Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Patent Portfolio

The Company’s intangible assets with finite lives consist of its patents and patent rights. For all periods presented, all of the Company’s identifiable intangible assets were subject to amortization. The gross carrying amounts related to acquired intangible assets as of September 30, 2015 are as follows (in thousands, except year amounts):

	September 30, 2015		Weighted average  amortization  period (years)
Patent Portfolios at December 31, 2014, net	$	55,004		5.62
Amortization expenses		5,594
Impairment loss		35,500
Patent Portfolios at September 30, 2015, net	$	13,910		4.88

The accumulated amortization related to acquired intangible assets for the three and nine months ended September 30, 2015 and 2014 are as follows (in thousands, except year amounts):

	Amortization Expense for the Three  Months Ended September 30,				Amortization Expense for the Nine Months  Ended September 30,
Date Acquired and Description	2015		2014		2015		2014
7/24/13 - Rockstar patent portfolio	$	35	$	118	$	268	$	351
9/10/13 - North South patent portfolio		10		33		74		97
12/31/13 - Rockstar patent portfolio		677		2,325		5,252		6,906
	$	722	$	2,476	$	5,594	$	7,354

The Company incurred amortization expense associated with its finite-lived intangible assets of $0.7 million and $2.5 million for the three months ended September 30, 2015 and 2014, respectively. The Company incurred amortization expense associated with its finite-lived intangible assets of $5.6 million and $7.4 million for the nine months ended September 30, 2015 and 2014, respectively.

The Company reviews its patent portfolio for impairment as a single asset group whenever events or changes in circumstances indicate that the carrying value may not be recoverable. During the second quarter of 2015, the Company determined that certain events occurred that were indicators of a potential impairment. In accordance with ASC 360-10, the Company first estimated the future undiscounted cash flows anticipated to be generated by the patent portfolio based on the Company’s current usage and future plans for the patent portfolio over its remaining weighted average useful life. The analysis concluded that the carrying amount of the patent portfolio was not recoverable at June 30, 2015. As a result, the Company performed an analysis to determine if the carrying value of the patent portfolio exceeded its fair value. Considering that the patent portfolio is the Company’s most significant asset and is the foundation of all of its operations, the Company determined that the most appropriate measurement of fair value of the asset group was the aggregate market value of the Company’s common stock. As a result, the Company determined that the fair value of the patent portfolio at June 30, 2015 was approximately $14.6 million, which is comparable to the aggregate market capitalization of the Company as of that date. The Company recorded a $35.5 million impairment charge against its patent portfolio in the second quarter of 2015. The new cost basis of the patent portfolio of $14.6 million will be amortized over its weighted average remaining useful life of 5.13 years. There were no indicators of impairment during the third quarter of 2015.

The future amortization of these intangible assets was based on the adjusted carrying amount. Future amortization of all patents is as follows (in thousands):

	Rockstar		North South		Rockstar
	Portfolio		Portfolio		Portfolio
	Acquired		Acquired		Acquired		Total
	24-Jul-13		10-Sep-13		31-Dec-13		Amortization
Three Months Ended December 31, 2015	$	35	$	10	$	678	$	723
Year Ended December 31, 2016		139		39		2,696		2,874
Year Ended December 31, 2017		138		40		2,688		2,866
Year Ended December 31, 2018		138		40		2,689		2,867
Year Ended December 31, 2019		138		40		2,688		2,866
Thereafter		285		88		1,341		1,714
Total	$	873	$	257	$	12,780	$	13,910

Goodwill

The Company’s market capitalization is sensitive to the volatility of the Company’s stock price. During the six months ended June 30, 2015, the market price of the Common Stock decreased from $1.13 to $0.48. The decline in stock price experienced by the Company was deemed a “triggering” event requiring that goodwill be tested for impairment as of June 30, 2015.

The Company performed its interim goodwill impairment test as of June 30, 2015. The Company performed the first step of the goodwill impairment test as of June 30, 2015 in order to identify potential impairment by comparing the fair value of the reporting unit with its carrying amount, including goodwill. The fair value of the reporting unit is based upon the Company’s market capitalization on the measurement date, June 30, 2015 and also on July 15, 2015 (date of the July 2015 Financing as discussed in Note 9). The Company believes that this is the most appropriate valuation technique for determining the fair value of the reporting unit for various reasons. Most importantly, the Company’s common shares are publicly traded on Nasdaq. Therefore, active quoted market prices can be readily observed and the Company has a widely distributed shareholder base which provides for a substantial amount of daily trading volume. As such, the Company believes that the quoted market price is a good representation of a fair value of one share of the Company, or a fractional interest in the Company.

During the second quarter of 2015, the Company determined that certain events occurred that were indicators of a potential impairment. Based upon the first step of the goodwill impairment test performed as of June 30, 2015, the Company determined that the fair value of the reporting unit was less than its carrying amount and therefore the second step of the goodwill impairment test was required.

In performing the second step of the goodwill impairment test, the Company compared the carrying value of goodwill to its implied fair value. In estimating the implied fair value of goodwill, the Company assigns the fair value of the reporting unit to all of the assets and liabilities associated with the reporting unit as if the reporting unit had been acquired in a business combination. Based on the estimated implied fair value of goodwill, the Company recorded an impairment charge of $1.7 million, to reduce the carrying value of goodwill to its implied fair value, which was determined to be zero. This impairment charge is included in the impairment of goodwill and intangible assets on the condensed consolidated statement of operations for nine months ended September 30, 2015.