NOTE 6 — GOODWILL AND INTANGIBLE ASSETS

Goodwill represents the excess cost over fair value of the net assets of acquired businesses and is not amortized. The Company performs an impairment assessment of goodwill annually during the fourth quarter of its fiscal year with a valuation date of  November 1, or more frequently if a triggering event occurs.

The Company’s intangible assets consist of client relationships, acquired and developed technology, and trade names. These assets are recorded at cost, less accumulated amortization and impairment, if any. All the Company’s intangible assets are definite lived and amortized on a straight-line basis over their estimated useful lives. Subsequent testing of intangible assets is conducted when a triggering event occurs that would indicate impairment  may exist.

During the quarter ended October 31, 2024, the Company's market capitalization fell below the Company's carrying value of equity for a prolonged period of time (the “2024 Triggering Event”). Based on the 2024 Triggering Event, the Company identified indicators of possible impairment and initiated testing using a valuation date of  October 31, 2024. The impairment tests were conducted under guidance of ASC Topic 360, Impairment and Disposal of Long-Lived Assets (“ASC 360”) for certain long-lived assets, including capitalized contract costs, developed technology, client relationships and trade names, and in accordance with ASC Topic 350, Intangibles – Goodwill and Other (“ASC 350”) with respect to the reporting unit’s goodwill.

In  October 2023, the Company was notified by a legacy client of its intent to not renew its contract as of its end date on  December 31, 2023. The Company also announced the acceleration of its Strategic Restructuring that was designed to reduce costs while maintaining the Company’s ability to expand its SaaS business. Both the client termination and the execution of the Strategic Restructuring were announced on  October 16, 2023. Following these announcements, the Company’s share price declined significantly (collectively, the “2023 Triggering Events”). Based on the 2023 Triggering Events, the Company identified indicators of possible impairment and initiated testing using a valuation date of  October 31, 2023. The impairment tests were conducted under guidance of ASC 360 for certain long-lived assets, including capitalized contract costs, developed technology, client relationships and trade names, and in accordance with ASC 350.

Goodwill

The changes in the carrying amount of goodwill were as follows for fiscal 2024 and 2023:

The Company had one reporting unit for purposes of evaluation of goodwill. Based on the Triggering Events and in conjunction with the preparation of the Company’s financial statements for the nine months ended October 31, 2024 and 2023, the Company tested the reporting unit’s goodwill for possible impairment as of October 31, 2024 and October 31, 2023. The testing for impairment was performed under the guidance of ASC 350. The testing utilized a discounted debt-free net cash flow (“DCF”) method under the income approach and the market capitalization method (“MCM”) under the market approach. The sum of the weighted values of each method was used to derive the fair value of the Company’s equity.

The MCM calculates the aggregate market value of the Company based on the total number of shares outstanding and the current market price of the shares as of the valuation date. Data on similar mergers and acquisitions within the healthcare technology sector are observed to determine control premium that represents a stock premium percentage offered by an acquirer to a public company. The control premium applied to the aggregate market value represents MCM calculated fair value.

The DCF incorporates the use of projected financial information and a discount rate using a weighted average cost of capital with cost of equity estimated based on the capital asset pricing model. The cash-flow projections are based on financial forecasts developed by management that include forecasts of future operating results based on internal budgets and strategic plans to invest in working capital to support anticipated revenue growth. External factors and business conditions are considered by management when setting the long-term growth rates. The selected discount rate considers the risk and nature of the reporting unit’s cash flows and the rates of return market participants would require to invest their capital in the Company.

Based on the impairment test following the 2024 Triggering Event, the Company concluded that its goodwill was not impaired as of  October 31, 2024. Based on the impairment test following the 2023 Triggering Events, the Company concluded that its goodwill was impaired as of  October 31, 2023, based on the weighted combination of the DCF and MCM value estimates which resulted in a calculated fair value lower than the equity carrying value. The Company recorded an impairment of goodwill in the amount of $9,813,000 reported as “Goodwill Impairment” on its Condensed Consolidated Statement of Operations for the nine-month period ended  October 31, 2023. 

Intangible assets for fiscal 2024 and 2023 consist of the following:

ASC 360 defines a multi-step process to test long-lived assets, including intangible assets, for recoverability that if failed would indicate impairment. First, the Company must consider whether indicators of impairment of long-lived assets are present, which the Company determined the 2023 Triggering Event provided such indication.

Next, the Company must review the long-lived assets to define asset group(s) that would reflect the lowest level of assets to which discrete cash flows are identifiable. In performing this review, the Company identified that the long-lived asset “client relationships” related to Avelead should be classified as abandoned (the “Abandoned Asset”) with the Company determining that it no longer has plans to provide the corresponding consulting service. The Abandoned Asset’s carrying value would need to be set to its salvage value which would be zero given no future cash flows.

The Company determined the lowest level of discrete cash flows is at the reporting unit level, and all remaining long-lived assets (excluding the Abandoned Asset) and goodwill would represent its only asset group. Recoverability is assessed by comparing that the sum of the discrete undiscounted cash flows exceeds the carrying value of the asset group. The undiscounted cash flow projections are based on 7-year as of October 31, 2024 (representing the useful life of the primary asset in the asset group) financial forecasts developed by management that include forecasts of future operating results based on internal budgets and strategic plans to investment in working capital to support anticipated revenue growth.

The undiscounted cash flows for the long-lived assets were above the carrying amounts indicating that the long-lived asset group is recoverable and no further impairment to long-lived assets exists as of October 31, 2023. In fiscal 2023, the Company recorded $963,000 as “Impairment of long-lived assets” on its consolidated statement of operations to adjust the Abandoned Asset to its salvage value of zero. There was no impairment to long-lived assets for the year ended January 31, 2025. 

The Company recognized amortization expense on intangible assets of $1,635,000 and $1,760,000 for fiscal 2024 and 2023, respectively.

Amortization over the next five fiscal years for intangible assets is estimated as follows:

The Company wrote-off the Abandoned Asset during fiscal 2023 with a gross asset value of $1,330,000. There was no impact to the consolidated statements of operations as this eliminated the asset and accumulated amortization of the fully amortized intangible assets.