Discontinued Operations

3 Months Ended

Aug. 31, 2020

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

On October 10, 2019, the Company entered into an agreement (“Purchase Agreement”) to sell the Schmitt Dynamic Balance Systems (“SBS”) business line to Tosei Engineering Corp. and Tosei America, Inc. (collectively “Tosei”) for a purchase price of $10,500,000 in cash. The transaction closed on November 22, 2019 and included certain assets held by the U.S. parent company and all the outstanding stock of the UK subsidiary, Schmitt Europe Limited. As a result, the financial position, results of operations, and cash flows relating to our SBS business line are reported as discontinued operations in the accompanying condensed consolidated financial statements.

The consideration included $9,940,000 in unrestricted cash from the Buyer at closing, plus $420,000 to be placed into an escrow account, net of $140,000 in minimum cash settled via the funds flow at closing. Remaining escrow funds become unrestricted after certain events are completed and after one year from closing. The Purchase Agreement requires an adjustment to purchase price after closing based on the difference between (a) the calculated amount of working capital at closing and (b) the target working capital of $4,200,000. The closing working capital calculation resulted in $107,000 in net proceeds paid from Buyer to Seller in February 2020.

The following is a composition of the line items constituting income from discontinued operations:

	Three Months Ended,
	August 31, 2020		August 31, 2019
Net revenue	$	—	$	2,247,107
Cost of revenue		—		1,164,125
Gross profit		—		1,082,982
Operating expenses:
General, administration and sales		—		586,857
Research and development		—		9,081
Total operating expenses		—		595,938
Operating income		—		487,044
Other income (expense), net		—		(75,731	)
Income before taxes		—		411,313
Provision for income taxes		—		35,351
Net income from discontinued operations	$	—	$	375,962