8. DISCONTINUED OPERATIONS

9 Months Ended

Sep. 30, 2018

Notes

8. DISCONTINUED OPERATIONS

8.     DISCONTINUED OPERATIONS

In response to the changes in the telecommunications market and deterioration in the Company’s ability to effectively compete, the Company made the decision to exit the competitive local exchange carrier or CLEC business.  On October 27, 2017, the Company’s board of directors adopted a plan to exit the CLEC business as soon as possible through the sale of its wholly owned CLEC subsidiary and/or substantially all of its CLEC subsidiary’s operating assets.  The Company was in negotiations with a potential buyer at December 31, 2017, which buyer subsequently purchased substantially all of its CLEC subsidiary’s operating assets pursuant to an asset purchase agreement which was executed and closed on February 1, 2018 (the “Sale”).

The Company determined that the Sale represented a strategic shift that will have a major effect on the Company’s operations and financial results since it represented a complete exit from the CLEC business and, therefore, classified its CLEC subsidiary as held for sale at December 31, 2017.

The Company recognized a gain of $233,277 on the Sale based on total consideration of $264,872 less total basis in the assets sold and transactions costs of $31,595.  The assets sold consisted primarily of customers and associated customer premise equipment.

Consideration:
Cash	$	246,500
Assumption of deferred revenue		8,366
Waived service obligation for February 2018		10,006
Total consideration	$	264,872
Total assets sold:
Customer contracts	$	-
Fiber innerduct		3,248
Fiber strands		-
Customer CPE		-
Total assets		3,248
Transactional costs		28,347
Total basis	$	31,595
Net gain	$	233,277

Assets and Liabilities of Discontinued Operations

	September 30, 2018	December 31, 2017
Carrying amounts of assets included in discontinued operations
Cash	$3,442	$1,801
Prepaid expenses and other current assets	2,915	2,671
Property and equipment, net	14,668	24,871
Total Assets of Discontinued Operations	$21,025	$29,343
Carrying amounts of liabilities included in discontinued operations
Accounts payable	$61,940	$57,342
Accrued and other liabilities	21,807	19,878
Convertible notes payable, related party – current portion	-	116,592
Convertible notes payable, related party – less current portion	-	-
Total Liabilities of Discontinued Operations	$83,747	$193,812

Operating Results of Discontinued Operations

	Three Months Ended		Nine Months Ended
	September 30, 2018	September 30, 2017	September 30, 2018	September 30, 2017
Revenues included in discontinued operations
Total colocation and other revenues	-	$     39,357	28,091	$    115,807
Operating costs and expenses included in discontinued operations
Cost of services	10,128	$    49,227	82,674	$   162,639
Selling, general and administrative expenses	1,379	4,069	5,226	13,285
Depreciation and amortization	2,318	2,537	6,955	7,611
Interest expense	-	2,735	51	8,652
Total operating costs and expenses discontinued operations	$  13,825	$  58,568	$  94,906	$  192,187
Other Income included in discontinued operations
Gain on sale of assets	-	-	233,277	-
Net Income (Loss) from Discontinued Operations	$ (13,825)	$ (19,211)	$ 166,462	$ (76,380)
Net Income (Loss) per share from discontinued operations basic	$     (0.00)	$     (0.00)	$       0.01	$     (0.01)
Net Income (Loss) per share from discontinued operations diluted	$     (0.00)	$     (0.00)	$       0.01	$     (0.01)

Cash Flows from Discontinued Operations

	September 30, 2018	September 30, 2017
Net cash used in operating activities	(36,846)	(63,529)
Net cash provided by investing activities	218,153	-
Net cash used in financing activities	(116,592)	(21,054)
Net cash provided by (used in) discontinued operations	64,715	(84,583)