(2)

DISCONTINUED OPERATIONS:

Newsstand Distribution Services Business and Product Packaging and Fulfillment Services Business

Prior to February 9, 2015, the Company was also engaged in the Newsstand Distribution Services business and the Product Packaging and Fulfillment Services business, operated by Kable Media Services, Inc., Kable Distribution Services, Inc. (“Kable Distribution”), Kable News Company, Inc., Kable News International, Inc., Kable Distribution Services of Canada, Ltd. and Kable Product Services, Inc. (collectively, the “Company Group”). The Newsstand Distribution Services business operated a national distribution business that distributed publications and the Product Packaging and Fulfillment Services business offered electronic and traditional commerce solutions to customers.

On February 9, 2015, American Investment Republic Co. (“ARIC”), a subsidiary of the Company, entered into a stock purchase agreement (the “Stock Purchase Agreement”) with DFI Holdings, LLC (“Distribution Buyer”) and KPS Holdco, LLC (“Products Buyer”, and together with Distribution Buyer, the “MD Buyers”), where each MD Buyer was controlled by Michael P. Duloc. The closing of the transactions contemplated by the Stock Purchase Agreement occurred on February 9, 2015. Pursuant to Accounting Standards Update 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, the companies sold are reported as discontinued operations in the accompanying financial statements.

Prior to February 9, 2015, Mr. Duloc was the chief executive officer and president of the Company Group and certain other subsidiaries of the Company and was a principal executive officer of the Company. In connection with the closing of the transactions contemplated by the Stock Purchase Agreement, effective on February 9, 2015, Mr. Duloc was removed as an officer of each direct and indirect subsidiary of the Company and ceased to be a principal executive officer of the Company. Mr. Duloc is the son-in-law of Nicholas G. Karabots, a significant shareholder of the Company. Mr. Duloc’s spouse, who is Mr. Karabots’ daughter, is an officer of one of Mr. Karabots’ companies to which the Company Group and the Company’s Fulfillment Services business provide services.

Pursuant to the Stock Purchase Agreement, Products Buyer acquired, through the purchase of all of the capital stock of Kable Product Services, Inc., the Company’s Product Packaging and Fulfillment Services business. Immediately following such acquisition, pursuant to the Stock Purchase Agreement, Distribution Buyer acquired, through the purchase of all of the capital stock of Kable Media Services, Inc. (“KMS”), the Company’s Newsstand Distribution Services business operated by KMS’s direct and indirect subsidiaries, namely Kable Distribution, Kable News Company, Inc., Kable News International, Inc. and Kable Distribution Services of Canada, Ltd.

Consideration for MD Buyers acquiring the Company Group included MD Buyers paying ARIC $2,000,000, which consisted of $400,000 of cash paid by MD Buyers on February 9, 2015 and $1,600,000 paid by execution by MD Buyers of a secured promissory note, dated as of February 9, 2015 (the “Buyer Promissory Note”).

As a result of the transaction, other than (i) the elimination of substantially all of the intercompany amounts of the Company Group due to or from the Company and its direct and indirect subsidiaries (not including the Company Group) through offset and capital contribution and (ii) certain other limited items identified in the Stock Purchase Agreement and the agreements entered into in connection with the Stock Purchase Agreement, the Company Group retained all of its pre-closing assets, liabilities, rights and obligations. At February 9, 2015, the Company Group had assets of $4,564,000 and liabilities of $15,732,000, which included $11,605,000 of negative working capital with respect to Kable Distribution. The negative working capital of Kable Distribution represented its net payment obligation due to publisher clients and other third parties. The Company recognized a pretax gain of $10,479,000 on its financial statements as a result of the transaction in the fourth quarter of 2015.

The following agreements, each dated as of February 9, 2015, were entered into in connection with the Stock Purchase Agreement:

Buyer Promissory Note. MD Buyers entered into the Buyer Promissory Note, which requires MD Buyers to pay ARIC $1,600,000 in 24 equal monthly instalments, commencing on February 1, 2016, with interest due and payable monthly commencing on March 1, 2015. Interest accrues at a rate per annum determined on the first business day of each month equal to three percent plus the “prime rate,” as published in The Wall Street Journal. The Buyer Promissory Note contains customary events of default and representations, warranties and covenants provided by MD Buyers to ARIC, and is secured by a pledge of substantially all of the personal property of MD Buyers and the Company Group, pari passu with other secured obligations owed by MD Buyers and the Company Group to ARIC under the Stock Purchase Agreement and the agreements entered into in connection with the Stock Purchase Agreement.

