|9 Months Ended|
Sep. 30, 2022
|Business Combination and Asset Acquisition [Abstract]|
Note 3 – Significant Transactions
In May 2022, we implemented the Restructuring as approved by our board of directors. The Restructuring resulted in a reduction of the Company’s workforce by 59 employees, or approximately 33 percent of the Company. We incurred costs of approximately $0.6 million in severance benefits, including employee insurance, associated payroll taxes and legal costs in connection with the Restructuring. Of the total amount incurred, $0.3 million was included in Sales and marketing costs, $0.3 million was recorded in Product development and less than $0.1 million was included in Cost of revenue and General and administrative expenses, respectively. All amounts directly attributable to the severed employees were settled in cash through the period ended September 30, 2022. Accordingly, we have no material obligations remaining associated with the Restructuring. In addition to the reduction in force, the Company's executive leadership team agreed to a temporary 25 percent reduction in salary, subject to certain conditions.
On April 1, 2021, we completed the acquisition of Viridian, a cannabis business management software provider that is built on SAP Business One. We acquired Viridian in exchange for 50,000 shares of our Common Stock valued at $6.0 million. In addition to the stock consideration, the agreement provides for contingent consideration of up to $1.0 million, payable in additional common stock, if Viridian meets certain revenue criteria. We finalized our purchase price accounting during the three months ended March 31, 2022 and there were no changes to the previously disclosed purchase price accounting.
On October 1, 2021, we acquired all the issued and outstanding shares of 365 Cannabis. Under the terms of the stock purchase agreement (the “Stock Purchase Agreement”), the aggregate consideration for the 365 Cannabis shares consisted of an initial purchase price of (1) $5.0 million in cash, (2) $12.0 million in stock, which was settled by issuing shares of our Common Stock, and ( 3) contingent value rights to be issued pursuant to a rights indenture entitling the holders thereof to receive, subject to certain adjustments as set forth in the Stock Purchase Agreement, an aggregate of up to $8.0 million in stock, in the event that 365 Cannabis achieves certain revenue targets as specified in the Stock Purchase Agreement. These rights are accounted for as contingent consideration and were initially measured at a fair value of $6.3 million. Upon the completion of the assessment period associated with the revenue targets, the fair value of the contingent consideration was reduced to $3.3 million as of September 30, 2022 with a corresponding adjustment reflected in our loss from operations for the periods ended September 30, 2022.
We reached a working capital settlement agreement during the first quarter of 2022 in the amount of $1.5 million. As a result of this post-close adjustment, the 365 Cannabis purchase price was reduced by $1.5 million. This was recorded as follows: (1) a receivable of $0.4 million was recorded in other current assets on our condensed consolidated balance sheet as of March 31, 2022 and was received in the second quarter of 2022, (2) a reduction of $0.2 million was made to the working capital accrual that was recorded as of December 31, 2021, and (3) 13,988 shares of Common Stock valued at $0.9 million that were held in escrow were released back to Akerna to address the remainder of the working capital adjustment.
On May 23, 2022, we and the sellers of 365 Cannabis entered into an amendment (the “Amendment”) to the Stock Purchase Agreement in order to provide the sellers an election to have the potential earn-out payment, recognized as contingent consideration in the table below, paid in cash or Common Stock or in any combination thereof. Under the Amendment, if a seller elects to have any portion of the earn-out payment paid in cash such amount payable will be reduced by 25%.
The fair value of the consideration transferred as of the date of acquisition is reflected in the table below (in thousands):
The presentation below reflects our final purchase price allocation, summarizing the fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):
The excess of purchase consideration over the fair value of assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities, for which there is no basis for U.S. income tax purposes.
Pro Forma Financial Information
The following unaudited pro forma consolidated operating results give effect to the Viridian and 365 Cannabis acquisitions, as if they had been completed as of January 1, 2021 (in thousands):
The pro forma financial information for the period presented above has been calculated after adjusting the results of Viridian and 365 Cannabis to reflect the business combination accounting effects resulting from this acquisition, including the amortization expense from acquired intangible assets as though the acquisition occurred as of the beginning of the periods indicated above as well as direct acquisition costs. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the years indicated above.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef