XML 26 R12.htm IDEA: XBRL DOCUMENT

Intangible Assets and Goodwill

12 Months Ended

Dec. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

NOTE 6 - INTANGIBLE ASSETS AND GOODWILL

During 2015 and 2014, the Company spent approximately $5,000 and $94,000, respectively, on patent application costs. In 2014, the Company spent $1,150,000 on patent acquisitions.

On July 8, 2013, the Company’s subsidiary, DSS Technology Management, purchased two patents for $500,000 covering certain methods and processes related to Bluetooth devices. In conjunction with the patent purchases, DSS Technology Management entered into a Proceed Right Agreement with certain investors pursuant to which DSS Technology Management initially received $250,000 of a total of $750,000 which it will ultimately receive thereunder, subject to certain payment milestones, in exchange for 40% of the proceeds which it receives, if any, from the use, sale or licensing of the two patents. As of December 31, 2015, the Company had received an aggregate of $650,000 ($650,000 in 2014) from the investors pursuant to the agreement of which approximately $551,000 was in accrued expenses in the consolidated balance sheet ($603,000 as December 31, 2014).

On May 23, 2014, the Company’s subsidiary, DSS Technology Management, purchased 115 patents covering certain methods and processes in the semiconductor industry for $1,150,000.

On January 5, 2015, the United States District Court for the Northern District of California issued a decision granting summary judgment to defendant Facebook, Inc. in connection with a lawsuit filed on October 3, 2012 by plaintiff Bascom Research, LLC (a subsidiary of the Company) alleging patent infringement. As a result of the Court’s decision, the Company evaluated the valuation of the patents that were the basis of the case for impairment as of December 31, 2014. The Company determined that since the patents had been invalidated the probability of future cash flows derived from the patents that would support the value of the assets had decreased so that the assets had been impaired. As a result, the Company recorded an impairment charge for the underlying patent assets of the net book value of the patents as of December 31, 2014 of approximately $22,285,000.

Intangible assets are comprised of the following:

				December 31, 2015												December 31, 2014
		Useful Life		Gross Carrying Amount				Accumulated Amortizaton				Net Carrying Amount				Gross Carrying Amount				Accumulated Amortizaton				Net Carrying Amount

Acquired intangibles- customer lists and non-compete agreements		5 -10 years			1,997,300				1,635,257				362,043				1,997,300				1,532,123				465,177
Acquired intangibles-patents and patent rights		Varied (1)			3,650,000				1,562,526				2,087,474				3,650,000				852,343				2,797,657
Patent application costs		Varied (2)			1,062,958				494,931				568,027				1,058,833				413,268				645,565
				$	6,710,258			$	3,692,714			$	3,017,544			$	6,706,133			$	2,797,734			$	3,908,399


	⁽¹⁾	Acquired patents and patent rights are amortized over their expected useful life which is generally the remaining legal life of the patent. As of December 31, 2015, the weighted average remaining useful life of these assets in service was approximately 4.4 years.

	⁽²⁾	Patent application costs are amortized over their expected useful life which is generally the remaining legal life of the patent. As of December 31, 2015, the weighted average remaining useful life of these assets in service was approximately 9.3 years.

Amortization expense for the year ended December 31, 2015 amounted to approximately $896,000 ($4,653,000 –2014).

Approximate expected amortization for each of the five succeeding fiscal years is as follows:

Year			Amount
2016		$	692,000
2017		$	673,000
2018		$	537,000
2019		$	265,000
2020		$	193,000

Goodwill

The Company performed its annual goodwill impairment test as of December 31, 2015. The Company performed the first step of the goodwill impairment test by comparing the fair value of each of its reporting units with their carrying amounts including goodwill. In performing this step, the Company determined estimates of fair value using a discounted cash flow model for each of its reporting units. The Company determined that its Packaging and Plastic units each had to the fair values in excess of their carrying value of their assets including goodwill and therefore, did not have an indication of goodwill impairment. For the Company’s Technology Management unit, the Company determined that the estimated fair value of the reporting unit was below its carrying value and therefore, required a second step goodwill impairment analysis. In performing the second step of the goodwill impairment test, the Company compared the carrying value of its Technology Management goodwill to its implied fair value. For the Company’s technology reporting unit for which a significant amount of future value is based on the value of patents and patent rights, the Company uses a valuation methodology that assesses the potential value of claims against parties the Company believes have infringed on the patents and therefore, the Company has the rights to receive royalties for those infringers. The Company uses its best estimates to determine the amount and timing of royalties that would be due from each potential infringing party based on the estimated scope of usage of the patented technology by each potential infringing party. Furthermore, the Company uses discount factors to take into account the potential of settlements at various stages of a typical patent infringement court case depending on the stage of each of the Company’s infringement proceedings. During the Company’s annual assessment of goodwill in 2015, the Company considered the negative trends in patent litigation which have reduced the success of patent owners in protecting their patents in the federal court system, among other factors. In performing Step 1 analysis, the Company determined that its DSS TM reporting unit had a negative carrying value as a result of the identifiable liabilities exceeding the assets and as a result was required to perform Step 2. In performing Step 2, the Company determined the fair value of the identifiable assets exceeded the enterprise value of the reporting unit and accordingly the Company recorded an approximately $9,600,000 goodwill impairment charge to the goodwill assigned to its DSS Technology Management division.

During the Company’s annual assessment of goodwill in 2014, the Company assessed that the negative trends in patent litigation that have reduced the success of patent owners in protecting their patents in the federal court system had impairment the Company’s goodwill assigned to its DSS Technology Management division and accordingly, the Company recorded a $3,000,000 goodwill impairment charge to the goodwill assigned to its DSS Technology Management division.

There are inherent assumptions and estimates used in developing future cash flows requiring management’s judgment in applying these assumptions and estimates to the analysis of identifiable intangibles and asset impairment including projecting revenues, timing and amount of claim or settlements related to patent infringement cases, royalty rates, interest rates, and the cost of capital. Many of the factors used in assessing fair value are outside the Company’s control and it is reasonably likely that assumptions and estimates will change in future periods. These changes can result in future impairments.

The changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2014 are as follows:

		Packaging				Plastics				Technolgy Management				Total

Balance as of January 1, 2014
Goodwill		$	1,768,400			$	684,949			$	12,831,774			$	15,285,123
Accumulated impairment losses			-				-				(238,926	)			(238,926	)
			1,768,400				684,949				12,592,848				15,046,197

Goodwill acquired during the year			-				-				-				-
Impairment losses			-				-				(3,000,000	)			(3,000,000	)

Balance as of December 31, 2014
Goodwill			1,768,400				684,949				12,831,774				15,285,123
Accumulated impairment losses			-				-				(3,238,926	)			(3,238,926	)
			1,768,400				684,949				9,592,848				12,046,197

Goodwill acquired during the year			-				-				-				-
Impairment losses			-				-				(9,592,848	)			(9,592,848	)

Balance as of December 31, 2015
Goodwill			1,768,400				684,949				12,831,774				15,285,123
Accumulated impairment losses			-				-				(12,831,774	)			(12,831,774	)
		$	1,768,400			$	684,949			$	-			$	2,453,349