Quarterly report pursuant to Section 13 or 15(d)

DISCONTINUED OPERATIONS

v2.4.0.8
DISCONTINUED OPERATIONS
6 Months Ended
Oct. 31, 2013
Discontinued Operations  
DISCONTINUED OPERATIONS
NOTE 11 - DISCONTINUED OPERATIONS
 
Hartford and Lakewood Operations Asset Sales
 
On July 25, 2012, the Company and the Hartford and Lakewood Operations entered into an asset purchase agreement (the Asset Purchase Agreement), pursuant to which the Hartford and Lakewood Operations sold substantially all of their assets to two newly-created subsidiaries of Kavveri Telecom Products Limited (Kavveri) for a purchase price of $5.5 million in cash, subject to adjustment, and the assumption of their various liabilities. At closing, the Company received $4.9 million in cash, with the remaining $600,000 of the purchase price to be placed into escrow pursuant to the Asset Purchase Agreement. The Company used the proceeds from this sale to repay the full amount outstanding under the Credit Agreement of $4,022,320 as of July 25, 2012. The difference of $877,680 was deposited in its operating cash account.
  
Kavveri agreed to place $350,000 of the purchase price into escrow in the future pending assignment of certain contracts post-closing, with the Company receiving those funds upon successful assignment of the contracts. The remaining $250,000 is to be escrowed in the future for purposes of satisfying certain adjustments to the purchase price based on a final net asset valuation to be completed after closing as well as repurchase obligations of certain delinquent accounts receivable. No later than three days after the final determination of the net asset valuation, the purchasers are required to deposit the $600,000 into escrow.
 
To date, the Company has not reached agreement with Kavveri with regard to resolving the net asset valuation. On October 4, 2013, Kavveri submitted a revised aggregate claim for indemnification by the Company of approximately $1,013,000 with regard to (1) net asset valuation claim owed of approximately $421,000; (2) accounts receivable deemed uncollectible of $414,000 related to a project that was completed by the Company’s former Hartford Operations and accepted by the customer on or prior to the Closing Date; and (3) delinquent account receivables to be repurchased of approximately $178,000.
 
With regard to this revised claim, the Company continues to stand-by its previous position as described in its response to Kavveri on February 27, 2013. Among other things, the Company disputes the amount of the delinquent receivables, and believes that after consideration of reserves for uncollectible accounts and other offsets previously considered in its calculation of the net asset valuation, the total amount of accounts receivable deemed uncollectible for repurchase to be approximately $36,000. However, the Company contends that Kavveri missed the deadline to notify the Company regarding the repurchase of delinquent receivables pursuant to the terms of the Asset Purchase Agreement regarding timing for notification to the Company, which would eliminate any repurchase payment owed by the Company to Kavveri. The Company also believes that the $414,000 of accounts receivable claimed for indemnification by Kavveri is without merit. Finally, the Company also disputes the net asset valuation claim, and believes Kavveri owes the Company approximately $58,000, following its evaluation of the uncollectible accounts receivable. With regard to the net asset valuation claim, if the parties disagree, and if they are unable to come to an agreement, the matter will be submitted to one or more independent, nationally-recognized accounting firms for final determination. To date, no matters have been submitted to an independent accounting firm.
 
Australia Operations
 
On September 19, 2013, the Company entered into a Securities Purchase Agreement (the Agreement) with Turquino Equity LLC, a limited liability company (Turquino), whose managing member is Andrew Hidalgo, former Chairman and Chief Executive Officer of the Company. Pursuant to the Agreement, the Company agreed to sell 100% of the shares of Pride for $1,400,000 (Purchase Price). At the Closing Date, the Company will settle the Purchase Price with Turquino by applying the net after tax severance balance due Mr. Hidalgo under his separation agreement as further described in Note 13“Executive Management Changes”, as partial payment towards the Purchase Price, and Turquino will pay cash for the difference between the Purchase Price and the net severance balance due. The Agreement contains a number of conditions to closing, including but not limited to the following: (i) each of the Company and Turquino shall have performed and complied with all terms of the Agreement required to be performed or complied with by it at or prior to the Closing Date; (ii) no action or proceeding by or before any governmental authority shall have been instituted or threatened (and not subsequently dismissed, settled or otherwise terminated) which might restrain, prohibit or invalidate any of the transactions contemplated by the Agreement, other than an action or proceeding instituted or threatened by a party or any of its affiliates; (iii) the representations and warranties contained in made by each of the Company and Turquino to each other shall be true and correct in all material respects on the closing date as though made on and as of the closing date; (iv) the Company obtaining a fairness opinion that the Purchase Price is fair; and (v) the Company has obtained shareholder approval, if required. To date, the Company and Turquino have completed certain of the closing conditions, however the Company is in the process of obtaining shareholder approval, so it has not completed the closing. It is expected that the Agreement will be closed by January 31, 2014.
 
