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 $1.6 million on the sale of MSLO during the three months ended March 31, 2020 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. 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 $120.6 million for the three months ended March 31, 2020 and 2019, respectively.

The financial results of MSLO for the three months ended March 31, 2020 and 2019 are presented as loss from discontinued operations, net of taxes in the unaudited condensed consolidated statements of operations. The following table presents the discontinued operations in the unaudited condensed consolidated statements of operations:


	Three Months Ended March 31,
	2020		2019
	(in thousands)
Net revenue	$	-	$	11,388
Operating expenses		-		7,225
Impairment charges		-		161,224
Loss on sale of MSLO		1,592		-
Loss from discontinued operations		(1,592)		(157,061)
Other expense		124		100
Interest expense		-		1,801
Loss from discontinued operations before income taxes		(1,716)		(158,962)
Benefit from income taxes		(402)		(38,388)
Loss from discontinued operations, net of income taxes	$	(1,314)	$	(120,574)

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 for the three months ended March 31, 2019 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 was allocated for the three months ended March 31, 2020.

During the three months ended March 31, 2019, the Company recorded $0.3 million 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 from discontinued operations as of March 31, 2020 and December 31, 2019:


	March 31,		December 31,
	2020		2019
	(in thousands)
Carrying amount of assets included as part of discontinued operations:
Current Assets:
Prepaid expenses and other current assets	$	348	$	6,839
Total current assets from discontinued operations	$	348	$	6,839


Carrying amount of liabilities included as part of discontinued operations:
Current Liabilities:
Accounts payable and accrued expenses	$	775	$	1,959
Total current liabilities from discontinued operations	$	775	$	1,959

The prepaid expenses and other current assets at March 31, 2020 consists of a $0.3 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 three months ended March 31, 2020 and 2019:


	Three Months Ended March 31,
	2020		2019
	(in thousands)
Cash provided by discontinued operating activities	$	3,993	$	45,400
Cash used in discontinued investing activities	$	-	$	(38)
Cash used in discontinued financing activities	$	-	$	(325)

Cash provided by discontinued operating activities was $4.0 million for the three months ended March 31, 2020 compared to $45.4 million for the three months ended March 31, 2019. The cash provided by discontinued operating activities for the three months ended March 31, 2020 is primarily due to receipt of a portion of the receivable due the Company from the Buyer in accordance with the terms of the Purchase Agreement. The cash provided by discontinued operating activities for the three months ended March 31, 2019 is primarily driven by the benefit from income taxes. The cash used in discontinued investing activities for the three months ended March 31, 2019 is related to purchases of property and equipment and investments in intangible assets. The cash used in discontinued financing activities for the three months ended March 31, 2019 is related to MSLO guaranteed payments.