Annual report pursuant to Section 13 and 15(d)

Goodwill and Indefinite-Lived Intangible Assets

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Goodwill and Indefinite-Lived Intangible Assets
12 Months Ended
Dec. 31, 2013
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Indefinite-Lived Intangible Assets
6. Goodwill and Indefinite-Lived Intangible Assets

Goodwill

A reconciliation of the change in the carrying value of goodwill is as follows:

 

     December 31,  
     2013      2012  

Balance as of January 1

  $         3,592,073       $ -   

Acquired from acquisitions

    -         3,402,923   

Foreign currency translation

    73,126         189,150   

Balance as of December 31

  $ 3,665,199       $         3,592,073   

Goodwill acquired during the year ended December 31, 2012 was attributed to the Company’s acquisition of SymbioTec. As of October 1, 2013 and 2012, the dates of the Company’s annual impairment review, the fair value of the Company’s goodwill balance exceeded its carrying value by approximately 104% and 58%, respectively.

 

Indefinite-Lived Intangible Assets

The Company has one indefinite-lived intangible asset, OncoHist™, as of December 31, 2013 and 2012 related to the Company’s acquisition of SymbioTec in 2012. As of October 1, 2013 and 2012, the dates of the Company’s annual impairment review, the fair value of the Company’s indefinite-lived intangible asset balance exceeded its carrying value by approximately 1% and 87%, respectively. The fair value of OncoHist™ was $10,559,820 and the carrying value was $10,318,001, with a foreign currency impact of an increase in carrying value of $205,860 as of December 31, 2013.

The Company, with the assistance of an independent third party, calculated the fair value of OncoHist™ by using the MPEEM, which is a form of the income approach. Under the MPEEM, the fair value of an intangible asset is equal to the present value of the asset’s incremental after-tax cash flows (excess earnings) remaining after deducting the market rates of return on the estimated value of contributory assets (contributory charge) over its remaining useful life. This method requires the Company to make long-term projections of the amount and timing of income and expenses related to development and commercialization of the acquired intangible asset and assumptions regarding the rate of return on contributory assets, the weighted average cost of capital and the discount rate for estimated future after-tax cash flows. Specifically, this method took into account the Company’s estimates of future incremental milestone payments that may be achieved upon completion of certain clinical trial stages, regulatory approval and sales goals upon commercialization, as well as the Company’s expected royalty income based on sales upon commercialization. Projected expenses are based on the Company’s forecasted budget required to complete the development of the IPR&D and are estimates subject to change based on several factors including the results of clinical trials and delays in regulatory approval. The discount rate used is commensurate with the uncertainties associated with the economic estimates described above and reflects the stage of development, the time and resources needed to complete the development of the product and the risks of advancement through regulatory approval processes.

While the Company believes reasonable estimates and appropriate assumptions were utilized to calculate the fair value of OncoHist™, it is possible a material change could occur. If future results are not consistent with the assumptions and estimates used, the Company may be exposed to impairment charges in the future. The following table shows the decline in the fair value of OncoHist™ that would result from a 1% increase in the discount rate and a 5% decrease in the expected milestone income:

 

Indefinite-Lived Intangible Asset   

Discount

Rate

     Milestone
Income
 

OncoHist™ change in fair value as of December 31, 2013

   $     (688,000)       $     (826,000)   

Such a change in either the discount rate or expected milestone income would result in an impairment of approximately $405,000 and $545,000, respectively, during the current period.

OncoHist™ is not yet commercialized and has not yet begun to be amortized as of December 31, 2013 and 2012.