Note 8 - Goodwill and Intangibles

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

NOTE 8 – Goodwill and Intangibles

Intangible Assets

Finite-lived intangible assets consist of patents and trademarks, licensing fees, developed technology, acquired software and customer relationships, and are amortized over their estimated useful life. Amortization expense was $414,706 and $374,328 in 2022 and 2021, respectively. Accumulated amortization is included in intangibles, net in the accompanying consolidated balance sheets. The Company reviews finite-lived identifiable intangible assets for impairment in accordance with ASC 360, Property, Plant and Equipment, whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Events or changes in circumstances that indicate the carrying amount may not be recoverable include, but are not limited to, a significant change in the medical device marketplace and a significant adverse change in the business climate in which the Company operates.

As of December 31, 2022, there were $253,865 in net intangibles as compared to $3,962,118 in net intangibles as of December 31, 2021.

The components of intangible assets were as follows:

			December 31, 2022						December 31, 2021
	Gross Carrying Costs		Accumulated Amortization			Impairment			Net Carrying Amount		Gross Carrying Costs		Accumulated Amortization			Impairment			Net Carrying Amount
Patents & Trademarks	$	509,141	$	(255,276	)	$	-		$	253,865	$	453,314	$	(230,572	)	$	-		$	222,742
Developed Technology		3,500,000		(386,459	)		(3,113,541	)		-		6,382,000		(432,733	)		(2,485,725	)		3,463,542
Customer Relationships		200,000		(22,083	)		(177,917	)		-		645,000		(410,000	)		(37,083	)		197,917
Tradename		80,000		(22,083	)		(57,917	)		-		478,000		(29,344	)		(370,740	)		77,917
Total	$	4,289, 141	$	(685,901	)	$	(3,349,375	)	$	253,865	$	7,958,314	$	(1,102,649	)	$	(2,893,548	)	$	3,962,118

The following table outlines the estimated future amortization expense related to intangible assets held as of December 31, 2022:

Year ending December 31,	Expense
2023	$	25,774
2024		25,774
2025		25,774
2026		25,774
2027		25,774
Thereafter		124,995
Total	$	253,865

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property and equipment and intangible assets with estimable useful lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of such an asset may not be recoverable.

The recoverability of an asset to be held and used is determined by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeded its estimated undiscounted future cash flows, the Company recorded an impairment charge in the amount by which the carrying amount of the asset exceeds its fair value, which is determined by either a quoted market price, if any, or a value determined by utilizing discounted cash flow techniques.

The Company prepared an undiscounted cash flow as of December 31, 2022 to evaluate long-lived assets based on a triggering event per ASC 360 primarily due to the declines in projected future cash flows. The Company concluded that the undiscounted cash flows did not support the carrying values of its asset groups as of December 31, 2022. The Company determined the value of the zPREDICTA intangibles were fully impaired as of December 31, 2022 and recognized and impairment loss of $3,349,375 for its long-lived intangible assets. The Company also concluded there was an impairment of its other finite lived tangible assets as of December 31, 2022 based on the fair value of the assets based on the in-exchange premise of value. The Company recorded an impairment loss of $185,469 in the fourth quarter of 2022 related to these assets in its Soluble and Corporate operating segment.

The Company prepared an undiscounted cash flow as of December 31, 2021 to evaluate long-lived assets based on a triggering event per ASC 360. The Company concluded that the undiscounted cash flows did not support the carrying values of its Helomics asset group at December 31, 2021. The Company determined the value of the intangibles and the software license acquired were fully impaired as of December 31, 2021 and recognized and impairment loss of $2,893,548 for its long-lived intangible assets and $1,249,727 for the acquired software. The Company concluded there was no impairment of its other finite lived tangible assets as of December 31, 2021.

Goodwill

In accordance with ASC 350, Intangibles – Goodwill and Other, goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of net assets acquired. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination. Goodwill is an indefinite-lived asset and is not amortized. Goodwill is tested for impairment annually at the reporting unit level, or whenever events or circumstances present an indication of impairment.

In the Helomics acquisition, the Company recorded goodwill of $23,790,290. The goodwill was recorded to the Helomics segment which represents a single reporting unit. As a part of the annual impairment testing as of December 31, 2019, the Company had the option to assess qualitative factors to determine if it was more likely than not that the carrying value of a reporting unit exceeded its estimated fair value. The Company believed a qualitative testing approach was not appropriate and, therefore, proceeded to the quantitative testing. When performing quantitative testing, the Company first estimated the fair value of the Helomics reporting unit using discounted cash flows. To determine fair values, the Company was required to make assumptions about a wide variety of internal and external factors. Significant assumptions used in the impairment analysis included financial projections of free cash flow (including significant assumptions about operations including the rate of future revenue growth, capital requirements, and income taxes), long-term growth rates for determining terminal value, and discount rates for the Helomics reporting unit. Comparative market multiples were also used to corroborate the results of the discounted cash flow test. These assumptions required significant judgment and actual results may differ from assumed and estimated amounts.

During the third quarter of 2021, 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 September 30, 2021, the Company performed a quantitative impairment test, including computing the fair value of the Helomics 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 September 30, 2021.

The quantitative review as of September 30, 2021 resulted in $2,813,792 of impairment expense related to goodwill. As of September 30, 2021, the cumulative impairment recorded was $23,790,290.

When evaluating the fair value of Helomics 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); (b) an estimated terminal value using a terminal year growth rate of 4.0% determined based on the growth prospects of the reporting unit; and (c) a discount rate of 15% based on management’s best estimate of the after-tax weighted average cost of capital. The Company further used a probability weighting of various forecasts to address forecast risk.

Goodwill of $7,231,093 was recognized in the zPREDICTA acquisition and represents the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed and represents the future economic benefits and synergies arising from the transaction. None of the goodwill will be deductible for income tax purposes. See Note 2 – zPREDICTA acquisition.

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. 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 following tables present changes in the carrying value of goodwill our consolidated balance sheet:

Goodwill balance at December 31, 2020	$	2,813,792
Impairment		(2,813,792	)
Acquisition of zPREDICTA		6,857,790
Goodwill balance at December 31, 2021	$	6,857,790
Adjustment to fair value		373,303
Impairment		(7,231,093	)
Goodwill balance at December 31, 2022	$	-

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. The Company will continue to monitor its reporting units to determine whether events and circumstances warrant further interim impairment testing.