Quarterly report pursuant to Section 13 or 15(d)

L. DISCONTINUED OPERATIONS

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L. DISCONTINUED OPERATIONS
9 Months Ended
Sep. 30, 2017
Discontinued Operations and Disposal Groups [Abstract]  
DISCONTINUED OPERATIONS

In October of 2016, the Company, under the direction and authority of the Board of Directors, committed to a plan to offer for sale EthoStream, the Company’s wholly–owned High-Speed Internet Access (“HSIA”) subsidiary. As a result of this decision to sell EthoStream, the operating results of EthoStream as of and for the year ended December 31, 2016 were reclassified as discontinued operations and as assets and liabilities held for sale in the consolidated financial statements as detailed in the table below. During the nine months ended September 30, 2017, the Company, and EthoStream, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with DCI-Design Communications LLC (“DCI”), a Delaware limited liability company, whereby DCI acquired all of the assets and certain liabilities of EthoStream for a base purchase price of $12,750,000. The Purchase Agreement includes that proceeds of $900,000 are to be withheld from the $12,750,000 base purchase price and placed into an escrow account to support potential indemnification obligations of up to $800,000 and net working capital adjustments of up to $100,000. The escrow amount, net of potential claims, would be fully released after an escrow period not to exceed 12 months after closing. Another $93,000 is classified in other current assets as a net working capital receivable. The assets included, among other items, certain inventory, contracts and intellectual property.  DCI acquired only the liabilities provided for in the Purchase Agreement.  On March 29, 2017, pursuant to the terms and the conditions of the Purchase Agreement, the Company closed on the sale.

 

On September 27, 2017, the Company reached a final settlement with DCI on net working capital as set forth in the Purchase Agreement. On September 29, 2017, the Company received $100,000 from the escrow account for the portion of the escrow account set aside for net working capital adjustments and cash proceeds of $311,000 from DCI in the settlement of net working capital adjustments. The net working capital receivable of $93,000 in other current assets was applied against the cash proceeds of $311,000 received on September 29, 2017 resulting in a gain from sale of discontinued operations of $218,000 recognized during the three months ended September 30, 2017.

 

The following table summarizes the balance sheet information for discontinued operations.

 

    September 30,     December 31,  
    2017     2016  
             
Accounts receivable, net   $     $ 456,478  
Inventories           350,506  
Other current assets           12,980  
Other asset – goodwill           5,796,430  
Other  asset – intangible asset, net           533,577  
Current assets of discontinued operations           7,149,971  
                 
                 
Accounts payable           465,346  
Accrued liabilities and expenses           90,187  
Deferred revenues           37,509  
Customer deposits           200,466  
Deferred lease liability           76,096  
Current liabilities of discontinued operations           869,604  
                 
Net assets of discontinued operations   $     $ 6,280,367  

 

The following table summarizes the statements of operations information for discontinued operations.

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
    2017     2016     2017     2016  
Revenues, net:                                
Product   $     $ 995,425     $ 653,839     $ 2,749,001  
Recurring           1,038,585       925,837       2,985,550  
Total Net Revenue           2,034,010       1,579,676       5,734,551  
                                 
Cost of Sales:                                
Product     (11,600 )     565,276       403,004       1,753,994  
Recurring           242,678       209,868       697,541  
Total Cost of Sales     (11,600 )     807,954       612,872       2,451,535  
                                 
Gross Profit     11,600       1,226,056       966,804       3,283,016  
                                 
Operating Expenses:                                
Selling, general and administrative     197       315,437       252,307       896,385  
Depreciation and amortization           60,420       60,420       181,697  
Total Operating Expenses     197       375,857       312,727       1,078,082  
                                 
Income from Discontinued Operations before Provision for Income Taxes     11,403       850,199       654,077       2,204,934  
                                 
Provision for Income Taxes           51,312       52,017       153,936  
Income from Discontinued Operations (net of tax)   $ 11,403     $ 798,887     $ 602,060     $ 2,050,998  

 

The consolidated statements of cash flows do not present the cash flows from discontinued operations for investing activities or financing activities because there were no investing or financing activities associated with the discontinued operations in three and nine months ended September 30, 2017 and 2016.