NOTE 3 – Divestitures

General Flange & Forge LLC (“GF&F”)

During the quarter ended June 30, 2017, the Company decided to divest its flanges and fittings operations, which comprises the Flanges and Fittings segment. The assets and liabilities of the segment are classified as assets and liabilities held for sale in the consolidated balance sheets and the operations are classified as discontinued operations in the consolidated statements of operations.

The operating results of GF&F classified as discontinued operations are summarized below (in thousands):


	For the year ended
	June 30, 2017		June 30, 2016
Sales	$	4,782	$	4,757
Cost of sales		(3,619)		(3,480)
Gross profit		1,163		1,277
Selling, general and administrative		(671)		(764)
Income from discontinued operations, before income taxes		492		513
Income tax expense on discontinued operations		(168)		(172)
Income from discontinued operations, net of tax	$	324	$	341

The following table presents the carrying amount as of June 30, 2017 and 2016, of GF&F’s major classes of assets and liabilities held for sale in the consolidated balance sheets (in thousands):


	June 30, 2017		June 30, 2016
Current assets:
Accounts receivable, net	$	687	$	509
Inventories, net		717		1,085
Prepaid expenses and other current assets		48		67
Total current assets		1,452		1,661
Property and equipment, net		181		184
Goodwill		1,712		1,712
Total assets of discontinued operations	$	3,345	$	3,557

Current liabilities:
Accounts payable and accrued expenses	$	283	$	266
Total current liabilities		283		266
Other long-term liabilities		260		225
Total liabilities of discontinued operations	$	543	$	491

On September 15, 2017, the Company sold substantially all of the assets of GF&F to GFFC Holdings, LLC (“GFFC”) for $3.0 million. GFFC is owned in part by Quadrant Management Inc., which is an affiliate of the Company. The sale of GF&F is therefore a related party transaction. The GF&F sale was made pursuant to an industry-wide auction undertaken on behalf of the Company by a registered investment banking organization that managed the sale process with prospective bidders. GFFC entered into the bidding for the GF&F assets only after the first rounds of the auction indicated uncertainty both in respect to the timing for closing any prospective sale and achieving the Company’s valuation objectives. Mr. Alan Quasha, CEO of Quadrant and Chairman of the Company’s Board of Directors, recused himself from any deliberations or voting by the Board of Directors in respect of the sale of the GF&F assets to GFFC. The Board of Directors appointed a special committee consisting solely of independent directors to oversee and negotiate the sale process. The special committee engaged its own independent legal counsel to advise the special committee in respect of the drafting of the asset sale agreement and ancillary transaction documents in accordance with customary terms and conditions for transactions of this type. In this manner, the special committee was able to conclude that the sale price and the terms and conditions for the transaction were superior to any other offers, as well as fair and reasonable to the Company and its shareholders.

Tekna Seal LLC

On September 30, 2016, the Company sold its non-core subsidiary, Tekna Seal LLC (“Tekna Seal”), to Winchester Electronics Corporation (“Winchester”) pursuant to a Membership Interests Purchase Agreement for $10.5 million in cash. The sale to Winchester covered all of the membership interests of Tekna Seal, including 95.7% owned by the Company and 4.3% held by the Tekna Seal minority stakeholders. The proceeds of the sale, after giving effect to any working capital adjustments, were allocated among the Company and the minority sellers proportionate to their respective ownership of pre-closing membership interests. The Company used the net cash proceeds of the sale to repay principal outstanding under the Company’s revolving loan. During the second quarter of 2017, the Company finalized the working capital adjustments with Winchester and paid the former minority stakeholders.

Below is a summary of the gain on sale of discontinued operations (in thousands):


Gross proceeds	$	10,538

Less:
Property and equipment, net		218
Accounts receivable		918
Inventory		1,268
Other current assets		54
Accounts payable and accrued expenses		(936)
Working capital adjustment		(184)
Total net assets disposed		1,338

Goodwill		3,374
Transaction costs		393
Minority interests		(393)
Payments to minority stakeholders		452
Gain on sale of discontinued operations, before income taxes	$	5,374

In connection with the sale, the Company recorded a pre-tax gain of approximately $5.4 million, which includes a non-cash charge of $3.4 million related to goodwill associated with Tekna Seal, and transaction costs of approximately $0.4 million. The income from operations of Tekna Seal attributable to the Company was approximately $0.1 million and $1.1 million for the years ended June 30, 2017 and 2016, respectively.

The consolidated statements of operations for the year ended June 30, 2017 include the results of operations of Tekna Seal through the sale date of September 30, 2016 and the gain on the sale of Tekna Seal. Financial information for discontinued operations for the years ended June 30, 2017 and 2016 is as follows (in thousands):


	For the year ended
	June 30, 2017		June 30, 2016
Sales	$	1,277	$	4,959
Cost of sales		(943)		(2,935)
Gross profit		334		2,024
Selling, general and administrative		(242)		(846)
Income from discontinued operations, before income taxes		92		1,178
Gain on sale of discontinued operations		5,374		—
Total income from discontinued operations, before income taxes		5,466		1,178
Income tax expense on discontinued operations		(1,789)		(400)
Income from discontinued operations, net of tax	$	3,677	$	778

The following table presents the carrying amount as of June 30, 2016, of Tekna Seal’s major classes of assets and liabilities held for sale in the consolidated balance sheet (in thousands):


	June 30, 2016
Current assets:
Accounts receivable, net	$	727
Inventories, net		1,028
Prepaid expenses and other current assets		89
Total current assets		1,844
Property and equipment, net		153
Goodwill		3,374
Total assets of discontinued operations	$	5,371

Current liabilities:
Accounts payable and accrued expenses	$	714
Capital lease obligations		9
Total current liabilities		723
Capital lease obligations		19
Other long-term liabilities		442
Total liabilities of discontinued operations	$	1,184

Cash flows from Tekna Seal for the years ended June 30, 2017 and 2016 are combined with the cash flows from operations within each of the categories presented on the consolidated statements of cash flows. There were no significant operating or investing activities from discontinued operations during the years ended June 30, 2017 and 2016.

ARC Wireless, LLC

On March 31, 2017, the Company divested its wireless business and sold the majority of its assets. The proceeds and related gain were immaterial.