Releases. (a) ARIC entered into a release agreement in favor of the Company Group and its affiliates and (b) the Company Group, MD Buyers and Mr. Duloc entered into release agreements in favor of ARIC and its affiliates. Subject to certain limited exceptions, each of the release agreements releases all claims that the releasing party may have against the parties being released.

Line of Credit. ARIC provided the Company Group with a secured revolving line of credit pursuant to a line of credit promissory note (the “Line of Credit”). The Line of Credit permits the Company Group to borrow from ARIC up to a maximum principal amount of $2,000,000 from February 9, 2015 until May 11, 2015, $1,500,000 from May 12, 2015 until August 5, 2016 and $1,000,000 from August 6, 2016 until February 9, 2017, with interest due and payable monthly commencing on March 1, 2015.

The principal amount permitted to be borrowed under the Line of Credit is subject to the following borrowing base: (a) from February 9, 2015 until May 11, 2015, (i) 50% of eligible accounts receivable of the Company Group and (ii) 45% of eligible unbilled receivables of Kable Distribution and from May 12, 2015 until February 9, 2017, (i) 50% of eligible accounts receivable of the Company Group and (ii) 30% of eligible unbilled receivables of Kable Distribution.

Amounts outstanding under the Line of Credit accrue interest at a rate per annum as determined on the first business day of each month equal to three percent plus the “prime rate,” as published in The Wall Street Journal. Amounts available but not advanced under the Line of Credit accrue “unused” fees at a rate of 1.0% per annum, payable on the first day of each month. The Line of Credit contains customary events of default and representations, warranties and covenants provided by the Company Group to ARIC, and is secured by a pledge of substantially all of the personal property of MD Buyers and the Company Group, pari passu with other secured obligations owed by MD Buyers and the Company Group to ARIC under the Stock Purchase Agreement and the agreements entered into in connection with the Stock Purchase Agreement.

Guaranty of Company Group. MD Buyers, the Company Group and ARIC entered into a guaranty agreement pursuant to which MD Buyers and the Company Group guaranteed the full and prompt payment and performance of all agreements, covenants and obligations of MD Buyers or any member of the Company Group, including under the Stock Purchase Agreement, the Line of Credit, the Buyer Promissory Note and the other agreements entered into in connection with the Stock Purchase Agreement.

Security Agreement. MD Buyers, the Company Group and ARIC entered into a security agreement pursuant to which MD Buyers and the Company Group pledged and granted a security interest in substantially all of their personal property to ARIC in order to secure the obligations of each MD Buyer and each member of the Company Group, including under the Stock Purchase Agreement, the Line of Credit, the Buyer Promissory Note and the other agreements entered into in connection with the Stock Purchase Agreement.

The Company and its remaining direct and indirect subsidiaries retained their obligations under the Company’s defined benefit pension plan, without any funding acceleration or other changes in any of the obligations thereunder as a result of the sale of the Company Group. In addition, a subsidiary of the Company retained its ownership of a warehouse used by Kable Product Services, Inc. in its operations, which remains subject to a market rate lease with Kable Product Services, Inc. with a term that expires in November 2018 and remains subject to a promissory note to a third party lender with a maturity date of February 2018 and an outstanding principal balance of $4,087,000 as of April 30, 2015.

Variable Interest

As a result of the sale of the Company Group and the related debt agreements securing the transaction between ARIC and MD Buyers, the Company is considered to have a variable interest in the Company Group, as determined by ASC 810. The Company, however, is not a primary beneficiary of the Company Group and, as such, the Company Group is not considered a variable interest entity that the Company would otherwise be required to consolidate the Company Group’s financial statements with the Company’s financial statements. The Company’s determination that it is not the primary beneficiary of the Company Group was based on the fact that (i) it was not involved in the formation or original investment of the companies that acquired the Company Group, (ii) it has no ownership rights in the companies that acquired the Company Group, (iii) it is not involved in the management of the Company Group and (iv) has no obligation to absorb losses or has no expectation to receive residual returns of the Company Group. In addition, the Company has not provided, and does not intend in the future to provide, financial support to the Company Group that it was not previously contractually required to provide.

As noted above, ARIC has the following assets related to MD Buyers (amounts in thousands):

	April 30, 2015
Buyer Promissory Note receivable	$	1,600
Line of Credit receivable	$	2,000

As noted above, at April 30, 2015 ARIC had $1,600,000 due under the Buyer Promissory Note and $2,000,000 due under the Line of Credit receivable. On May 1, 2015, the Line of Credit balance was repaid to the Company. On May 12, 2015, the maximum availability under the Line of Credit was reduced to $1,500,000 thereby reducing the Company’s maximum exposure to loss to $3,100,000. As noted in Note 2, the Buyer Promissory Note and Line of Credit receivable are secured by a pledge of substantially all of the personal property of the Company Group, including cash accounts and trade accounts receivables. There were no liabilities owed by the Company to the Company Group at April 30, 2015.

Staffing Services Business

Prior to April 10, 2015, the Company was also engaged in the Staffing Services business, operated by Kable Staffing Resources LLC (“KSR”). The Staffing Services business provided temporary employees to local companies in the Fairfield, Ohio area. On April 10, 2015, KSR entered into an asset purchase agreement (the “Asset Purchase Agreement”) with TSJ Staffing, LLC (“Staffing Buyer”), pursuant to which Staffing Buyer acquired, through the purchase of certain assets of KSR, the Company’s Staffing Services business. The closing of the transactions contemplated by the Asset Purchase Agreement occurred on April 10, 2015.

Pursuant to the Asset Purchase Agreement, Staffing Buyer (1) acquired from KSR all of KSR’s assets, other than cash, accounts receivables and certain other assets of KSR as of April 10, 2015, and (2) assumed all of KSR’s obligations and liabilities relating to or arising out of KSR’s office lease and KSR’s post-closing obligations and liabilities with respect to the purchased assets. The Asset Purchase Agreement provided standard representations, warranties, covenants and indemnities.

Staffing Buyer paid KSR $250,000, all of which was paid in cash on April 10, 2015. In connection with the transaction, KSR retained its cash, accounts receivables, accounts payable and accrued expenses as of April 10, 2015. As of April 10, 2015, KSR had approximately $1,482,000 of cash, $1,609,000 of accounts receivable and $315,000 of accounts payable and accrued expenses. The Company recognized a pretax gain of $250,000 on its financial statements as a result of the transaction in the fourth quarter of 2015. This business is classified as a discontinued operation in the accompanying financial statements.

The following table provides a reconciliation of the carrying amounts of major classes of assets and liabilities of the discontinued operations noted above to the assets and liabilities classified as discontinued operations in the accompanying balance sheets (in thousands):

	April 30,
	2015		2014
Carrying amounts of major classes of assets included as part of discontinued operations:
Cash and cash equivalents	$	1,241	$	5,358
Receivables, net		431		32,541
Deferred income taxes receivable		-		977
Property, plant and equipment, net		-		821
Intangible and other assets, net		17		2,640
Total assets classified as discontinued operations in the accompanying balance sheets	$	1,689	$	42,337
Carrying amounts of major classes of liabilities included as part of discontinued operations:
Accounts payable, net and accrued expenses	$	150	$	62,196
Deferred and income taxes payable		145		-
Notes payable		-		1,059
Total liabilities classified as discontinued operations in the accompanying balance sheets	$	295	$	63,255

The following table provides a reconciliation of the carrying amounts of components of pretax income or loss of the discontinued operations to the amounts reported in the accompanying statements of operations (in thousands):

	April 30,
	2015		2014
Components of pretax income (loss) from discontinued operations:
Revenues	$	17,700	$	25,405
Operating expenses		(15,810)		(25,526)
General and administrative expenses		(1,605)		(2,164)
Impairment of assets		-		(269)
Interest expense		(32)		(73)
Gain from settlement (Note 17)		11,155		-
Gain on discontinued operations		10,729		-
Income (loss) from discontinued operations before income taxes		22,137		(2,627)
Provision (benefit) for income taxes		7,233		(335)
Net income (loss) from discontinued operations	$	14,904	$	(2,292)

Operating expenses for discontinued operations in 2015 includes a reduction in the reserve for bad debts of approximately $1,500,000 for a previously recorded charge to operations.

The following table provides the total operating and investing cash flows of the discontinued operations for the periods in which the results of operations of the discontinued operations are presented in the accompanying statements of operations (in thousands):

	April 30,
	2015		2014
Cash flows from discontinued operating activities:
Net income (loss)	$	14,904	$	(2,292)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Non-cash gain on settlement		(11,155)		-
Non-cash gain on discontinued operations		(10,479)		-
Depreciation and amortization		311		466
Impairment of assets		-		269
Non-cash credits and charges:
Allowance for doubtful accounts		(1,484)		2,041
Changes in assets and liabilities:
Receivables		11,810		(6)
Intangible and other assets		(39)		(1,089)
Accounts payable and accrued expenses		(10,127)		(10,877)
Other assets and liabilities		(675)		(291)
Total adjustments		(21,838)		(9,487)
Net cash provided by (used in) operating activities	$	(6,934)	$	(11,779)

Cash flows from investing activities:
Capital expenditures - property, plant and equipment	$	(25)	$	(152)
Proceeds from disposition of assets		-		428
Net cash provided by (used in) investing activities	$	(25)	$	276