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GOODWILL AND INTANGIBLE ASSETS | 12 Months Ended
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Dec. 31, 2014
Goodwill and Intangible Assets Disclosure [Abstract] |
Goodwill and Intangible Assets Disclosure [Text Block] |
| 5. | GOODWILL AND INTANGIBLE ASSETS
Identifiable intangible assets The changes in the carrying amount of intangible assets for the year ended December 31, 2014 and 2013 were as follows:
|  | 2014 |  | 2013 |
Balance at beginning of year |  | $ | 3,724,354 |  | $ | 4,631,577 |
Addition: Non-compete agreement |  |  | 587,500 |  |  | - |
Deduction: Amortization expense |  |  | (1,004,057) |  |  | (907,223) |
Balance at end of year |  | $ | 3,307,797 |  | $ | 3,724,354 |
The Company has recorded the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach. The following table sets forth the components of these intangible assets as of December 31, 2014 and 2013:
|  |  |  | As of December 31, 2014 |
|  | Estimated |  | Adjusted |  |  |  | Net Amount |
|  | Useful |  | Carrying |  | Accumulated |  | as of |
|  | Life |  | Amount |  | Amortization |  | 12/31/2014 |
Trade name |  | 20 years |  | $ | 704,458 |  | $ | (291,877) |  | $ | 412,581 |
Patents and copyrights |  | 17 years |  |  | 1,117,842 |  |  | (511,698) |  |  | 606,144 |
Non-compete agreements |  | 15 months |  |  | 897,500 |  |  | (427,500) |  |  | 470,000 |
Developed technology |  | 7 years |  |  | 3,941,310 |  |  | (3,829,900) |  |  | 111,410 |
Backlog |  | 3 years |  |  | 303,400 |  |  | (303,400) |  |  | - |
Non-contractual customer relationships |  | 15 years |  |  | 3,268,568 |  |  | (1,560,906) |  |  | 1,707,662 |
|  |  |  | $ | 10,233,078 |  | $ | (6,925,281) |  |  | 3,307,797 |
|  | As of December 31, 2013 |
|  | Adjusted |  |  |  | Net |
|  | Carrying |  | Accumulated |  | as of |
|  | Amount |  | Amortization |  | 12/31/2013 |
Trade name |  | $ | 704,458 |  | $ | (260,641) |  | $ | 443,817 |
Patents and copyrights |  |  | 1,117,842 |  |  | (454,421) |  |  | 663,421 |
Non-compete agreements |  |  | 310,000 |  |  | (268,667) |  |  | 41,333 |
Developed technology |  |  | 3,941,310 |  |  | (3,295,135) |  |  | 646,175 |
Backlog |  |  | 303,400 |  |  | (303,400) |  |  | - |
Non-contractual customer relationships |  |  | 3,268,568 |  |  | (1,338,960) |  |  | 1,929,608 |
|  | $ | 9,645,578 |  | $ | (5,921,224) |  | $ | 3,724,354 |
The following summarizes amortization of acquisition related intangible assets included in the statement of operations:
|  |  | Years Ended December 31, |
|  |  | 2014 |  | 2013 |
Cost of sales |  |  | 724,044 |  | $ | 771,416 |
General and administrative |  |  | 280,013 |  |  | 135,807 |
|  |  | 1,004,057 |  | $ | 907,223 |
The Company expects that amortization expense for the next five succeeding years will be as follows:
2015 |  | $ | 699,584 |
2016 |  | $ | 310,458 |
2017 |  | $ | 310,458 |
2018 |  | $ | 310,458 |
2019 |  | $ | 310,458 |
These amounts are subject to change based upon the review of recoverability and useful lives that are performed at least annually. The Company discovered an error in the fourth quarter relating to the amortization of intangible assets which resulted in the understatement of amortization expense in the first, second and third quarters of 2014 totaling $336,219. The Company determined that the effect of the misstatement was not material and therefore recorded the adjustment in the fourth quarter 2014. Goodwill The excess of the purchase consideration over the fair value of the assets of acquired businesses is considered goodwill. Under authoritative guidance, purchased goodwill is not amortized, but rather it is periodically reviewed for impairment. The Company had goodwill of $8,101,661 and $12,308,661, respectively, at December 31, 2014 and 2013. This goodwill resulted from the acquisition of Mobilisa, Inc. and Positive Access Corporation. For the years ended December 31, 2014 and 2013, the Company performed its annual impairment test of goodwill in the fourth quarter. Under authoritative guidance, the Company can use industry and Company specific qualitative factors to determine whether it is more likely than not that impairment exists, before using a two-step quantitative analysis. Events or changes in circumstances which could trigger an impairment review include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, other entity specific events and sustained decrease in share price. For the year ended December 31, 2014, after a review of these qualitative factors, the Company determined that it was necessary to perform a two-step quantitative analysis. The first step is to compare the fair value of the Company’s reporting unit, including goodwill to its carrying value. The Company has one reporting unit. If the fair value of the reporting unit exceeds its carrying amount, goodwill is considered not impaired otherwise, there is an indication that goodwill may be impaired and the amount of loss, if any is measured by performing step two. Under step two, the impairment loss, if any, is measured by comparing the implied fair value of the reporting unit goodwill with the carrying amount of Goodwill. The fair value of the Company was determined using various assumptions and the utilization of the income and market valuation approaches. Based upon the Company’s Step 1 analysis it was probable that the carrying value was in excess of its fair value at December 31, 2014. Completion of Step 2 of the goodwill impairment indicated a reduction in the fair value of goodwill and resulted in the Company recording an impairment charge of $4,207,000 in the fourth quarter 2014. The Company also considered the realizability of long-lived assets and intangible assets at December 31, 2014 and noted that no impairment of such assets was required.

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