Akerna Corp. Registration of securities issued in business combination transactions

Registration of securities issued in business combination transactions

Discontinued Operations

Discontinued Operations

9 Months Ended

12 Months Ended

Sep. 30, 2023

Dec. 31, 2022

Discontinued Operations [Abstract]

Discontinued Operations

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, 2023		As of December 30, 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.

Note 17 — 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 will 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		2021
Cash and restricted cash	$	305,500	$	1,354,899
Accounts receivable, net		112,444		530,086
Prepaid expenses & other current assets		578,393		258,042
Fixed assets		63,764		87,123
Capitalized software, net		828,555		371,023
Intangible assets, net		3,241,372		15,056,111
Goodwill		—		14,098,384
Other noncurrent assets		—		9,700
Total assets	$	5,130,028	$	31,765,368

Accounts payable, accrued expenses and other current liabilities	$	1,034,426	$	677,747
Deferred revenue		994,713		2,672,019
Deferred revenue, noncurrent		217,083		336,773
Total liabilities	$	2,246,222	$	3,686,539

Current assets held for sale	$	5,130,028	$	2,143,027
Noncurrent assets held for sale		—		29,622,341
Total assets held for sale	$	5,130,028	$	31,765,368

Current liabilities held for sale	$	2,246,222	$	3,349,766
Noncurrent liabilities held for sale		—		336,773
Total liabilities held for sale	$	2,246,222	$	3,686,539

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

	Year Ended December 31,
	2022			2021
Revenue	$	9,453,309		$	3,057,877
Cost of revenue		2,418,322			685,603
Gross profit		7,034,987			2,372,274
Research and development		1,807,068			379,943
Sales and marketing		4,166,545			1,399,908
General and administrative		472,479			248,578
Depreciation and amortization		2,212,438			560,599
Impairment of long-lived assets		22,811,310			29,196
Changes in fair value of contingent consideration		(4,016,194	)		—
Interest expense		596			794
Loss from discontinued operations before income taxes		(20,419,255	)		(246,744	)
Income tax benefit		(12,919	)		(1,500	)
Net loss from discontinued operations, net of tax	$	(20,432,174	)	$	(248,244	)

The $22.8 million impairments of long-lived assets for the year ended December 31, 2022 are attributable to goodwill ($12.5 million), intangible assets ($10.0 million) and capitalized software ($0.3 million). Of this total, $22.2 million was attributable to 365 Cannabis and $0.6 million to LCA. The impairments of long-lived assets for the year ended December 31, 2021 are fully attributable to goodwill of LCA. The Discontinued Group incurred capital expenditures for capitalized software assets of $1.1 million and $0.4 million for the years ended December 31, 2022 and 2021, respectively. Other than those attributable to the acquisition of 365 Cannabis in 2021 which are disclosed in Note 4, there were no material non-cash investing and financing activities attributable to the Discontinued Group for the years ended December 31, 2022 and 2021, respectively.