Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

6 Months Ended

Jun. 30, 2023

Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

2.           Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

As disclosed in Note 1, the Company’s decision to sell certain assets and wind down the operations of OKC met the “held for sale” criteria and represents a strategic shift that has a significant impact on the Company’s operations and financial results under ASC 205-20-45-9 Discontinued Operations. Therefore, the assets and liabilities of OKC are reflected as “Assets and Liabilities related to Discontinued Operation” in the Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022, respectively. The operating results, the loss on sale of assets, wind down costs, and impairment of long-lived assets were reclassified to “Loss from Discontinued Operation, net of tax” in the Condensed Consolidated Statements of Operations for the three- and six-months ended June 30, 2023 and June 30, 2022, respectively.

Under the terms of the APA, which closed on August 1, 2023, the Company sold inventory, machinery & equipment and intellectual property (patents & trademarks/tradenames) to the buyer for $2,100,000. In accordance with the sale, the Company evaluated whether the fair value of OKC assets sold, less estimated costs to sell, exceeded the net carrying value. The Company concluded that the net carrying value exceeded the fair value, less estimated costs to sell, resulting in an estimated impairment charge of approximately $3,223,000 for the CPG segment. This impairment charge is included in the Loss from Discontinued Operation as of June 30, 2023.

In addition, as a direct result of selling OKC’s assets, management’s focus on winding down the OKC operations, and actively marketing the real property for sale during the third quarter of 2023, the Company incurred an impairment charge of approximately $1,098,000 related to the real property based on independent, third party appraisals (less estimated costs to sell). Estimated wind down costs of approximately $1,129,000, mostly included in other accrued liabilities caption within the table presented below, were recorded for customer collection reserves, key employee retention agreements, and supplier purchase orders currently in negotiations. This aggregate total of approximately $2,227,000 is included in the Loss from Discontinued Operation as of June 30, 2023.

OKC’s operating loss (prior to the discontinued operation classification) of approximately $770,000 and $21,000 for the three-month periods ended June 30, 2023 and 2022, respectively, is also included in the Loss from Discontinued Operation. OKC’s operating loss (prior to the discontinued operation classification) of approximately $1,490,000 and $144,000 for the six-month periods ended June 30, 2023 and 2022, respectively, is also included in the Loss from Discontinued Operation.

Based on the above, the Company’s total estimated Loss from Discontinued Operation, net of tax, is approximately $6,220,000 and $6,940,000 for the three- and six-months ended June 30, 2023 (approximately $21,000 and $144,000 for the three- and six-months ended June 30, 2022 as reclassified).

Discontinued Operation Financial Information

A summary of the results of operations classified as a discontinued operation, net of tax, in the Condensed Consolidated Statements of Operations, are as follows:

	Three Months Ended		Three Months Ended
	June 30, 2023		June 30, 2022
		($000’s omitted)
Net Sales	$	1,345	$	2,482
Operating costs		(2,115)		(2,503)
Loss from discontinued operation		(770)		(21)
Loss from discontinued operation - impairment and divestiture costs		(2,227)		—
Loss on sale of assets		(3,223)		—
Loss from discontinued operation before income taxes		(6,220)		(21)
Income tax benefit		—		—
Loss from discontinued operation, net of tax	$	(6,220)	$	(21)

	Six Months Ended		Six Months Ended
	June 30, 2023		June 30, 2022
	($000’s omitted)
Net Sales	$	3,087	$	4,482
Operating costs		(4,577)		(4,626)
Loss from discontinued operation		(1,490)		(144)
Loss from discontinued operation - impairment and divestiture costs		(2,227)		—
Loss on sale of assets		(3,223)		—
Loss from discontinued operation before income taxes		(6,940)		(144)
Income tax benefit		—		—
Loss from discontinued operation, net of tax	$	(6,940)	$	(144)

Assets & Liabilities Related to Discontinued Operation Financial Information

A summary of the carrying amounts of major classes of assets and liabilities, which are included in assets and liabilities related to discontinued operation in the Condensed Consolidated Balance Sheets, are as follows:

	June 30, 2023		Dec 31, 2022
	($000’s omitted)
Accounts receivable, net	$	625	$	1,016
Prepaid assets		100		313
Inventories, net		1,598		4,766
Machinery and equipment, net		255		567
Patents and trademark, net		46		140
Building and improvements, net		1,550		2,726
Assets related to discontinued operation	$	4,174	$	9,528
Accounts payable	$	1,420	$	1,272
Accrued employee compensation and benefit costs		86		124
Other accrued liabilities		1,258		349
Liabilities related to discontinued operation	$	2,764	$	1,745

The OKC assets not being sold under the terms of the APA include accounts receivable, prepaid assets, and the building (total assets of $2,275,000 as of June 30, 2023). The Company retains and will liquidate these assets in conjunction with the wind down of the OKC operations. The accounts receivable of approximately $625,000 is net of a reserve for uncollectible accounts of approximately $170,000. In addition, the OKC liabilities not assumed under the terms of the APA include the accounts payable and accrued expenses totaling approximately $2,764,000 as of June 30, 2023.