UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly ~~period~~period ended ~~September~~June 30, ~~2019~~2022

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from / to

Commission file number 001-39096

AKERNA CORP.

(Exact name of registrant as specified in its charter)

Delaware		83-2242651
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
��
~~1601 Arapahoe St.~~1550 Larimer Street, #246 Denver, Colorado		80202
(Address of principal executive offices)		(Zip Code)

~~(888) 932-6537~~

Registrant’s telephone number, including area ~~code~~code: (888)932-6537

Securities registered pursuant to Section 12(b) of the Act:

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~~ (Nasdaq Capital Market)
Warrants to purchase one share of common stock	KERNW	Nasdaq Stock Market LLC ~~(Nasdaq~~ (Nasdaq Capital Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes ☒ No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yesx☒No¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes☐ No ☒

As of ~~November 13, 2019,~~August 11, 2022, there ~~were 10,958,656~~were80,285,241 shares of of the registrant’s common stock, par ~~value~~value $0.0001 per share, ~~issued and~~ outstanding.

	June 30,			December 31,
	2022			2021
Assets
Current assets:
Cash	$	5,124,553		$	13,934,265
Restricted cash		8,261			508,261
Accounts receivable, net		1,882,084			1,403,774
Prepaid expenses and other current assets		2,155,446			2,383,764
Total current assets		9,170,344			18,230,064

Fixed assets, net		143,026			153,151
Investment, net		226,101			226,101
Capitalized software, net		6,898,876			7,311,676
Intangible assets, net		17,640,833			21,609,794
Goodwill		9,080,177			46,942,681
Other noncurrent assets		9,700			9,700
Total assets	$	43,169,057		$	94,483,167

Liabilities and Equity

Current liabilities:
Accounts payable, accrued expenses and other accrued liabilities	$	7,050,679		$	6,063,520
Contingent consideration payable		6,300,000			6,300,000
Current portion of deferred revenue		2,403,512			3,543,819
Current portion of long-term debt		6,600,000			13,200,000
Derivative liability		11,282			63,178
Total current liabilities		22,365,473			29,170,517

Long-term portion of deferred revenue		602,086			582,676
Long-term debt, less current portion		6,788,000			4,105,000
Deferred income tax liabilities		468,486			675,291
Total liabilities		30,224,045			34,533,484

Commitments and contingencies (Note 7)
		0—			0—
Equity:
Preferred stock, par value $0.0001; 5,000,000 shares authorized, 1 share special voting preferred stock issued and outstanding at June 30, 2022 and December 31, 2021		0—			0—
Special voting preferred stock, par value $0.0001; 1 share authorized, issued and outstanding as of June 30, 2022 and December 31, 2021, with $1 preference in liquidation; exchangeable shares, no par value, 291,192 and 309,286 shares issued and outstanding as of June 30, 2022 and December 31, 2021 respectively		2,227,619			2,366,038
Common stock, par value $0.0001; 75,000,000 shares authorized, 36,826,733 and 31,001,884 issued and outstanding at June 30, 2022 and December 31, 2021, respectively		3,680			3,100
Additional paid-in capital		150,438,437			146,027,258
Accumulated other comprehensive income		302,352			61,523
Accumulated deficit		(140,027,076	)		(88,508,236	)
Total equity		12,945,012			59,949,683
Total liabilities and equity	$	43,169,057		$	94,483,167

AKERNA CORP.

Condensed Consolidated Statements of Operations

(unaudited)

~~(unaudited)~~

		For the Three Months Ended					For the Six Months Ended
		June 30,					June 30,
		2022		2021			2022			2021
Revenue:
Software	$	5,920,929		$	4,456,728		$	12,429,442		$	8,251,881
Consulting		115,300			410,884			542,309			583,631
Other revenue		49,652			39,275			64,971			85,399
Total revenue		6,085,881			4,906,887			13,036,722			8,920,911
Cost of revenue		1,835,977			1,914,380			4,039,648			3,368,547
Gross profit		4,249,904			2,992,507			8,997,074			5,552,364
Operating expenses:
Product development		1,761,428			1,527,258			3,866,789			2,951,358
Sales and marketing		3,185,318			1,826,143			6,421,431			3,562,058
General and administrative		2,419,109			4,375,981			4,989,541			6,228,943
Depreciation and amortization		1,982,833			1,314,132			3,976,224			2,367,015
Impairment of long-lived assets		24,122,066			0—			39,600,587			0—
Total operating expenses		33,470,754			9,043,514			58,854,572			15,109,374
Loss from operations		(29,220,850	)		(6,051,007	)		(49,857,498	)		(9,557,010	)
Other (expense) income:
Interest (expense) income, net		(212,984	)		(163,125	)		(213,724	)		(937,505	)
Change in fair value of convertible notes		(294,000	)		(16,405	)		(1,727,000	)		(2,007,677	)
Change in fair value of derivative liability		33,845			133,125			51,896			(42,871	)
Other expense (income), net		0—			243			0—			243
Total other (expense) income		(473,139	)		(46,162	)		(1,888,828	)		(2,987,810	)

