NOTE 5. INTANGIBLE ASSETS

Intangible assets consist of in-process research and development (IPR&D) not subject to amortization, and license agreement intangible assets subject to amortization, which were capitalized as a part of a business combination.

IPR&D represents projects that have not yet received regulatory approval and are required to be classified as indefinite assets until the successful completion or the abandonment of the associated R&D efforts. Accordingly, during the development period after the date of acquisition, these assets will not be amortized until approval is obtained in one or more jurisdictions which, individually or combined, are expected to generate a significant portion of the total revenue expected to be earned by an IPR&D project. At that time, we will determine the useful life of the asset, reclassify the asset out of IPR&D and begin amortization. If the associated R&D effort is abandoned the related IPR&D assets will likely be written off and we would record an impairment loss.

Intangible assets not subject to amortization include IPR&D capitalized as part of the business combinations from the acquisitions of Roche Madison and Alvos. We review amounts capitalized as IPR&D for impairment at least annually in the fourth quarter, and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In the event the carrying value of the assets is not expected to be recovered, the assets are written down to their estimated fair values. We continue to test our indefinite-lived IPR&D assets for potential impairment until the projects are completed or abandoned.

During the year ended September 30, 2014, the Company determined that the carrying value of the Alvos IPR&D may not be recoverable. The Company has had difficulty advancing the development of the Alvos technology, and has been unsuccessful in finding partners to license the technology. As such, and due to higher priority research programs, the Company has abandoned its efforts to further develop this technology. Based on these events and circumstances, Management has determined that the value of the Alvos IPR&D was fully impaired as of September 30, 2014, and the Company recorded an impairment charge of $2.2 million, which is presented as a part of operating expenses for the year ended September 30, 2014.

On August 5, 2013, Calando terminated a License Agreement with the California Institute of Technology (the “License”). The License provided Calando with exclusive rights to develop and commercialize therapeutics based on the linear cyclodextrin drug delivery technology invented at Caltech. The drug delivery technology platforms, Cyclosert^TM and RONDEL^TM, as well as the drug candidates IT-101 and CALAA-01, were developed based on the licensed technology. Calando was responsible to direct and pay for the prosecution of the patents and patent applications covered by the License and to progress the technology. In conjunction with a previous business acquisition, the patents covered by this license agreement had been capitalized, and had a net book value of $1.3 million at June 30, 2013. Management determined that the value of the patents was impaired as of June 30, 2013, and the Company recorded an impairment charge of $1.3 million, and is presented as a part of operating expenses for the year ended September 30, 2013.

Intangible assets subject to amortization include license agreements capitalized as part of a business combination from the acquisition of Roche Madison. The license agreements are being amortized over the estimated life remaining at the time of acquisition which was 4 years, and the accumulated amortization of the assets is approximately $161,500. Patents have been amortized over a period of three years to twenty years, however all patent assets were fully impaired during the year ended September 30, 2013. Amortization expense for the years ended September 30, 2014, 2013 and 2012 was $54,653, $236,009 and $293,964, respectively. The weighted average original amortization period is twelve years. Amortization expense is expected to be approximately $55,000 for fiscal year 2015, $13,000 in 2016, and zero thereafter.

The below table provides details on our intangible asset balances:

	Intangible assets not subject to amortization		Intangible assets subject to amortization		Total Intangible assets
Balance at September 30, 2012	$	3,117,322	$	1,667,247	$	4,784,569
Impairment		-		(1,308,047)		(1,308,047	)
Amortization		-		(236,009)		(236,009	)
Balance at September 30, 2013	$	3,117,322	$	123,191	$	3,240,513
Impairment		(2,172,387)		-		(2,172,387	)
Amortization		-		(54,653)		(54,653	)
Balance at September 30, 2014	$	944,935	$	68,538	$	1,013,473