Annual report pursuant to Section 13 and 15(d)

Intangible Assets and Goodwill

v3.5.0.2
Intangible Assets and Goodwill
12 Months Ended
Oct. 31, 2010
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets and Goodwill

NOTE 7 - INTANGIBLE ASSETS AND GOODWILL

 

The Company accounts for intangible assets and goodwill in accordance with ASC 350. Goodwill and Other Intangible Assets, whereby the Company periodically tests its intangible assets for impairment. On an annual basis, and when there is reason to believe that their values have been diminished or impaired, these assets are tested for impairment, and write-downs will be included in results from operations.

 

The identifiable intangible assets acquired and their carrying value at October 31, 2010 and 2009 is:

 

    2010     2009  
Customer relationships (weighted average life of 10 years)   $ 723,127     $ 784,243  
Non-compete agreements (weighted average life of 3 years)     230,981       278,651  
Patents (weighted average life of 10 years)     86,539       67,837  
Licenses (weighted average life of 2 years)     100,000       100,000  
                 
Total amortized identifiable intangible assets - gross carrying value     1,140,647       1,230,731  
Less accumulated amortization and impairment     (600,908 )     (533,462 )
                 
Net     539,739       697,269  
                 
Residual value   $ 539,739     $ 697,269  

 

Our acquisition of Dragon Design Ltd (“Dragon”) in December 2008 resulted in the valuation of Dragon’s customer relationships and covenants not to compete as intangible assets (see Note 14), which have an estimated useful life of 3 years each, and as such are being amortized on a straight-line basis over that period. In addition, we recognized goodwill of $282,533 that represents the excess of the purchase price we paid over the fair value of Dragon’s net tangible and intangible assets we acquired.

 

Our acquisition of the assets of Tactical Intelligence, LLC (“Tactical”) in November 2008 resulted in the valuation of Tactical’s customer relationships and covenants not to compete as intangible assets (see Note 14), which have an estimated useful life of 3 years each, and as such are being amortized monthly over that period. In addition, we recognized goodwill of $142,430 that represents the excess of the purchase price we paid over the fair value of Tactical’s net tangible and intangible assets acquired.

 

Estimated annual future amortization expense as of October 31, 2010 is as follows:

 

2011   $ 92,427  
2012     83,375  
2013     80,766  
2014     80,766  
2015 and thereafter     202,406  
         
Total   $ 539,739  

 

Amortization of patents, customer relationships, non-compete agreements and licenses included as a charge to income amounted to $178,165 and $231,321 for the years ended October 31, 2010 and 2009, respectively. Goodwill is not being amortized.

 

As a result of the acquisitions of Martech, Colmek, Dragon and Tactical, the Company has goodwill in the amount of $3,382,108 as of October 31, 2010 and $3,524,538 as of October 31, 2009. The changes in the carrying amount of goodwill for the period ended October 31, 2010 and year ended October 31, 2009 are recorded below.

 

    2010     2009  
Beginning goodwill balance at November 1:                
Coda Octopus Colmek, Inc.   $ 2,038,669     $ 2,038,669  
Coda Octopus Martech Ltd     998,591       998,591  
Coda Octopus Products Ltd     62,315       62,315  
Goodwill recorded upon acquisition:                
Coda Octopus Tactical Intelligence, Inc.     -       142,430  
Dragon Design Ltd     282,533       282,533  
                 
Balance at October 31, 2010 and 2009   $ 3,382,108     $ 3,524,538  

 

Considerable management judgment is necessary to estimate fair value. We enlisted the assistance of an independent valuation consultant to determine the values of our intangible assets and goodwill, both at the dates of acquisition and at dates thereafter. Based on various market factors and projections used by management, actual results could vary significantly from management’s estimates.

 

The Company’s policy is to test its goodwill balances for impairment on an annual basis, in the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

 

As disclosed in the Company’s prior filings, the historic goodwill assets arose chiefly from the acquisition of two wholly owned subsidiaries that comprise the Company’s professional services reporting units- Martech and Colmek.

 

The Company performed its regular impairment test according to the pronouncements in ASC 350 “ Intangibles – goodwill and other” for the years ended October 31, 2010 and 2009 by an experienced consultant.

 

During the year ended October 31, 2010, the Company impaired $142,430 goodwill related to Coda Octopus Tactical Intelligence, Inc.

 

There has been no change in the regulatory or legal environment that would have a negative impact on the Martech or Colmek’ operations.

 

Based on these evaluations, the fair value of goodwill exceeds its Carrying book value. As such no impairment was recorded by management.

 

See Note 16 of the Consolidated Financial Statement for current information on the operations of Dragon Design Limited and Coda Octopus Tactical Intelligence, Inc.