Net loss before income taxes and equity in losses of investee		(29,693,989	)		(6,097,169	)		(51,746,326	)		(12,544,820	)
Income tax (expense) benefit		128,042			(4,300	)		227,486			(10,570	)
Equity in losses of investee		0—			(3,782	)		0—			(7,564	)

Net loss	$	(29,565,947	)	$	(6,105,251	)	$	(51,518,840	)	$	(12,562,954	)

Basic and diluted weighted average common stock outstanding		35,477,788			24,530,169			33,694,681			23,375,981
Basic and diluted net loss per common share	$	(0.83	)	$	(0.25	)	$	(1.53	)	$	(0.54	)

For the Three Months Ended
September 30,
2019 2018
Revenues
Software $ 2,304,480 $ 1,879,262
Consulting 831,363 370,083
Other 57,047 50,054
Total revenues 3,192,890 2,299,399

Cost of revenues 1,397,361 1,063,135

Gross profit 1,795,529 1,236,264

Operating expenses
Product development 1,130,880 801,472
Selling, general, and administrative 3,583,815 2,147,492
Total operating expenses 4,714,695 2,948,964

Loss from operations (2,919,166 ) (1,712,700 )

Other income (expense)
Interest 73,382 17,628
Other (287 ) (611 )
Total other income 73,095 17,017

Net loss $ (2,846,071 ) $ (1,695,683 )

Basic and diluted weighted average common stock outstanding 10,879,112 5,489,835
Basic and diluted net loss per common share $ (0.26 ) $ (0.31 )

~~See~~The accompanying notes toare an integral part of these condensed consolidated financial ~~statements.~~statements

AKERNA CORP.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Net loss	$	(29,565,947	)	$	(6,105,251	)	$	(51,518,840	)	$	(12,562,954	)
Other comprehensive (loss) income:
Foreign currency translation		10,629			2,183			(23,171	)		1,953
Unrealized (loss) gain on convertible notes		163,000			(3,000	)		264,000			(16,000	)
Comprehensive loss	$	(29,392,318	)	$	(6,106,068	)	$	(51,278,011	)	$	(12,577,001	)

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

AKERNA CORP.

Condensed Consolidated Statements of Changes in ~~Stockholders’~~ Equity

For the ~~three months ended September~~Six Months Ended June 30, ~~2019~~2022

(unaudited)

	Special Voting Preferred Stock					Common						Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Total
	Share		Amount			Shares			Amount			Capital			Income			Deficit			Equity

Balance – January 1, 2022	309,286		$	2,366,038			31,001,884		$	3,100		$	146,027,258		$	61,523		$	(88,508,236	)	$	59,949,683
Conversion of Exchangeable Shares to common stock	(2,434	)		(18,620	)		2,434			0—			18,620			0—			0—			0—
Settlement of convertible debt	0—			0—			3,396,842			340			3,299,660			0—			0—			3,300,000
Shares withheld for withholding taxes	0—			0—			(4,421	)		0—			(5,615	)		0—			0—			(5,615	)
Shares returned in connection with 365 Cannabis acquisition	0—			0—			(279,762	)		(28	)		(939,972	)		0—			0—			(940,000	)
Stock-based compensation	—			0—			—			0—			316,855			0—			0—			316,855
Restricted stock vesting	0—			0—			43,479			4			(4	)		0—			0—			0—
Liabilities settled with shares	0—			0—			14,632			1			45,065			0—			0—			45,066
Foreign currency translation adjustments	—			0—			—			0—			0—			(33,800	)		0—			(33,800	)
Unrealized (loss) gain on convertible notes	—			0—			—			0—			0—			101,000			0—			101,000
Net loss	—			0—			—			0—			0—			0—			(21,952,893	)		(21,952,893	)
Balance – March 31, 2022	306,852		$	2,347,418			34,175,088		$	3,417		$	148,761,867		$	128,723		$	(110,461,129	)	$	40,780,296
Conversion of Exchangeable Shares to common stock	(15,660	)		(119,799	)		15,660			02			119,797			0—			0—			0—
Settlement of convertible debt	0—			0—			751,686			75			625,425			0—			0—			625,500
Shares withheld for withholding taxes	0—			0—			(6,743	)		0—			(7,552	)		0—			0—			(7,552	)
Shares issued in connection with the ATM program	0—			0—			1,816,184			182			760,996			0—			0—			761,178
Stock-based compensation	—			0—			—			0—			148,444			0—			0—			148,444
Restricted stock vesting	—			0—			60,226			3			24,997			0—			0—			25,000
Liabilities settled with shares	—			0—			14,632			01			4,463			0—			0—			4,464
Foreign currency translation adjustments	—			0—			—			0—			0—			10,629			0—			10,629
Unrealized (loss) gain on convertible notes	—			0—			—			0—			0—			163,000			0—			163,000
Net loss	—			0—			—			0—			0—			0—			(29,565,947	)		(29,565,947	)
Balance – June 30, 2022	291,192		$	2,227,619			36,826,733		$	3,680		$	150,438,437		$	302,352		$	(140,027,076	)	$	12,945,012

Common Additional
Paid-In Accumulated Total
Stockholders’
Shares Amount Capital Deficit Equity

Balance – July 1, 2019 10,589,746 $ 1,059 $ 47,325,421 $ (25,566,746 ) $ 21,759,734

Stock-based compensation - - 161,165 - 161,165

Cash received in connection with exercise of warrants 368,910 37 4,242,417 - 4,242,454

Net loss - - - (2,846,071 ) (2,846,071 )

Balance – September 30, 2019 10,958,656 $ 1,096 $ 51,729,003 $ (28,412,817 ) $ 23,317,282

~~See~~The accompanying notes toare an integral part of these condensed consolidated financial ~~statements.~~statements

AKERNA CORP.

Condensed Consolidated Statements of Changes in ~~Stockholders’~~ Equity

For the ~~three months ended September~~Six Months Ended June 30, ~~2018~~2021

(unaudited)

	Special Voting Preferred Stock					Common						Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Total
	Share		Amount			Shares			Amount			Capital			Loss			Deficit			Equity

Balance – January 1, 2021	2,667,349		$	20,405,219			19,901,248		$	1,990		$	94,086,433		$	(91,497	)	$	(57,179,525	)	$	57,222,620
Conversion of Exchangeable Shares to common stock	(1,020,062	)		(7,803,475	)		1,020,062			102			7,803,373			0—			0—			0—
Settlement of convertible debt	0—			0—			2,080,140			208			8,467,292			0—			0—			8,467,500
Shares withheld for withholding taxes	0—			0—			(48,948	)		(5	)		(333,842	)		0—			0—			(333,847	)
Stock-based compensation	—			0—			—			0—			503,379			0—			0—			503,379
Settlement of liabilities with shares	0—			0—			101,705			10			377,315			0—			0—			377,325
Restricted stock vesting	0—			0—			13,978			1			(1	)		0—			0—			0—
Forfeitures of restricted shares	0—			0—			(668	)		0—			0—			0—			0—			0—
Foreign currency translation adjustments	—			0—			—			0—			0—			(230	)		0—			(230	)
Unrealized (loss) gains on convertible notes	—			0—			—			0—			0—			(13,000	)		0—			(13,000	)
Net loss	—			0—			—			0—			0—			0—			(6,457,702	)		(6,457,702	)
Balance – March 31, 2021	1,647,287		$	12,601,744			23,067,517		$	2,306		$	110,903,949		$	(104,727	)	$	(63,637,227	)	$	59,766,045
Conversion of Exchangeable Shares to common stock	(607,914	)		(4,650,541	)		607,914			62			4,650,479			0—			0—			0—
Settlement of convertible debt	0—			0—			543,355			54			1,729,090			0—			0—			1,729,144
Shares withheld for withholding taxes	0—			0—			1,000,000			100			6,001,900			0—			0—			6,002,000
Stock-based compensation	—			0—			—			0—			571,242			0—			0—			571,242
Settlement of liabilities with shares	—			0—			—			0—			0—			0—			0—			0—
Restricted stock vesting	0—			0—			114,321			11			(11	)		0—			0—			0—
Forfeitures of restricted shares	0—			0—			(668	)		0—			0—			0—			0—			0—
Foreign currency translation adjustments	—			0—			—			0—			0—			2,183			0—			2,183
Unrealized (loss) gains on convertible notes	—			0—			—			0—			0—			(3,000	)		0—			(3,000	)
Net loss	—			0—			—			0—			0—			0—			(6,105,251	)		(6,105,251	)
Balance – June 30, 2021	1,039,373		$	7,951,203			25,332,439		$	2,533		$	123,856,649		$	(105,544	)	$	(69,742,478	)	$	61,962,363

Common Additional
Paid-In Accumulated Total
Stockholders’
Shares Amount Capital Deficit Equity

Balance – July 1, 2018 4,922,650 $ 492 $ 14,563,102 $ (13,163,531 ) $ 1,400,063

Issuance of shares in exchange for cash 1,099,376 110 9,999,890 - 10,000,000

Net loss - - - (1,695,683 ) (1,695,683 )

Balance – September 30, 2018 6,022,026 $ 602 $ 24,562,992 $ (14,859,214 ) $ 9,704,380

~~See~~The accompanying notes toare an integral part of these condensed consolidated financial ~~statements.~~statements

AKERNA CORP.

