12. Discontinued Operations and Assets Held for Sale

On July 2, 2012, the Company's wholly owned subsidiary Interform Corporation sold substantially all of the assets of its Consolidated Graphic Communications ("CGC") business headquartered in Bridgeville, Pennsylvania to Safeguard Acquisition, Inc. ("Safeguard") pursuant to an asset purchase agreement ("APA"). The Company received $3,100,000 in cash at closing and an additional $650,000 in the fourth quarter of 2012 comprising a settlement of both the working capital calculations and contractual hold back pursuant to the terms of the APA. The Company had recorded a gain on the sale of such assets in the amount of $1.6 million reflecting the $3,750,000 in cash proceeds for 2012 as a component of discontinued operations.

The Interform subsidiary and the CGC operating division have historically been accounted for in the Company's printing segment. In accordance with the applicable accounting guidance for the disposal of long-lived assets, the results of CGC are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

As part of the Company's revised restructuring plan submitted to the Company's secured lenders in July 2012 the Company determined that another division within the printing segment met the criteria of an asset held for sale at July 31, 2012 (Donihe). Therefore, in accordance with applicable accounting guidance the Company has determined the associated assets and liabilities of this division should be classified as assets and liabilities held for sale/discontinued operations at October 31, 2012 and April 30, 2013. The Company recorded an impairment charge in fiscal 2012 of approximately $337,000 as a result of the measurement requirements associated with this division. This division's results have historically been accounted for in the Company's printing segment. In accordance with the applicable accounting guidance for the disposal of long-lived assets, these results are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

The Company has also identified certain long-lived assets that are being included as a component of assets held for sale for the Merten division ("Merten") which is currently expected to retain a sales presence in Cincinnati, Ohio. As part of the Company's revised restructuring plan submitted to the Company's secured lenders in July 2012 the Company determined that certain printing segment assets met the criteria of an asset held for sale of Merten.

Therefore, in accordance with applicable accounting guidance the Company has determined certain long-lived assets of this division should be classified as assets held for sale at October 31, 2012 (These assets were sold in December 2012).

The Company recorded an impairment charge of approximately $309,000 in fiscal 2012 as a result of the measurement requirements associated with assets classified as held for sale of the Merten division. The Merten results have historically been accounted for in the Company's printing segment. In accordance with the applicable accounting guidance, since the Company currently intends to retain a sales presence in Cincinnati and is attempting to retain customers through Chapman Printing-Huntington location, the operations of Merten would continue to be classified as continuing operations.

In December 2012, the Company completed the sale of substantially all of the property and equipment at Donihe and Merten for $1,050,000, net of commissions, and in December 2012, the Company completed the sale of Donihe real estate for $175,000.

The Company identified two Company owned facilities within the printing segment that the Company intends to sell as a result of the Company's Revised Restructuring Plan. These facilities are being carried at their carrying amount which the Company believes to currently be lower than the estimated fair value less cost to sell.

The following is selected financial information included in net (loss) earnings from discontinued operations for two divisions classified within the printing segment and reflects interest on estimated debt required to be repaid as a result of these disposal transactions and excludes any general corporate overhead allocations. The interest expense allocated to discontinued operations for the three months ended April 30, 2013 and 2012, was $4,000 and $68,000 and for the six months ended April 30, 2013 and 2012 was $12,000 and $136,000.

	Three Months Ended April 30,
		2013						2012
		CGC		Donihe		Total			CGC		Donihe			Total
Net sales	$	-	$	(5,032	) $	(5,032	)	$	4,139,848	$	1,955,120		$	6,094,968
(Loss) earnings from discontinued operations		-		(101,427	)	(101,427	)		75,932		(29,552	)		46,380
Income tax benefit (expense)		-		-		-			(31,011	)	9,859			(21,152	)
Gain on sale of discontinued operations		-		-		-			-		-			-
Income tax (expense) on sale		-		-		-			-		-			-
Net (loss) earnings from discontinued operations	$	-	$	(101,427	) $	(101,427	)	$	44,921	$	(19,693	)	$	25,228

	Six Months Ended April 30,
		2013					2012
		CGC		Donihe		Total		CGC		Donihe		Total
Net sales	$	-	$	637,176	$	637,176	$	7,911,661	$	3,259,007	$	11,170,668
(Loss) earnings from discontinued operations		-		(397,780)		(397,780)		119,101		(72,410)		46,691
Income tax benefit (expense)		-		-		-		(48,641)		24,156		(24,485)
Gain on sale of discontinued operations		-		-		-		-		-		-
Income tax (expense) on sale		-		-		-		-		-		-
Net (loss) earnings from discontinued operations	$	-	$	(397,780)	$	(397,780)	$	70,460	$	(48,254)	$	22,206

The major classes of assets and liabilities held for sale and of discontinued operations included in the Consolidated Balance Sheets are as follows (see Note 5 for discussion of debt allocated to liabilities held for sale/discontinued operations):

