NOTE 8 – GOODWILL AND INTANGIBLE ASSETS

In connection with the Scienture Merger on July 25, 2024, the Company recorded goodwill of $21,372,960 and intangible assets of $76,400,000. During the year ended December 31, 2025, the Company performed its annual impairment assessment of goodwill and intangible assets, resulting in total impairment charges of $26,346,050, comprised of $21,372,960 related to goodwill and $4,973,090 related to indefinite-lived intangible assets.

The purchase price allocation of intangible assets was evaluated under ASC 805 as of the acquisition date. The identified intangible assets were determined to be product technologies representing novel formulations and delivery methods targeting central nervous system and cardiovascular diseases. Each product technology was valued using the Multi-Period Excess Earnings Method (“MPEEM”) under the Income Approach, consistent with ASC 820. The fair values assigned at acquisition, by product candidate, were as follows:

SCHEDULE OF INTANGIBLE ASSETS WERE DETERMINED TO BE PRODUCT TECHNOLOGIES

The fair value of the product technologies was determined by the Income Approach: Multi-Period Excess Earnings Methods (“MPEEM”). The MPEEM measures economic benefits by calculating the cash flows attributable to an asset after deducting appropriate returns for contributory assets used by the business in generating the asset’s revenue and earnings. The MPEEM utilized revenue and cash flow projections through 2030 based on each product candidate’s phase of development. Key assumptions include a 2% long-term revenue growth rate and 3% contributory asset charge rate. The Company discounted the expected future cash flows at a 53.0% rate of return, equal to the weighted-average cost of capital plus 10%, to reflect the risk of the cash flows related to the product technologies. The Company then summed the present values of the estimated future cash flows and included an amortization tax benefit to the value indication of each of the product technologies.

The fair value of each product technology was determined using the Multi-Period Excess Earnings Method (“MPEEM”), an income approach that isolates the cash flows attributable solely to the subject intangible asset by projecting revenues and operating costs, deducting contributory asset charges (working capital at 4.0%, property and equipment at 12.9%), and discounting the resulting excess earnings to present value using risk-adjusted discount rates. A tax amortization benefit is included in each fair value indication. Projections reflect each asset’s market size, projected penetration, and net pricing assumptions, with a long-term growth rate of 4.8% applied at terminal value, benchmarked to long-term U.S. nominal GDP expectations. Key valuation inputs included: a risk-free rate of 4.79% (20-year U.S. Treasury yield as of December 31, 2025); a market rate of return of 13.0% (10-year CAGR of S&P 500, 2016–2025); an unlevered beta of 0.98 (Damodaran pharmaceutical industry data); and an effective tax rate of 26.7% (combined U.S. federal rate of 21% and New York state rate of 7.3%).

Goodwill Impairment – ASC 350

In accordance with ASC 350-20, the Company performs its annual goodwill impairment test as of December 31. The Company operates as a single operating segment and, accordingly, goodwill is allocated to and tested at the consolidated entity level as a single reporting unit, consistent with ASC 280 and the manner in which the Company’s Chief Operating Decision Maker reviews operating results for purposes of resource allocation and performance evaluation.

As of December 31, 2025, management identified the following indicators of impairment: (i) continued operating losses from continuing operations; (ii) a significant decline in the Company’s market capitalization relative to the carrying value of its net assets; and (iii) challenging conditions within the specialty pharmaceutical sector. Based on the presence of these triggering events, the Company bypassed the qualitative assessment and proceeded directly to a quantitative impairment test.

The fair value of the reporting unit was estimated using the Market Capitalization Method, representing a Level 1 input under ASC 820, based on the Company’s quoted share price of $0.51 and 40,630,815 shares outstanding as of December 31, 2025, resulting in an estimated fair value of approximately $20.7 million. No control premium or marketability discount was applied, as the Company’s shares are actively traded and the quoted market price represents the most reliable indicator of fair value from a market participant perspective. The carrying amount of the reporting unit was approximately $82.7 million, resulting in a shortfall of approximately $62.0 million. As the shortfall exceeded the recorded goodwill balance, the entire goodwill balance was determined to be impaired in accordance with ASC 350-20-35-3C. The Company recognized a non-cash goodwill impairment charge of $21,372,960 for the year ended December 31, 2025, recorded within impairment loss in the consolidated statements of operations. As of December 31, 2025, no goodwill remains on the consolidated balance sheet.

Activity in the goodwill balance for the year ended December 31, 2025 is as follows (in thousands):

 SCHEDULE OF GOODWILL

Intangible Assets – Classification and Annual Assessment

The Company’s intangible assets consist of four product technology assets acquired in connection with the Scienture Merger. SCN-102 (ARBLI™ – Losartan Oral Suspension) received FDA approval in March 2025 and commenced commercialization during the third quarter of 2025; accordingly, it is classified as a finite-lived intangible asset amortized on a straight-line basis over an estimated useful life of 13 years, reflecting remaining patent life. SCN-104 (DHE Mesylate Injection), SCN-106 (Cathflo Injection – Potential Biosimilar), and SCN-107 (Bupivacaine Long-Acting Injection) remain in pre-commercial development and are classified as indefinite-lived in-process research and development (“IPR&D”) assets subject to annual impairment testing under ASC 350-30.

Indefinite-Lived IPR&D – Annual Impairment Test (ASC 350-30)

The Company performs its annual impairment test of indefinite-lived IPR&D assets as of December 31 each year, and on an interim basis when triggering events are identified. The fair value of each IPR&D asset was estimated using MPEEM, as described above. The required return on asset applied to SCN-104, SCN-106, and SCN-107 was 49.9%, reflecting a base unlevered cost of capital of 12.9% plus a 37.0% development and commercialization risk premium to capture regulatory approval uncertainty, market adoption risk, and execution risk associated with pre-commercial pharmaceutical assets. Based on the annual impairment test, the carrying amounts of SCN-104, SCN-106, and SCN-107 exceeded their respective estimated fair values as of December 31, 2025. In accordance with ASC 350-30-35, each asset was written down to its estimated fair value, resulting in the following impairment charges for the year ended December 31, 2025 (in thousands):

SCHEDULE OF INTANGIBLE ASSETS IMPAIRMENT TEST RESPECTIVE ESTIMATED FAIR VALUE

Finite-Lived Intangible Asset – Recoverability Test (ASC 360)

SCN-102 (ARBLI™ – Losartan Oral Suspension) received FDA approval in March 2025 and commenced commercialization during the third quarter of 2025. Upon commencement, SCN-102 was reclassified from indefinite-lived IPR&D to a finite-lived intangible asset and amortization commenced on a straight-line basis over an estimated useful life of 13 years. Amortization expense recognized from commercialization through December 31, 2025 was $453,846, resulting in a carrying amount of $23,146,154 as of December 31, 2025.

Due to the presence of impairment indicators as of December 31, 2025, the Company evaluated SCN-102 for recoverability under ASC 360-10-35. The recoverability test compares the carrying amount of the asset to the sum of undiscounted future cash flows expected to result from its use and eventual disposition. The total undiscounted future cash flows attributable to SCN-102, based on management’s projections, were approximately $71.1 million, exceeding the carrying amount of $23.1 million by approximately $48.0 million. Accordingly, SCN-102 was determined to be recoverable and no impairment loss was recognized for this asset as of December 31, 2025.

The following table summarizes the carrying amounts of intangible assets as of December 31, 2025 and 2024 (in thousands):

SCHEDULE OF INTANGIBLE ASSETS

The decrease in intangible assets from $76,400,000 as of December 31, 2024 to $70,973,064 as of December 31, 2025 reflects $4,973,090 of impairment charges recognized on SCN-104, SCN-106, and SCN-107, and $453,846 of amortization expense recognized on SCN-102 following its commercialization. Estimated future annual amortization expense for SCN-102 is approximately $1,780,474 per year through the remainder of its estimated useful life. The three IPR&D assets will be reclassified from indefinite-lived to finite-lived and commence amortization upon commercialization: SCN-104 is expected to launch in 2028, SCN-106 in 2029, and SCN-107 in 2029 or 2030.