Note 8 –Intangible Assets and Goodwill



Intangible Assets



Intangible assets acquired in the APP Acquisition included IPR&D, developed technology consisting of PREBOOST®  medicated wipes for the treatment of premature ejaculation, and covenants not-to-compete.



The gross carrying amounts and net book value of intangible assets are as follows at September 30, 2020: 





The gross carrying amounts and net book value of intangible assets are as follows at September 30, 2019:





During the fourth quarter of fiscal 2020, we performed quantitative impairment testing of our IPR&D intangible assets using a probability-weighted income approach that discounts expected future cash flows to present value. The estimated net cash flows were discounted using a discount rate of 41%, which is based on the estimated weighted-average cost of capital for companies with profiles similar to our profile and represents the rate that market participants would use to value the intangible assets. In response to management’s strategic decision during the fourth quarter of fiscal 2020 to prioritize the development of other research projects, we adjusted the development timelines for Tamsulosin DRS, VERU-722 (male infertility), and VERU-112 (gout) IPR&D assets that were recognized as part of the APP Acquisition. The Company has several other highly differentiated, unique, patent-protected drugs under development addressing larger and potentially more profitable markets. The delay in timing of expected future cash flows for Tamsulosin DRS, VERU-722, and VERU-112 reduced the fair value of these IPR&D intangible assets to zero, which is significantly below the carrying value, resulting in an impairment charge of $14.1 million, which is presented as a separate line item in the accompanying consolidated statement of operations. Further, the Company has decided to cease its development work on Tamsulosin DRS, VERU-722, and VERU-112 and met the criteria for abandonment under the accounting standards. This resulted in writing off the carrying amounts for these three IPR&D assets during the year ended September 30, 2020.



Amortization was recorded over the projected related revenue stream for the PREBOOST® developed technology over 10 years and on a straight-line basis over seven years for the covenants not-to-compete. The amortization expense is recorded in selling, general and administrative expenses in the accompanying consolidated statements of operations.



Amortization expense was approximately $316,000 and $309,000, for the years ended September 30, 2020 and 2019, respectively. Based on finite-lived intangible assets recorded as of September 30, 2020, the estimated future amortization expense is as follows:



 

Goodwill



The carrying amount of goodwill at September 30, 2020 and 2019 was $6.9 million. There was no change in the balance during the years ended September 30, 2020 and 2019.