GOODWILL AND OTHER INTANGIBLES

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

NOTE E - GOODWILL AND OTHER INTANGIBLES

At December 31, 2011 and December 31, 2010 respectively, intangible assets consisted of the following:

	2011			2010
Goodwill associated with the acquisition of WQN, Inc.	$	-		$	367,589
Goodwill associated with the acquisition of Data Jack, Inc.		669,957			669,957
Goodwill associated with the acquisition of Syncpointe Inc.		-			3,017,142
		669,957			4,054,688
Less: impairment charges		-			(3,384,731	)
Goodwill, net of impairment charges		669,957			669,957
Acquisition of 800.com domain name		317,500			317,500
Acquisition of M2M domain names		88,827			88,827
Acquisition of DataJack.com domain name		56,000			56,000
Acquisition of Sparkfly.com		25,000			-
Sub total		487,327			462,327
Less accumulated amortization		(99,788	)		(53,439	)
Other intangibles, net of accumulated amortization		387,539			408,888
Goodwill and other intangibles, net	$	1,057,496		$	1,078,845

Amortization expense for the years ended December 31, 2011 and 2010 amounted to $46,349 and $45,501, respectively.

Estimated Future Amortization Expense as of December 31, 2011:

Years Ended December 31,	Amount
2012	$	48,733
2013		48,733
2014		48,733
2015		48,733
2016 and thereafter		192,607
Total	$	387,539

On August 4, 2010, the Company and the original Data Jack sellers amended the Membership Purchase Agreement dated December 9, 2009, whereby the consideration was reduced from 1,500,000 to 500,000 shares of the Company’s restricted common stock, with the 1,000,000 reduced shares redeemed by the Company. The Data Jack goodwill was correspondingly reduced from $1,919,957 to $669,957.

In August 2009, the Company issued 25,000 of its common shares, valued at $67,500, to acquire an option to purchase the URL 800.com (the “800 Domain Name”). Steven Ivester, an agent of iTella, Inc., (“Assignor”), subsequently acquired the 800 Domain Name in a Bankruptcy Court auction for the sum of $250,000. The acquisition was made for the benefit of the Company. Effective September 30, 2009, in return for the Company reimbursing to Assignor his $250,000 cost, Assignor assigned to the Company all right, title and interest in and to the 800 Domain Name. The total cost of the 800 Domain Name was $317,500 which is less than its estimated fair value, and is being amortized over a period of 10 years.

In December 2009, the Company purchased the URL DataJack.com (the “DataJack Domain Name”) for a cash payment of $30,000, plus a commitment to issue 10,000 of the Company’s common shares which were valued at $26,000.  These shares were issued on May 4, 2010.  The total cost of the DataJack Domain Name was $56,000 which is less than its estimated fair value, and is being amortized over a period of 10 years.

In January 2010, the Company purchased the URL machine2machine.com and similarly-named domains (the "M2M Domain Names”) for a cash payment of $25,377, plus 25,000 of the Company’s common shares, which were valued at $62,250.  The total cost of the M2M Domain Names plus other domain names purchased in 2010 was $88,827 which is less than their estimated fair value, and is being amortized over a period of 10 years.

In December 2011, the Company purchased the Domain Name Sparkfly.com from Ran Birkins for a cash payment of $5,000, plus 40,000 of the Company’s restricted common shares.  The total cost of the transaction was recorded at $25,000.  The Company has guaranteed that the value of the 40,000 shares will be at least fifty cents per share ($0.50) on June 14, 2012.  If the closing price of the stock on June 14, 2012 is less than fifty cents per share ($0.50), the Company will issue additional shares of Quamtel stock to Ran Birkins so that the total value of the stock issued is at least $20,000. The $25,000 purchase cost of the Sparkfly.com Domain Name is being amortized over a period of 10 years.

During the year ended December 31, 2010 the Company recorded an impairment charge to its operating results of $3,384,731 relating to goodwill previously recorded for its WQN and Syncpointe acquisitions, due primarily to the Company’s inability to secure sufficient rights to related software since its acquisition of Syncpointe, and to management’s assessment of operating results and forecasted discounted cash flows for WQN. These impairment charges reduced the carrying value of the subsidiaries to their estimated fair value, eliminating all related goodwill.

Effective June 6, 2011, the Company sold substantially all of the assets of Syncpointe to an unrelated third party (the “Purchaser”) for two cash payments totaling $175,000. In conjunction with this transaction, the Purchaser assumed Syncpointe’s $115,000 liability (original liability of $165,000 was settled for $115,000 pursuant to agreement dated May 27, 2011) to a software vendor (“Vendor”), and the Company issued to the Vendor, as partial consideration for this assumption, 15,000 shares of its restricted common stock.  As a condition to closing this asset sale, the Company placed 200,000 shares of its common stock in escrow, pending the Purchaser’s taking full possession of Syncpointe software related assets held by the Vendor. The Syncpointe assets did not generate any revenues for the Company in 2011 or 2010.

Considerable management judgment is necessary to estimate fair value. As of December 31, 2010, the Company enlisted the assistance of an independent valuation consultant to determine the values of its intangible assets and goodwill. After testing the carrying value of its goodwill and its other intangible assets, management determined that no impairment charges needed to be recorded during the year ended December 31, 2011.

The remaining estimated fair value of our goodwill could change if the Company is unable to achieve operating results at the levels that have been forecasted, the market valuation of our business decreases based on transactions involving similar companies, or there is a permanent, negative change in the market demand for the services offered by the Company. These changes could result in an impairment of the existing goodwill balance that could require a material non-cash charge to the Company’s results of operations.