2. Discontinued Operations

On June 29, 2018, the Company completed the sale of the EES Business to Webasto. In accordance with the terms of the Purchase Agreement, as amended by a Side Letter Agreement executed at the closing, the Company received cash consideration of $31,994,000 upon closing, which resulted in a gain of $11,420,000 which has been recorded in “Gain on sale of business, net of tax” in the consolidated statements of operations. During the three-months ended October 27, 2018, the Company recorded a reduction to the gain resulting from a working capital adjustment of $504,000. In addition, the Company is in the process of submitting a Webasto working capital dispute in the amount of $1,085,000 to an independent accounting firm for resolution pursuant to the terms of the Purchase Agreement. No amounts have been recorded in the consolidated financial statements related to the additional working capital dispute as Company has assessed the likelihood of a loss to be less than probable.

The Company is entitled to receive additional cash consideration of $6,500,000 (the “Holdback”) upon tendering consents to assignment of two remaining customer contracts to Webasto. The Holdback was not recorded in the Company’s consolidated financial statements as the amount was not realized or realizable as of October 27, 2018. The Company’s satisfaction of the requirements for the payment of the Holdback is currently in dispute.

During the three months ended October 27, 2018, Webasto filed a recall report with the National Highway Traffic Safety Administration that named certain of the Company’s EES products as subject to the recall. The Company is continuing to assess the facts giving rise to the recall. Under the terms of the Purchase Agreement, the Company may be responsible for certain costs of such recall of named products the Company manufactured, sold or serviced prior to the closing of the sale of the EES Business.

Concurrent with the execution of the Purchase Agreement, the Company entered into a transition services agreement (the “TSA”) to provide certain general and administrative services to Webasto for a defined period. Income from performing services under the TSA income of $1,221,000 and $1,620,000 has been recorded in “Other income, net” in the consolidated statements of operations for three and six months ended October 27, 2018, respectively.

The Company determined that the EES Business met the criteria for classification as an asset held for sale as of April 30, 2018 and represents a strategic shift in in the Company’s operations. Therefore, the assets and liabilities and the results of operations of the EES Business are reported as discontinued operations for all periods presented. The table below presents the statements of operations data for the EES Business (in thousands).


	Three Months Ended				Six Months Ended
	October 27, 2018		October 28, 2017		October 27, 2018		October 28, 2017
Net sales	$	—	$	9,965	$	4,256	$	17,575
Cost of sales		748		8,293		5,026		14,803
Gross margin		(748)		1,672		(770)		2,772
Selling, general and administrative		50		1,696		1,503		3,740
Research and development		(25)		429		1,040		1,348
Other income, net		—		—		1		—
Loss from discontinued operations before income taxes		(773)		(453)		(3,312)		(2,316)
Benefit for income taxes		(174)		(420)		(863)		(795)
Net loss from discontinued operations	$	(599)	$	(33)	$	(2,449)	$	(1,521)
(Loss) gain on sale of business, net of tax (benefit) expense of $(114) and $2,463 for the three and six months ended October 27, 2018, respectively		(391)		—		8,452		—
Net income (loss) from discontinued operations	$	(990)	$	(33)	$	6,003	$	(1,521)

The major classes of assets and liabilities included in discontinued operations related to the EES Business are presented in the table below (in thousands).


	April 30,
	2018
Carrying amount of assets classified as discontinued operations
Current assets:
Accounts receivable, net of allowance for doubtful accounts of $139 at April 30, 2018	$	6,889
Inventories, net		15,494
Prepaid expenses and other current assets		185
Property and equipment, net		3,100
Total current assets classified as discontinued operations		25,668
Total assets classified as discontinued operations	$	25,668
Carrying amount of liabilities classified as discontinued operations
Current liabilities:
Accounts payable	$	5,121
Wages and related accruals		1,946
Customer advances		1,028
Other current liabilities		1,199
Total current liabilities		9,294
Total liabilities classified as discontinued operations	$	9,294