NOTE 4         INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

The Company’s intangible assets consist of the following: 

The Company’s intangible assets resulted from the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively, and relate to the design segment of our business. Intangible assets were amortized over their expected useful lives of 15 years for the trademarks and eight years for the customer relationships. During Fiscal 2025 and Fiscal 2024, the Company recorded amortization expense related to intangible assets of $213,000, which is included in general and administrative expenses in the Company’s consolidated statements of operations.

At September 30, 2025, due to declining revenues and continuing losses in the design segment, the Company reviewed its intangible assets for impairment. Based on the estimated future cash flows of the design business, the Company determined these intangible assets were no longer recoverable at September 30, 2025 and recorded an impairment charge for their remaining net carrying value.

Goodwill

Goodwill represents the future economic benefits of assets acquired in a business combination that are not individually identified or separately recognized. The Company’s goodwill resulted from the acquisitions of Kablooe and IPS in Fiscal 2020 and Fiscal 2018, respectively. The goodwill associated with the IPS acquisition is not deductible for tax purposes, but the goodwill associated with the Kablooe acquisition is deductible for tax purposes.

Due to the historical losses of the Kablooe reporting unit, the Company elected to bypass the qualitative assessment and perform quantitative goodwill impairment testing for the Kablooe reporting unit at September 30, 2024. Using an income approach methodology, the fair value of the Kablooe reporting unit was estimated with a discounted cash flow analysis incorporating variables categorized within level 3 of the fair value hierarchy such as projected revenues, growth rate and discount rate. This quantitative testing indicated the carrying amount of the Kablooe reporting unit exceeded its fair value, resulting in a goodwill impairment charge of $200,000 in Fiscal 2024, primarily driven by a reduction in the expected future performance of the Kablooe reporting unit. The Company reviewed the fair value of the Kablooe reporting unit at September 30, 2025, in connection with its annual goodwill impairment evaluation. Based on a decrease in its estimated future cash flows, driven by declining revenues and continued losses, the Company determined the carrying amount of this reporting unit exceeded its fair value and recorded an impairment charge of $391,000 for the remaining goodwill balance.

In December 2024, IPS was notified by its largest customer of its plan to discontinue its insulin patch pump program, on which IPS was working, and was beginning to wind down all activities related to it. Due to the historically high concentration of revenue with this customer, the loss of its business was considered a triggering event which prompted the Company to evaluate the goodwill of the IPS reporting unit. Management concluded an impairment was more likely than not to have occurred and performed a quantitative goodwill impairment test for the IPS reporting unit at December 31, 2024. Using primarily an income approach methodology, the fair value of the IPS reporting unit was estimated using a discounted cash flow analysis incorporating variables categorized within Level 3 of the fair value hierarchy such as projected revenues, growth rate and discount rate. The quantitative testing indicated the carrying amount of the IPS reporting unit exceeded its fair value, resulting in a goodwill impairment charge of $225,000 in the three months ended December 31, 2024, primarily driven by a reduction in the expected future performance of the IPS reporting unit.

The Company reviewed the fair value of the IPS reporting unit at September 30, 2025, in connection with its annual goodwill impairment evaluation. Based on a decrease in its estimated future cash flows, driven by declining revenues and continued losses, the Company determined the carrying amount of this reporting unit exceeded its fair value and recorded an additional impairment charge of $943,000 for the remaining goodwill balance.

Below is the rollforward of goodwill for the design segment, the only reportable segment with goodwill: