Note 3 – Impairment of Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets, including property and equipment, definite-lived intangible assets, and right-of-use (“ROU”) assets, in accordance with ASC 360 whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Such indicators include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the assets, adverse changes in the business climate, or a decision to dispose of or abandon an asset group.

For purposes of evaluating recoverability, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent (the “asset group”). The Company tests the recoverability of an asset group by comparing its carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. If the carrying amount exceeds the undiscounted cash flows, an impairment loss is recognized for the amount by which the carrying amount exceeds the asset group’s fair value.

Fair value is determined using valuation techniques consistent with the market and income approaches, as appropriate, and is based on significant unobservable inputs (Level 3), including projected future cash flows, discount rates, and assumptions regarding future market conditions. The Company’s estimates of future cash flows are based on assumptions that are consistent with its internal forecasts and strategic plans.

During the three months ended June 30, 2026, the Company identified impairment indicators related to its Z-Tech business unit asset group due to a decline in revenues and changes in market conditions. As a result, the Company performed recoverability tests for these asset groups and determined that their carrying amounts were not recoverable.

Accordingly, the Company recorded an impairment charge of approximately $1.36 million during the three months ended June 30, 2026, which is included in “Impairment of long-lived assets” in the accompanying consolidated statements of operations. The impairment charge reduced the carrying value of the assets in the Z-Tech asset group to their estimated fair values. The impairment primarily related to:

The fair value of the impaired asset groups was determined primarily using a discounted cash flow model, which incorporated assumptions including projected revenue growth rates, operating margins, and discount rates.

As of June 30, 2026, the carrying amount of Z-Tech’s long-lived assets was $589,000. Future changes in the Company’s estimates of cash flows, discount rates, or other assumptions may result in additional impairment charges in future periods.