Note 9 - Dispositions and Discontinued Operations

6 Months Ended

Jun. 29, 2013

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

Note 9 – Dispositions and Discontinued Operations

The Company continually reviews its portfolio of labels, business lines and divisions to evaluate whether they meet profitability and performance requirements and are in line with the Company’s business strategy. As a part of this review, the Company has disposed and discontinued operations of certain divisions as outlined below.

On June 7, 2013, the Company sold assets relating to the scott james clothing brand and line, including trademarks and domain names relating to this business, as well as all retail inventory and other tangible property located in the Boston and Minneapolis store locations, and certain other related assets, to entities controlled by Scott Kuhlman.

The purchasers will pay/provide the following to the Company: (i) $846,000 which represents the landed duty paid value of all fall 2013 production commitments, provided that such amounts shall be paid under a three party agreement between the purchaser, Company and Bibby Financial Services (CA), Inc. (“Bibby”), a financial services company that is providing accounts receivable funding to the purchasers, under which purchasers shall irrevocably direct Bibby to pay to Company all amounts that Bibby would otherwise remit or make available to purchaser with respect to the sale of accounts receivables to Bibby in connection with the sale of such fall 2013 productions; (ii) approximately $280,000 representing agreed values for inventory in the Boston and Minneapolis retail locations and certain non-inventory assets, to be paid through a surrender of 50% of retail sales revenues generated from such locations or any other locations that purchasers open, payable monthly; and (iii) $550,000 for the trademark and domain name assets, with $100,000 payable in a lump sum by April 1, 2014 and the remaining $450,000 payable over 54 equal monthly payments of $8,333.33 (beginning July 2013).

The purchasers assumed balance sheet liabilities of the business incurred on and after June 1, 2013, the contracts for the real estate leases in Boston and Minneapolis, liabilities in connection with certain international operations, any liabilities resulting from consignment inventory accounts and certain other liabilities relating to the software and website operations. The Company agreed to provide purchasers with access to and use of the New York showroom used by the business for a fee of $6,000 per month on a month to month basis. The Company will continue to have obligations under the Boston and Minneapolis store leases as a guarantor (and under any other contracts assumed where Company or any of its affiliates have provided a guaranty); the parties have covenanted to use commercially reasonable efforts to replace all such guarantees. The Company was granted a license to use the “sj by scott james” trademark in agreed upon defined channels.

Mr. Kuhlman was the founder of the scott james business, which was acquired by the Company in 2010. Prior to the current transaction, Mr. Kuhlman was employed by the Company as President and Creative Director of the scott james business since 2010. The terms of the transaction, including the consideration, were determined by the parties in arm’s length negotiations. In connection with the agreement, the Company recorded a loss of approximately $0.7 million.

Also included in discontinued operations are of Hampshire Designers and Item-Eyes, two businesses that were sold in separate transactions in 2011.

In accordance with GAAP, these unaudited condensed consolidated financial statements reflect the results of operations and financial position of the aforementioned divisions separately as discontinued operations. The assets and liabilities of the discontinued operations are presented in the unaudited condensed consolidated balance sheets under the captions Assets of discontinued operations and Liabilities of discontinued operations. The underlying assets and liabilities of the discontinued operations at June 29, 2013 and December 31, 2012 were as follows: 

(In thousands)	June 29, 2013		December 31, 2012
Trade and other receivables, net	$	220	$	209
Inventories, net		1,472		2,021
Other current assets		188		255
Assets of discontinued operations	$	1,880	$	2,485
Accrued expenses and other liabilities		597		476
Liabilities of discontinued operations	$	597	$	476

The operating results for the discontinued operations for the three and six months ended June 29, 2013 and June 30, 2012 were as follows:

	Three Months Ended						Six Months Ended
(In thousands)	June 29, 2013			June 30, 2012			June 29, 2013			June 30, 2012
Net sales	$	441		$	510		$	1,448		$	1,131
Gross loss	$	(987	)	$	(877	)	$	(2,019	)	$	(1,928	)
Loss on sale of discontinued operations	$	(668	)	$	—		$	(668	)	$	—
Loss from discontinued operations before income taxes	$	(1,655	)	$	(877	)	$	(2,687	)	$	(1,928	)
Income tax provision		—			—			—			—
Loss from discontinued operations, net of taxes	$	(1,655	)	$	(877	)	$	(2,687	)	$	(1,928	)