CV Sciences, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

6. GOODWILL AND INTANGIBLE ASSETS

6. GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

During the fourth quarter of 2017 and 2016, 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 as of December 31, 2016, due to the expiration of the Company’s raw material supply arrangements as the Company does not intend to purchase any inventory under its supply agreements from the 2017 and 2018 crop. 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, 2017.

Goodwill activity for the years ended December 31, 2017 and 2016 was as follows:

Balance - December 31, 2015	$	4,643,812
Impairment of PhytoSPHERE goodwill		(1,855,512	)
Balance - December 31, 2016		2,788,300

Balance - December 31, 2017	$	2,788,300

Intangible asset activity for the years ended December 31, 2017 and 2016 was as follows:

	Vendor Relationships			In-Process Research and Development		Trade Names			Non-compete Agreements			Total
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

Balance - December 31, 2017	$	–		$	3,730,000	$	100,000		$	77,000		$	3,907,000

Intangible assets consist of the following as of December 31, 2017 and 2016:

	Original Fair Market Value		Accumulated Amortization		Net		Useful Life (Years)
Balance - December 31, 2017:
In-process research and development		3,730,000		–		3,730,000		–
Trade names		100,000		40,000		60,000		5
Non-compete agreements		77,000		30,800		46,200		5
	$	3,907,000	$	70,800	$	3,836,200

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

Amortization expense for the year ended December 31, 2017 and 2016 totaled $35,400 and $857,400, respectively.

Based on identified intangible assets that are subject to amortization as of December 31, 2017, we expect future amortization expense to be as follows for the years ending December 31:

2018	$	35,400
2019		35,400
2020		35,400
	$	106,200

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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