Annual report pursuant to Section 13 and 15(d)

7. GOODWILL AND INTANGIBLE ASSETS

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7. GOODWILL AND INTANGIBLE ASSETS
 12 Months Ended
Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
7. GOODWILL AND INTANGIBLE ASSETS

During the fourth quarter of 2016 and 2015, the Company completed its annual impairment assessments and concluded that the goodwill and its associated intangibles related to the purchase of PhytoSPHERE Systems, LLC in the first quarter of fiscal year 2013, as originally reported by the Company in that certain Current Report on Form 8-K filed with the SEC on February 12, 2013, was impaired at December 31, 2016, due to the probable expiration of the Company’s current supply arrangements as the Company does not intend to purchase any inventory under its supply agreements from the 2017 crop and/or 2018 crop (See Note 12). As such, a goodwill and intangible impairment expense of $2,746,512 was recorded in the consumer products segment for the year ended December 31, 2016. No impairments were noted during the year ended December 31, 2015.

 

Goodwill activity for the years ended December 31, 2016 and 2015 was as follows:

 

Balance - December 31, 2014   $ 1,855,512  
Additions due to CanX acquisition     2,788,300  
Balance - December 31, 2015     4,643,812  
Impairment of PhytoSPHERE goodwill     (1,855,512 )
Balance - December 31, 2016   $ 2,788,300  

 

Intangible asset activity for the years ended December 31, 2016 and 2015 was as follows:

 

    Vendor Relationships     In-Process Research and Development     Trade Names     Non-compete Agreements     Total  
Balance - December 31, 2014   $ 1,170,000     $ –     $ 230,000     $ 2,710,000     $ 4,110,000  
Additions due to CanX acquisition     –       3,730,000       100,000       77,000       3,907,000  
Balance - December 31, 2015     1,170,000       3,730,000       330,000       2,787,000       8,017,000  
Impairment of PhytoSPHERE intangible assets     (1,170,000 )     –       (230,000 )     (2,710,000 )     (4,110,000 )
Balance - December 31, 2016   $ –     $ 3,730,000     $ 100,000     $ 77,000     $ 3,907,000  

 

Intangible assets, net consist of the following at December 31, 2016 and 2015:

 

    Original Fair Market Value     Accumulated Amortization     Net     Useful Life (Years)  
Balance - December 31, 2016:                                
In-process research and development   $ 3,730,000     $ –     $ 3,730,000       –  
Trade names     100,000       20,000       80,000       5  
Non-compete agreements     77,000       15,400       61,600       5  
    $ 3,907,000     $ 35,400     $ 3,871,600          
                                 
Balance - December 31, 2015:                                
Vendor relationships   $ 1,170,000     $ 682,500     $ 487,500       5  
In-process research and development     3,730,000       –       3,730,000       –  
Trade names     330,000       134,167       195,833       5  
Non-compete agreements     2,787,000       1,580,333       1,206,667       5  
    $ 8,017,000     $ 2,397,000     $ 5,620,000          

 

Amortization expense for the year ended December 31, 2016 and 2015 totaled $857,400 and $822,000, respectively.

 

Based on identified intangible assets that are subject to amortization as of December 31, 2016, we expect future amortization expense to be as follows for the years ending December 31:

 

  2017     $ 35,400  
  2018       35,400  
  2019       35,400  
  2020       35,400  
        $ 141,600