The following table summarizes the changes in our goodwill for the year ended December 31, 2023 and the year ended December 31, 2022 (in thousands):


Description	GIGA			Microphase			Relec			Enertec			Total
Balance as of January 1, 2022	$	—		$	3,172		$	1,164		$	5,476		$	9,812
Acquisition		10,459			—			—			—			10,459
Impairment		(10,459	)		—			—			—			(10,459	)
Effect of exchange rate changes		—			—			(123	)		(635	)		(758	)
Balance as of December 31, 2022		—			3,172			1,041			4,841			9,054
Impairment		—			(3,172	)		—			—			(3,172	)
Effect of exchange rate changes		—			—			55			(143	)		(88	)
Balance as of December 31, 2023	$	—		$	—		$	1,096		$	4,698		$	5,794

The Company tests goodwill for impairment at the reporting unit level annually on December 31 or more frequently if there are indicators that the carrying amount of the goodwill exceeds its estimated fair value.

The legacy Giga-tronics reporting unit (consisting of what we call the Giga-tronics Division and Microsource) experienced a significant decline in sale during the fourth quarter of 2022 and is projecting a negative growth rate due to customers scaling back on programs, a lack of backlog, a highly competitive industry and certain operational challenges that have affected our expectations such that future growth and profitability is significantly lower than previous estimates. Furthermore, during the fourth quarter of 2022, the Company’s market capitalization declined steadily which, although not a determinant on its own, when combined with the other factors indicated that the Giga-tronics reporting unit goodwill was determined to be impaired.

Because the qualitative test indicated that Giga-tronics reporting unit goodwill was determined to be impaired a second phase of the goodwill impairment test ("Step 2") was performed specific to Giga-tronics reporting unit. Under Step 2, the fair value of the reporting unit was estimated for the purpose of deriving an estimate of the implied fair value of goodwill. The implied fair value of the goodwill was then compared to the recorded goodwill to determine the amount of the impairment. The Company utilized an enterprise value-based income approach to determine the fair value of the reporting unit. The income approach discounts projected free cashflows of the reporting unit at a computed weighted average cost of capital of 17.5% as the discount rate. The income approach requires the use of significant estimates and assumptions, which include a zero revenue growth assumption and negative future operating margins used to calculate projected future cashflows, weighted average cost of capital, and future economic and market conditions. The Company bases the forecasts on its knowledge of the industry, recent performance and expected future performance of the reporting unit, and other assumptions management believes to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.

As a result, the entire goodwill carrying amount of Giga-tronics reporting unit was recognized as an impairment charge during the year ended December 31, 2022.

During the fourth quarter of 2023, Microphase reporting unit experienced a significant decline in sales and annually continues to have operating losses.

Due to these factors, we determined that a triggering event had occurred, and therefore, performed a quantitative goodwill impairment assessment as of December 31, 2023. Under quantitative testing, the fair value of the reporting unit was estimated for the purpose of deriving an estimate of the implied fair value of goodwill. The implied fair value of the goodwill was then compared to the recorded goodwill to determine the amount of the impairment. The Company utilized an enterprise value-based income approach to determine the fair value of the reporting unit. The income approach requires the use of significant estimates and assumptions, which include a zero revenue growth assumption and negative future operating margins used to calculate projected future cashflows, weighted average cost of capital, and future economic and market conditions. The Company bases the forecasts on its knowledge of the industry, recent performance and expected future performance of the reporting unit, and other assumptions management believes to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.

The results of the quantitative test indicated the fair value of the Microphase reporting unit did not exceed its carrying amounts, including goodwill, in excess of the carrying value of the goodwill. As a result, the entire $3.2 million carrying amount of Microphase’s goodwill was recognized as a impairment charge during the year ended December 31, 2023. There were no impairments of goodwill during the year ended December 31, 2022.

For Enertec and Relec reporting units, the Company has determined that the reporting units benefit from a continued positive forecast within the industry, a significant backlog of contracted work, a history of and/or projected positive earnings and have not experience any technological, market or operational circumstances which indicate that the carrying values of reporting units goodwill may not be recoverable. Based on the qualitative assessment, it was concluded that it is not more likely than not that the fair value of the reporting units is less than its carrying amount. Management concluded that no quantitative testing was needed as it was not more likely than not that reporting units fair value are less than its carrying value as of December 31, 2023.