Quarterly report pursuant to Section 13 or 15(d)

Note 4 - Sale of BioZone

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Note 4 - Sale of BioZone
6 Months Ended
Jun. 30, 2017
Note 4 - Sale Of Biozone  
Sale of BioZone

In May 2016, the Company completed the sale of its wholly-owned subsidiary, BioZone, for gross proceeds of $9.8 million, including cash of $5.9 million, a $2.0 million credit for future inventory deliveries reflected as a prepaid asset in the Condensed Consolidated Balance Sheets and $1.5 million which is subject to an earn-out based on the financial performance of BioZone for the twelve months following the closing of the transaction. In addition, the Company agreed to pay down $350,000 of BioZone’s accounts payables, which was deducted from the purchase price. As part of the transaction, the Company also agreed to transfer to the buyer 200,000 shares of its common stock with a market value on the date of issuance of $640,000, for consideration of $50,000. The Company recorded a loss of $2.1 million related to the sale of BioZone for the three and six months ended June 30, 2016. The loss on the sale of BioZone primarily related to the subsidiary’s pre-tax losses for 2016. Pre-tax loss for BioZone for the three and six months ended June 30, 2016 was $0.5 million and $1.5 million, respectively. The potential earn-out was not achieved in May 2017.

 

Purchase Commitment

 

Upon the completion of the sale of BioZone, the Company entered into a manufacturing and supply agreement whereby the Company is required to purchase a minimum of approximately $2.5 million of products per year from BioZone annually for an initial term of three years. If the minimum order quantities of specific products are not met, a $3.0 million minimum purchase of other products must be met in order to waive the shortfall, which is at 25% of the realized shortfall. Due to the timing of achieving the minimum purchase quantities, we are below these targets. As a result, we have reserved an amount to cover the estimated purchase commitment shortfall during the three and six months ended June 30, 2017.

 

The following table summarizes the components of the loss from the sale of BioZone (in thousands):

 

Cash proceeds from sale   $ 5,942  
Consideration for common stock transferred     50  
Prepaid inventory     2,000  
Fair market value of the common stock transferred     (640 )
Assets sold:        
Accounts receivable, net     (923 )
Inventory, net     (1,761 )
Fixed assets, net     (2,003 )
Intangible assets, net     (5,657 )
All other assets     (41 )
Liabilities transferred     1,197  
Transaction and other costs     (279 )
Loss on sale of subsidiary   $ (2,115 )