Sale of In-Store Marketing Business and Presentation as Discontinued Operations

9 Months Ended

Sep. 30, 2023

Sale of In-Store Marketing Business and Presentation as Discontinued Operations

Sale of In-Store Marketing Business and Presentation as Discontinued Operations

2. Sale of In-Store Marketing Business and Presentation as Discontinued Operations.

On August 3, 2023, the Company completed the sale of certain assets and certain liabilities relating to the Company’s In-Store Marketing Business for a price of $3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc. (the “Buyer”), under an Asset Purchase Agreement (the “Purchase Agreement”). The Company retained accounts receivable, as well as cash, cash equivalents and marketable securities. The cash consideration for the sale was subject to a post-closing adjustment depending on the net balance of (i) cash received by the Company for programs that remained unexecuted as of August 3, 2023, minus (ii) the payments made by the Company to vendors for unexecuted programs. The final purchase adjustment for the net balance was to reduce the cash consideration by $1.5 million, with the Company retaining an equal amount of cash that had been received for unexecuted programs. Under the Purchase Agreement, $200,000 was escrowed for a twelve-month period for any future claims, as defined in the Purchase Agreement, by the Buyer against the Company.

The gain on sale of the In-Store Marketing Business before income taxes was determined as follows:

Sale price	$	3,500,000
Carrying value of assets sold, less liablities		(247,000	)
Transaction costs not previously expensed		(209,000	)
Gain on sale of In-Store Marketing Business	$	3,044,000

The Company incurred transaction-related severance and other separation benefits in connection with the termination of certain officers and employees of the discontinued operations of approximately $490,000, as well as retention award payouts totaling $343,000, of which $48,000 was included in continuing operations, and employee bonuses totaling $164,000, each of which was recorded as expense in the three months ended September 30, 2023.

The results of the In-Store Marketing Business have been presented as discontinued operations and the related assets and liabilities have been classified as related to discontinued operations for all periods presented.

The carrying amounts of major classes of assets and liabilities that were reclassified as related to discontinued operations on the Condensed Consolidated Balance Sheet were as follows:

	December 31,
	2022
Current Assets:
Accounts receivable	$	5,557,000
Inventories		29,000
Prepaid production costs		535,000
Other prepaid expense		50,000
Current assets related to discontinued operations	$	6,171,000
Other Assets:
Property and equipment, net	$	71,000
Operating lease right-of-use assets		144,000
Non-current assets related to discontinued operations	$	215,000
Current Liabilities:
Accounts payable	$	2,515,000
Sales tax		717,000
Accrued liabilities		1,003,000
Current portion of operating lease liabilities		4,000
Deferred revenue		2,427,000
Current liabilities related to discontinued operations	$	6,666,000
Long-Term Liabilities:
Operating lease liabilities	$	140,000
Non-current liabilities related to discontinued operations	$	140,000

Results of discontinued operations are summarized below:

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2023			2022			2023		2022
Net services revenues	$	1,976,000		$	4,869,000		$	21,018,000	$	14,271,000
Cost of services		1,568,000			4,031,000			16,067,000		11,737,000
Gross Profit		408,000			838,000			4,951,000		2,534,000
Operating Expenses:
Selling		410,000			294,000			1,135,000		926,000
Marketing		210,000			249,000			806,000		787,000
General and administrative		142,000			268,000			642,000		647,000
Total Operating Expenses		762,000			811,000			2,583,000		2,360,000
Gain from litigation settlement, net		—			12,000,000			—		12,000,000
Operating Income (Loss)		(354,000	)		12,027,000			2,368,000		12,174,000
Other income		21,000			17,000			54,000		45,000
(Loss) income from discontinued operations before income taxes		(333,000	)		12,044,000			2,422,000		12,219,000
Income tax benefit		—			(191,000	)		—		(173,000	)
(Loss) income from discontinued operations, net of tax	$	(333,000	)	$	12,235,000		$	2,422,000	$	12,392,000
Gain from sale of discontinued operations before income taxes		3,044,000			—			3,044,000		—
Income tax expense		74,000			—			74,000		—
Gain from sale of discontinued operations, net of tax	$	2,970,000		$	—		$	2,970,000	$	—

The accounting policies for the discontinued In-Store Marketing Business, including for revenue recognition, are disclosed in the notes to financial statements included in the Company’s Annual Report on Form 10-K.

In July 2019, the Company filed suit against News Corporation, News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C. (collectively, “News America”), alleging violations of federal and state antitrust and tort laws by News America. On July 1, 2022, the Company entered into a $20 million settlement agreement with News America. The agreement resulted in net proceeds before income tax of $12,000,000 for the Company, which was recorded as a gain on litigation settlement in the discontinued operations of the In-Store Marketing Business during the three months ended September 30, 2022.

For the three and nine months ended September 30, 2023, the Company recorded income tax expense on discontinued operations of $74,000 and $74,000, respectively. For the three and nine months ended September 30, 2022, the Company recorded income tax benefit from discontinued operations of $191,000 and $173,000 respectively. The income tax benefit for 2022 included a decrease of approximately $678,000 in unrecognized tax benefits related to state exposure in the third quarter of 2022, which reduced accrued income taxes and increased the current tax benefit.