Note G - Resalable Software Licenses Rights

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Research, Development, and Computer Software Disclosure [Text Block]

NOTE G—RESALABLE SOFTWARE LICENSES RIGHTS

On

November 11, 2015,

the Company entered into a license agreement for the rights to all software and documentation regarding the technology currently known as or offered under the FingerQ name. The license agreement grants the Company the exclusive right to reproduce, create derivative works and distribute copies of the FingerQ software and documentation, create new FingerQ related products, and grant sub-licenses of the licensed technology to end users. The license rights have been granted to the Company in perpetuity, with a stated number of end-user resale sub-licenses allowed under the contract for a total of

$12,000,000.

The Company initially determined the software license rights to be a finite lived intangible asset, and estimated that the software license rights shall be economically used over a

10

year period, with a weighting towards the beginning years of that time-frame. The license rights were acquired during the

fourth

quarter of

2015,

but the usage of such rights in the Company’s products was

not

generally available until

January 2017.

Accordingly, amortization began in the

first

quarter of

2017.

Through

December 31, 2018,

the license rights were amortized over the greater of the following amounts:

1

) an estimate of the economic use of such license rights,

2

) the amount calculated by the straight line method over

ten

years or

3

) the actual cost basis of sales usage of such rights. After re-evaluation of the expected timeline of future license transactions, commencing

January 1, 2019,

the Company changed its amortization methodology to the greater of the straight-line methodology or actual unit cost per license sold based on net remaining software licenses as of

January 1, 2019.

The Company categorized the amortization expense under Cost of Sales as it more closely reflected the nature of the license right arrangement and the use of the technology.

During the

fourth

quarter of

2019,

the Company re-evaluated the recoverability of the carrying amount of the balance of license rights, and concluded that there were

no

significant undiscounted cashflows expected to be generated from the future sale of the license rights. Accordingly, an impairment charge of

$6,957,516

was recorded in the

fourth

quarter of

2019,

which reduced the carrying amount of the FingerQ license rights down to zero. Throughout the year, the Company attempted to sell the technology into the mobile market in Asia, but due to, among other things, the trade tension between the US and China, management concluded that the future amortization would

not

represent an accurate cost to the ongoing business, without corresponding revenue.

A total of

$843,888

(prior to the impairment charge detailed above), and

$2,640,000

was expensed during the

twelve

month periods ended

December 31, 2019

and

2018,

respectively. Since the license purchase, a cumulative amount of

$12,000,000

has been expensed, with a carrying balance of

$0

as of

December 31, 2019.

On

December 31, 2015,

the Company purchased

third

-party software licenses in the amount of

$180,000

 in anticipation of a large pending deployment that has yet to materialize. The Company is amortizing the total cost over the same methodology described above with the greatest of the actual sales or straight-line method approaches being the actual sales through

2019.

A total of

$40,404,

and

$18,198

was expensed during the

twelve

month periods ended

December 31, 2019

and

2018,

respectively. Since the license purchase, the actual per unit cost (actual usage) of such license rights in the cumulative amount of

$106,198

net of credits has been expensed, with a carrying balance of

$73,802

as of

December 31, 2019. 

The Company has classified the balance as non-current until a larger deployment occurs. Software license rights is comprised of the following as of:

	201 9		201 8
Current software license rights	$	-	$	1,125,000
Non-current software license rights		73,802		6,790,610
Total software license rights	$	73,802	$	7,915,610

Estimated minimum amortization expense based on straight line amortization of the software license rights for each of the next

five

years and thereafter approximates the following:

Years ending December 31
2020	$	18,000
2021	$	18,000
2022	$	18,000
2023	$	18,000
2024	$	1,802