Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Text Block] |
Intangible Assets:
The Company has recorded intangible assets, such as trademark, developed technology, non-compete agreements, backlog, customer relationships, and licensing agreements, and accounts for these in accordance with ASC 350.
Intangible assets include finite-lived customer relationships, trade names, developed technology, licensing agreements and other intangibles. Intangible assets with determinable lives are amortized over the estimated useful lives of the assets. These intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value.
Product Licensing Rights
On July 31, 2019, the Company entered into a five year License and Service Agreement (the “Agreement”) with a public safety manufacturing company pursuant to which the Company obtained worldwide product licensing rights for existing products to be manufactured at our contract manufacturer for our IBW segment. Under the terms of the Agreement, the Company made an up-front payment of $1.0 million, in connection with the execution of the Agreement and was required to pay an additional $1.0 million, upon the achievement of a certain milestones, as well as royalties on future sales. As of March 31, 2020, $0.3 million for the last milestone was unpaid and is presented in Accounts Payable on the Consolidated Balance Sheet. This milestone was completed during May 2020. In addition to the product licensing rights, the initial $1.0 million up-front payment includes training. The newly acquired product licensing rights will be amortized straight-line over the term of the Agreement. The amortization related to this intangible asset was $0.3 million during fiscal year 2020 and is presented in Cost of revenue on the Consolidated Statements of Operations.
The Agreement also contains possible future product licensing rights for a product that is still being developed. Once development is complete, and the licensed know-how is transferred to our contract manufacturer, a third payment of $250,000 would be payable. Westell had not recorded this liability and related product licensing rights on the Consolidated Balance Sheet as of March 31, 2020 as recognition is contingent upon the future development of the product.
During the quarter ended March 31, 2020, the Company determined there were indications of impairment on the product licensing rights as during the quarter demand slowed for public safety products in part due to site access limitations and delayed project planning/approval as a result of COVID-19. The Company performed the recoverability test described above and concluded the carrying amount was not recoverable. The potential deferral of revenues within a fixed license period created an impaired value. The Company recorded a $1.0 million impairment loss to record the excess of the asset’s carrying amount over its fair value, which is presented on the Statements of Operations as Long-lived assets impairment.
Acquisition-related Intangible Assets
As of March 31, 2019, the ISM reporting unit was the only remaining reporting unit that has unamortized acquisition-related intangible assets. There was no intangible asset impairment during fiscal year 2020 for the ISM reporting unit for acquisition-related intangible assets.
During the quarter ended September 30, 2019, the Company determined there were indications of impairment on the ISM intangible assets primarily due to a significant decline in revenue. The decrease in revenue in the three months ended September 30, 2019, primarily was due to decreased sales of remote units driven by a slowdown in demand from two existing customers. The Company performed the recoverability test described above and concluded the carrying amount was recoverable. The Company concluded it was not necessary to perform a recoverability test during the quarter ended December 31, 2019. During the quarter ended March 31, 2020, the Company determined there were indications of impairment on the ISM intangible assets as late in the quarter travel to customer worksites, which is required for many of our ISM products, became restricted due to COVID-19. The Company performed the recoverability test described above and concluded the carrying amount was recoverable.
During the fourth quarter of fiscal year 2019, the Company experienced triggering events that resulted in the Company testing its long-lived assets for impairment. In evaluating whether it is more likely than not that the fair value of the Company's reporting units were less than their carrying value, the Company assessed all relevant events and circumstances and determined that, due to the overall greater declining revenues and cash flow from its current portfolio of products coupled with delays expanding the public safety portfolio due to production schedules and recent product testing issues, indicators of impairment were present.
The Company performed an evaluation to test IBW and ISM intangible assets for recoverability and concluded there was no impairment during the fiscal year ended March 31, 2019, for the ISM reporting unit. During the fourth quarter of fiscal year 2019, IBW revenue declined more than previously forecasted and additional issues arose with respect to new products. As a result, the IBW reporting unit did not pass the recoverability test; therefore, the Company completed the third step of the evaluation, which compares the implied fair value of the intangible assets as determined using the multiple-period excess earnings method and the distributor model, with the carrying value to determine the amount of the impairment loss. Fair value assessments of the reporting unit are considered a Level 3 measurement due to the significance of unobservable inputs developed using company specific information. As a result of that impairment evaluation, the Company concluded that the customer list acquired from a previous acquisition for its IBW products was impaired and recorded an impairment charge of $4.7 million during the quarter ended March 31, 2019, to reduce the value of the asset to zero. The impairment loss is presented on the Consolidated Statements of Operations as Long-lived assets impairment.
Originally, the finite-lived intangibles are being amortized over periods of 2 to 10 years using either a straight line method or the consumption period based on expected cash flows from the underlying intangible asset. Finite-lived intangible amortization expense from continuing operations for acquisition-related intangible assets was $1.2 million and $3.4 million in fiscal years 2020 and 2019.
Acquisition-related and Product Licensing Rights
The following table presents details of the Company’s intangibles from historical acquisitions and the Agreement:
The following is the expected future amortization by fiscal year:
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