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 toward 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 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 represented 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. The results for Engineering Services are reported as discontinued operations for the three months ended March 31, 2017. There were no activities related to discontinued operations during the three months ended March 31, 2018 other than transition services for billing for one customer. The Company expects to complete the transition for billing by June 30, 2018.

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. The Company recorded a pre-tax book gain of $0.5 million in discontinued operations during the quarter ended September 30, 2017. The net pre-tax book gain included 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 who 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. There was no impairment loss recorded on the disposal of the long-lived assets because the fair value of the assets less cost to sell was higher than the carrying value of the assets.

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


	Three Months Ended
	March 31, 2017

Revenues	$	2,009
Cost of revenues		2,148
Gross profit		(139	)
Operating expenses:
Sales and marketing		154
General and administrative		13
Restructuring expenses		8
Total operating expenses		175
Operating loss		(314	)
Benefit for income taxes		(100	)
Net loss	$	(214	)

All of the revenues and cost of revenues in discontinued operations related to services provided by the Company.

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


.	Three Months Ended
	March 31, 2017


Cash flows from discontinued operations:
Operating Activities:
Net loss	$	(214	)
Depreciation		106
Deferred tax provision		(101	)
Stock compensation		21
Prepaid expenses and other assets		14
Net cash used in operating activities	$	(174	)

Investing Activities:
Capital expenditures	$	(1	)
Net cash used in investing activities	$	(1	)

Net cash flows used in discontinued operations:	$	(175	)