Annual report pursuant to Section 13 and 15(d)

NOTE D - INTANGIBLE ASSETS AND GOODWILL

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NOTE D - INTANGIBLE ASSETS AND GOODWILL
12 Months Ended
Dec. 31, 2011
Goodwill and Intangible Assets Disclosure [Text Block]
NOTE D – INTANGIBLE ASSETS AND GOODWILL

Total identifiable intangible assets acquired and their carrying values at December 31, 2011 are:

   
Cost
   
Accumulated
Amortization
   
Impairment
   
Carrying Value
   
Weighted Average
Amortization Period
(Years)
 
Amortized Identifiable Intangible Assets:
                             
Subscriber lists – EthoStream
 
$
2,900,000
   
$
(1,158,023
)
 
$
-
   
$
1,741,977
     
12.0
 
Total Amortized Identifiable Intangible Assets
   
2,900,000
     
(1,158,023
)
   
-
     
1,741,977
         
Goodwill – EthoStream
 
5,796,430
     
-
     
-
     
5,796,430
         
Goodwill – SSI
 
5,874,016
     
-
     
(3,100,000)
     
  2,774,016
         
Total Goodwill
 
11,670,446
             
(3,100,000)
     
8,570,446
         
Total
 
$
14,570,446
   
$
(1,158,023
)
 
$
(3,100,000)
   
$
10,312,423
         

Total identifiable intangible assets acquired and their carrying values at December 31, 2010 are:

   
Cost
   
Accumulated
Amortization
   
Carrying Value
   
Weighted Average
Amortization Period
(Years)
 
Amortized Identifiable Intangible Assets:
                       
Subscriber lists – EthoStream
 
$
2,900,000
   
$
(916,343
)
 
$
1,983,657
     
12.0
 
Total Amortized Identifiable Intangible Assets
   
2,900,000
     
(916,343
)
   
1,983,657
         
Goodwill – EthoStream
 
5,796,430
     
-
     
5,796,430
         
Goodwill – SSI
 
5,874,016
     
-
     
5,874,016
         
Total Goodwill
 
11,670,446
     
-
     
11,670,446
         
Total
 
$
14,570,446
   
$
(916,343
)
 
$
13,654,103
         

Total amortization expense charged to operations for the year ended December 31, 2011 and 2010 was $241,680 and $241,680, respectively.

Estimated amortization expense as of December 31, 2011 is as follows:

Years Ended December 31,
       
2012
 
$
241,680
 
2013
   
241,680
 
2014
   
241,680
 
2015
   
241,680
 
2016
   
241,680
 
2017 and after
   
533,577
 
Total
 
$
1,741,977
 

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 operating business units to which this goodwill relates at least once a year. We utilize a discounted cash flow valuation methodology to determine the fair value of the reporting unit. At December 31, 2011, the Company has determined that a portion of the value Smart Systems International’s goodwill has been impaired based upon management’s assessment of operating results and forecasted discounted cash flow and has written off $3,100,000.  Since acquisition, the Company has written off $3,000,000 and $3,100,000 of goodwill for Ethostream and Smart Systems International, respectively.

Significant assumptions used in our goodwill impairment test at December 31, 2011 and 2010 included:  expected revenue growth rates, operating unit profit margins, working capital levels, discount rates ranging from 10.0% to 17.5% and a terminal value multiple. The expected future revenue growth rates and the expected operating unit profit margins were determined after considering our historical revenue growth rates and operating unit profit margins, our assessment of future market potential, and our expectations of future business performance.

The estimated fair 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 existing goodwill balance that could require an additional material non-cash charge to our results of operations.