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

Quarterly report pursuant to Section 13 or 15(d)

Discontinued Operations

Discontinued Operations

9 Months Ended

Sep. 30, 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 September 30,		As of December 30,
	2023		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 September 30,					Nine Months Ended September 30,
	2023		2022			2023			2022
Revenue	$	—	$	2,348,423		$	214,346		$	7,650,389
Cost of revenue		—		575,076			10,119			1,916,454
Gross profit		—		1,773,347			204,227			5,733,935
Product development		—		414,948			117,500			1,290,618
Sales and marketing		—		928,221			171,753			3,319428
General and administrative		—		(3,006,140	)		4,032			(2,596,946	)
Depreciation and amortization		—		567,259			24,507			1,619,478
Impairment of long-lived assets		—		—			—			9,037,642
Other expense (income), net		—		849			1,833			(304,526	)
Gain (loss) from discontinued operations before income taxes		—		2,869,908			(115,398	)		(7,240,811	)
Income tax benefit		—		—			—			—
Gain (loss) from discontinued operations, net of tax		—		2,869,908			(115,398	)		(7,240,811	)
Gain on sale of discontinued operations, net of tax		—		—			212,601			—
Net gain (loss) from discontinued operations, net of tax	$	—	$	2,869,908		$	97,203		$	(7,720,811	)

The impairment of long-lived assets for the nine months ended September 30, 2023 is attributable to goodwill associated with 365 Cannabis ($9.0 million) and LCA (less than $0.1 million). Other expense (income), net includes a reversal of bad debt expense of $0.3 million during the 2022 periods. 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 nine months ended September 30, 2023, the Discontinued Group incurred capital expenditures for capitalized software assets of $0.9 million for the nine months ended September 30, 2022. There were no material non-cash investing and financing activities attributable to the Discontinued Group for the nine months ended September 30, 2023 and 2022, respectively.