Quarterly report pursuant to Section 13 or 15(d)

4. Discontinued Operations: Sale of Assets to Infinity Labs SD, Inc.

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4. Discontinued Operations: Sale of Assets to Infinity Labs SD, Inc.
 6 Months Ended
Sep. 30, 2020
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations: Sale of Assets to Infinity Labs SD, Inc.
Note 4. Discontinued Operations: Sale of Assets to Infinity Labs SD, Inc.

 

On June 24, 2020, the Company closed on an asset purchase agreement for the sale of its Micromed Laboratories division and testing facility, including all of Micromed’s assets, such as testing equipment, certain office furniture and customer list, with Infinity Labs SD Inc. (“Infinity”) for an aggregate purchase price of $850,000. On the closing date, the Company received $610,000 in cash from this sale which was adjusted for working capital, a credit of $100,000 for future testing services from Infinity over the next two years in lieu of cash, and $60,000 held in escrow for one year, subject to adjustment for certain indemnity claims or purchase price adjustments. The Company also retained its accounts receivables outstanding on the date of closing in the amount of approximately $81,000 and an insignificant amount of liabilities. As part of the transaction, Infinity also assumed the Petaluma lease for the office and lab space. The Company retained the warehouse space to store inventory and assets until September 30, 2020.

 

Accounting for the disposition

 

For accounting purposes, the Company determined that there was only one discrete component of the sale to Infinity. This component was the customer base and related services to be provided.

 

Component of Sale Methodology to Estimate Selling Price
Customer Base Based upon revenues expected from a market participant to provide technical services at expected service levels

 

The Company determined an arm’s length selling price for each component of the sale and then allocated the net proceeds received to the components on a relative selling price basis. The Company estimated the selling prices of each component as described below:

 

Proceeds were allocated to the components of the sale based upon their relative selling prices are as follows:

 

Customer base   $ 850,000  
Less: Funds remaining in escrow     (60,000 )
Less: Services due from buyer     (100,000 )
Less: Working capital adjustment     (80,000 )
Total proceeds   $ 610,000  

 

Discontinued operations

 

As of June 24, 2020, the Company determined that the sale of its Micromed division to Infinity qualified as a sale of a component of its business and, as such, all such activity prior to consummation of the sale is required to be included in discontinued operations on the Company’s statement of operations.

 

The carrying value of the assets and liabilities of discontinued operations on the condensed consolidated balance sheets as of September 30, 2020 and March 31, 2020 were as follows:

 

   

September 30,

2020

    

March 31,

2020

  
Assets                
Accounts receivable (net)   $ –     $ 89,000  
Inventory     –       11,000  
Operating lease, right of use     –       604,000  
Total current assets of discontinued operations   $ –     $ 704,000  
                 
Liabilities                
Accounts payable   $ –     $ 18,000  
Operating lease     –       117,000  
Total current liabilities of discontinued operations   $ –     $ 135,000  
                 
Operating lease   $ –     $ 511,000  
Total Long-term liabilities of discontinued operations   $ –     $ 511,000  

 

The operations of the Micromed business included in discontinued operations is summarized as follows:

 

    Three Months Ended September 30,     Six Months Ended September 30  
    2020     2019     2020     2019  
Revenues   $ 2,000     $ 241,000     $ 214,000     $ 458,000  
Cost of revenues     –       122,000       53,000       265,000  
Selling general and administrative expenses     33,000       34,000       39,000       67,000  
Income (loss) from discontinued operations before tax     (31,000 )     85,000       122,000       126,000  
Gain on disposal of discontinued operations before income taxes     –       –       795,000       –  
Total income (loss) from discontinued operations, before tax     (31,000 )     85,000       917,000       126,000  
Income Tax benefit (expense)     –       –       –       –  
Income (loss) from discontinued operations, net of tax   $ (31,000 )   $ 85,000     $ 917,000     $ 126,000