NOTE 4. Sale of Assets – Discontinued Operations

Sale of Product Rights to Microsafe Group, DMCC

On February 21, 2020, the Company closed on an Asset Purchase Agreement for the sale of certain wound care and animal health product rights and assets for the Middle East and disinfectant rights for the European and Australian markets to Microsafe Group, DMCC (“Microsafe”), an international distributor. The purchase price for the product rights and assets was $1,100,000.

The Company agreed that it will continue to supply products to Petagon for five years at certain agreed upon transfer prices. The sale involves certain Asian patents and trademarks, and the exclusive right to distribute animal health care products in Asia and Europe.

The Company determined that there were two separate performance obligations under the Asset Purchase Agreement. These performance obligations were the delivery of production equipment to Petagon as a security and the transfer of the intellectual property and territory rights.

The Company estimated the value of the production equipment by determining the cost and applying a mark up to the selling price at a market participant margin. The Company then applied the residual approach to derive the fair value of the intellectual property and territory rights.   The Company will provide product under a reduced price from its prior list price.

The Company will incur costs of approximately $75,000 to fulfill its obligations to deliver certain production equipment to Microsafe.

The proceeds from the sale were allocated to the components of the sale utilizing the residual approach as follows:

The proceeds related to the production equipment are included in deferred revenue and will be recognized upon delivery of the equipment. The proceeds related to the intellectual property and territory rights are included in gain on sale on the closing date.

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

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.

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:

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 consolidated balance sheets as of March 31, 2021 and March 31, 2020 were as follows:

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