Quarterly report pursuant to Section 13 or 15(d)

Divestiture of Disc Publishing Business

v3.3.0.814
Divestiture of Disc Publishing Business
9 Months Ended
Sep. 30, 2015
Discontinued Operations and Disposal Groups [Abstract]  
Divestiture of Disc Publishing Business
Divestiture of Disc Publishing Business
On April 24, 2014, the Company entered into an asset purchase agreement (the “asset purchase agreement”) with Equus Holdings, Inc. and Redwood Acquisition, Inc. (now known as Rimage Corporation, “Buyer”). Under the terms of the asset purchase agreement, the Company agreed to sell to Buyer all of the assets primarily used or primarily held for use in connection with its disc publishing business. Buyer also agreed to assume on the closing date certain agreements and liabilities relating to the disc publishing business and the acquired assets.
At a special meeting of the Company's shareholders held on June 27, 2014, the Company's shareholders approved the sale of the disc publishing assets as contemplated by the asset purchase agreement. As a result, effective June 27, 2014, the disc publishing business was classified as held for sale and qualified for discontinued operations presentation in the Company’s consolidated financial statements. In accordance with ASC 205-20, the results of the discontinued disc publishing business have been presented as discontinued operations effective with the reporting of financial results for the second quarter 2014. As such, financial results for the three and nine months ended September 30, 2015 and 2014 have been reported on this basis.
On July 1, 2014, the Company’s sale of the disc publishing business was completed. The Company also entered into a mutual transition services agreement with Buyer and entered into a lease agreement with Buyer for the lease from Buyer of a portion of the property located at 7725 Washington Avenue South, Minneapolis, MN 55439. The Company terminated the lease agreement in September 2015 due to the Company relocating its corporate headquarters to 510 1st Avenue North, Suite 305, Minneapolis, MN 55403.
The adjusted purchase price paid to the Company was $22.0 million, of which $2.3 million was placed in an escrow account to support the Company’s indemnification obligations under the asset purchase agreement for a fifteen-month escrow period. The $2.3 million escrow is classified as restricted cash in current assets on the Condensed Consolidated Balance Sheets as of September 30, 2015. In October 2015, the entire $2.3 million was released from escrow to the Company. In the third quarter of 2014, the Company recorded a gain on sale of the disc publishing business of $16.2 million, exclusive of the impact of transaction related expenses recorded through September 30, 2014. The gain on sale attributable to the U.S. is offset for federal income tax purposes by current or prior-year tax losses but is subject to applicable state income taxes.
The operational results of the disc publishing business are presented in the “Net income (loss) from discontinued operations, net of tax” line item on the Condensed Consolidated Statements of Operations. The assets and liabilities of the discontinued business are presented on the Condensed Consolidated Balance Sheets as assets and liabilities from discontinued operations.
Other than consolidated amounts reflecting operating results and balances for both the continuing and discontinued operations, all remaining amounts presented in the accompanying condensed consolidated financial statements and notes reflect the financial results and financial position of the Company's continuing enterprise video content management software business.
Revenue, operating income, income tax expense and net income (loss) from discontinued operations were as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net revenue
$

 
$

 
$

 
$
29,922

Operating income (loss)

 
(97
)
 

 
4,520

Gain on sale of discontinued operations

 
16,182

 

 
16,182

Income tax expense (benefit)
(92
)
 
4,526

 
(92
)
 
6,427

Net income (loss) from discontinued operations, net of tax
$
79

 
$
11,559

 
$
(10
)
 
$
14,365


The major classes of assets and liabilities from discontinued operations were as follows (in thousands):
 
September 30,
2015
 
December 31,
2014
Current assets from discontinued operations
$

 
$
1,026

Accrued compensation
$

 
$
31

Other current liabilities
50

 
417

Current liabilities from discontinued operations
$
50

 
$
448