Note

– Sale of Business Component

December 28, 2018,

we completed the sale of substantially all of the assets and liabilities used in our Virginia-based, critical data center power and cooling business, operated by our wholly-owned subsidiary Innovative Power Systems, Inc. The business was sold to Innovative Power, LLC (the “Buyer”) for total cash consideration of

$2.5

million, subject to certain post-closing adjustments relating to working capital and certain customer contracts of the business.

The managing member of Innovative Power, LLC is Peter H. Woodward, Chairman of our Board of Directors. Mr. Woodward is also the General Partner of MHW Partners, LP and the managing member of MHW SPV II, LLC, entities that hold

$1.595

million of promissory notes payable by TSS described above. The purchase price was determined through arms-length negotiations between us and Mr. Woodward. The transaction was unanimously approved by our Board of Directors other than Mr. Woodward.

The transaction closed on

December 28, 2018.

The purchase agreement contains representations, warranties, covenants and indemnification provisions customary for a transaction of this type. Many of the representations made by us are subject to, and qualified by, materiality or similar concepts. Both parties have agreed to indemnify the other party for certain losses arising from the breach of the purchase agreement and for certain other liabilities, subject to specified limitations. In connection with the transaction both parties will provide transition services with respect to the business activities that were sold.

The customer contracts and intellectual property sold had a net book value of

$1,176,000.

As a result of the sale, the Buyer assumed assets of

$3,000,

and

$175,000

was placed in an escrow account, resulting in

$2,325,000

of cash proceeds that was paid to us upon closing. Additionally, we incurred approximately

$184,000

in legal, escrow and other expenses that would

not

have been incurred otherwise. After writing off the carrying value of intangibles associated with the business sold, we recorded a net gain of approximately

$1,140,000

in our consolidated statement of operations during the year ended

December 31, 2018.

July 1, 2016

we adopted ASU

2014

regarding discontinued operations. As a result, we evaluated the sale of a portion of our facilities maintenance business component in light of this new standard. We concluded that this transaction was

not

a “material shift” (as defined in ASU

2014

) for us and therefore, were

not

considered a discontinued operation. In accordance with ASU

2014

08,

the following information is being provided:

	Years Ended December 31,
	201 9		201 8
Pre-tax profit related to power and cooling business	$	-	$	1,332

Pro forma impact of disposition of

power and cooling

iness

The following unaudited pro forma combined results of operations are provided for the year ended

December 31, 2018

as though this disposition occurred on

January 1, 2018.

The unaudited pro forma consolidated statements of operations for the years ended

December 31, 2018

reflect the following adjustments:

(

)

Eliminates the revenues and cost of goods sold as if the transaction occurred on

January 1, 2018

(

)

Eliminates operating expenses including salary and related costs for employees who transferred as if this transaction occurred on

January 1, 2018.

The unaudited pro forma consolidated financial information is provided for illustrative purposes only and does

not

purport to represent what the actual results of operations would have been had the transaction occurred on the respective date assumed, nor is it necessarily indicative of the Company’s future operating results. However, the pro forma adjustments reflected in the accompanying unaudited pro forma financial information reflect estimates and assumptions that the Company’s management believes to be reasonable.

Pro forma adjustments related to the unaudited pro forma consolidated statement of operations for the year ended

December 31, 2018

were computed assuming the transactions were consummated on

January 1, 2018

and include adjustments which give effect to events that are (i) directly attributable to the transaction, (ii) expected to have a continuing effect on the Company, and (iii) factually supportable.

(unaudited, in thousands)	2018
	(Pro forma)

Revenue	$	17,487
Operating income (loss)	$	429
Net income (loss)	$	(35	)
Basic and diluted net income (loss) per share	$	0.00