Note 4 - Intangible Assets and Goodwill

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

NOTE 4 – INTANGIBLE ASSETS AND GOODWILL

The components of intangible assets were as follows:

	As of September 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	$	503,495	$	(248,768	)	$	254,727	$	453,314	$	(230,572	)	$	-		$	222,742
Developed Technology		3,500,000		(298,958	)		3,201,042		6,382,000		(432,733	)		(2,485,725	)		3,463,542
Customer Relationships		200,000		(17,083	)		182,917		645,000		(410,000	)		(37,083	)		197,917
Tradename		80,000		(17,083	)		62,917		478,000		(29,343	)		(370,740	)		77,917
Total	$	4,283,495	$	(581,892	)	$	3,701,603	$	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 amount of a long-lived asset. As a result, the gross carrying cost shown as of September 30, 2022 reflects the new cost basis per ASC 360-10-35-20. Amortization expense was $103,805 and $83,619 during the three months ended September 30, 2022 and 2021, respectively and $310,695 and $249,752 during the nine months ended September 30, 2022 and 2021, respectively

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

Year ending December 31,	Expense
2022	$	207,442
2023		415,194
2024		415,194
2025		413,111
2026		395,194
Thereafter		1,855,468
Total	$	3,701,603

The Company concluded there was no impairment of its finite-lived assets as of September 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 September 30, 2022 and $6,857,790 as of December 31, 2021. The change in value of goodwill from December 31, 2021 and September 30, 2022 was the result of identification of an immaterial error in the fair value of the acquired contract liabilities. The Company identified this error during the second quarter of 2022 and recorded an adjustment to increase the acquired goodwill and increase the contract 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 contract 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 ending June 30, 2022 by increasing each contract 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 period ended June 30, 2022.

The Company had previously disclosed the 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	)
Contract liabilities		(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.

	Twelve months ended December 31, 2021			Twelve months ended December 31, 2020
	Unaudited			Unaudited
Revenue	$	2,056,484		$	1,815,560
Net loss attributable to common shareholders	$	(19,251,734	)	$	(26,946,564	)

Helomics reporting unit

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

zPREDICTA reporting unit

As of September 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	$	-
Impairment		-
Goodwill balance at September 30, 2022	$	-

When evaluating the fair value of the 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.