Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2014

Goodwill and Other Intangible Assets [Abstract]

4. Goodwill and Intangible Assets

Goodwill

Changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2013 were as follows (in thousands):

Net book value at December 31, 2012	$	4,502

2013 Activity
Goodwill impairment loss		(4,462	)
Foreign currency translation		(40	)

Net book value at December 31, 2013	$	-

2014 Activity
Acquisition		5,612

Net book value at December 31, 2014	$	5,612

We review goodwill for impairment annually as of November 30 and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. We test goodwill at the reporting unit level. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. generally accepted accounting principles. After the acquisition of Hyperspring, LLC ("Hyperspring") on November 14, 2014, our reporting units are: (i) Performance Improvement Solutions and (ii) Staff Augmentation. At December 31, 2014, the total $5.6 million balance of goodwill was represented by Hyperspring or our Staff Augmentation segment.

Accounting Standards Update ("ASU") 2011-08, Testing Goodwill for Impairment ("ASU 2011-08") permits an entity 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 goodwill impairment test. Under ASU 2011-08, an entity is not required to perform step one of the goodwill impairment test for a reporting unit if it is more likely than not that its fair value is greater than its carrying amount. For our annual goodwill impairment test, we performed a qualitative assessment as permitted by ASU 2011-08 for the Staff Augmentation reporting unit. Based on the reporting unit's positive revenue, order and gross margin results since the acquisition, we determined that it was more likely than not that the fair values of each of our reporting units exceeded their respective carrying values.

Based upon indicators of impairment in the second quarter of 2013, which included a substantial decrease in the Company's market capitalization following the announcement of the Company's first quarter 2013 earnings, and significantly lower than projected revenue and profits as a result of a change in market conditions, the Company performed an interim impairment test as of June 30, 2013.

The fair value of our reporting unit was estimated using a combination of appropriately weighted income and market approaches. The cash flows employed in the income approach were based on our most recent forecasts and business plans developed in the second quarter of 2013, as well as various growth rate assumptions for the years beyond the current business plan period, discounted using an estimated weighted average cost of capital ("WACC"). The WACC is comprised of (1) a risk free rate of return, (2) an equity and size risk premium that is based on the rate of return on equity of publicly traded companies with business characteristics comparable to our reporting unit, (3) the current after-tax market rate of return on debt of companies with business characteristics similar to our reporting unit, each weighted by the relative market value percentages of our equity and debt, and (4) an industry and specific company risk factor.

The results of the ASC 350 Step 1 goodwill impairment analysis indicated that the estimated fair value of our reporting unit was less than the carrying value. The reporting unit was unfavorably impacted by a combination of lower current and projected cash flows. Because our reporting unit's fair value estimate was lower than its carrying value, we applied the second step of the goodwill test, in accordance with ASC 350.

The second step of the goodwill impairment analysis indicated that the carrying values of the goodwill associated with the reporting unit exceeded its implied fair value resulting in a $4.5 million non-deductible goodwill impairment charge. As a result of the analysis, the company recorded a full impairment loss. The impairment was non-cash in nature and did not affect the Company's current liquidity, and did not impact the debt covenants under the Company's existing credit facility.

Intangible Assets Subject to Amortization

The following table shows the gross carrying amount and accumulated amortization of definite-lived intangibles related to continuing operations:

(in thousands)	As of December 31, 2014
	Gross Carrying Amount			Accumulated Amortization				Net
Amortized intangible assets:
Customer relationships		$	1,425		$	(695	)		$	730
Non-contractual customer relationships			911			(618	)			293
Developed technology			471			(236	)			235
In process research and development			152			(136	)			16
Contract backlog			36			(36	)			-
Trade names and other			29			(29	)			-
Foreign currency translation			7			(2	)			5
Total		$	3,031		$	(1,752	)		$	1,279

(in thousands)	As of December 31, 2013
	Gross Carrying Amount			Accumulated Amortization				Net
Amortized intangible assets:
Customer relationships		$	646		$	(646	)		$	-
Non-contractual customer relationships			911			(557	)			354
Developed technology			471			(177	)			294
In process research and development			152			(127	)			25
Contract backlog			36			(36	)			-
Trade names and other			29			(29	)			-
Foreign currency translation			52			(16	)			36
Total		$	2,297		$	(1,588	)		$	709

Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets, except for contractual customer relationships and contract backlog, which is recognized in proportion to the related projected revenue streams. The Company reviews specific definite-lived intangibles for impairment when events occur that may impact their value in accordance with the respective accounting guidance for long-lived assets. There were no impairment charges recorded for the years ended December 31, 2014, and 2013.

Amortization expense related to definite-lived intangible assets totaled $193,000, and $207,000 for the years ended December 31, 2014, and 2013, respectively. The following table shows the estimated amortization expense of the definite-lived intangible assets for the next five years and thereafter:

(in thousands)
Fiscal year ending:
2015	$	494
2016		296
2017		207
2018		160
2019		74
Thereafter		48
	$	1,279

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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