NOTE 4 – 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 payable to the Company 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 $4.3 million on the sale of MSLO during the year ended December 31, 2019 which is recorded in discontinued operations in the 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 consolidated statements of operations. The Company recorded a net loss from discontinued operations of $125.0 million for the year ended December 31, 2019.

The financial results of MSLO through December 31, 2019 are presented as (loss) income from discontinued operations, net of income taxes in the consolidated statements of operations. The following table presents the discontinued operations in the consolidated statements of operations:


	Year Ended December 31,
	2019		2018		2017

Net revenue	$	18,771	$	42,665	$	42,684
Operating expenses		16,481		27,544		25,691
Impairment charges		161,224		-		-
Loss on sale of MSLO		4,273		-		-
(Loss) income from operations		(163,207)		15,121		16,993
Other expense (income)		485		-		(401)
Interest expense		3,570		6,888		891
(Loss) income from discontinued operations before income taxes		(167,262)		8,233		16,503
(Benefit from) provision for income taxes		(42,199)		1,249		(88,112)
(Loss) income from discontinued operations	$	(125,063)	$	6,984	$	104,615

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 9). In accordance with ASC 205-20-45-6, Presentation of Financial Statements – Discontinued Operations, the Company has allocated interest expense of $3.6 million and $6.9 million for the years ended December 31, 2019 and 2018, respectively, related to the portion of debt that was required to be paid as part of the transaction and accretion on certain MSLO legacy and guaranteed payments. No interest expense, except for the accretion on certain MSLO legacy and guaranteed payments of $0.9 million, was allocated for the year ended December 31, 2017.

During the year ended December 31, 2019, the Company recorded $6.0 million in transaction costs directly related to the sale of MSLO which are recorded in discontinued operations in the consolidated statements of operations.

The following table presents the assets and liabilities from discontinued operations as of December 31, 2019 and December 31, 2018:


	December 31,
	2019		2018

Carrying amount of assets included as part of discontinued operations:
Current Assets:
Accounts receivable, net	$	-	$	16,602
Prepaid expenses and other current assets		6,839		7,243
Total current assets from discontinued operations		6,839		23,845

Property and equipment, net		-		580
Intangible assets, net		-		330,084
Total assets from discontinued operations	$	6,839	$	354,509

Carrying amount of liabilities included as part of discontinued operations:
Current Liabilities:
Accounts payable and accrued expenses	$	1,959	$	11,927
Current portion of deferred revenue		-		3,523
Total current liabilities from discontinued operations		1,959		15,450

Deferred income taxes		-		-
Other long-term liabilities		-		3,629
Total liabilities from discontinued operations	$	1,959	$	19,079

The prepaid expenses and other current assets at December 31, 2019 consists of a $6.8 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 years ended December 31, 2019, 2018 and 2017:


	Year Ended December 31,
	2019		2018		2017
	(in thousands)
Cash provided by discontinued operating activities	$	40,321	$	9,365	$	111,315
Cash used in discontinued investing activities	$	(44)	$	(80)		(77)
Cash used in discontinued financing activities	$	(574)	$	(3,000)		(3,000)