Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets

Goodwill and Intangible Assets

10. Goodwill and Intangible Assets

Goodwill consisted of the following:

	SEPTEMBER 30,
	2022
Balances, January 1	$	22,088,578
Impairment		(16,277,000	)
Balances, September 30	$	5,811,578

As a result of the significant decrease in the Company’s publicly quoted share price and market capitalization during the second quarter of  2022, the Company conducted additional testing of its goodwill, definite-lived intangibles, and other long-lived assets during the quarter ended June 30, 2022 As a result of this review and additional testing, the Company did not identify an impairment to its definite-lived intangible assets or other long lived assets, but the Company did identify an impairment to goodwill resulting in recording a $16.3 million non-cash goodwill impairment charge for the three month period ended June 30, 2022, and accordingly that amount is also reflected in the nine month period ended September 30, 2022.

During the three month period ended June 30, 2022, the Company performed its additional goodwill impairment test with support from an external consultant and estimated the fair value of its single reporting unit based on a combination of the income (estimates of future discounted cash flows) and the market approach (market multiples for similar companies). The income approach uses a discounted cash flow (DCF) method that utilizes the present value of cash flows to estimate fair value of our reporting unit. The future cash flows for the reporting unit were projected based upon our estimates of future revenue, operating income and other factors such as working capital and capital expenditures.  As part of our DCF analysis, the Company projected revenue and operating profits, and assumed a long-term revenue growth rates in the terminal year. The market approach utilizes multiples of revenues and earnings before interest expense, taxes, depreciation and amortization (EBITDA) to estimate the fair value of our reporting unit. The market multiples used for our single reporting unit were based on a group of comparable companies’ market multiples applied to the Company’s revenue and EBITDA.

As compared to the Company’s impairment testing on December 31, 2021, for the June 30, 2022 testing the Company updated certain inputs into the valuation models, including the discount rate used in the DCF analysis which increased reflecting, in part, higher interest rates and market volatility, and also the market factors used in the market approach.  In addition, the Company reviewed its estimated future cash flows used in the impairment assessment and due to updated business conditions made reductions to those estimates, including revenues, margin, and capital expenditures, to reflect its best estimates as of such date.

Intangible assets consists of the following:

	SEPTEMBER 30, 2022
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
	(Unaudited)
Customer Relationships	$	2,392,000	$	(239,200	)	$	2,152,800
Channel Relationships		2,628,080		(1,474,645	)		1,153,435
Internally Developed Software		4,399,752		(2,166,391	)		2,233,361
Trade Name and Trademarks		1,330,472		(232,321	)		1,098,151
	$	10,750,304	$	(4,112,557	)	$	6,637,747

	DECEMBER 31, 2021
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
Customer Relationships	$	2,392,000	$	(61,650	)	$	2,330,350
Channel Relationships		2,628,080		(1,343,241	)		1,284,839
Internally Developed Software		3,082,705		(1,633,516	)		1,449,189
Trade Name and Trademarks		1,330,472		(165,964	)		1,164,508
	$	9,433,257	$	(3,204,371	)	$	6,228,886

For the three and nine month periods ended September 30, 2022, the Company capitalized $1.1 million and $2.9 million, respectively, of internally developed software costs, primarily associated with upgrading our ITMS™ (Intelligent Technology Management System), next generation TDI^TM application, secure identity management technology and secure network operations center of which $1.3 million was transferred from capital work in progress to internally developed software and $316,900 was transferred from capital work in progress to property and equipment during the period. Capital work in progress is included in other long-term assets in the consolidated balance sheet

For the three and nine month periods ended September 30, 2021, the Company capitalized $607,900 and $1.8 million, respectively, of internally developed software costs, primarily associated with upgrading our ITMS™ secure identity management technology and secure network operations center of which $531,600 was transferred from capital work in progress to internally developed software during the quarter.

There were no disposals of intangible assets during the nine month period ended September 30, 2022. During the nine month period ended September 30, 2021, the Company disposed of fully amortized intangible assets with a historical cost and accumulated amortization of $1,980,000.

The aggregate amortization expense recorded for the three month periods ended September 30, 2022 and 2021 were approximately $365,800 and $133,800 respectively. The aggregate amortization expense recorded for the nine month periods ended September 30, 2022 and 2021 were approximately $958,400 and $373,100, respectively.

As of September 30, 2022, estimated annual amortization for our intangible assets is approximately:

Remainder of 2022	$	396,224
2023		1,504,122
2024		1,285,557
2025		716,824
2026		511,170
Thereafter		2,223,850
Total	$	6,637,747