The Company has reported the financial activity of these three operations as discontinued operations for all periods presented. The disposal of two operations was concluded in fiscal year 2013, and the Company has reflected the gain from the disposal of the Hartford and Lakewood Operations in the three months ended July 31, 2012. A summary of the operating results for the discontinued operations is as follows:
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
October 31,
 
October 31,
 
 
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUE
 
$
1,550,626
 
$
1,983,918
 
$
3,431,331
 
$
9,041,819
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 
 
1,078,044
 
 
1,310,880
 
 
2,482,879
 
 
6,958,473
 
Selling, general and administrative expenses
 
 
435,920
 
 
875,813
 
 
897,157
 
 
3,082,787
 
Depreciation and amortization
 
 
46,994
 
 
51,887
 
 
95,426
 
 
211,244
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,560,958
 
 
2,238,580
 
 
3,475,462
 
 
10,252,504
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING LOSS FROM DISCONTINUED OPERATIONS
 
 
(10,332)
 
 
(254,662)
 
 
(44,131)
 
 
(1,210,685)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
(1,614)
 
 
3,366
 
 
(4,384)
 
 
3,593
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss from discontinued operations before income tax provision
 
 
(8,718)
 
 
(258,028)
 
 
(39,747)
 
 
(1,214,278)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax provision
 
 
-
 
 
215,700
 
 
-
 
 
269,864
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss from discontinued operations, net of tax
 
 
(8,718)
 
 
(473,728)
 
 
(39,747)
 
 
(1,484,142)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Loss) gain from disposal
 
 
-
 
 
(485,212)
 
 
-
 
 
1,839,419
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL (LOSS) INCOME FROM DISCONTINUED OPERATIONS
 
$
(8,718)
 
$
(958,940)
 
$
(39,747)
 
$
355,277
 
 
The Company incurred approximately $55,000 of expenses directly associated with the asset sales of the Hartford and Lakewood Operations.
 
There were no assets or liabilities included in the condensed consolidated balance sheet for the Hartford and Lakewood Operations at October 31, 2013 or April 30, 2013.
 
The following table summarizes the assets and liabilities held for sale:
 
ASSETS
 
October 31, 2013
 
April 30, 2013
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
257,166
 
$
494,471
 
Accounts receivable, net of allowance
 
 
1,292,564
 
 
1,277,120
 
Costs and estimated earnings in excess of billings on uncompleted contracts
 
 
189,678
 
 
69,488
 
Prepaid expenses and other current assets
 
 
103,945
 
 
64,370
 
Total current assets held for sale
 
 
1,843,353
 
 
1,905,449
 
 
 
 
 
 
 
 
 
PROPERTY AND EQUIPMENT, net
 
 
205,970
 
 
298,721
 
 
 
 
 
 
 
 
 
OTHER INTANGIBLE ASSETS, net
 
 
183,411
 
 
234,404
 
 
 
 
 
 
 
 
 
OTHER ASSETS
 
 
16,161
 
 
17,704
 
Total other assets held for sale
 
 
405,542
 
 
550,829
 
 
 
 
 
 
 
 
 
Total assets held for sale
 
$
2,248,895
 
$
2,456,278
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Accounts payable and accrued expenses
 
$
668,319
 
$
662,437
 
Billings in excess of costs and estimated earnings on uncompleted contracts
 
 
32,111
 
 
23,194
 
Total liabilities held for sale
 
$
700,430
 
$
685,631