|12 Months Ended|
Aug. 31, 2020
Note 3 – Discontinued Operations
On January 3, 2020, the Company executed an asset purchase agreement assigning client contracts comprising approximately 88% of its quarterly revenue through the date of the transaction, including 100% of its existing professional employer organization (“PEO”) business effective as of December 31, 2019, and the transfer of $1.5 million of working capital assets, including cash balances and certain operating assets associated with the assigned client contracts included in the agreement, to a wholly owned subsidiary of Vensure Employer Services, Inc. (the “Vensure Asset Sale”). Gross proceeds from the Vensure Asset Sale were $19.2 million, of which $9.7 million was received at closing and $9.5 million will be paid out in equal monthly payments over the next four years (the “Note Receivable”), subject to adjustments for working capital and customer retention , (as measured by a gross wage guarantee included in the governing agreement), over the twelve month period following the Vensure Asset Sale.
The following is a reconciliation of the gross proceeds to the net proceeds from the Vensure Asset Sale as presented in the statement of cash flows for the period ending August 31, 2020.
The entire note receivable is recorded as a long term note receivable as of August 31, 2020. Any adjustments to the note receivable are applied against payments in the order they are due to be paid. As such, the estimates of the working capital and gross billings adjustments would not result in any cash payments due to the company within one year of August 31, 2020.
The Vensure Asset Sale generated a gain of $15.6 million for the year ended August 31, 2020. The Company expects a minimal tax impact from the Asset Sale as it intends to utilize its net operating losses accumulated since inception to offset the gain resulting from discontinued operations tax provision with a corresponding offset to the valuation allowance.
The Vensure Asset Sale met the criteria of discontinued operations set forth in ASC 205 and as such the Company has reclassified its discontinued operations for all periods presented and has excluded the results of its discontinued operations from continuing operations for all periods presented. The Company recorded the Note Receivable net of a discount using a discount rate of 15% per year.
The Vensure Asset Sale calls for adjustments to the Note Receivable either for: (i) working capital adjustments or (ii) in the event that the gross wages of the business transferred is less than the required amount.
The carrying amounts of the classes of assets and liabilities from the Vensure Asset Sale included in discontinued operations were as follows:
Reported results for the discontinued operations by period were as follows:
During the years ended August 31, 2020 and 2019, the Company utilized fully reserved net operating loss carryforwards of approximately $24,304,000 to offset income from discontinuing operations as follows:
The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef