Note 2.         Sale and Deconsolidation of GMI and Discontinued Operations

On March 17, 2023, the Company entered into and closed a Stock Purchase Agreement with GMDC, a company newly formed by StealthPoint LLC ("StealthPoint"), a San Francisco based venture fund, under which the Company sold all of the shares of its subsidiary, Gray Matters, Inc. In exchange for this sale, the Company received common shares of GMDC representing on a primary share basis, assuming the conversion of the Series A preferred stock referenced below, 24.9% interest in the purchaser, cash consideration of $935,974 and contingent annual payments equal to five percent (5%) of the purchaser’s GAAP based revenue through December 31, 2029 attributable to the purchaser’s blockchain-enabled digital supply chain management platform and associated technologies. GMDC also paid the Company $133,148 for certain of GMI’s operating expenses for the period beginning March 1, 2023 through March 17, 2023.

The equity interest StealthPoint and other GMDC investors received was in the form of Series A non-participating convertible preferred stock having a one-times (1x) liquidation preference and no cumulative dividends. In addition, the Company and GMDC entered into a transition services agreement whereby the Company continued to provide certain administrative services for GMI. The value of these services was determined to be $65,000 which was paid by GMDC at closing and was not subject to adjustment. The $65,000 prepayment was recognized as a reduction to selling, general and administrative expenses ratably over the three-month period ended  June 30, 2023 after which time no further transition services were provided. The total cash received at closing was $1,000,974. The Company also had the right to appoint a representative to GMDC’s board of directors and a right to co-invest in future GMDC preferred stock financing rounds. The Company recognized a gain on the sale of GMI of $100,615 in 2023, which is included in net loss on discontinued operations in the condensed consolidated statement of operations. We deconsolidated GMI immediately upon its sale. GMDC was not a related party of the Company at the time of its purchase of GMI. Subsequent to our deconsolidation of GMI, and until our sale of GMDC common stock on August 9, 2023, GMI and GMDC were related parties of the Company due to our equity interest in GMDC.

The components of the consideration received and the methods for determining their fair values as of March 17, 2023 were as follows:

The GMDC common stock was accounted for as an equity method investment from March 17, 2023, and through its sale on August 9, 2023. During this period, a net loss of $245,525 in the equity investment was recorded. On August 9, 2023, the Company sold its remaining equity interest in GMDC in exchange for $400,000 in cash, and recognized a gain on sale of $64,525. The contingent consideration receivable of $682,000 was settled in cash for $1,000,000 and a gain of $318,000 was recognized in the third quarter of 2023.

The following table sets forth details of net earnings from discontinued operations for the years ended December 31, 2023 and 2022, which reflects the results of our former Blockchain SCM operating segment through the date our controlling financial interest in it was sold – March 17, 2023.

During the year ended December 31, 2023, there was a total of 715,000 unvested stock options forfeited by GMI employees, including 527,500 forfeited by employees who resigned from WaveDancer, on the Sale Date, and were offered employment by GMDC. Stock-based compensation expense of $407,322, previously recognized for these forfeited options, was taken back into income in 2023.

The income tax benefit is at an effective rate different from the federal statutory rate due principally to the following:

The following table presents the components of the assets of our discontinued operations that are classified as held for sale as of December 31, 2022. As of December 31, 2023, GMI had been sold and its accounts deconsolidated from the condensed consolidated balance sheet.