INTANGIBLE ASSETS AND GOODWILL

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS AND GOODWILL

NOTE 5 – INTANGIBLE ASSETS AND GOODWILL

Goodwill

Goodwill represents costs in excess of values assigned to the underlying net assets of acquired businesses. Intangible assets acquired are recorded at estimated fair value. Goodwill is deemed to have an indefinite life and is not amortized but is tested for impairment annually, and at any time when events suggest an impairment more likely than not has occurred. We test goodwill at the reporting unit level.

ASC Topic 350, Intangibles - Goodwill and Other (ASC Topic 350), permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.  Under ASC Topic 350, an entity is not required to perform a quantitative goodwill impairment test for a reporting unit if it is more likely than not that its fair value is greater than its carrying amount. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. GAAP.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but are unpredictable and inherently uncertain. Actual future results may differ from those estimates. The timing and frequency of our goodwill impairment tests are based on an ongoing assessment of events and circumstances that would indicate a possible impairment. We will continue to monitor our goodwill and intangible assets for impairment and conduct formal tests when impairment indicators are present.

Each of our two reportable segments represents an operating segment under ASC Topic 280, Segment Reporting. We test our goodwill at the reporting unit level, or one level below an operating segment, under ASC Topic 350, Intangibles - Goodwill and Other. We determined that we have two reporting units for purposes of goodwill impairment testing, which represent our two reportable business segments, as discussed below.

Changes in the carrying amount of goodwill by reportable business segment for the nine months ended September 30, 2023, were as follows (in thousands):

	Authentication			Precision Logistics		Total
Net book value at
January 1, 2023	$	-		$	3,988	$	3,988
2023 Activity
Acquisition of Trust Codes Global		1,383			-		1,383
Foreign currency translation		(58	)		-		(58	)
Net book value at
September 30, 2023	$	1,325		$	3,988	$	5,313

Intangible Assets Subject to Amortization

Our intangible assets include amounts recognized in connection with patents and trademarks, capitalized software and acquisitions, including customer relationships, tradenames, developed technology and non-compete agreements. Intangible assets are initially valued at fair market value using generally accepted valuation methods appropriate for the type of intangible asset. Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets. Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise. Except for goodwill, we do not have any intangible assets with indefinite useful lives.

Intangible assets with finite lives are subject to amortization over their estimated useful lives. The primary assets included in this category and their respective balances were as follows (in thousands):

September 30, 2023	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Remaining Useful Life (Years)
Patents and Trademarks	$	2,045	$	(538	)	$	1,507		13
Capitalized Software		161		(101	)		60		2
Customer Relationships		1,904		(269	)		1,635		9
Developed Technology		3,607		(789	)		2,818		5
Internally Used Software		812		(40	)		772		5
Non-Compete Agreement		191		(55	)		136		4
Deferred Implementation		198		(19	)		179		9
Total Intangible Assets	$	8,918	$	(1,811	)	$	7,107
December 31, 2022
Patents and Trademarks	$	1,858	$	(445	)	$	1,413		13
Capitalized Software		206		(91	)		115		3
Customer Relationships		1,839		(133	)		1,706		9
Developed Technology		3,143		(360	)		2,783		5
Internally Used Software		236		(4	)		232		6
Non-Compete Agreement		191		(28	)		163		4
Deferred Implementation		140		(7	)		133		10
Total Intangible Assets	$	7,613	$	(1,068	)	$	6,545

Amortization expense for intangible assets was $266 thousand and $248 thousand for the three months ended September 30, 2023, and 2022, respectively, and $761 thousand and $446 thousand for the nine months ended September 30, 2023, and 2022, respectively. During the nine months ended September 30, 2023, the Company impaired certain assets related to its Developed Technology and Patents by $28 thousand and $6 thousand, respectively, to bring the gross carrying amount related to these assets to zero, as these technologies are no longer in use.

Patents and Trademarks

As of September 30, 2023, our current patent and trademark portfolios consist of nine granted U.S. patents and one granted European patent validated in four countries (France, Germany, United Kingdom, and Italy), five pending U.S. and foreign patent applications, twenty-six registered U.S. trademarks (of which seven trademarks were acquired through our wholly owned subsidiary, PeriShip Global), two EU trademark registrations, one Colombian trademark registration, one Australian trademark registration, one Japanese trademark registration, one Mexican trademark registration, one Singaporean trademark registration, two UK trademark registrations, six NZ trademark registration (in the name of Trust Codes Limited and/or Trust Codes Global Limited), one OAPI (African Intellectual Property Organization) trademark registration (in the name of Trust Codes Global Limited), and seven pending US and foreign trademark applications (of which one European trademark application is in the name of Trust Codes Limited). The Company abandoned three patents during the nine months ended September 30, 2023.

The Company expects to record amortization expense of intangible assets over the next 5 years and thereafter as follows (in thousands):

Fiscal Year ending December 31,
2023 (three months remaining)	$	291
2024		1,137
2025		1,112
2026		1,108
2027		1,073
Thereafter		2,386
Total	$	7,107