Telkonet, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

3. INTANGIBLE ASSETS AND GOODWILL

3. INTANGIBLE ASSETS AND GOODWILL

6 Months Ended

Jun. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Total identifiable intangible assets acquired and their carrying values at June 30, 2012 are:

	Cost		Accumulated Amortization			Carrying Value		Weighted Average Amortization Period (Years)
Amortized Identifiable Intangible Assets:
Subscriber lists – EthoStream	$	2,900,000	$	(1,278,863	)	$	1,621,137		12.0
Total Amortized Identifiable Intangible Assets		2,900,000		(1,278,863	)		1,621,137
Goodwill – EthoStream	5,796,430			-			5,796,430
Goodwill – SSI	2,774,016			-			2,774,016
Total Goodwill		8,570,446		-			8,570,446
Total	$	11,470,446	$	(1,278,863	)	$	10,191,583

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 amortization expense charged to operations for each of the three and six months ended June 30, 2012 and 2011 was $60,420 and $120,840, respectively.

Estimated amortization expense as of June 30, 2012 is as follows:

Remainder of 2012	$	120,840
2013		241,680
2014		241,680
2015		241,680
2016		241,680
2017		241,680
2018 and after		291,897
Total	$	1,621,137

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 determined that a portion of the value 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 based on that determination. Since acquisition, the Company has written off $3,000,000 and $3,100,000 of goodwill for Ethostream and Smart Systems International, respectively.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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