Discontinued Operations

12 Months Ended

Dec. 31, 2012

Discontinued Operations

Discontinued Operations

4. Discontinued Operations

During the Transition Period ended December 31, 2011, the Company completed the sale of Safety and substantially all the assets of CSS and used $14,385,827 of the proceeds from these sales to repay debt. The results of operations of these subsidiaries, along with PMX, are reported as “discontinued operations” and assets and liabilities have been separated on the balance sheet.

As part of the consideration for the sale of Safety, the Company received an unsecured note in the amount of $2,500,000, bearing interest at 6% and payable in equal monthly installments of $76,055 through February 2014. On November 9, 2011, the Company received a $500,000 prepayment of the note, as agreed to in the Stock Purchase Agreement and through December 31, 2012 and 2011, recorded total receipts from the note of $337,765 and $652,110, including interest of $116,247 and $15,654, respectively. These receipts were used to further reduce the Company’s debt obligations to YA.

Also, as part of the sale of Safety and CSS, the Company agreed to deposit part of the consideration from those sales to be put into escrow accounts to support representations and warranties made by the Company to the buyers. In the case of Safety, the original escrow amount was $2,000,000. On December 31, 2011, the buyer notified the Company of the failure of Safety to renew a certain contract specified in the Company’s representations. As per the agreement, the buyer was permitted to receive $1,500,000 of the escrow amount, leaving $500,000 in the Safety escrow account. In the case of CSS, the escrow amount provided for in the Asset Sale Agreement was $300,000 and as of the date of this filing no claims have been made by the buyer on that amount.

Summarized in the table below is certain financial information (which consists primarily of Safety and CSS) included in discontinued operations for the year ended December 31, 2012, the Transition Period ended December 31, 2011 and the fiscal year ended June 30, 2011.

			Transition Period			Year Ended
	December 31, 2012		December 31, 2011			June 30, 2011
Net contract revenue	$	—	$	22,749,524		$	105,099,071
Contract costs	—		25,712,225			89,958,946
Gross (loss) profit on contracts	—		(2,962,701		)	15,140,125
Operating expenses	—		4,000,890			13,763,201
Operating (loss) income	—		(6,963,591		)	1,376,924
Other income (expenses)	—		18,287			(168,915		)
Gain on sale of assets of subsidiaries	—		10,598,907			—
Income from discontinued operations	$	—	$	3,653,603		$	1,208,009

Revisions in contract profits are made in the period in which circumstances requiring the revision become known.  The effect of changes in estimates of contract profits was to decrease operating loss for discontinuing operations by approximately $5.8 million at Safety during the Transition Period from that which would have been reported had the revised estimates been used as the basis of recognition of contract profits in the preceding period. (see Note 10 - Exchange Agreement and Note 16 - Subsequent Events)