Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

NOTE 12 GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill activity during the six months ended June 30, 2022 was as follows:

(Amounts in thousands)	Total
Balance at December 31, 2021	$	37,943
Derecognition		(710	)
Impairments		(7,200	)
Balance at June 30, 2022	$	30,033

The following table sets forth the gross carrying amount activity during the six months ended June 30, 2022, plus the accumulated amortization of the Company’s intangible assets as of June 30, 2022.

(Amounts in thousands)	Gross Carrying Amount		Derecognition of Patents			Impairment			Accumulated Amortization			Net Carrying Amount
Definite-lived intangible assets:
Technology		14,196		(561	)		(8,575	)		(194	)		4,866
Intellectual property		591		-			-			(71	)		520
Software		673		-			-			(118	)		555
Total definite-lived intangible assets at June 30, 2022	$	15,460	$	(561	)	$	(8,575	)	$	(383	)	$	5,941

On June 23, 2022, the Company executed an agreement to return fifteen patents and five pending or provisional patents to the former owners of Innovation Digital, LLC (“Innovation Digital”) which resulted in the derecognition of goodwill and intangible assets shown in the tables above. See Note 20 – Other Business Developments for additional information.

As of June 30, 2022, the Company determined that it was more likely than not that certain reporting unit’s fair value was below their reporting unit’s carrying amount due to a decline in the Company’s market capitalization. Accordingly, it was necessary to perform interim impairment testing as of June 30, 2022. For the three and six months ended June 30, 2022, the Company, utilizing a 10% revenue growth rate and a weighted-average cost of capital range of 13-25%, recorded an impairment charge for goodwill in the amount of $7.2 million and an impairment charge for other definite-lived intangible assets of $8.6 million. The Company calculates the estimated fair value of a reporting unit and the definite-lived intangible assets using the income approach and compares it to the carrying value. For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment.

In determining whether a qualitative assessment is required, the Company will evaluate relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after performing the qualitative assessment, an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity would perform the two-step goodwill impairment test described in ASC 350. However, if, after applying the qualitative assessment, the entity concludes that it is not more than likely that the fair value is less than the carrying amount, the two-step goodwill impairment test is not required. The Company bases these assumptions on its historical data and experience, industry projections, micro and macro general economic condition projections, and its expectations. The only reporting unit with a pre-impairment negative carrying value is Virtual Network Communications, Inc.

During the three and six months ended June 30, 2022, the Company recorded amortization expense of intangible assets of $0.4 million and $0.8 million, respectively. During the three and six months ended June 30, 2021, the Company recorded amortization expense of intangible assets of $3.2 million and $6.5 million, respectively. The Company’s amortization is based on no residual value using the straight-line amortization method as it best represents the benefit of the intangible assets.

The following table sets forth the weighted-average amortization period, in total and by major intangible asset class:

Asset Class	Weighted- Average Amortization Period
Technology	10.0 years
Intellectual property	10.0 years
Software	10.0 years
All intangible assets	10.0 years

As of June 30, 2022, assuming no additional amortizable intangible assets, the expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter was as follows:

(Amounts in thousands)	Estimated
2022	$	297
2023		594
2024		594
2025		594
2026		594
Thereafter		3,268
All intangible assets	$	5,941

As part of the Company’s restructuring, commencing January 1, 2023, the Company is integrating its previously separate reporting units, including employing a single integrated sales function, and the Chief Executive Officer intends to manage the Company and make decisions based on the Company’s consolidated operating results.