Note 8 - Capitalized Software Development Costs

The Company capitalizes eligible costs incurred in the development of internal-use software during the application development stage, in accordance with ASC 350-40, Internal-Use Software. Capitalized software development costs include direct labor, third-party services, and other direct costs associated with the development of new software or significant upgrades and enhancements to existing software. Costs incurred during the preliminary project stage and post-implementation/operational stage are expensed as incurred. Capitalized software development costs are amortized on a straight-line basis over the estimated useful life of the software, which management has determined to be five years.

The Company evaluates capitalized software development costs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. During the six months ended June 30, 2026, the Company experienced a significant deterioration in operating activities, suspended manufacturing operations, furloughed its workforce, and began evaluating potential transactions involving the sale of substantially all of the Company’s assets and business. Management determined that these events represented impairment indicators and performed a recoverability assessment of the asset group that includes the Company’s capitalized software.

As of June 30, 2026, the net carrying amount of capitalized software development costs was approximately $2.7 million. Based on management’s estimate of the undiscounted cash flows expected to be generated from the continued use and eventual disposition of the related asset group, management determined that the carrying amount was recoverable. Accordingly, no impairment loss related to the capitalized software was recognized as of June 30, 2026.

The capitalized software remained classified as held and used as of June 30, 2026, and amortization continues over its remaining estimated useful life. Management will continue to evaluate the recoverability and remaining useful life of the capitalized software in future reporting periods based on changes in expected use, operating plans, and any potential disposition transactions.

The software was ready for its intended use as of January 1, 2026, and amortization commenced on that date. For the six months ended June 30, 2026 and 2025, the Company recorded amortization expense of $292,072 and $0, respectively.  For the three months ended June 30, 2026 and 2025, the Company recorded amortization expense of $146,036 and $0, respectively. Amortization expense is included in “Depreciation and amortization” in the condensed consolidated statements of operations.