11. Discontinued Operations

On August 6, 2018, the Company announced it had agreed to sell its U.S. business operated by its wholly owned subsidiary, M&I Electric Industries, Inc. to an affiliate of Myers Power Products, Inc. pursuant to an Asset Purchase Agreement (the “Transaction”). The Transaction closed on August 12, 2018 for a total cash purchase price of $12.4M plus the value of assumed indebtedness of approximately $12.8M. In addition, the Company was required to provide $740,000 into escrow in order to secure certain of the Company’s indemnification obligations within a six month period following closing. A portion of the funds provided by the Transaction were required to be used to pay off the Senior Secured Term Note and related interest totaling approximately $6.5 million.

The contractual terms of the aforementioned sale include a provision to true-up the net working capital, estimated as of the date of closing, to the actual working capital as calculated by the Buyer and agreed to by the Seller. Any difference in actual (conclusive) net working capital in relation to the estimated working capital at closing could result in an adjustment to the purchase price. Subsequent to September 30, 2018, the Company received notification from the Buyer of their actual working capital calculation. In the notification, the Buyer has communicated a decrease of approximately $4.3 million dollars in net working capital, in comparison to the estimated working capital used at the contract closing. The Company has until November 28, 2018 to review the documentation from the Buyer and respond. In the event the Buyer and Seller cannot agree to a conclusive net working capital adjustment, then all items remaining in dispute shall be submitted by either one of the parties within thirty (30) calendar days after the expiration of the resolution period to a national or regional independent accounting firm mutually acceptable to Buyer and Seller (the "Neutral Arbitrator"). The Neutral Arbitrator shall act as an arbitrator to determine the conclusive net working capital. The conclusive net working capital, once finally determined, may result in a purchase price adjustment due to the Buyer or to the Company as Seller.

As of the date of the filing of the 10-Q for the period ended September 30, 2018, the Company disagrees with the buyers working capital calculation and has not received documentation sufficient to support the buyers position. As such, no adjustments have been considered in determining the gain on the sale of assets reported as of September 30, 2018. The resulting purchase price adjustment based on the conclusive net working capital adjustment, if any, would be reflected in the fourth quarter of 2018.

As of June 30, 2018, the assets and liabilities sold in the Transaction were reflected as held for sale in the Company’s Consolidated Balance Sheets, and the related operating results and cash flows of the assets sold and liabilities assumed were reflected as discontinued operations in the Company’s Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income (Loss), and Consolidated Statements of Cash Flows for all periods presented.

The following tables summarize the M&I Electric Industries Inc. United States assets and liabilities held for sale and operating results.

M&I Electric Industries Inc. in the United States

Assets and Liabilities held for sale

(in thousands)

	June 30,		December 31,
	2018		2017
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	2,858	$	2,046
Restricted short-term investments		50		50
Accounts receivable-trade, net		5,405		5,266
Inventories, net		1,206		1,325
Cost and estimated earnings in excess of billings on uncompleted contracts		1,973		5,841
Prepaid expenses and other current assets		379		384
Total current portion of assets held for sale		11,871		14,912
Property, plant and equipment, net		6,000		6,323
Intangibles		506		458
Retainage receivables		-		785
Total non-current assets held for sale		6,506		7,566
Total assets held for sale	$	18,377	$	22,478
Liabilities
Current liabilities:
Accounts payable and other accrued expenses	$	9,378	$	11,278
Short-term note payable		116		150
Accrued payroll and benefits		415		338
Billings in excess of costs and estimated earnings on uncompleted contracts		3,801		1,792
Total current liabilities held for sale		13,710		13,558
Total liabilities held for sale	$	13,710	$	13,558

M&I Electric Industries Inc. in the United States

Statements of Operations (Discontinued)

Unaudited

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net sales	$	3,736		$	11,811		$	17,899		$	30,255
Cost of sales		4,326			11,028			20,358			29,716
Gross margin		(590	)		783			(2,459	)		539
Operating expenses:
Research and development		15			55			100			238
Selling and marketing		329			519			1,561			1,561
General and administrative		683			-			681			-
Total operating expenses		1,027			574			2,342			1,799
Income (loss) from discontinued operations		(1,617	)		209			(4,801	)		(1,260	)
Other income (expense):
Interest expense and other, net		6,030			(321	)		5,649			(826	)
Income (loss) from discontinued operations before income taxes		4,413			(112	)		848			(2,086	)
Provision for (benefit from) income taxes on discontinued operations		-			-			-			-
Income (loss) from discontinued operations	$	4,413		$	(112	)	$	848		$	(2,086	)

Cash provided by operating activities of discontinued operations for the nine months ended September 30, 2018 was $0.8 million. Cash provided by operating activities of discontinued operations for the nine months ended September 30, 2017 was $0.8 million. Cash provided in investing activities of discontinued operations for the nine months ended September 30, 2018 was $11.6 million. Cash used in investing activities of discontinued operations for the nine months ended September 30, 2017 was $0.1 million. The general and administrative costs represent severance payments that coincided with the discontinued operations.