Annual report pursuant to Section 13 and 15(d)

C. INTANGIBLE ASSETS AND GOODWILL

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C. INTANGIBLE ASSETS AND GOODWILL
12 Months Ended
Dec. 31, 2014
Goodwill and Intangible Assets Disclosure [Abstract]  
NOTE C - INTANGIBLE ASSETS AND GOODWILL

Total identifiable intangible assets acquired and their carrying values at December 31, 2014 are:

 

    Cost    

Accumulated

Amortization

    Accumulated Impairment     Carrying Value    

Weighted Average

Amortization Period

(Years)

 
Amortized Identifiable Intangible Assets:                              
Subscriber lists – EthoStream   $ 2,900,000     $ (1,883,063 )   $     $ 1,016,937       12.0  
Total Amortized Identifiable Intangible Assets     2,900,000       (1,883,063 )           1,016,937          
Goodwill – EthoStream   8,796,430             (3,000,000 )     5,796,430          
Goodwill – SSI   5,874,016             (5,874,016 )              
Total Goodwill   14,670,446             (8,874,016 )     5,796,430          
Total   $ 17,570,446     $ (1,883,063 )   $ (8,874,016 )   $ 6,813,367          

  

Total identifiable intangible assets acquired and their carrying values at December 31, 2013 are:

 

   

Cost

   

Accumulated

Amortization

    Accumulated Impairment     Carrying Value    

Weighted Average

Amortization Period

(Years)

 
Amortized Identifiable Intangible Assets:                              
Subscriber lists – EthoStream   $ 2,900,000     $ (1,641,383 )   $     $ 1,258,617       12.0  
Total Amortized Identifiable Intangible Assets     2,900,000       (1,641,383 )           1,258,617          
Goodwill – EthoStream   8,796,430             (3,000,000 )     5,796,430          
Goodwill – SSI   5,874,016             (5,874,016 )              
Total Goodwill   14,670,446             (8,874,016 )     5,796,430          
Total   $ 17,570,446     $ (1,641,383 )   $ (8,874,016 )   $ 7,055,047          

 

Total amortization expense charged to operations for the years ended December 31, 2014 and 2013 was $241,680 per year.

 

Estimated future amortization expense as of December 31, 2014 is as follows:

  

Years Ended December 31,        
2015   $ 241,680  
2016     241,680  
2017     241,680  
2018     241,680  
2019     50,217  
Total   $ 1,016,937  

 

The Company does not amortize goodwill. The Company recorded goodwill in the amount of $14,670,446 as a result of the acquisitions of EthoStream and SSI during the year ended December 31, 2007. The Company evaluates goodwill for impairment based on the fair value of the reporting units to which this goodwill relates at least once a year. We utilize a discounted cash flow valuation methodology (income approach) to determine the fair value of the reporting unit. At December 31, 2009 and 2008, the Company determined that a portion of the value of EthoStream’s goodwill had been impaired based upon management’s assessment of operating results and forecasted discounted cash flow and wrote off $1,000,000 and $2,000,000, respectively, of its value. At December 31, 2011, the Company determined that a portion of the value for Smart Systems International’s goodwill was impaired based upon management’s assessment of operating results and forecasted discounted cash flow and wrote off $3,100,000 in connection with the impairment. At December 31, 2013, the Company determined that the remainder of Smart Systems International’s goodwill was impaired based upon management’s assessment of operating results and forecasted discounted cash flow and recorded an additional impairment charge of $2,774,016. Since acquisition, the Company has written off $3,000,000 and $5,874,016 of goodwill for Ethostream and Smart Systems International, respectively.

 

Significant assumptions used in our goodwill impairment test at December 31, 2013 included: expected revenue growth rates, reporting unit profit margins, working capital levels, discount rates of 12.4% for EthoStream and 21.8% for SSI, respectively, and a terminal value multiple. The expected future revenue growth rates and the expected reporting unit profit margins were determined after considering our historical revenue growth rates and reporting unit profit margins, our assessment of future market potential, and our expectations of future business performance. At December 31, 2013, the Company determined that the value of Smart Systems International’s goodwill was impaired based upon management’s assessment of operating results and forecasted discounted cash flow and has recorded an impairment charge of $2,774,016.

 

Significant assumptions used in our goodwill impairment test at December 31, 2014 for EthoStream included: expected revenue growth rates, reporting unit profit margins, working capital levels, discount rate of 10.8% and a terminal value multiple. The expected future revenue growth rates and the expected reporting unit profit margins were determined after considering our historical revenue growth rates and reporting unit profit margins, our assessment of future market potential, and our expectations of future business performance.

 

The carrying value of our goodwill could change if the Company is unable to achieve operating results at the levels that have been forecasted, or if there is a permanent, negative change in the market demand for the services offered by the Company. These changes could result in an impairment of the remaining goodwill balance that could require an additional material non-cash charge to our results of operations.