3. Discontinued Operations

On June 10, 2019, the Company completed the sale of MSLO, a Delaware corporation and a wholly-owned subsidiary of the Company, for $166 million in cash consideration, plus additional amounts in respect of pre-closing accounts receivable that are received after the closing, subject to certain adjustments, pursuant to the Purchase Agreement with the Buyer entered into on April 16, 2019. In addition, the Purchase Agreement provides for an earnout of up to $40,000,000 if certain performance targets are achieved during the three calendar years ending December 31, 2020, December 31, 2021 and December 31, 2022. MSLO and its subsidiaries were engaged in the business of promoting, marketing and licensing the Martha Stewart and the Emeril Lagasse brands through various distribution channels. The Company recorded a pre-tax loss of $2.0 million on the sale of MSLO during the three months ended June 30, 2019 which is recorded in discontinued operations in the unaudited condensed consolidated statements of operations.

During the first quarter of 2019, the Company recorded non-cash impairment charges of $161.2 million for indefinite-lived intangible assets related to the Martha Stewart and Emeril Lagasse trademarks. The impairments arose during the sale process for the Martha Stewart and Emeril Lagasse brands due to the difference in the fair value as indicated by the sales price as compared to the carrying values of the intangible assets included in the transaction. The sale of the Martha Stewart and Emeril Lagasse brands was approved by the Board of Directors on April 15, 2019, to allow the Company to achieve one of its top priorities in significantly reducing its debt. Going forward the Company’s strategy is to focus on higher margin brands that are well suited for growing health, wellness and beauty categories. These charges are included in discontinued operations in the unaudited condensed consolidated statements of operations. The Company recorded a net loss from discontinued operations of $1.3 million and $121.9 million for the three and six months ended June 30, 2019.

The financial results of MSLO through June 30, 2019 are presented as (loss) income from discontinued operations, net of taxes in the unaudited condensed consolidated statements of operations. The following table presents the discontinued operations unaudited condensed consolidated statements of operations:


	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018

Net revenue	$	7,383	$	9,081	$	18,771	$	17,722
Operating expenses		9,164		5,021		16,389		9,779
Impairment charges		-		-		161,224		-
Loss on sale of MSLO		2,008		-		2,008		-
(Loss) income from operations		(3,789)		4,060		(160,850)		7,943
Other expense		-		-		100		-
Interest expense		1,769		1,697		3,570		3,293
(Loss) income from discontinued operations before income taxes		(5,558)		2,363		(164,520)		4,650
(Benefit from) provision for income taxes		(4,249)		975		(42,637)		1,919
Net (loss) income from discontinued operations	$	(1,309)	$	1,388	$	(121,883)	$	2,731

The Company used cash proceeds from the MSLO sale to make mandatory prepayments of $109.6 million on the Revolving Credit Facility and voluntary prepayments of $44.4 million on its Tranche A-1 Term Loans (see Note 8). In accordance with ASC 205-20-45-6, Presentation of Financial Statements – Discontinued Operations, the Company has allocated interest expense of $1.8 million and $1.7 million for the three months ended June 30, 2019 and 2018, respectively, related to the portion of debt that was required to be paid as part of the transaction and accretion on MS Legacy (as defined in Note 4) and guaranteed payments. The Company allocated interest expense of $3.6 million and $3.3 million for the six months ended June 30, 2019 and 2018, respectively, related to the portion of debt that was required to be paid as part of the transaction and accretion on MS Legacy and guaranteed payments.

During the three and six months ended June 30, 2019, the Company recorded $5.6 million and $5.9 million, respectively, in transaction costs directly related to the sale of MSLO which are recorded in discontinued operations in the unaudited condensed consolidated statements of operations.

The following table presents the assets and liabilities classified as held for sale from discontinued operations as of June 30, 2019 and December 31, 2018:


	June 30,		December 31,
	2019		2018
	(Unaudited)
Carrying amount of assets included as part of discontinued operations:
Current Assets:
Accounts receivable, net	$	-	$	16,602
Prepaid expenses and other current assets		10,219		7,243
Total current assets classified as held for disposition from discontinued operations		10,219		23,845

Property and equipment, net		-		580
Intangible assets, net		-		330,084
Total assets classified as held for disposition from discontinued operations	$	10,219	$	354,509

Carrying amount of liabilities included as part of discontinued operations:
Current Liabilities:
Accounts payable and accrued expenses	$	3,875	$	11,927
Current portion of deferred revenue		-		3,523
Total current liabilities classified as held for disposition from discontinued operations		3,875		15,450

Deferred income taxes		-		34,938
Other long-term liabilities		-		3,629
Total liabilities classified as held for disposition from discontinued operations	$	3,875	$	54,017

The prepaid expenses and other current assets at June 30, 2019 consists of a $10.2 million receivable due to the Company from the Buyer in accordance with the terms of the Purchase Agreement.

The following table presents the cash flow from discontinued operations for the six months ended June 30, 2019 and 2018:


	Six Months Ended June 30,
	2019		2018
	(in thousands)
Net cash provided by discontinued operating activities	$	6,955	$	3,364
Net cash used in discontinued investing activities	$	(44)	$	(34)
Net cash used in discontinued financing activities	$	(574)	$	(650)