DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

RO Associates

On March 22, 2010, EEC, a wholly-owned subsidiary of the Company, entered into and consummated the closing under an asset purchase agreement by and among Astrodyne Corporation (“Astrodyne”), RO, and EEC dated March 22, 2010 (the “RO Purchase Agreement”), pursuant to which Astrodyne purchased substantially all of the assets, properties, and business as a going concern of RO. Such sale and transfer of assets pursuant to the RO Purchase Agreement was deemed to be a disposition of an insignificant amount of assets by the Company and EEC.

Astrodyne assumed certain specified liabilities of RO pursuant to an Assignment and Assumption Agreement by and between Astrodyne and RO (the “Assumption Agreement”). EEC agreed to guarantee the full, complete, and timely compliance with and performance of all agreements, covenants and obligations of RO in connection with the RO Transaction.

Astrodyne paid RO an aggregate purchase price of $1.0 million for the RO Transaction, plus the assumption of certain liabilities pursuant to the Assumption Agreement, subject to a purchase price adjustment. As additional consideration for Astrodyne’s entry into the RO Purchase Agreement, EEC and RO agreed that, for a certain period immediately following the closing date, they would not compete with the business, perform services for any person in competition with the business or solicit certain specified customers of the business, or hire any employees of Astrodyne or its affiliates.

In connection with the Company’s divestiture of RO, which comprised a portion of the Company’s electronic devices segment, the Company incurred approximately $0.4 million in charges relating to legal, accounting and investment banking fees. The Company does not expect to incur any additional costs associated with this transaction. The Company incurred a loss on the sale of the RO assets of approximately $0.5 million.

The Company has classified RO, which is a component of its electronic devices segment, as discontinued operations in the accompanying consolidated financial statements for all periods presented.

ACC Operations

On June 7, 2010, EEC entered into a Stock Purchase Agreement among Aeroflex Incorporated, as buyer, and EEC, as seller, relating to the sale of all of the issued and outstanding shares of common stock of ACC and all of the issued and outstanding shares of common stock of CCI (the “ACC Purchase Agreement”), which was subsequently assigned by Aeroflex Incorporated to its subsidiary, Aeroflex/KDI, Inc. (“Aeroflex”). On August 31, 2010, EEC completed the sale (the “ACC Transaction”) pursuant to the ACC Purchase Agreement.

The ACC Transaction consisted of an aggregate purchase price of $20 million in cash (the “Purchase Price”). An amount equal to $0.8 million was placed in a 12-month escrow account pursuant to an agreement between Aeroflex and EEC to satisfy any indemnification claims. In addition, the following amounts were satisfied out of the Purchase Price: (i) $10.6 million to the Company’s senior lender, GVEC Resource IV Inc., an affiliate of Private Equity Management Group (“PEM”), representing the aggregate amount of the indebtedness owed by EEC to PEM, which was satisfied by payment of $9.6 million in cash and by delivering a two-year, interest bearing note in the amount of $1 million described herein, and (ii) $3.1 million in cash and a $2.8 million, three-year, interest bearing note, both in satisfaction of the deferred purchase price and contingent payments owed by EEC to certain of ACC’s previous shareholders, Charles S. Brand, Thomas P.M. Couse, Joanne Couse and Michael Gaffney (collectively, the “Former Shareholders”), as further described in Note 9. The Purchase Price was adjusted by $0.8 million based on the estimated level of adjusted net working capital of ACC at the closing of the Transaction, subject to final determination pursuant to the procedures set forth in the ACC Purchase Agreement.

In April 2011, the Company negotiated a settlement associated with the level of adjusted net working capital of the ACC Operations as of the closing date of the ACC Transaction. At December 31, 2010, the estimated additional net working capital adjustment was $0.4 million, which was accrued and recorded as an additional purchase price adjustment. The Company and Aeroflex agreed that the Company would satisfy the net working capital obligation through the release of $0.6 million of funds held in escrow from the date of the ACC Transaction. As a result of the settlement associated with the level of adjusted net working capital of the ACC Operations and the release of funds held in escrow, the Company recorded an additional gain on the sale of ACC of $0.3 million (net of $0.2 million of income taxes), which is included in discontinued operations in the accompanying consolidated condensed statement of operations.

In September 2011, the Company resolved all outstanding claims submitted under the terms of the ACC Purchase Agreement and all unused funds in the escrow account in the amount of $0.1 million were returned to the Company and recorded as a purchase price adjustment and a gain (net of tax) from the sale of discontinued operations in the third quarter of 2011.

In connection with the ACC Transaction, the Company incurred approximately $1.4 million in closing costs, including legal, accounting and investment advisory fees. The Company recognized a net gain on the ACC Transaction of approximately $1.0 million.

The Company has classified the ACC Operations, which was a component of its electronic devices segment, as discontinued operations in the accompanying unaudited consolidated financial statements for all periods presented.

Test Product Line

During the fourth quarter of 2011, CXR Larus Corporation (“CXR Larus”), a wholly-owned subsidiary of EMRISE Corporation, committed to the sale of certain assets relating solely to the CXR Halcyon product line of telecommunications test equipment (the “Test Product Line”). The Test Product Line is included in the Company's communications equipment segment and is accounted for as an asset held for sale as of December 31, 2011.

The following table reflects the major classes of assets and liabilities for the Test Product Line as of December 31, 2011 and 2010 (in thousands):



	2011		2010
Accounts receivable, net	131		141
Inventory, net	214		294
Prepaids and other current assets	—		—
Total current assets	345		435
Property, plant and equipment, net	—		—
Total assets	$	345	$	435
Total current liabilities	$	13	$	32

The following table summarizes certain components of the statements of operations for discontinued operations for the years ended December 31, 2011 and 2010 (in thousands):



	2011						2010
	Test Product Line		ACC		Total		Test Product Line		RO			ACC			Total
Net Sales	$	641	$	—	$	641	$	1,038	$	442		$	13,546		$	15,026
Income (loss) from operations	$	141	$	—	$	141	$	425	$	190		$	3,129		$	3,744
Other income (expense)	—		—		—		—		1			(281		)	(280		)
(Loss) gain	—		527		527		—		(498		)	495			(3		)
Provision for income taxes	—		239		239		—		—			985			985
Net (loss) income	$	141	$	288	$	429	$	425	$	(307	)	$	2,358		$	2,476
(Loss) earnings per share:
Basic and diluted	$	0.01	$	0.03	$	0.04	$	0.04	$	(0.03	)	$	0.22		$	0.23
Weighted average shares outstanding:
Basic and diluted	10,672		10,672		10,672		10,647		10,647			10,647			10,647