5. Discontinued Operations

During the quarter ended June 30, 2017, the Company approved a plan to sell its Network Engineering Services business (“Engineering Services”) and shift its focus towards research and development driven radio frequency (“RF”) products. On July 31, 2017, the Company sold its Network Engineering Services business to Gabe’s Construction Co., Inc. (“Gabe’s”). The Company filed a Form 8-K related to the disposition on August 4, 2017.

The disposition met the requirements for classification as held for sale during the quarter ended June 30, 2017 because the disposition met all of the criteria outlined in the accounting guidance. Due to the significance of the results during the years ended December 31, 2016, 2015, and 2014, and because this disposition represents a strategic shift by the Company to focus on products, the disposition of Engineering Services also qualified as a discontinued operation for reporting purposes. As such, the Company reported the results of its Engineering Services business as discontinued operations beginning with the quarter ended June 30, 2017. In this quarterly report on Form 10-Q, the results for Engineering Services are reported as discontinued operations for the three and nine months ended September 30, 2017 and 2016, respectively. All of the revenues and cost of revenues in discontinued operations related to services provided by the Company.

The Company sold the fixed assets and backlog of the Network Engineering Services business to Gabe’s for $1.45 million. At closing, the Company received $1.4 million, consisting of $1.3 million for the sale of the business and $0.1 million related to future services. A pre-tax book gain of $0.5 million is included in discontinued operations in the three and nine months ended September 30, 2017. The net pre-tax book gain includes proceeds from the sale of assets minus the book value of the assets disposed as well as severance and related payroll benefits for terminated employees. The book value of the assets was $0.6 million at the date of closing. On August 1, 2017, the Company terminated 25 employees and Gabe’s hired 11 of these employees. The severance and related benefits for the terminated employees were not subsequently hired by Gabe’s was $0.2 million. The income tax gain was $0.3 million, which included the tax value of the fixed assets and the remaining tax value for intangible assets no longer being used by the Company as of the sale to Gabe’s. The Company retained working capital of approximately $0.5 million, including accounts receivable, accounts payable, and accrued liabilities. Subsequent to the sale, the Company is providing transition services for billing and accounts receivable collection. This transition is expected to be complete by the end of the quarter ended December 31, 2017.

There was no impairment loss recorded on the long-lived assets because the fair value of the assets less cost to sell was higher than the carrying value of the assets. At December 31, 2016, the assets held for sale consisted of the fixed assets of $0.6 million and prepaid expenses of the business of $0.1 million. For the balance sheet at December 31, 2016, the Company reclassified the fixed assets to noncurrent assets held for sale and the prepaid expenses to current assets held for sale. There were no liabilities classified as held for sale at December 31, 2016. investing cash flows included the proceeds from the sale to Gabe’s.

The following table is a reconciliation of the assets classified as held for sale in the consolidated balance sheets.

	September 30,		December 31,
	2017		2016
Prepaid expenses and other assets		0		50
Current assets held for sale		0		50

Fixed assets		0		776
Non-current assets held for sale	$	0	$	776

The details of the discontinued operations within the Statements of Operations are as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2017			2016		2017			2016
Revenues	$	368		$	3,795	$	3,725		$	8,621
Cost of revenues		415			3,113		3,974			8,044
Gross profit		(47	)		682		(249	)		577
Operating expenses:
Sales and marketing		51			280		400			855
General and administrative		4			43		31			126
Amortization of intangible assets		0			126		0			1,022
Impairment of intangible assets		0			0		0			4,724
Restructuring expenses		0			96		8			420
Total operating expenses		55			545		439			7,147
Operating (loss) income		(102	)		137		(688	)		(6,570	)
Gain on sale		(503	)		0		(503	)		0
Net (loss) income before income taxes		401			137		(185	)		(6,570	)
Expense (benefit) for income taxes		165			51		(37	)		(2,445	)
Net (loss) income	$	236		$	86	$	(148	)	$	(4,125	)

The details of the cash flows for discontinued operations are as follows:

	Nine Months Ended September 30
.	2017			2016

Cash flows from discontinued operations:
Operating Activities:
Net loss	$	(148	)	$	(4,125	)
Gain on sale of assets		(803	)		0
Depreciation		197			411
Intangible amortization		0			1,022
Impairment of intangible assets		0			4,724
Deferred tax provision		(37	)		(2,445	)
Stock compensation		49			118
Prepaid expenses and other assets		2			(26	)
Accrued liabilities		43			0
Net cash used in operating activities	$	(697	)	$	(321	)

Investing Activities:
Capital expenditures	$	(16	)	$	(149	)
Proceeds from sale of assets		1,450			0
Net cash provided by (used) in investing activities	$	1,434		$	(149	)

The investing cash flows for the nine months ended September 30, 2017 includes the proceeds from the sale of assets to Gabe’s