GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

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.