Discontinued Operations

9 Months Ended

Sep. 30, 2022

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

NOTE 3 – Discontinued Operations

On March 1, 2022, the Company completed the sale of Microlab to RF Industries, Ltd (the “Transaction”). At closing, the Company received approximately $22.8 million in proceeds net of indemnification and purchase price adjustment holdbacks of $150,000 and $100,000, respectively, and direct expenses. The indemnification holdback expires one year from close. In July, the Company received $225,000 in final purchase price adjustment primarily related to the working capital adjustment. This amount is recorded as proceeds of the Microlab divestiture in the Consolidated Statements of Cash Flows. Approximately, $4.1 million of the net proceeds were used to repay our outstanding Term Loan Facility (as defined in Note 4) with Muzinich BDC, approximately $600,000 of the net proceeds were used to repay our outstanding revolver balance related to the Bank of America Credit Facility (as defined in Note 4) and approximately $486,000 were used to pay our advisors.

The Company terminated its Term Loan Facility with Muzinich BDC and Credit Facility with Bank of America N.A. as of the Transaction close date (see Note 4 below). Additionally, concurrent with the closing, the Company entered into a sublease with RF Industries, Ltd for approximately one-half of the square footage of our corporate headquarters in Parsippany, NJ (see Note 5 below).

The Transaction was treated as a sale of the assets and liabilities of Microlab to RF Industries, Ltd. for U.S. federal and applicable state income tax purposes. The Company has approximately $14.9 million of U.S. federal net operating loss carryforwards and approximately $41.2 million of New Jersey state net operating loss carryforwards as of December 31, 2021. We expect to utilize all of our federal net operating loss carryforwards and approximately 50% of our state net operating loss carryforwards to offset the taxable gain generated from the Microlab divestiture.

In accordance with Accounting Standards Codification (“ASC”) 205-20 Discontinued Operations, the results of Microlab are presented as discontinued operations in the Consolidated Statements of Operations and, as such, have been excluded from continuing operations. Further, the Company reclassified the assets and liabilities of Microlab as assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of December 31, 2021. The Consolidated Statements of Cash Flows are presented on a consolidated basis for both continuing operations and discontinued operations.

The following table summarizes the significant items included in income from discontinued operations, net of tax in the Consolidated Statement of Operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):

	Three months ended				Nine months ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Net revenues	$	-	$	5,447	$	2,477	$	12,820
Cost of revenues		-		2,950		1,626		7,475
Gross profit		-		2,497		851		5,345
Operating expenses		-		938		693		2,486
Gain on divestiture, net of expenses		87		-		16,490		-
Income from Discontinued Operations before income taxes		87		1,559		16,648		2,859
Income tax expense		-		546		4,953		1,005
Income from Discontinued Operations, net of income taxes	$	87	$	1,013	$	11,695	$	1,854

The following table summarizes the carrying value of the significant classes of assets and liabilities classified as discontinued operations as of December 31, 2021:

Current Assets
Accounts receivable, net	$	2,883
Inventories, net		3,986
Total current assets		6,869
Property, plant and equipment, net		421
Goodwill		1,351
Other non current assets		165
Total non current assets		1,937
Total assets	$	8,806
Current liabilities
Accounts payable	$	783
Accrued expenses and other current liabilities		1,182
Total current liabilities	$	1,965

The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows for all periods presented. Microlab depreciation expense for the nine months ended September 30, 2021 and included in the consolidated statement of cash flow was $186,000. Depreciation expense recorded in the three months ended March 31, 2022 for Microlab was not material and there were no capital expenditures for Microlab in the three months ended March 31, 2022. Capital expenditures in the three and nine months ended September, 2021 were approximately $38,000 and $88,000, respectively.