		Held for sale		Discontinued Operations		Total		Held for sale		Discontinued Operations		Total
		April 30, 2013						October 31, 2012
Assets:
Accounts Receivable	$	-	$	188,001	$	188,001	$	-	$	777,740	$	777,740
Inventories		-		-		-		-		283,467		283,467
Other current assets		-		14,317		14,317		-		-		-
Property and equipment, net		369,073		-		369,073		1,219,073		425,000		1,644,073
Total current assets		369,073		202,318		571,391		1,219,073		1,486,207		2,705,280
Property and equipment, net		-		-		-		-		-		-
Other assets		-		-		-		-		-		-
Total noncurrent assets		-		-		-		-		-		-
Total assets held for sale/discontinued operations	$	369,073	$	202,318	$	571,391	$	1,219,073	$	1,486,207	$	2,705,280

Liabilities:
Accounts payable	$	-	$	35,864	$	35,864	$	-	$	278,266	$	278,266
Deferred revenue		-		-		-		-		4,726		4,726
Accrued payroll and commissions		-		-		-		-		55,310		55,310
Taxes accrued and withheld		-		40,988		40,988		-		138,148		138,148
Accrued expenses		-		-		-		-		43,103		43,103
Debt (see Note 5)		369,073		125,466		494,539		1,219,073		966,654		2,185,727
Total current liabilities		369,073		202,318		571,391		1,219,073		1,486,207		2,705,280
Total noncurrent liabilities		-		-		-		-		-		-
Total liabilities held for sale/discontinued operations	$	369,073	$	202,318	$	571,391	$	1,219,073	$	1,486,207	$	2,705,280

The Company is currently evaluating the sale or potential sale of either segments or divisions or operations within segments for each of the Company's three operating segments. Except as disclosed herein these evaluations have not met the applicable GAAP requirements for classification as assets held for sale at the balance sheet date of April 30, 2013, however as further discussed below there is a higher probability that these divisions/segments may meet the criteria as held for sale after the balance sheet date of April 30, 2013 and the Company has provided the applicable disclosure.

As a result of the provisions of the May 2013 Forbearance Agreement the Company has agreed to pursue the sale of certain assets. In addition, the Company notified the secured lenders of an additional division it is pursuing a sale of that is not required pursuant to the terms of the May 2013 Forbearance Agreement. As a result of this process the Company has identified two operating divisions and one segment which it is actively working to sell as defined below. The Company began actively soliciting letters of interest for one of the transactions prior to quarter end and has received letters of interest subsequent to April 30, 2013 for all three assets sales identified below. The Company has received a letter of interest for the newspaper segment but as of the date of filing this quarterly report has not executed this letter. The Company has agreed in principle to a letter of interest regarding the printing division and is actively engaged in discussions regarding an asset purchase agreement for the printing division. The letter of interest for the office furniture division did not meet the Company or May 2013 Forbearance Agreement requirements. If the Company is able to successfully negotiate applicable asset purchase agreements and attain lender approval, it is possible some of these transactions may close in the third or fourth quarter of 2013. The following is a summary of the assets which are currently being classified as held and used but which subsequent to quarter end have been determined to have a higher degree of probability of meeting the classification of held for sale:

		April 30, 2013
		Printing Division		Office Furniture Division		Newspaper Segment		Total
Assets (excludes certain divisional assets):
Accounts receivable, net	$	211,958	$	1,783,010	$	1,170,011	$	3,164,979
Inventory		106,526		186,877		321,501		614,904
Prepaid expenses and other current assets		29,550		56,548		172,514		258,612
Total current assets		348,034		2,026,435		1,664,026		4,038,495
Long-term assets :
Property, plant and equipment, net		977,243		83,064		3,462,044		4,522,351
Intangible assets		-		-		5,054,635		5,054,635
Total long-term assets		977,243		83,064		8,516,679		9,576,986
Total assets	$	1,325,277	$	2,109,499	$	10,180,705	$	13,615,481

Liabilities (excludes debt allocation):
Accounts payable	$	180,314	$	565,930	$	178,421	$	924,665
Deferred revenue		-		-		765,548		765,548
Accrued payroll and commissions		15,564		210,906		318,773		545,243
Taxes accrued and withheld		49,625		92,805		145,466		287,896
Accrued expenses		39,594		14,256		-		53,850
Total liabilities	$	285,097	$	883,897	$	1,408,208	$	2,577,202

The Company has assessed if there is an impairment charge that may be warranted for these assets which were deemed to be held and used at April 30, 2013 and subsequent to April 30, 2013 may have a higher probability of meeting the held for sale classification. The Company believes based on the targeted purchase price and adjusted for selling costs the Company anticipates recording a gain on the applicable asset sales as a whole but may have an impairment for the transactions contemplated for the newspaper segment and printing segment. The Company anticipates a gain on the sale of the office furniture division based on targeted purchase price thresholds acceptable to the Company and secured lenders. The preliminary assessment excludes goodwill which may require allocation to the office furniture division and the amount, if any, is currently being evaluated by the Company. The Company currently is unable to determine the impairment, if any, due to various uncertainties still pending within the provisions of any transactions being contemplated and the applicable terms which may be negotiated in any asset purchase agreements which may ultimately be negotiated for the transactions being contemplated. Moreover, the impairment criteria would not exist under the applicable standards for an asset held and used as of April 30, 2013, but may exist in subsequent reporting periods if the asset held for sale criteria are met.