Transition report pursuant to Rule 13a-10 or 15d-10

Goodwill and Intangible Assets, Net

v3.21.1
Goodwill and Intangible Assets, Net
6 Months Ended
Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets, Net

Note 6 - Goodwill and Intangible Assets, Net


Goodwill
The following table reflects the changes in the carrying amount of goodwill:
Balance as of June 30, 2019 $
Additions due to acquisitions
20,254,309
Balance as of June 30, 2020 $ 20,254,309
Adjustments to Trellis' goodwill
(14,300)
Additions due to acquisition of Ample
25,806,518
Goodwill impairment related to Ample
(4,172,000)
Balance as of December 31, 2020 $ 41,874,527
Impairment
   We elected to bypass the qualitative assessment of our goodwill and performed a quantitative valuation of goodwill during the fourth quarter of fiscal 2020 (the “annual impairment test”). We determined there were two reporting units: the Akerna reporting unit which is comprised of Akerna and the Trellis and Solo acquisitions, and the Ample reporting unit. The valuation of our goodwill was determined with the assistance of an independent valuation firm using the income approach (discounted cashflows method) and the market approach (guideline public company method). Our significant assumptions in these analyses include, but are not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. The Company’s estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company’s estimates. If the Company’s ongoing estimates of future cash flows are not met, the Company may have to record additional impairment charges in future periods. The Company also uses the Guideline Public Company Method, a form of the market approach (utilizing Level 3 unobservable inputs), which is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. As such, we believe the current assumptions and estimates utilized are both reasonable and appropriate.
Akerna Reporting Unit
            For the Akerna reporting unit, we applied a 100% weighting to the market approach. The Akerna reporting unit’s fair value exceeded the carrying value, therefore no impairment was recorded on the Akerna reporting unit.
Ample Reporting Unit
            For the Ample reporting unit, we applied a 50% weighting to the market approach and 50% weighted to the income approach. The Ample reporting unit’s fair value was less than the carrying value by $4.2 million, therefore an impairment was recorded on the goodwill on the Ample reporting unit.
Finite-lived Intangible Assets, Net
As noted above, we performed a qualitative and quantitative analysis of our intangible assets during our annual impairment test. As a result of the quantitative analysis, it was determined that the carrying value of Solo’s developed technology and trade name exceeded it’s fair value, resulting in an impairment of $2.7 million.
Intangible assets as of December  31, 2020 consist of the following:

Weighted average remaining amortization period (in years)

Gross carrying amount

Accumulated amortization



Impairment

Net carrying amount


Acquired developed technology
3.77
$ 8,220,000
$ (1,434,155 )

(2,591,920 )
$ 4,193,925
Acquired trade names
5.12

705,000

(97,676 )

(123,080 )

484,244
Customer relationships
13.04

2,880,000

(169,374 )




2,710,626
Other intangible assets, not yet placed into service

N/A












Total Intangible assets


$ 11,805,000
$ (1,701,205 )

(2,715,000 )
$ 7,388,795


















Capitalized software - In-service
1.62

4,593,512

(1,401,953 )




3,191,559
Capitalized software - Work in Progress

N/A



734,180







734,180
Total Capitalized Software



5,327,692

(1,401,953 )




3,925,739
Total finite-lived intangible assets


$ 17,132,692
$ (3,103,158 )

(2,715,000 )
$ 11,314,534

Intangible assets as of June 30, 2020 consist of the following:

 

Weighted average remaining amortization period (in years)

 

Gross carrying amount

 

Accumulated amortization

 

Net carrying amount

 

Acquired developed technology

 

4.42

 

$

7,370,000

 

$

(679,696

)

$

6,690,304

 

Acquired trade names

 

7.40

 

 

420,000

 

 

(23,248

)

 

396,752

 

Customer relationships

 

1.75

 

 

220,000

 

 

(24,475

)

 

195,525

 

Other intangible assets, not yet placed into service

 

N/A

 

 

211,394

 

 

 

 

211,394

 

Total Intangible assets

 

 

 

$

8,221,394

 

$

(727,419

)

$

7,493,975

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capitalized software - In-service

 

1.86

 

 

2,852,044

 

 

(560,528

)

 

2,291,516

 

Capitalized software - Work in Progress

 

N/A

 

 

337,788

 

 

 

 

337,788

 

Total Capitalized Software

 

 

 

 

3,189,832

 

 

(560,528

)

 

2,629,304

 

Total finite-lived intangible assets

 

 

 

$

11,411,226

 

$

(1,287,947

)

$

10,123,279

 


We record amortization expense associated with acquired developed technology, acquired trade names, and customer relationships. The amortization expense of all finite-lived intangible assets, which includes capitalized software was $1.8 million and $1.3 million for the six months ended December 31, 2020 and year ended June 30, 2020, respectively. We did not have amortization during the year ended June 30, 2019. 

As of December 31, 2020, expected amortization expense relating to in-service capitalized software and purchased intangible assets for each of the next five years and thereafter is as follows: 


Acquired Intangible Assets


Capitalized Software- In-service
2021 $ 1,656,991
$ 2,040,462
2022
1,501,654

908,094
2023
1,239,864

105,498
2024
1,036,991


94,463
2025
243,436

43,042
Thereafter
1,709,859


Total $ 7,388,795
$
3,191,559