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.

January 31, 2017,

we completed the sale of certain identified assets and liabilities associated with a specific customer contract from our project management business for

$350,000

pursuant to an Asset Purchase Agreement (“APA”) dated

December 12, 2016

with Tech Site Services, LLC, a privately held Maryland company. The sale price was subject to certain post-closing adjustments relating to working capital and obtaining the consent of the customer as a condition of closing. Tech Site Services, LLC also must pay us an earn-out payment equal to

10%

of all revenue generated under the customer contract in excess of

$2.5

million in each

-month period during the

two

-year period after the closing of this transaction.

earn out payments were due in

2017

2018.

The managing member of Tech Site Services, LLC is Thomas P. Rosato and the Company leased our Maryland office until

December 2016

from an entity that is

fifty

percent owned by Mr. Rosato.

The transaction closed on

January 31, 2017.

The APA 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 APA 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 contract and intellectual property sold had a net book value of

$0.

As a result of the sale, Tech Site Services LLC assumed liabilities of

$7,000,

resulting in

$343,000

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

$29,000

in legal, escrow and other expenses that would

not

have been incurred otherwise. As a result, we recorded a net gain of approximately

$321,000

in our consolidated statement of operations during the year ended

December 31, 2017.

As noted above, on

July 1, 2016

we adopted ASU

2014

regarding discontinued operations. As a result, we evaluated both the sale of the specific customer contract and the sale of a portion of our facilities maintenance business component in light of this new standard. We concluded that neither of these transactions were 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 8		201 7
Pre-tax profit related to power and cooling business	$	1,332	$	1,122
Pre-tax profit related to specific customer contract	$	-	$	93

Pro forma impact of disposition

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

December 31, 2018

and

2017

as though both of these dispositions occurred on

January 1, 2017.

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

December 31, 2018

and

2017

reflect the following adjustments:

	( 1 )	Eliminates the revenues and cost of goods sold as if the transaction occurred on January 1, 2017
	( 2 )	Eliminates operating expenses including salary and related costs for employees who transferred as if this transaction occurred on January 1, 2017.

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 transactions 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 years ended

December 31, 2018

and

2017

were computed assuming the transactions were consummated on

January 1, 2017

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.

	Years ended December 31,
(unaudited, in thousands)	2018			2017
	(Pro forma)			(Pro forma)

Revenue	$	17,487		$	14,255
Operating income (loss)	$	429		$	(395	)
Net income (loss)	$	(35	)	$	(735	)
Basic and diluted net income (loss) per share	$	0.00		$	(0.05	)