Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

5. GOODWILL AND INTANGIBLE ASSETS

Identifiable intangible assets

The changes in the carrying amount of intangible assets for the year ended December 31, 2018 and 2017 were as follows:

	2018			2017
Balance at beginning of year	$	463,578		$	2,154,563
Deduction: Impairment charge		-			(1,375,422	)
Deduction: Amortization expense		(157,003	)		(315,563	)
Balance at end of year	$	306,575		$	463,578

The following table sets forth the components of intangible assets as of December 31, 2018 and 2017:

			As of December 31, 2018
	Estimated		Adjusted
	Useful		Carrying		Accumulated
	Life		Amount		Amortization			Net
Trade name		2 years	$	286,590	$	(278,825	)	$	7,765
Patents and copyrights		2-17 years		954,915		(746,229	)		208,686
Non-contractual customer relationships		2-10 years		2,431,655		(2,341,531	)		90,124
			$	3,673,160	$	(3,366,585	)	$	306,575

	As of December 31, 2017
	Adjusted
	Carrying		Accumulated
	Amount		Amortization			Net
Trade name	$	339,590	$	(324,060	)	$	15,530
Patents and copyrights		954,915		(711,781	)		243,134
Non-contractual customer relationships		2,431,655		(2,226,741	)		204,914
	$	3,726,160	$	(3,262,582	)		463,578

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

	Years Ended December 31,
	2018		2017
Cost of sales	$	129,496	$	236,651
General and administrative		27,507		78,912
	$	157,003	$	315,563

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

2019	$	132,336
2020	$	24,980
2021	$	24,980
2022	$	24,980
2023	$	24,980

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

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 as of December 31, 2018 and 2017. This goodwill resulted from the acquisition of Mobilisa, Inc. and Positive Access Corporation.

For the years ended December 31, 2018 and 2017, 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. The Company performed the first step of the goodwill impairment test to identify potential impairment by comparing fair value of the Company to its carrying amount, including goodwill. The fair value was determined using the weighting of certain valuation techniques, including both income and market approaches which include a discounted cash flow analysis, an estimation of an implied control premium, in addition to the Company’s market capitalization on the measurement date. The implied control premium selected was developed based on certain observable market data of comparable companies. The market capitalization is sensitive to the volatility of the Company’s stock price. Although the Company believes that the factors considered in the impairment analysis are reasonable, changes in any one of the assumptions used could have produced a different result which may have led to an impairment charge. Any future impairment loss could have a material adverse effect on our long-term assets and operating expenses in the period in which impairment is determined to exist.

For the years ended December 31, 2018 and 2017, the Company determined that the fair value was more than its carrying amount and therefore the second step of the goodwill impairment test was not required.

Accumulated impairment charges on goodwill through December 31, 2018 are $30,085,862.