluded there was no impairment of its finite-lived assets as of June 30, 2022. The Company prepared the undiscounted cash flows per ASC 360. The Company concluded that the undiscounted cash flows of the long-lived assets exceeded the carrying values.

Goodwill

Goodwill for our zPREDICTA operating segment was zero as of June 30, 2022 and was $6,857,790 as of December 31, 2021. There was change in value of goodwill of $373,303 between December 31, 2021 and June 30, 2022. The change in value was the result of identification of an immaterial error in the fair value of the acquired deferred revenue liabilities. The Company identified this error during the second quarter of 2022 and recorded an adjustment to increase the acquired goodwill and increase the deferred revenue liability by $373,303.

During the three months ended June 30, 2022, the Company identified an out-of-period error related to the application of ASC 606 with respect to the recognition of revenue associated with zPREDICTA customer contracts. As a result, the Company has recorded an adjustment to the purchase price allocation of zPREDICTA and the associated acquisition date fair values of assets acquired, and liabilities assumed. The Company has determined that $373,303 of additional deferred revenue liabilities should have been recorded which results in an increase to the fair value of goodwill acquired by the same amount to a value of $7,231,093. The Company corrected the error in the financial statements during the three months ended June 30, 2022 by increasing each deferred revenue liability and goodwill by $373,303.

The Company evaluated the materiality of these errors both qualitatively and quantitatively in accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality and SAB No. 108, Considering the Effects of Prior Year Misstatements in Current Year Financial Statements, and determined the effect of these corrections was not material to the consolidated financial statements as of and for the year ended December 31, 2021 nor for the quarterly periods ended June 30, 2022 and March 31, 2022.

The Company had previously disclosed the zPREDICTA acquisition date fair values of assets acquired and liabilities assumed, and the consideration transferred, the following table reflects the adjustment discussed above:

Cash consideration	$	10,015,941

Assets acquired:
Cash		425,727
Accounts receivable		76,549
Prepaid expenses		25,733
Intangible assets		3,780,000

Liabilities assumed:
Accrued expenses		(408,825	)
Deferred tax liability		(661,658	)
Deferred revenue		(452,678	)

Goodwill	$	7,231,093

Pro Forma

The following pro forma information presents the combined results of operations of the Company and zPREDICTA as if the acquisition of zPREDICTA had been completed on January 1, 2020, with adjustments to give effect to pro forma events that are directly attributable to the acquisition and reflects the correction of application of ASC 606 as discussed above.

	2021			2020
	Unaudited			Unaudited
Revenue	$	2,056,484		$	1,815,560
Net loss attributable to common shareholders	$	(19,251,734	)	$	(26,946,564	)

During the second quarter of 2022, the Company concluded that potential impairment indicators were present and that an impairment assessment was warranted for goodwill. In testing goodwill for impairment as of June 30, 2022, the Company performed a quantitative impairment test, including computing the fair value of the zPREDICTA reporting unit and comparing that value to its carrying value. Based upon the Company’s quantitative goodwill impairment test, the Company concluded that goodwill was fully impaired as of June 30, 2022.

zPREDICTA reporting unit

The quantitative review as of June 30, 2022 resulted in $7,231,093 of impairment expense related to goodwill. As of June 30, 2022, the cumulative impairment recorded was $7,231,093.

Goodwill balance at December 31, 2021	$	6,857,790
Adjustment to fair value		373,303
Impairment		(7,231,093	)
Goodwill balance at June 30, 2022	$	-

When evaluating the fair value of zPREDICTA reporting unit, the Company used a discounted cash flow model and market comparisons. Key assumptions used to determine the estimated fair value included: (a) expected cash flow for the 10-year period following the testing date (including net revenues, costs of revenues, and operating expenses as well as estimated working capital needs and capital expenditures) and (b) an estimated terminal value using a terminal year growth rate of 4.0% determined based on the growth prospects of the reporting unit. The Company further used a probability weighting of various forecasts to address forecast risk. The Company used an estimated discount rate of 65% based on management’s best estimate and considering the Company’s current market capitalization.

The majority of the inputs used in the discounted cash flow model are unobservable and thus are considered to be Level 3 inputs. The inputs for the market capitalization calculation are considered Level 1 inputs. Goodwill is not expected to be deductible for tax purposes.

Helomics reporting unit

The goodwill, for our Helomics operating segment, was zero at June 30, 2022 and December 31, 2021, and the cumulative impairment losses are $23,790,290.