Quarterly report pursuant to Section 13 or 15(d)

4. Discontinued Operations: Sale of Assets

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4. Discontinued Operations: Sale of Assets
3 Months Ended
Jun. 30, 2020
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations: Sale of Assets

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 it completes its move.

 

Accounting for the disposition

 

For accounting purposes, the Company determined that there was only one discrete component of the sale to Infinity. These components was the customer base and 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 June 30, 2020 and March 31, 2020 were as follows:

 

     

June 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 its Micromed business included in discontinued operations is summarized as follows:

 

   

Three Months Ended

June 30, 

 
    2020     2019  
Revenues   $ 212,000     $ 326,000  
Cost of Revenues     53,000       142,000  
Income from discontinued operations before tax     159,000       184,000  
Gain on disposal of discontinued operations before income taxes     795,000        
Total income from discontinued operations, before tax     954,000       184,000  
Income Tax benefit (expense)            
Income from discontinued operations, net of tax   $ 954,000     $ 184,000