NOTE 4. INTANGIBLE ASSETS

Intangible assets consist of in-process research and development (IPR&D) not subject to amortization, and patents and other 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 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 would be written off and we would record an impairment loss.

Intangible assets subject to amortization include license agreements and patents capitalized as part of a business combination.

The license agreements are being amortized over the estimated life remaining at the time of acquisition, which was four years. Patents were amortized over a period of three years to twenty years. The weighted average original amortization period is twelve years. Patents have been fully amortized or impaired. Amortization of license agreements is expected to be approximately $14,000 for the balance of fiscal year 2013, and $55,000 for fiscal years 2014 and 2015, $13,000 in 2016, $0 in 2017 and thereafter.

We review amounts capitalized as in-process research and development 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 quarter ended June 30, 2013, the Company recorded an impairment charge relating to patents that were licensed from the California Institute of Technology (the “License”), and had been capitalized. The license agreement was terminated, and it was determined that the value of the capitalized patents had been impaired. Accordingly, the Company recorded an impairment of $1.3 million during the quarter ended June 30, 2013, and is reflected in its operating expenses in its Statement of Operations.

The below table provides details of our intangible asset balances:

	Intangible assets not subject to amortization
Balance at September 30, 2011	$	—	$	1,731,211		$	1,731,211
Additions – Madison acquisition		944,935		230,000			1,174,935
Additions – Alvos acquisition		2,172,387		—			2,172,387
Amortization		—		(293,964	)		(293,964	)
Balance at September 30, 2012	$	3,117,322	$	1,667.247		$	4,784,569
Amortization		0		(222,345	)		(222,345	)
Impairment		—		(1,308,047	)		(1,308,047	)
Balance at June 30, 2013	$	3,117,322	$	136,855		$	3,254,177