Goodwill

12 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill Disclosure [Text Block]

8. Goodwill

The Company’s goodwill recorded relates to the Managed Mobility Solutions and Cybersecurity Solutions segments. The Company evaluates goodwill for impairment annually as of December 31st and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step quantitative goodwill impairment test or bypass the qualitative assessment for any reporting period and proceed to performing the first step of the two-step goodwill impairment test. The Company elected to bypass the qualitative assessment for the fiscal year ended December 31, 2012.

Goodwill impairment testing involves management judgment, requiring an assessment of whether the carrying value of the reporting unit can be supported by its fair value using widely accepted valuation techniques. The quantitative goodwill impairment test utilizes a two-step approach. The first step identifies whether there is potential impairment by comparing the fair value of a reporting unit to the carrying amount, including goodwill. If the fair value of a reporting unit is less than its carrying amount, the second step of the impairment test is required to measure the amount of any impairment loss.

The Company uses a combination of the income approach (discounted cash flow method) and market approach (market multiples). When preparing discounted cash flow models under the income approach, the Company uses internal forecasts to estimate future cash flows expected to be generated by the reporting units. Our internal forecasts are developed using observable (Level 2) and unobservable (Level 3) inputs. Actual results may differ from forecasted results. When preparing the market approach the Company may adjust market multiples to reflect the Company’s risk profile and other factors deemed appropriate to properly apply the market approach.

The Company uses the expected weighted average cost of capital, estimated using a capital asset pricing model, to discount future cash flows for each reporting unit. Our cost of equity estimate is developed using a combination of observable (Level 2) and unobservable (Level 3) inputs with appropriate adjustments that take into consideration our risk profile and other factors deemed appropriate. The Company believes the discount rates used appropriately reflect the risks and uncertainties in the financial markets generally and specifically in the Company’s internally developed forecasts. Further, to assess the reasonableness of the valuations derived from the discounted cash flow models, the Company also analyzes market-based multiples for similar industries of the reporting unit, where available.

As of December 31, 2012 and 2011, goodwill was not impaired and there were no accumulated impairment losses.

The changes in the carrying amount of goodwill were as follows for the years ended:

	DECEMBER 31
	2012		2011
Beginning balances, January, 1	$	16,618,467	$	11,329,917
Additions:
Additional earnout purchase consideration in connection with iSYS Membership Intrest Purchase Agreement dated dated January 4, 2008 (1)		—		500,212
Acquisition of Avalon Global Solutions, Inc. (2)		—		4,941,338
Reductions:
Purchase adjustment related to Vuance earn-out  liability reduction (3)		—		(153,000	)
Ending balances, December, 31	$	16,618,467	$	16,618,467

(1) The Membership Interest Purchase Agreement (the “Membership Agreement”) between the Company, iSYS, LLC and Jin Kang, dated January 4, 2008 contained a 3-year earnout provision for up to $6.0 million of additional consideration payable half in cash and common stock. Under the terms of the Membership Agreement the earnout was measured annually between 2008 and 2011 and awarded within 30 days following the end of the Company’s fiscal year and filing of the Company’s Form 10-K for that year. Fiscal 2011 was the last year of the earnout and the Company recognized additional purchase consideration of $500,212, of which the Company issued common stock and recorded a liability of $204,229 and $295,983, respectively. For the years ended December 31, 2012 and 2011, the Company paid additional cash consideration of $295,983 and $445,740, respectively.

(2) The Company entered into an Asset Purchase Agreement (“APA”) with Avalon Global Solutions, Inc. (“AGS”) on December 30, 2011 and recorded goodwill as described in Note 3 to the consolidated financial statements.

(3) There was no additional consideration paid in fiscal years 2011 or 2012 as ARCC did not meet its minimum qualified revenues of at least $4,000,000 per year. As such the Company reversed the contingent consideration liability of $153,000 previously recorded on the consolidated balance sheets under the caption “fair value earnout liability” during fiscal 2010.