Annual report pursuant to Section 13 and 15(d)

Discontinued Operations

v3.10.0.1
Discontinued Operations
12 Months Ended
Dec. 31, 2018
Discontinued Operations and Disposal Groups [Abstract]  
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]
6.
Discontinued Operations
 
Asset Sales
 
In addition to the aforementioned AST with Celularity, in order to add capital and to focus on future investments on commercializing its own regenerative technologies on August 31, 2017, the Company entered into an Asset Purchase Agreement (“the Argentum Purchase Agreement”) with Argentum Medical, LLC. (“Argentum”) whereby the Company agreed to sell to Argentum all of the Company’s rights, including (i) all distribution rights, exclusivity rights, intellectual property rights and marketing rights to the TheraBond product line and (ii) the unsold inventory of TheraBond products and work in process previously purchased by the Company in existence as of the closing, which occurred upon execution and delivery of the Argentum Purchase Agreement. In consideration for the sale of the TheraBond product line and the unsold TheraBond inventory to Argentum by the Company, Argentum agreed to pay (i) $3.6 million for the TheraBond product line and certain other agreements between the parties and (ii) up to $112,000 for the unsold TheraBond inventory upon the Company’s completion of its obligations to deliver all remaining and qualifying unsold TheraBond inventory, as specified in the Argentum Purchase Agreement. Of the $3.6 million of consideration, $300,000 was deposited in an indemnity escrow account under standard terms and conditions. This amount is classified under current assets of discontinued operations on the Company’s balance sheet as of December 31, 2017. As of December 31, 2018, the indemnity escrow has been repaid.
 
Summarized operating results of discontinued operations for the years ended December 31, 2018 and 2017 are presented in the following table (in thousands):
 
 
 
Year Ended December 31,
 
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Revenue, net of returns, allowances and discounts
 
$
6,681
 
 
$
18,790
 
Cost of revenues
 
 
1,791
 
 
 
5,319
 
Gross profit
 
 
4,890
 
 
 
13,471
 
Selling, general and administrative
 
 
11,179
 
 
 
34,488
 
Other income
 
 
-
 
 
 
(200
)
Interest expense
 
 
612
 
 
 
2,282
 
Warrant modification expense
 
 
-
 
 
 
803
 
Deferred income tax benefit
 
 
-
 
 
 
(743
)
Loss from discontinued operations, net of tax
 
 
(6,901
)
 
 
(23,159
)
 
Non-cash amortization expense of $1.4 million and $4.4 million is included in selling, general and administrative expense for the years ended December 31, 2018 and 2017, respectively.
 
During the year ended December 31, 2018, the Company recorded a net gain of approximately $5.5 million (net of state income tax of $0.546 million) on the sale of the assets related to the purchase agreement with Celularity, as shown in the following table (in thousands):
 
Proceeds from sale
 
 
 
 
 
 
 
 
Total Consideration
 
 
 
 
 
 
29,000
 
Less: Net book value of assets sold to Celularity
 
 
 
 
 
 
 
 
Inventory, net
 
 
(1,578
)
 
 
 
 
Intangibles, net
 
 
(20,557
)
 
 
 
 
Goodwill
 
 
(1,659
)
 
 
 
 
Fixed Assets, net
 
 
(904
)
 
 
 
 
Other current assets
 
 
15
 
 
 
 
 
Total net book value of assets
 
 
 
 
 
 
(24,683
)
Add: Net book value of liabilities extinguished due to sale
 
 
 
 
 
 
 
 
Milestone payment
 
 
1,000
 
 
 
 
 
Other liabilities
 
 
717
 
 
 
 
 
Total net book value of liabilities
 
 
 
 
 
 
1,717
 
Less: State tax expense
 
 
 
 
 
 
(546
)
Net gain on sale of assets
 
 
 
 
 
$
5,488
 
 
Summarized assets and liabilities of discontinued operations are presented in the following table (in thousands):
 
 
 
December 31,
 
 
December 31,
 
 
 
2018
 
 
2017
 
Accounts receivable, net
 
$
60
 
 
$
3,161
 
Inventory, net
 
 
-
 
 
 
1,458
 
Prepaid expenses and other current assets
 
 
-
 
 
 
443
 
Total current assets
 
 
60
 
 
 
5,062
 
Fixed assets, net
 
 
-
 
 
 
1,041
 
Intangible assets, net
 
 
-
 
 
 
22,069
 
Goodwill, net
 
 
-
 
 
 
1,659
 
Total assets of discontinued operations
 
 
60
 
 
 
29,831
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
 
271
 
 
 
957
 
Accrued expenses and other current liabilities
 
 
-
 
 
 
3,557
 
Senior secured term loan, net
 
 
-
 
 
 
10,929
 
Total current liabilities
 
$
271
 
 
$
15,443
 
Other long-term liabilities
 
 
-
 
 
 
245
 
Total liabilities of discontinued operations
 
$
271
 
 
$
15,688
 
 
During the year ended December 31, 2017, the Company recorded a gain of approximately $1.7 million (net of tax of $
0
) on the sale of the assets related to the Argentum Purchase Agreement, pursuant to the following (in thousands):
 
Proceeds from sale
 
 
 
 
 
 
 
 
Consideration for inventory
 
$
112
 
 
 
 
 
Consideration for intangible assets
 
 
3,600
 
 
 
 
 
Total Consideration
 
 
 
 
 
 
3,712
 
Less: Net book value of assets sold to Argentum
 
 
 
 
 
 
 
 
Inventory, net
 
 
(307
)
 
 
 
 
Intangibles, net
 
 
(1,709
)
 
 
 
 
Total net book value of assets
 
 
 
 
 
 
(2,016
)
Gain on sale of assets
 
 
 
 
 
$
1,696
 
 
On August 31, 2017, the Company entered into a ninety-day transition services agreement with Argentum (“Transition Agreement”). Under the Transition Agreement, the Company is required to perform certain services related to the communication with distributors, wholesalers and customers in respect of transition of the TheraBond product line to Argentum, as specified in the Transition Agreement. As compensation, Argentum paid the Company $200,000 for the services completed during the period from the closing of the purchase for three months ended November 30, 2017. This compensation was recognized over the service period and is included in discontinued operations for the year ended December 31, 2017. On September 12, 2018, the obligation was paid in full and as of December 31, 2018, no obligation is owed by Argentum.