SUNation Energy, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Discontinued Operations

Discontinued Operations

12 Months Ended

Dec. 31, 2019

NOTE 4 – DISCONTINUED OPERATIONS

On April 5, 2019, the Company sold its Suttle FutureLink™ Fiber business line, including inventory, equipment, and customer relationships, to PPC Broadband Inc. (“PPC”). The transaction was structured as an Asset Purchase Agreement with a simultaneous signing and closing. The sale price was $5,000,000 cash, of which $500,000 was deferred into an escrow account until certain criteria are met and is recorded as restricted cash within the consolidated balance sheet. The Company recognized a gain on the sale of inventory and capital equipment totaling $2,967,000 during the second quarter of 2019. Concurrent with the closing of the transaction, Suttle and PPC entered into a Transition Services Agreement under which Suttle agreed to manufacture products related to the FutureLink™ Fiber business line until September 30, 2019, to ensure seamless supply to the customer base.

On March 11, 2020, the Company sold the remainder of its Suttle business lines, including the SoHo, MediaMAX, and SpeedStar brands and inventory as well as working capital, certain capital equipment and customer relationships to Oldcastle Infrastructure, Inc. (“Oldcastle”) for $8,000,000. Oldcastle, a wholly-owned subsidiary of Ireland based CRH PLC, will operate the majority of the acquired Suttle business through its wholly-owned subsidiary, Primex Technologies, Inc. Concurrent with the closing of the transaction, the Company and Oldcastle entered into a Transition Services Agreement (“TSA”) under which Suttle will continue to manufacture products for Oldcastle for six months, to ensure seamless supply and quality assurance to the existing customer base. Concurrently with the closing of the transaction and the TSA, the Company and Oldcastle also entered into a lease agreement under which Oldcastle will lease two buildings in Hector, Minnesota, where Suttle had conducted operations. Base rents under the lease agreement range from $6,970 to $7,180 per month. The parties intend to work with Suttle’s existing suppliers to ensure continued support and delivery of all Suttle products during the transition period. The associated assets and liabilities related to this sale are classified as held for sale in the consolidated balance sheets. The presentation of discontinued operations has been retrospectively applied to all prior periods presented.

The assets and liabilities of this discontinued operation that are classified as held for sale are as follows:



		December 31, 2019		December 31, 2018

Trade accounts receivable	$	2,235,000	$	3,808,000
Inventories		3,009,000		4,177,000
Other current assets		93,000		91,000
Total current assets	$	5,337,000	$	8,076,000


Property, plant, and equipment	$	883,000	$	2,115,000
Total noncurrent assets	$	883,000	$	2,115,000

Total assets held for sale	$	6,220,000	$	10,191,000


Accounts payable	$	1,111,000	$	1,309,000
Other accrued liabilities		82,000		71,000
Total liabilities held for sale	$	1,193,000	$	1,380,000

The financial results of the discontinued operations are as follows:



		Year Ended December 31
		2019		2018

Sales	$	18,879,000	$	23,394,000
Cost of sales		12,965,000		19,709,000
Selling, general and administrative expenses		2,684,000		5,129,000
Restructuring expenses		-		364,000
(Gain) loss on sale of assets		(2,990,000)		63,000
Other income		-		(11,000)
Operating income before income taxes		6,220,000		(1,860,000)
Income tax expense		2,000		1,000
Income (loss) from discontinued operations	$	6,218,000	$	(1,861,000)

During the year ended December 31, 2018, the Company recorded $364,000 in restructuring expense. This consisted of severance and related benefits costs due to organizational restructuring within the Suttle business segment. The Company paid $364,000 in restructuring charges during 2019 and had no restructuring accruals recorded at December 31, 2019.