Akerna Corp. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Discontinued Operations

Discontinued Operations

3 Months Ended

Mar. 31, 2023

Note 12 – Discontinued Operations

During the quarter ended December 31, 2022, we committed to a strategic shift in our business strategy for 2023 and beyond including the sale of 365 Cannabis and LCA, or the Discontinued Group. Subsequent to the sales of 365 Cannabis and LCA that were completed in January 2023, we have no future involvement or relationships with these businesses. As a result of these actions, the assets and liabilities and results of operations of the Discontinued Group have been classified as held for sale and discontinued operations, respectively, for all periods presented.

The following table presents the major classes of assets and liabilities of the Discontinued Group:

	As of December 31,
	2022
Cash and restricted cash	$	305,500
Accounts receivable, net		112,444
Prepaid expenses & other current assets		578,393
Fixed assets		63,764
Capitalized software, net		828,555
Intangible assets, net		3,241,372
Total assets held for sale	$	5,130,028

Accounts payable, accrued expenses and other current liabilities	$	1,034,426
Deferred revenue		994,713
Deferred revenue, noncurrent		217,083
Total liabilities held for sale	$	2,246,222

The following table summarizes the results of operations of the Discontinued Group:

	Three Months Ended March 31,
	2023			2022
Revenue	$	214,346		$	2,705,761
Cost of revenue		10,119			680,662
Gross profit		204,227			2,025,099
Product development		117,500			389,614
Sales and marketing		171,753			1,184,979
General and administrative		4,032			648,101
Depreciation and amortization		24,507			511,947
Impairment of long-lived assets		—			31,420
Other expense		(1,833	)		—
Loss from discontinued operations before income taxes		(115,398	)		(740,962	)
Income tax benefit		—			—
Loss from discontinued operations, net of tax		(115,398	)		(740,962	)
Gain on sale of discontinued operations, net of tax		212,601			—
Net gain (loss) from discontinued operations, net of tax	$	97,203		$	(740,962	)

The impairment of long-lived assets for the three months ended March 31, 2022 is attributable to goodwill associated with LCA. We recognized a gain on the disposition of the Discontinued Group as the sum of the cash proceeds received, or $0.6 million, and the termination and release of the Earn-out Obligation, or $2.3 million, exceeded the carrying values of $2.7 million attributable to the net assets of the Discontinued Group upon their dispositions in January 2023. While there were none during the three months ended March 31, 2023, the Discontinued Group incurred capital expenditures for capitalized software assets of $0.3 million for the three months ended March 31, 2022. There were no material non-cash investing and financing activities attributable to the Discontinued Group for the three months ended March 31, 2023 and 2022, respectively.