GOODWILL AND INTANGIBLE ASSETS AND IMPAIRMENT

12 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

5. GOODWILL AND INTANGIBLE ASSETS AND IMPAIRMENT

Goodwill

The carrying value of goodwill was $12,308,661 for both the years ended December 31, 2012 and 2011.

Identifiable intangible assets

The changes in the carrying amount of intangible assets for the year ended December 31, 2012 and 2011 were as follows:

	2012			2011
Balance at beginning of year	$	5,551,149		$	6,494,134
Amortization expense		(919,572	)		(942,985	)
Balance at end of year	$	4,631,577		$	5,551,149

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, 2012 and 2011:

			As of December 31, 2012
	Estimated		Adjusted					Net
	Useful		Carrying		Accumulated			as of
	Life		Amount		Amortization			12/31/2012
Trade name		20 years	$	704,458	$	(229,975	)	$	474,483
Patents and copyrights		17 years		1,117,842		(396,575	)		721,267
Non-compete agreements		5 years		310,000		(206,667	)		103,333
Developed technology		7 years		3,941,310		(2,760,370	)		1,180,940
Backlog		3 years		303,400		(303,400	)		-
Non-contractual customer relationships		15 years		3,268,568		(1,117,014	)		2,151,554
			$	9,645,578	$	(5,014,001	)	$	4,631,577

	As of December 31, 2011
	Adjusted					Net
	Carrying		Accumulated			as of
	Amount		Amortization			12/31/2011
Trade name	$	704,458	$	(186,390	)	$	518,068
Patents and copyrights		1,117,842		(339,298	)		778,544
Non-compete agreements		310,000		(144,667	)		165,333
Developed technology		3,941,310		(2,225,605	)		1,715,705
Backlog		303,400		(303,400	)		-
Non-contractual customer relationships		3,268,568		(895,069	)		2,373,499
	$	9,645,578	$	(4,094,429	)	$	5,551,149

The following summarizes amortization of acquisition related intangible assets included in the statement of operations:

	Years Ended December 31,
	2012		2011
Cost of sales	$	771,416	$	784,749
General and administrative		148,156		158,236
	$	919,572	$	942,985

The Company expects that amortization expense for the next five succeeding years will be as follows:

2013	$	907,223
2014	$	416,656
2015	$	310,458
2016	$	310,458
2017	$	310,458

These amounts are subject to change based upon the review of recoverability and useful lives that are performed at least annually.

Goodwill and Intangible Asset Impairment

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 $12,308,661 at December 31, 2012 and December 31, 2011. This goodwill resulted from the acquisitions of Mobilisa, Inc. and Positive Access Corporation.

For the years ended December 31, 2012 and 2011, the Company performed its annual impairment test of goodwill and concluded that no impairment charge was required for either year. 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. For the year ended December 31, 2011, the Company determined that no impairment was necessary based on the below qualitative factors:

· Macroeconomic conditions

· Industry and market considerations

· Cost factors

· Overall financial performance

· Other entity-specific events

· Sustained decrease in share price

For the year ended December 31, 2012, after a review of these qualitative factors, the Company determined that it was prudent to perform a two-step quantitative analysis. The first step is to compare the fair value of the Company’s reporting unit, as calculated by its market capitalization, to its carrying value. If the fair value is lower, the second step is to calculate the fair value of the Company’s reporting unit based on a combined income approach using the discounted cash flow methodology, and the market approach based upon the market capitalization of the Company. In the first step, the Company determined that the fair value of its reporting unit was higher than its carrying value, at 102%. Furthermore, the Company believes that the stock price at December 31, 2012, was artificially deflated because of certain factors. Because of this analysis, no second step was deemed necessary. Management’s evaluation of the first step determined that no goodwill impairment charge was required as of December 31, 2012.

Market capitalization is a relevant and objective, but not conclusive, indicator of the Company’s fair value considered in our evaluation of goodwill impairment. During the two-month period around December 31, 2012, the Company’s closing stock prices fluctuated from a low of $.57 to a high of $.94. As directed by authoritative guidance, we evaluated the trading activity in the Company’s common stock, including the trading volume. The Company’s stock is thinly traded with relatively small float. As a result, small trading volumes can have a significant effect on the price of our common stock. Based on this evaluation, the results of this approach indicated a fair value in excess of carrying value.

The Company also considered whether long-lived assets including intangibles were also impaired. These assets are stated at cost, less accumulated amortization, which is provided for by charges to income on a basis consistent with the utilization of the assets over their useful lives. The carrying value of intangible and long-lived assets is reviewed periodically by the Company for the existence of facts or circumstances that may suggest impairment. If such circumstances exist, the Company would estimate the future, undiscounted cash flows associated with the asset, and compare that to the carrying value. If the carrying value exceeds the estimated cash flows, the asset would be written down to its estimated fair value. As of December 31, 2012 and 2011, the Company determined that there was no impairment of intangible assets.