Quarterly report pursuant to Section 13 or 15(d)

Goodwill and Intangible Assets

v3.20.4
Goodwill and Intangible Assets
9 Months Ended
Dec. 31, 2020
Goodwill and Intangible Assets  
Goodwill and Intangible Assets

2.     Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination. The Company does not amortize its goodwill, but instead tests for impairment annually in the fourth quarter and more frequently whenever events or changes in circumstances indicate that fair value of the asset may be less than the carrying value of the asset.

Following the decline of Company sales associated with the global pandemic, management determined there are events and changes in circumstances that indicate the goodwill and other intangible assets are impaired. Accordingly, at December 31, 2020, the Company evaluated the ongoing value of the goodwill and other intangible assets. Based on this evaluation, the Company determined that certain intangible assets were no longer recoverable and were in fact impaired and recorded an impairment charge of $379,000 in the three months ended December 31, 2020. Further, the Company determined that the goodwill with the carrying value of $11.1 million was impaired and recorded an impairment charge of $6.8 million to the estimated value of $4.3 million. Fair value was based on expected future cash flows using Level 3 inputs under ASC 820. The cash flows are those expected to be generated by the market participants, discounted at the weighted average cost of capital.

As noted in the Company's significant accounting policies, the Company has one reporting unit and its carrying value was compared to its estimated fair value. At December 31, 2020, the Company estimated its fair value using an income approach. The income approach is based on the present value of future cash flows, which are derived from long term financial forecasts, and requires significant assumptions and judgement including among others, a discount rate and a terminal value.

The present value of future cash flows was determined by discounting estimated future cash flows, which included long-term growth rate of 3%, at a weighted average cost of capital (discount rate) of 27%, which considered the risk of achieving the projected cash flows, including the risk applicable to the reporting unit, industry and market as a whole.

Changes to goodwill during the nine months ended December 31, 2020 were as follows:

 

 

 

 

 

 

    

Total

Balance—March 31, 2020

 

$

11,085,984

Impairment of goodwill in period

 

 

6,803,000

Balance—December 31, 2020

 

$

4,282,984

 

The Company capitalizes and includes in intangible assets the costs of trademark, patents, exclusive license arrangements and customer relationships. Intangible assets are recorded at fair value at the time of their acquisition and stated net of accumulated amortization. The Company amortizes its intangible assets that have finite lives using either the straight-line or accelerated method, based on the useful life of the asset over which it is expected to be consumed utilizing expected undiscounted future cash flows. Amortization is recorded over the estimated useful lives ranging from 1 to 10 years. The Company evaluates the realizability of its definite lived intangible assets whenever events or changes in circumstances or business conditions indicate that the carrying value of these assets may not be recoverable based on expectations of future undiscounted cash flows for each asset group. If the carrying value of an asset or asset group exceeds its undiscounted cash flows, the Company estimates the fair value of the assets, generally utilizing a discounted cash flow analysis based on the present value of estimated future cash flows to be generated by the assets using a risk-adjusted discount rate. To estimate the fair value of the assets, the Company uses market participant assumptions pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement and Disclosures, (“ASC 820”). If the estimate of an intangible asset’s revised useful life is changed, the Company will amortize the remaining carrying value of the intangible asset prospectively over the revised useful life.

Intangible assets consist of the following at December 31, 2020 and March 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Patents & Exclusive

    

 

 

    

 

 

    

 

 

    

 

 

    

    

 

 

 

License

 

 

 

 

Customer

 

Non-Compete

 

Assembled

 

 

 

 

    

Agreement

    

Trademark

    

Relationships

    

Agreement

    

Workforce

 

Total

Useful Life

    

9.74 years

    

Indefinite

    

10 years

    

2 years

    

1 year

    

  

 

Gross carrying amount

 

$

1,306,031

 

$

2,505,907

 

$

1,431,680

 

$

61,366

 

$

275,720

 

$

5,580,704

Impairment

 

 

(316,388)

 

 

(1,905,907)

 

 

(857,298)

 

 

 —

 

 

 —

 

 

(3,079,593)

Accumulated amortization

 

 

(589,512)

 

 

 —

 

 

(574,382)

 

 

(61,366)

 

 

(275,720)

 

 

(1,500,980)

Balance—December 31, 2020

 

$

400,131

 

$

600,000

 

$

 —

 

$

 —

 

$

 —

 

$

1,000,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patents & Exclusive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License

 

 

 

 

Customer

 

Non-Compete

 

Assembled

 

 

 

 

 

Agreement

 

Trademark

 

Relationships

 

Agreement

 

Workforce

 

Total

Useful Life

    

9.74 years

    

Indefinite

    

10 years

    

2 years

    

1 year

    

 

Gross carrying amount

 

$

1,306,031

 

$

2,505,907

 

$

1,431,680

 

$

61,366

 

$

275,720

 

$

5,580,704

Impairment

 

 

(307,388)

 

 

(1,605,907)

 

 

(787,245)

 

 

 —

 

 

 —

 

 

(2,700,540)

Accumulated amortization

 

 

(528,681)

 

 

 —

 

 

(564,473)

 

 

(61,366)

 

 

(275,720)

 

 

(1,430,240)

Balance—March 31, 2020

 

$

469,962

 

$

900,000

 

$

79,962

 

$

 —

 

$

 —

 

$

1,449,924

 

Amortization expense for the three months ended December 31, 2020 and 2019 was $24,000 and $69,000, respectively. Amortization expense for the nine months ended December 31, 2020 and 2019 was $71,000 and $208,000, respectively. Amortization expense is classified as a component of general and administrative expenses in the accompanying condensed consolidated statements of operations.