SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This ~~annual report~~Annual Report on Form 10-K, including all exhibits hereto and any documents that are incorporated by reference as set forth on the face page under “Documents incorporated by reference,” contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future events or our future results of operations, financial condition, business, strategies, financial needs, and the plans and objectives of management. In some cases, forward-looking statements can be identified because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “likely,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. Forward-looking statements are based on information available to our management as of the date of this AnnualReport and our management’s good faith belief as of such date with respect to future events and are subject to a number of risks, uncertainties, and assumptions that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking ~~statements, in particular the substantial risks and uncertainties related to the ongoing COVID-19 pandemic.~~statements. Important factors that could cause such differences to include, but are not limited to:

	●	Akerna Corp.’s (“we,” “us,” “our,” the “Company” or “Akerna”) merger transaction (the “Merger”) with Gryphon Digital Mining Inc. (“Gryphon”) (see Item 1. Business and Note 1 to the consolidated financial statements for additional detail) is subject to a number of risks, including risks regarding whether the Merger will be completed, the timing for completion and the market price of the common stock following completion of the Merger;
	●	our sale transaction (the “Sale Transaction”) with POSaBIT Systems Corporation (“POSaBIT”) (see Item 1. Business and Note 1 to the consolidated financial statements for additional detail) is subject to a number of risks, including risks regarding whether the Sale Transaction will be completed and the timing for completion;
	●	our ability to continue as a ~~going-concern;~~going-concern and manage our cash flow;
	●	our ability to sustain ~~our revenue growth rate,~~revenues, to achieve or maintain profitability, and to effectively manage our ~~anticipated growth~~growth;
	●	our short operating history makes it difficult to evaluate our business and future prospects;
	●	our dependence on the commercial success of our clients, the continued growth of the cannabis industry and the regulatory environment in which the cannabis industry operates;
	●	our ability to attract new clients on a cost-effective basis and the extent to which existing clients renew and upgrade their subscriptions;
	●	the timing of our introduction of new solutions or updates to existing solutions;
	●	our ability to successfully diversify our solutions by developing or introducing new ~~solutions or acquiring and integrating additional businesses, products, services, or content;~~solutions;
	●	our ability to respond to changes within the cannabis ~~industry;~~industry, including legal and regulatory changes;
	●	the effects of adverse changes in, or the enforcement of, federal laws regarding our clients’ cannabis operations or our receipt of proceeds from such operations;
	●	our ability to manage unique risks and uncertainties related to government contracts;
	●	our ability to manage and protect our information technology systems;
	●	our ability to maintain and expand our strategic relationships with third parties;
	●	our ability to deliver our solutions to clients without disruption or delay;
	●	our exposure to liability from errors, delays, fraud, or system failures, which may not be covered by insurance;
	●	our ability to expand our international reach;
	●	our ability to retain or recruit officers, key employees, and directors;
	●	~~our ability to manage potential conflicts of interest involving our Chief Financial Officer moving to part-time;~~
	●	our ability to raise additional capital or obtain financing in the future;
	●	~~our ability to successfully integrate acquired businesses with Akerna’s business within anticipated timelines and at their expected costs;~~
	●	our ability to complete planned acquisitions on time or at all due to failure to obtain stockholder approval or governmental or regulatory clearances, or the failure to satisfy other conditions to completion, or the failure of completion for any other reason;
	●	our response to adverse developments in the general market, business, economic, labor, regulatory, and political conditions, including worldwide demand for cannabis and the spot price and long-term contract price of cannabis;
	●	our response to competitive risks;
	●	our ability to protect our intellectual property;
	●	the market reaction to negative publicity regarding cannabis;
	●	our ability to manage the requirements of being a public company;
	●	our ability to service our convertible ~~debt;~~
	●	~~our accounting treatment of certain of our private warrants;~~debt and meet ongoing covenants;
	●	our ability to effectively manage any disruptions to our business and/or any negative impact to our financial performance caused by the economic and social effects of the COVID-19 pandemic and measures taken in response; and
	●	other factors discussed in other sections of this Annual Report on Form 10-K, including the sections of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II, Item 7 and ~~"Risk Factors"~~“Risk Factors” Part I, Item 1A.

Should one or more of these risks or uncertainties materialize should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated, or expected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation to revise subsequently any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. We qualify all the forward-looking statements contained in this Annual Report by the foregoing cautionary statements.

RISK FACTORS SUMMARY

Akerna is subject to various risks associated with their businesses and their industries. In addition, the Merger and Sale Transaction, including the possibility that the transactions may not be completed, poses a number of risks to Akerna and its stockholders. You should carefully consider all of the risks described below, and the other risks set forth in the section of this report entitled “Item 1A - Risk Factors” commencing on page 19.

Risks Related to the Merger

	●	We cannot be sure if or when the Merger will be completed.
	●	The percentage ownership of the combined company as determined in the Merger Agreement is not adjustable based on the market price of our common stock, so the Merger consideration at the closing of the Merger may have a greater or lesser value than at the time the Merger Agreement was signed.
	●	Failure to complete the Merger may result in our paying a termination fee to Gryphon and could significantly harm the market price of our common stock, par value $0.0001 per share (“Common Stock”) and negatively affect our future business and operations.
	●	The closing of the Merger is subject to approval by our stockholders and the Gryphon stockholders. Failure to obtain these approvals would prevent the closing of the Merger.
	●	The Merger may be completed even though certain events occur prior to the closing that materially and adversely affect us or Gryphon.
	●	Some of our and Gryphon’s officers and directors have interests in the Merger that are different from our and Gryphon’s respective stockholders and that may influence them to support or approve the Merger without regard to the interests of our and Gryphon’s respective stockholders.
	●	The market price of our Common Stock following the Merger may decline as a result of the Merger.
	●	Our stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with or following the Merger.
	●	During the pendency of the Merger, we may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect our business.
	●	Certain provisions of the agreement and plan of merger, as may be amended from time to time (the “Merger Agreement”) may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
	●	Because the lack of a public market for Gryphon’s capital stock makes it difficult to evaluate the value of Gryphon’s capital stock, the stockholders of Gryphon may receive shares of our Common Stock in the Merger that have a value that is less than, or greater than, the fair market value of Gryphon’s capital stock
	●	If the conditions to the Merger are not met, the Merger will not occur.
	●	Litigation relating to the Merger could require us to incur significant costs and suffer management distraction, and could delay or enjoin the Merger.
	●	If the Merger is not completed, we may decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to its stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.
	●	Our ability to use net operating loss (“NOL”) carryforwards and certain tax credit carryforwards may be subject to limitation in connection with the Merger and other ownership changes.

Risks Related to the Proposed Sale Transaction

	●	While the Sale Transaction is pending, it creates unknown impacts on our future which could materially and adversely affect our business, financial condition and results of operations.
	●	The failure to consummate the Sale Transaction may materially and adversely affect our business, financial condition and results of operations.
	●	The closing of the Merger is conditioned on the consummation of the Sale Transaction.

Risks Related to Akerna

Risks Relating to Our Financial Condition and Operating History

	●	We have a history of losses, expect to continue to incur losses in the near term and may not achieve or sustain profitability in the future.
	●	We have a relatively short operating history, which makes it difficult to evaluate our business and future prospects.
	●	Our long-term results of operations are difficult to predict and depend on the commercial success of our clients, the continued growth of the cannabis industry generally, and the regulatory environment within which the cannabis industry operates.
	●	Direct and indirect consequences of the COVID-19 pandemic may have material adverse consequences.

Risks Related to the Cannabis Industry

	●	As a company whose clients operate in the cannabis industry, we face many unique and evolving risks.
	●	Marijuana remains illegal under United States federal law.
	●	Uncertainty of federal enforcement.
	●	We could become subject to racketeering laws.
	●	Banking regulations could limit access to banking services and expose us to risk.
	●	Dividends and distributions could be prevented if our receipt of payments from clients is deemed to be proceeds of crime.
	●	Further legislative development beneficial to our operations is not guaranteed.
	●	The cannabis industry could face strong opposition from other industries.
	●	The legality of marijuana could be reversed in one or more states.
	●	Changing legislation and evolving interpretations of the law.
	●	Dependence on client licensing.
	●	Insurance risks.
	●	Bankruptcy risk.
	●	The cannabis industry is an evolving industry and we must anticipate and respond to changes.

Risks Related to Our Business

	●	A significant portion of our business is and is expected to be, from government contracts, which present certain unique risks.
	●	Our operations may be adversely affected by disruptions to our information technology, or IT, systems, including disruptions from cybersecurity breaches of our IT infrastructure.
	●	Privacy regulation is an evolving area and compliance with applicable privacy regulations may increase our operating costs or adversely impact our ability to service our clients and market our products and services.
	●	We rely on third parties for certain services made available to users of our platforms, which could limit our control over the quality of the user experience and our cost of providing services.
	●	Acquisitions and integration issues may expose us to risks.
	●	To grow and be successful, we need to attract and retain qualified personnel.
	●	We are smaller and less diversified than many of our potential competitors.
	●	Our business and stock price may suffer as a result of our limited public company operating experience and if securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our Common Stock in an adverse manner, the price and trading volume of our common stock could decline.

Risks Related to Intellectual Property

	●	Protecting and defending against intellectual property claims may have a material adverse effect on our business.
	●	Our success depends in part upon our ability to protect our core technology and intellectual property.
	●	Others may assert intellectual property infringement claims against us.
	●	Protecting and defending against intellectual property claims may have a material adverse effect on our business.

Risks Related to Our Charter Documents

●

Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt and limit the price investors might be willing to pay in the future for our Common Stock and could entrench management.

	●	Our corporate opportunity provisions in our amended and restated certificate of incorporation could enable management to benefit from corporate opportunities that might otherwise be available to us.
	●	Our amended and restated certificate of incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

Risks Related to our Accounting for Certain Warrants

●

Certain of our warrants are accounted for as liabilities and are recorded at fair value upon issuance with any changes in fair value each period reported in our statement of operations, which may have an adverse effect on the market price of our securities.

Risks Related to Our Senior Convertible Notes

	●	The issuance of shares of our Common Stock pursuant to our 2021 Senior Convertible Notes (“Senior Convertible Notes”) may result in significant dilution to our stockholders.
	●	Our obligations to the holders of our Senior Convertible Notes are secured by a security interest in substantially all of our assets, if we default on those obligations, the Senior Convertible Note holders could foreclose on our assets.
	●	The holders of the Senior Convertible Notes have certain additional rights upon an event of default under such Senior Convertible Notes, which could harm our business, financial condition, and results of operations and could require us to reduce or cease our operations.

Risks Related to Our Common Stock

	●	We may seek to raise additional funds, finance acquisitions, or develop strategic relationships by issuing securities that would dilute investors’ ownership. Depending on the terms available to us, if these activities result in significant dilution, it may negatively impact the trading price of our shares of Common Stock.
	●	Warrants are exercisable for our Common Stock, which could increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
	●	The market price of our shares of Common Stock is particularly volatile given our status as a relatively new public company with a generally small and thinly traded public float, which could lead to wide fluctuations in our share price. Stockholders may be unable to sell their shares of Common Stock at or above their purchase price, which may result in substantial losses to them.
	●	The market price of our Common Stock is still likely to be highly volatile and subject to wide fluctuations, and stockholders may be unable to resell shares of Common Stock at or above the price at which they are acquired.
	●	We have not paid dividends in the past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation in the value of our Common Stock.

General Risks

	●	We may not be able to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002.
	●	Failure to remediate material weaknesses in internal controls over financial reporting could result in material misstatements in our financial statements.
	●	We may face additional risks, including regulatory, litigation, stockholder or other actions and negative impacts on our stock price, as a result of the material weakness in our internal control over financial reporting and revisions to our financial statements.
	●	The requirements of being a public company may strain our resources and divert management’s attention.
	●	We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our shares of Common Stock less attractive to investors.
	●	Our ability to utilize our NOL carryforwards and certain other tax attributes may be limited.
	●	Our operations could be adversely affected by events outside of our control, such as natural disasters, wars, or health epidemics.

PART I

Item 1. Business.

Business Overview

Akerna is a leading provider of enterprise software solutions within the cannabis industry. Cannabis businesses face significant complexity due to the stringent regulations and restrictions that shift based on regional, state, and national governing bodies. As the first to market more than ten years ago, Akerna’s family of software platforms help to enable regulatory compliance and inventory management across the entire supply chain. When the legal cannabis market started to grow, we identified a need for organic material tracking and regulatory compliance software as a service ~~(SaaS)~~(“SaaS”) solution customized specifically for the unique needs of the industry. By providing an integrated ecosystem of applications and services that help our clients enable compliance, regulation, consumer safety and taxation, Akerna is building the technology backbone of the cannabis industry. While designed specifically for the unique needs of the cannabis market, our solutions are adaptable for other industries requiring government regulatory oversight, or where the tracking of organic materials from seed or plant to end products is desired.

Executing upon our expansion strategy, we acquire complementary cannabis brands to grow the scope of Akerna’s cannabis ecosystem. Since 2019, we have integrated six new brands into the Akerna product and service offering. Our first acquisition, Solo Sciences ("Solo"), was initiated in the fall of 2019, with the full acquisition completed in July 2020. We added Trellis Solutions ("Trellis") to our portfolio on April 10, 2020 and finalized the acquisition of Ample Organics ("Ample") and Last Call Analytics ("Last Call") on July 7, 2020. More recently, on April 1, 2021 we completed our acquisition of Viridian Sciences Inc. ("Viridian"), a cannabis business management software system built on SAP Business One, followed by the acquisition of The NAV People, Inc. d.b.a 365 Cannabis ("365 Cannabis"), a cannabis business management software system built on Microsoft Business Central, on October 1, 2021. Through our growing family of companies, Akerna provides highly versatile platforms that equip our clients with a central data management system for tracking regulated products. Our solutions also provide clients with integrated security, transparency, and scalability capabilities, all while helping maintaining compliance with their governing regulations.

On the commercial side, our products help state-licensed businesses operate in compliance with applicable regional laws. Our integrated ecosystem provides integrations with third-party vendors and add-ons that enhance the capabilities of our commercial software platforms. On the regulatory side, ~~we provide~~weprovide track and trace solutions that allow state governments to monitor compliance of licensed cannabis businesses. To date, our software has helped monitor the compliance of more than $30 billion in legal cannabis. While our software facilitates the success of legal cannabis businesses, we do not handle any cannabis-related material, do not process cannabis sales transactions within the United States ("(“U.S."”), and our revenue is generated from a fixed-fee based subscription and professional services model and is not related to the type or amount of sales made by our clients.

We drive revenue growth through the development of our product line, our acquisitions and from continued expansion of the cannabis, hemp, and ~~CBD~~Cannabidiol (“CBD”) industry. Businesses across the regulated cannabis industry use our solutions. The brand recognition of our existing products, our ability to provide services in all areas of the seed-to-sale life cycle, and our wealth of relevant experience attracts cultivation, manufacturing, and dispensary clients who are seeking comprehensive business optimization solutions. Our software solutions are designed to be scalable and ~~while~~ mid-market and smaller customers have historically been our primary target segment, we are focused on extending our customer reach to address the needs of the emerging enterprise level operator. We believe these larger multi-state/multi-vertical operations represent significant long-term future growth opportunities as the cannabis industry continues to consolidate at a rapid rate. The sophistication of our platform accommodates the complexities of both multi-vertical and multi-state business needs, making us critical partners and allowing us to cultivate long-term, successful relationships with our clients.segment.

Our platforms provide licensed businesses with a true enterprise solution for managing their inventory and compliance and allow government regulators to engage in accurate and real-time compliance monitoring. Key capabilities of our technology infrastructure include:

Seed-to-Sale Tracking allows the tracking of products from cultivation, through harvest and processing and manufacturing, to the monitoring of the final sale to the patient or consumer. Our traceability technology captures every step in an individual plant’s life, providing visibility into the supply chain from any measurement of finished product dispensed to a patient or customer, back to the plant it came from, and all activity, transportation, and transactions that happen in between. While we do not provide payment processing, and never take, own, or handle any product or cash transaction, our platform records all sales as part of state and jurisdictional compliance Track-and-Trace processes. The data gathered throughout all of these processes is captured, and provides the insights and information needed to run an efficient and streamlined cannabis business. Seed-to-Sale software operates in a complementary relationship with state-mandated Track-and-Trace systems, replicating the reporting functionality and eliminating the need for operators to duplicate their compliance data into two disparate systems. Track-and-Trace systems are designed solely for government regulators to maintain compliance and do not have the sophistication or functionality to provide cannabis business owners with the insights and tools for effective business management. Our seed-to-sale platforms integrate with the state Track-and-Trace compliance system, reporting in the mandated data along the supply chain while also providing business owners with the capabilities to make informed business decisions based on the ~~fully~~full overview of their operations.

Track-and-Trace is the compliance reporting system used by regulatory bodies in most states. In order to adhere to their state-specific compliance regulations, cannabis operators are required to enter specific data points along the supply chain into the state-mandated track-and-trace system. By doing so, regulators can track the movement of cannabis inventory through the full supply chain, even when it moves between facilities or operators. The aggregated view that Track-and-Trace software seeks to ensure that the end product being sold has been grown, harvested, processed, transferred and sold compliantly, and provides assurance of safety to consumers.

~~Single System Integration~~ allows state-licensed clients to manage inventory, customer records, and staff in one tracking system. MJ Platform and Leaf Data Systems platforms can be fully integrated with one another to create a streamlined Seed-to-Sale/Track-and-Trace solution. Additionally, our platforms can also be integrated with systems of numerous third-party suppliers. We have certified integrations with world class accounting solutions, including Sage, SAP, Microsoft and Netsuite.

~~Anti-Counterfeiting Technology~~. Solo sciences provides next-generation anti-counterfeiting technology fused with a direct communication system between brands and consumers. The solo sciences mission is to build confidence and establish trust among consumers, while enabling retailers and distributors to close the loop with creators and producers.

~~Cannabis Market Insights~~ are curated using the anonymized data aggregated through our Seed-to-Sale platform for key industry intelligence. With over $30 billion in cannabis sales tracked over the past twelve years, we have cultivated a substantial legal cannabis dataset across 30+ states and multiple countries. This data provides a detailed overview of key industry trends, giving us the ability to provide banks, investors, researchers, cannabis businesses, and non-cannabis businesses with cannabis market intelligence and comparison data.

~~Enterprise Resource Planning (ERP) software~~ is a business process management software that manages and integrates a company’s financials, manufacturing, inventory, supply chain, operations, commerce, and reporting activities. ERP systems improve an operator's efficiency and effectiveness by eliminating disparate systems, consolidating business critical information in a single location, reducing double entry data, and streamlining operations. ERP software solutions built for cannabis operators combine traditional accounting, manufacturing, inventory, and supply chain management with cannabis-specific track and trace and compliance functionality.

Using our years of experience, proprietary databases, and resources to identify trends and predict changes in the cannabis industry we evolve our products and better assist our clients in operating in compliance with the applicable laws of their jurisdictions and capitalizing on commercial opportunities within the applicable regulatory framework, with accuracy, efficiency, and geographic specificity. We have worked with clients and governments across the globe to create customized solutions that fit their specific regulatory and commercially compliant needs. While the majority of our clients are in the U.S. and Canada, our solutions allow cannabis businesses to operate efficiently in this fast-changing industry and comply with state, local, and federal (in countries such as ~~Canada,~~ Italy, Macedonia, and Colombia). Akerna and our family of companies is well-positioned to provide compliance solutions for the expanding national and international legal cannabis market.

Exploration of Strategic Alternatives – Sale of 365 Cannabis, Merger and Sale Transaction

In May 2022, we announced that we were exploring strategic alternatives to enhance shareholder value and engaged JMP Securities as our financial advisor to assist in this process. In May 2022, we announced the implementation of a strategic restructuring with the objective of preserving capital. Our board of directors approved a restructuring plan following a review of our operations, cost structure and growth opportunities. The restructuring included a reduction in headcount and operating costs. We recorded a charge of $0.6 million in the six months ended June 30, 2022 as a result of the restructuring, which consisted of one-time termination benefits for employee severance, benefits and related costs, all of which resulted in cash expenditures which were paid out by the end of 2022.

On January 11, 2023, we completed the sale of 365 Cannabis to 365 Holdco LLC (the “Buyers”) pursuant to a stock purchase agreement (the “365 SPA”) for (i) cash in the amount of $0.5 million and the (ii) the termination and release of our obligation to the Buyers for contingent consideration in connection with our original acquisition of 365 Cannabis from the Buyers in 2021 (the “Earn-out Obligation”), subject to customary post-closing adjustments, if any. Any post-closing adjustments are generally limited to certain adjustments in accounts payable and indemnification obligations in accordance with the 365 SPA. Upon completion of the sale, $0.4 million of the total cash proceeds was placed into restricted accounts held as security for the Senior Convertible Notes while $0.1 million was subject to a hold-back (the “365 Holdback”) by the Buyers to be released to us and also placed into certain restricted accounts (the “Restricted Accounts”) after all post-closing adjustments, if any, are resolved. In accordance with the 365 SPA, we and the Buyers agreed that the value of the Earn-out Obligation was $2.3 million, a reduction of $4.0 million from the original estimate, for purposes of the sale of 365 Cannabis and is reflected on our consolidated balance sheets as Contingent consideration payable.

On January 27, 2023, we, Akerna Merger Co., a Delaware corporation and wholly owned direct subsidiary of Akerna (“Merger Sub”), and Gryphon entered into the Merger Agreement, pursuant to which Merger Sub, will merge with and into Gryphon, with Gryphon surviving as a wholly-owned subsidiary of Akerna.

At the effective time of the Merger (the “Effective Time”) each share of Gryphon’s common stock, par value $0.0001 per share (the “Gryphon Common Stock”), and Gryphon’s preferred stock, par value $0.0001 per share (the “Gryphon Preferred Stock”, collectively referred to herein with the Gryphon Common Stock as, the “Gryphon Shares”) outstanding immediately prior to the Effective Time, will be converted into the right to receive a per share portion of the aggregate number of shares of our Common Stock, to be issued at the Effective Time as consideration for the Merger, as calculated pursuant to the terms set forth in the Merger Agreement (the “Merger Consideration”).

Each share of Common Stock, each share of Common Stock reserved for each warrant to purchase Common Stock, each restricted stock unit of Akerna that settle in shares of Common Stock or each award of restricted shares of Akerna Common Stock that is issued and outstanding at the Effective Time will remain issued and outstanding, and such securities will be unaffected by the Merger. Immediately after the consummation of the Merger, Akerna security holders as of immediately prior to the Merger are expected to own approximately 7.5% of the outstanding equity shares of the combined company on a fully diluted basis and former Gryphon equity holders are expected to own approximately 92.5% of the outstanding equity shares of the combined company on a fully diluted basis.

We have also entered into an securities purchase agreement, as may be amended from time to time (the “MJF-Ample SPA”), with Akerna Canada Ample Exchange Inc. (“Akerna Exchange”), a wholly owned subsidiary of Akerna, and POSaBIT, on January 27, 2023, pursuant to which, subject to the satisfaction of the conditions set forth in the MJF-Ample SPA, we will sell to POSaBIT all of Akerna’s membership interests in MJ Freeway, LLC, a Colorado limited liability company (“MJF”), being all of the issued and outstanding membership interests of MJF (the “Membership Interests”), and Akerna Exchange will sell to POSaBIT all of Akerna Exchange’s capital stock of Ample Organics Inc., an Ontario corporation (“Ample”), being all of the issued and outstanding common and preferred shares of Ample (the “Capital Stock”) for a purchase price of $4.0 million, subject to adjustments as set forth in the MJF-Ample SPA.

Shares of Common Stock are currently listed on The Nasdaq Capital Market under the symbol “KERN.” We will file an initial listing application for the combined company with The Nasdaq Stock Market Inc., or Nasdaq. After completion of the Merger, Akerna will be renamed “Gryphon Digital Mining, Inc.” and it is expected that the common stock of the combined company will trade on The Nasdaq Capital Market, although no assurance can be provided that our application will be approved.

Our future business operations are highly dependent on the success of the Merger with Gryphon and Sale Transaction with POSaBIT. If the Merger and Sale Transaction are completed, our business will cease to be software solutions within the cannabis industry and will become the business of Gryphon, which is net carbon neutral bitcoin mining. The business of Gryphon will be more fully described in the registration statement on Form S-4 that Akerna intends to file in relation to the special meeting of the stockholders of Akerna to approve the Merger and the Sale Transaction.

Additional Information and Where to Find It

This section of this annual report on Form 10-K may be deemed to be solicitation material with respect to the proposed transactions between Akerna and Gryphon and between Akerna and POSaBIT. In connection with the proposed transactions, Akerna intends to file relevant materials with the United States Securities and Exchange Commission, or the SEC, including a registration statement on Form S-4 that will contain a prospectus and a proxy statement. Akerna will mail the proxy statement/prospectus to the Akerna stockholders, and the securities to be issued pursuant to the prospectus may not be sold or exchanged until the registration statement becomes effective. Investors and securityholders of Akerna and Gryphon are urged to read these materials when they become available because they will contain important information about Akerna, Gryphon and the proposed transactions. This report is not a substitute for the registration statement, definitive proxy statement/prospectus or any other documents that Akerna may file with the SEC or send to securityholders in connection with the proposed transactions. Investors and securityholders may obtain free copies of the documents filed with the SEC, once available, on Akerna’s website at www.akerna.com, on the SEC’s website at www.sec.gov or by directing a request to Akerna’s Investor Relations at (516) 419-9915.

This report is not a proxy statement or a solicitation of a proxy, consent or authorization with respect to any securities or in respect of the proposed transactions, and shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

Participants in the Solicitation

Each of Akerna, Gryphon, POSaBIT and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of Akerna in connection with the proposed transactions. Information about the executive officers and directors of Akerna are set forth in Akerna’s Definitive Proxy Statement on Schedule 14A relating to the 2022 Annual Meeting of Stockholders, filed with the SEC on April 19, 2022. Other information regarding the interests of such individuals, who may be deemed to be participants in the solicitation of proxies from the stockholders of Akerna, will be set forth in the proxy statement/prospectus, which will be included in Akerna’s registration statement on Form S-4 when it is filed with the SEC. You may obtain free copies of these documents as described above.

Exchange Agreements

Concurrently with the signing of the Merger Agreement, we entered into exchange agreements (the “Exchange Agreements”) with each of the holders (each, a “Holder”) of our Senior Convertible Notes issued pursuant to a securities purchase agreement dated October 5, 2021 (the “Purchase Agreement”). Pursuant to the Exchange Agreements, each Holder has agreed to exchange a certain aggregate conversion amount of the Senior Convertible Notes no greater than the lesser of (i) the aggregate amount then outstanding under the Senior Convertible Notes and (ii) such portion of the maximum note amount set forth in the Exchange Agreement for such Holder that is convertible into 19.9% of the Common Stock of Akerna then outstanding into such number of shares of newly designated Series C Preferred Stock of Akerna, which will have an aggregate voting power and economic value equal to the aggregate number of shares of Common Stock then issuable upon conversion of such amount of Senior Convertible Note.

The Series C Preferred Stock will have the terms and conditions set forth in the Certificate of Designation of the Series C Preferred Stock. The Series C Preferred Stock is non-convertible, voting preferred stock. Upon the closing of a change of control transaction, the Series C Preferred Stock will be automatically redeemed pursuant to its terms for consideration of a share equivalent basis equal to the same consideration held after the consummation of the change of control transaction by a stockholder that held one share of Common Stock prior to the consummation of the change of control transaction. The Series C Preferred Stock can also be redeemed for cash at the option of Akerna and in limited circumstances redeemed for cash at the option of the holder.

Under the Exchange Agreements, Akerna has agreed that 50% of the gross proceeds from any subsequent placements will be used to repay the aggregate amounts then outstanding under the Senior Convertible Notes, allocated pro rata to the holders of Senior Convertible Notes then outstanding based on the aggregate principal amount of Senior Convertible Notes outstanding as of the time of such applicable subsequent placement (“Subsequent Placement Redemption”).

Further, Akerna has agreed that on or prior to the closing of the Merger, if any Notes are then outstanding, Akerna will consummate one or more Company Optional Redemptions (as defined in the Notes) pursuant to Section 9(a) of the Notes (as amended under the Exchange Agreements), using the lesser of (A) the difference of (I) the sum of (x) all cash then held by Akerna (or any of its subsidiaries) and (y) any cash to be paid, directly or indirectly, to Akerna (or any of its subsidiaries) in connection with the transactions contemplated by the Merger Agreement and/or the SPA, as applicable, less (II) $500,000 and (B) an aggregate amount of cash equal to the Company Optional Redemption Price of the aggregate Conversion Amount (as defined in the Notes) of the Notes then outstanding (with each such Company Optional Redemption allocated pro rata to the holders of Notes then outstanding based upon the aggregate principal amount of Notes then outstanding) (the “Cash Sweep”).

Upon closing of the Merger, the Exchange Agreements provide that if any portion of the Senior Convertible Notes remain outstanding other than such portion of the applicable Company Optional Redemption Price of the Senior Convertible Notes to be paid in cash pursuant to the Cash Sweep, to exchange the remaining Conversion Amount of the Senior Convertible Notes into such aggregate number of shares of Common Stock (the “New Note Exchange Shares”) equal to the quotient of (A) the applicable Company Optional Redemption Price of the remaining Conversion Amount of the Senior Convertible Notes then outstanding divided by (B) the lower of (x) the lowest volume weighted average price of the Common Stock during the five (5) Trading Day period ending, and including, the Trading Day immediately prior to the closing and (y) the Conversion Price (as defined in the Notes) in effect as of the closing; and (ii) in accordance with the terms of the Series C Certificate of Designations, the Series C Preferred Stock shall be exchanged into the Change of Control Redemption/Exchange Consideration (as defined in the Series C Certificate of Designations) (with any shares of Common Stock included in such applicable Change of Control Redemption/Exchange Consideration, if any, the “New Preferred Exchange Shares”, and together with the New Note Exchange Shares, the “Final Closing Exchange Shares”); provided, however, that to the extent that any issuances of Final Closing Exchange Shares to a Holder at the closing in accordance herewith or pursuant to the Series C Certificate of Designations, as applicable would result in such Holder and its other Attribution Parties (as defined in the Senior Convertible Note) exceeding the Maximum Percentage (as defined in the Senior Convertible Note) (as calculated in accordance with Section 3(d)(i) of the Senior Convertible Note) (a “Maximum Percentage Event”), then such Holder shall not be entitled to receive such aggregate number of Final Closing Exchange Shares in excess of the Maximum Percentage (and shall not have beneficial ownership of such Final Closing Exchange Shares (or other equivalent security) as a result of the closing (and beneficial ownership) to such extent of any such excess), such remaining portion of such Final Closing Exchange Shares that would have otherwise been issued to the Holder at the Final Closing (such remaining portion of Final Closing Exchange Shares, the “Abeyance Shares”), such portion of the Senior Convertible Note and/or shares of Series C Preferred Stock, as applicable, shall alternatively be exchanged for the right to receive such Abeyance Shares (with a beneficial ownership and issuance limitation substantially in the form of Section 3(d) of the Note, mutatis mutandis), at such time or times as its right thereto would not result in such Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times, if any, such Holder shall be granted such remaining portion of such Abeyance Shares in accordance herewith and/or pursuant to the Series C Certificate of Designations, as applicable.

The closing of the exchange of a certain portion of the Senior Convertible Notes into the Series C Preferred Stock and the exchange of any remaining Senior Convertible Notes and the Series C Preferred Stock into shares of Common Stock at the Closing of the Merger is subject to certain customary conditions and, in relation to the exchange into Series C Preferred Stock, subject to Akerna completing a subsequent placement for gross aggregate proceeds of at least $500,000.

Industry & Competition

We believe the growing cannabis industry in numerous states in the U.S. ~~states~~ and other countries represents a significant market opportunity for our technology, as legally licensed operating companies need to ensure they operate within applicable laws and carefully track inventory. With democratic leadership and the new legislation passed during the 2020 election improving the outlook of the industry and a congress that is committed to push forward cannabis policy, the industry’s growth potential has large near-term upside. Since state governments require supply chain transparency to ensure compliance and the maintenance of the seed-to-sale life cycle within their jurisdictions, each new regulated jurisdiction offers an expanded market opportunity for Akerna.

The regulated cannabis industry (medicinal and adult-use) is experiencing rapid growth. According to ~~BDSA's~~BDSA’s 2021 Essential Cannabis Insights, December ~~2021~~2022 Vol 4, Issue 10, legal cannabis sales in the U.S. passed $25 billion in 2021, growth of 40% over 2020’s $18 billion. ~~BDSA's~~BDSA’s Cannabis Market Forecast update from September 2021 noted sales are forecasted to rise to $46 billion in 2026, a CAGR of 14% from 2021. Global cannabis sales reached nearly $29 billion in 2021, an increase of 45% over 2020 sales of $20 billion. BDSA forecasts global cannabis sales will grow from $29 billion in 2021 to $61 billion in 2026, a compound annual growth rate (CAGR) of more than 16%.

The COVID-19 pandemic has had a positive effect on the growth and acceptance of the cannabis industry. Fitting into a non-cyclical, vice product category has worked to the industry’s advantage overall based on the 2020 sales data. Although many cannabis companies felt extremely adverse circumstances, and some were even forced to close or sell their businesses, this has accelerated a predictable M&A marketplace in which licenses are being acquired for a fraction of what they cost only 1 year ago. The largest Multi-State Operators (MSOs) are growing and financing faster than ever before. For example, Curaleaf, one of the largest MSOs, opened their 100th retail location in February 2021. As a result of the current M&A marketplace, the landscape is beginning to position itself in a similar way that the alcohol industry has, with major companies controlling a vast majority of market share. Akerna is positioned as an enterprise-level offering to address the needs of these large MSOs that continue to grow through consolidation. The addition of the MJ Analytics seed-to-sale reporting engine, built on the architecture of leading business intelligence platform, Domo, further positions Akerna as an enterprise-level solution.

612

Further to our current addressable market, the regulatory changes in the 2018 Farm Bill in the U.S. have created an opportunity for hemp-based CBD in general retail and pharmaceutical channels. Additionally, multiple countries across the world have legalized hemp for growth and export including Canada, China, Italy, Australia, and South Korea. In the U.S., hemp-derived CBD is available broadly across retailers (not solely licensed cannabis dispensaries), including online, drug and convenience stores, natural product, beauty, grocery, and pet stores. According to Grand View Research, Industrial Hemp Market Analysis, ~~The~~the global ~~cannabidiol~~CBD market size was valued at USD 2.8 billion in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 21.2% from 2021 to 2028.

The unfortunate events of the 2019 vape scare in the U.S. prompted regulatory changes and additional requirements, including anti-counterfeiting tags and codes. ~~With major investment and partnership with Solo,~~ Akerna has provided a solution to address the issue for both regulators and operators. The combined supply chain transparency solution was chosen by the State of Utah, requiring all medical dispensary products to be validated. Markets and Markets projects that the anti-counterfeit packaging market size will grow from $105.9 billion in 2018 to $182.2 billion by 2023, at a CAGR of 11.5%. The anti-counterfeit packaging market is projected to witness high growth due to the increasing focus of manufacturers on brand protection to reduce counterfeiting. ~~By leveraging this investment, we strengthen our current addressable market with an essential compliance tool.~~

The cannabis industry is a fast-growing, increasingly complex, and rapidly changing landscape. Arcview Market Research and BDS Analytics note that the range of regulatory schemes is wide, and fines for non-compliance are steep. Proper, safe, and profitable operation of a cannabis business requires a full understanding of applicable laws, the ability to track plants and products to ensure compliance with these laws, and the ability to operate at scale in a competitive environment.

Competitive Landscape

The competitive set within the cannabis technology and consulting space has traditionally been comprised of several smaller and specialized companies with limited access to capital. As part of our growth strategy, we may seek to acquire assets or companies that are synergistic with our business. We have built a scalable infrastructure to support both rapid organic growth and targeted acquisitions. By providing the full seed-to-sale solution, we believe we are well-positioned to be an acquirer of cannabis technology solutions throughout the supply chain. We compete with numerous technology and consulting companies that offer services that are similar to some of our services including, but not limited to, Acumatica, BDS Analytics, BioTrackTHC, Canna Advisors, Cova Cannabis, Dutchie, Flowhub, Headset, Jane, Metrc, New Frontier Data, Nextec, 3C, Treez, and TILT Holdings.

We face competition in each of the ~~revenue segments~~service markets in which we operate. We believe, however, that we possess relative strengths in each ~~segment~~market that provide us with competitive advantages, including:

●

the range of services offered by us;

●

our management personnel and their industry knowledge and experience; and

●

our proprietary databases, which are only available to users of our platforms and consulting services.

Range of Services

We believe we possess a unique viewpoint into the industry because we offer solutions to, and work with, both commercial businesses and government regulatory agencies towards the common goal of ensuring regulatory compliance and real-time monitoring of inventory and sales. We offer a complete range of both software and services to meet these needs for both state governments and commercial businesses. While we do not face competition from firms focusing on specific subsets of our markets, there are a very limited number of competitors providing products or services that compete with our complete range of products and services. We compete with software companies offering a product to businesses only in a certain geographic region or of a certain business type. We also compete with consulting firms serving a specific phase of the cannabis plant life cycle.

Industry Knowledge and Experience

Our management personnel have extensive technical and business operations knowledge and experience within the cannabis and technology industries, which has been developed through numerous years of service in key roles with a broad range of both cannabis and technology companies, both in terms of product and service type and size. We leverage this knowledge and experience to guide our product and service development and delivery. Our management team possesses significant compliance expertise, allowing us to continually monitor changes in legislation and regulation within the markets we and our clients operate. We face competition from companies that have teams with technical expertise or cannabis industry experience, but there are a limited number of competitors who have both and who understand the interplay between software and technology development and the application of the same to the evolving cannabis compliance landscape.

713

Proprietary Databases

~~Twelve years~~Over a decade of operations have provided us with a statistically significant dataset of cannabis transaction information that we believe cannot be readily duplicated by new entrants into the marketplace. This growing database includes proprietary sales, market trends, customer preferences, pricing, and regulatory data. We use this dataset to predict trends more accurately in the marketplace and make this dataset available to users of our platforms, providing greater utility to clients in this regard than can be provided by competing platforms.

Products and Solutions

Software

SMB ~~Market:~~Market

Akerna’s suite of small and medium business (“SMB” or ~~"Non-Enterprise"~~“Non-Enterprise”) products including MJ Platform® and Ample Organics ~~and Trellis~~ provide SaaS offerings for legal cannabis, hemp and CBD businesses. We provide government-licensed cultivators, manufacturers, distributors, and retail dispensaries with a data-driven seed-to-sale tracking platform that provides clients with an enterprise resource planning solution for managing their inventory and regulatory compliance. Akerna’s products and ecosystem of connections are used by clients to compliantly track inventory through all phases of the seed-to-sale cycle – from cultivation to extraction and infusion to packaging, distribution and retail sales. Data points are collected at every stage of the product life cycle and about multiple aspects of the plant’s growing environment, manufacturing processes, and ingredients, as well as retail pricing and purchase data. In Canada, the first G7 country with a federally legal market, we have a pharmacy portal and insurance adjudication.

We service licensed operators in all verticals of the industry, including cultivation, manufacturing, distribution, and retail dispensaries. We have significant client presence for our commercial software solutions in mature cannabis markets such as Arizona, California, Michigan, Pennsylvania, Colorado, Utah, Illinois, Oklahoma, and Puerto Rico, as well as Canada.

We have exclusivity in the Pennsylvania and Utah markets due to our government contracts, which require operators in the states to use MJ ~~Platform.~~
Platform®.

~~Solo Sciences – Anti-counterfeiting Technology~~

Solo is a technology provider for legal cannabis businesses with a focus on providing a cannabis tracking technology that provides seed-to-sale-to-self data throughout a product’s life cycle and empowers consumers with the ability to confirm the quality and authenticity of a product they have purchased.

~~Solo uses proprietary technology to place a unique encrypted arrangement of patterns, the solo*TAG~~^TM ~~or solo*CODE~~^TM, onto individual packaging labels. Solo technology is significantly lower cost and more secure than traditional tagging technologies like radio-frequency identification. The technology includes a free consumer mobile application, granting end-users and regulatory agencies the ability to track products in the supply chain, verify their authenticity, and learn more detailed information about the product such as its origins and ingredients.

The Solo technology platform also enables brands to connect directly with consumers. Through it, product creators can provide end-users with push notifications, targeted news, product insights, loyalty points, etc. Brands embrace the platform as it enables them to increase their revenues and create a more tailored marketing experience. Clients benefit from product incentives while gaining trust in the products they are buying and consuming.

~~Solo has developed several key partnerships including the Utah Department of Health and Department of Agriculture, through Akerna's~~ ~~Leaf Data Systems~~ ~~contract including solo*TAG~~^TM,, a key tagging and technology component in a closed-loop system used by all Utah cannabis licensees as the state’s primary tracking system at the retail, wholesale, cultivation, and manufacturing levels.

~~Enterprise Market:~~

Akerna’s Enterprise product suite provides a comprehensive vertically integrated cannabis ERP and business management software system with a choice of being built on the Microsoft Dynamics 365 Business Central platform or the SAP Business One platform. Our enterprise products were built by cannabis experts with cannabis-specific functionality built into the core of the solution and are designed to meet present and future needs of growing businesses. The software solutions allow business clients to manage their entire operations from cultivation to retail and incorporates Cultivation, Production, Global Compliance, QC, Finance, Dispensing & Retail, CRM, Warehousing, Distribution, Multi-Facility, Multi-Company, Multi-Entity, Language, Currency and more with a client base comprised of leading U.S.-based MSOs and single-state operators, and Canadian LPs, in addition to global cannabis clients outside North America. Our enterprise offerings leverage shared Akerna infrastructure for access to Akerna’s broad ecosystem of offerings and to facilitate compliance with our up-to-date regulatory integrations, unparalleled state and country reporting knowledge, and dedicated team of compliance experts.

Government ~~Market:~~Market

Leaf Data Systems - Government Regulatory Software

Leaf Data Systems® is our SaaS product for government agencies. Leaf Data Systems® provides regulatory authorities with visibility into the operations of licensed medical and recreational cannabis businesses. Government regulators desire visibility at critical junctures within the seed-to-sale chain of custody in order to ensure public safety, monitor sales data for the purposes of taxation, and perform physical inspections of cannabis industry facilities. Leaf Data Systems® allows for specific data points captured during these workflows to be compiled into the state and regional view retrievable by regulatory officials.

Licensed cannabis facilities within a state can track plant and product movement and waste across their organization, which is processed into reporting tailored to the government agencies that regulate and enforce the rules of the industry. This gives regulators a tool for transparency and accountability across the cannabis supply chain to ensure public and product safety as well as to monitor sales and inventory within the industry. Leaf Data Systems® is customized to the regulations of the state in which it is contracted and tailored to capture the relevant data points desired by regulatory officials.

914

~~As of the date of this report,~~ Leaf Data Systems®~~serves~~ is currently serving two state clients, the Commonwealth of Pennsylvania and the State of Utah. The State of Utah mandates the use of our proprietary solo*TAG^TM the world’s first cryptographically-secure, cannabis product authentication system, exclusively for governments as an alternative to radio-frequency identification tracking. This customized system includes an electronic verification and inventory control system to track plants and products throughout the compliance supply chain.

Business Intelligence and Data Analytics Products

We have ~~four~~three data products: MJ Analytics ~~("MJA"~~(“MJA”); and Akerna Acumen Big Data, which both leverage the extensive data captured in each of MJ Platform’s cultivation, E&I, distribution, and retail modules; and AmpleData, which leverages data obtained through Canadian regulated retail ~~channels; and Last Call Analytics, which provides retail sales analytics for alcohol brands.~~channels.

MJ Analytics

MJA gives MJ Platform® clients access to aggregate data across their organization to keep track of emerging legal and commercial trends, allowing for informed actionable insights at various levels within the organization, including room, location, state, brand, and administration. MJ Platform® allows users to align their operational data from three vantage points: in real-time, past trends, and predictive future. This proprietary database assists the user in making important decisions in real-time with respect to product monitoring, tracking, planning, and pricing.

Built in partnership with Domo and Snowflake, MJA is monetized through the provision of Data Analytics subscriptions to clients. We typically grant a limited, non-exclusive, non-sublicensable license to use our industry data for internal management, reporting, and business optimization purposes. The information typically supplied to clients is aggregated and anonymized information regarding products, which may or may not be those of the client, sold through sales generated through our online service platforms.

Akerna Acumen Business Intelligence

We have cultivated a substantial legal cannabis dataset with over $30 billion in sales tracked and twelve years of data across 30+ states and multiple countries. With the contractual ability to aggregate and anonymize this data, we have launched the Akerna Acumen product to provide banks, investors, researchers, cannabis businesses, and non-cannabis businesses with cannabis market intelligence and valuable market comparison data. The data is available in various formats and is available with updates as frequently as daily.

~~Last Call Analytics &~~ Ample Data

~~Ample’s~~ wholly owned subsidiary, Last Call Analytics ("LCA"), is a retail analytics platform designed for the beverage alcohol industry, with a focus on allowing our clients to use data to empower retail operations and generate revenue growth. The platform ingests sales and product data from a wide variety of sources, normalizes and homogenizes the dataset, and displays the resultant analysis in a proprietary application.

~~With the underlying technologies built by LCA,~~ Ample has created AmpleData, a retail analytics platform for the cannabis industry that applies the same proven solution to data streams ingested from various points within the regulated supply chain. Ample Data is designed to provide key insights for Canadian cannabis license holders, cannabis agencies and government regulators.

Cannabis Business Consulting

We provide project-focused consulting services to clients that are initiating or expanding their cannabis businesses or are interested in data consulting engagements regarding the legal cannabis industry. We typically provide our consulting services to clients in emerging markets that are seeking consultation on newly introduced licensing regimes and assistance with the regulatory compliant build-out of operations in newly opened states.

Entering the cannabis industry is a significant undertaking. We work with clients to efficiently comply with state requirements in connection with the launch and operations of their cannabis businesses. Our management and key personnel bring deep cannabis industry experience to us. Our management team and key personnel have broad experience gained from working with numerous cannabis businesses, with operational experience across every vertical (e.g., cultivation, processing, and retail). Our team members have previously managed projects, including cultivation facilities exceeding 100,000 square feet, retail operations with locations in multiple states, and online businesses serving an entire country.

1015

Competitive Advantage

Partner API. We host an open ~~API~~application programming interface (“API”) ecosystem and are continually developing and maintaining an extensive collection of integrations that are designed to connect our solutions to over 80 partners, provide full-service solutions at all points in the cannabis business life cycle, including compliance, hardware, banking, accounting, online ordering, payment solutions, CRM and loyalty, delivery, and business analytics. We believe these integrations provide a competitive advantage as they reduce implementation time, effort, and cost while providing a holistic cannabis solution; We have certified API integration with tier one ERP software providers supplying sophisticated accounting solutions that collect and store business transactions to satisfy external reporting requirements. Additionally, we leverage revenue sharing agreements and referral programs with our strategic partners to further grow our business and our revenue.

Technology. As the inventors of Seed-To-Sale technology, our proprietary platform is an ~~AWS~~Amazon Web Services (“AWS”) cloud-based software solution. We offer specialized cannabis workflows specific to the needs of the industry. We serve all verticals of the cannabis supply chain (cultivation, manufacturing, distribution, retail and delivery). We are one of the few true, single-platform Seed-To-Sale solutions in the cannabis space, and the sophistication of our technology allows us to uniquely scale across legal markets. Our platform has processed over $30 billion in legal cannabis sales, with speed, reliability, and security capabilities designed to serve the needs of even the largest of enterprise customers. Compliance with state regulations is built into our platform infrastructure, assisting clients in their efforts to operate within the ~~regulation~~regulatory parameters of their individual markets. The business insights provided by the data collection throughout the supply chain enables businesses to optimize their operations and make crucial data-driven decisions for their business. These insights are easily analyzed and made actionable by our MJ Analytics module, built in partnership with Domo, a leading BI platform.

Learning Management System. Through our license with ZolTrain, we are able to provide our Akerna clients with training modules to educate and on-board their staff and improve the patient /consumer experience by pairing education with product information both in person and through digital channels. The ~~Zoltrain~~ZolTrain platform allows cannabis employees to self-direct their own learning and certification through an Akerna specific curriculum, and their employers are able to monitor and track their progress, assisting clients in ensuring that their staff is fully trained and ~~knowledgable~~knowledgeable about the software they are required to use within their job functions. This is one of the only ~~LMS~~learning management system (“LMS”) platforms specifically designed both for the industry and for our software. It provides detailed notes, takeaways, scored exams and certificates of completion, ensuring staff knows their Seed-To-Sale software inside and out. ~~Zoltrain~~ZolTrain modules are dynamic, and can be easily updated to accommodate new content or education on new product offerings. The AmpleLearn platform is a similar onboarding and education tool developed for Ample Organics clients to assist with building their proficiency using the software in Canada. Similar to ~~Zoltrain,~~ZolTrain, AmpleLearn is built on industry tested content within a dynamic learning environment. There are assessments, progress reports and certifications that are all available to both the employee and their ~~supervisor.The~~supervisor. The AmpleLearn product is maintained by the internal team at Ample Organics, ensuring that the content is always up-to-date with the most recent software upgrades and functionality.

~~Strategy~~

We intend to leverage our scale and capital markets access to pursue additional growth through organic initiatives and to pursue our ecosystem strategy which leverages integrations, partnerships, and inorganic growth.We believe having a scaled ecosystem gives us more opportunities to leverage our footprint and increase wallet share by providing more value to our clients through having what we believe is the most robust cannabis technology suite available. ~~We intend to pursue additional~~ ~~growth through organic initiatives, including increased marketing personnel and resources, acquisitions, and strategic relationships~~.

~~Graduate our SMB clients to Enterprise.~~ Consolidation, limited license markets, and natural industry maturation are leading many companies in our SMB portfolio to look at enterprise technology to scale their business. These market forces are an opportunity for us to convert more of our client base to our Enterprise solutions as they grow and expand into other states. We have mobilized ongoing marketing and sales campaigns to identify and actively engage these opportunities to convert to Enterprise.

~~Broaden our base of clients.~~ With increasing cannabis legislation, rapid industry consolidation, and opportunities in other supply-chain driven industries, Akerna will continue to focus on expanding our leadership and market share in the mid-market, while optimizing our offerings for the multi-state/multi-vertical enterprise segment. We will continue to invest in our sales and marketing efforts and intend to expand into new markets to grow our client base.

~~Grow revenue from our existing clients.~~ With increased product line offerings, such as MJ Analytics, as well as our growing API partner network, we are able to offer continued opportunities for our customers to optimize and streamline their operations. By leveraging our existing client base and provide them with an array of tools and solutions, we are able to increase the revenue opportunity without the burden of new client acquisition costs.

~~Expand and deepen our partner ecosystem.~~ We have an extensive network of API integrated cannabis application providers and other referral sources providing us with new avenues of qualified leads and new client opportunities. By continuing to grow and optimize these partner agreements and relationships, we have increased exposure to larger client pools, and revenue sharing agreements.

1116

Customers

Businesses across the cannabis and hemp industries and of all sizes, ranging from small, single location/ single vertical businesses to multi-state enterprise operations, use the Akerna family of solutions. The cannabis industry is still very much in its infancy compared to more established markets, and as it matures, we are seeing a shift in the typical business model. In the beginning, most operators only managed a single location, or a single vertical operation, and therefore many of our longer-standing clients fall into the small to mid-market size business. Over the past few years, and significantly expedited by the COVID-19 pandemic, we are witnessing large-scale, rapid consolidation within the industry. Many of the original small licensees are being purchased and assumed into larger, multi-state, enterprise level organizations. Our software solutions are designed to be scalable, and as we see this shift in the market, we are focused on extending our customer reach to address the needs of the emerging enterprise level operator. We believe these larger multi-state/multi-vertical operations represent significant long-term future growth opportunities as the cannabis industry continues to consolidate.scalable. As more states legalize, these operators are identifying future growth opportunities into these expanded legal markets and need a software solution that can grow with them.

Sales and Marketing

We sell our solutions primarily on a subscription basis with module-based and user-seat pricing, allowing businesses to customize their solution based on their specific business model or vertical. With our integrations to major accounting solutions and cannabis service providers, we are able to customize solutions for all sizes and types of businesses. To gain market share and expand beyond the small to mid- size market, Akerna invests in specialized go-to-market strategies for sales and marketing unique to each state and customer segment.

Our omnichannel marketing program, which includes paid and unpaid digital advertising, event marketing, account-based marketing, content marketing, prospect database nurturing, and other digital marketing activities, is designed to capture inbound marketing leads. We also leverage our expertise and industry intel to identify and engage directly with our prospective ~~customers, especially at the enterprise level.~~customers. Additionally, we have a broad ecosystem of partners across the cannabis industry and have selectively implemented referral and revenue sharing opportunities with the key players.

We reach each market segment, from emerging small business to enterprise, through channels and tactics that match their expectations for content, outreach, timeliness, and service level. This can require high touch service for some enterprise customers, with more a traditional purchase path for the smallest companies. We hire and train both sales and marketing professionals specialized for the market and the customer segment.

For growth in the regulatory and consulting side, we stay current on emerging legal markets, both nationally and globally to actively conduct outreach and education programs to engage with state regulators and business owners. This strategy strongly supports the growth of our consulting client bases, as we provide license application assistance in new markets, and require in-depth understanding of the regulatory guidelines to be able to successfully win licenses for our customers. We leverage our expertise to provide thought-leadership and industry guidance in order to gain recognition as a leader in the space.

Government Regulation

Cannabis and Cannabis-derived Products

We do not grow, handle, process, or sell cannabis or cannabis-derived products, nor do we ever possess any such material or process any transactions related to the sale of the same. We only provide a technology platform for our clients to assist them with their compliance with state law and to monitor and control their inventory in compliance with state regulatory environments. We do not receive any commissions from sale by our clients and our revenue generation is not based on the sales of cannabis products by our clients, but rather we generate revenues through a fixed-fee based subscription and professional services revenue model. We are not directly subject to state or federal government drug regulation and our products are only intended to be used to assist with compliance with applicable state laws, under which our clients operate.

Our clients are subject to state and federal law as it relates to cannabis growth, processing, and sale. As of March 2023, 37 U.S. states have legalized cannabis in some form. The federal government regulates drugs through the Controlled Substances Act ~~(CSA) (21~~(“CSA”) (21 U.S.C. § ~~811)~~811), which does not recognize the difference between medical and recreational use of cannabis~~. State~~.State laws regulating cannabis are in direct conflict with the CSA, which prohibits cannabis use and possession. Although certain states and territories authorize medical or recreational cannabis cultivation, manufacturing, production, distribution, and sales by licensed or registered entities, under federal law, the cultivation, manufacture, distribution, possession, use, and transfer of cannabis and any related drug paraphernalia, unless specifically exempt, is illegal and any such acts are criminal acts under the CSA.

1217

While the ~~U.S.Department~~U.S. Department of Justice has used prosecutorial discretion to not prioritize enforcement actions against state-legal cannabis businesses that are compliant with state, county, municipal and other local laws and regulations and which do not trigger any other federal enforcement priorities, the Department of Justice reserves the right to enforce federal law and there can be no assurance that the federal government will not enforce the CSA and related federal laws in the future. Any shift in enforcement priority at the Department of Justice or with the individual U.S. Attorneys with jurisdiction over our clients, could have a drastic and adverse impact upon our clients and our business.

While we do not grow, handle, process or sell cannabis or cannabis-derived products, our receipt of funds from clients that do conduct such operations in violation of federal law exposes us to risks related to federal racketeering laws. The Racketeer Influenced Corrupt Organizations Act (“RICO”) is a federal statute providing criminal penalties in addition to a civil cause of action for acts performed as part of an ongoing criminal organization. Under RICO, it is unlawful for any person who has received income derived from a pattern of racketeering activity (which includes most felonious violations of the CSA), to use or invest any of that income in the acquisition of any interest, or the establishment or operation of, any enterprise which is engaged in interstate commerce. RICO also authorizes private parties whose properties or businesses are harmed by such patterns of racketeering activity to initiate a civil action against the individuals involved. Although RICO suits against the cannabis industry are rare, a few cannabis businesses have been subject to a civil RICO action.

Our receipt of payments from clients engaged in state-legal cannabis operations could also subject us to the consequences of a variety of federal laws and regulations that involve money laundering, financial record keeping and proceeds of crime, including the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 ~~(USA~~(“USA PATRIOT ~~Act)~~Act”) and any related or similar rules, regulations or guidelines, issued, administered or enforced by the federal government. Because the funds from activities that are illegal under the CSA, banks and other financial institutions providing services to us risk violation of federal anti money laundering statutes (18 U.S.C. §§ 1956 and 1957), the unlicensed money-remitter statute (18 U.S.C. § 1960) and the Bank Secrecy Act, among other applicable federal statutes. Banks often refuse to provide banking services to businesses involved in the cannabis industry due to the present state of federal laws and regulations governing financial institutions. The lack of banking and financial services presents unique and significant challenges to businesses in the cannabis industry and we may experience similar difficulties in obtaining and maintaining regular banking and financial services because of the activities of our clients.

Any violations of federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens or criminal charges, including but not limited to, seizure of assets, disgorgement of profits, cessation of business activities or divestiture. In the event that any of our operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize our ability to declare or pay dividends or effect other distributions. Furthermore, while there are no current intentions to declare or pay dividends in the foreseeable future, in the event that a determination was made that our proceeds from operations (or any future operations) could reasonably be shown to constitute proceeds of crime, we may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.

Privacy & Customer Data

Regulation related to the provision of services over the Internet is evolving, as federal, state, and foreign governments continue to adopt new, or modify existing, laws and regulations addressing data privacy and the collection, processing, storage, transfer, and use of data. In some cases, data privacy laws and regulations, such as the European Union’s (“EU”) General Data Protection Regulation (“GDPR”) that took effect in May 2018, impose ~~new~~ obligations directly on us as both a data controller and a data processor, as well as on many of our clients. In addition, domestic data privacy laws, such as the California Consumer Privacy Act (“CCPA”), which took effect in January 2020, continue to evolve and could expose us to further regulatory burdens. Further, laws such as the EU’s proposed e-Privacy Regulation are increasingly aimed at the use of personal information for marketing purposes and the tracking of individuals’ online activities.

Although we monitor the regulatory environment and have invested in addressing these developments, such as GDPR and CCPA readiness, these laws may require us to make additional changes to our services to enable us or our clients to meet the new legal requirements, and may also increase our potential liability exposure through higher potential penalties for non-compliance. These new or proposed laws and regulations are subject to differing interpretations and may be inconsistent among jurisdictions. These and other requirements could reduce demand for our services, require us to take on more onerous obligations in our contracts, restrict our ability to store, transfer, and process data or, in some cases, impact our ability or our clients’ ability to offer our services in certain locations, to deploy our solutions, to reach current and prospective customers, or to derive insights from customer data globally. The costs of compliance with, and other burdens imposed by, privacy laws, regulations, and standards may limit the use and adoption of our services, reduce overall demand for our services, make it more difficult to meet expectations from or commitments to clients, lead to significant fines, penalties or liabilities for non-compliance, impact our reputation, or slow the pace at which we close sales transactions, any of which could harm our business.

1318

Furthermore, the uncertain and shifting regulatory environment and trust climate may cause concerns regarding data privacy and may cause our clients or our clients’ customers to resist providing the data necessary to allow our clients to use our services effectively. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our products or services and could limit the adoption of our cloud-based solutions.

Patents and Trademarks

We primarily rely upon a combination of confidentiality procedures, contractual provisions, copyright, trademark, patent, and trade secret laws, and other similar measures to protect our proprietary information and intellectual property.

We hold 2two patents in the U.S., through Solo, related to its Solo*ID proprietary technology. One patent has an issue date of December 1, 2009 and is set to expire on December 1, 2029. The other patent has an issue date of May 31, 2011 and is set to expire on July 11, 2025. We also have 2two patent applications that are currently pending action by the ~~U.S.Patent~~U.S. Patent Office. One was filed on April 22, 2011 by MJF and the other was filed on January 22, 2022 related to Solo blockchain technology.

We and our wholly-owned subsidiaries hold 19 trademarks in the U.S., principally related to Akerna, MJ Freeway, Leaf Data Systems®, our Daily Dose mailer, Solo*ID and our logos and designs, 7seven in Canada, principally related to Ample, AmpleCentral, AmpleData, AmpleExchange and Ample’s logos and designs and ~~1 in~~one each with Colombia, ~~1 in~~ Jamaica and ~~1 on EUIPO~~the European Union Intellectual Property Office (“EUIPO”) related to Ample’s logo and designs.

Employees

As of December 31, ~~2021,~~2022, we had ~~204~~112 full time employees. Of these employees, ~~157~~85 are based in the U.S. and 4727 are based in Canada. Our workforce is highly educated, with most of our employees working in engineering, technical, or professional roles. None of our employees are a member of a union or a party to any collective bargaining agreement. We believe our employee relations are good.

Risks Related to the Proposed Merger with Gryphon

We cannot be sure if or when the Merger will be completed.

The consummation of the Merger is subject to the satisfaction or waiver of various conditions, including the authorization of the Merger by our stockholders and Gryphon’s stockholders. We cannot guarantee that the closing conditions set forth in the Merger Agreement will be satisfied. If we are unable to satisfy the closing conditions in Gryphon’s favor or if other mutual closing conditions are not satisfied, Gryphon will not be obligated to complete the Merger. Under certain circumstances, we would be required to pay Gryphon a termination fee of $275,000 less any reimbursed expenses.

1419

If the Merger is not completed, our board of directors, in discharging its fiduciary obligations to our stockholders, will evaluate other strategic alternatives or financing options that may be available, which alternatives may not be as favorable to our stockholders as the Merger. Any future sale or merger, financing or other transaction may be subject to further stockholder approval. We may also be unable to find, evaluate or complete other strategic alternatives, which may have a materially adverse effect our business.

Our efforts to complete the Merger could cause substantial disruptions in, and create uncertainty surrounding, our business, which may materially adversely affect our results of operation and our business. Uncertainty as to whether the Merger will be completed may affect our ability to retain and motivate existing employees. A substantial amount of our management’s and employees’ attention is being directed toward the completion of the Merger and Sale Transaction and thus is being diverted from our day-to-day operations. Uncertainty as to our future could adversely affect our business and our relationship with customers, collaborators, suppliers, vendors, regulators and other business partners. For example, customers, vendors, collaborators and other counterparties may defer decisions concerning working with us, or seek to change existing business relationships with us. Changes to, or termination of, existing business relationships could adversely affect our results of operations and financial condition, as well as the market price of our common stock. The adverse effects of the pendency of the transactions could be exacerbated by any delays in completion of the transactions or termination of the Merger Agreement and/or MJF-Ample SPA.

Until the Merger is completed, the Merger Agreement restricts Gryphon and us from taking specified actions without the consent of the other party, and, in regards to us, requires us to operate in the ordinary course of business consistent with past practice. These restrictions may prevent Gryphon and us from making appropriate changes to our respective businesses or pursuing attractive business opportunities that may arise prior to the completion of the Merger.

The percentage ownership of the combined company as determined in the Merger Agreement is not adjustable based on the market price of our Common Stock, so the Merger consideration at the closing of the Merger may have a greater or lesser value than at the time the Merger Agreement was signed.

The Merger Agreement has set ownership percentage for the combined company based on the fully diluted capitalization of the parties as of closing, taking into account Gryphon’s outstanding warrants and our outstanding warrants, restricted stock units, exchangeable shares, convertible notes and restricted stock awards, and subject to adjustment for the reverse stock split to be implemented prior to the consummation of the Merger.

Any changes in the market price of our Common Stock before the completion of the Merger will not affect the number of shares of our Common Stock issuable to Gryphon’s securityholders pursuant to the Merger Agreement. Therefore, if before the completion of the Merger the market price of our Common Stock increases from the market price of our Common Stock on the date of the Merger Agreement, then Gryphon’s securityholders could receive Merger consideration with substantially greater value than the value of such Merger consideration on the date of the Merger Agreement. Similarly, if before the completion of the Merger the market price of our Common Stock declines from the market price on the date of the Merger Agreement, then Gryphon’s securityholders could receive Merger consideration with substantially lower value than the value of such Merger consideration on the date of the Merger Agreement. Because the ownership percentage does not adjust as a result of changes in the market price of our Common Stock, for each one percentage point change in the market price of our Common Stock, there is a corresponding one percentage point rise or decline, respectively, in the value of the total Merger consideration payable to Gryphon’s securityholders pursuant to the Merger Agreement.

Failure to complete the Merger may result in our paying a termination fee to Gryphon and could significantly harm the market price of our common stock and negatively affect our future business and operations.

If the Merger is not completed and the Merger Agreement is terminated under certain circumstances, we may be required to pay Gryphon a termination fee of $275,000 less any reimbursed expenses. Even if a termination fee is not payable in connection with a termination of the Merger Agreement, we will have incurred significant fees and expenses, which must be paid whether or not the Merger is completed. Further, if the Merger is not completed, it could significantly harm the market price of our Common Stock.

In addition, if the Merger Agreement is terminated and we or Gryphon determines to seek another business combination, there can be no assurance that we will be able to find a partner and close an alternative transaction on terms that are as favorable or more favorable to us than the terms set forth in the Merger Agreement.

The closing of the Merger is subject to approval by our stockholders and the Gryphon stockholders. Failure to obtain these approvals would prevent the closing of the Merger.

The closing of the Merger is subject to certain approvals by our stockholders and the Gryphon stockholders. Failure to obtain the required stockholder approvals may result in a material delay in, or the abandonment of, the Merger. Any delay in completing the Merger may materially adversely affect the timing and benefits that are expected to be achieved from the Merger.

The Merger may be completed even though certain events occur prior to the closing that materially and adversely affect us or Gryphon.

The Merger Agreement provides that either we or Gryphon can refuse to complete the Merger if there is a material adverse change affecting the other party between January 27, 2023, the date of the Merger Agreement, and the closing of the Merger. However, certain types of changes do not permit either party to refuse to complete the Merger, even if such change could be said to have a material adverse effect on us or Gryphon, including, but not limited to:

conditions generally affecting the industries in which we and Gryphon participate or the United States or global economy or capital markets as a whole, to the extent that such conditions do not have a materially disproportionate impact on us or Gryphon, respectively;
any natural disaster, public health event or any acts of terrorism, sabotage, military action or war (whether or not declared) or any escalation or worsening thereof, to the extent they do not disproportionately affect us or Gryphon, respectively;
any failure to meet internal projections or forecasts or third party revenue or earnings predictions for any period ending on or after the date of the Merger Agreement;
any change in accounting principle generally accepted in the U.S. (“GAAP”) or any change in applicable laws, rules, or regulations or the interpretation thereof after the date of the Merger Agreement;
any effect resulting from the execution, delivery, announcement or performance of the obligations under the Merger Agreement or the announcement, pendency or anticipated consummation of the Merger or any related transactions; and
the taking of any action by either us or Gryphon required to comply with the terms of the Merger Agreement or at the written request of the other party.

If adverse changes occur and we and Gryphon still complete the Merger, the market price of the combined organization’s common stock may suffer. This in turn may reduce the value of the Merger to our stockholders.

Some of our and Gryphon’s officers and directors have interests in the Merger that are different from our and Gryphon’s respective stockholders and that may influence them to support or approve the Merger without regard to the interests of our and Gryphon’s respective stockholders.

Certain officers and directors of ours and Gryphon participate in arrangements that provide them with interests in the Merger that are different from the interests of our and Gryphon’s respective stockholders, including, among others, the continued service as an officer or director of the combined organization, severance benefits, the acceleration of stock option and restricted stock unit vesting, continued indemnification and the potential ability to sell an increased number of shares of common stock of the combined organization in accordance with Rule 144 under the Securities Act.

For example, we are party to arrangements with our executive officers pursuant to their employment agreements and transaction success agreements that may result in the receipt by such executive officers of cash severance payments and other transaction success bonuses and benefits with a total value of approximately $1.4 million (collectively and not individually), but not including the value of any accelerated vesting of our equity awards held by those officers. Additionally, our officers and directors are parties to the support agreements with Gryphon.

The Akerna board of directors was aware of these interests and considered them, among other matters, in the decision to approve the Merger Agreement.

The market price of our Common Stock following the Merger may decline as a result of the Merger.

The market price of our Common Stock may decline as a result of the Merger for a number of reasons, including if:

investors react negatively to the prospects of the combined organization’s product candidates, business and financial condition following the Merger;
the effect of the Merger on the combined organization’s business and prospects is not consistent with the expectations of financial or industry analysts; or
the combined organization does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts.

Our stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with or following the Merger.

If the combined organization is unable to realize the strategic and financial benefits currently anticipated from the Merger, our stockholders will have experienced substantial dilution of their ownership interests in our company without receiving the expected commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined organization is able to realize only part of the expected strategic and financial benefits currently anticipated from the Merger.

During the pendency of the Merger, we may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect our business.

Covenants in the Merger Agreement impede the ability of us to enter into material transactions that are not in the ordinary course of business pending completion of the Merger, other than the Sale Transaction. As a result, if the Merger is not completed, we may be at a disadvantage to our competitors during such period. In addition, while the Merger Agreement is in effect, we are generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets, or other business combination outside the ordinary course of business with any third party, subject to certain exceptions relating to fiduciary duties. Any such transactions that are impeded or prohibited pursuant to these covenants could be favorable to our stockholders if consummated.

Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

The Merger Agreement contains “no-shop” restrictions on the Company’s ability to solicit, initiate or knowingly encourage third party proposals relating to alternative transactions or to provide information to, or engage in discussions with, a third party in relation to an alternative transaction, subject to certain exceptions to permit our Board of Directors to comply with its fiduciary duties. Before our Board Directors may change its recommendation to stockholders to adopt the Merger or terminate the Merger Agreement to accept a Superior Proposal (as defined in the Merger Agreement), the Company must, among other things, provide Gryphon with notice. Upon the termination of the Merger Agreement, including in connection with a Superior Proposal, we may be required to pay up to $275,000 (less reimbursed expenses) as a termination fee.

These provisions could discourage a potential third party acquiror from considering or proposing an acquisition transaction, even if it were prepared to pay a higher price than what would be received in the Merger. These provisions might also result in a potential third party acquiror proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the $275,000 termination fee that may become payable.

If the Merger Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.

Because the lack of a public market for Gryphon’s capital stock makes it difficult to evaluate the value of Gryphon’s capital stock, the stockholders of Gryphon may receive shares of our Common Stock in the Merger that have a value that is less than, or greater than, the fair market value of Gryphon’s capital stock.

The outstanding capital stock of Gryphon is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Gryphon. Because the percentage of our Common Stock to be issued to Gryphon’s stockholders was determined based on negotiations between the parties, it is possible that the value of our Common Stock to be received by Gryphon’s stockholders will be less than the fair market value of Gryphon, or we may pay more than the aggregate fair market value for Gryphon.

If the conditions to the Merger are not met, the Merger will not occur.

Even if the Merger is approved by our and Gryphon’s stockholders, specified conditions must be satisfied or waived to complete the Merger. We cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger will not occur or will be delayed, and we may lose some or all of the intended benefits of the Merger. Additionally, if the Merger does not occur, we may not have sufficient cash to conduct an orderly wind-down and dissolution of our company. We may seek an immediate dissolution, subject to a vote of our stockholders, in the event the Merger is not completed.

Litigation relating to the Merger could require us to incur significant costs and suffer management distraction, and could delay or enjoin the Merger.

We could be subject to demands or litigation related to the Merger, whether or not the Merger is consummated. Such actions may create uncertainty relating to the Merger, or delay or enjoin the Merger, and responding to such demands could divert management time and resources. In addition, such demands or litigation could lead to a dissolution or bankruptcy of either us or Gryphon or both parties if the costs associated with such demands or litigation are significant enough.

If the Merger is not completed, we may decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to its stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

There can be no assurance that the Merger will be completed. If the Merger is not completed, we may decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as we continue to fund our operations. In addition, if we were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation of the company, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to its stockholders. As a result of this requirement, a portion of our remaining cash assets may need to be reserved pending the resolution of such obligations. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, our board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our Common Stock could lose all or a significant portion of their investment in the event of our liquidation, dissolution or winding up.

Our ability to use NOL carryforwards and certain tax credit carryforwards may be subject to limitation in connection with the Merger and other ownership changes.

As of December 31, 2022, we had federal and state NOL carryforwards of $58.9 million. The majority of federal NOL carryforwards are carried forward indefinitely. Federal NOLs generated after 2017 have an indefinite carryforward and are only able to offset 80 percent of taxable income beginning in 2021. As of December 31, 2022, we had $17.5 million of foreign NOL carryforwards which begin to expire in 2034. Under Section 382, changes in our ownership may limit the amount of NOL carryforwards and research and development tax credit carryforwards that could be utilized annually to offset our future taxable income, if any. This limitation would generally apply in the event of a cumulative change in our ownership of more than 50% within a three-year period. Any such limitation may significantly reduce our ability to utilize our NOL carryforwards and research and development tax credit carryforwards before they expire. The completion of the Merger, together with private placements and other transactions that have occurred since our inception, may trigger such an ownership change pursuant to Section 382. Any such limitation, whether as the result of the Merger, prior private placements, sales of common stock by our existing stockholders, or additional sales of our common stock by the combined organization after the Merger, could have a material adverse effect on our results of operations in future years.

Risks ~~Relating~~Related to the Proposed Sale Transaction

While the Sale Transaction is pending, it creates unknown impacts on our future which could materially and adversely affect our business, financial condition and results of operations.

While the Sale Transaction is pending, it creates unknown impacts on our future. Therefore, our current or potential business partners may decide to delay, defer or cancel entering into new business arrangements with us pending consummation of the Sale Transaction. The occurrence of these events individually or in combination could materially and adversely affect our business, financial condition and results of operations.

The failure to consummate the Sale Transaction may materially and adversely affect our business, financial condition and results of operations.

The Sale Transaction is subject to various closing conditions including, among others, the approval of the Sale Transaction by our stockholders. We cannot control these conditions and cannot assure you that they will be satisfied. If the Sale Transaction is not consummated, we may be subject to a number of risks, including the following:

we may not be able to identify an alternate transaction, or if an alternate transaction is identified, such alternate transaction may not result in equivalent terms as compared to what is proposed in the Sale Transaction;

the trading price of our common stock may decline to the extent that the current market price reflects a market assumption that the Sale Transaction will be consummated;

the failure to complete the Sale Transaction may create doubt as to our ability to effectively implement our current business strategies;

our costs related to the Sale Transaction, such as legal, accounting and financial advisory fees, must be paid even if the Sale Transaction is not completed; and

our relationships with our customers, suppliers and employees may be damaged and our business may be harmed.

The occurrence of any of these events individually or in combination could materially and adversely affect our business, financial condition and results of operations, which could cause the market value of our common stock to decline.

Certain provisions of the Purchase Agreement may discourage third parties from submitting alternative proposals for the subsidiaries and assets being sold, including proposals that may be superior to the arrangements contemplated by the Purchase Agreement.

The Purchase Agreement contains “no-shop” restrictions on the Company’s ability to solicit, initiate or knowingly encourage third party proposals relating to alternative transactions or to provide information to, or engage in discussions with, a third party in relation to an alternative transaction, subject to the ability of our Board of Directors to change their recommendation and terminate the Purchase Agreement in accordance with their fiduciary duties. Before our Board of Directors may change its recommendation to stockholders or terminate the Purchase Agreement to accept a Superior Offer (as defined in the Purchase Agreement), the Company must, among other things, provide POSaBIT with a five business day notice period in which to make a counter-proposal before our Board of Directors may make an announcement of the change in recommendation to consider a potential counter-proposal to the Superior Offer . Upon the termination of the Purchase Agreement, including in connection with a Superior Offer, we may be required to pay up to $140,000 as a termination fee plus $60,000 in reasonable fees and expenses.

These provisions could discourage a potential third party acquiror from considering or proposing an acquisition transaction, even if it were prepared to pay a higher price than what would be received in the Sale Transaction. These provisions might also result in a potential third party acquiror proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the $140,000 termination fee and $60,000 infees and expenses that may become payable.

If the Purchase Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Purchase Agreement.

The closing of the Merger is conditioned on the consummation of the Sale Transaction.

The closing of the Merger is conditioned on the closing of the Sale Transaction. If we fail to consummate the Sale Transaction, the Merger may still proceed if Gryphon waives that condition to closing, provided that the other closing conditions contained in the Merger Agreement are satisfied or waived. The occurrence of these events would result in the combined organization continuing to own MJF and Ample following the closing of the Merger, which could cause the combined organization to incur unanticipated costs and expenses in connection with such continued ownership, or pursuit of an alternative disposition of MJF and Ample. It is not currently anticipated that Gryphon would waive the condition of the completion of the Sale Transaction and therefore failure to consummate the Sale Transaction will likely result in the failure to consummate the Merger and will result in us continuing our operations, which may be adversely impacted by the failure of the Sale Transaction and Merger Transaction, seeking alternative transactions, which may have less value to the stockholders, or seeking to dissolve and liquidate Akerna.

A Superior Offer under the Purchase Agreements or a Superior Proposal under the Merger Agreement could result in either or both of the Merger and the Sale Transaction being significantly delayed or not being consummated at all.

If our Board of Directors receives either a Superior Proposal under the Merger Agreement and/or a Superior Offer under the Purchase Agreement, the Board of Directors may be required pursuant to its fiduciary duties to pursue such alternative transactions in the best interests of the stockholders.This may result in the delay of either of the Merger or the Sale Transaction if an alternative party needs to complete due diligence, finalize deal documents and be substituted into the current structure of the Merger and/or Sale Transaction, and it could result in either or both of the Merger Agreement or Purchase Agreement being terminated in order for the Company to pursue the Superior Proposal or Superior Offer, as the case may be.In such circumstances, in addition to the termination fees that may be payable under the terms of the Merger Agreement or Purchase Agreement (as discussed above) for the termination of such agreements, we may be sued for terminating such agreements by either Gryphon or POSaBIT, as the case may be, if the opposite party in those agreements disagrees with our Board of Director’s determination of their fiduciary duties or otherwise believes we violated the terms of such agreements, including the “no-shop” provisions contained therein, in obtaining the proposed Superior Proposal or Superior Offer, as the case may be.Such lawsuit(s) could significantly delay the closing of the Merger and/or the Sale Transaction or prevent them from occurring altogether.If we terminate either of the Merger Agreement or the Purchase Agreement, there is no guarantee that the alternative Superior Proposal or Superior Offer, as the case may be, will be consummated. If such alternative transactions are not consummated, any other alternative transactions we may pursue may have less value to the stockholders or we may be forced to dissolve and liquidate the Company.

Risks Related to Our Financial Condition and Operating History

There is substantial doubt about our ability to continue as a going concern.

~~Our~~The notes to our financial ~~statement footnotes~~statements include disclosure regarding the substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of the uncertainty regarding our ability to continue as a going concern. This ~~going concern opinion~~uncertainty could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Further reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. As described in “Item 1 – Business – Business Overview - Exploration of Strategic Alternatives - Merger and Sale Transaction,” we have committed to the Sale Transaction to complete our intended exit from the SaaS industry and to the Merger as the most favorable strategic alternative for our stockholders. There can be no assurance that we will be successful in executing and completing the Sale Transaction and the Merger and obtaining sufficient funding, if necessary, on terms acceptable to us to fund continuing operations through the anticipated closing of the aforementioned transactions, if at all.

Our ability to continue as a going concern is ~~uncertain and~~ dependent upon ~~obtaining~~our ability to successfully execute the ~~financing necessary to meet our financial commitments and to continue our ongoing operations as currently planned. We do not have sufficient funds to meet planned expenditures over~~aforementioned transactions. Despite the next twelve months, and will need to seek additional debt or equity financing to meet our planned expenditures. We will require additional financing in the second quarter of 2022 to meet our ongoing operational working capital requirements and continue to meet the financial covenantscomprehensive scope of our ~~covertible notes. We plan~~collective plans, the inherent risks associated with their successful execution are not sufficient to meet those requirements in part through the use of our at-the-market facility, but there are no guarantees that the facility will permit us to raise sufficient cash to meet our ongoing requirements. These factors raisefully overcome substantial doubt ~~regarding~~about our ability to continue as a going ~~concern. We~~concern for one year from the date of issuance of the consolidated financial statements. Accordingly, if we are unable to ~~raise sufficient capital~~execute our plans within the timeframe described above, we may have to reduce or otherwise curtail our continuing operations which could significantly and adversely affect our results of ~~operations.~~operations or we may determine to dissolve and liquidate our assets. If we fail to meet the financial covenants of ~~our debt~~the Senior Convertible Notes and cannot obtain a waiver from such provisions or otherwise come to an agreement with the holders of ~~our debt,~~the Senior Convertible Notes, such holders may declare a default on the debt which could subject our assets to seizure and sale, negatively impacting our business. See “Risks ~~Relating~~related to our Convertible Debt” below.

We have a history of losses, expect to continue to incur losses in the near term and may not achieve or sustain profitability in the future.

We have incurred significant losses in each fiscal year since our ~~inception in 2010.~~inception. For the ~~year~~years ended December 31, 2022 and 2021, we had a net ~~loss~~losses of $~~31.3~~$79.1 million~~. For the six months ended December 31, 2020 we had a net loss of~~ $~~16.2~~ and $31.3 million,~~. For fiscal year ended June 30, 2020, we had a net loss of~~ $~~14.4~~ ~~million~~. respectively. These losses have been due to the substantial investments we have made to develop our monitoring and compliance platforms and related software, market these products to government regulatory agencies and commercial businesses and growing our infrastructure to support the ~~increased~~ business. We ~~expect~~anticipate continuing to ~~continue to invest in~~generate losses from operations and using cash from operating activities for the ~~further development of our platforms, software, and related product offerings and to grow both our government regulatory and commercial business client base. As~~foreseeable future, although at lower than historical levels as a result ~~we expect~~of restructuring actions taken during the second quarter of 2022 and the curtailment of activities associated with our ~~operating expenses to increase in the future due to expected increased sales~~discontinued operations and marketing expenses, operational costs, product development costs, and general and administrative costs and, therefore, our operating losses will continue or even increase at least through the near term. In addition, because we are now a public company, we will incur significant legal, accounting, and other expenses that MJF did not incur as a non-public company. Furthermore, to the extentthose business units that we are successful in increasing our client base, we will also incur increased expenses because costs associated with generating and supporting client agreements are generally incurred upfront, while revenue is generally recognized ratably over the term of the agreement. You should not rely upon our recent revenue growth as indicative of future performance. We may not reach profitability in the near future or at any specific time in the future. If and when our operations do become profitable, we may not sustain profitability.intend to wind down.

We have a relatively short operating history, which makes it difficult to evaluate our business and future prospects.

We have a relatively short operating history, which makes it difficult to evaluate our business and future prospects. Our wholly-owned subsidiary, MJF, has been in existence since 2010, and much of our revenue growth has occurred during the past ~~four~~five years. We have encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly changing industries, including those related to:

● market acceptance of our current and future products and services; ● changing regulatory environments and costs associated with compliance; ● our ability to compete with other companies offering similar products and services; ● our ability to effectively market our products and services and attract new clients; ● existing client retention rates and the ability to upsell clients; ● the amount and timing of operating expenses, particularly sales and marketing expenses, related to the maintenance and expansion of our business, operations, and infrastructure; ● our ability to control costs, including operating expenses; ● our ability to manage organic growth and growth fueled by acquisitions; ● public perception and acceptance of cannabis-related products and services generally; and ● general economic conditions and events.	●	~~market acceptance of our current and future products and services;~~
	●	~~changing regulatory environments and costs associated with compliance;~~
	●	~~our ability to compete with other companies offering similar products and services;~~
	●	~~our ability to effectively market our products and services and attract new clients;~~
	●	~~existing client retention rates and the ability to upsell clients;~~

	●	~~the amount and timing of operating expenses, particularly sales and marketing expenses, related to the maintenance and expansion of our business, operations, and infrastructure;~~
	●	~~our ability to control costs, including operating expenses;~~
	●	~~our ability to manage organic growth and growth fueled by acquisitions;~~
	●	~~public perception and acceptance of cannabis-related products and services generally; and~~
	●	~~general economic conditions and events.~~

If we do not manage these risks successfully, our business and financial performance will be adversely affected.

Our long-term results of operations are difficult to predict and depend on the commercial success of our clients, the continued growth of the cannabis industry generally, and the regulatory environment within which the cannabis industry operates.

Our offers of products and services ~~globally to~~ help government regulatory agencies and commercial businesses monitor regulatory compliance and operate efficiently and successfully in compliance with applicable state laws. Our long-term results will directly depend on the continued growth of the legalized cannabis industry (and public acceptance of cannabis-related products) and the ability of our current and future clients to successfully market their own products and services. If the legalized cannabis marketplace does not continue to grow because the public does not increasingly accept cannabis-related products or government regulators adopt laws, rules, or regulations that terminate or diminish the ability for commercial businesses to develop, market, and sell cannabis-related products, our business and financial performance would be materially adversely affected. Additionally, even if the cannabis marketplace continues to grow rapidly, and government regulation allows for the free-market development of this industry, products, and services competitive with those offered by us may enjoy better market acceptance.

The legalized cannabis industry may not continue to grow and the regulatory environment may not remain favorable to participants in the industry. More generally, our products and services may not experience growing market acceptance, which would adversely impact our ability to grow revenue.

Direct and indirect consequences of the COVID-19 pandemic may have material adverse consequences.

The current COVID-19 pandemic is creating extensive disruptions to the global economy. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses, fiscal stimulus, and legislation designed to deliver monetary aid and other relief. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. If these effects continue for a prolonged period or result in sustained economic stress or recession, we may experience adverse effects on our operations. Specifically, if our clients are forced to reduce business hours or close their businesses for an extended period of time or if their customer base experiences financial hardship, our clients may experience a sharp decline in revenue and be unable to meet their obligations to us under existing agreements or be unwilling to extend their agreements past current terms, which may adversely impact our financial results. Further, we may experience a decrease in new clients due to a lack of financial resources or a decline in new markets as businesses and financial markets deal with the impact of COVID-19. As governments are focused on relief efforts and fiscal stimulus measures, important legislation to expand or clarify certain existing or new markets for our products may be postponed or abandoned, which may adversely impact our results. Further, these conditions may impact our ability to access financial markets to obtain the necessary funding to operate our business as currently contemplated, which may adversely affect our liquidity and working capital. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this registration statement, such as those relating to our operations and financial condition. Due to the highly uncertain and dynamic nature of events relating to the COVID-19 pandemic, it is not currently possible to estimate the impact of the pandemic on our business. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely. Through December 31, 2021, we have experienced delays in our consulting projects and the corresponding delay in revenue recognition for such projects, which we believe could be the result of government shutdowns and other regulatory uncertainty surrounding COVID-19.

Risks Related to the Cannabis Industry

As a company whose clients operate in the cannabis industry, we face many unique and evolving risks.

We currently serve government and private clients with respect to their tracking, monitoring, and compliance needs as they operate in the growing cannabis industry. Any risks related to the cannabis industry that may adversely affect our clients and potential clients may, in turn, adversely affect demand for our products. Specific risks faced by companies operating in the cannabis industry include, but are not limited to, the following:

Marijuana remains illegal under U.S. federal law

Marijuana is a Schedule-I controlled substance under the ~~Controlled Substances Act ("CSA"),~~CSA, and is illegal under federal law. It remains illegal under ~~U.S.s~~U.S.’s federal law to grow, cultivate, sell or possess marijuana for any purpose or to assist or conspire with those who do so. Additionally, 21 U.S.C. 856 a.1. states that it shall be unlawful to “knowingly open, lease, rent, use, or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing, or using any controlled substance.” Even in those states in which the use of marijuana has been authorized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana is not preempted by state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our clients’ inability to proceed with their operations, which would adversely affect demands for our ~~products.~~products and services.

Uncertainty of federal enforcement

~~On January 4, 2018, former Attorney General Sessions rescinded~~Any presidential administration, current or future, could change federal enforcement policy or execution and decide to enforce the ~~previously issued memoranda (known as the Cole Memorandum) from~~federal cannabis laws more strongly. Recent administrations have disagreed on how strongly to enforce federal cannabis laws. For example, on August 29, 2013, the U.S. Department of Justice ~~(“DOJ”~~(the “DOJ”) ~~that had de-prioritized~~under the enforcement of federal law against marijuana users and businesses that comply with state marijuana laws, adding uncertainty to the question of how the federal government will choose to enforce federal laws regarding marijuana. Former Attorney General SessionsObama administration issued a memorandum (the “Cole Memorandum”), characterizing strict enforcement as an inefficient use of federal investigative and prosecutorial resources. The Cole Memorandum provided guidance to all ~~U.S.s Attorneys~~federal prosecutors and indicated that federal enforcement of the CSA against cannabis-related conduct should be focused on specific priorities, including cannabis distribution to minors, violence in ~~which~~connection with cannabis distribution, cannabis cultivation on federal property, and collection of cannabis-derived revenue by criminal enterprises, gangs and cartels. On January 4, 2018, the DOJ ~~affirmatively~~under the Trump administration issued a memorandum (the “Sessions Memorandum”), which effectively rescinded ~~the previous guidance as to marijuana enforcement, calling such guidance “unnecessary.” This~~one-page memorandum was vague in nature, stating that federal prosecutors should use established principles in setting their law enforcement priorities. Under previous administrations, the DOJ indicated that those users and suppliers of medical marijuana who complied with state laws, which required compliance with certain criteria, would not be prosecuted. On November 7, 2018, Jeff Sessions resigned from his position as Attorney General. The current Attorney General, Merrick Garland, has not indicated any change in enforcement priority for state-compliant marijuana businesses, however, substantial uncertainty regarding federal enforcement remains. Regardless, the federal government has always reserved the right to enforce federal law regarding the sale and disbursement of medical or recreational marijuana, even if state law sanctioned such sale and disbursement. Although the rescission of the Cole Memorandum ~~does not necessarily indicate that marijuana industry prosecutions are now affirmatively a priority for the DOJ, there can be no assurance that the~~and directed federal ~~government will not enforce such laws in the future. As a result, it is now unclear if the DOJ will seek~~prosecutors to enforce the CSA and to follow well-established principles when pursuing prosecutions related to cannabis activities. The DOJ under the Biden administration has not readopted the Cole Memorandum, but President Biden has indicated support for decriminalization of cannabis. On October 6, 2022, President Biden issued an executive order pardoning all persons convicted of simple possession of cannabis under the CSA and directed the Secretary of Health and Human Services and the Attorney General to initiate an administrative process to review the scheduling of cannabis under the CSA. Further, on December 2, 2022, President Biden signed into law the Medical Marijuana and Cannabidiol Research Expansion Act, which streamlines and expands the process for researching the medical use of cannabis. We cannot predict how the current administration or future administrations will enforce the CSA or other laws against ~~those users~~cannabis activities. Any change in the federal government’s enforcement of current federal laws could cause significant financial damage to us. The legal uncertainty and ~~suppliers who comply~~possible future changes in law could negatively affect our revenues, results of operations and success generally.

Unless and until Congress amends the CSA with ~~state marijuana laws.~~respect to medical and/or adult use cannabis, there is a risk that federal prosecutors may enforce the existing CSA. Federal authorities may decide to change their current posture and begin to enforce current federal cannabis law and, if they begin to aggressively enforce such laws, it is possible that they could allege that we violated federal laws by selling products used in the cannabis industry. As a result, active enforcement of the current federal regulatory position on cannabis may directly or indirectly adversely affect our revenues and profits.

In 2014, Congress passed a spending bill, (the ~~"2015~~2015 Appropriations ~~Bill")~~Bill), containing a provision (the ~~"Appropriations Rider"~~“Appropriations Rider”), blocking federal funds and resources allocated under the 2015 Appropriations Bill from being used to “prevent such States from implementing their own State medical marijuana law.” The Appropriations Rider provided a budgetary constraint on the federal government from interfering with the ability of states to administer their medical marijuana laws, although it did not codify federal protections for medical marijuana patients and producers. Moreover, despite the Appropriations Rider, the DOJ maintains that it can still prosecute violations of the federal marijuana ban and continue cases already in the courts. In USA vs. McIntosh, the U.S. Court of Appeals for the Ninth Circuit held that this provision prohibits the DOJ from spending funds from relevant appropriations acts to prosecute individuals who engage in conduct permitted by state medical-use cannabis laws and who strictly comply with such laws. However, the Ninth ~~Circuit Court~~Circuit’s opinion, which only applies to the states of ~~Appeals~~Alaska, Arizona, California, Hawaii, and ~~other courts~~Idaho, also held that persons who do not strictly comply with all state laws and regulations regarding the distribution, possession and cultivation of medical-use cannabis have ~~interpreted~~engaged in conduct that is unauthorized, and in such instances the ~~language to mean that the DOL cannot~~DOJ may prosecute ~~medical marijuana operators complying strictly with state medical marijuana laws. Additionally, the Appropriations Rider must be re-enacted every year.~~ those individuals. The Appropriations Rider was ~~renewed on December 20, 2019 through~~included in the ~~signing of the fiscal year 2020~~ omnibus spending bill ~~effective through September 30,~~for fiscal years 2015, 2016, 2017, 2018, 2019, 2020 ~~continued re-authorization of~~and 2021. On December 29, 2022, President Biden signed the omnibus spending bill, which included the Appropriations Rider, ~~cannot be guaranteed.~~ ~~Subsequently, the Appropriations Rider was extended through a series of stopgap spending bills on October 1, December 11, December 18, December 20 and December 22, 2020.On December 27, 2020 the Appropriations Rider was included in the fiscal year 2021 omnibus spending bill and will remain in effect through~~extending its application until September 30, ~~2022.~~2023. However, there is no assurance that Congress will approve inclusion of a similar prohibition in future appropriations bills to prevent DOJ from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law. If the Appropriation Rider is not extended in the future, the risk of federal enforcement and override of state medical marijuana laws would increase.

Despite the rescission of the Cole Memorandum, the Department of the Treasury, Financial Crimes Enforcement Network, has not rescinded the “FinCEN Memo” dated February 14, 2014, which de-prioritizes enforcement of the Bank Secrecy Act against financial institutions and marijuana-related businesses which utilize them. This memo appears to be a standalone document and is presumptively still in effect. At any time, however, the Department of the Treasury, Financial Crimes Enforcement Network, could elect to rescind the FinCEN Memo. This would make it more difficult for us and our clients and potential clients to access the U.S. banking systems and conduct financial transactions, which would adversely affect our operations.

We could become subject to racketeering laws

While we do not grow, handle, process or sell cannabis or cannabis-derived products, our receipt of funds from clients that do conduct such operations in violation of federal law exposes us to risks related to federal racketeering laws. ~~The Racketeer Influenced Corrupt Organizations Act (“RICO”)~~RICO is a federal statute providing criminal penalties in addition to a civil cause of action for acts performed as part of an ongoing criminal organization. Under RICO, it is unlawful for any person who has received income derived from a pattern of racketeering activity (which includes most felonious violations of the CSA), to use or invest any of that income in the acquisition of any interest, or the establishment or operation of, any enterprise which is engaged in interstate commerce. RICO also authorizes private parties whose properties or businesses are harmed by such patterns of racketeering activity to initiate a civil action against the individuals involved. Although RICO suits against the cannabis industry are rare, a few cannabis businesses have been subject to a civil RICO action. Any violation of RICO could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens or criminal charges, including but not limited to, seizure of assets, disgorgement of profits, cessation of our business activities or divestiture.

Banking regulations could limit access to banking services and expose us to risk

Our receipt of payments from clients engaged in state-legal cannabis operations could also subject us to the consequences of a variety of federal laws and regulations that involve money laundering, financial record keeping and proceeds of crime, including the Bank Secrecy Act, as amended by Title III of the ~~Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism~~USA PATRIOT Act ~~of 2001 (USA PATRIOT Act)~~ and any related or similar rules, regulations or guidelines, issued, administered or enforced by the federal government. Since we fund from activities that are illegal under the CSA, banks and other financial institutions providing services to us risk violation of federal anti-money laundering statutes (18 U.S.C. §§ 1956 and 1957), the unlicensed money-remitter statute (18 U.S.C. § 1960) and the Bank Secrecy Act, among other applicable federal statutes. Banks often refuse to provide banking services to businesses involved in the cannabis industry due to the present state of federal laws and regulations governing financial institutions. The inability to open bank accounts may make it difficult for us or our clients to operate and our client’s reliance on cash can result in a heightened risk of theft, which could harm their businesses and, in turn, harm our business. Additionally, some courts have denied marijuana-related businesses bankruptcy protection, thus, making it very difficult for lenders to recoup their investments, which may limit the willingness of banks to lend to our clients and to us. The lack of banking and financial services presents unique and significant challenges to businesses in the cannabis industry and we may experience similar difficulties in obtaining and maintaining regular banking and financial services because of the activities of our clients.

Dividends and distributions could be prevented if our receipt of payments from clients is deemed to be proceeds of crime

In the event that any of our operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more federal statutes or any other applicable legislation. This could restrict or otherwise jeopardize our ability to declare or pay dividends or effect other distributions. Furthermore, while there are no current intentions to declare or pay dividends in the foreseeable future, in the event that a determination was made that our proceeds from operations (or any future operations) could reasonably be shown to constitute proceeds of crime, we may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.

Further legislative development beneficial to our operations is not guaranteed

Among other things, our business involves the provision of an online platform that provides monitoring and tracking of those involved in the cultivation, distribution, manufacture, storage, transportation, and/or sale of medical and adult-use cannabis products in compliance with applicable state law. The success of our business depends on the continued development of the cannabis industry and the activity of commercial business and government regulatory agencies within the industry. The continued development of the cannabis industry is dependent upon continued legislative and regulatory authorization of cannabis at the state level and a continued laissez-faire approach by federal enforcement agencies. Any number of factors could slow or halt progress in this area. Further regulatory progress beneficial to the industry cannot be assured. While there may be ample public support for legislative action, numerous factors impact the legislative and regulatory process, including election results, scientific findings or general public events. Any one of these factors could slow or halt progressive legislation relating to cannabis and the current tolerance for the use of cannabis by consumers, which could adversely affect the demand for our product and operations.

The cannabis industry could face strong opposition from other industries

We believe that established businesses in other industries may have a strong economic interest in opposing the development of the cannabis industry. Cannabis may be seen by companies in other industries as an attractive alternative to their products, including recreational marijuana as an alternative to alcohol, and medical marijuana as an alternative to various commercial pharmaceuticals. Many industries that could view the emerging cannabis industry as an economic threat are well established, with vast economic and federal and state lobbying resources. It is possible that companies within these industries could use their resources to attempt to slow or reverse legislation legalizing cannabis. Any inroads these companies make in halting or impeding legislative initiatives that would be beneficial to the cannabis industry could have a detrimental impact on our clients and, in turn on our operations.

The legality of marijuana could be reversed in one or more states

The voters or legislatures of states in which marijuana has already been legalized could potentially repeal applicable laws that permit the operation of both medical and retail marijuana businesses. These actions might force businesses, including those that are our clients, to cease operations in one or more states entirely.

Changing legislation and evolving interpretations of the law

Laws and regulations affecting the medical and adult-use marijuana industry are constantly changing, which could detrimentally affect our clients and, in turn, our operations. Local, state, and federal marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require our clients and thus us to incur substantial costs associated with modification of operations to help ensure such clients’ compliance. In addition, violations of these laws, or allegations of such violations, could disrupt our clients’ business and result in a material adverse effect on our operations. In addition, it is possible that regulations may be enacted in the future that will limit the amount of cannabis growth or related products that our commercial clients are authorized to produce. We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our operations.

Dependence on client licensing

Our business is dependent on our clients obtaining various licenses from various municipalities and state licensing agencies. There can be no assurance that any or all licenses necessary for our clients to operate their businesses will be obtained, retained or renewed. If a licensing body were to determine that a client of ours had violated applicable rules and regulations, there is a risk the license granted to that client could be revoked, which could adversely affect our operations. There can be no assurance that our existing clients will be able to retain their licenses going forward, or that new licenses will be granted to existing and new market entrants.

Insurance risks

In the U.S, many marijuana-related businesses are subject to a lack of adequate insurance coverage. In addition, many insurance companies may deny claims for any loss relating to marijuana or marijuana-related operations based on their illegality under federal law, noting that a contract for an illegal transaction is unenforceable.

Bankruptcy Risks

Because cannabis is illegal under U.S. federal law, and bankruptcy is a strictly federal proceeding, many courts have denied cannabis businesses federal bankruptcy protections, thus making it very difficult for lenders to recoup their investments in the cannabis industry in the event of a bankruptcy. If we were to seek protection from creditors pursuant to applicable bankruptcy or insolvency laws, even though we are not directly engaged in manufacturing, distributing, selling or otherwise handling cannabis under state cannabis laws, there is no guarantee that U.S. federal bankruptcy protections would be available to our United States operations, which would have a material adverse effect on us, our lenders and other stakeholders. While state-level receivership options do exist in some states as an alternative to bankruptcy, the efficacy of these alternatives cannot be guaranteed.

The cannabis industry is an evolving industry and we must anticipate and respond to changes.

The cannabis industry is not yet well-developed, and many aspects of this industry’s development and evolution cannot be accurately predicted. While we have attempted to identify any risks specific to the cannabis industry, you should carefully consider that there are other risks that cannot be foreseen or are not described in this Annual Report, which could materially and adversely affect our business and financial performance. We expect that the cannabis market and our business will evolve in ways that are difficult to predict. For example, it is anticipated that over time, we will reach a point in most markets where we have achieved a market penetration level in which new client acquisitions are less productive, and the continued growth of our revenue will require more focus on increasing the rate at which existing clients purchase products and services across our platforms. Our long-term success will depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to successfully adapt to changes in the cannabis industry, our operations could be adversely affected.

Risks ~~related~~Related to Our Business

A significant portion of our business is and is expected to be, from government contracts, which present certain unique risks.

Contracts for Leaf Data Systems® with government agencies in Pennsylvania ~~Washington,~~ and Utah represented ~~16%, 25%~~22 percent and ~~39%~~18 percent of our revenue for the ~~year~~years ended December 31, ~~2021, the six months ended December 31, 2020~~2022 and ~~fiscal year ended June 30, 2020,~~2021, respectively. In order to obtain a government contract for Leaf Data Systems®, we are required to follow a competitive bidding process in each state where we seek a contract. Government contracts have very specific compliance requirements that often require contractors to invest material time and money to prepare a bid to ensure that our technology, processes, and staff meet these specific requirements. After expenditures of such time and money, there is no assurance that the bid will result in an award of a contract. Further, even if a contract is awarded, there are strict procedures that government agencies follow when it comes to reimbursement of the costs incurred in the course of fulfilling contracts. Accordingly, it is possible that some or all costs might not be reimbursed under a government contract as contemplated by us.

Government agencies also typically audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, its cost structure, its business systems, and compliance with applicable laws, regulations, and standards. If an audit or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and administrative sanctions, including reductions of the value of contracts, contract modifications or terminations, forfeiture of profits, suspension of payments, penalties, fines, and suspension, or prohibition from doing business with the government. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Any such imposition of penalties, or the loss of such government contracts, could materially adversely affect our business, financial condition, results of operations, and growth prospects.

There also is typically a longer window of liability under government contracts than private contracts, and the government can seek claims after the contract has ended and payments under the contract have been made. The terms of government contracts may also require the sharing of proprietary information, processes, software, and product development efforts with the government. Additionally, government employees are required to follow certain protocols to ensure there is no appearance of impropriety in the bidding process. As a result, bidders on government contracts must ensure that there is no appearance of favoritism, gift-giving, bribery, or the exertion of other influences in the bidding process. Any finding of the same can result in fines to the bidder and cancellation of contracts. The applicable state government generally has the ability to terminate our contract, in whole or in part, without prior notice, for convenience or for default based on performance. If a government contract were to be terminated for convenience, we generally would be protected by provisions covering reimbursement for costs incurred on the contract and profit on those costs, but not the anticipated profit that would have been earned had the contract been completed. The state government also has the ability to stop work under a contract for a limited period of time for its convenience.

We cannot assure you that we will be successful in navigating the government contract bidding process or that we will be able to maintain our existing government contracts or obtain additional government contracts in the future.

Our operations may be adversely affected by disruptions to our ~~information technology, or~~ IT systems, including disruptions from cybersecurity breaches of our IT infrastructure.

We rely on information technology networks and systems, including those of third-party service providers, to process, transmit, and store electronic information. In particular, we depend on our information technology infrastructure for a variety of functions, including financial reporting, data management, project development, and email communications. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks, sabotage, and similar events. Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to our information technology systems to sophisticated and targeted measures known as advanced persistent threats. The ever-increasing use and evolution of technology, including cloud-based computing, create opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our systems or in non-encrypted portable media or storage devices. We could also experience a business interruption, information theft of confidential information, or reputational damage from industrial espionage attacks, malware, or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party providers. Despite the implementation of network security measures and disaster recovery plans, our systems and those of third parties on which we rely may also be vulnerable to computer viruses, break-ins, and similar disruptions. If we or our vendors are unable (or are perceived as unable) to prevent such outages and breaches, our operations may be disrupted, and our business reputation could be adversely affected.

We expect that risks and exposures related tocybersecurityattacks will remain high for the foreseeable future due to the rapidly evolvingnature and sophistication of these threats.

Privacy regulation is an evolving area and compliance with applicable privacy regulations may increase our operating costs or adversely impact our ability to service our clients and market our products and services.

Because we store, processes, and use data, some of which contains personal information, we are subject to complex and evolving federal, state, and foreign laws and regulations (including Canada’s Cannabis Act and related regulations and the European Union’s general data protection regulation, or GDPR) regarding privacy, data protection, and other matters. While we believe we are currently in compliance with applicable laws and regulations, many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of which could seriously harm our business.

We rely on third parties for certain services made available to users of our platforms, which could limit our control over the quality of the user experience and our cost of providing services.

Some of the applications and services available through the Leaf Data System® and MJ Platform® are provided through relationships with third-party service providers. We do not typically have any direct control over these third-party service providers. These third-party service providers could experience service outages, data loss, privacy breaches, including cyber-attacks, and other events relating to the applications and services they provide that could diminish the utility of these services and which could harm users thereof. The MJ Platform® itself does not depend on any third-party software or applications and is based entirely on open source technologies and custom programming. The MJ Platform®, however, is hosted by Amazon Web Services, a third-party service provider. There are readily available alternative hosting services available should we desire or need to move to a different web host. Certain ancillary services provided by us also uses the services of third-party providers, for which, we believe, there are readily available alternatives on comparable economic terms. Offering integrated platforms, such as the Leaf Data System® and MJ Platform® which rely, in part, on the services of other providers lessens the control that we have over the total client experience. Should the third-party service providers we rely upon not deliver at standards we expect and desires, acceptance of our platforms could suffer, which would have an adverse effect on our business and financial performance. Further, we cannot be assured of entering into agreements with such third-party service providers on economically favorable terms.

~~Acquisitions and integration issues may expose us to risks.~~

~~Our business strategy includes making targeted acquisitions.~~ Any acquisition that we make may be of significant size, may change the scale of our business and operations, and may expose us to new geographic, political, operating, financial, and geological risks. Our success in our acquisition activities depends on our ability to identify suitable acquisition candidates, negotiate acceptable terms for any such acquisition, and integrate the acquired operations successfully with our own. Any acquisitions would be accompanied by risks. For example, there may be significant changes in our market value after we have committed to complete the transaction and have established the purchase price or exchange ratio; a potential targeted acquisition’s business and prospects may prove to be below expectations; we may have difficulty integrating and assimilating the operations and personnel of any acquired companies, realizing anticipated synergies and maximizing the financial and strategic position of the combined enterprise and maintaining uniform standards, policies, and controls across the organization; the integration of the acquired business or assets may disrupt our ongoing business and our relationships with employees, clients, suppliers, and contractors; and the acquired business or assets may have unknown liabilities that may be significant. If we choose to use equity securities as consideration for such an acquisition, existing shareholders may suffer dilution. Alternatively, we may choose to finance any such acquisition with our existing resources. There can be no assurance that we would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions. To grow and be successful, we need to attract and retain qualified personnel.

In any future acquisitions, we may not be able to successfully integrate acquired personnel, operations, and technologies, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from future acquisitions due to a number of factors, including: (a) an inability to integrate or benefit from acquisitions in a profitable manner; (b) unanticipated costs or liabilities associated with the acquisition; (c) the incurrence of acquisition-related costs; (d) the diversion of management’s attention from other business concerns; (e) the loss of our or the acquired business’ key employees; or (f) the issuance of dilutive equity securities, the incurrence of debt, or the use of cash to fund such acquisitions.

To grow and be successful, we need to attract and retain qualified personnel.

Our growth and success will depend to a significant extent on our ability to identify, attract, hire, train, and retain qualified professional, creative, technical, and managerial personnel. Competition for experienced and qualified talent in the cannabis industry can be intense. We may not be successful in identifying, attracting, hiring, training, and retaining such personnel in the future. If we are unable to hire, assimilate, and retain qualified personnel in the future, such inability could adversely affect our operations.

~~We may experience risks related to our Chief Financial Officer moving to part-time.~~

Mr. Fowle, our Chief Financial Officer, will move to a part-time position beginning April 1, 2022. While Mr. Fowle has committed to us to spend at least [15] hours a week on our matters, Mr. Fowle may experience conflicts of interest between his requirements to us as our Chief Financial Officer and his obligations to any other positions he may accept in the time no dedicated to us.If Mr. Fowle cannot manage his financial department properly in the amount of time dedicated to us or otherwise experiences difficulty in managing his time between us and his other ventures, we could experience risks regarding the timing and preparation of our financial reports, internal financial management matters or otherwise experience risks regarding our disclosure controls and procedures and internal control over financial reporting which could negatively impact our business and our stockholders.

We are smaller and less diversified than many of our potential competitors.

While we believe we are a leading provider in the software solutions segment of the cannabis industry, there are general software design and integrated business platform companies seeking to provide online and software-based business solutions and operations integration to clients in numerous industries. The continued growth of the cannabis industry will likely attract some of these existing companies and incentivize them to produce solutions that are competitive with those offered by us. Many of these potential competitors are a part of large diversified corporate groups with a variety of other operations and expansive resources. We may not be able to successfully compete with larger enterprises devoting significant resources to compete in our target market space, which may negatively affect operations.

Our business and stock price may suffer as a result of our limited public company operating experience and if securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our common stock in an adverse manner, the price and trading volume of our common stock could decline.

If we are unable to execute our business strategy, either as a result of our inability to manage effectively our business in a public company environment or for any other reason, our business, prospects, financial condition, and operating results may be harmed.

The trading market for our ~~common stock~~Common Stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. We currently have limited coverage by securities and industry analysts. If no additional securities or industry analysts commence coverage of us, our stock price and trading volume would likely be negatively impacted. If any of the analysts who cover, or who may cover us in the future, change their recommendation regarding our stock in an adverse manner, or provide more favorable relative recommendations about our competitors, the price of our ~~common stock~~Common Stock would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

Risks ~~related~~Related to Intellectual Property

Protecting and defending against intellectual property claims may have a material adverse effect on our business.

Our ability to compete depends, in part, upon successful protection of our intellectual property relating to our Leaf Data Systems® and MJ Platform®, and intellectual property acquired in the business combinations ~~such as Solo, Trellis, and~~with Ample. We seek to protect our proprietary and intellectual property rights through patent applications, available copyright and trademark laws, nondisclosure agreements, and licensing and distribution arrangements with reputable companies in our target markets. While patent protection for inventions related to cannabis and cannabis-related products is available, there are substantial difficulties faced in the patent process by cannabis-related businesses. Further, patent applications may be rejected for numerous other reasons beyond those related to the cannabis industry, including that the subject matter of the application is found to be non-patentable. Our previous patent applications were denied and while we are continuing to pursue such applications and believe they are with merit, there can be no assurance that patents will be issued on these applications. The failure to be awarded patents on our technology could weaken our ability to enforce our intellectual property rights. Any such enforcement, whether we have been granted patent protection or not, would be costly, and there can be no assurance that we will have the resources to undertake all necessary action to protect our intellectual property rights or that we will be successful. Any infringement of our material intellectual property rights could require us to redirect resources to actions necessary to protect the same and could distract management from our underlying business operations. The infringement of our material intellectual property rights and resulting actions could adversely affect our operations.

2231

Our success depends in part upon our ability to protect our core technology and intellectual property.

Our success depends in part upon our ability to protect our core technology and intellectual property. To establish and protect our proprietary rights, we rely on a combination of patent applications, trade secrets, including know-how, license agreements, confidentiality procedures, non-disclosure agreements with third parties, employee disclosure and invention assignment agreements, and other contractual rights.

We generally control access to and use of our proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, clients, and partners, and our software is protected by the U.S. and international copyright laws.

Despite efforts to protect our trade secrets and proprietary rights through intellectual property rights, licenses, and confidentiality agreements, unauthorized parties may still copy or otherwise obtain and use our software and technology, as was the case when our source code was compromised in June 2017. We have taken significant actions to improve security but will be required to regularly modify our systems to combat new hacking approaches as they develop. In addition, as our international operations expand, effective intellectual property protection may not be available or may be limited in foreign countries.

Others may assert intellectual property infringement claims against us.

Companies in the software and technology industries own large numbers of patents, copyrights, trademarks, and trade secrets, and frequently enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other rights. In addition, various “non-practicing entities” that own patents and other intellectual property rights often attempt to aggressively assert their rights in order to extract value from technology companies. It is possible that others may claim from time to time that our products misappropriate or infringe the intellectual property rights of third parties. Irrespective of the validity or the successful assertion of any such claims, we could incur significant costs and diversion of resources in defending against these claims, which could adversely affect our operations. We may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained in all cases. We may decide to settle such lawsuits and disputes on terms that are unfavorable to us. As a result, we may also be required to develop alternative non-infringing technology or practices or discontinue the practices. The development of alternative non-infringing technology or practices could require significant effort and expense or may not be feasible.

Risks ~~related~~Related to Our Charter Documents

Anti-takeover provisions contained in our ~~amended~~Amended and ~~restated certificate~~Restated Certificate of ~~incorporation~~Incorporation and ~~amended~~Amended and ~~restated bylaws,~~Restated Bylaws, as well as provisions of Delaware law, could impair a takeover attempt and limit the price investors might be willing to pay in the future for our common stock and could entrench management.

Our Amended and Restated Certificate of Incorporation contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.

These provisions:

	●	create a staggered Board of Directors making it more difficult for stockholders to remove a majority of the Board of Directors and take control;
	●	grant the Board of Directors the ability to designate the terms of and issue new series of preferred shares, which can be created and issued by the Board of Directors without prior stockholder approval, with rights senior to those of the ~~common stock;~~Common Stock;
	●	impose limitations on our stockholders’ ability to call special stockholders’ meetings; and
	●	make it more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.

2332

In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our Amended and Restated Certificate of Incorporation, our bylaws, and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our Board of Directors or initiate actions that are opposed by our then-current Board of Directors, including to delay or impede a merger, tender offer or proxy contest involving us. Any delay or prevention of a change in control transaction or changes in our Board of Directors could cause the market price of our common stock to decline.

Our corporate opportunity provisions in our Amended and Restated Certificate of Incorporation could enable management to benefit from corporate opportunities that might otherwise be available to us.

Our Amended and Restated Certificate of Incorporation provides that the doctrine of corporate opportunity, or any other analogous doctrine, shall not apply with respect to us, or any of our directors or officers in circumstances where the application of such doctrine would conflict with any fiduciary duties or contractual obligations they may otherwise have.

Our management may become aware, from time to time, of certain business opportunities (such as acquisition opportunities) and may direct such opportunities to other businesses in which they have invested, in which case we may not become aware of or otherwise have the ability to pursue such opportunity. Further, such businesses may choose to compete with us for these opportunities, possibly causing these opportunities to not be available to us or causing them to be more expensive for us to pursue. These potential conflicts of interest could adversely impact our business or prospects if attractive business opportunities are procured by such parties for their own benefit rather than for ours.

Our ~~amended~~Amended and ~~restated certificate~~Restated Certificate of ~~incorporation~~Incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

Our ~~amended~~Amended and ~~restated certificate~~Restated Certificate of ~~incorporation~~Incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers, and employees for breach of fiduciary duty, actions under the Delaware general corporation law or under our ~~amended~~Amended and ~~restated certificate~~Restated Certificate of ~~incorporation,~~Incorporation, or actions asserting a claim governed by the internal affairs doctrine may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. This choice of forum provision does not preclude or contract the scope of exclusive federal or concurrent jurisdiction for any actions brought under the Securities Act or the Exchange Act of 1934, as amended, or the Exchange Act. Accordingly, our exclusive forum provision will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.

Any person or entity purchasing or otherwise acquiring any interest in shares of our ~~capital stock~~Common Stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation. This choice of forum provision does not exclude stockholders from suing in federal court for claims under the federal securities laws but may limit a stockholder’s ability to bring such claims in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims.

Alternatively, if a court were to find the choice of forum provision contained in our ~~amended~~Amended and ~~restated certificate~~Restated Certificate of ~~incorporation~~Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

Risks ~~Relating~~Related to our Convertible Debt

The issuance of shares of our ~~common stock~~Common Stock pursuant to our Senior Convertible Notes may result in significant dilution to our stockholders.

The conversion of our outstanding Senior Convertible Notes ~~issued on October 5, 2021,~~ could result in the issuance of a significant number of shares of our ~~common stock. The original $20~~Common Stock. As of December 31, 2022, there was a total of $14.7 million principal amount of Senior Convertible Notes is convertible at a price of ~~$4.05~~$4.75 per share, which would result in the issuance of ~~4,938,272~~3,086,890 shares of our ~~common stock~~Common Stock upon the conversion of the Senior Convertible Notes in full. At the option of Akerna, the installment payments on the Senior Convertible Notes can be converted into shares of ~~common stock~~Common Stock of Akerna at a price per share equal to the lower of (i) the conversion price then in effect, or (ii) the greater of (x) the floor price of ~~$0.54~~$10.80 and (y) 90% of the lower of (A) the volume-weighted average price of the ~~common stock~~Common Stock as of the trading day immediately preceding the applicable date of determination and (B) the quotient of (I) the sum of the volume-weighted average price of the common stock for each of the two (2) trading days with the lowest volume-weighted average price of the ~~common stock~~ Common Stock during the ten consecutive trading day period ending on and including the trading day immediately prior to the applicable date of determination, divided by (II) two.

2433

Due to the variable nature of the adjustments of installment conversion prices and the formula that sets certain conversion prices of these securities based on a discount to the then-current market price, we could issue up to ~~37,037,037~~26,562,911 shares of ~~common stock~~Common Stock as of December 31, ~~2021,~~2022, upon conversion of the Senior Convertible Notes at the floor price, which may result in significant dilution to our stockholders and could negatively impact the trading price of our ~~common stock.~~Common Stock.

Our obligations to the holders of our Senior Convertible Notes are secured by a security interest in substantially all of our assets, if we default on those obligations, the Senior Convertible Note holders could foreclose on our assets.

Our obligations under the Senior Convertible Notes ~~issued on October 5, 2021,~~ and the related transaction documents are secured by a security interest in substantially all of our assets. As a result, if we default on our obligations under ~~such~~the Senior Convertible Notes, the collateral agent on behalf of the holders of the Senior Convertible Notes could foreclose on the security interests and liquidate some or all of our assets, which would harm our business, financial condition and results of operations and could require us to reduce or cease operations and investors may lose all or part of ~~your~~their investment.

Events of default under the Senior Convertible Notes include: (i) the failure of the registration statement to which this prospectus relates (under the registration rights agreement between the Company and the holders) to be filed with the SEC or the failure of the applicable registration statement to be declared effective by the SEC by deadlines set forth in the registration rights agreement; (ii) (x) the effectiveness of the applicable registration statement lapses for any reason or such registration statement is unavailable to any holder of registrable securities and Rule 144 (subject to certain conditions) is not unavailable to any holder of the conversion shares; (iii) suspension of trading of the Company’s common stock on a national securities exchange for five days; (iv) uncured conversion failure; (v) failure by the Company to maintain required share allocations for the conversion of the Senior Convertible Notes; (vi) failure by the Company to pay principal when due; (vii) failure of the Company to remove restricted legends from shares issued to a holder upon conversion of the Senior Convertible Notes; (viii) the occurrence of any default under, redemption of or acceleration prior to maturity of at least an aggregate of $50,000 of indebtedness of the Company; (ix) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Company or any subsidiary and not dismissed within 45 days of initiation; (x) the commencement by the Company or any subsidiary of a voluntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law; (xi) the entry by a court of a decree, order, judgment or other similar document in respect of the Company or any subsidiary of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law; (xii) final judgment for the payment of money aggregating in excess of $50,000 are rendered against the Company or any subsidiary of the Company and not bonded or discharged within 30 days; (xiii) failure of the Company or any subsidiary to pay when due any debts in excess of $50,000 due to any third party; (xiv) breaches by the Company or any subsidiary of any representations or warranties in the securities purchase agreement for the Senior Convertible Notes or any document contemplated thereby; (xv) a false or inaccurate certification by the Company that either (A) the “Equity Conditions” (as defined in the Senior Convertible Notes) are satisfied, (B) there has been no “Equity Conditions Failure,” (as defined in the Senior Convertible Notes) or (C) as to whether any Event of Default has occurred; (xvi) failure of the Company or any subsidiary to comply with certain of the covenants in the Senior Convertible Notes; (xvii) the occurrence of (A) at any time after the six month anniversary of the issuance date, any current public information failure that remains outstanding for a period of twenty (20) trading days or (B) any restatement of any financial statements of the Company filed with the SEC; (xviii) any material adverse effect occurring; (xix) any provision of any transaction document shall at any time for any reason cease to be valid and binding or enforceable; (xx) any security document shall for any reason (other than pursuant to the express terms thereof or due to any failure or omission of the collateral agent) fail or cease to create a separate valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority lien; (xxi) any material damage to, or loss, theft or destruction of, any collateral, that is material to the business of the Company or any subsidiary and is not reimbursed by insurance; or (xxii) any Event of Default occurs under any other Senior Convertible Notes.

The holders of the Senior Convertible Notes have certain additional rights upon an event of default under such Senior Convertible Notes, which could harm our business, financial condition, and results of operations and could require us to reduce or cease our operations.

Under the Senior Convertible Notes, the holders have certain rights upon an event of default. Such rights include (i) the remaining principal amount of the Senior Convertible Notes bearing interest at a rate of 15% per annum, (ii) during the event of default the holders of the Senior Convertible Notes will be entitled to convert all or any portion of the Senior Convertible Notes at an alternate conversion price equal to the lower of (i) the conversion price then in effect, and (ii) 80% of the lower of (x) the volume weighted average price of the ~~common stock~~Common Stock as of the trading day immediately preceding the applicable date of determination and (y) the quotient of (A) the sum of the volume weighted average price of the ~~common stock~~Common Stock for each of the two (2) trading days with the lowest volume weighted average price of the ~~common stock~~Common Stock during the ten consecutive trading day period ending and including the trading day immediately prior to the applicable date of determination, divided by (B) two, but not less than the floor price, and (iii) the holder having the right to demand redemption of all or a portion of the Senior Convertible Notes, as described below. At any time after certain notice requirements for an event of default are triggered, a holder of Senior Convertible Notes may require us to redeem all or any portion of the convertible note by delivering written notice. The redemption price will equal the greater of (i) 115% of the outstanding principal of the convertible note to be redeemed and accrued and unpaid interest and unpaid late charges thereon, and (ii) an amount equal to the market value of the shares of the common stock underlying the Senior Convertible Notes, as determined in accordance with the Senior Convertible Notes. Upon the occurrence of certain events of default relating to the bankruptcy of Akerna, whether occurring prior to or following the maturity date, Akerna will be required to immediately redeem the Senior Convertible Notes, in cash, for an amount equal to 115% of the outstanding principal of the Senior Convertible Notes, and accrued and unpaid interest and unpaid late charges thereon, without the requirement for any notice or demand or other action by any holder or any other person or entity. We may not have sufficient funds to settle the redemption price and, as described above, this could trigger rights under the security interest granted to the holders and result in the foreclosure of their security interests and liquidation of some or all of our assets.

2534

The exercise of any of these rights upon an event of default could substantially harm our financial condition, substantially dilute our other shareholders and force us to reduce or cease operations and investors may lose all or part of their investment.

Risks ~~Relating~~Related to Our Common Stock

We may seek to raise additional funds, finance acquisitions, or develop strategic relationships by issuing securities that would dilute ~~investors'~~investors’ ownership. Depending on the terms available to us, if these activities result in significant dilution, it may negatively impact the trading price of our shares of ~~common stock.~~Common Stock.

Any additional financing that we secure, may require the granting of rights, preferences, or privileges senior to, or pari passu with, those of our ~~common stock.~~Common Stock. Any issuances by us of equity securities may be at or below the prevailing market price of our ~~common stock~~Common Stock and in any event, may have a dilutive impact on ~~stockholders'~~stockholders’ ownership interest, which could cause the market price of our ~~common stock~~Common Stock to decline. We may also raise additional funds through the incurrence of debt, subject to the limitations imposed by our current outstanding Senior Convertible Notes, or the issuance or sale of other securities or instruments senior to our shares of ~~common stock.~~Common Stock. We cannot be certain how the repayment of our Senior Convertible Notes will be funded and we may issue further equity or debt in order to raise funds to repay the promissory notes, including funding that may be highly dilutive. The holders of any securities or instruments we may issue may have rights superior to the rights of our common stockholders. If we experience dilution from the issuance of additional securities and we grant superior rights to new securities over holders of our ~~common stock,~~Common Stock, it may negatively impact the trading price of our shares of common stock and stockholders may lose all or part of their investment.

Warrants are exercisable for our ~~common stock,~~Common Stock, which could increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

~~Currently,~~As of December 31, 2022, there are 5,813,804warrants to purchase ~~5,813,804~~ 290,690 shares of our ~~common stock. Each~~Common Stock at $230.00 ~~one~~per share (the “2019 Public Warrants”) and 45,652,174 warrants to purchase 2,282,609 shares of our ~~warrants is exercisable forone~~Common Stock at $4.60 per share ~~of common stock at $11.50~~(the “2022 Warrants”)~~per share.~~. To the extent such warrants are exercised, additional shares of ~~common stock~~Common Stock will be issued, which will result in dilution to the then-existing holders of ~~common stock~~Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our ~~common stock.~~Common Stock.

Certain of our warrants are accounted for as a ~~warrant~~derivative liability and are recorded at fair value upon issuance with any changes in fair value each period reported in our statement of operations, which may have an adverse effect on the market price of our securities.

We had 225,635 warrants that were issued in private placements that occurred concurrently with the initial public offering of MTech Acquisitions Corp., our successor (the ~~"private warrants"~~“Private Warrants”). These ~~private warrants~~Private Warrants and the shares of Company ~~common stock~~Common Stock issuable upon the exercise of the ~~private warrants~~Private Warrants are exercisable for cash or on a cashless basis, at the ~~holder's~~holder’s option, and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the ~~private warrants~~Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the ~~private warrants~~Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the warrants included in the units sold in the initial public offering, in which case the 225,635 ~~private warrants~~Private Warrants could be redeemed by the Company for ~~$2,256.35~~$2,256.35. Under ~~generally accepted accounting principles in the United States ("GAAP"),~~GAAP, the Company is required to evaluate contingent exercise provisions of these warrants and then their settlement provisions to determine whether they should be accounted for as a warrant liability or as equity. As a result of the provision that the ~~private warrants,~~Private Warrants, when held by someone other than the initial purchasers or their permitted transferees, will be redeemable by the Company, the requirements for accounting for these warrants as equity are not satisfied. Therefore, ~~the Company is~~we are required to account for these ~~private warrants~~Private Warrants as a warrant liability and record (a) that liability at fair value and (b) any subsequent changes in fair value as of the end of each period for which earnings are reported. The impact of changes in fair value on earnings may have an adverse effect on the market price of our ~~common stock.~~Common Stock.

If we do not maintain a current and effective prospectus relating to the Common Stock issuable upon exercise of the warrants, public holders will only be able to exercise such warrants or pre-funded warrants on a “cashless basis.”

If we do not maintain a current and effective prospectus relating to the shares of Common Stock issuable upon exercise of the warrants at the time that holders wish to exercise such warrants, they will only be able to exercise them on a “cashless basis,” and under no circumstances would we be required to make any cash payments or net cash settle such warrants to the holders. As a result, the number of shares of Common Stock that holders will receive upon exercise of the warrants will be fewer than it would have been had such holders exercised their warrants. Under the terms of the warrants, we have agreed to use our best efforts to maintain a current and effective prospectus relating to the shares of Common Stock issuable upon exercise of such warrants until the expiration of such warrants. However, we cannot assure you that we will be able to do so. If we are unable to do so, the potential “upside” of the holder’s investment in our company may be reduced.

Provisions of the warrants could discourage an acquisition of us by a third party.

Certain provisions of the warrants could make it more difficult or expensive for a third party to acquire us. The warrants prohibit us from engaging in certain transactions constituting “fundamental transactions” unless, among other things, the surviving entity assumes our obligations under the warrants.

We may face additional risks, including regulatory, litigation, stockholder or other actions and negative impacts on our stock price, as a result of the material weakness in our internal control over financial reporting and revisions to our financial statements.

As a result of our material weaknesses in internal control over financial reporting, ~~the change in accounting for certain warrants, and the related revisions to our prior financial statements or that may in the future be raised by the SEC,~~ we face potential additional risks, including regulatory, litigation, stockholder or other actions and negative impacts on our stock price, which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the material weakness in our internal control over financial reporting and the preparation of our financial statements. As of the date of this report, we have no knowledge of any such litigation or dispute. However, we can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition.

The market price of our shares of ~~common stock~~Common Stock is particularly volatile given our status as a relatively new public company with a generally small and thinly traded public float, which could lead to wide fluctuations in our share price. Stockholders may be unable to sell their shares of ~~common stock~~Common Stock at or above their purchase price, which may result in substantial losses to them.

The market for our shares of ~~common stock~~Common Stock is characterized by significant price volatility when compared to the shares of larger, more established companies that trade on a national securities exchange and have large public floats, and we expect that our share price will continue to be more volatile than the shares of such larger, more established companies for the indefinite future. The volatility in our share price is attributable to a number of factors, including the fact that our shares are thinly traded relative to larger, more established companies. The price for our shares of ~~common stock~~Common Stock could, for example, decline precipitously in the event that a large number of our shares of ~~common stock~~Common Stock are sold on the market without commensurate demand. As of ~~the~~ December 31, ~~2021,~~2022, there are ~~public warrants~~5,813,804 2019 Public Warrants to purchase ~~5,813,804~~ 290,690 shares of our ~~common stock~~Common Stock at ~~$11.50~~$230.00 per share, 45,652,174 2022 Warrants to purchase 2,282,609 shares of our Common Stock at $4.60 per share and ~~a $20~~$14.7 million in principal amount of Senior Convertible Notes at a price of ~~$4.05~~$4.75 per share, which if exercised or converted and sold into the open market could cause our stock price to decline. In addition, because we may be considered a speculative or “risky” investment due to our lack of profits to date, certain investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares of ~~common stock~~Common Stock on the market more quickly and at greater discounts, thus resulting in a rapid downward decline in the price of our ~~common stock.~~Common Stock. Many of these factors are beyond our control and may decrease the market price of our shares of ~~common stock,~~Common Stock, regardless of our operating performance.

The market price of our ~~common stock~~Common Stock is still likely to be highly volatile and subject to wide fluctuations, and stockholders may be unable to resell shares of ~~common stock~~Common Stock at or above the price at which they are acquired.

The market price of our ~~common stock~~Common Stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including, but not limited to:

●

Variations in our revenues and operating expenses;

●

Actual or anticipated changes in the estimates of our operating results or changes in stock market analyst recommendations regarding our ~~common stock,~~Common Stock, other comparable companies, or our industry generally;

●

Market conditions in our industry, the industries of our clients, and the economy as a whole;

●

Actual or expected changes in our growth rates or our competitors’ growth rates;

●

Developments in the financial markets and worldwide or regional economies;

●

Announcements of innovations or new products or services by us or our competitors;

●

Announcements by the ~~government~~governments and other regulatory authorities relating to regulations that ~~govern~~apply to our industry;

●

Sales of our ~~common stock~~Common Stock or other securities by us or in the open market; and

●

Changes in the market valuations of other comparable companies.

2736

The trading price of our shares of ~~common stock~~Common Stock might also decline in reaction to events that affect other companies in our industry, even if these ~~events~~events do not directly affect us. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, operating results, and financial condition.

We have not paid dividends in the past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation in the value of our ~~common stock.~~Common Stock.

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends on our shares of ~~common stock~~Common Stock in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans, and the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends, our shares of ~~common stock~~Common Stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never occur. In addition, investors must rely on sales of their common stock after price appreciation as the only way to realize their investment, and if the price of our common stock does not appreciate, then there will be no return on investment. Investors seeking cash dividends should not purchase our ~~common stock.~~Common Stock.

General Risks

~~We may not be able~~Any failure to ~~timely and effectively implement~~maintain effective disclosure controls and procedures ~~required by Section 404 of the Sarbanes-Oxley Act of 2002.~~and internal control over our financial reporting could materially adversely affect us.

~~The standards~~We do not currently have effective disclosure controls and procedures and internal control over financial reporting. Effective disclosure controls and procedures provides reasonable assure that our public reports contain necessary material information as required ~~for~~by applicable securities laws. Effective internal control over financial reporting provides reasonable assurance on our ability to provide reliable financial reports, effectively prevent fraud and operate successfully as a public ~~company under Section 404 of the Sarbanes-Oxley Act of 2002 are significantly more stringent than those required of MJF as a privately held~~ company. If we cannot provide accurate and timely reports and reliable financial reports or prevent fraud, our reputation and operating results would be harmed. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the regulatory compliance and reporting requirements that are applicable to us. If we are not able to implement the additional requirements of Section 404 in a timely manner or with adequate compliance, we may not be able to conclude that our internal controls over financial reporting are effective, which may subject us to adverse regulatory consequences and could harm investor confidence and the market price of our common stock.

Failure to remediate material weaknesses in internal controls over financial reporting could result in material misstatements in our financial statements.

Our management has identified material weaknesses in our internal controls over financial reporting and has concluded that due to such material weaknesses, our internal controls over financial reporting (including disclosure controls and procedures) were not effective as of December 31, ~~2021.~~2022. If not remediated, our failure to establish and maintain effective disclosure controls and procedures over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.

The requirements of being a public company may strain our resources and divert management’s attention.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of ~~NASDAQ,~~the Nasdaq Capital Market (“Nasdaq”), and other applicable securities rules and regulations. Compliance with these rules and regulations increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will increase our costs and expenses.

In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

2837

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our shares of ~~common stock~~Common Stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, we have elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As such, our financial statements may not be comparable to companies that comply with public company effective dates. It cannot be predicted if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our ~~common stock~~Common Stock and our share price may be more volatile.

Our ability to utilize our ~~net operating loss~~NOL carryforwards and certain other tax attributes may be limited.

Under Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation’s ability to use its pre-change ~~net operating loss~~NOL carryforwards and other pre-change tax attribute to offset its post-change income may be limited. As of December 31, 2022, we had gross federal and state NOL carryforwards totaling $58.9 million. While the federal NOL carryforwards are generally indefinite in nature, the majority of the state NOL carryforwards begin to expire in 2039. We may, in the future, as a result of subsequent shifts in our stock ownership, experience, an “ownership change.” Thus, our ability to utilize carryforwards of our ~~net operating losses~~NOLs and other tax attributes to reduce future tax liabilities may be substantially restricted. At this time, we have not completed a study to assess whether an ownership change under Section 382 of the Internal Revenue Code has occurred at any time in the past or may occur in the foreseeable future, due to the costs and complexities associated with completing such a ~~study~~.study. Therefore, we may not be able to take full advantage of these carryforwards for federal or state tax purposes.

Our operations could be adversely affected by events outside of our control, such as natural disasters, wars, or health epidemics.

We may be impacted by business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods, and fires. An outbreak of any of the foregoing or fear of any of the foregoing could adversely impact us by disrupting the operations of our clients, which could result in delayed payments, non-renewal of contracts, and other adverse effects on the market for our products or by causing product development and implementation delays and disruptions (including as a result of government regulation and prevention measures). We may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our business, operating results, and financial condition.

Proposed legislation in the U.S. Congress, including changes in U.S. tax law and the recently enacted Inflation Reduction Act of 2022, may adversely impact us and the value of our Common Stock.

Changes to U.S. tax laws (which changes may have retroactive application) could adversely affect us or holders of our Common Stock. In recent years, many changes to U.S. federal income tax laws have been proposed and made, and additional changes to U.S. federal income tax laws are likely to continue to occur in the future.

The U.S. Congress is currently considering numerous items of legislation which may be enacted prospectively or with retroactive effect, which legislation could adversely impact our financial performance and the value of shares of our Common Stock. Additionally, states in which we operate or own assets may impose new or increased taxes. If enacted, most of the proposals would be effective for the current or later years. The proposed legislation remains subject to change, and its impact on us or our investors is uncertain.

In addition, the Inflation Reduction Act of 2022 includes provisions that will impact the U.S. federal income taxation of corporations. Among other items, this legislation includes provisions that will impose a minimum tax on the book income of certain large corporations and an excise tax on certain corporate stock repurchases that would be imposed on the corporation repurchasing such stock. It is unclear how this legislation will be implemented by the U.S. Department of Treasury and we cannot predict how this legislation or any future changes in tax laws might affect us or investors in our Common Stock.

Item 1B. Unresolved Staff Comments.

Not Applicable.

Item 2. Properties.

Our corporate headquarters are located in Denver, Colorado, although we do not lease or own any real property associated with our corporate headquarters as our workforce is primarily remote. We ~~have one facility that we lease in Las Vegas, Nevada which serves as office space for our Las Vegas based employees. We~~ believe that our existing ~~facilities~~remote work arrangements are adequate for our current needs and that suitable ~~additional or~~ alternative space would be available to us to lease on commercially reasonable terms if and when we need it.

Item 3. Legal Proceedings.

From time to time, we may become involved in other legal proceedings or be subject to claims arising in the ordinary course of our business. Regardless of the outcome of any existing or future litigation, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Refer to "Commitments and Contingencies" under Note 1412 to our consolidated financial statements included elsewhere in this Form 10-K for a further discussion of our current legal proceedings.

Item 4. Mine Safety Disclosures.

Not applicable.

2939

The following discussion and analysis should be read in conjunction with our consolidated financial statements for the ~~year~~years ended December 31, ~~2021, the six month~~ ~~transition period~~ ~~ended December 31, 2020,~~2022 and ~~the year ended June 30, 2020,~~2021 and the related notes thereto, which have been prepared in accordance with GAAP. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under the section heading “Item 1A. Risk Factors” above and elsewhere in this report on Form 10-K. See section heading “Note Regarding Forward-Looking Statements” above.

Akerna is the leading provider of ~~enterprise software~~SaaS solutions within the cannabis ~~industry. By providing an integrated ecosystem~~industry that enable regulatory compliance and inventory management through our wholly-owned subsidiaries MJF, Trellis, Ample, Solo, Viridian, and 365 Cannabis. Our proprietary suite of ~~applications and services that enables~~solutions are adaptable for industries in which interfacing with government regulatory agencies for compliance ~~regulation, consumer safety and taxation, Akerna~~purposes is ~~building~~required, or where the ~~technology backbone~~tracking of ~~the cannabis industry. Our solutions provide clients with integrated security, transparency, and scalability capabilities, all while maintaining~~organic materials from seed or plant to end products is desired. We also develop products intended to assist states in monitoring licensed businesses’ compliance with ~~their governing regulations.~~

~~We intend to leverage our scale and capital markets access to pursue additional growth through organic initiatives~~state regulations and to ~~pursue~~ help state-licensed businesses operate in compliance with such law. We provide our ~~ecosystem strategy which leverages integrations, partnerships,~~commercial software platform, MJ Platform®, Trellis®, Ample, Viridian and ~~inorganic growth.~~365~~We believe having a scaled ecosystem gives us more opportunities~~ Cannabis to ~~leverage~~ state-licensed businesses, and our ~~footprint~~regulatory software platform, Leaf Data Systems®, to state government regulatory agencies. Our Viridian and ~~increase wallet share by providing more value to~~365 Cannabis solutions are considered enterprise offerings (“Enterprise”) and all other solutions are considered non-enterprise offerings (“Non-Enterprise”) that meet the needs of our clients through having what we believe is the most robust cannabis technology suite available. We intend to pursue additional growth through organic initiatives, including increased marketing personnelsmall and ~~resources, acquisitions,~~medium business (“SMB”) and strategic relationships. we will continue scaling our platform for continued growth, adding new features and functionality, supporting new products and content types, and improving the user experience.

government regulatory agency customers. We offer our software solutions to our customers as a subscription-based service. Subscription fees are based upon the chosen package which includes differentiated platform capabilities, support and user accounts. As customers recognize the value of our platform, we increasingly engage with them to facilitate broad adoption across other parts of their business.

We ~~believe having~~consult with clients on a ~~scaled ecosystem gives us more opportunities~~wide range of areas to ~~leverage~~help them successfully maintain compliance with state laws and regulations. We provide project-focused consulting services to clients who are initiating or expanding their cannabis business operations or are interested in data consulting engagements with respect to the legal cannabis industry. Our advisory engagements include service offerings focused on compliance requirement assessments, readiness and best practices, compliance monitoring systems, application processes, inspection readiness, and business plan and compliance reviews. We typically provide our ~~footprint~~consulting services to clients in emerging markets that are seeking consultation on newly introduced licensing regimes and ~~increase wallet share by providing more value to our clients through having what we believe is~~assistance with the most robust cannabis technology suite available. In order to accelerate customer growth, we intend to pursue additional initiatives, including increased marketing personnel and resources, acquisitions, and strategic relationships. We believe we are underpenetrated in the overall market and have significant opportunity to expand our customer base over time.

We have invested in professional services, customer support and customer success functions to support our sales force by helping customers successfully deploy our platform. We actively engage with our customers to assess whether they are satisfied and fully realizing the benefitsregulatory compliant build-out of our platform. While these efforts often require a substantial commitment and upfront costs, we believe our investment in product, customer support, customer success and professional services will create opportunities to expand our customer relationships over time.operations.

~~We plan to continue to make investments in areas of our business to continue to expand our platform functionality to enhance current offerings and build new features.~~

On April 1, 2021 and October 1, 2021, we completed our acquisitions of Viridian and 365 Cannabis which is reflected in the consolidated financial statements for the fiscal year ended December 31, 2021.~~The impact of the acquisition is discussed in our results of operations below.~~

In addition to our results determined in accordance with ~~U.S. Generally Accepted Accounting Principles, or~~ GAAP, we believe earnings before interest, taxes, depreciation and amortization, or EBITDA, and Adjusted EBITDA are useful in evaluating our operating performance. We use EBITDA and Adjusted EBITDA, to evaluate our ongoing operations and for internal planning and forecasting purposes. Please see the heading ~~Non-GAAP~~“Non-GAAP Financial ~~Measures~~Measures” for additional discussion and a reconciliation of ~~GAAP~~ our net loss determined in accordance with GAAP to these non-GAAP measures.

~~Strategic Acquisitions~~While we explored similar sale options for Viridian, we were unable to commit to any definitive transaction. Accordingly, we informed Viridian’s customers that we do not plan to continue software and support services beyond the date of existing contracts, all of which expire during the first quarter of2023. With the sale of 365 Cannabis and our commitment to wind down the operations of Viridian, we have effectively exited the Enterprise software business. Accordingly, we have suspended efforts to seek any new revenue generating opportunities and will only service the existing customers of Viridian in connection with our contractual commitments. Continuing revenues and expenses in the first quarter of 2023 are not anticipated to be material.

In addition to the our exit from the Enterprise software business, we initiated efforts in the fourth quarter of 2022 to explore a sales process for the non-core components and brands of our SMB/Non-Enterprise business unit, including Trellis, a cultivation and compliance software platform, Solo, a seed-to-sale tagging and tracking software platform, Last Call Analytics (“LCA”), a retail analytics platform and wholly-owned subsidiary of Ample, and our equity investment in Zol Solutions, Inc. (“ZolTrain”).On January 31, 2023, we completed the sale of LCA for cash in the amount of $0.1 million, subject to post-closing adjustments, if any. In December 2022, we sold our investment in ZolTrain for a nominal amount (see Note 7 - Investments to the consolidated financial statements). While we pursued sale opportunities for Trellis and Solo, we were ultimately unable to commit to any definitive transactions. Accordingly, we have communicated with the remaining customers of those businesses that we will discontinue software service and support upon the expiration of existing contracts during the first half of 2023. Similar to Viridian, as discussed above, we have suspended efforts to seek any new revenue generating opportunities and will only service the existing customers of Solo and Trellis in connection with our contractual commitments. Continuing revenues and expenses in the first half of 2023 are not anticipated to be material.

With the completion of the sales of 365 Cannabis, LCA and ZolTrain and the commitment to effectively discontinue and wind down the operations and service associated with Viridian, Solo and Trellis, our remaining core SMB and governmental business unit is comprised of MJF and Ample. Concurrent with the actions described above, we entered into letters of intent with two unrelated parties in the fourth quarter of 2022 to (i) explore the sale of our remaining core SMB and governmental business unit and (ii) realize the potential value of our publicly-held holding company through a merger or similar transaction. Collectively, pursuit of these transactions reflects our intention tofully exit theSaaS industry.

On January 27, 2023, we and Akerna Exchange entered into the Sale Transaction with POSaBIT to sell MJF and Ample to POSaBIT for a purchase price of$4.0 million in cash. See “Item 1 – Business – Business Overview - Exploration of Strategic Alternatives - Merger and Sale Transaction” for a more detailed description of the Sale Transaction and the underlying MJF-Ample Purchase Agreement.

On January 27, 2023, we entered into the Merger Agreement with Gryphon andAkerna Merger. Upon the terms and subject to the satisfaction of the conditions provided in the Merger Agreement, including the approval of the transaction byAkerna’s and Gryphon’s stockholders,Akerna Merger will be merged with and into Gryphon with Gryphon surviving the Merger as a wholly-owned subsidiary ofAkerna. See“Item 1– Business – Business Overview - Exploration of Strategic Alternatives - Merger and Sale Transaction” for a more detailed description of the Merger and the underlying Merger Agreement.

On January 27, 2023, we entered into the Exchange Agreements with the holders of our Senior Convertible Notes. See “Item 1 – Business Overview – Exchange Agreements” for a more detailed description of the Exchange Agreements.

As a result of the corporate actions described above, 365 Cannabis and LCA (together, the “Discontinued Group”) met the criteria to be considered “held for sale” as that term is defined in accounting principles generally accepted in the United States (“GAAP”). Accordingly, theassets and liabilities of these entities are classified and reflected on our consolidated balance sheets as held for sale as of December 31, 2022 and 2021, respectively, and their results of operations are classified as “discontinued operations” in the consolidated statements of operations for the years ended December 31, 2022 and 2021, respectively. Certain financial disclosures including major components of the assets and liabilities and results of operations of the Discontinued Group are provided in Note 17 to the consolidated financial statements. Our core SMB and governmental business unit (MJF and Ample), the businesses for which we have committed to terminate operations (Viridian, Solo and Trellis) and our publicly-held parent holding company (Akerna Corp.) comprise our continuing operations. Collectively, these entities are presented as continuing operations for all periods presented herein and until such time that stockholder approval is received for the Sale Transaction and the Merger.

The results of operations of our discontinued operations and the assets and liabilities of these operations that are held for sale and certain other additional disclosures are provided in Note 17 to the consolidated financial statements.

On October 4, 2022, we completed an offering 400,000 of shares of the Company’s Series A Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), and 100,000 shares of the Company’s Series B Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock,” and together with the Series A Preferred Stock, the “Convertible Redeemable Preferred Stock”), at an offering price of $9.50 per share, representing a 5 percent original issue discount to the stated value of $10.00 per share, for gross proceeds of approximately $4.75 million in the aggregate, before the deduction of $0.4 million for fees and offering expenses of our financial advisor. We also incurred and paid approximately $0.1 million of other issue costs attributable to third-party professional and legal fees. The aggregate net proceeds (after deducting the fees and expenses of our financial advisor) together with the additional amount to provide for the 105 percent redemption premium, or $0.5 million, on the Convertible Redeemable Preferred Stock was deposited in an account with an escrow agent.

On November 7, 2022, we held a special meeting of stockholders to consider an amendment (the “Amendment”) to our Amended and Restated Certificate of Incorporation (the “Charter”), to effectthe Reverse Stock Split as determined by our Board of Directors. The holders of the Convertible Redeemable Preferred Stock agreed to not transfer, offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of the shares of the Convertible Redeemable Preferred Stock until the Reverse Stock Split, voted the shares of the Series A Preferred Stock purchased in the offering in favor of the Amendment and voted the shares of the Series B Preferred Stock purchased in the offering in a manner that “mirrored” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that did not vote), the Company’s Special Voting Preferred Stock (excluding any proportion of the Special Voting Preferred Stock that did not vote) and Series A Preferred Stock voted on the Reverse Stock Split. The Reverse Stock Split required the approval of the majority of the issued and outstanding shares entitled to vote on the matter. Because the Series B Preferred Stock was automatically and without further action of the holder voted in a manner that “mirrored” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that were not voted), the Company’s Special Voting Preferred Stock (excluding any proportion of the Special Voting Preferred Stock that was not voted) and Series A Preferred Stock voted on the Reverse Stock Split, abstentions by common stockholders did not have ~~pursued~~any effect on the votes cast by the holders of the Series B Preferred Stock. The Amendment was approved on November 7, 2022 and ~~expect~~the Reverse Stock Split was effectuated at12:01a.m. Eastern Standard Time on November 8, 2022.

The holders of all of the Convertible Redeemable Preferred Stock redeemed their shares for cash at105 percent of the stated value, or $10.50per share, of such shares on November 9, 2022. Accordingly, we directed the escrow agent to pay $5.25million on November 10, 2022 to the holders from the escrow account established upon the date of the Convertible Redeemable Preferred Stock offering. The amounts paid over the offering price upon redemption are considered “deemed” dividends and reported as a reduction of Additional paid-in capital in the consolidated statement of changes in stockholders’ equity (deficit).

In 2021, we entered into an Equity Distribution Agreement with Oppenheimer & Co. Inc. (“Oppenheimer”) and A.G.P./Alliance Global Partners (“AGP”) pursuant to which we could offer and sell from time to time, up to $25 million of shares of our Common Stock through an “at the market” equity offering program (the “2021 ATM Program”). From its inception through September 23, 2022, a total of 118,629 shares of Common Stock with an aggregate gross purchase price of $2.7 million, including 90,808 shares with an aggregate gross purchase price of $0.8 million sold during 2022, were sold under the 2021 ATM Program. On September 23, 2022, we, Oppenheimer and AGP mutually agreed to terminate the 2021 ATM Program.

On September 28, 2022, we entered into a new agreement with AGP pursuant to which we may offer and sell up to $20.0 million of shares of our Common Stock (the “2022 ATM Program”) from time to time through AGP as the sales agent for which they will receive a commission of 3.0 percent of the gross proceeds. The 2022 ATM Program is currently limited to $3.5 million due to certain restrictions imposed by the registration statement underlying the offering (the “Baby Shelf Limitation”). Under the Baby Shelf Limitation, we may not offer Common Stock under the registration statement with a value of more than one-third of the aggregate market value of our Common Stock held by non-affiliates in any twelve-month period, so long as the aggregate market value of our Common Stock held by non-affiliates is less than $75.0 million. Net proceeds from the sale of Common Stock under the 2022 ATM Program have been and will continue to ~~pursue acquisitions~~be used for general corporate purposes including working capital, marketing, product development and capital expenditures. Through December 31, 2022, we sold a total of 552,148 shares of Common Stock with an aggregate gross purchase price of $1.1 million under the 2022 ATM Program leaving $2.4 million remaining available under the Baby Shelf Limitation.

On July 5, 2022, we completed an offering (the “2022 Unit Offering”) which was comprised of an aggregate of(i) 29,382,861 units consisting of 1,469,143 shares of Common Stock together with Common Stock warrants (the “Common Warrants”) to purchase up to 1,469,143 shares of Common Stock (together, the “Units”) and (ii) 14,095,400 pre-funded units, consisting of 14,095,400 pre-funded warrants (“Pre-funded Warrants”) to purchase 704,770 shares of Common Stock, together with Common Warrants to purchase up to 704,770 shares of Common Stock (together, the “Pre-funded Units”). The Units were sold at a public offering price of $0.23 per unit and the Pre-funded Units were sold at a public offering price of $0.2299 per pre-funded unit.The Pre-Funded Warrants were exercised immediately thereafter at their nominal exercise price of $0.002 per share. The Common Warrants accompanying each of the Units and Pre-funded Units were issued separately and are immediately tradeable separately upon issuance. The Common Warrants have an exercise price of $4.60 per share subject to certain adjustments, are immediately exercisable and will expire five years from the date of issuance. In connection with the Convertible Redeemable Preferred Stock offering, the exercise price of the Common Warrants was reduced to $3.518 per share effective October 5, 2022.

We granted the Underwriter a 45-day option from the effective date of the 2022 Unit Offering to purchase from us (i) additional shares of Common Stock and/or (ii) Common Warrants and/or (iii) Pre-Funded Warrants, in any combination thereof solely to cover over-allotments(the “Over-allotment Option”); however, the Over-allotment Option expired unexercised on August 14, 2022. In addition, we issued to the Underwriter warrants to purchase additional shares of Common Stock (the “Underwriter Warrants”). Upon the expiration of the Over-allotment Option, the Underwriter Warrants provided for the purchase of up to 108,696 shares of Common Stock. The Underwriter Warrants are exercisable at any time and from time to time, in whole or in part, commencing from sixmonths afterJune 29, 2022(the “Effective Date”) and endingfive years from the Effective Date, at a price per share equal to $4.60, subject to certain adjustments. In connection with the Convertible Redeemable Preferred Stock offering, the exercise price of the Underwriter Warrants was reduced to $3.518 per share effective October 5, 2022. The Underwriter Warrants may be transferred by the Underwriter without restriction during the same period.

The Unit Offering closed on July 5, 2022 and we receivednet proceeds of approximately $9.2 million after deducting underwriting discounts and commissions and related expenses including legal and other professional fees. In connection with an amendment to the Senior Convertible Notes that ~~align with our strategic objectives~~deferred principal payments to ~~build relevant content, technology,~~2023 and ~~expertise~~provided for certain waivers, among others (see Note 10 - Long Term Debt to ~~best serve our current~~the consolidated financial statements), a total of $7.0 million of the proceeds were deposited into the Restricted Accounts. We used the remaining net proceeds from the 2022 Unit Offering for general corporate purposes, including working capital, marketing, product development and ~~future customers. Accordingly,~~capital expenditures. As of September 30, 2022, a total of 45,652,174 warrants exercisable for 2,282,609 shares of Common Stock remain outstanding from the ~~comparability~~2022 Unit Offering including 43,478,261 Common Warrants exercisable for 2,173,913 shares of ~~periods covered~~Common Stock and 2,173,913 Underwriter Warrants exercisable for 108,696 shares of Common Stock.

In May 2022, we implemented a corporate restructuring initiative (the “Restructuring”) as approved by our ~~consolidated financial statements are,~~Board of Directors. The Restructuring resulted in a reduction of our workforce by 59 employees, or approximately 33 percent of the Company’s headcount at that time. We incurred costs of approximately $0.6 million in severance benefits, including employee insurance, associated payroll taxes and legal costs in connection with the ~~future may be, affected by~~Restructuring. This amount was fully attributable to our continuing operations. Of the ~~impact~~total, $0.3 million was included in Sales and marketing costs, $0.2 million was recorded in Product development costs and less than $0.1 million was included in each of ~~these acquisitions.~~Cost of revenue and General and administrative expenses, respectively. All amounts incurred were settled in cash during the year ended December 31, 2022. Accordingly, we have no material obligations remaining associated with the Restructuring. In addition to the reduction in force, our executive leadership team was subject to a temporary 25 percent reduction in salary during the second quarter of 2022.

We generate revenue from two primary sources: (1) software and (2) consulting services. Revenue from software comprised approximately ~~92%, 86%~~95 percent and ~~79%~~91 percent of our revenue for the ~~year~~years ended December 31, ~~2021, six months ended December 31, 2020,~~2022, and ~~year ended June 30, 2020,~~2021, respectively. Revenue from consulting services comprised approximately ~~7%, 12%~~5 percent and ~~19%~~9 percent of our revenue for the ~~year ended December 31, 2021, six months ended December 31,~~ ~~2020, and year ended June 30,~~ ~~2020~~,same periods, respectively.

Software. Our software is solutioned for our key markets, SMB and ~~enterprise customers. Our SMB customers become a natural funnel for our larger, more robust enterprise offerings built on SAP and Microsoft.~~government regulatory agencies. In ~~either market,~~these markets, software revenue is generated from subscriptions and services related to the use of our commercial software platforms, MJ Platform ~~Ample, Trellis, Viridian,~~®, and ~~365 Cannabis,~~ our government regulatory platform, Leaf Data Systems ~~and the sale of business intelligence, data analytics and other software related services.~~®. Software contracts are generally quarterly or annual contracts paid monthly, quarterly, or annually in advance of service and cancellable upon 30 or 90 days’ notice, although we do have many multi-year commercial software contracts. Leaf Data Systems® contracts are generally multi-year contracts payable annually or quarterly in advance of service. ~~Commercial software~~MJ Platform® and Leaf Data Systems® contracts generally may only be terminated early for breach of contract as defined in the respective agreements. Amounts that have been invoiced are initially recorded as deferred revenue or contract liabilities. Subscription revenue is recognized on a straight-line basis over the service term of the arrangement beginning on the date that our solution is made available to the customer and ending at the expiration of the subscription term.

Consulting Services. Consulting services revenue is generated by providing solutions for prospective and current cannabis, hemp and CBD business operators in the pre-application of licensures and pre-operational phases of development. These services include application and business plan preparation as they seek licenses to be granted. Consulting projects completed during the pre-application phase generally solidify us as the software vendor of choice for subsequent operational phases once the operator is granted the license. As a result, our consulting revenue is driven as new emerging states pass legislation, and as our client-operators gain licenses. ~~Accordingly, we expect our consulting services to grow over time as more states emerge with legalization reforms.~~

Other Revenue. Our other revenue is derived primarily from point-of-sale hardware and other non-recurring revenue.

Our cost of revenue is derived from direct costs associated with operating our commercial and government regulatory software platforms and providing consulting services. The cost of revenue for our commercial and government regulatory platforms relates primarily to hosting and infrastructure costs andsubcontractor expenses incurred in connection with certain government contracts. Consulting cost of revenue relates primarily to our employees’ and consultants’ salaries and other related compensation expenses. We record the cost of revenue using the direct cost method. This method requires the allocation of direct costs including support services and materials to the cost of revenue.

Our product development expenses include salaries and benefits, nearshore contractor expenses, technology expenses, and other overhead related to the ongoing maintenance of our commercial and government regulatory software platforms and planning for new software development. Product development costs, other than software development expenses qualifying for capitalization, are expensed as incurred. Capitalized software development costs consist primarily of employee-related costs. We devote substantial resources to enhancing and maintaining our technology infrastructure, developing new and enhancing existing solutions, conducting quality assurance testing, and improving our core technology.

Sales and marketing expense is primarily salaries and related expenses, including commissions,for our sales, marketing, and client service staff. We also categorize payments to partners and marketing programs as sales and marketing expenses. Marketing programs consist of advertising, events, such as trade shows, corporate communications, brand building, and product marketing activities. We plan to continue to invest in marketing and sales by expanding our domestic and international selling and marketing activities, building brand awareness, attracting new clients, and sponsoring additional marketing events. The timing of these marketing events will affect our marketing costs in a particular quarter.

We defer the portion of sales commissions that is considered a cost of obtaining a new contract with a customer ~~in accordance with the revenue recognition standard~~ and amortize these deferred costs over the period of benefit, currentlyoneyear. We expense the remaining sales commissions as incurred. The rates at which sales commissions are earned varies depending on a variety of factors, including the nature of the sale (new, renewal, or add-on service offering), the type of service or solution sold, and the sales channel.

Our general and administrative expenses include salaries and benefits and other costs of departments serving administrative functions, such as ~~executives,~~executive and corporate governance, finance and accounting, human resources, public relations and investor relations. In addition, general and administrative expense includes non-personnel costs, such as professional fees and other supporting corporate expenses not allocated to cost of revenue, product and development or sales and marketing.

Total other (income) expense, net consists of interest income on cash and cash equivalents, interest expense on our debt, quarterly remeasurement of the fair value of our convertible notes and derivative liability, foreign currency gains and losses, and other nonoperating gains and losses.

Results of Operations for the Year Ended December 31, ~~2021 (audited) compared with~~2022 Compared to the Year Ended December 31, ~~2020 (unaudited)~~2021

The following table highlights ~~the various sources of~~our operating revenues and ~~operating~~ expenses attributable to our continuing operations for the year ended December 31, ~~2021~~2022 as compared to the year ended December 31, 2020 (unaudited). The results for the year ended December 31, 2020 were derived by combining the audited six-month transition period ended December 31, 2020 with Akerna’s three-month period ended March 31, 2020 and three-month period ended June 30, 2020:2021:

~~Total revenue increased to $20.7 million for the year ended December 31, 2021 from $13.9~~ ~~million for the year ended December 31, 2020, an increase of $6.8~~ ~~million, or~~ 49~~%. The increase in total revenue was driven primarily by growth in our software business of $7.0~~ ~~million, or~~ 59~~% compared to the prior period.The growth in software was offset by a decline in consulting revenue of $0.2 million, or~~ 13~~%, primarily a result of government shut-down related to COVID-~~19 ~~as discussed below.~~Revenue

Total software revenue ~~increased~~declined to ~~$19.0~~$12.9 million for the year ended December 31, 2022 from $16.0 million for the year ended December 31, 2021, ~~from $12.0 million~~ for ~~the year ended December 31, 2020, for an increase~~a decrease of ~~$7.0~~$3.1 million, or ~~59%.~~ 19 percent. Software revenue related to our enterprise offering, Viridian and 365 Cannabis, during the year ended December 31, 2021, were $4.8 million compared to $0 in the prior year and software revenue related to our non-enterprise offerings, which include MJ Platform, Ample, Trellis, Solo, and Leaf Data Systems, for the year ended December 31, 2021, were $12.8 million compared to $11.6 million in the prior year. There was also in an increase in partnership and data revenue which was $1.4 million for the year ended December 31, 2021, compared to $0.4 million for the same period in the prior year. Software revenue accounted for ~~92%~~95 percent and ~~86%~~91 percent of total revenue in 2022 and 2021, ~~and 2020,~~ respectively. ~~As indicated above, the increase in software revenue for the year ended December 31, 2021 was~~The decline is primarily attributable to ~~our acquisitions~~(i) customer attrition and declines in business development with a focus on maintenance-only after the Restructuring for Ample, Solo, Trellis and Viridian ($2.1 million), (ii) the loss of ~~Ample, Viridian,~~subscription service for the state of Washington for 2022 ($0.7 million) and ~~365 Cannabis.~~(iii) the transition of a key client’s business from implementation fees to traditional subscription service from 2021 to 2022 ($0.5 million). These declines were partially offset by higher revenues attributable to subscription service for the states of Utah and Pennsylvania ($0.2 million) and higher revenues attributable to a new text-capable application ($0.1 million).

~~Consulting~~ ~~revenue includes revenue generated from consulting services delivered to prospective and current cannabis, hemp and CBD businesses and business operators.~~ Our consulting revenue was $0.7 million for the year ended December 31, 2022 compared to $1.5 million for the year ended December 31, ~~2021 compared to $1.7 million for the year ended December 31, 2020,~~2022, a decrease of ~~$0.2~~$0.8 million, or ~~13%.~~55 percent. Consulting revenue was 7%5 percent and ~~13%~~9 percent of total revenue for ~~2021~~2022 and ~~2020,~~2021, respectively. Due to the nature of consulting revenue, our dependence on emerging market activity ~~as well as the ongoing pandemic~~ as a driver of demand, the percentage of consulting revenue over total revenue has varied from period to period depending on whether state legislation has expanded to allow new market entrants or growth of existing market participant operations.

Other revenue includes retail/resale revenue, which ~~was~~is generated from point-of-sale ~~hardware.~~hardware and other non-recurring revenues. Other revenue was less than $0.1 million~~$0.2~~ and $0.1 million for the years ended December 31, 2022 and 2021 and ~~2020 and~~ was ~~approximately 1%~~less than 1 percent of total revenue for each of the years ended December 31, 2022 and 2021, ~~and 2020.~~respectively.

Cost of revenue decreased ~~increased~~ to ~~$8.1~~$5.4 million for the year ended December 31, 2022 from $7.4 million for the year ended December 31, 2021, ~~from $6.3 million~~ for ~~the year ended December 31, 2020, for an increase~~ a decreaseof ~~$1.8~~$2.0 million, or ~~28%. Total cost~~27 percent. The decrease was due primarily to the following (i) $0.8 million of ~~revenue increased primarily as a result of our acquisitions of Ample, Viridian,~~lower software application and ~~365 Cannabis, the specific drivers being an increase in~~ hosting expenses, ~~by $1.6~~(ii) $0.5 million of lower hardware and ~~fees for SAP~~platform license expenses, (iii) $0.2 million of lower salary-related and ~~Microsoft licenses in the amount~~contractor expenses and (iv) $0.1 million of lower stock-based compensation. In addition, we recorded a reversal of a legal contingency of $0.5 ~~million. These increases from acquisitions were partially offset by net savings of $0.6~~ million that was initially recognized in ~~Leaf Data Systems contractor costs during the year ended December 31,~~ 2021 ~~compared~~(see Note 12 - Commitments and Contingencies to the ~~year ended December 31, 2020~~consolidated financial statements for further discussion of this matter)..

Gross profit ~~increased~~decreased to ~~$12.6~~$8.2 million for the year ended December 31, 2022 from $10.2 million for the year ended December 31, 2021, ~~from $7.5~~for a decrease of $2.0 million, or 19 percent. Gross margin increased to 60 percent for the year ended December 31, ~~2020, for an increase of $5.0 million, or 67%. Gross margin increased to 61%~~2022 from 58 percent for the year ended December 31, ~~2021 from 54% for the year ended December 31, 2020.~~2021. This ~~improvement~~decline in gross ~~margin~~profit was due primarily ~~due~~ to ~~operating synergies realized from our acquired assets, our ongoing initiatives to drive operating effectiveness and acquiring additional B2B customers, which have a~~the decline in revenue despite the higher relative gross profit margin.

Product development expense ~~increased~~decreased to $~~6.3~~4.7 million for the year ended December 31, ~~2021~~2022 from $~~5.1~~5.9 million for the year ended December 31, ~~2020,~~2021, for ~~an increase~~a decrease of $1.2 million, or ~~22%. Product development expense increased~~20 percent. The decrease was due primarily ~~due the acquisitions of Ample, Viridian,~~to lower salary-related and 365 Cannabis which resulted in a $1.4 million increase in salary-related expenses and a $0.3 million increase in stock compensation expense for the year ended December 31, 2021 compared to year ended December 31, 2020. These increases were partially offset by savings on contractor expenses in the amount of ~~$0.7~~$0.9 million and $0.5 million of lower stock-based compensation expense. In addition, we incurred $0.2 million of lower recruiting expenses. These declines were primarily attributable to the effects of the Restructuring in 2022 which reduced our overall headcount. The restructuring resulted in $0.2 million of direct costs attributable to Product development. In addition, we incurred higher software application and hosting expenses of $0.1 million and a $0.1 million increase to a legal settlement reserve in the 2022 period. .

Sales and marketing expense ~~increased~~decreased to $~~9.1~~6.1 millionfor the year ended December 31, 2022 from $7.7 million for the year ended December 31, 2021, ~~from~~ ~~$8.1 million~~ for ~~the year ended December 31, 2020, for an increase~~a decrease of $~~1.0~~1.7 million or ~~13%.~~ 21 percent. The ~~increase~~decrease was due primarily to lower salary-related and contractor expenses in ~~sales~~the amount of $1.2 million and $0.5 million of lower stock-based compensation expense. We also incurred $0.2 million of lower trade show and related promotional expenses during 2022. These declines were primarily attributable to the effects of the Restructuring in 2022 which reduced our overall headcount. The restructuring resulted in $0.3 million of direct costsattributable to Sales and marketing ~~expense is primarily related to the acquisitions~~. In addition, we incurred higher software and application expenses of ~~Ample, Viridian, and 365 Cannabis which resulted in an increase of $1.0~~$0.1 million in ~~salary-related expenses and a $0.1 million increase in stock compensation expense for~~ the year ended December 31, 2021 compared to year ended December 31, 2020. These increases were slightly offset by a reduction in external marketing consulting costs as we moved more of our marketing initiatives in house. 2022 period.

General and administrative expense decreased to $~~10.4~~8.3 million for the year ended December 31, 2022 from $10.2 million for the year ended December 31, 2021, ~~from~~ ~~$11.0 million~~ ~~for the year ended December 31, 2020,~~ for a decrease of $~~$0.6~~1.8 million, or ~~5%.~~18 percent. This decrease was due primarily ~~related~~ to $2.4 million of lower restructuring costs as the 2021 period included the termination of our office spaces in Denver in December 2021 and Toronto in June 2021 and the associated write-off of certain leasehold improvements. In addition, we had a reduction in acquisition-related expenses of ~~$2.9~~$0.4 million as we completed two acquisitions, Viridian and 365 Cannabis, during ~~the year ended December 31,~~ 2021 ~~compared~~and none in 2022. These decreases were partially offset by (i) $0.4 million of higher salary and related benefits and recruiting costs due in part to ~~three acquisitions, Solo, Trellis, and Ample, during 2020. There was also a decrease of $0.6 million~~addressing employee turnover in ~~rental expenses related to the termination of our office spaces in Denver in December 2020 and Toronto in June 2021, a decrease in financing fees of $0.9 million, and a~~ ~~decrease of~~certain key management positions, (ii) $0.3 million ~~in salary-related expenses as a direct result~~ of ~~cost-saving measures placed into service during 2020.~~ ~~Partially offsetting these decreases is a $1.9 million increase in restructuring charges during 2021 attributable~~higher professional fees due primarily to ~~a lease settlement agreement~~multiple proxy solicitations for ~~relinquishing office space in Toronto~~shareholder votes including the Reverse Stock Split and ~~the related write off of leasehold improvements~~multiple SEC filings associated with the ~~lease termination, as well as an increase~~proxies and the 2022 ATM Program and (iii) $0.3 million of ~~$0.6 million for legal, audit, tax~~higher software and other professional service fees as our business has continued to grow. We also had a $2.0 million change in fair value of contingent consideration during the year ended December 31, 2020 related to the 2020 acquisitions.applications costs.

Depreciation and amortization expense increased to ~~$5.7~~$5.6 million for the year ended December 31, ~~2021~~2022 from ~~$3.2~~$5.2 million for the year ended December 31, ~~2020.~~2021. The increase is due primarily to an increase of $2.8 million in ~~amortization expense is entirely related~~capitalized software during 2022 prior to the ~~acquired intangible assets from our acquisitions completed in calendar year 2021 and 2020.~~assessment for impairment during the fourth quarter of 2022 (see below).

~~Results of Operations for the Six Months Ended December 31, 2020 (audited) compared with the Six Months Ended December 31, 2019 (unaudited)~~

~~The following table highlights the various sources of revenues and operating expenses for the six months ended December 31, 2020 as compared to the six months ended December 31, 2019:~~

Total revenue increased to $7.8 million for the six months ended December 31, 2020 from $6.5 million for the six months ended December 31, 2019, an increase of $1.3 million, or 20%. The increase in total revenue was driven primarily by growth in our software business of $2.0 million, or 41% compared to the prior period. The growth in software was offset by a decline in consulting revenue of $0.6 million, or 41%, primarily a result of government shut-down related to COVID-19 as discussed below.

Total software revenue increased to $6.8 million for the six months ended December 31, 2020 from $4.8 million for the six months ended December 31, 2019, for an increase of $2.0 million, or 41%. Total software revenue increased $2.8 million primarily as a result of the acquisition of Ample, Trellis and Solo, offset by a decline in government revenue of $0.4 million, primarily as a result of these contracts maturing to a run-and-maintain mode, and a decline in other software revenue of $0.4 million. Total software revenue accounted for 86% and 74% of total revenue for the six months ended December 31, 2020, and 2019, respectively.

Consulting revenue includes revenue generated from consulting services delivered to prospective and current cannabis, hemp and CBD businesses and business operators. Our consulting revenue was $0.9 million for the six months ended December 31, 2020 compared to $1.6 million for the six months ended December 31, 2019, a decrease of $0.6 million, or 41%. This decrease is mainly due to the impact of COVID-19. Consulting services are also correlated to state legalizations and other regulatory expansion activity. As a result, individual year-over-year comparisons may experience variability depending on the timing of recent legislative changes. During the COVID-19 pandemic and resulting shut-down, state legislatures have turned their focus to the pandemic and tabled work on cannabis legislation, which resulted in delays in our providing consulting services during the six months ended December 31, 2020. However, many state ballot initiatives were passed in the November 2020 election that provides for new medical or adult-use marijuana. We expect, despite the slowing of our consulting activity experienced during the pandemic, we will see increased demand for our services following the November 2020 election. As a sign consulting revenue is starting to rebound from the impacts of the COVID-19 pandemic, consulting revenue increased to $0.6 million for the three months ended December 31, 2020 from $0.3 million for the three months ended September 30, 2020, an increase of $0.3 million, or 100%.

Consulting revenue was 12% and 24% of total revenue for the six months ended December 31, 2020 and 2019, respectively. Due to the nature of consulting revenue and our dependence on emerging market activity as well as the ongoing pandemic as a driver of demand, the quarters in which we recognize consulting revenue has varied from year to year depending on whether state legislation has expanded to allow new market entrants or growth of existing market participant operations.

Other revenue includes retail/resale revenue, which was generated from point-of-sale hardware. Other revenue was $0.1 million for the six months ended December 31, 2020 and $0.1 million for the six months ended December 31, 2019. Other revenue was 2.0% and 2% of total revenue for the six months ended December 31, 2020 and 2019.

Cost of revenue increased to $3.1 million for the six months ended December 31, 2020 from $3 million for the six months ended December 31, 2019, for an increase of $0.1 million, or 5%. Total cost of revenue increased $0.4 million as a result of the acquisition of Ample, Trellis and Solo, offset by a decline in professional services costs of $0.3 million due to declining use of third-party consulting firms for our government solution as a result of these contracts maturing to a run-and-maintain mode.

Gross profit increased to $4.7 million for the six months ended December 31, 2020 from $3.5 million for the six months ended December 31, 2019, for an increase of $1.2 million, or 34%. Gross margin increased to 60% for the six months ended December 31, 2020 from 54% for the six months ended December 31, 2019. Total gross profit increased $2.6 million as a result of the acquisition of Ample, Trellis and Solo, offset by the decline in consulting revenue of $0.6 million, a decline government revenue of $0.4 million, primarily as a result of these contracts maturing to a run-and-maintain mode and a decline in other software revenue of $0.4 million.

Product development expense increased to $3.2 million for the six months ended December 31, 2020 from $1.2 million for the six months ended December 31, 2019, for an increase of $1.9 million, or 156%. The increase was due primarily to $1.3 million in employee-related costs from higher headcount and other operating cost related to acquisitions. Stock compensation expense increased $0.4 million compared to the prior period. Software costs increased $0.3 million primarily a result of additional investment in information technology security and reporting tools and software hosting costs, including data infrastructure.

Sales and marketing expense increased to $3.9 million for the six months ended December 31, 2020 from $3.7 million for the six months ended December 31, 2019, for an increase of $0.2 million or 5%. Total sales and marketing expense increased $0.8 million as a result of the acquisition of Ample, Trellis and Solo, offset by a decline other sales and marketing expense of $0.6 million primarily a result of decreased travel costs and a reduction in customer event spend due primarily to cancelling all in-person customer activities and events as a result of the COVID-19 pandemic.

General and administrative expense decreased to $4.4 million for the six months ended December 31, 2020 from $4.7 million for the six months ended December 31, 2019, for a decrease of $0.2 million, or 5%. Total general and administrative expense increased $0.6 million as a result of the acquisition of Ample, Trellis and Solo. Bad debt expense decreased $0.6 million during the six months ended December 31, 2020, as compared to the six months ended December 31, 2019, due to our improvement in the overall quality of our revenue and client portfolio, and the enhancement of our sales and marketing team which has resulted in a steady decline in the number and amount of delinquent accounts. We recorded a benefit of $1.0 million to reflect the estimated fair value of contingent consideration paid for our acquisition of Trellis and Ample. During 2020, we vacated certain leased offices in the U.S. following the dislocation of our workforce because of the COVID-19 pandemic. As a result, we recorded a restructuring charge of $0.4 million, which was recorded in general and administrative expenses. Stock compensation expenses increased $0.3 million for the six months ended December 31, 2020, as compared to the six months ended December 31, 2019

Depreciation and amortization expense increased to $2.0 million for the six months ended December 31, 2020 from $0.1 million for the six months ended December 31, 2019. Amortization expense increased entirely as a result of acquired intangible assets from our acquisitions completed in calendar 2020.

As a result of delays in executing on strategic initiatives related to acquisitions completed in calendar 2020 we recorded a $6.9 million impairment adjustment during the six months ended December 31, 2020. There were no similar charges during the six months ended December 31, 2019. A goodwill impairment charge of $4.2 million was recorded related to our Ample reporting unit and an intangible asset charge of $2.7 million was recorded for intangible assets acquired from our Solo transaction (see Note 6 – Goodwill and Intangible Assets, Net to the consolidated financial statements for further discussion on the impairments recorded).

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.

Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. We attempt to compensate for these limitations by providing specific information regarding the GAAP items excluded from these non-GAAP financial measures.

Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures with their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.

We believe that EBITDA and Adjusted EBITDA, when considered with the consolidated financial statements determined in accordance with GAAP, are helpful to investors in understanding our performance and allows for comparison of our performance and credit strength to our peers. EBITDA and Adjusted EBITDA should not be considered alternatives to net loss as determined in accordance with GAAP as indicators of our performance or liquidity.

We define EBITDA as net loss before loss from discontinued operations, net of tax, interest ~~income and~~ expense, net, changes in fair value of convertible notes, changes in fair value of derivative ~~liabilities,~~liability, provision for income taxes, and depreciation and amortization. We calculate Adjusted EBITDA as EBITDA further adjusted to exclude the effects of the following items for the reasons set forth below:

In accordance with the Financial Accounting Standards Board’s (“FASB”) standard on going concern, Accounting Standard Update ~~or ASU~~ No. 2014-15, ~~The Company assesses~~Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), we assess going concern uncertainty in ~~its~~our consolidated financial statements to determine if ~~it has~~we have sufficient cash, cash equivalents and working capital on hand, including marketable equity securities, and any available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued, which is referred to as the “look-forward period” as defined by ASU ~~No.~~ 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable to ~~The Company, it~~us, we will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and ~~its~~our ability to delay or curtail expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, ~~The Company makes~~we make certain assumptions ~~around~~regarding implementing curtailments or delays in the nature and timing of programs and expenditures to the extent ~~The Company deems~~we deem probable ~~those~~that such implementations can be achieved and ~~it has~~we have the proper authority to execute them within the look-forward period in accordance with ASU ~~No.~~ 2014-15.

The accompanying consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. However, since our inception in 2019 we have incurred recurring ~~operating~~ losses from operations, used cash from ~~operations,~~operating activities, and relied on capital raising transactions to continue ongoing operations. ~~During the year ended~~As of December 31, ~~2021, six months ended December 31, 2020, and year ended June 30, 2020,~~2022, we ~~incurred a loss from operations of $33.4 million,~~ ~~$15.7 million, and~~ ~~$17.3 million, respectively, and used cash in operations of~~ ~~$8.2 million, $8.7 million, and $14.3 million, respectively. At December 31, 2021, the Company~~ had a working capitaldeficit of ~~$10.9~~$7.8 million with $~~13.9~~0.9 million in cash available to fund future operations. We anticipate continuing to generate losses from operations and using cash from operating activities for the foreseeable future, although at lower than historical levels as a result of restructuring actions taken during the second quarter of 2022 and the curtailment of activities associated with our discontinued operations and those businesses that we intend to wind-down. Collectively, t~~These~~hese factors raise substantial doubt ~~as defined by GAAP,~~ about the ability of the Company to continue to operate as a going concern for the twelve months following the issuance of ~~these~~our consolidated financial statements. ~~These~~

As described above and in Note 1 to the consolidated financial statements, we have committed to the Sale Transaction to complete our intended exit from the SaaS industry and to the Merger as the most favorable strategic alternative for our stockholders. There can be no assurance that we will be successful in executing and completing the Sale Transaction and the Merger and obtaining sufficient funding, if necessary, on terms acceptable to us to fund continuing operations through the anticipated closing of the aforementioned transactions, if at all. Our ability to continue as a going concern is dependent upon our ability to successfully execute the aforementioned transactions. Despite the comprehensive scope of our collective plans, the inherent risks associated with their successful execution are not sufficient to fully overcome substantial doubt about our ability to continue as a going concern for one year from the date of issuance of our consolidated financial statements. Accordingly, if we are unable to execute our plans within the timeframe described above, we may have to reduce or otherwise curtail our continuing operations which could significantly and adversely affect our results of operations or we may determine to dissolve and liquidate our assets. If we fail to meet the financial covenants of the Senior Convertible Notes and cannot obtain a waiver from such provisions or otherwise come to an agreement with the holders of theSenior Convertible Notes, such holders may declare a default which could subject our assets to seizure and sale, negatively impacting our business. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

On July 23, 2021, we entered into an Equity Distribution Agreement with Oppenheimer & Co. Inc. and A.G.P./Alliance Global Partners ("ATM Program"). Pursuant to the terms of the ATM Program, we may offer and sell from time to time, up to $25 million of shares of our common stock. As of December 31, 2021, we have raised gross proceeds of $1.9 million through the issuance of 556,388 shares through the ATM program. While no assurance can be provided that we will be able to raise further capital under the program, we intend to use the net proceeds from the sale of our shares of common stock, if any, for general corporate purposes, including working capital, marketing, product development, capital expenditures and merger and acquisition activities.

On October 5, 2021, we entered into a securities purchase agreement with the two institutional investors that held the Company's convertible notes issued in June of 2020 (the "2020 Notes") to sell senior secured notes in a private placement (the "Senior Convertible Notes"). The Senior Convertible Notes have an aggregate principal amount of $20 million, an aggregate original issue discount of 10%, and rank senior to all our other outstanding and future indebtedness. Approximately $3.3 million of the proceeds from the Senior Convertible Notes were used to payoff the 2020 Notes, which were then to be cancelled. The net proceeds from the issuance of the Senior Convertible Notes was approximately $14.6 million, following the original issue discount and deductions for expenses and paydown of the 2020 Notes. These net proceeds will be used to support Akerna's ongoing growth initiatives and continued investment in current and future technology infrastructure. The Senior Convertible Notes are convertible into shares of common stock of Akerna at a conversion price of $4.05 per share. ~~The Senior Convertible Notes mature on October 5, 2024 and are to be repaid in monthly installments beginning on January 1, 2022. The Senior Convertible Notes can be repaid in common shares or cash.~~

Management’s plan for the Company to continue as a going concern includes raising additional capital from our ATM program, subject to certain effects on the Senior Convertible Notes should we utilize the program, including resetting the conversion price of the Senior Convertible Notes should we raise more than $5 million under the ATM program, settling our contingent consideration and Senior Convertible Notes in common stock rather than cash as it comes due, and implementing certain cost cutting strategies throughout the organization, while continuing to seek to grow our customer base and realize synergies as we continue to integrate our recent acquisitions. If the Company is unable to raise sufficient additional funds through the ATM Program, it will have to develop and implement a plan to extend payables, reduce expenditures, or scale back our business plan until sufficient additional capital is raised through other equity or debt offerings to support further operations. Such offerings may include the issuance of shares of common stock, warrants to purchase common stock, preferred stock, convertible debt or other instruments that may dilute our current stockholders.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. We will require additional financing in the second quarter of 2022 to meet our ongoing operational working capital requirements and continue to meet the financial covenants of the Senior Convertible Notes. As noted above, we plan to meet those requirements in part through the use of our ATM Facility, but there are no guarantees that the ATM Facility will permit us to raise sufficient cash to meet our ongoing requirements.These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the consolidated financial statements. If we are unable to raise sufficient capital we may have to reduce operations which could significantly affect our results of operations.If we fail to meet the financial covenants of the Senior Convertible Notes and cannot obtain a waiver from such provisions or otherwise come to an agreement with the holders of our debt, such holders may declare a default on the debt which could subject our assets to seizure and sale, negatively impacting our business. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

Our corporate liquidity requirements primarily include payroll costs and corporate general and administrative expenses and our current sources of corporate liquidity include the cash on hand from our Senior Convertible Notes as well as the proceeds we anticipate from the access to our ATM Program.

Our cash and restricted cash balance was $~~14.4~~8.2 million, ~~and $18.3~~including $0.3 million attributable to discontinued operations, as of December 31, ~~2021 and 2020, respectively~~.2022. Cash flow information ~~are~~is as follows:

Our largest source of operating cash is cash collections from our customers for subscriptions to our products. Our primary uses of cash in operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs. Net cash used in operating activities is impacted by our net loss adjusted for certain non-cash items, including depreciation and amortization expenses, ~~change~~impairments of long-lived assets, changes in the fair value of convertible notes, ~~and~~ derivative liabilities and contingent consideration obligations, stock-based compensation, deferred income taxes, gains on the forgiveness and extinguishment of debt instruments, among other non-cash items as well as the effect of changes in operating assets and liabilities.

Net cash used in operating activities ~~totaled $8.2~~increased $2.7 million to $10.9 million during the year ended December 31, ~~2021 and $8.7~~2022 from $8.2 million during ~~the six months ended December 31, 2020. For~~ the year ended December 31, 2021. The increase in the use of cash from operating activities in the 2022 period as compared to the 2021 period was due primarily to the use of cash in the 2022 period associated with businesses that were acquired in 2021 particularly 365 Cannabis which became operational in the fourth quarter of 2021. The increase in the use of cash during the 2022 period was ~~consumed from operations~~partially offset by lower payments during the 2022 period for (i) acquisition-transaction costs, (ii) restructuring costs and (iii) general operating costs in the second half of 2022 as a ~~net loss~~result of ~~$31.3 million, less non-cash items of $24.0 million and a net change~~headcount reductions associated with the Restructuring that was implemented in assets and liabilities of $0.8 million. For the six months ended December 31, 2020, cash was consumed from operations by a net loss of $16.2 million, less non-cash items of $9.7 million and a net change in assets and liabilities of $2.2 million. May 2022.

Our primary investing activities have consisted of capitalization of internal-use software necessary to deliver significant new features and functionality in our ~~platform~~platforms which ~~provides~~provide value to our customers. ~~As our business grows, we expect our capital expenditures to continue to increase.~~ Other investing activities include cash outflows related to purchases of property and equipment, and from time-to-time, the cash paid for asset and business acquisitions.

Net cash used in investing activities ~~totaled~~decreased $6.5 million to $4.0 million during the year ended December 31, 2022 from $10.5 million during the year ended December 31, ~~2021, as a result of~~2021. The decrease is due primarily to the (i) net cash paid as consideration for the 365 Cannabis acquisition and ~~amounts invested in the development of our software products. Net cash used by investing activities during the six months ended December 31, 2020 was $7.1 million~~ ~~as a result of~~(ii) higher amounts invested in the development of our software products in the 2021 period. In addition, the use of cash in the 2022 period was partially offset by a return of cash attributable to working capital from the 365 Cannabis acquisition and proceeds from the ~~net cash paid as consideration for the acquisition~~sale of ~~Ample.~~our investment in ZolTrain.

Our financing activities have consisted primarily of proceeds from issuance of our ~~common stock,~~Common Stock, including those through the 2022 Unit Offering and our ATM program, issuances ofand repayments attributable to our convertible debt and ~~proceeds~~the value of shares withheld from the ~~exercise~~vesting of ~~warrants.~~certain stock-based compensation awards.

~~Net~~During the year ended December 31, 2022, we received net proceeds of $9.2 million from the 2022 Unit Offering and $1.9 million from the issuance of 642,956 shares of Common Stock through the ATM programs which was partially offset by $1.4 million of principal payments on the Senior Convertible Notes. In addition, we paid approximately $1.0 million, net, in cash ~~provided by financing activities totaled~~ ~~$14.7 million~~ ~~during~~for the offering and subsequent redemption associated with the Convertible Redeemable Preferred Stock that was necessary to effectuate the Reverse Stock Split. During the year ended December 31, 2021, ~~and represents~~we received (i) cash proceeds of $18.0 million from the issuance of ~~convertible debt~~Senior Convertible Notes in October 2021 and (ii) cash proceeds ~~from our ATM program~~ in the amount of $1.8 million from the issuance of 27,819 shares of Common Stock through our 2021 ATM program. These cash receipts were partially offset by the value of shares withhold for tax withholdings and payments of principal on ~~our convertible debt~~the 2020 Notes in the amount of $0.5 million and $4.6 million, respectively. Net cash provided by financing activities was $9.5 million for the six months ended December 31, 2020, of which $12 million was related to the common stock offering that closed on October 30, 2020, partially offset by $1.5 million~~in payments on our financing obligations and $1.0 million of offering costs from issuing common stock.~~

On July 23, 2021, we entered into an Equity Distribution Agreement with Oppenheimer & Co. Inc. and A.G.P./Alliance Global Partners (the "ATM Program"). Pursuant to the terms of the Agreement, we may offer and sell from time to time, up to $25 million of shares of our common stock. As of December 31, 2021, we have raised gross proceeds of $1.9 million through the issuance of 556,388 shares through the ATM program.

On October 5, 2021, we entered into a Securities Purchase Agreement ("SPA") with the two institutional investors that held the Company's convertible notes issued on June 8, 2020 (the "2020 Notes") to sell a new series of senior secured notes in a private placement (the "Senior Convertible Notes"). The Senior Convertible Notes have an aggregate principal amount of $20,000,000, an aggregate original issue discount of 10%, and rank senior to all our other outstanding and future indebtedness. Approximately $3.3 million of the proceeds from the Senior Convertible Notes were used to payoff the 2020 Notes, which were then to be cancelled. The net proceeds from the issuance of the Senior Convertible Notes was approximately $14.6 million, following the original issue discount and deductions for expenses and paydown of the 2020 Notes. These net proceeds will be used to support Akerna's ongoing growth initiatives and continued investment in current and future technology infrastructure. The Senior Convertible Notes are convertible into shares of common stock of Akerna at a conversion price of $4.05 per share. The Senior Convertible Notes can be repaid in common shares or cash.

~~The Senior Convertible Notes mature on October 5, 2024, or the Maturity Date.~~ The principal amount is payable in monthly installments beginning on January 1, 2022. Unless deferred by the holder, on installment dates from January 1, 2022 through, and including, June 1, 2023, $1.1 million in principal amount will be payable and on installment date July 1, 2023, $0.2 million in principal amount will be payable. With respect to installment dates from August 1, 2023 through and including the maturity date of October 5, 2024, any deferred payments from prior installment dates will be payable. We may not prepay any portion of the principal amount nor interest, if any.

The Senior Convertible Notes are being sold with an original issue discount and do not bear interest except upon the occurrence of an Event of Default (described below), in which event the applicable rate will be 15.0% per annum.

The Senior Convertible Notes are convertible at any time in whole or in part, at the option of the Note Holders, into shares of the common stock at a rate equal to the amount of principal, interest (if any) and unpaid late charges (if any), divided by a conversion price of $4.05, or the Conversion Price. The Conversion Price is subject to standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction.

In connection with the occurrence of Events of Default, the Note Holders will be entitled to convert all or any portion of the Senior Convertible Notes at an alternate conversion price equal to the lower of (i) the conversion price then in effect, and (ii) 80% of the lower of (x) the volume-weighted average price, or VWAP, of the common stock as of the trading day immediately preceding the applicable date of determination and (y) the quotient of (A) the sum of the VWAP of the common stock for each of the ~~two~~ ~~trading days with the lowest VWAP of the common stock during the~~ ~~ten~~ ~~consecutive trading day period ending on and including the trading day immediately prior to the applicable date of determination, divided by (B)~~ ~~two, but not less than the floor price of $0.54~~.

The Senior Convertible Notes are subject to certain customary events of default, see Item 1A. “Risk Factors – Risks Related to our Convertible Debt” for a short discussion of events of default under the Senior Convertible Notes.

Our consolidated financial statements and the related notes included in this Annual Report on Form 10-K are prepared in accordance with GAAP.The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures.To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected.We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

Critical accounting policies and estimates are those that we consider critical to understanding our historical and future performance, as these policies relate to the more significant areas involving ~~management's~~management’s judgments and estimates.

We generate revenue through the sale of our cloud-based software and the delivery of consulting services. Revenues are recognized when control of these services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those services. We determine revenue recognition through the following steps:

·~~Allocation of the transaction price to the performance obligations in the contract~~

We recognize subscription on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our subscription contracts range from twelve months to thirty-six months in duration, are billed in advance and are non-cancelable. We consider the access to our platform and related support services in a customer contract to be a series of distinct services which comprise a single performance obligation because they are substantially the same and have the same pattern of transfer. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether transfer of control to customers has occurred. We record contract liabilities to deferred revenue when cash payments are received or due. Deferred revenue consists of the unearned portion of customer billings.

Consulting revenue contracts have an initial set of proprietary deliverables that are provided to clients upfront, which is considered a separate performance obligation. As such, ~~30%~~30 percent of the contract value is recognized upfront when deliverables are provided, with the remaining recognized over the life of the contract as the consulting services are ~~performed~~.performed.

We capitalize software development costs incurred to develop functionality for our commercial software platforms and government regulatory software platform, as well as certain upgrades and enhancements that are expected to result in enhanced functionality. These costs include personnel and related expenses for employees, costs of third-party contractors and other services directly associated with the development projects. We capitalize certain software development costs for new offerings as well as upgrades to our existing software platforms. We amortize these development costs over the estimated useful life of two to five years on a straight-line basis. We believe there are two key estimates within the capitalized software balance, which are the determination of the amounts to be capitalized and the determination of the useful life of the software.

We determine the amount of software development costs to be capitalized based on the amount of time spent by our developers on projects in the application stage of development. Costs associated with building or significantly enhancing our commercial software platform and our government regulatory platform are capitalized, while costs associated with planning new developments and maintaining our software platforms are expensed as incurred. There is judgment involved in estimating the time allocated to a particular project in the application stage as well as the determination of whether the project is an enhancement to the existing software or maintenance thereof. A significant change in the time spent on each project or the determination of the nature of projects involving existing software platforms could have a material impact on the amount capitalized and related amortization expense in subsequent periods.

We determined that a two-to-five-year life is appropriate for our capitalized software based on our best estimate of the useful life of the software after considering factors such as continuous developments in the technology, obsolescence and anticipated life of the service offering before significant upgrades. Based on our prior experience, software will generally remain in use for a minimum of two to five years before being significantly replaced or modified to ~~keep up~~maintain pace with evolving client needs. While we do not anticipate any significant changes to this two-to-five-year estimate, a change in this estimate could produce a material impact on our consolidated financial statements. For example, if we received information that indicated the useful life of all software was one year rather than two to five, our capitalized software balance would materially decrease, and our expense would materially increase.

Stock-based compensation for all employee and non-employee stock-based awards, including restricted stock units and restricted stock, is measured at fair value on the date of grant and recognized over the service period. The fair value of restricted stock units and restricted stock are calculated based on the fair value of our ~~common stock~~Common Stock on the date of grant.

Stock-based compensation expense is recognized over the requisite service periods of awards, which is typically one to four years for restricted stock units and restricted stock. The estimated forfeiture rate applied to employee awards is based on historical forfeiture rates. The estimated number of stock-based awards that will ultimately vest requires judgment, and to the extent actual results, or updated estimates, differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period actual results are realized or estimates are revised. A higher forfeiture rate will result in an adjustment that will decrease stock-based compensation expense, whereas a lower forfeiture rate will result in an adjustment that will increase stock-based compensation expense. We do not apply a forfeiture rate assumption to value non-employee awards, given the nature of the services provided.

We account for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.

Significant judgment is used in determining fair values of assets acquired and liabilities assumed, as well as intangible assets and their estimated useful lives. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows attributable to the acquired intangible assets and appropriate discount rates used in computing present values. Management applied significant judgement in estimating the fair value of the acquired developed technology intangible asset, which involved significant estimates and assumptions with respect to forecasted revenue growth rates, the revenue attributable to the acquired intangible asset over its estimated economic life and the discount rate. These judgments may materially impact the estimates used in allocating the purchase price consideration to the fair value of assets acquired and liabilities assumed, as well as our current and future operating results. Actual results may vary from these estimates that may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to the fair value of assets acquired and liabilities assumed made after the end of the measurement period are recorded within our operating results.

ASC 805 requires that contingent consideration be estimated and recorded at fair value as of the acquisition date as part of the total consideration transferred. Contingent consideration is an obligation of the acquirer to transfer additional assets or equity interests to the selling shareholders in the future if certain future events occur or conditions are met, such as the attainment of product development milestones. Contingent consideration also includes additional future payments to selling shareholders based on achievement of components of earnings, such as “earn-out” provisions or percentage of future revenues, including royalties paid to the selling shareholders based on a percentage of revenues generated from CHI and Sera Labs over the contractual period.

The fair value of milestone-based contingent consideration was determined using a scenario analysis valuation method which incorporates our assumptions with respect to the likelihood of achievement of revenue and gross margin percentage milestones, as defined in the Sera Labs Merger Agreement, credit risk, timing of the contingent consideration payments and a risk-adjusted discount rate to estimate the present value of the expected payments, all of which require significant management judgment and assumptions. Since the contingent consideration payments are based on nonfinancial, binary events, management believes the ~~use of the scenario analysis method is appropriate~~.

The fair value of all contingent consideration after the Sera Labs Merger Date is reassessed by us as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in our consolidated statements of operations. Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities and, accordingly, the resulting gain or loss that we record in our consolidated financial statements. See Note 17 to our consolidated financial statements included elsewhere in this Report.

Goodwill is not amortized but rather tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Goodwill impairment is recognized when the carrying value of goodwill exceeds our implied fair value. Goodwill is evaluated for impairment annually on October 31, and whenever events or changes in circumstances indicate the carrying value of goodwill may ~~not~~ be ~~recoverable.~~impaired.

~~Acquisition~~Acquired intangible assets consist primarily of technology, customer relationships and trade names. ~~Purchased~~Acquired intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives following the pattern in which the economic benefits of the assets will be consumed, generally straight-line. We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of amortizable long-lived assets may warrant revision or that the remaining balance may not be recoverable. When factors indicate that ~~acquisition~~acquired intangible assets should be evaluated for possible impairment, we use an estimate of the related undiscounted future cash flows over the remaining life of the amortizable long-lived assets in measuring whether they are recoverable. if the estimated undiscounted future cash flows do not exceed the carrying value of the asset, a loss is recorded as the excess of the asset’s carrying value over its fair value.

Determining if an impairment triggering event has occurred (which may include, but is not limited to, a significant adverse change in customer demand or business climate or a significant decrease in expected cash flows) requires significant management judgement.

We determined atupon the issuance of our Senior Convertible Notes to elect the fair value option. At issuance, the carrying value of the Senior Convertible Notes was recorded at estimated fair value calculated using probability weighted valuations of various settlement scenarios. The valuations of the various settlement outcomes were calculated using Monte Carlo simulation models and discounted cash flow models. We remeasure the Senior Convertible Notes to estimated fair value onat each reporting period using valuation techniques similar to those applied at issuance. The change in the fair value resulting from changes in instrument specific credit risk is recognized as other comprehensive income with the remainder of the change recognized in current earnings. We believe key estimates used in accounting for the Senior Convertible Notes are the fair value at the reporting period end as well as the determination of the portion of the change resulting from instrument specific credit risk, including assumptions regarding the probability of various outcomes and the volatility of ~~Akerna's common stock.~~Akerna’s Common Stock. A significant change in the probability weighting or the volatility could have a material impact to the carrying value of the Senior Convertible Notes as well as the amount of change recognized during the period in earnings.

Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. We provide for income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a ~~two-step~~two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. We recognize interest and penalties related to income tax matters in ~~selling, general~~General and administrative expenses in the consolidated statement of operations.

We recognize deferred tax assets to the extent that its assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, we will make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

In accordance with GAAP, we assess our business units that we may, from time to time, consider for disposal by sale or means (i.e., abandonment). Those business units, which may be in the form of legal entities, divisions, product lines or asset and liability groups, among others, for which cash flows can be reasonably identified, that meet certain criteria are considered discontinued operations. Accordingly, their results of operations are presented in our statements of operations as “discontinued operations” and their associated assets and liabilities are considered “held for sale” or “discontinued,” as appropriate on our consolidated balance sheets.

~~With the implementation of FASB’s standard on going concern, ASU No. 2014-15, we~~We assess going concern uncertainty in our consolidated financial statements to determine if we have sufficient cash and cash equivalents on hand and working capital, including available loans or lines of credit, if any, to operate for a period of at least one year from the date our consolidated financial statements are issued, which is referred to as the “look-forward period” as defined by ASU No. 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable to us, we consider various scenarios, forecasts, projections, and estimates, and we make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and our ability to delay or curtail those expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, we make certain assumptions ~~around~~regarding implementing curtailments or delays in the nature and timing of programs and expenditures to the extent we deem probable those implementations can be achieved and we have the proper authority to execute them within the look-forward period in accordance with ASU No. 2014-15.

Please refer to Note 23 – ~~“Summary~~Summary of Significant Accounting ~~Policies”~~Policies to the consolidated financial statements for our discussion ~~about~~regarding the adoption of new accounting pronouncements ~~adopted~~ and those pending.

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements.

From time to time, we may be a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, breach of contract claims and other asserted and unasserted claims. We investigate these claims as they arise and will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.

Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. We provide for income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. We recognize interest and penalties related to income tax matters in selling, general and administrative expenses in the consolidated statement of operations.

Note 5– Revenue and Contracts with Customers

Disaggregation of Revenue

~~The Company derives~~We derive the majority of ~~its~~our revenue from subscription fees paid for access to and usage of ~~its~~our SaaS solutions for a specified period of time, typically one to three years. In addition to subscription fees, contracts with customers may include implementation fees for launch assistance and training. Fixed subscription and implementation fees are billed in advance of the subscription term and are due in accordance with contract terms, which generally provide for payment within 30 days. ~~The Company's~~Our contracts typically have a one to three year term. ~~The Company's~~Our contractual arrangements include performance, termination and cancellation provisions, but do not provide for refunds. Customers do not have the contractual right to take possession of the ~~Company's~~Company’s software at any time.

~~Sales~~ ~~taxes collected from customers and remitted to government authorities are excluded from revenue.~~

~~F-17~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

The following ~~table~~tables ~~summarizes~~summarize revenue disaggregation by product for the following periods ~~(in thousands)~~:

								Year Ended December 31,
	Year Ended December 31, 2021		Six Months Ended December 31, 2020		Year Ended June 30, 2020 (1)			2022		2021
Government	$	3,258	$	1,939	$	4,906	$	2,945,946	$	3,258,158
Non-government	17,427		5,886			7,667	10,699,084			14,368,939
	$	20,685	$	7,825	$	12,573	$	13,645,030	$	17,627,097

~~(1) As noted above, prior periods have not been adjusted for the adoption of ASC 606 and are presented in accordance with~~ ~~historical accounting guidance in effect for those periods.~~

	Year Ended December 31,
	2022			2021
United States	$	10,458,169	$	13,408,624
Canada	3,186,861			4,218,473
	$	13,645,030	$	17,627,097

Accounts Receivable from Customers

Year Ended December 31, 2021

Six Months Ended December 31, 2020

Year Ended June 30, 2020
United States
$
15,800

$
5,212

$ 12,573
Canada
4,885

2,613

0—

$
20,685

$
7,825

$ 12,573

Our accounts receivable from customers were $674,626 and $873,688 as of December 31, 2022 and 2021 including $219,912, or 33 percent and $24,066, or three percent, respectively, attributable to two government clients.

The allowance for doubtful accounts consists of the following activity:

	Year Ended December 31,
	2022			2021
Allowance for doubtful accounts, balance at beginning of period	$	315,985		$	153,485
Bad debt expense		539,801			550,521
Write-off uncollectable accounts		(502,307	)		(388,021	)
Allowance for doubtful accounts, balance at end of period	$	353,479		$	315,985

Contracts with Multiple Performance Obligations

Customers may elect to purchase a subscription to multiple modules, multiple modules with multiple service levels, or, for certain of ~~the Company's~~our solutions. We evaluate such contracts to determine whether the services to be provided are distinct and accordingly should be accounted for as separate performance obligations. If we determine that a contract has multiple performance obligations, the transaction price, which is the total price of the contract, is allocated to each performance obligation based on a relative standalone selling price method. We estimate standalone selling price based on observable prices in past transactions for which the product offering subject to the performance obligation has been sold separately. As the performance obligations are satisfied, revenue is recognized as discussed above in the product descriptions.

~~F-18~~F-20

AKERNA CORP.

Notes to Consolidated Financial Statements

~~December 31, 2021~~

Transaction Price Allocated to Future Performance Obligations

~~ASC~~ ~~606~~ ~~provides certain practical expedients that limit the required disclosure of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied.~~ As many of the contracts ~~the Company has~~we have entered into with customers are for a twelve-month subscription term, a significant portion of performance obligations that have not yet been satisfied as of December 31, ~~2021~~2022 are part of a contract that has an original expected duration of one year or less. For contracts with an original expected duration of greater than one year, for which the practical expedient does not apply, the aggregate transaction price allocated to the unsatisfied performance obligations was $~~16.6~~3.8 million as of December 31, ~~2021,~~2022, of which $~~11.1~~3.4 million is expected to be recognized as revenue over the next twelve months.

Deferred Revenue

Deferred revenue represents the unearned portion of subscription and implementation fees. Deferred revenue is recorded when cash payments are received in advance of performance. Deferred amounts are generally recognized within one year. Deferred revenue is included in the accompanying consolidated balance sheets under Total current liabilities, net of any long-term portion that is included in ~~Other long-term~~noncurrent liabilities. The following table summarizes deferred revenue activity for the year ended December 31, ~~2021 (in thousands):~~2022:

As of
January 1, 2021

Net additions

Revenue recognized

As of
December 31, 2021
Deferred revenue
$
844

12,657

9,375
$
4,126

As of

January 1, 2022

Net additions

Revenue recognized

As of

December 31, 2022

Deferred revenue

1,117,703

5,446,403

5,833,533

730,573

Of the ~~$20.7~~$13.6 million of revenue recognized during the year ended December 31, ~~2021,~~ 2022, $1.1~~0.7~~ million was included in deferred revenue as of December 31, ~~2020~~2021.

Costs to Obtain Contracts

~~In accordance with ASC~~ ~~606, we~~We capitalize sales commissions that are directly related to obtaining customer contracts and that would not have been incurred if the contract had not been obtained. These costs are included in the accompanying consolidated balance sheets and are classified as a component of Prepaid expenses and other current assets. Deferred contract costs are amortized to ~~sales~~Sales and marketing expense over the expected period of benefit, which we have determined to be one year based on the estimated customer relationship period. The following table summarizes deferred contract cost activity for the year ended December 31, ~~2021 (in thousand):~~2022:

As of
January 1, 2021

Additions

Amortized costs (1)

As of
December 31, 2021
Deferred contract costs
$
228

512

(479
)
$
261

As of

January 1, 2022

Additions

Amortized costs (1)

As of

December 31, 2022

Deferred contract costs

142,930

124,690

231,155

36,465

(1) Includes contract costs amortized to ~~sales~~Sales and marketing expense during the period.

~~F-19~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

~~Note 4 – Acquisitions~~

~~2021 Acquisitions~~

~~Viridian Sciences~~

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 1.0 million shares of our common stock valued at ap~~proximately~~ $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. The contingent consideration will be recorded as the estimated fair value on the acquisition date and adjusted to estimated fair value in each subsequent reporting period until settlement.

Preliminary
Fair Value

Shares issued

$
6,186

Contingent consideration

2
Total preliminary fair value of consideration transferred
$ 6,188

~~The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):~~

Preliminary
Fair Value

Accounts receivable

556

Prepaid expenses and other current assets

148

Capitalized software

423
Acquired technology

470

Customer relationships

820
Acquired trade name

20
Goodwill

5,408
Accounts payable and accrued expenses

(350
)
Deferred tax liabilities

(307 )
Deferred revenue

(1,000
)
Net assets acquired

$
6,188

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. The fair values assigned to identifiable assets acquired and liabilities assumed are based on management’s estimates and assumptions. We expect to finalize the valuation as soon as practicable, but no later than one year from the acquisition date.

~~The amounts of Viridian's revenue and net income included in our consolidated statement of operations from the acquisition date of April 1, 2021, to December 31, 2021 were $2.4 million and $0.3 million, respectively.~~

~~F-20~~

~~AKERNA CORP.~~
~~Notes to Consolidated Financial Statements~~
~~December 31, 2021~~

~~365~~ ~~Cannabis~~

~~On October 1, 2021, we acquired all the issued and outstanding shares of~~ ~~365~~ ~~Cannabis. Under the terms of the Agreement, the aggregate consideration for the 365 Cannabis shares consists of (1) $5,000,000 in cash, (2) $12,000,000 in stock, which was settled by issuing~~ ~~3.6~~ ~~million~~ 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 Agreement, an aggregate of up to $8,000,000 in stock, in the event that NAV achieves certain revenue targets as specified in the Agreement. ~~These rights are accounted for as contingent consideration and are currently recorded at preliminary fair value which will be updated upon finalization of purchase accounting.~~

Preliminary
Fair Value

Shares issued

$
12,000

Cash

5,542
Contingent consideration

6,300
Total preliminary fair value of consideration transferred
$ 23,842

~~The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):~~

Preliminary
Fair Value

Cash

527
Accounts receivable

486

Prepaid expenses and other current asset

261
Fixed Assets

93
Non-compete agreement

80
Acquired technology

1,040

Customer relationships

13,810
Acquired trade name

270
Goodwill

14,043
Accounts payable and accrued expenses

(826
)
Deferred tax liabilities

(2,642 )
Deferred revenue

(3,300
)
Net assets acquired

$
23,842

The amounts of 365 Cannabis' revenue and net loss included in our consolidated statement of operations from the acquisition date of October 1, 2021, to December 31, 2021 were $2.4 million and $0.4 million, respectively.

~~F-21~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

~~2020 Acquisitions~~

~~Trellis Solutions, Inc.~~

~~On April 8, 2020, we acquired Trellis, acannabis cultivation management and compliance software company in an all-stock transaction~~. ~~Our estimated acquisition date fair value of the consideration transferred for Trellis was as follows (in thousands):~~

Common shares issued $ 2,531
Contingent consideration
998
Total estimated fair value of consideration $ 3,529

~~We incurred $0.1 million~~ ~~of transaction costs directly related to the acquisition that is reflected in general and administrative expenses in our consolidated statement of operations during the year ended June 30, 2020.~~

~~We issued 349,650shares of our common stock valued at~~ ~~$7.24per share, the closing price of a share of our common stock on the date of acquisition in exchange for 100% of the outstanding stock of Trellis.~~ We have also agreed to pay additional consideration calculated as annualized revenue derived from previously identified customers for the month of September 2020 multiplied by five. The contingent consideration is payable in shares based on the 20-day volume-weighted average price, or VWAP. At June 30, 2020, we estimated the fair value of the contingent consideration to be $0 and recorded a gain of $1.0 million on the change in the fair value of contingent consideration included in general and administrative expenses in the consolidated statement of operations during the year ended June 30, 2020.

~~The following table summarizes our estimated fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):~~

Cash $ 21
Accounts receivable, net 91
Other assets

6
Acquired technology 210

Acquired trade name

80
Customer relationships

220
Goodwill

3,216
Accounts payable and accrued expenses (284 )
Deferred revenue

(31 )
Net assets acquired $ 3,529

The excess of purchase consideration over the fair value of net tangible and intangible assets acquired 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. During the six months ended December 31, 2020, we recorded net adjustments to assets and liabilities acquired of $14.3 thousand. ~~The amounts of Trellis’s revenue and net loss included in our consolidated statement of operations from the acquisition date of April 10, 2020 to June 30, 2020 were $216.0~~ ~~thousand~~ ~~and $17.0~~ ~~thousand,~~ ~~respectively.~~

~~solo sciences, inc.~~

~~On January 15, 2020, we closed on a stock purchase agreement with substantially all of the shareholders of Solo pursuant to which we acquired all right, title, and interest in~~ ~~80.4~~% ~~of the issued and outstanding capital stock of Solo, calculated on a fully diluted basis.~~ As ~~a result of our initial investment, Solo became a controlled subsidiary and we commenced consolidation of Solo on January 15, 2020.The estimated acquisition date fair value of the consideration transferred for Solo was~~$~~17.9~~ ~~million~~. ~~During the year ended June~~ ~~30, 2020, we completed the preliminary valuation of the contingent consideration and recorded a measurement perio~~d~~adjustment to reflect this liability on our balance sheet. The estimated fair value of consideration recorded consisted of the following (in thousands):~~F-21

~~F-22~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

Common shares issued $ 17,550
Contingent consideration
389
Total estimated fair value of consideration $ 17,939

We incurred $0.3 million of transaction costs directly related to the acquisition, which is reflected in general and administrative expenses in our consolidated statement of operations during the year ended June 30, 2020.

~~We exchanged 1,950,000 shares of our common stock, valued at $9.00 per share, the closing price of a share of our common stock on the date of acquisition.~~ ~~In addition to the stock consideration, we agreed to pay contingent consideration in the form of fees payable to the legacy Solo shareholders equal to the lesser of~~ (i) $0.01 per solo*TAG™ and solo*CODE™ sold or (ii) 7% of net revenue. The fees were to be paid annually until the earlier of: (1) our shares trading above $12 per share for any consecutive 20 trading days in a 30-day period; (b) upon our no longer owning a majority stake in Solo; or (c) upon expiration of the patents related to solo*TAG™ and solo*CODE™, which is December 1, 2029. This fee represents contingent consideration and was recorded at fair value as of the date of acquisition. Contingent consideration is adjusted to fair value each period with changes in fair value being recognized in earnings at each reporting period.

~~We also acquired an option to acquire the~~ ~~noncontrolling interests in Solo during the 12 months following the close for either cash or shares. Beginning with the expiration of our option, the noncontrolling~~ interests in Solo have a 3-month option to acquire between 40% and 55% of Solo back from us for cash. On July 31, 2020, we entered into an amendment to the stock purchase agreement to exercise our option to acquire the noncontrolling interests in Solo, for 800,000 shares of our common stock, this transaction will be recorded as an equity transaction, with no effect to the value of the assets acquired or liabilities assumed. In connection with the amendment, the selling shareholders agreed to cancel the contingent consideration in the future and waived a right to any amount that would have been earned prior to the amendment. We recorded a gain on settlement of the contingent consideration liability during the six months ended December 31, 2020 in general and administrative expenses in our consolidated statement of operations.

During the year ended June 30, 2020, we obtained additional information regarding the valuation of the assets acquired and liabilities assumed. We have recorded a measurement period adjustment to allocate the acquisition price to intangible assets, goodwill, accrued liabilities, and the fair value of noncontrolling interests. ~~The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):~~

Cash $ 101
Prepaid expenses and other assets
22
Furniture, fixtures, and equipment 2
Acquired technology 7,160
Acquired trade name

340
Goodwill 17,025
Accounts payable and accrued liabilities

(1,158 )
Fair value of noncontrolling interests (5,553 )
Net assets acquired $ 17,939

The excess of purchase consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill, which is primarily attributed to expanded market opportunities, for which there is no basis for U.S. income tax purposes. ~~The amounts of Solo’s revenue and net loss included in our consolidated statement of operations from the acquisition date of January 15, 2020 to June 30, 2020 were $23.0thousand~~ ~~and $1.5~~ ~~million, respectively.~~

During the six months ended December 31, 2020, the Company recorded an impairment of $2.7 million related to Solo’s developed technology. See Note 6 – Goodwill and Intangible Assets, Net for further discussion of the intangible asset impairment.

~~F-23~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

~~Ample Organics~~

~~On July 7, 2020, we completed the acquisition of Ample Organics (“Ample”), Ample provides a seed-to-sale platform to clients in Canada,~~ ~~which offers tracking, reporting, and compliance tools to cannabis cultivators, processors, sellers, and clinics. We~~ acquired 100% of the stock of Ample Organics for 3.3 million exchangeable shares of one of our wholly-owned subsidiaries. The exchangeable shares may be exchanged, at the option of the holder, for shares of Akerna common stock on a one-for-one basis, therefore the exchangeable shares issued were valued at $7.65 per share, the closing price of an equivalent share of Akerna common stock, $30.7 million was the aggregate value of the exchangeable shares. In addition to the stock consideration, we paid $5.5 million in cash, which was used to settle all of Ample's then outstanding debt. In addition to the stock and cash consideration, the agreement provides for contingent consideration of up to CAD$10,000,000, payable in exchangeable shares, payable if Ample's Recurring Revenue recognized during the 12 months after the acquisition date is CAD$9,000,000 or more. The contingent consideration amount is reduced by an amount equal to the product of CAD$6.67 multiplied by the difference between CAD$9,000,000 and the amount of Recurring Revenue realized during the 12 months following the acquisition. ~~The contingent consideration will be recorded as the estimated fair value on the acquisition date and adjusted to estimated fair value in each subsequent reporting period until settlement.~~

Preliminary
Fair Value

Exchangeable shares issued
$
25,203

Cash

5,724

Contingent consideration

604

Total estimated fair value of consideration transferred
$
31,531

~~We incurred $2.9~~ million of total transaction costs directly related to the acquisition of Ample that is reflected in general and administrative expenses in our consolidated statements of operations, of which $1.1 million and $1.8 million was recognized during the six months ended December 31, 2020 ~~and the year ended June 30, 2020, respectively~~.

~~The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):~~

Preliminary
Fair Value

Cash
$
445

Accounts receivable

917

Prepaid expenses and other current assets

595

Acquired technology

850

Customer relationships

2,660

Acquired trade name

285

Goodwill

25,806

Furniture, fixtures and equipment

1,327

Accounts payable and accrued expenses

(805
)
Deferred revenue

(549
)
Net assets acquired
$
31,531

The excess of purchase consideration over the preliminary 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.

F-24

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

During the six months ended December 31, 2020, the Company recorded an impairment to goodwill for $4.2 million related to Ample. See Note 6 – Goodwill and Intangible Assets, Net for further discussion of the goodwill impairment.

The amounts of Ample’s revenue and net income included in our consolidated statement of operations from the acquisition date of July 7, 2020, to December 31, 2020 were $2.6 million and $0.1 million, respectively.

~~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, 2020 (in thousands):~~

Year Ended
December 31,

2021

Revenue
$ 28,847

Net loss
$ (31,423 )

~~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, 2020, and the Trellis, Solo and Ample acquisitions, as if they had been completed as of July 1, 2019 (in thousands):~~

Six Months Ended December 31,

Year Ended
June 30,

2020

2020

Revenue
$ 14,026

$ 27,523
Net loss
$ (17,650 )
$ (20,250 )

The pro forma financial information for all periods presented above has been calculated after adjusting the results of Solo, Trellis, Ample, 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. 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.

~~Special Voting Preferred Stock and Exchangeable Shares~~

In connection with the Ample acquisition, we entered into agreements with our wholly-owned subsidiary and the Ample shareholder representative that resulted in the issuance of a single share of our special voting preferred stock, for the purpose of ensuring that each Exchangeable Share is substantially the economic and voting equivalent of a share of Akerna common stock, and, following the registration of the Akerna shares issuable upon exchange of the Exchangeable Shares under the Securities Act of ~~1933, ensuring that each Exchangeable Share is exchangeable on a~~ ~~one-for-one~~ basis for a share of Akerna common stock, subject to certain limitations. As a result of these agreements and the issuance of the special voting preferred stock, each holder of Exchangeable Shares effectively has the ability to cast votes along with holders of Akerna common stock. Additionally, these agreements grant exchange rights to the holders of exchangeable shares upon the event of our liquidation, dissolution or winding up.

~~The special voting preferred stock has a par value of $0.0001 per share and a preference in liquidation of $1.00~~. The special voting preferred stock entitles the holder to an aggregate number of votes equal to the number of the exchangeable shares issued and outstanding from time to time and which we do not own. The holder of the special voting preferred stock and the holders of shares of Akerna common stock will both together as a single class on all matters submitted to a vote of our shareholders. At such time as the special voting preferred stock has not votes attached to it, the share shall be automatically cancelled. The exchangeable shares do not have a par value.

~~On September 1, 2020, several Ample shareholders exchanged a total of~~ ~~627,225~~ ~~exchangeable shares with a value of $4,798,271~~ for the same number of shares of Akerna common stock.The exchange was accounted for as an equity transaction and we did not recognize a gain or loss on this transaction. As of December 31, 2021, there were a total of ~~309,286~~ ~~Exchangeable Shares issued and outstanding.~~

~~F-25~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

~~Note 5 - Balance Sheet Disclosures~~

~~Prepaid expenses and other current assets consisted of the following:~~

As of December 31,

2021

2020

Software and technology
$ 687,740

$ 480,651
Professional services, dues and subscriptions

546,126

826,195
Insurance

264,097

243,222
Deferred contract costs

260,899

227,718
Unbilled receivable

506,984

612,446
Other

117,918

68,495
Total prepaid expenses and other current assets
$ 2,383,764

$ 2,458,727

~~Accounts payable, accrued expenses and other current liabilities consisted of the following:~~

As of December 31,

2021

2020

Accounts payable

$ 1,943,457

$ 513,610
Professional fees
319,590

233,667

Sales taxes

360,361

216,367

Compensation

1,123,467

311,379

Contractors

1,288,730

538,618

Settlements and legal

681,045

831,232
Other

346,870

543,703

Total accounts payable, accrued expenses and other current liabilities

$
6,063,520

$
3,188,576

~~F-26~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

~~Note 6 - Goodwill and Intangible Assets, Net~~

~~Goodwill~~

~~The following table reflects the changes in the carrying amount of goodwill:~~

Balance as of June 30, 2020
$ 20,254,309
Adjustments to Trellis' goodwill

(14,300 )
Additions due to acquisition of Ample

25,806,518
Goodwill impairment

(4,172,000 )
Balance as of December 31, 2020
$ 41,874,527
Additions due to acquisition of Viridian

5,408,884
Additions due to acquisition of 365 Cannabis

14,042,580
Goodwill impairment

(14,383,310 )
Balance as of December 31, 2021
$ 46,942,681

~~Impairment~~

~~Based on our qualitative assessment of goodwill, we determined it was necessary to perform~~ ~~a quantitative valuation of goodwill as of December 31, 2021. We determined there were~~ ~~two~~ ~~reporting units: the enterprise reporting unit which is comprised of the enterprise software offerings and the non-enterprise~~ ~~reporting unit which is comprised of the non-enterprise software offerings~~. The valuation of our goodwill was determined with the assistance of an independent valuation firm using the income approach (discounted cash flows method) and the market approach (guideline public company method). Our significant assumptions in these analyses include, but are not limited to, future cash flow projections, the weighted average cost of capital, the discount rate, the implied control premium, the terminal growth rate, and the tax rate. The Company’s estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company’s estimates. If the Company’s ongoing estimates of future cash flows are not met, the Company may have to record additional impairment charges in future periods. The Company also uses the Guideline Public Company Method, a form of the market approach (utilizing Level 3 unobservable inputs), which is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. As such, we believe the current assumptions and estimates utilized are both reasonable and appropriate. During the six months ended December 31, 2020~~, primarily as a result of delays in executing on strategic initiatives related to acquisitions completed in 2020, we recorded a $4.2~~ ~~million impairment to goodwill.~~

~~Enterprise Reporting Unit~~

~~For the year ended December 31, 2021, no~~ ~~impairment to goodwill was recorded for our enterprise reporting unit as the fair value exceeded the carrying value as of December 31, 2021.~~ ~~To perform our analysis, we applied a~~ 50~~% weighting to the market approach and~~ 50~~% weighted to the income approach.~~

~~Non-Enterprise Reporting Unit~~

~~For the year ended December 31, 2021, primarily~~ due to a continued decline in market valuation and a flattening in the operating results of our non-enterprise reporting unit compared to acquisition assumption, we recorded an impairment expense of $14.4 million related to our non-enterprise reporting unit. To perform our analysis, we ~~applied a 25% weighting to the income approach and a 75% weighting to the market approach.~~

~~Finite-lived Intangible Assets, Net~~

We performed a two step impairment test for the asset groups that had indicators of impairment in the current year under ASC 360 and as a result of this analysis we did not identify any impairment. For the six months ended December 31, 2020, we determined that the carrying value of Solo’s developed technology and trade name exceeded it’s fair value, resulting in an impairment of $2.7 million.

~~F-27~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

~~Intangible assets as of December 31, 2021 consist of the following:~~

Weighted average remaining amortization period (in years)

Gross carrying amount

Accumulated
amortization

Impairment

Net carrying
amount

Acquired developed technology
3.35
$ 7,138,080

$ (2,815,158)
$ 0—
$ 4,322,922
Acquired trade names
3.09

871,920

(286,799)

0—

585,121
Customer relationships
10.18

17,510,000

(878,250)

0—

16,631,750
Non-compete agreement 1.75 80,000 (10,000) 0— 70,000
Total Intangible assets

$ 25,600,000

$ (3,990,207)
$ 0—
$ 21,609,793

Capitalized software - In-service
2.02

8,807,843

(4,423,887)

0—

4,383,956
Capitalized software - Work in Progress
N/A

3,224,203

0—

(296,483)

2,927,720
Total Capitalized Software

12,032,046

(4,423,887)

(296,483)

7,311,676
Total finite-lived intangible assets

$ 37,632,046

$ (8,414,094)
$ (296,483)
$ 28,921,469

~~Intangible assets as of December 31, 2020 consist of the following:~~

Weighted average
remaining amortization
period (in years)

Gross carrying amount

Accumulated
amortization

Impairment

Net carrying
amount

Acquired developed technology

3.77

$
8,220,000

$
(1,434,155
)

$ (2,591,920 )
$
4,193,925

Acquired trade names

5.12

705,000

(97,676
)

(123,080 )

484,244

Customer relationships

13.04

2,880,000

(169,374
)

0—

2,710,626

Total Intangible assets

$
11,805,000

$
(1,701,205
)

$ (2,715,000 )
$
7,388,795

Capitalized software - In-service

1.62

4,593,512

(1,401,953
)

0—

3,191,559

Capitalized software - Work in Progress

N/A

734,180

0—

0—

734,180

Total Capitalized Software

5,327,692

(1,401,953
)

0—

3,925,739

Total finite-lived intangible assets

$
17,132,692

$
(3,103,158
)

$ (2,715,000 )
$
11,314,534

We record amortization expense associated with acquired developed technology, acquired trade names, and customer relationships. The amortization expense of all finite-lived intangible assets, which includes capitalized software was $5.6 million, $1.8 million, and $1.3 million ~~for the year ended December 31, 2021, six months ended~~ ~~December 31, 2020, and year ended June 30, 2020, respectively. The amortization expense for the year ended December 31, 2021 includes $0.3~~ ~~million of capitalized software write offs.~~

~~As of December 31, 2021, expected amortization expense relating to in-service capitalized software and purchased intangible assets for each of the next five years and thereafter is as~~ ~~follows:~~

~~F-28~~

AKERNA CORP.

Notes to Consolidated Financial Statements

~~December 31, 2021~~

Acquired Intangible Assets

Capitalized Software- In-service
2022 $ 3,445,741
$ 2,722,663
2023
3,131,575

1,144,351
2024
2,801,991

275,884
2025
1,973,934

110,215
2026
1,851,434

59,112
Thereafter
8,405,118

71,731
Total $ 21,609,793
$ 4,383,956

Note 76 – Fixed assets, net

Fixed assets consisted of the following:

		As of December 31,			As of December 31,
		2021			2020			As of December 31,
								2022			2021
Furniture and computer equipment	$	235,042		$	131,300		$	185,308		$	155,741
Leasehold improvements		14,064			1,175,556
		249,106			1,306,856
Less: accumulated depreciation		(95,955	)		(113,423	)		(136,429	)		(89,713	)
Fixed assets, net	$	153,151		$	1,193,433		$	48,879		$	66,028

Depreciation expense related to our fixed assets for the ~~year~~years ended December 31, ~~2021, six months ended~~ 2022 and~~December 31, 2020, and year ended June 30, 2020 was $127,731, $240,742, and $27,951, respectively. During the~~ ~~year ended December 31,~~ 2021, ~~we terminated our office~~ was $~~lease in Toronto, Canada~~46,716 and ~~wrote off $1.2 million of fixed assets.~~ ~~During the six months ended December 31, 2020, we sold furniture and computer equipment for $25,561~~ ~~with a cost of $191,389~~ ~~and accumulated depreciation of $106,555~~ ~~resulting in a $59,273~~ ~~loss in the consolidated statements of operations for the six months ended December 31, 2020 related to these disposals.~~ $121,416, respectively.

Note ~~9 -~~10– Long Term Debt

Long-term debt consisted of the ~~following at December 31, 2021:~~following:

Convertible notes (at fair value)	$	17,305,000
			As of December 31,
			2022			2021
Senior Convertible Notes (at fair value)			$	14,607,000		$	17,305,000
Less: current maturities		13,200,000		(13,200,000	)		(13,200,000	)
Total long-term debt, less current portion	$	4,105,000	$	1,407,000		$	4,105,000

Senior ~~Secured~~ Convertible Notes ~~- 2020~~

On ~~June 8, 2020,~~October 5, 2021, we entered into a ~~Securities Purchase Agreement, or SPA, with~~securities purchase agreement (the “SPA”) resulting in the issuance of the Senior Convertible Notes to two institutional investors ~~(the "2020 Note Holders"), to sell a new series of senior secured convertible notes (the "2020 Notes"), of Akerna~~ in a private placement ~~to the 2020 Note Holders, in the~~transaction. The Senior Convertible Notes were issued for an aggregate principal amount of ~~$17.0~~ $20.0million for $ ~~having~~18.0 million reflecting an ~~aggregate~~ original issue discount of ~~12%,~~10 percent or $2.0 million. The net proceeds from the issuance of the Senior Convertible Notes were used to payoff and ~~ranking~~retire convertible notes that were issued in 2020 (the “2020 Notes”) and fund our growth initiatives through acquisitions and continued investment in our technology infrastructure. The Senior Convertible Notes rank senior to all ~~outstanding~~our other and future ~~indebtedness~~indebtedness. The Senior Convertible Notes mature on October 4, 2024 and can be repaid in shares of ~~Akerna.~~ Common Stock or cash. The ~~2020~~Senior Convertible Notes ~~were sold~~are convertible into shares of Common Stock of Akerna at a conversion price of $4.75 per share effective October 4, 2022 which represents an adjustment, as required by the SPA, from $6.21 per share as a result of the offering of convertible preferred stock on ~~June 9, 2020,~~that date (see Note 13). The Senior Convertible Notes are to be repaid in monthly installments beginning on January 1, 2022 and later deferred to January 1, 2023 in connection with an ~~original issue discount pursuant to which the Note Holders paid $880~~ ~~per each $1,000~~amendment in ~~principal amount of the 2020 Notes. The 2020 Notes do not bear interest except upon the occurrence of an event of default, in which event the applicable rate will be 15.00% per annum.~~June 2022 (see below).

~~Pursuant to~~In connection with the SPA and the ~~2020~~Senior Convertible Notes, we and certain of ~~its~~our subsidiaries ~~will enter~~entered into aan amended Security and Pledge Agreement (the “Security Agreement”) with the lead investor, in its capacity as collateral agent (in such capacity, the “Collateral Agent”) for all holders of the Senior Convertible Notes. The Security Agreement creates a first priority security interest in all of the personal property of the Company and certain of its subsidiaries of every kind and description, tangible or intangible, whether currently owned and existing or created or acquired in the future (the “Collateral”).

~~F-30~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

Under the Security Agreement we agree to certain conditions on its maintenance and use of the Collateral, including but not limited to the location of equipment and inventory, the condition of equipment, the payment of taxes and prevention of liens or encumbrances, the maintenance of insurance, the protection of intellectual property rights, and limitations on transfers and sales.

Upon the occurrence of an ~~“Event~~Event of ~~Default”~~Default under the Security Agreement, the Collateral Agent will have certain rights under the Security Agreement including taking control of the Collateral and, in certain circumstances, selling the Collateral to cover obligations owed to the holders of the ~~2020~~Senior Convertible Notes pursuant to its terms. ~~“Event~~An Event of ~~Default”~~Default under the Security Agreement means (i) any defined event of default under any one or more of the transaction documents (including the ~~2020~~Senior Convertible Notes), in each instance, after giving effect to any notice, grace, or other cure periods provided for in the applicable document, (ii) the failure by us to pay any amounts ~~when~~ due under the ~~2020~~Senior Convertible Notes or any other transaction document, or (iii) the breach of any representation, warranty or covenant by the Company under the Security Agreement.

The 2020 Notes mature on June 1, 2023, are payable in installments beginning on October 1, 2020, and may not be prepaid. The 2020 Notes are convertible at any time, at the election of the Holders and subject to certain limitations, into shares of common stock at a rate equal to the amount of principal, interest, if any, and unpaid late charges, if any, divided by a conversion price of $~~11.50~~.

In connection with the occurrence of an event of default, the Holders of the 2020 Notes will be entitled to convert all or any portion of the 2020 Notes at an alternate conversion price equal to the lower of (i) the conversion price then in effect, or (ii) 80% of the lower of (x) the volume-weighted average price, or VWAP, of the common stock as of the trading day immediately preceding the applicable date of determination, or (y) the quotient of (A) the sum of the VWAP of the common stock for each of the ~~two~~ ~~trading days with the lowest VWAP of the common stock during the~~ ~~ten~~ (10~~) consecutive trading day period ending and including the trading day immediately prior to the applicable date of determination, divided by (B)~~ ~~two, but not less than $1.92~~.

We elected to use the fair value option to account for the 2020 Notes. The fair value of the 2020 Notes on issuance was recorded as $15.0 million. During the year ended June 30, 2020, the fair value of the 2020 Notes decreased by $0.8 million. Of the adjustment, a decrease of $0.1 million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in equity and a decrease of $0.7 million was recognized as current period other expense in our consolidated statement of operations.

During the six months ended December 31, 2020, we made $1.8 million in principal payments on the 2020 Notes, of which $1.5 million was settled in cash and the remaining $0.3 million was settled in common stock. During the six months ended December 31, 2020, the fair value of the 2020 Notes increased by $1.0 million. Of the adjustment, an increase of $0.1 million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in equity and an increase of $0.9 million was recognized as current period other expense in our consolidated statement of operations. As of December 31, 2020, the fair value of the 2020 Notes on our consolidated balance sheet was $13.4 million.

~~During the year ended December 31, 2021, up until the date the 2020 Notes were paid in full and replaced by the 2021 Senior Convertible Notes,~~ ~~we made $15.2~~ ~~million in principal payments on our convertible notes, of which $5.1~~ ~~million was settled in cash and the remaining $10.1~~ ~~million was settled in common stock. During the year ended December 31, 2021, the fair value of the Convertible Notes increased by $2.0~~ ~~million. Of the adjustment, an increase of $0.02~~ ~~million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in equity and an increase of $2.0~~ million was recognized as current period other expense in our consolidated statement of operations. On October 5, 2021, we recognized a gain of $0.2 million in connection with the payoff of the 2020 Notes.

~~Amendment~~

On December 23, 2020, we entered into waivers with the Holders of the 2020 Notes, pursuant to which we and the Holders, separately and not jointly, agreed to waive certain terms and conditions of the 2020 Notes as follows:

~~F-31~~F-25

AKERNA CORP.

Notes to Consolidated Financial Statements

~~December 31, 2021~~

The Holders irrevocably waived the last sentence of Section 8(a) of the Notes requiring that all installment amounts payable under the 2020 Notes prior to April 1, 2021 be paid in cash pursuant to installment redemptions. We may now elect, in its sole discretion, to pay installment amounts under the 2020 Notes prior to April 1, 2021, by issuing shares of common stock pursuant to installment conversions or by paying cash pursuant to installment redemptions, in each case in accordance with the existing terms of the Convertible Notes.

We irrevocably waived the prohibition on acceleration of installment amounts in Section 8(e) of the 2020 Notes solely in relation to the Installment Amount for January 4, 2020, to permit the Holders to accelerate the January 4, 2021 installment amount, in whole or in part, to one or more acceleration dates from December 24, 2020 through to and including January 4, 2021, as elected by each Holder.

We and the Holders agreed that we may irrevocably waive the installment scheduled principal amount for any installment date by setting forth in the installment notice for that installment date an installment amount greater than the installment scheduled principal amount due and payable on the next installment date. Each Holder may then consent to all or a portion of such increased installment amount for such installment date on the trading day immediately prior to such installment date. Any increased amount for an installment amount above the installment scheduled principal amount for such installment date will reduce the principal amount under the 2020 Notes.

~~In relation to the January 4, 2021 installment amount, the Company delivered installment notices to the Holders increasing the installment amount for January 4, 2021, in the aggregate, by $2,062,500~~.

~~Senior Secured Convertible Notes - 2021~~

On October 5, 2021, we entered into a securities purchase agreement with the two institutional investors that held the Company's 2020 Notes to sell senior secured notes in a private placement (the "Senior Convertible Notes"). The Senior Convertible Notes have an aggregate principal amount of $20.0 million, an aggregate original issue discount of 10%, and rank senior to all our other outstanding and future indebtedness. Approximately $3.3 million of the proceeds from the Senior Convertible Notes were used to payoff the 2020 Notes, which were then to be cancelled. The net proceeds from the issuance of the Senior Convertible Notes was approximately $14.6 million, following the original issue discount and deductions for expenses and paydown of the 2020 Notes. These net proceeds will be used to support Akerna's ongoing growth initiatives and continued investment in current and future technology infrastructur~~e. The Senior Convertible Notes are convertible into shares of common stock of Akerna at a conversion price of $4.05~~ per share. The Senior Convertible Notes mature on October 5, 2024 and are to be repaid in monthly installments beginning on January 1, 2022. The Senior Convertible Notes can be repaid in common shares or cash.

In connection with the occurrence of an event of default, the ~~Holders~~holders of the Senior Convertible Notes will be entitled to convert all or any portion of the Senior Convertible Notes at an alternate conversion price equal to the lower of

(i) the conversion price then in effect, or (ii) 80% of the lower of (x) the volume-weighted average price, or VWAP, of the ~~common stock~~Common Stock as of the trading day immediately preceding the applicable date of determination, or (y) the quotient of (A) the sum of the VWAP of the ~~common stock~~Common Stock for each of the two trading days with the lowest VWAP of the ~~common stock~~Common Stock during the ten (10) consecutive trading day period ending and including the trading day immediately prior to the applicable date of determination, divided by (B) two, but not less than $~~0.54.~~10.80.

On June 30, 2022, we and the holders of the Senior Convertible Notes entered into an amendment and waiver agreement (the “Convertible Notes Amendment”) that included provision such that (i) no amortization payments would be due and payable for any payments previously required to be made from July 1, 2022 through January 1, 2023, (ii) the holders of the Senior Convertible Notes will not accelerate any previously deferred installment amounts until January 1, 2023 and (iii) the terms of the SPA which would provide for reset of the conversion price of the Senior Convertible Notes as a result of the issuance of securities under the 2022 Unit Offering (see Note 13) and instead agreed to a reset of the conversion price equal to a per share price of 135 percent of the 2021 Unit Offering price, or $6.21 per share, which was subsequently reduced to $4.75 per share on October 4, 2022 as described above. Further, the Convertible Notes Amendment added covenants such that (a) we are subject to a daily cash test of having an available cash balance of at least $7.0 million, which amount shall be reduced by $1.0 million on each of the dates at which the aggregate principal due upon the Senior Convertible Notes is equal to or less than $14.0 million and $11.0 million, subject in all cases to a minimum of $5.0 million, and (b) we established and maintain the Restricted Accounts for each holder for an aggregate amount of $7.0 million with such amounts to be released from the Restricted Accounts only upon written consent of such holder, provided that $1.0 million will automatically release from the Restricted Accounts upon the occurrence of each of the dates at which the aggregate principal due upon the Senior Convertible Notes is equal to or less than $14.0 million and $11.0 million, subject to certain conditions. The Convertible Notes Amendment qualified as a troubled debt restructuring (“TDR”); however, there was no impact on the consolidated balance sheet or in the statement of operations as a result of the TDR as the Senior Convertible Notes are recorded at their fair value.

2020 Notes

We issued the 2020 Notes with a principal amount of $17.0 million at a purchase price of $15.0 million on June 9, 2020. The 2020 Notes were paid in full on October 5, 2021 with a portion of the proceeds from the Senior Convertible Notes.

Method of Accounting and Activity During the Periods

Upon the dates that they were issued, we made irrevocable elections to apply the fair value option to account for each of the Senior Convertible Notes and the 2020 Notes. Disclosures, including assumptions used to determine the fair values of these debt instruments, are provided in Note 15.

~~F-32~~F-26

AKERNA CORP.

Notes to Consolidated Financial Statements

~~December 31, 2021~~

~~We have elected to use the fair value option to account for the~~ ~~Senior Convertible Notes. The fair value of the~~ ~~Senior Convertible Notes~~ ~~on issuance was recorded as $18.0 million.~~

During the year ended December 31, ~~2021,~~2022, we made $5.3 million in principal settlements on the Senior Convertible Notes, of which $1.4 million was settled in cash and the remaining $3.9 million was settled in Common Stock. We made no principal settlements on the Senior Convertible Notes during 2021. During the year ended December 31, 2022, the fair value of the Senior Convertible Notes ~~decreased~~ increased by ~~$0.7~~$2.9 million. Of the adjustment, a decrease of ~~$0.03~~$0.2 million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in stockholders’equity (deficit) and an increase of $2.9 million was recognized in our consolidated statement of operations as a change in fair value of convertible notes. During the year ended December 31, 2021, the fair value of the Senior Convertible Notes decreased by $0.7 million. Of the adjustment, a decrease of less than $0.1 million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in stockholders’equity (deficit) and a decrease of $0.7 million was recognized ~~as current period other expense~~ in our consolidated statement of ~~operations.~~ operations as a change in fair value of convertible notes. As of December 31, ~~2020,~~2022 and 2021, the fair ~~value~~values of the Senior Convertible Notes on our consolidated balance sheet ~~was~~were $14.6 million and $17.3 ~~million.~~ million, respectively. During the year ended December 31, 2021, up until the date the 2020 Notes were paid in full, we made no$15.2 million of principal ~~payments~~settlements on the 2020, of which $5.1 million was settled in cash and the remaining $10.1 million was settled in Common Stock. During the year ended December 31, 2021, the fair value of the 2020 Notes increased by $2.0 million. Of the adjustment, a decrease of less than $0.1 million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in stockholders’equity (deficit) and an increase of $2.0 million was recognized in our consolidated statement of operations as a change in fair value of convertible notes.~~Senior Convertible Notes~~. In October 2021, we recognized a gain on the extinguishment of debt in the amount of $0.2 million in connection with the payoff of the 2020 Notes.

Paycheck Protection Program Loan

On March 27, 2020, former President Trump signed the Coronavirus Aid, Relief and Economic Security (the “CARES Act”), which, among other things, outlined the provisions of the Paycheck Protection Program (the “PPP”). On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act, was signed into law increasing funding provided by the CARES Act and on June 5, 2020, the Paycheck Protection Program Flexibility Act extended the program until December 31, 2020. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all, or a portion of loan granted under the program. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities.

On April 21, 2020, ~~the Company~~we issued a promissory note ~~to KeyBank National Association (“KeyBank”)~~ in the principal aggregate amount of ~~$2,204,600~~$2.2 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the CARES Act. The PPP Loan had a two-year term bearing interest at a rate of 1% per annum with principal and interest payments ~~of $92,818~~ to be paid monthly ~~on the 12th of the month~~ beginning 7seven months from the date of the PPP Loan. ~~The PPP Loan provides for prepayment of 20% or less of the unpaid principal balance at any time. If more than 20% is prepaid, then all accrued interest must also be paid.~~

In August 2021, the Company submitted its application for ~~100% loan~~ forgiveness and on September 3, 2021, the loan was ~~100%~~ forgiven in full by the Small Business Administration. As a result, the Company recorded a gain on the forgiveness of the PPP loan in the amount of ~~$2,234,730.~~$2.2 million.

Maturities of Debt

Maturities of our debt as of December 31, ~~2021~~2022 are presented below.

Year ending December 31:

2022
$ 13,200,000
2023
6,800,000
Aggregate maturities
20,000,000
Original issue discount on Convertible Notes

(2,000,000 )
Unrealized change in fair value of Convertible Notes

(695,000 )
Total debt outstanding as of December 31, 2021
$ 17,305,000
Current portion

13,200,000
Noncurrent portion

4,105,000

Year ending December 31:
2023	$	13,200,000
2024		1,462,727
Aggregate maturities due		14,662,727
Original issue discount		(2,000,000	)
Cumulative unrealized change in fair value		1,944,273
Total debt outstanding at fair value	$	14,607,000

~~F-33~~F-27

AKERNA CORP.

Notes to Consolidated Financial Statements

~~December 31, 2021~~

~~Note 10 - Stockholders’ Equity~~

~~Common and Preferred Stock~~

~~We have~~1~~single class of common stock and75,000,000authorized shares of common stock, par value $0.0001per share.~~

We also have 5,000,000 authorized shares of preferred stock, $0.0001 par value per share, of which NaN are issued and outstanding. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders of the Company. Subject to the prior rights of all classes or series of stock at the time outstanding having prior rights as to dividends or other distributions, all stockholders are entitled to share equally in dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available. Subject to the prior rights of creditors of the Corporation and the holders of all classes or series of stock at the time outstanding having prior rights as to distributions upon liquidation, dissolution, or winding up of the Corporation, in the event of liquidation, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of all liabilities. The stockholders do not have cumulative, preemptive rights, or subscription rights.

~~On October 30, 2020, we issued~~ ~~5,000,000~~ ~~shares, at a price of $2.40~~ ~~per share, of Akerna common stock in a public offering for gross proceeds of $12.0~~ ~~million, offset by offering costs of approximately $1.0~~ ~~million for net proceeds $11.0~~ ~~million dollars.~~

~~Warrants~~

~~In connection with MTech~~ ~~Acquisition Corp.'s ("MTech~~") ~~initial public offering,~~ MTech sold 5,750,000 units at a purchase price of $10.00 per unit, inclusive of 750,000 units sold to the underwriters on February 8, 2018, upon the DD’ election to fully exercise their over-allotment option. Each unit consisted of one share of MTech’s common stock and one warrant of MTech (“MTech Public Warrant”). Each Mtech Public Warrant entitled the holder to purchase one share of MTech’s common stock at an exercise price of $11.50. Upon the Mergers, the Public Warrants were converted to those of Akerna at the exchange ratio of one-for-one.

~~A summary of our common stock warrants is presented in the following table:~~

Shares Issuable
Under Warrants

Weighted-average
Exercise Price

Weighted Average
Remaining Life

Aggregate Intrinsic Value

Outstanding at June 30, 2020

5,813,804

$
11.50

3.97

$
0—

Issued

0—

0—

  0—

  0—

Exercised

0—

  0—

  0—

  0—

Expired/canceled

0—

0—


0—

  0—

Outstanding at December 31, 2020

5,813,804

$
11.50

3.37

$
0—

Issued

0—

0—

0—

0—
Exercised

0—

0—

0—

0—
Expired/canceled

0—

0—

0—

0—
Outstanding at December 31, 2021

5,813,804

$ 11.50

2.97

$ 0—

~~There was 0 aggregate intrinsic value for the warrants outstanding as of December 31, 2021 and December 31, 2020.~~

~~F-34~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

~~Note 11 - Stock-Based Compensation~~

~~Restricted Shares and Restricted Stock Units~~

~~On June 17, 2019, our stockholders considered and approved the2019Long Term Incentive Plan, or the Equity Incentive~~ ~~Plan,~~ ~~and reserved1,040,038shares of common stock for issuance thereunder. The Equity Incentive Plan was previously approved, subject to stockholder approval, by the board of directors ofAkernaon January 23, 2019.The Equity Incentive Plan became effective immediately upon the Closing of the Mergers. On June 26, 2020, the stockholders approved an amendment to the Equity~~ ~~Incentive~~ ~~Plan and increased the shares authorized for issuance thereunder by 525,000 to 1,565,038.~~

~~We grant restricted stock units, or RSUs, that are subject to time-based vesting and require continuous employment, typically over a period of~~ ~~four years~~ ~~from the grant date or the first day of the service period.~~

Prior to the Mergers, MJF had Profit Interest Incentive Plan in place whereby it could grant Profits Interest Units, or PIUs, to employees or consultants and other independent advisors of the Company. PIUs granted under the Profits Interest Plan would generally vest once a year over four years commencing on the date granted or based on specified performance targets. MJF had the right, but not the obligation, to repurchase vested PIUs from holders upon their termination of employment. Unvested PIUs were to be forfeited upon termination of employment. If the holder was terminated for cause, as defined, all vested and unvested units would be forfeited. PIUs repurchased or canceled or forfeited by the award recipient were available for reissuance. Upon completion of the Mergers, the non-vested PIUs were exchanged for and became subject to restricted stock agreements, or Restricted Shares, with varying vesting terms that reflect the vesting conditions applicable to the individual PIUs at the time of the merger.

We determined the PIUs represented a profit-sharing compensation arrangement that had value only upon a defined liquidating event. Accordingly, no value was accrued for the PIUs prior to the Mergers on June 17, 2019, which met the definition of a liquidating event. As a result, we recorded a one-time charge of approximately $~~3.4~~ ~~million, which represented the charge associated with issuing fully vested shares of common stock in exchange for the PIUs~~.

~~A summary of our unvested Restricted Shares and~~ ~~RSUs~~ ~~activity is presented in the table below:~~

Restricted Shares

Restricted Stock Units

Total

Weighted Average Grant Date Fair Value

Unvested as of June 30, 2020

72,313

534,302

606,615

$
6.56

Granted

0—

429,974

429,974

4.88

Vested

(8,024
)

(157,350
)

(165,374
)

5.08

Forfeited

0—

(43,906
)

(43,906
)

6.83

Unvested as of December 31, 2020

64,289

763,020

827,309

$
6.77

Granted

0—

447,642

447,642

04.05
Vested

(30,559 )
(427,711 )
(458,270 )
05.55
Forfeited

(1,336 )
(99,184 )
(100,520 )
04.51
Unvested as of December 31, 2021

32,394

683,767

716,161

05.47

~~For the year ended December 31, 2021, six months ended December 31, 2020, and year ended June 30, 2020 we recognized~~ ~~stock-based compensation expens~~e related to the ratable amortization of the unvested Restricted Shares and RSUs of $2.0 million, $2.0 million, and $1.3 million, respectively. Stock-based compensation expense is included in operating expenses and cost of sales on our consolidated statements of operations consistent with the allocation of other compensation arrangements. During the year ended December 31, 2021, six months ended ~~December 31, 2020,~~ ~~and year ended June 30, 2020, we capitalized~~ $~~0.04~~ ~~million, $0.2 million and $0.1 million, respectively,~~ ~~in stock-based compensation costs as software development cost.~~ ~~The $3.7~~ ~~million of unrecognized costs as of December 31, 2021 related to Restricted Shares and RSUs will be ratably recognized over an estimated weighted average remaining vesting period of~~ ~~2.41~~ ~~years.~~

~~F-35~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

~~Note 12 - Loss~~ ~~Per Share~~

D~~uring the year ended~~ ~~December 31, 2021, we used the~~ ~~two~~-class method to compute net loss per share because we issued securities other than common stock that is economically equivalent to a common share in that the class of stock has the right to participate in dividends should a dividend be declared payable to holders of Akerna common stock. These participating securities were the Exchangeable Shares issued by our wholly owned subsidiary in exchange for interest in Ample. The ~~two~~-class method requires earnings for the period to be allocated between common stock and participating securities based on their respective rights to receive distributed and undistributed earnings. Under the ~~two~~-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of current period earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the period's earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the Exchangeable Shares have no obligation to fund losses.

Diluted net loss per common share is calculated under the two-class method by giving effect to all potentially dilutive common stock, including warrants, restricted stock awards, restricted stock units, and shares of common stock issuable upon conversion of our Convertible Notes. We analyzed the potential dilutive effect of any outstanding convertible securities under the "if-converted" method, in which it is assumed that the outstanding Exchangeable Shares and Convertible Notes are converted to shares of common stock at the beginning of the period or date of issuance, if later. We report the more dilutive of the approaches (two-class or "if-converted) as the diluted net loss per share during the period. The dilutive effect of unvested restricted stock awards and restricted stock units is reflected in diluted loss per share by application of the treasury stock method and is excluded when the effect would be anti-dilutive.

The weighted-average number of shares outstanding used in the computation of diluted earnings per share does not include the effect of potential outstanding common shares that would have been anti-dilutive for the period. The table below details potentially outstanding shares on a fully diluted basis that were not included in the calculation of diluted earnings per share:

December 31, 2021

December 31, 2020

Shares issuable upon exchange of Exchangeable Shares

309,286

2,667,349
Warrants

5,813,804

5,813,804
Restricted Stock Units

683,767

694,512
Restricted Stock Awards

32,394

64,289
Shares of common stock issuable in upon conversion of Convertible Notes

12,484,395

1,319,368
Total

19,323,646

10,559,322

Note 13 ~~- Fair Value~~

~~Contingent Consideration~~

~~Solo~~

I~~n connection with our acquisition of Solo, the Solo selling shareholders have the potential to earn the contingent consideration, which is calculated as~~ ~~the lesser of~~ (i) $0.01 per solo*TAGTM and solo*CODETM sold or (ii) 7% of net revenue. The fees were to be paid annually until the earlier of: (1) our shares trading above $12 per share for any consecutive 20 trading days in a 30-day period; (b) upon our no longer owning a majority stake in Solo; or (c) upon expiration of the patents related to solo*TAGTM and solo*CODETM, which is December 1, 2029.

~~F-36~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

~~We record the fair value of the liability in the consolidated balance sheets under the caption “current contingent consideration” and recognize changes to the liability against earnings or loss~~ ~~each reporting period until settlement.~~ ~~The fair value of the contingent consideration on the date of the acquisition of Solo~~ ~~was $389,000~~. In connection with our exercise of the option to acquire the remaining interest in Solo, the selling shareholders agreed to retrospectively and prospectively relieve the contingent consideration obligation. Therefore, the settled value of the contingent consideration was $0. We have recorded a gain of $389,000 on settlement of the contingent consideration liability during the six months ended December 31, 2020 in general and administrative expenses in our consolidated statement of operations.

~~Trellis~~

In connection with our acquisition of Trellis, the Trellis selling shareholders have the potential to earn contingent consideration, which is calculated as five times the annualized revenue of certain customers generated in September 2020. The fair value of the contingent consideration on the date of acquisition of Trellis wa~~s $998,000. The carrying amount at the fair value of the liability for the contingent consideration recorded on our consolidated balance sheet as of June 30, 2020 was $~~0~~. As such, we~~ recorded a gain of $998,000 due the change in the fair value of the contingent consideration during the year ended June 30, 2020 in general and administrative expenses in our consolidated statement of operations.

~~Ample~~

~~In addition to the stock and cash consideration, the agreement provides for contingent consideration of up to CAD$10,000,000, payable in exchangeable shares, payable if Ample's Recurring Revenue recognized during the~~ 12 ~~months after the acquisition date is CAD$9,000,000~~ ~~or more.~~ The contingent consideration amount is reduced by an amount equal to the product of CAD$6.67 multiplied by the difference between CAD$9,000,000and the amount of Recurring Revenue realized during the twelve months following the acquisition.

We record the fair value of the liability in the consolidated balance sheets as contingent consideration payable and recognize changes to the liability against earnings or loss in general and administrative expenses in the consolidated statements of operations. The fair value of the contingent consideration on the date of the acquisition of Ample was $604,000. The carrying amount at fair value of the aggregate liability for the contingent consideration recorded on the consolidated balance sheet as of December 31, 2020, ~~is $~~0~~. We have recorded a gain of $604,000~~ ~~due the change in the fair value of the contingent consideration during the six months ended December 31, 2020 in general and administrative expenses in our consolidated statement of operations~~.

~~Viridian~~

In connection with our acquisition of Viridian, the Viridian selling shareholders have the potential to earn contingent consideration payable in common stock if Viridian meets certain revenue criteria. The fair value of the contingent consideration on the date of acquisition of Viridian was $2,000. T~~he carrying amount at the fair value of the liability for the contingent consideration recorded on our consolidated balance sheet as of December 31, 2021 was unchanged at $2,000~~.

~~F-37~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

~~365 Cannabis~~

~~In connection with our acquisition of 365 Cannabis, the 365 Cannabis selling shareholders have the potential to earn contingent consideration~~ ~~payable in common stock if certain revenue criteria is met.~~ ~~The fair value of the contingent consideration on the date of acquisition of 365 Cannabis was $6,300,000.~~ T~~he carrying amount at the fair value of the liability for the contingent consideration recorded on our consolidated balance sheet as of December 31, 2021 was unchanged at $6,300,000~~.

~~We valued the contingent consideration using a probability-weighted discounted cash flow model, which incorporates inputs that are not observable in the market and thus represents a Level~~ 3 measurement as defined in GAAP. The unobservable inputs utilized for measuring the fair value of the contingent consideration reflect management's own assumptions about the assumptions that market participants would use in valuing the contingent consideration as of the valuation date, as well as our knowledge of specific transactions that effect the calculation.

~~Fair Value Option Election~~ 11 – ~~Convertible Notes~~

We issued Convertible Notes with a principal amount of $17.0 million at a purchase price of $15.0 million on June 9, 2020. We elected to account for the Convertible Notes using the fair value option. Under the fair value option, the financial liability is initially measured at its issue-date estimated fair value and subsequently~~remeasuredat estimated fair value on a recurring basis at each reporting period date.~~ The remaining estimated fair value adjustment is presented as a single line item within other income (expense) in our consolidated statement of operations under the caption, change in fair value of convertible notes.

~~For the 2020 Notes, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from~~ ~~June 30, 2020~~ ~~to October 5, 2021:~~

Beginning fair value balance on June 30, 2020

$
14,131,000

Payments on Convertible Notes

(1,827,273 )
Change in fair value reported in the statements of operations

961,273
Change in fair value reported in other comprehensive income

133,000
Ending fair value balance - December 31, 2020

$
13,398,000

Payments on Convertible Notes

(15,172,727 )
Change in fair value reported in the statements of operations

2,030,904
Change in fair value reported in other comprehensive income

(70,000 )
Gain on extinguishment of debt reported on the statement of operations

(186,177 )
Ending fair value balance - October 5, 2021
$ 0—

~~We issued the Senior Secured Notes with a principal amount of $20.0 million at a purchase price of $18.0 million on October 5, 2021. We have elected to account for the Senior Secured Notes~~ using the fair value option. Under the fair value option, the financial liability is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. The change in estimated fair value resulting from changes in instrument specific credit risk is recorded in other comprehensive income as a component of equity. The remaining estimated fair value adjustment is presented as a single line item within other income (expense) in our consolidated statement of operations under the caption, change in fair value of convertible notes.

~~For the Senior Secured Notes, which are measured at fair value categorized within Level~~ 3 ~~of the fair value hierarchy, the following is a reconciliation of the fair values from October 5, 2021~~ to ~~December 31, 2021~~:

Beginning fair value balance on October 5, 2021

$
18,000,000

Payments on Convertible Notes

0—
Change in fair value reported in the statements of operations

(665,000 )
Change in fair value reported in other comprehensive income

(30,000 )
Ending fair value balance - December 31, 2021
$ 17,305,000

~~F-38~~

~~AKERNA CORP.~~
~~Notes to Consolidated Financial Statements~~
~~December 31, 2021~~

The estimated fair value of the Convertible Notes as of December 31, 2021, and December 31, 2020 was computed using a Monte Carlo simulation, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined by GAAP. The unobservable inputs utilized for measuring the fair value of the Convertible Notes reflects our assumptions about the assumptions that market participants would use in valuing the Convertible Notes as of the issuance date and subsequent reporting period.

~~We determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:~~

Fair Value Assumptions - Convertible Notes

December 31, 2021

December 31, 2020

Face value principal payable

$ 20,000,000


$
15,172,272

Original conversion price

$ 4.05

$
11.5

Value of Common Stock

$ 1.75

$
3.24

Expected term (years)

2.8

2.3

Volatility

75
%

77
%
Market yield (range)

37.1
%

27.1 to 27.2
%
Risk free rate

1.0
%

0.1
%
Issue date

October 5, 2021

June 9, 2020
Maturity date

October 5, 2024

June 1, 2023
~~Fair Value Measurement – Warrants~~
In connection with MTech Acquisition Corp.'s ("MTech") initial public offering, MTech sold 5,750,000 units at a purchase price of $10.00 per unit, inclusive of 750,000 units sold to the underwriters on February 8, 2018, upon the underwriters’ election to fully exercise their over-allotment option. Each unit consisted of 1 share of MTech’s common stock and 1 warrant of MTech (“~~MTech Public Warrant~~”). Each MTech Public Warrant entitled the holder to purchase 1 share of MTech’s common stock at an exercise price of $11.50. Concurrently with MTech’s initial public offering, MTech sold 243,750 units at a purchase price of $10.00 per unit on a private offering basis. Each unit consisted of 1 share of MTech’s common stock and 1 warrant of MTech (“MTech Private Warrant”). Each MTech Private Warrant entitled the holder to purchase 1 share of MTech’s common stock at an exercise price of $11.50.
Upon completion of the mergers between MTech and MJF on June 17, 2019, as contemplated by the Merger Agreement dated October 10, 2018, as amended ("Mergers"), the MTech Public Warrants and the MTech Private Warrants were converted, respectively, at an exchange ratio of one-for-one to a warrant to purchase 1 share of Akerna’s common stock with identical terms and conditions as the MTech Public Warrants (“Public Warrant”) and the MTech Private Warrants (“Private Warrant”, collectively with the Public Warrants, “Warrants”) In connection with the completion of the Mergers, we also issued 189,365 common stock purchase warrants upon the cashless exercise of a unit purchase option, which warrants have identical terms to the Public Warrants and are included in references to Public Warrants and Warrants herein.
For the Private Warrants classified as derivative liabilities, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values for the year ended December 31, 2021 and December 31, 2020:

Year Ended December 31,

2021

2020
Fair value balance at beginning of period
$
311,376

$ 688,187
Change in fair value reported in the statements of operations

(248,198
)

(376,811 )
Fair value balance at end of period
$
63,178

$ 311,376

We utilized a binomial lattice model, which incorporates significant inputs, specifically the expected volatility, that are not observable in the market, and thus represents a Level 3 measurement as defined in GAAP. The unobservable inputs utilized for measuring the fair value of the Private Warrants reflect our estimates regarding the assumptions that market participants would use in valuing the Warrants as of the end of the reporting periods.
~~F-39~~

~~AKERNA CORP.~~
~~Notes to Consolidated Financial Statements~~
~~December 31, 2021~~

~~We record the fair value of the~~ ~~Private~~ ~~Warrants in the consolidated balance sheets under the caption “derivative liability” and recognize changes to the liability against earnings or loss each reporting period. Upon exercise of the~~ ~~Private~~ ~~Warrants, holders will receive a delivery of~~ ~~Akerna~~ ~~shares on a net or gross share basis per the terms of the~~ ~~Private~~ ~~Warrants and any exercise will reclassify the~~ ~~Private~~ ~~Warrants, at the time of exercise, to shareholder’s equity to reflect the equity transaction.  There are no periodic settlements prior to the holder exercising the~~ ~~Private~~ ~~Warrants. There were no transfers in or out of Level~~ 3 ~~from other levels for the fair value hierarchy.~~
~~We estimated the fair value by using the following key inputs:~~

Fair Value Assumptions - Private Warrants

December 31, 2021

December 31, 2020

Number of Private Warrants


225,635



225,635

Original conversion price

$
11.50

$
11.50

Value of Common Stock

$
1.75

$
3.24

Expected term (years)

2.46

3.46

Volatility

85.8
%

102.3
%
Risk free rate

0.8
%

0.2
%

~~Note 14 - Commitments and Contingencies~~ Income Taxes

~~Operating Leases~~

As of December 31, 2021, we had one facility under a non-cancelable operating leases in Las Vegas. Rent expense for the year ended December 31, 2021, six months ended December 31, 2020 and the year ended June 30, 2020 was $~~157,593, $552,861, and $299,629 respectively.~~

~~Future minimum lease payments under these leases are as follows:~~

2022
$
252,525
2023

260,100
2024

110,480
Total
$
623,105

During the third quarter of 2021, we reached an agreement to terminate our office lease in Toronto, Canada for a termination fee of approximately $980,000, which is included within the General and Administrative expense line item on the condensed consolidated statement of operations and was paid in full during the year ended December 31, 2021. In connection with the lease termination, we also wrote off certain assets, primarily leasehold improvements, and the resulting loss of $1,045,209 was also recorded in the General and Administrative expense line item on the condensed consolidated statement of operations.

During the four quarter of 2020, we reached an agreement to terminate our office lease in Denver, CO. The lease termination agreement included the forfeiture of our $41,250 security deposit and a termination fee of $402,480. The lease termination fee was settled in the first quarter of 2021 by issuing 113,375 shares of common stock, calculated using a VWAP of $3.55/share.

~~Letter-of-Credit~~

~~As of December 31, 2021 and December 31, 2020, we had a standby letter-of-credit with a bank in the amount of $500,000. The standby letter of credit is collateralized by $500,000~~ ~~of cash, which is classified as restricted cash on our consolidated balance sheets. The beneficiary of the letter-of-credit is an insurance company.~~

~~F-40~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

~~Litigation~~

On December 4, 2020, TechMagic USA LLC filed suit against our wholly-owned subsidiary, Solo, in Massachusetts Superior Court, Department Business Litigation, seeking recovery of up to approximately $1.07 million for unpaid invoices pursuant to a Master Services Agreement dated February 5, 2018 by and between TechMagic and Solo. The invoices set forth services that TechMagic USA LLC purports to have provided to Solo regarding development of mobile software applications for MJF and Solo between March and November 2020 totaling approximately $787,000. The suit seeks continued fees under the Master Services Agreement through the end of January 2021. Akerna provided a notice of termination of the Master Services Agreement on November 23, 2020 and the parties dispute the effective date of the termination. Solo disputes the validity of the invoices, in whole or in part, and intends to defend the suit vigorously. Mr. Ashesh Shah, formerly the president of Solo and currently the holder of less than 5% of our issued and outstanding shares of common stock is, to our knowledge, the founder and one of the principal managers of TechMagic USA LLC. As of December 31, 2021 and December 31, 2020, we recognized a loss contingency of $0.5 million and $0.6 million, respectively.

On April 2, 2021, TreCom Systems Group, Inc. (“TreCom”) filed suit against Akerna and our wholly-owned subsidiary, MJ Freeway, LLC, in federal District Court for the Eastern District of Pennsylvania, seeking recovery of up to approximately $2 million for services allegedly provided pursuant to a Subcontractor Agreement between MJ Freeway and TreCom. MJ Freeway provided a notice of termination of the operative Subcontractor Agreement on August 4, 2020. MJ Freeway disputes the validity of TreCom’s invoices and the enforceability of the alleged agreement that TreCom submitted to the court. Akerna filed counterclaims against TreCom for breach of contract, a declaratory judgment, commercial disparagement, and defamation. TreCom failed to return Akerna’s intellectual property and issued numerous disparaging statements to ~~one~~ ~~of Akerna’s clients. TreCom subsequently filed a motion to dismiss these counterclaims, which was denied by the court~~.~~Akerna intends to vigorously defend against TreCom’s claims, and pursue its own claims~~. ~~As of December 31, 2021 and December 31, 2020, we recognized a loss contingency of $0.2 million and $0, respectively.~~

On May 21, 2021, our wholly-owned subsidiary, Solo, filed suit against two of Solo’s former directors, Ashesh Shah and Palle Pedersen. Solo seeks recovery for Mr. Shah’s intentional interference with contractual relations, and the defendants’ breaches of various fiduciary duties owed to Solo. Defendant Shah engaged in improper communications with Solo’s customers with the intent that those customers cease their contractual relations with Solo. The defendants also entered into an improper contract with a contractual counter party that the defendants had a conflict of interest with. The defendants have not asserted any counterclaims, and we therefore have not recognized a loss contingency.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred. As of December 31, 2021, and through the date these consolidated financial statements were issued, there were no other legal proceedings requiring recognition or disclosure in the consolidated financial statements.

~~Employee Benefit Plan~~

~~We have a 401(k) Plan (the “Plan”) to provide retirement benefits for our employees.~~ ~~Employees may contribute up to a portion of their annual compensation to the Plan, limited to a maximum annual amount as updated annually by the IRS.~~ ~~We do not offer a match of employee contributions nor any discretionary contributions.~~

~~F-41~~

~~AKERNA CORP.~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2021~~

~~Note 15- Income Taxes~~

Since June 17, 2019, we have been the sole owner of MJF, which is a disregarded entity for federal income taxes. Prior to June 17, 2019 MJF was treated as a partnership for U.S income tax purposes. Accordingly, prior to the business combination, our taxable income and losses were reported on the income tax returns of MJF’s members. Therefore, no income tax is provided prior to June 17, 2019.

On March 27, 2020 the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, was enacted in response to the COVID-19 pandemic. It was determined the CARES Act did not materially impact our tax provision as of December 31, 2021 and December 31, 2020.

The accounting for the business combinations of Viridian and 365 Cannabis reflected in the accompanying consolidated financial statements is preliminary and is based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date). The measurement period remains open pending the completion of valuation procedures related to the acquired assets and assumed liabilities, intangible assets and income taxes.

~~In April 2020, we were granted a loan, or the PPP Loan, from a lender in the aggregate amount of $2.2~~ million pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, which we obtained debt forgiveness on during the year ended December 31, 2021.

The following table sets forth the expense or ~~benefit~~(benefit) for income taxes:

Year Ended December 31,

Six Months Ended December 31,

Year Ended June 30,

2021

2020

2020

Income tax

Current income taxes

U.S. federal

$ 0—

$
0—

$ 30,985
U.S. state

5,800

200

0—
Foreign

6,270

0—

Total current income taxes

$ 12,070

$
200

$ 30,985

	Year Ended December 31,
	2022			2021
Current income tax expense (benefit)
U.S. federal	$	(50,000	)	$	—
U.S. state		2,827			4,300
Foreign		6,308			6,270
Total current income taxes		(40,865	)		10,570

Year Ended December 31,

Six Months Ended December 31,

Year Ended June 30,

2021

2020

2020
Deferred income tax

U.S. federal

$ (2,274,295 )
$ 0—

$ 0—
U.S. state

0—

0—

0—
Total deferred income tax benefit

$ (2,274,295 )
$ 0—

$ 0—

Deferred income tax benefit
U.S. federal	$	(675,290	)	$	(2,274,295	)
U.S. state		—			—
Total deferred income benefit		(675,290	)		(2,274,295	)
Total income tax benefit	$	(716,155	)	$	(2,263,725	)

~~The following~~Thefollowing table ~~sets~~sets forth reconciliations of the income tax expense at the statutory federal income tax rate to actual expense based on ~~income or~~our loss before income taxes:

	Year Ended December 31,
	2022			2021
Income tax expense (benefit) attributable to:
Federal	$	(16,749,778	)	$	(6,692,267	)
State, net of federal benefit		(853,392	)		(672,148	)
Foreign tax rate differential		(11,543	)		(138,292	)
Permanent differences		472,270			(230,034	)
Goodwill impairment		9,172,756			2,658,665
Rate changes		(992	)		54,295
Changes in valuation allowance		7,501,917			3,361,603
Provision to return adjustment		62,788			273,489
Deferred true-ups		(247,839	)		(928,743	)
Other adjustments		(62,342	)		49,707
Effective income tax expense (benefit)	$	(716,155	)	$	(2,263,725	)

Year Ended December 31,
Six Months Ended December 31,

June 30,

2021

2020

2020
Income tax expense (benefit) attributable to:

Federal

$ (6,692,267 )
$
(3,560,998
)
$ (3,255,706 )
State, net of federal benefit

(672,148 )

(553,871
)

(862,690 )
Foreign tax rate differential

(138,292 )

29,617

(2,645 )
Permanent differences

2,428,631

1,263,151

312,525
Rate change

54,295

60,220

0—
Changes in valuation allowance

3,361,603

2,762,081

3,884,440
Provision to return adjustment

273,489

0—

(45,134 )
Losses from flow-through entity not subject to tax

0—

0—

0—
Deferred True-Ups

(928,743 )

0—

0—
Other adjustments

51,207

0—

195
Effective income tax expense (benefit)
$ (2,262,225 )
$ 200

$ 30,985

~~F-42~~F-28

AKERNA CORP.

Notes to Consolidated Financial Statements

~~December 31, 2021~~

December 31,

December 31,

2021

2020

Noncurrent deferred tax assets:

Employee compensation

$ 820,410

$
679,106

Debt issuance costs

138,778

343,612
Revenue recognition

105,735

0—
Settlement accrual

146,604

182,896
Fixed assets

242,006

831,196
Federal and state net operating loss

10,673,908

6,337,897

Foreign net operating loss

4,904,857

2,586,671
Other

225,340

27,410

Total deferred tax assets

$ 17,257,638

$
10,988,788

Noncurrent deferred tax liabilities:

Fixed assets

0—

0—
Intangibles

(6,051,459 )

(2,717,717 )
Deferred tax liabilities
$ (6,051,459 )
$ (2,717,717 )
Valuation allowance

(11,881,470 )

(8,271,071
)
Deferred taxes after valuation allowance

$ (675,291 )

$
0—

The following table sets forth our deferred income tax assets and liabilities:
	As of December 31,
	2022			2021
Noncurrent deferred tax assets:
Employee compensation	$	136,154		$	820,410
Debt issuance costs		39,381			138,778
Revenue recognition		64,662			105,735
Settlement accrual		178,549			146,604
Fixed assets		774,936			242,006
Section 174 capitalization		1,121,311			—
Federal and state net operating loss		13,860,338			10,673,908
Foreign net operating loss		4,641,293			4,904,857
Other		280,430			225,340
Total deferred tax assets	$	21,097,054		$	17,257,638

Noncurrent deferred tax liabilities:
Intangible assets		(1,713,666	)		(6,051,459	)
Total deferred tax liabilities	$	(1,713,666	)	$	(6,051,459	)
Valuation allowance		(19,383,388	)		(11,881,470	)
Deferred tax asset (liability), net after valuation allowance	$	—		$	(675,291	)

During the year ended December 31, ~~2021,~~2022, valuation allowances on deferred tax assets that are not anticipated to be realized increased by $~~3.6~~7.5 million, substantially all of which was recorded to deferred expense while an insignificant portion was recorded in final purchase accounting. During the year ended December 31, 2021, valuation allowances on deferred tax assets that were not anticipated to be realized increased by $3.6 million of which $0.2 million was recorded in purchase accounting and the remainder of $3.4 million was recorded to deferred expense. During the six months ended December 31, 2020, valuation allowances on deferred tax assets that are not anticipated to be realized increased by $5.5 million of which $2.7 million was recorded in purchase accounting and the remainder of $2.8 million was recorded to deferred expense.

Our deferred tax valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax losses. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that the deferred tax assets will not be realized. We have evaluated the realizability of our deferred tax assets in each jurisdiction by assessing the adequacy of expected taxable income, including the reversal of existing temporary differences, historical and projected operating results, and the availability of prudent and feasible tax planning strategies. Based on this analysis, we have determined that the valuation allowances recorded as of December 31, ~~2021~~2022 and December 31, ~~2020~~2021 are appropriate.

We have deferred tax assets related to U.S. federal tax and state tax carryforwards for net operating losses (“NOL”) in the amount of ~~$44.5~~$58.9 million. The majority of U.S. federal ~~net operating loss~~NOL carryforwards are carried forward indefinitely. Federal ~~net operating losses~~NOLs generated after 2017 have an indefinite carryforward and are only available to offset ~~80%~~80 percent of taxable income beginning in 2021. U.S. state ~~net operating loss~~NOL carryforwards expire at various dates of which the majority begin to expire in 2039. We have deferred tax assets related to foreign ~~net operating loss carryforward,~~NOL carryforwards, which begin to expire in 2034, in the amount of ~~$18.5~~$17.5 million.

We are not currently under examination for any of the major jurisdictions where we conduct business as of December 31, ~~2021,~~2022; however, all of our tax years remain subject to examination. Our management does not believe there are significant uncertain tax positions in ~~2021~~2022 and as a result we do not expect any cash payments in the next 12 ~~months,~~months; however, uncertain tax positions related to potential penalties in the ~~amounts of $30,000 and $50,000 have been~~amount of $30,000 was recorded in connection with business combinations during the ~~years~~year ended December 31, 2020. A reserve for potential penalties for $0.1 million that was established in 2021 ~~and June 30, 2020, respectively.~~was reversed in 2022 as a result of the Internal Revenue Service’s dismissal of the matters. There iswas no interest related to uncertain tax positions in 2022 or 2021.

We paid less than $0.1 million for income taxes, net of refunds received, in certain state and national jurisdictions during each of the years ended December 31, 2022 and 2021, respectively.

The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022. The IRA introduced new provisions including a 15% corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period and a 1% excise tax surcharge on stock repurchases. The IRA is applicable for tax years beginning after December 31, 2022 and had no benefit to our consolidated financial statements for any of the periods presented, and we do not expect it to have a direct material impact on our future results of operations, financial condition, or ~~2020.~~cash flows.

~~F-43~~F-29

AKERNA CORP.

Notes to Consolidated Financial Statements

Note 12 –Commitments and Contingencies

Operating Leases

During 2022, we began negotiations to terminate the 365 Cannabis office lease in Las Vegas, Nevada. We recorded an obligation and lease termination expense of $0.5 million which represents management’s best estimate of the costs to exit the lease. The lease termination expense is included within the General and administrative expense line item as presented in the consolidated statement of operations. In connection with the sale of 365 Cannabis, we agreed to assume the lease termination obligation.

During 2021, we terminated our office lease in Toronto, Canada for a termination fee of approximately $1.0 million, which is included within the General and administrative expense line item on the consolidated statement of operations and was paid in full during the year ended December 31, 2021. In connection with the lease termination, we also wrote off certain assets, primarily leasehold improvements, and the resulting loss of $1.0 million was also recorded in the General and Administrative expense line item as presented in the consolidated statement of operations.

Litigation

On December 4, 2020, TechMagic USA LLC (“Tech Magic”) filed suit against our wholly-owned subsidiary, Solo, in Massachusetts Superior Court, Department Business Litigation, seeking recovery for certain unpaid invoices pursuant to a Master Services Agreement dated February 5, 2018 (the “Master Services Agreement”) by and between TechMagic and Solo. The sought recovery for continued fees under the Master Services Agreement through the end of January 2021. Akerna provided a notice of termination of the Master Services Agreement on November 23, 2020 and the parties dispute the effective date of the termination. Solo disputes the validity of the invoices, in whole or in part. Mr. Ashesh Shah, formerly the president of Solo and currently the holder of less than five percent of our issued and outstanding shares of Common Stock is, to our knowledge, the founder and one of the principal managers of TechMagic. On May 21, 2021, Solo filed suit against two of Solo’s former directors, Mr. Shah and Palle Pedersen. Solo sought recovery for Mr. Shah’s intentional interference with contractual relations, and the defendant’s breaches of various fiduciary duties owed to Solo. Defendant Shah engaged in improper communications with Solo’s customers with the intent that those customers cease their contractual relations with Solo. The defendants also entered into an improper contract with a contractual counter party with whom the defendants had a conflict of interest. The defendants filed a motion to dismiss, which the court found unpersuasive and denied. In July 2022, we entered into an agreement with TechMagic and the defendants to dismiss all litigation and claims described above. In connection with the settlement agreement, we reversed our previously accrued loss contingency of $0.5 million during the second quarter of 2022 and no amounts were paid in cash.

On April 2, 2021, TreCom Systems Group, Inc. (“TreCom”) filed suit against Akerna and MJF in federal District Court for the Eastern District of Pennsylvania, seeking recovery of up to approximately $2.0 million for services allegedly provided pursuant to a Subcontractor Agreement between MJF and TreCom. MJF provided a notice of termination of the operative Subcontractor Agreement on August 4, 2020. MJF disputes the validity of TreCom’s invoices and the enforceability of the alleged agreement that TreCom submitted to the court. Akerna filed counterclaims against TreCom for breach of contract, a declaratory judgment, commercial disparagement, and defamation. TreCom failed to return Akerna’s intellectual property and issued numerous disparaging statements to one of Akerna’s clients. TreCom subsequently filed a motion to dismiss these counterclaims, which was denied by the court. Akerna intends to vigorously defend against TreCom’s claims, and pursue its own claims. With respect to the TreCom matter, we established a loss contingency $0.2 million in 2021 which remains outstanding as of December 31, 2022.

On January 13, 2023, Courier Plus Inc. d/b/a Dutchie (“Dutchie”) filed a complaint in the Court of Common Please, Dauphin County, Pennsylvania against Akerna and MJF alleging unfair competition, tortious interference and unjust enrichment with respect to MJF’s exclusive contract with the State of Pennsylvania. We filed a preliminary objection alleging serious defects, such as jurisdiction, and we worked with the State of Pennsylvania to ensure compliance with our contract. We intend to defend our position vigorously and, at the is time, do not believe an estimate of potential loss, if any, is appropriate.

As of December 31, 2022, and through the date these consolidated financial statements were issued, there were no other legal proceedings requiring recognition or disclosure in the consolidated financial statements.

Other

In connection with the Sale Transaction and the Merger, we have a commitment to compensate our financial advisor for up to 3 percent of the transaction value in success fees, subject to a minimum of $1.5 million, should the transactions be completed. In addition, we are party to arrangements with our executive officers and certain other administrative employees pursuant to their employment agreements and transaction success agreements that may result in the receipt by such executive officers of cash severance payments and other transaction success bonuses and benefits with a total value of approximately $1.4 million (collectively and not individually), but not including the value of any accelerated vesting of our equity awards held by those officers.

F-30

AKERNA CORP.

Notes to Consolidated Financial Statements

Note 13 – Stockholders’ Equity (Deficit)

Common and Preferred Stock

We haveonesingle class of Common Stock of which150,000,000 shares are authorized with a par value of $0.0001per share. The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of stockholders of the Company. Subject to the prior rights of all classes or series of stock at the time outstanding having prior rights as to dividends or other distributions, all stockholders are entitled to share equally in dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available. Subject to the prior rights of our creditors and the holders of all classes or series of stock at the time outstanding having prior rights as to distributions upon liquidation, dissolution, or winding up of the Corporation, in the event of liquidation, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of all liabilities. The stockholders do not have cumulative, preemptive rights, or subscription rights.

We also have 5,000,000 authorized shares of preferred stock, $0.0001 par value per share, of which one share of special voting preferred stock (the “Special Voting Preferred Stock”) is issued and outstanding (see below).

Convertible Redeemable Preferred Stock

On November 7, 2022, we held a special meeting of stockholders to consider an amendment (the “Amendment”) to our Amended and Restated Certificate of Incorporation (the “Charter”), to effect the Reverse Stock Split as determined by our Board of Directors. The holders of the Convertible Redeemable Preferred Stock agreed to not transfer, offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of the shares of the Convertible Redeemable Preferred Stock until the Reverse Stock Split, voted the shares of the Series A Preferred Stock purchased in the offering in favor of the Amendment and voted the shares of the Series B Preferred Stock purchased in the offering in a manner that “mirrored” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that did not vote), the Company’s Special Voting Preferred Stock (excluding any proportion of the Special Voting Preferred Stock that did not vote) and Series A Preferred Stock voted on the Reverse Stock Split. The Reverse Stock Split required the approval of the majority of the issued and outstanding shares entitled to vote on the matter. Because the Series B Preferred Stock was automatically and without further action of the holder voted in a manner that “mirrored” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that were not voted), the Company’s Special Voting Preferred Stock (excluding any proportion of the Special Voting Preferred Stock that was not voted) and Series A Preferred Stock voted on the Reverse Stock Split, abstentions by common stockholders did not have any effect on the votes cast by the holders of the Series B Preferred Stock. The Amendment was approved on November 7, 2022 and the Reverse Stock Split was effectuated at 12:01 a.m. Eastern Standard Time on November 8, 2022.

The holders of all of the Convertible Redeemable Preferred Stock redeemed their shares for cash at 105 percent of the stated value, or $10.50 per share, of such shares on November 9, 2022. Accordingly, we directed the escrow agent to pay $5.25 million on November 10, 2022 to the holders from the escrow account established upon the date of the Convertible Redeemable Preferred Stock offering. The amounts paid over the offering price upon redemption are considered “deemed” dividends and reported as a reduction of Additional paid-in capital in the consolidated statement of changes in stockholders’ equity (deficit).

F-31

AKERNA CORP.

Notes to Consolidated Financial Statements

Special Voting Preferred Stock and Exchangeable Shares

In connection with a prior transaction in which we acquired Ample in exchange for 3,294,574 million shares of exchangeable shares (the “Exchangeable Shares”), we issued a single share of our Special Voting Preferred Stock for the purpose of ensuring that each Exchangeable Share is substantially the economic and voting equivalent of 1/20 of a share of Akerna Common Stock and that each Exchangeable Share is exchangeable on a 20-for-one basis for a share of Akerna Common Stock, subject to certain limitations and adjustments, including adjustments to reflect the Reverse Stock Split. Each holder of Exchangeable Shares effectively has the ability to cast votes along with holders of Akerna Common Stock. The Exchangeable Shares do not have a par value. The Special Voting Preferred Stock has a par value of$0.0001per share and a preference in liquidation of$1.00.The Special Voting Preferred Stock entitles the holder to an aggregate number of votes equal to 1/20 of the number of the Exchangeable Shares issued and outstanding from time to time and which we do not own. The holder of the Special Voting Preferred Stock and the holders of shares of Akerna Common Stock will both vote together as a single class on all matters submitted to a vote of our stockholders. At such time as the Special Voting Preferred Stock has no votes attached to it, the share shall be automatically cancelled.

During theyear ended December 31, 2022, several Ample shareholders exchanged a total of23,614 Exchangeable Shares with a value of$180,647 for 1,180 shares of Akerna Common Stock. The exchange was accounted for as an equity transaction and we did not recognize a gain or loss on this transaction. As ofDecember 31, 2022, there were a total of285,672 exchangeable shares remaining as issued and outstanding which could be exchanged for 14,284 shares of Akerna Common Stock.

ATM Program

On September 28, 2022, we entered into a new agreement with AGP pursuant to which we may offer and sell up to $20.0 million of shares of our Common Stock (the “2022 ATM Program”) from time to time through AGP as the sales agent for which they will receive a commission of 3.0% of the gross proceeds. The 2022 ATM Program is currently limited to $3.5 million due to certain restrictions imposed by the registration statement underlying the offering (the “Baby Shelf Limitation”). Under the Baby Shelf Limitation, we may not offer Common Stock under the registration statement with a value of more than one-third of the aggregate market value of our Common Stock held by non-affiliates in any twelve-month period, so long as the aggregate market value of our Common Stock held by non-affiliates is less than $75.0 million. Net proceeds from the sale of Common Stock under the 2022 ATM Program have been and will continue to be used for general corporate purposes including working capital, marketing, product development and capital expenditures. Through December 31, 2022, we sold a total of 552,148 shares of Common Stock with an aggregate gross purchase price of $1.1 million under the 2022 ATM Program.

2022 Unit Offering

On July 5, 2022, we completed the 2022 Unit Offering which was comprised of an aggregate of (i) 29,382,861 units consisting of 1,469,143 shares of Common Stock together with Common Stock warrants (the “Common Warrants”) to purchase up to 1,469,143 shares of Common Stock (together, the “Units”) and (ii) 14,095,400 pre-funded units, consisting of 14,095,400 pre-funded warrants (“Pre-funded Warrants”) to purchase 704,770 shares of Common Stock, together with Common Warrants to purchase up to 704,770 shares of Common Stock (together, the “Pre-funded Units”). The Units were sold at a public offering price of $0.23 per unit and the Pre-funded Units were sold at a public offering price of $0.2299 per pre-funded unit. The Pre-Funded Warrants were exercised immediately thereafter at their nominal exercise price of $0.002 per share. The Common Warrants accompanying each of the Units and Pre-funded Units were issued separately and are immediately tradeable separately upon issuance. The Common Warrants have an exercise price of $4.60 per share subject to certain adjustments, are immediately exercisable and will expire five years from the date of issuance. In connection with the Convertible Redeemable Preferred Stock offering, the exercise price of the Common Warrants was reduced to $3.518 per share effective October 5, 2022.

We granted the Underwriter a 45-day option from the effective date of the 2022 Unit Offering to purchase from us (i) additional shares of Common Stock and/or (ii) Common Warrants and/or (iii) Pre-Funded Warrants, in any combination thereof solely to cover over-allotments(the “Over-allotment Option”); however, the Over-allotment Option expired unexercised on August 14, 2022. In addition, we issued to the Underwriter warrants to purchase additional shares of Common Stock (the “Underwriter Warrants”). Upon the expiration of the Over-allotment Option, the Underwriter Warrants provided for the purchase of up to 108,696 shares of Common Stock. The Underwriter Warrants are exercisable at any time and from time to time, in whole or in part, commencing from sixmonths after June 29, 2022 (the “Effective Date”) and ending five years from the Effective Date, at a price per share equal to $4.60, subject to certain adjustments. In connection with the Convertible Redeemable Preferred Stock offering, the exercise price of the Underwriter Warrants was reduced to $3.518 per share effective October 5, 2022. The Underwriter Warrants may be transferred by the Underwriter without restriction during the same period.

F-32

AKERNA CORP.

Notes to Consolidated Financial Statements

The Unit Offering closed on July 5, 2022 and we receivednet proceeds of approximately $9.2 million after deducting underwriting discounts and commissions and related expenses including legal and other professional fees. In connection with the Convertible Notes Amendment, a total of $7.0 million of the proceeds were deposited into the Restricted Accounts. We used the remaining net proceeds from the 2022 Unit Offering for general corporate purposes, including working capital, marketing, product development and capital expenditures. As of December 31, 2022, a total of 45,652,174 warrants exercisable for 2,282,609 shares of Common Stock remain outstanding from the 2022 Unit Offering including 43,478,261 Common Warrants exercisable for 2,173,913 shares of Common Stock and 2,173,913 Underwriter Warrants exercisable for 108,696 shares of Common Stock. In accordance with our policy, we assessed the warrants issued in connection with the 2022 Unit Offering and determined that there are no instances outside of the Company’s control that could require cash settlement. In addition, we determined that the warrants issued in connection with the 2022 Unit Offering do not meet the definition of a derivative as they are indexed to the Company’s Common Stock and they satisfy all of the additional qualifications to be classified within equity. Accordingly, the net proceeds of $9.2 million were recorded as: (i) an increase to Common Stock of $217 representing the issuance of 1,469,143 shares of Common Stock attributable to the Units and the issuance of 704,770 shares of Common Stock from the exercise of the Pre-funded Warrants, both at their par value of $0.0001 per share and (ii) an increase to Additional Paid-In Capital of $9.2 million for the amounts received over par value less the underwriting discounts and commissions and related expenses including legal and other professional fees.

2019 Warrants

In connection with MTech’sinitial public offering, MTech sold units consisting of one share of MTech’s common stock and one warrant of MTech (“MTech Public Warrant”). Each MTech Public Warrant entitled the holder to purchase one share of MTech’s common stock. Concurrently with MTech’s initial public offering, MTech sold additional units on a private offering basis. Each of these units consisted of one share of MTech’s common stock and one warrant of MTech (“MTech Private Warrant”). Each MTech Private Warrant entitled the holder to purchase one share of MTech’s common stock.

Upon completion of the Mergers between MTech and MJF on June 17, 2019, the MTech Public Warrants and the MTech Private Warrants were converted to the 2019 Public Warrants and the Private Warrants, respectively, at an exchange ratio of one-for-one to a warrant to purchase one share of Akerna’s Common Stock with identical terms and conditions. Concurrent with the Reverse Stock Split, the exchange ratio of the 2019 Public Warrants and the Private Warrants was changed to 20 warrants for one share of Common Stock. The Private Warrants have contingent exercise provisions such that when the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company. Accordingly, the requirements for accounting for the Private Warrants as equity are not satisfied and the Private Warrants have been reflected on our consolidated balance sheets as a derivative liability and are not included the summary of outstanding warrants presented below.

Outstanding Warrants

The following table summarizes our warrants outstanding as of the dates presented:

	Exercise Price		Expiration Date		Balance as of December 31, 2021		Issued		Exercised			Expired		Balance as of December 31, 2022
2019 Public Warrants (1)	$	230.00		6/19/2024		5,813,804		—		—			—		5,813,804
2022 Unit Offering
Pre-funded Warrants (2)	$	0.002		6/29/2027		—		14,095,400		(14,095,400	)		—		—
Common Warrants (3)	$	4.60		6/29/2027		—		43,478,261		—			—		43,478,261
Underwriter Warrants (3)	$	4.60		6/29/2027		—		2,173,913		—			—		2,173,913
						5,813,804		59,747,574		(14,095,400	)		—		51,465,978

(1) The 2019 Public Warrants are exercisable for 290,690 shares of Common Stock at $230.00 per share or a ratio of 20 warrants for one share of Common Stock.

(2) A total of 14,095,400 Pre-funded Warrants were issued and exercised in exchange for 704,770 shares of Common Stock.

(3) The Common Warrants and Underwriter Warrants are exercisable for a combined amount of 2,282,609 shares of Common Stock at $4.60 per share or a ratio of 20 warrants for one share of Common Stock.

F-33

AKERNA CORP.

Notes to Consolidated Financial Statements

Note 16 14– ~~Revisions of Previously Issued Financial Statements~~Stock-Based Compensation and Other Benefit Plans

On June 17, 2019, ~~we completed~~our stockholders considered and approved the2019Long Term Incentive Plan, or the Equity Incentive Plan, and reserved an initial1,040,038shares of Akerna Common Stock for issuance thereunder. In June 2020 and May 2022, our stockholders approved amendments to the Equity Incentive Plan increasing the number of shares authorized for issuance thereunder by 525,000 and 2,934,962, respectively. Subsequent to these amendments, the total number of shares authorized for issuance thereunder was 4,500,000 prior to the Reverse Stock Split. After giving effect to the Reverse Stock Split, the adjusted number of shares authorized for issuance was 225,000. As of December 31, 2022, there were 172,021 authorized shares remaining available for issuance.

The Equity Incentive Plan is administered by the compensation committee of our Board of Directors and provides for the offering of awards to employees, officers, directors and consultants in the form of restricted stock, restricted stock units, or RSUs, options, stock appreciation rights, or SARs, and other stock-based awards. Since the Mergers, ~~with MTech. Prior~~we have only granted RSUs that are subject to time-based vesting and require continuous employment, typically over a period of four years from the grant date or the first day of the service period. We have not granted any restricted stock, options, SARs or other stock-based awards since the Mergers. Certain awards granted by MJF prior to the Mergers MTech was a special purpose acquisition company and had completed an initial public offering in October 2018, which included the issuances of the MTech Private Warrants in a simultaneous private placement transaction. The MTech Private Warrants were exchanged for ~~our Private Warrants as part~~and became subject to restricted stock agreements, or Restricted Shares, with varying vesting terms that reflect the vesting conditions applicable to the predecessor awards at the time of the ~~Mergers~~Mergers.

A summary of our unvested Restricted Shares and ~~our Private Warrants remain outstanding~~RSUs activity is presented in the table below:

	Restricted Shares			Restricted Stock Units			Total			Weighted Average Grant Date Fair Value
Unvested as of December 31, 2020		3,215			38,151			41,366		$	135.40
Granted		—			22,382			22,382			81.00
Vested		(1,528	)		(21,385	)		(22,913	)		111.00
Forfeited		(67	)		(4,959	)		(5,026	)		90.20
Unvested as of December 31, 2021		1,620			34,189			35,809		$	109.40
Granted		—			14,146			14,146			13.54
Vested		(1,286	)		(22,478	)		(23,764	)		54.06
Forfeited		—			(14,771	)		(14,771	)		112.41
Unvested as of December 31, 2022		334			11,086			11,420		$	89.66

For the years ended December 31, 2022 and 2021, we recognized stock-based compensation expense related to the ratable amortization of the unvested Restricted Shares and RSUs of $0.9 million, and $2.0 million, respectively. During each of the same periods, we capitalized less than $0.1 million in stock-based compensation costs as software development cost. A total of $0.8 million of unrecognized costs as of December 31, ~~2021.~~ 2022 related to Restricted Shares and RSUs will be ratably recognized over an estimated weighted average remaining vesting period of 1.40 years.

Employee Benefit Plan

We ~~initially accounted~~have a 401(k) Plan (the “401(k) Plan”) to provide retirement benefits for ~~these outstanding Private Warrants~~our employees. Employees may contribute up to a portion of their annual compensation to the 401(k) Plan, limited to a maximum annual amount as ~~components~~updated annually by the Internal Revenue Service. We do not offer a match of ~~equity rather than as derivative liabilities.~~ employee contributions nor any discretionary contributions.

F-34

AKERNA CORP.

Notes to Consolidated Financial Statements

Note 15–Fair Value

Fair Value Measurement – Contingent Consideration

In ~~light~~connection with our acquisition of 365 Cannabis in October 2021, the 365 Cannabis selling shareholders had the potential to earn contingent consideration payable in Common Stock or cash if certain revenue criteria were met. The fair value of the ~~Staff Statement~~contingent consideration, or Earn-out Obligation, on ~~Accounting and Reporting Considerations for Warrants Issued~~the date of acquisition of 365 Cannabis was $6.3 million. The Earn-out Obligation was reduced by ~~Special Purpose Acquisition Companies (“SPACs”) issued by~~$3.0 million in September 2022 in connection with the ~~staff~~finalization of the ~~SEC~~purchase accounting associated with the acquisition of 365 Cannabis. The carrying amount of the Earn-out Obligation was further reduced to its fair value of $2.3 million on ~~April 12, 2021 (the “SEC Staff Statement”),~~December 31, 2022 in connection with the ~~Company’s~~sale of 365 Cannabis that was completed in January 2023. The corresponding adjustments have been reflected in the loss from discontinued operations for the year ended December 31, 2022.

We value contingent consideration using a probability-weighted discounted cash flow model, which incorporates inputs that are not observable in the market and thus represents a Level 3 measurement as defined in GAAP. The unobservable inputs utilized for measuring the fair value of the contingent consideration reflect management ~~further evaluated~~’s own assumptions about the assumptions that market participants would use in valuing the contingent consideration as of the valuation date, as well as our ~~outstanding warrants under Accounting Standards Codification 815-40, Contracts~~knowledge of specific transactions that effect the calculation.

Fair Value Option Election – Convertible Notes

We elected to account for both the Senior Convertible Notes and the 2020 Notes by applying the fair value option. Under the fair value option, the financial liability is initially measured at its issue-date estimated fair value and subsequentlyremeasuredat its estimated fair value on a recurring basis at each reporting period date. The change in Entity’s Own Equity (“ASC 815-40”), which addresses equity versus liability treatment and classification of equity-linked financial instruments, including warrants, and states that a warrant may be classifiedestimated fair value resulting from changes in instrument-specific credit risk is recorded in Other comprehensive income as a component of stockholders’equity ~~only if, among other things,~~(deficit). The remaining estimated fair value adjustment is presented as a single line item within Other income (expense) in our consolidated statement of operations under the ~~warrant~~caption, Change in fair value of convertible notes.

For the 2020 Notes and Senior Convertible Notes, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is ~~indexed to~~a reconciliation of the ~~issuer’s common stock.~~fair values for the periods presented:


2020 Notes
Ending fair value balance - December 31, 2020	$	13,398,000
Principal payments in cash and Common Stock		(15,172,727	)
Change in fair value reported in the statements of operations		2,030,904
Change in fair value reported in other comprehensive income		(70,000	)
Gain on extinguishment of debt reported in the statement of operations		(186,177	)
Ending fair value balance - October 5, 2021	$	—

~~Based on management’s evaluation and in consultation with~~For the ~~Audit Committee, we concluded that the Company’s Private Warrants~~Senior Secured Notes, which are ~~not indexed to the Company’s common stock in the manner contemplated by ASC Section 815-40.~~ ~~As a result, these warrants are precluded from equity classification and should be recorded as derivative liabilities remeasured to~~measured at fair value ~~at each reporting period. We assessed~~categorized within Level3of the ~~materiality~~fair value hierarchy, the following is a reconciliation of ~~these errors on prior periods’ consolidated financial statements and concluded that~~ the ~~errors were not material~~ fair values from October 5, 2021 to ~~any prior annual or interim periods. However, we have revised the prior period financial information included in these consolidated financial statements~~December 31, 2022:


Senior Convertible Notes
Beginning fair value balance on October 5, 2021	$	18,000,000
Principal payments in cash and Common Stock		—
Change in fair value reported in the statements of operations		(665,000	)
Change in fair value reported in other comprehensive income		(30,000	)
Ending fair value balance - December 31, 2021	$	17,305,000
Principal payments in cash and Common Stock		(5,337,273	)
Change in fair value reported in the statements of operations		2,884,273
Change in fair value reported in other comprehensive income		(245,000	)
Ending fair value balance - December 31, 2022	$	14,607,000

F-35

AKERNA CORP.

Notes to Consolidated Financial Statements

~~reclassify the Private Warrants as derivative liabilities measured at their estimated fair values at the end of each reporting period and recognized changes in the~~The estimated fair value of the Senior Convertible Notes and the 2020 Notes were computed using Monte Carlo simulations, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined by GAAP. The unobservable inputs utilized for measuring the fair value of the Senior Convertible Notes and the 2020 Notes reflect our assumptions about the assumptions that market participants would use in valuing the Senior Convertible Notes and 2020 Notes as of the issuance date and subsequent reporting periods.

We determined the fair value of the Senior Convertible Notes by using the following key inputs to the Monte Carlo Simulation Model:


	As of December 31,
Fair Value Assumptions - Senior Convertible Notes	2022			2021
Face value principal payable	$	14,662,727		$	20,000,000
Conversion prices, as adjusted for the Reverse Stock Split and certain securities offerings	$	4.75		$	4.05
Value of Common Stock on measurement date	$	0.69		$	1.75
Expected term (years)		1.8			2.8
Volatility		77	%		75	%
Market yield (range)		44.3 to 43.9	%		37.1 to 0	%
Risk free rate		4.4	%		1.0	%
Issue date		October 5, 2021			October 5, 2021
Maturity date		October 5, 2024			October 5, 2024

Fair Value Measurement – Private Warrants

For the Private Warrants, which are classified as derivative ~~instruments~~liabilities on our consolidated balance sheets and measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values for the years ended December 31, 2022 and December 31, 2021:

	Year Ended December 31,
	2022			2021
Fair value balance at beginning of period	$	63,178		$	311,376
Change in fair value reported in the statements of operations		(63,178	)		(248,198	)
Fair value balance at end of period	$	—		$	63,178

F-36

AKERNA CORP.

Notes to Consolidated Financial Statements

We utilized a binomial lattice model, which incorporates significant inputs, specifically the expected volatility, that are not observable in the market, and thus represents a Level 3 measurement as defined in GAAP. The unobservable inputs utilized for measuring the fair value of the Private Warrants reflect our estimates regarding the assumptions that market participants would use in valuing the 2019 Public Warrants as of the end of the reporting periods.

We recognize changes to the derivative liability against earnings or loss each reporting period. Upon exercise of the Private Warrants, holders will receive a delivery of Akerna shares on a net or gross share basis per the terms of the Private Warrants and any exercise will reclassify the Private Warrants, at the time of exercise, to stockholders’ equity to reflect the equity transaction. There are no periodic settlements prior to the holder exercising the Private Warrants. There were no transfers in or out of Level 3 from other levels for the fair value hierarchy.

We estimated the fair value by using the following key inputs:

	As of December 31,
Fair Value Assumptions - Private Warrants	2022		2021
Number of Private Warrants		225,635		225,635
Exercise price, as adjusted for the Reverse Stock Split	$	230.00	$	230.00
Value of Common Stock on measurement date	$	0.69	$	1.75
Expected term (years)		1.46		2.46
Volatility		NM		85.8	%
Risk free rate		NM		0.8	%

Fair Value Measurement – 2022 Unit Offering Common and Underwriter Warrants

The fair value of the Common Warrants and Underwriter Warrants issued in connection with the 2022 Unit Offering represent a measurement within Level 3 of the fair value hierarchy and were estimated based on the following key inputs as of the date of the 2022 Unit Offering:

Fair Value Assumptions - 2022 Common and Underwriter Warrants		July 5, 2022
Exercise price as adjusted for the Reverse Stock Split	$	4.60
Expected term (years)		5.0
Volatility		136.9	%

We utilized a Black-Scholes-Merton option pricing model, which incorporates significant inputs, specifically the expected volatility, that are not observable in the market, and thus represents a Level3measurement as defined in GAAP. The unobservable inputs utilized for measuring the fair value of the Common and Underwriter Warrants reflect our estimates regarding the assumptions that market participants would have used in valuing the Warrants as of the date of the 2022 Unit Offering or July 5, 2022. The fair value of the Common Warrants and Underwriter Warrants was recorded in equity as a component of the net proceeds received from the ~~prior period in the Company’s operating results.~~2022 Unit Offering (see Note 13).

F-37

AKERNA CORP.

Notes to Consolidated Financial Statements

Note 16–Loss Per Share

During the year ended December 31, 2022, we used the “two-class” method to compute net loss per share because we issued securities other than common shares that are economically equivalent to a common share in that the class of stock has the right to participate in dividends should a dividend be declared payable to holders of Akerna Common Stock. These participating securities were the Exchangeable Shares issued by our wholly owned subsidiary in exchange for interests in Ample. The ~~Company's change in accounting~~two-class method requires earnings for the ~~Private Warrants~~period to be allocated between common shares and participating securities based on their respective rights to receive distributed and undistributed earnings. Under the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from ~~components~~net income the portion of ~~equity~~current period earnings that the participating securities would have been entitled to ~~derivative liabilities has~~receive pursuant to their dividend rights had all of the period’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the Exchangeable Shares have no ~~impact on the Company's current or previously reported cash position.~~obligation to fund losses.

Diluted net loss per common share is calculated under the two-class method by giving effect to all potentially dilutive common shares, including warrants, restricted stock, RSUs and shares of common stock issuable upon conversion of our Senior Convertible Notes. We analyzed the potential dilutive effect of any outstanding convertible securities under the “if-converted” method, in which it is assumed that the outstanding Exchangeable Shares and Senior Convertible Notes are converted to shares of Akerna Common Stock at the beginning of the period or date of issuance, if later. We report the more dilutive of the approaches (two-class or if-converted) as the diluted net loss per share during the period. The dilutive effect of unvested restricted stock and RSUs is reflected in diluted loss per share by application of the treasury stock method and is excluded when the effect would be anti-dilutive.

The ~~tables~~weighted-average number of shares outstanding used in the computation of diluted earnings per share does not include the effect of potential outstanding common shares that would have been anti-dilutive for the period. The table below ~~disclose the effects~~details potentially outstanding shares on ~~the consolidated financial statements~~a fully diluted basis that were not included in ~~this Annual Report on Form 10-K:~~the calculation of diluted earnings per share:

	Year Ended December 31,
	2022		2021
Shares issuable upon exchange of Exchangeable Shares		14,284		15,465
Warrants
2019 Public Warrants		290,690		290,690
2022 Unit Offering - Common Warrants		2,173,913		—
2022 Unit Offering - Underwriter Warrants		108,696		—
Unvested restricted stock units		11,086		34,189
Unvested restricted stock awards		334		1,620
Shares of common stock issuable upon conversion of convertible notes		3,086,890		624,220
Total		5,685,893		966,184

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.

F-38

AKERNA CORP.

Notes to Consolidated Financial Statements

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.

F-39

Year Ended June 30, 2020

As reported

Adjustment

As revised
Consolidated Statements of Operations

Change in fair value of derivative liability

0—

1,962,034
1,962,034
Net loss attributable to Akerna shareholders

(15,534,345)

1,962,034

(13,572,311)
Net loss per share

(1.31)

0—
(1.14)

Six Months Ended December 31, 2020

As reported Adjustment As revised
Condensed Consolidated Statements of Operations

Change in fair value of derivative liability

0—
746,852
746,852
Net loss attributable to Akerna shareholders

(16,957,334)

746,852

(16,210,482)
Net loss per share

(1.01)
0—
(1.01)

As of December 31, 2020

As reported Adjustment As revised
Consolidated Balance Sheet

Derivative liability

0—
(311,376)
(311,376)
Total liabilities

(19,635,076)

(311,376)

(19,946,452)
Additional paid-in capital

95,090,833
(1,004,450)
94,086,433
Accumulated deficit

(57,872,599)
693,074
(57,179,525)

~~F-44~~

Delaware		83-2242651
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1550 Larimer ~~Street #246 Denver,~~ Street#246Denver, Colorado		80202
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	KERN	Nasdaq Stock Market LLC (Nasdaq Capital Market)
Warrants to purchase ~~one share of~~ common stock	KERNW	Nasdaq Stock Market LLC (Nasdaq Capital Market)

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

	PART I	59
Item 1.	Business	59
Item 1A.	Risk Factors	1419
Item 1B.	Unresolved Staff Comments	2939
Item 2.	Properties	2939
Item 3.	Legal Proceedings	2939
Item 4.	Mine Safety Disclosures	2939

	PART II	3040
Item 5.	Market for ~~Registrant's~~Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities	3040
Item 6.	~~Selected Financial Data~~Reserved	3242
Item 7.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operation	3242
Item 7A.	Quantitative and Qualitative Disclosure about Market Risk	4755
Item 8.	Financial Statements and Supplementary Data	4755
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	4856
Item 9A.	Controls and Procedures	4856
Item 9B.	Other Information	4957

	PART III	5058
Item 10.	Directors, Executive Officers and Corporate Governance	5058
Item 11.	Executive Compensation	5058
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	5058
Item 13.	Certain Relationships and Related Transactions and Director Independence	5058
Item 14.	Principal Accounting Fees and Services	5058

	PART IV	5159
Item 15.	Exhibits, Financial Statement Schedules	5159
Item 16.	Form 10-k Summary	5362
	Signatures	5463

	Year Ended December 31,						Change Period over period					Year Ended December 31,						Change Period over period
	2021			2020 (unaudited)			Change Period over period					2022			2021			Change Period over period
Revenue
Software	$	18,998,409		$	11,963,028		$	7,035,381		59	%	$	12,920,647		$	15,984,376		$	(3,063,729	)	(19)	%
Consulting		1,510,413			1,739,683			(229,270	)	(13)	%		682,309			1,510,413			(828,104	)	(55)	%
Other revenue		176,152			196,257			(20,105	)	(10)	%		42,074			132,308			(90,234	)	(68)	%
Total revenue		20,684,974			13,898,968			6,786,006		49	%		13,645,030			17,627,097			(3,982,067	)	(23)	%

Cost of revenue		8,119,487			6,355,825			1,763,662		28	%		5,412,388			7,433,884			(2,021,496	)	(27)	%
Gross profit		12,565,487			7,543,143			5,022,344		67	%		8,232,642			10,193,213			(1,960,571	)	(19)	%
Gross profit margin													60	%		58	%

Operating Expenses
Operating expenses
Product development		6,271,966			5,129,814			1,142,152		22	%		4,690,967			5,892,022			(1,201,055	)	(20)	%
Sales and marketing		9,108,173			8,085,897			1,022,276		13	%		6,053,172			7,708,265			(1,655,093	)	(21)	%
General and administrative		10,422,207			11,018,356			(596,149	)	(5)	%		8,344,613			10,173,630			(1,829,017	)	(18)	%
Depreciation and amortization		5,735,150			3,223,844			2,511,306		78	%		5,622,274			5,174,551			447,723		9	%
Impairment of long-lived assets		14,383,310			6,887,000			7,496,310		109	%		38,967,295			14,354,114			24,613,181		171	%
Total operating expenses		45,920,806			34,344,911			11,575,895		34	%		63,678,321			43,302,582			20,375,739		47	%

Loss from operations	$	(33,355,319	)	$	(26,801,768	)	$	(6,553,551	)	24	%	$	(55,445,679	)	$	(33,109,369	)	$	(22,336,310	)	67	%

	Six Months Ended December 31,						Change Period over period
	2020			2019 (unaudited)			Change Period over period
Revenue
Software	$	6,766,985		$	4,802,654		$	1,964,331		41	%
Consulting		916,099			1,556,363			(640,264	)	(41)	%
Other revenue		141,700			140,076			1,624		1	%
Total revenue		7,824,784			6,499,093			1,325,691		20	%

Cost of revenue		3,141,041			2,994,940			146,101		5	%
Gross profit		4,683,743			3,504,153			1,179,590		34	%

Operating Expenses
Product development		3,166,088			1,234,403			1,931,685		156	%
Sales and marketing		3,928,028			3,725,012			203,016		5	%
General and administrative		4,435,067			4,655,207			(220,140	)	(5)	%
Depreciation and amortization		2,007,237			104,667			1,902,570		nm
Impairment of long-lived assets		6,887,000			—			6,887,000		nm
Total operating expenses		20,423,420			9,719,289			10,704,131		nm

Loss from operations	$	(15,739,677	)	$	(6,215,136	)	$	(9,524,541	)	153	%

	●	impairment of long-lived assets, as this is a non-cash, non-recurring item, which effects the comparability of results of operations and liquidity;
	●	stock-based compensation expense, as this represents a non-cash charge and our mix of cash and ~~share-based~~stock-based compensation may differ from other companies, which ~~effects~~affects the comparability of results of operations and liquidity;
	●	costs incurred in connection with business combinations ~~and mergers~~ that are required to be expensed as incurred in accordance with GAAP, because business combination ~~and merger related~~ costs are specific to the complexity and size of the underlying transactions ~~as well as the frequency of our acquisition activity these costs~~and are not reflective of our ongoing operations;
	●	costs incurred in connection with non-recurring financing activities and related transactions, including the Reverse Stock Split as well as fees incurred as a direct result of electing the fair value option to account for our debt instruments;
	●	restructuring charges, which ~~include~~includes severance costs to terminate ~~a lease~~employees in functions that have been eliminated, costs to terminate leases and the related ~~writeoff~~non-cash write-off of leasehold improvements and furniture, as we believe these costs are not representative of operating performance;
	●	gain on the forgiveness of PPP loan, as this is a one-time forgiveness of debt that is not recurring across all periods and we believe inclusion of the gain is not representative of operating performance;
	●	gain on the extinguishment of debt attributable to repayment of the convertible notes issued in 2020 (the “2020 Notes”) prior to their maturity that is not recurring across all periods and we believe inclusion of the gain is not representative of operating performance;
	●	loss on sale of investment that is not recurring across all periods and we believe inclusion of the loss is not representative of operating performance;
	●	equity in losses of investees because our share of the operations of investees is not representative of our own operating performance ~~and may not be monetized for a number of years;~~
	●	~~and~~ ~~changes in the fair value of contingent consideration because these adjustments are not recurring across all periods and we believe these costs are not representative of operating performance.~~and;
	●	other non-operating ~~expenses~~ income, netwhich ~~includes a one-time gain on debt extinguishment and one-time loss on disposal of fixed assets, which effects~~affects the comparability of results of operations and ~~liquidity~~;liquidity.

The reconciliation of net loss to EBITDA and Adjusted EBITDA is as follows:													Year Ended December 31,
	Year Ended December 31,						Six Months Ended December 31,						2022			2021
	2021			2020			2020			2019				(unaudited)			(unaudited)
		(unaudited)			(unaudited)			(unaudited)			*(unaudited)*
Net Loss	$	(31,328,711	)	$	(26,888,791	)	$	(16,219,296	)	$	(3,757,952	)

Interest expense (income)		1,531,497			161,646			193,084			(125,239	)
Net loss													$	(79,057,610	)	$	(31,328,711	)
Loss from discontinued operations, net of tax														20,432,174			248,244
Interest expense, net														853,716			1,530,703
Change in fair value of convertible notes		1,365,904			195,273			961,273			—			2,884,273			1,365,904
Change in fair value of derivative liability		(248,198	)		(376,811	)		((746,852)	)		(2,332,075	)		(63,178	)		(248,198	)
Income tax expense (benefit)		(2,262,225	)		31,185			200			104,667
Income tax benefit														(716,155	)		(2,263,725	)
Depreciation and amortization		5,735,150			3,223,844			2,007,237			—			5,622,274			5,174,551
EBITDA	$	(25,206,583	)	$	(23,653,654	)	$	(13,804,354	)	$	(6,110,599	)	$	(50,044,506	)	$	(25,521,232	)

Impairment of long-lived assets		14,383,310			6,887,000			6,887,000			—			38,967,295			14,354,114
Stock-based compensation expense		1,967,817			1,871,069			1,197,589			492,650			808,682			1,964,638
Business combination and merger related costs		449,940			3,339,864			1,094,503			733,867			5,081			449,940
Non-recurring financing fees		458,691			1,316,984			139,594			—			583,482			458,691
Restructuring charges		2,419,908			490,146			490,146			—			552,563			2,420,092
Changes in fair value of contingent consideration		—			(1,991,000	)		(993,000	)		—
Gain on forgiveness of PPP loan		(2,234,730	)		—			—			—			—			(2,234,730	)
Gain on extinguishment of debt														—			(186,177	)
Loss on sale of investment														221,101			—
Equity in losses of investee		7,564			16,335			12,643			—			—			7,564
Other non-operating expense (income)		(186,177	)		59,397			59,271			130
Other non-operating income, net														—			(243	)
Adjusted EBITDA	$	(7,940,260	)	$	(11,663,859	)	$	(4,916,608	)	$	(4,883,952	)	$	(8,906,302	)	$	(8,287,343	)

							Year Ended December 31,
	Year ended December 31, 2021			Six months ended December 31, 2020			2022			2021
Cash provided by (used in):

Operating activities	$	(8,167,904	)	$	(8,705,738	)	$	(10,900,729	)	$	(8,167,904	)
Investing activities		(10,485,085	)		(7,139,047	)		(3,972,144	)		(10,485,085	)
Financing activities		14,736,252			9,532,380			8,635,827			14,736,252
Effect of change in exchange rates on cash and restricted cash		18,623			(2,783	)		(22,225	)		18,623
Net decrease in cash and restricted cash	$	(3,898,114	)	$	(6,315,188	)	$	(6,259,271	)	$	(3,898,114	)

	●	Identification of the contract, or contracts, with a customer
	●	Identification of the performance obligations in the contract
	●	Determination of the transaction price
	●	Allocation of the transaction price to the performance obligations in the contract
	●	Recognition of revenue when, or as, we satisfy a performance obligation

	·●	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

	·●	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

	·●	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

	·●	Hired additional experienced resources with the appropriate skills to fill key accounting functions.
	·●	Engaged an outside firm to assist in the overall evaluation and documentation of the design and operating effectiveness of our internal controls over financial reporting and have remediated past deficiencies in the design of our internal control framework for certain key process areas including revenue, capitalized software, business combinations, intangibles, goodwill, stock-based compensation, general financial reporting, and information technology.
	·●	Developed a long-term plan to both (i) complete the remediation of the design of our internal controls over financial reporting for our remaining process areas, and (ii) begin the remediation of the deficiencies in operating effectiveness of our internal controls over financial reporting across all process areas.

Exhibit
Number		Description
2.1+		Agreement and Plan of Merger, dated as of October 10, 2018, by and among MTech Acquisition Corp., Akerna Corp., Purchaser Merger Sub Inc., Company Merger Sub LLC, MTech Sponsor LLC in the capacity as the Purchaser Representative thereunder, MJ Freeway LLC and Harold Handelsman in the capacity as the Seller Representative thereunder (incorporated by reference to Exhibit 2.1 to Akerna’s Registration Statement on Form S-4 (File No. 333-228220))
2.2		First Amendment to Agreement and Plan of Merger, effective as of April 17, 2019, by and among MTech Acquisition Corp., Akerna Corp., MTech Purchaser Merger Sub Inc., MTech Company Merger Sub LLC, MTech Sponsor LLC,, in the capacity as the Purchaser Representative under the Merger Agreement, MJ Freeway LLC, and Jessica Billingsley, in the capacity as the Seller Representative under the Merger Agreement (incorporated by reference to Exhibit 2.2 to Akerna’s Registration Statement on Form S-4 (File No. 333-228220))
2.3		Arrangement Agreement dated December 18, 2019 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Akerna on December 18, 2019)
2.4		Amendment to Arrangement Agreement dated February 28, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Akerna on March 3, 2020)
2.5		Amendment No. 2 to Arrangement Agreement dated May 26, 2020 (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)
2.6		Amendment No. 3 to Arrangement Agreement dated June 1, 2020 (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)
2.7		Securities Purchase Agreement, dated January 27, by and among Akerna and POSaBIT (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Akerna on January 27, 2023)
2.8		Agreement and Plan of Merger, dated January 27, 2023, by and among Akerna, Akerna Merger Co and Gryphon (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Akerna on January 27, 2023)
2.9		Form of Support Agreement, dated January 27, 2023, by and among POSaBIT and each of the parties named therein (incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K filed by Akerna on January 27, 2023)
2.10		Form of Support Agreement, dated January 27, 2023, by and among Gryphon and each of the parties named therein (incorporated by reference to Exhibit 2.4 to the Current Report on Form 8-K filed by Akerna on January 27, 2023)
2.11		Form of Support Letter, dated January 27, 2023, by and among Akerna and certain lenders in relation to the Sale Transaction (incorporated by reference to Exhibit 2.5 to the Current Report on Form 8-K filed by Akerna on January 27, 2023)
2.12		Form of Support Letter, dated January 27, 2023, by and among Akerna and certain lenders in relation to the Merger (incorporated by reference to Exhibit 2.6 to the Current Report on Form 8-K filed by Akerna on January 27, 2023)
3.1		Amended and Restated Certificate of Incorporation of Akerna Corp. (incorporated by reference to Exhibit 3.1 on ~~Current~~Quarterly Report on Form ~~8-K~~10-Q filed by Akerna on ~~June 21, 2019)~~November 14, 2022)
3.2*3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit ~~3.1~~3.2 to the Quarterly Report on Form ~~10-KT~~10-Q filed by Akerna on ~~March 31, 2021)~~November 14, 2022)

3.3		Certificate of Designation for the Special Voting Share (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)
3.4*		Description of Securities
3.5		Certificate of Designation of Preference, Rights and Limitations of Series A Convertible Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 to Akerna’s Current Report on Form 8-K filed with the Commission on October 3, 2022)
3.6		Certificate of Designation of Preference, Rights and Limitations of Series B Convertible Redeemable Preferred Stock (incorporated by reference to Exhibit 3.2 to Akerna’s Current Report on Form 8-K filed with the Commission on October 3, 2022)
4.1		Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Akerna’s Registration Statement on Form S-4 (File No. 333-228220))
4.2		Specimen Warrant Certificate (incorporated by reference to Exhibit 4.2 to Akerna’s Registration Statement on Form S-4 (File No. 333-228220))
4.3		Form of Warrant Agreement (incorporated by reference to Exhibit 4.3 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

4.4		Stock Purchase Agreement, dated September 13, 2021, relating to the 365 Cannabis acquisition (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Akerna on September 21, 2021)
4.5		Securities Purchase Agreement, dated October 5, 2021 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Akerna on October 5, 2021)
4.6		Form of Secured Convertible Notes (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Akerna on October 5, 2021)
4.7		Form of Security Agreement (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Akerna on October 5, 2021)
4.8		Form of Guaranty Agreement (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by Akerna on October 5, 2021)
4.9		Amendment and Waiver Agreement dated June 30, 2022 to the Securities Purchase Agreement dated October 5, 2021 (incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q as filed by Akerna on August 12, 2022)
4.10		Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.10 to Akerna Corp’s Form S-1 as filed with the Commission on June 29, 2022)
4.11		Form of Warrant (incorporated by reference to Exhibit 4.9 to Akerna Corp’s post-effective amendment to Form S-1 as filed with the Commission on July 1, 2022)
4.12		Form of Underwriter’s Warrants (incorporated by reference to Exhibit 4.11 to Akerna Corp’s post-effective amendment to Form S-1 as filed with the Commission on July 1, 2022)
4.13		Waiver dated September 27, 2022 by and between Akerna Corp. and the Holders in accordance with the Securities Purchase Agreement dated October 5, 2021 (incorporated by reference to Exhibit 4.1 to Akerna Corp.’s Quarterly Report on Form 10-Q as filed with the Commission on November 14, 2022)
4.14		Amendment No. 1 to the Exchangeable Share Support Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed by Akerna on November 18, 2022)
9.1		Voting and Exchange Trust Agreement (incorporated by ~~reverence~~reference to Exhibit 9.1 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)
10.1		Registration Rights Agreement, dated January 29, 2018, by and among MTech Acquisition Corp., MTech Sponsor LLC, and MTech Sponsor LLC (incorporated by reference to Exhibit 10.1 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.2		First Amendment to Registration Rights Agreement, dated June 17, 2019, by and among MTech Acquisition Corp., Akerna Corp. and MTech Sponsor LLC (incorporated by reference to Exhibit 10.2 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.3		Stock Escrow Agreement, dated January 29, 2018, by and among MTech Acquisition Corp., MTech Sponsor LLC, and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.3 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.4		Amendment to Stock Escrow Agreement, dated June 17, 2019, by and among MTech Acquisition Corp., Akerna Corp., MTech Sponsor LLC, and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.4 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.5		Non-Competition and Non-Solicitation Agreement dated June 17, 2019, by and among Jessica Billingsley, Akerna Corp., MJ Freeway and MTech Sponsor LLC (incorporated by reference to Exhibit 10.5 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.6		Non-Competition and Non-Solicitation Agreement dated June 17, 2019, by and among Amy Poinsett, Akerna Corp., MJ Freeway and MTech Sponsor LLC (incorporated by reference to Exhibit 10.6 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.7		Form of Indemnification Agreement of Officers and Directors (incorporated by reference to Exhibit 10.7 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.8		Form of Subscription Agreement, by and among MTech Acquisition Corp., Akerna Corp., and each purchaser signatory thereto (incorporated by reference to Exhibit 10.8 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.9		Form of Agreement to Transfer Sponsor Shares, by and among MTech Acquisition Corp., Akerna Corp., each transferee signatory thereto, and Continental Stock Transfer &Trust Company (incorporated by reference to Exhibit 10.9 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.10^∧		Employment Agreement, dated June 17, 2019, by and between Jessica Billingsley and Akerna Corp. (incorporated by reference to Exhibit 10.10 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.11^∧		MTech Acquisition Holdings Inc. 2019 Long Term Incentive Plan (incorporated by reference to Exhibit 10.5 to Akerna's Registration Statement on Form S-4 (File No. 333-228220))
10.12^∧		Form of Option Grant Certificate (incorporated by reference to Exhibit 10.12 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.13^∧		Form of Restricted Stock Unit Award (incorporated by reference to Exhibit 10.13 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.14^∧		Form of Stock Award (incorporated by reference to Exhibit 10.14 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.15^∧		Form of Restricted Stock Award (incorporated by reference to Exhibit 10.15 on Current Report on Form 8-K filed by Akerna on June 21, 2019)

10.16^∧		Form of Appreciation Rights Award (incorporated by reference to Exhibit 10.16 on Current Report on Form 8-K filed by Akerna on June 21, 2019)
10.17		Form of Lock-Up Agreement, by and among MTech Acquisition Holdings, Inc., MTech Sponsor LLC, and each holder signatory thereto (incorporated by reference to Exhibit 10.3 to Akerna’s Registration Statement on Form S-4 (File No. 333-228220))
10.18		Office Service Agreement, dated September 30, 2019, effective February 1, 2020 (incorporated by reference to Exhibit 10.1 to Akerna's Quarterly Report on Form 10-Q for the three months ended September 30, 2019)
10.19		Stock Purchase Agreement, dated November 25, 2018 (incorporated by reference to Exhibit 10.1 to Akerna’s Current Report on Form 8-K filed on November 26, 2019)
10.20^∧		Letter Agreement effective September 23, 2019 between Akerna and Nina Simosko (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Akerna on October 1, 2019)
10.21^∧		Letter Agreement effective September 26, 2019 between MJ Freeway, LLC and Ray Thompson (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Akerna on October 1, 2019)
10.22		Covenant Agreement effective September 23, 2019 between Akerna and Nina Simosko (incorporated by reference to Exhibit 10.3 to the Current Report of Form 8-K filed by Akerna on October 1, 2019)
10.23		Covenant Agreement between Akerna Corp. and Ray Thompson (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by Akerna on October 1, 2019)
10.24^∧		Letter Agreement dated December 17, 2019 between Akerna and John Fowle (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Akerna on December 23, 2019)
10.25		Covenant Agreement dated December 17, 2019 between Akerna and John Fowle (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Akerna on December 23, 2019)
10.26		Exchangeable Share Support Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)
10.27		Escrow Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)
10.28		Rights Indenture (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Akerna on July 8, 2020)
10.29		Agreement and Plan of Reorganization with Navigator Acquisition Corp. dated March 10, 2021 (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed by Akerna on May 21, 2021)
10.30		At-the-Market Distribution Agreement dated July 23, 2021 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by Akerna on July 23, 2021)
10.31		Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Akerna on October 4, 2021)

10.32		Registration Rights Agreement with Sellers of 365 Cannabis (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Akerna on October 4, 2021)
10.33		Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed by Akerna on October 5, 2021)
10.34		Form of Voting Agreement (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed by Akerna on October 5, 2021)
10.35		Amended 2019 Long Term Incentive Plan (incorporated by reference to Appendix C to the Company’s definitive proxy statement on Schedule 14A as filed with the Commission on April 19, 2022)
10.36		Consulting Agreement effective as of April 21, 2022 between Akerna Corp. and Larry Dean Ditto Jr. (incorporated by reference to Exhibit 10.1 to Akerna Corp.'s Form 8-K as filed with the Commission on May 16, 2022)
10.37		Form of Securities Purchase Agreement between Akerna Corp. and the investors thereto, dated October 3, 2022 (incorporated by reference to Exhibit 10.1 to Akerna Corp.’s Current Report on Form 8-K as filed with the Commission on October 3, 2022)
10.38		Form of Registration Rights Agreement between Akerna Corp. and the investors named therein, dated October 3, 2022 (incorporated by reference to Exhibit 10.2 to Akerna Corp.’s Current Report on Form 8-K as filed with the Commission on October 3, 2022)
10.39		Common Stock Sales Agreement dated September 28, 2022 by and between Akerna Corp. and A.G.P./Alliance Global Partners (incorporated by reference to Exhibit 10.1 to Akerna Corp.’s Current Report on Form 8-K as filed with the Commission on September 28, 2022)
10.40^∧		Offer Letter from Akerna Corp. to Scott Sozio dated August 18, 2022 (incorporated by reference to Exhibit 10.2 to Akerna Corp.’s Quarterly Report on Form 10-Q as filed with the Commission on November 14, 2022)
10.41^∧		Employment Offer Letter from Akerna Corp. to L. Dean Ditto dated August 18, 2022 (incorporated by reference to Exhibit 10.3 to Akerna Corp.’s Quarterly Report on Form 10-Q as filed with the Commission on November 14, 2022)
10.42		Exchange Agreement, dated January 27, 2023, by and among Akerna and certain lenders (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Akerna on January 27, 2023)
10.43		Form of Repricing Letter, dated January 27, 2023, by and among Akerna and certain lenders (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Akerna on January 27, 2023)
21.1*		Subsidiaries of Akerna Corp.
23.1*		Consent of Marcum LLP
31.1*		Chief Executive Officer certification under Section 302 of Sarbanes-Oxley Act of 2002
31.2*		Chief Financial Officer certification under Section 302 of Sarbanes-Oxley Act of 2002.
32.1*		Chief Executive Officer and Chief Financial Officer certification under Section 906 of Sarbanes-Oxley Act of 2002.
101*		Interactive Data Files

*	Filed herewith
+	The exhibits and schedules to this Exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby agrees to furnish a copy of any omitted schedules to the Commission upon request.
^∧	Management contract or compensatory plan or arrangement

AKERNA CORP.

By:	/s/ Jessica Billingsley
	Name:	Jessica Billingsley
	Title:	Chief Executive Officer
	Date:	March ~~31, 2022~~20, 2023

Signature	Title	Date

/s/ Jessica Billingsley	Chief Executive Officer and Director (Principal Executive Officer)	March ~~31, 2022~~20, 2023
Jessica Billingsley

/s/ ~~John Fowle~~L. Dean Ditto	Chief Financial Officer (Principal Financial and Accounting Officer)	March ~~31, 2022~~20, 2023
~~John Fowle~~L. Dean Ditto

/s/ Scott Sozio	Director	March ~~31, 2022~~20, 2023
Scott Sozio

/s/ Matthew R. Kane	Director	March ~~31, 2022~~20, 2023
Matthew R. Kane

/s/ Tahira Rehmatullah	Director	March ~~31, 2022~~20, 2023
Tahira Rehmatullah

/s/ Barry Fishman	Director	March ~~31, 2022~~20, 2023
Barry Fishman


Report of Independent Registered Public Accounting Firm (PCAOB 00688); Marcum LLP, Los Angeles, CA	F-2

Consolidated Balance Sheets as of December 31, ~~2021~~2022 and ~~2020~~2021	F-3

Consolidated Statements of Operations for the ~~Year~~Years Ended December 31, 2022 and 2021 ~~the Six Months Ended December 31, 2020 and the Year Ended June 30, 2020~~	F-4

Consolidated Statements of Comprehensive Loss for the ~~Year~~Years Ended December 31, ~~2021, the Six Months Ended December 31, 2020~~2022 and ~~the Year Ended June 30, 2020~~2021	F-5

Consolidated Statements of Changes in Equity for the ~~Year~~Years Ended December 31, 2022 and 2021 ~~the Six Months Ended December 31, 2020 and the Year Ended June 30, 2020~~	F-6

Consolidated Statements of Cash Flows for the ~~Year~~Years Ended December 31, ~~2021, the Six Months Ended December 31, 2020~~2022 and ~~the Year Ended June 30, 2020~~2021	F-7

Notes to Consolidated Financial Statements	F-8

	December 31,			December 31,			As of December 31,
	2021			2020			2022			2021
Assets
Current assets:
Current assets
Cash	$	13,934,265		$	17,840,640		$	877,755		$	12,579,366
Restricted cash		508,261			500,000			7,000,000			508,261
Accounts receivable, net		1,403,774			1,753,547			674,626			873,688
Prepaid expenses and other current assets		2,383,764			2,458,727			1,209,623			2,125,722
Assets held for sale								5,130,028			2,143,027
Total current assets		18,230,064			22,552,914			14,892,032			18,230,064

Fixed assets, net		153,151			1,193,433			48,879			66,028
Investment, net		226,101			233,664			—			226,101
Capitalized software, net		7,311,676			3,925,739			654,556			6,940,653
Intangible assets, net		21,609,794			7,388,795			2,164,722			6,553,683
Goodwill		46,942,681			41,874,527			1,708,303			32,844,297
Other noncurrent assets		9,700			0—
Noncurrent assets held for sale								—			29,622,341
Total assets	$	94,483,167		$	77,169,072		$	19,468,492		$	94,483,167

Liabilities and Equity

Current liabilities:
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable, accrued expenses and other current liabilities	$	6,063,520		$	3,188,576		$	4,426,419		$	5,385,773
Contingent consideration payable		6,300,000			0—			2,283,806			6,300,000
Deferred revenue		3,543,819			843,900
Current portion of deferred revenue								568,771			871,800
Current portion of long-term debt		13,200,000			11,707,363			13,200,000			13,200,000
Derivative liability		63,178			311,376			—			63,178
Liabilities held for sale								2,246,222			3,349,766
Total current liabilities		29,170,517			16,051,215			22,725,218			29,170,517

Long-term portion of deferred revenue		582,676			0—
Deferred revenue, noncurrent								161,802			245,903
Long-term debt, less current portion		4,105,000			3,895,237			1,407,000			4,105,000
Deferred tax liabilities		675,291			0—

Deferred income tax liabilities								—			675,291
Noncurrent liabilities held for sale								—			336,773
Total liabilities		34,533,484			19,946,452			24,294,020			34,533,484

Commitments and contingencies (Note 14)
Commitments and contingencies (Note 12)

Equity:
Preferred stock, par value $0.0001; 5,000,000 shares authorized, 1 share special voting preferred stock issued and outstanding at December 31, 2021 and December 31, 2020		0—			0—
Special voting preferred stock, par value $0.0001; 1 share authorized, issued and outstanding as of December 31, 2021 and December 31, 2020, with $1 preference in liquidation; exchangeable shares, 0 par value, 309,286 and 2,667,349 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively (See Note 4)		2,366,038			20,405,219
Common stock, par value $0.0001; 75,000,000 shares authorized, 31,001,884 and 19,901,248, issued and outstanding at December 31, 2021 and December 31, 2020, respectively		3,100			1,990
Stockholders’ equity (deficit)
Preferred stock, par value $0.0001; 5,000,000 shares authorized, 1 share special voting preferred stock issued and outstanding at December 31, 2022 and December 31, 2021								—			—
Special voting preferred stock, par value $0.0001; 1 share authorized, issued and outstanding as of December 31, 2022 and December 31, 2021, with $1 preference in liquidation; exchangeable shares, no par value, 285,672 and 309,286 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively (see Note 13)								2,185,391			2,366,038
Common stock, par value $0.0001; 150,000,000 shares authorized, 4,602,780 and 1,550,094, issued and outstanding at December 31, 2022 and December 31, 2021, respectively								460			155
Additional paid-in capital		146,027,258			94,086,433			160,207,367			146,030,203
Accumulated other comprehensive loss		61,523			(91,497	)
Accumulated other comprehensive income								347,100			61,523
Accumulated deficit		(88,508,236	)		(57,179,525	)		(167,565,846	)		(88,508,236	)
Total equity		59,949,683			57,222,620
Total liabilities and equity	$	94,483,167		$	77,169,072
Total stockholders’ equity (deficit)								(4,825,528	)		59,949,683
Total liabilities and stockholders’ equity (deficit)							$	19,468,492		$	94,483,167

		Year Ended December 31,		Six Months Ended December 31,			Year Ended June 30,
		2021		2020			2020				Year Ended December 31,
											2022		2021
Revenue
Software	$	18,998,409		$	6,766,985		$	9,976,580		$	12,920,647		$	15,984,376
Consulting		1,510,413			916,099			2,379,947			682,309			1,510,413
Other revenue		176,152			141,700			216,749			42,074			132,308
Total revenue		20,684,974			7,824,784			12,573,276			13,645,030			17,627,097
Cost of revenue		8,119,487			3,141,041			6,209,724			5,412,388			7,433,884
Gross profit		12,565,487			4,683,743			6,363,552			8,232,642			10,193,213
Total Operating expenses:
Operating expenses
Product development		6,271,966			3,166,088			3,206,310			4,690,967			5,892,022
Sales and marketing		9,108,173			3,928,028			7,792,480			6,053,172			7,708,265
General and administrative		10,422,207			4,435,067			11,320,715			8,344,613			10,173,630
Depreciation and amortization		5,735,150			2,007,237			1,315,898			5,622,274			5,174,551
Impairment of long-lived assets		14,383,310			6,887,000			0—			38,967,295			14,354,114
Total operating expenses		45,920,806			20,423,420			23,635,403			63,678,321			43,302,582
Loss from operations		(33,355,319	)		(15,739,677	)		(17,271,851	)		(55,445,679	)		(33,109,369	)

Other (expense) income:
Interest (expense) income, net		(1,531,497	)		(193,084	)		156,678
Other (expense) income
Interest expense, net											(853,716	)		(1,530,703	)
Change in fair value of convertible notes		(1,365,904	)		(961,273	)		766,000			(2,884,273	)		(1,365,904	)
Change in fair value of derivative liability		248,198			746,852			1,962,034			63,178			248,198
Gain on forgiveness of PPP Loan		2,234,730			0—			0—			—			2,234,730
Other (expense) income		186,420			(59,273	)		(254	)		(221,101	)		186,420
Total other (expense) income		(228,053	)		(466,778	)		2,884,458			(3,895,912	)		(227,259	)

Net loss before income taxes and equity in losses of investee		(33,583,372	)		(16,206,455	)		(14,387,393	)
Income tax (expense) benefit		2,262,225			(200	)		(30,985	)
Net loss from continuing operations before income taxes and equity in losses of investee											(59,341,591	)		(33,336,628	)
Income tax benefit on continuing operations											716,155			2,263,725
Equity in losses of investee		(7,564	)		(12,641	)		(3,692	)		—			(7,564	)
Net Loss	$	(31,328,711	)	$	(16,219,296	)	$	(14,422,070	)
Net loss attributable to noncontrolling interest in consolidated subsidiary		0—			8,815			849,759
Net loss attributable to Akerna shareholders	$	(31,328,711	)	$	(16,210,481	)	$	(13,572,311	)
Net loss from continuing operations											(58,625,436	)		(31,080,467	)
Loss from discontinued operations, net of tax											(20,432,174	)		(248,244	)
Net loss										$	(79,057,610	)	$	(31,328,711	)
Deemed dividends related to convertible redeemable preferred stock											(955,500	)		—
Net loss attributable to common stockholders										$	(80,013,110	)	$	(31,328,711	)

Basic and diluted weighted average common shares outstanding		25,641,950			16,056,030			11,860,212			2,927,853			1,282,098
Basic and diluted net loss per common share	$	(1.22	)	$	(1.01	)	$	(1.14	)
Basic and diluted loss per common share from continuing operations										$	(20.35	)	$	(24.24	)
Basic and diluted loss per common share from discontinued operations										$	(6.98	)	$	(0.19	)
Basic and diluted loss per common share										$	(27.33	)	$	(24.44	)

		Year Ended December 31,		Six Months Ended December 31,			Year Ended June 30,
		2021		2020			2020			Year Ended December 31,
										2022			2021
Net loss	$	(31,328,711)		$	(16,219,296	)	$	(14,422,070	)	$	(79,057,610	)	$	(31,328,711	)
Other comprehensive (loss) income:
Foreign currency translation		53,020			(21,497	)		0—			40,577			53,020
Unrealized (loss) gain on convertible notes		100,000			(133,000	)		63,000
Unrealized gain on convertible notes											245,000			100,000
Comprehensive loss		(31,175,691	)		(16,373,793	)		(14,359,070	)	$	(78,772,033	)	$	(31,175,691	)
Comprehensive loss attributable to the noncontrolling interest		0—			8,815			849,759
Comprehensive loss attributable to Akerna shareholders	$	(31,175,691	)	$	(16,364,978	)	$	(13,509,311	)

	Convertible Redeemable Preferred Stock								Special Voting Preferred Stock					Common Stock						Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
	Series A				Series B				Special Voting Preferred Stock					Common Stock
	Shares		Amount		Shares		Amount		Shares			Amount			Shares			Amount
Balance – December 31, 2020	—		—		—		—		2,667,349		$	20,405,219			995,062		$	100		$	94,088,323		$	(91,497	)	$	(57,179,525	)	$	57,222,620
Conversion of exchangeable shares to common stock	—		—		—		—		(2,358,063	)		(18,039,181	)		117,903			12			18,039,169			—			—			—
Settlement of convertible notes	—		—		—		—		—			—			154,706			15			11,610,571			—			—			11,610,586
Shares withheld for withholding taxes	—		—		—		—		—			—			(6,089	)		(1	)		(520,394	)		—			—			(520,395	)
Shares issued in connection with Viridian acquisition	—		—		—		—		—			—			51,550			5			6,187,995			—			—			6,188,000
Shares issued in connection with asset purchase	—		—		—		—		—			—			4,167			—			300,000			—			—			300,000
Shares issued in connection with 365 Cannabis acquisition	—		—		—		—		—			—			178,572			18			11,996,043			—			—			11,996,061
Stock-based compensation	—		—		—		—		—			—			—			—			2,070,358			—			—			2,070,358
Shares issued in connection with the ATM offering program	—		—		—		—		—			—			27,819			3			1,828,116			—			—			1,828,119
Settlement of liabilities with shares	—		—		—		—		—			—			5,085			1			430,024			—			—			430,025
Restricted stock vesting	—		—		—		—		—			—			21,386			2			(2	)		—			—			—
Forfeitures of restricted shares	—		—		—		—		—			—			(67	)		—			—			—			—			—
Foreign currency translation adjustments	—		—		—		—		—			—			—			—			—			53,020			—			53,020
Unrealized gains on convertible notes	—		—		—		—		—			—			—			—			—			100,000			—			100,000
Net loss	—		—		—		—		—			—			—			—			—			—			(31,328,711	)		(31,328,711	)
Balance – December 31, 2021	—		—		—		—		309,286		$	2,366,038			1,550,094		$	155		$	146,030,203		$	61,523		$	(88,508,236	)	$	59,949,683
Conversion of exchangeable shares to common stock	—		—		—		—		(23,614	)		(180,647	)		1,180			—			180,647			—			—			—
Settlement of convertible notes	—		—		—		—		—			—			207,427			21			3,925,479			—			—			3,925,500
Shares withheld for withholding taxes	—		—		—		—		—			—			(1,662	)		—			(9,926	)		—			—			(9,926	)
Shares issued (returned) in connection with 365 Cannabis acquisition	—		—		—		—		—			—			(13,988	)		(1)			(939,999	)		—			—			(940,000	)
Common shares and warrants issued in connection with unit offering, net of issue costs	—		—		—		—		—			—			2,173,913			217			9,178,744			—			—			9,178,961
Stock-based compensation	—		—		—		—		—			—			—			—			843,693			—			—			843,693
Shares issued in connection with the ATM offering program	—		—		—		—		—			—			642,956			64			1,854,501			—			—			1,854,565
Issuance of convertible redeemable preferred stock, net of issue costs	400,000		3,435,600		100,000		858,900		—			—			—			—			—			—			—			—
Deemed dividends related to convertible redeemable preferred stock	—		764,400		—		191,100		—			—			—			—			(955,500)			—			—			(955,500	)
Redemption of convertible redeemable preferred stock	(400,000	)	(4,200,000	)	(100,000	)	(1,050,000	)	—			—			—			—			—			—			—			—
Settlement of liabilities with shares	—		—		—		—		—			—			2,196			—			49,529			—			—			49,529
Restricted stock vesting	—		—		—		—		—			—			20,282			2			49,998			—			—			50,000
Fractional share adjustment from stock split	—		—		—		—		—			—			20,382			2			(2	)		—			—			—
Foreign currency translation adjustments	—		—		—		—		—			—			—			—			—			40,577			—			40,577
Unrealized gains on convertible notes	—		—		—		—		—			—			—			—			—			245,000			—			245,000
Net loss	—		—		—		—		—			—			—			—			—			—			(79,057,610	)		(79,057,610	)
Balance – December 31, 2022	—		—		—		—		285,672		$	2,185,391			4,602,780		$	460		$	160,207,367		$	347,100		$	(167,565,846	)	$	(4,825,528	)

	Special Voting Preferred Stock					Common Stock						Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholder's Equity			Noncontrolling Interest in Consolidated Subsidiary			Total Equity
	Special Voting Preferred Stock						Shares			Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholder's Equity			Noncontrolling Interest in Consolidated Subsidiary			Total Equity

Balance as of June 30, 2019	0—		$	0—			10,589,746		$	1,059		$	46,299,233		$	0—		$	(27,582,558	)	$	18,717,734		$	0—		$	18,717,734
Common stock issued upon warrant exercise	0—			0—			369,311			37			4,247,028			0—			0—			4,247,065			0—			4,247,065
Common stock issued in business combinations	0—			0—			2,299,650			230			20,081,236			0—			0—			20,081,466			0—			20,081,466
Non-controlling interest in acquired subsidiary	0—			0—			0—			0—			0—			0—			0—			0—			5,554,011			5,554,011
Stock-based compensation amortization	—			0—			—			0—			1,253,234			0—			0—			1,253,234			0—			1,253,234
Forfeitures of restricted shares	0—			0—			(54,901	)		(5	)		5			0—			0—			0—			0—			0—
Change in fair value of Convertible Notes	0—			0—			0—			0—			0—			63,000			0—			63,000			0—			63,000
Warrant Adjustment	—			0—			—			0—			21,738			0—			0—			21,738			0—			21,738
Net loss	—			0—			—			0—			0—			0—			(13,572,311	)		(13,572,311	)		(849,759	)		(14,422,070	)
Balance as of June 30, 2020	0—		$	0—			13,203,806		$	1,321		$	71,902,474		$	63,000		$	(41,154,869	)	$	30,811,926		$	4,704,252		$	35,516,178
Adoption of ASC 606 Adjustment	0—			0—			0—			0—			0—			0—			185,825			185,825			0—			185,825
Balance as of July 1, 2020	0—		$	0—			13,203,806		$	1,321		$	71,902,474		$	63,000		$	(40,969,044	)	$	30,997,751		$	4,704,252		$	35,702,003
Issuance of common stock	0—			0—			5,000,000			500			11,031,880			0—			0—			11,032,380			0—			11,032,380
Special voting preferred stock issued in business combination	3,294,574			25,203,490			0—			0—			0—			0—			0—			25,203,490			0—			25,203,490
Conversion of exchangable shares to common	(627,225	)		(4,798,271	)		627,225			63			4,798,208			0—			0—			0—			0—			0—
Acquisition of noncontrolling interest	0—			0—			800,000			80			4,695,357			0—			0—			4,695,437			(4,695,437	)		0—
Stock-based compensation amortization	—			0—			—			0—			1,298,540			0—			0—			1,298,540			0—			1,298,540
Settlement of convertible debt	0—			0—			112,867			11			359,989			0—			0—			360,000			0—			360,000
Restricted stock unit vesting	0—			0—			157,350			15			(15	)		0—			0—			0—			0—			0—
Unrealized loss (gains) on Convertible Notes	—			0—			—			0—			0—			(133,000	)		0—			(133,000	)		0—			(133,000	)
Foreign currency translation adjustments	—			0—			—			0—			0—			(21,497	)		0—			(21,497	)		0—			(21,497	)
Net loss	—			0—			—			0—			—			0—			(16,210,481	)		(16,210,481	)		(8,815	)		(16,219,296	)
Balance – December 31, 2020	2,667,349		$	20,405,219			19,901,248		$	1,990		$	94,086,433		$	(91,497	)	$	(57,179,525	)	$	57,222,620		$	0—		$	57,222,620
Conversion of Exchangeable Shares to common stock	(2,358,063	)		(18,039,181	)		2,358,063			237			18,038,944			0—			0—			0—			0—			0—
Settlement of convertible debt	0—			0—			3,094,129			309			11,610,277			0—			0—			11,610,586			0—			11,610,586
Shares withheld for withholding taxes	0—			0—			(121,786	)		(12	)		(520,383	)		0—			0—			(520,395	)		0—			(520,395	)
Shares issued in connection with Viridian Acquisition	0—			0—			1,031,000			103			6,187,897			0—			0—			6,188,000			0—			6,188,000
Shares issued in connection with Asset Purchase	0—			0—			83,333			8			299,992			0—			0—			300,000			0—			300,000
Shares issued in connection with 365 Cannabis Acquisition	0—			0—			3,571,429			357			11,995,704			0—			0—			11,996,061			0—			11,996,061
Stock-based compensation	—			0—			—			0—			2,070,358			0—			0—			2,070,358			0—			2,070,358
Shares issued in connection with the ATM program	0—			0—			556,388			56			1,828,063			0—			0—			1,828,119			0—			1,828,119
Settlement of liabilities with shares	0—			0—			101,705			10			430,015			0—			0—			430,025			0—			430,025
Restricted stock vesting	0—			0—			427,711			42			(42	)		0—			0—			0—			0—			0—
Forfeitures of restricted shares	0—			0—			(1,336	)		0—			0—			0—			0—			0—			0—			0—
Foreign currency translation adjustments	—			0—			—			0—			0—			53,020			0—			53,020			0—			53,020
Unrealized loss (gains) on convertible notes	—			0—			—			0—			0—			100,000			0—			100,000			0—			100,000
Net loss	—			0—			—			0—			0—			0—			(31,328,711	)		(31,328,711	)		0—			(31,328,711	)
Balance – December 31, 2021	309,286		$	2,366,038			31,001,884		$	3,100		$	146,027,258		$	61,523		$	(88,508,236	)	$	59,949,683		$	0—		$	59,949,683

		Year Ended December 31,		Six Months Ended December 31,			Year Ended June 30,				Year Ended December 31,
		2021		2020			2020				2022		2021
Cash flows from operating activities
Net Loss	$	(31,328,711	)	$	(16,219,296	)	$	(14,422,070	)
Adjustment to reconcile net loss to net cash used in operating activities
Net loss										$	(79,057,610	)	$	(31,328,711	)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in losses of investment		7,564			12,643			3,692			—			7,564
Loss on sale of investment											221,101			—
Bad debt expense		556,890			72,832			1,094,507			371,364			556,890
Stock-based compensation expense		2,070,359			1,197,589			1,166,130			873,929			2,070,359
Loss on write off of fixed assets		1,045,179			0—			0—			—			1,045,179
Gain on forgiveness of PPP loan		(2,234,730	)		0—			0—			—			(2,234,730	)
Depreciation and amortization		5,735,150			2,007,237			1,315,898			7,834,712			5,735,150
Amortization of deferred contract costs		492,683			228,766			0—			337,350			492,683
Non-cash interest expense		1,009,331			32,727			0—			597,276			1,009,331
Foreign currency gain		(3,312)			0—			0—			(14,553	)		(3,312	)
Impairment of long-lived assets		14,383,310			6,887,000			0—			61,778,605			14,383,310
Gain on debt extinguishment		(186,177	)		0—			0—
Loss on sale of fixed asset		0—			84,835			0—
Debt issuance costs		0—			0—			1,177,390
Gain on extinguishment of debt											—			(186,177	)
Change in fair value of convertible notes		1,365,904			961,273			(766,000	)		2,884,273			1,365,904
Change in fair value of derivative liability		(248,198	)		(746,852	)		(1,962,034	)		(63,178	)		(248,198	)
Change in fair value of contingent consideration		0—			(993,000	)		(998,000	)		(4,016,194	)		—
Changes in operating assets and liabilities:
Accounts receivable		849,785			1,008,775			(1,621,262	)
Accounts receivable, net											197,647			849,785
Prepaid expenses and other current assets		(8,988	)		(689,729	)		(592,807	)		257,555			(8,988	)
Other assets		0—			41,925			(58,925	)		9,700			—
Accounts payable, accrued expenses and other current liabilities		1,610,470			(2,498,375	)		1,602,751			(324,166	)		1,610,470
Deferred tax liabilities		(2,274,295	)		0—			0—
Deferred income tax liabilities											(675,291	)		(2,274,295	)
Deferred revenue		(1,010,118	)		(94,088	)		(286,922	)		(2,113,249	)		(1,010,118	)
Net cash used in operating activities		(8,167,904	)		(8,705,738	)		(14,347,652	)		(10,900,729	)		(8,167,904	)

Cash flows from investing activities
Developed software additions		(5,427,230	)		(1,847,710	)		(3,102,728	)		(4,345,260	)		(5,427,230	)
Furniture, fixtures, and equipment additions		(39,263	)		(12,203	)		(156,636	)
Cash paid for business combinations, net of cash acquired		(5,018,592	)		(5,279,134	)		(88,720	)
Investment in equity method investee		0—			0—			(250,000	)
Fixed asset additions											(31,884	)		(39,263	)
Cash paid for business combinations and working capital settlement, net of cash acquired											400,000			(5,018,592	)
Proceeds received from sale of investment											5,000			—
Net cash used by investing activities		(10,485,085	)		(7,139,047	)		(3,598,084	)		(3,972,144	)		(10,485,085	)

Cash flows from financing activities
Value of shares withheld related to tax withholdings		(520,395	)		0—			0—			(9,926	)		(520,395	)
Proceeds from stock offering, net		1,828,119			0—			0—
Proceeds from the issuance of long term debt		18,000,000			0—			17,164,600
Payments of principal amounts of debt		0—			0—			0—
Payments on debt		(4,571,472	)		(1,500,000	)		0—
Cash paid for debt issuance costs		0—			0—			(1,177,390	)
Proceeds from the exercise of warrants		0—			0—			4,247,065
Proceeds from the issuance of common stock		0—			12,000,000			0—
Offering costs from the issuance of common stock		0—			(967,620	)		0—
Proceeds from unit and pre-funded unit offering, net											9,178,960			—
Proceeds from the exercise of pre-funded warrants											1			—
Proceeds from the ATM offering program, net											1,854,565			1,828,119
Proceeds from the issuance of convertible notes											—			18,000,000
Principal payments of convertible notes											(1,432,273	)		(4,571,472	)
Proceeds from the issuance of convertible redeemable preferred stock, net											4,294,500			—
Redemption of convertible redeemable preferred stock											(5,250,000	)		—
Net cash provided by financing activities		14,736,252			9,532,380			20,234,275			8,635,827			14,736,252
Effect of exchange rate changes on cash and restricted cash		18,623			(2,783	)		0—			(22,225	)		18,623
Net (decrease) increase in cash and restricted cash	$	(3,898,114	)	$	(6,315,188	)	$	2,288,539		$	(6,259,271	)	$	(3,898,114	)
Cash and restricted cash of continuing operations - beginning of period											13,087,627			18,286,481
Cash and restricted cash of discontinued operations - beginning of period											1,354,899			54,159
Cash and restricted cash - beginning of period		18,340,640			24,655,828			22,367,289			14,442,526			18,340,640
Cash and restricted cash of continuing operations - end of period											7,877,755			13,087,627
Cash and restricted cash of discontinued operations - end of period											305,500			1,354,899
Cash and restricted cash - end of period	$	14,442,526		$	18,340,640		$	24,655,828		$	8,183,255		$	14,442,526
Cash paid for taxes	$	10,570		$	0—		$	0—
Cash paid for interest	$	507,941		$	150,000		$	0—
Cash paid for income taxes, net of refunds received										$	15,684		$	10,570
Cash paid for interest, net										$	256,440		$	507,941


Supplemental disclosure of non-cash investing and financing activity:
Adjustments due to the adoption of ASC 606		0—			185,826			0—
Vesting of restricted stock units		42			15			0—		$	50,000		$	42
Settlement of convertible notes in common stock		11,610,586			327,273			0—		$	3,925,500		$	11,610,586
Stock-based compensation capitalized as software development		36,915			100,951			87,104		$	19,764		$	36,915
Acquisition of noncontrolling interest		0—			4,695,437			0—
Capitalized software included in accrued expenses		554,127			189,198			0—		$	17,974		$	554,127
Special voting preferred stock issued in business combination		0—			25,203,490			0—
Conversion of exchangeable shares to common stock		18,038,944			4,798,271			0—		$	180,647		$	18,038,944
Adjustment to Trellis purchase price allocation		0—			14,300			0—
Settlement of liabilities with common stock		430,015			0—			0—		$	49,529		$	430,015
Shares issued in connection with an asset purchase		8			0—			0—

Assets acquired and liabilities assumed in business combinations:
Cash		527,346			445,269			0—
Accounts receivable		1,041,912			917,205			77,505
Prepaid expenses and other current assets		408,973			596,233			27,860
Fixed assets		93,365			1,326,996			2,410
Intangible assets		16,933,000			3,795,000			8,010,000
Goodwill		19,451,464			25,805,615			20,254,309
Accounts payable and accrued liabilities		1,174,961			805,114			1,441,062
Deferred tax liabilities		2,949,586			0—			0—
Deferred revenue		4,301,514			549,311			31,220
Contingent consideration		6,300,000			604,000			1,387,000
Shares returned in connection with acquisition (see Note 4)										$	940,000		$	—
Shares issued in connection with asset purchase										$	—		$	300,000
Reduction to accrued expenses from an acquisition-related working capital settlement (see Note 4)										$	160,000		$	—

~~Furniture and computer equipment~~	~~3 to 7 years~~
~~Leasehold improvements~~	~~Lesser of remaining lease term or useful life~~


●	Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;


●	Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Shares issued	$	6,186
Contingent consideration		2
Total fair value of consideration transferred	$	6,188

Accounts receivable	$	556
Prepaid expenses and other current assets		148
Capitalized software		423
Acquired technology		470
Customer relationships		820
Acquired trade name		20
Goodwill		5,408
Accounts payable and accrued expenses		(350	)
Deferred tax liabilities		(307	)
Deferred revenue		(1,000	)
Net assets acquired	$	6,188

Shares issued	$	11,060
Cash		4,982
Contingent consideration		6,300
Total fair value of consideration transferred	$	22,342

	Year Ended December 31, 2021		Six Months Ended December 31, 2020			Year Ended June 30, 2020
United States	$	15,800	$	5,212	$	12,573
Canada	4,885		2,613			0—
	$	20,685	$	7,825	$	12,573