DISCONTINUED OPERATIONS

12 Months Ended

Dec. 31, 2022

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

On January 12, 2022, the Company entered into the Purchase Agreement with Journey pursuant to which the Company sold its MST Franchise to Journey. The Company has determined that the sale of the MST Franchise represents a strategic shift that had a major effect on the business and therefore the MST Franchise met the criteria for classification as discontinued operations at March 31, 2022. Accordingly the MST Franchise is reported as discontinued operations in accordance with ASC 205-20, Discontinued Operations. Amounts applicable to prior years have been recast to conform to the discontinued operations presentation. The Company recognized a gain on the sale of the MST Franchise upon closing. The negative product sales for the year ended December 31, 2022 was primarily attributable to a change in the product returns provision following the sale of the MST Franchise.

The following table presents the combined results of discontinued operations of the MST Franchise:

	Year ended December 31,
(in thousands)	2022		2021
Product sales, net	$	(1,844)	$	13,824
Cost of goods sold	80		3,348
Operating expenses:
Research and development	—		5,415
Selling, general and administrative	259		34,182
Total operating expenses	259		39,597
Loss from discontinued operations	(2,183)		(29,121)
Gain on the sale of the MST Franchise	12,918		—
Income (loss) from discontinued operations, before income taxes	10,735		(29,121)
Income tax expense	—		—
Net income (loss) from discontinued operations	$	10,735	$	(29,121)

The following table presents the carrying amounts of the classes of assets related to the discontinued operations of the MST Franchise as of December 31, 2021:

(in thousands)	December 31, 2021
Current assets:
Inventory	$	7,291
Prepaid expenses and other assets	554
Total current assets of discontinued operations	$	7,845

Inventory was primarily comprised of $3.3 million of raw materials and $4.0 million of finished goods.

The following table presents non-cash items related to discontinued operations, which are included in the Company's consolidated statement of cash flows for the years ended December 31, 2022 and 2021:

	Year ended December 31,
(in thousands)	2022		2021
Cash Flows From Operating Activities:
Stock-based compensation (income) expense*	$	(352)	$	1,123
Gain on the sale of the MST Franchise	(12,918)		—
Total non-cash items of discontinued operations	$	(13,270)	$	1,123
Supplemental disclosure of cash flow information:
Amount due from sale of MST Franchise	$	5,000	$	—

*Income from stock-based compensation is related to forfeitures.

The following table presents the gain on the sale of the MST Franchise:

(in thousands)	Year ended December 31, 2022
Cash proceeds	20,000
Proceeds paid in January 2023	5,000
	25,000
Less transaction costs	(4,334)
Less carrying value of assets sold	(7,748)
Gain on sale, before income taxes	12,918
Income tax expense	—
Gain on sale net of tax	$	12,918

In accordance with ASC 205-20, only expenses specifically identifiable and related to a business to be disposed may be presented in discontinued operations. As such, the research and development, marketing, selling and general and administrative expenses in discontinued operations include corporate costs incurred directly to solely support the MST Franchise.

The milestone payment for sales of ZILXI, AMZEEQ and FCD105 represent contingent consideration. Contingent consideration has been accounted for as a gain contingency in accordance with ASC 450, Contingencies, and will be recognized in earnings in the period when realizable.