Condensed Consolidated Statements of Cash Flows

(unaudited)

~~(unaudited)~~

	For the Six Months Ended
	June 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(51,518,840	)	$	(12,562,954	)
Adjustment to reconcile net loss to net cash used in operating activities:
Equity in losses of investment		0—			7,564
Bad debt expense		112,475			150,294
Stock-based compensation expense, net		477,681			1,074,621
Loss on write off of fixed assets		0—			1,045,180
Impairments of long-lived assets		39,600,587			0—
Amortization of deferred contract cost		205,408			242,110
Non-cash interest expense		60,500			926,968
Depreciation and amortization		3,976,224			2,367,014
Foreign currency loss (gain)		14,689			(17,344	)
Change in fair value of convertible notes		1,727,000			2,007,677
Change in fair value of derivative liability		(51,896	)		42,871
Changes in operating assets and liabilities:
Accounts receivable, net		(580,387	)		286,118
Prepaid expenses and other current assets		23,530			(115,934	)
Accounts payable, accrued expenses and other accrued liabilities		119,355			1,463,669
Deferred income tax liabilities		(206,805	)		0—
Deferred revenue		(1,146,966	)		(633,052	)
Net cash used in operating activities		(7,187,445	)		(3,715,198	)
Cash flows from investing activities:
Developed software additions		(1,737,120	)		(2,004,609	)
Fixed asset additions		(27,383	)		0—
Cash returned from business combination working capital settlement (Note 4)		400,000			0—
Net cash used in investing activities		(1,364,503	)		(2,004,609	)
Cash flows from financing activities:
Value of shares withheld related to tax withholdings		(13,167	)		(333,847	)
Principal payments of convertible notes		(1,515,000	)		0—
Proceeds received from stock offering, net		761,178			0—
Net cash used in financing activities		(766,989	)		(333,847	)
Effect of exchange rate changes on cash and restricted cash		9,225			(124	)
Net change in cash and restricted cash		(9,309,712	)		(6,053,778	)
Cash and restricted cash - beginning of period		14,442,526			18,340,640
Cash and restricted cash - end of period	$	5,132,814		$	12,286,862
Cash paid for interest	$	151,500		$	50,854
Cash paid for income taxes	$	19,466		$	64,963
Supplemental disclosures of non-cash investing and financing activities:
Settlement of convertible notes in common stock	$	3,925,500		$	10,196,382
Conversion of exchangeable shares to common stock		138,419			12,453,853
Settlement of other liabilities in common stock		49,528			377,325
Stock-based compensation capitalized as software development		12,618			0—
Vesting of restricted stock units		7			0—
Capitalized software included in accrued expenses		1,045,299			0—
Shares returned in connection with 365 Cannabis acquisition (Note 4)		940,000			0—
365 Cannabis working capital reduction to accrued expenses (Note 4)		160,000			0—

For the three months ended
September 30,
2019 2018
Cash flows from operating activities
Net loss $ (2,846,071 ) $ (1,695,683 )
Adjustment to reconcile net loss to net cash used in operating activities
Bad debt expense 252,809 47,873
Stock-based compensation expense 161,165 -
Changes in operating assets and liabilities
Accounts receivable (1,508,217 ) 151,462
Prepaid expenses and other current assets (292,272 ) (167,200 )
Accounts payable 281,598 293,515
Accrued liabilities (7,032 ) 40,553
Deferred revenue 278,208 362,193
Net cash used in operating activities (3,679,812 ) (967,287 )

Cash flows from financing activities
Cash received in connection with exercise of warrants 4,242,454 -
Cash received in connection with issuance of shares - 10,000,000
Net cash provided by financing activities 4,242,454 10,000,000

Net increase in cash and restricted cash 562,642 9,032,713

Cash and restricted cash - beginning of period 22,367,289 2,572,401

Cash and restricted cash - end of period $ 22,929,931 $ 11,605,114

Cash paid for taxes $ - $ -

Cash paid for interest $ 1,974 $ 416

~~See~~The accompanying notes toare an integral part of these condensed consolidated financial ~~statements.~~statements

AKERNA CORP.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~(Unaudited)~~

Note 1 - Description of Business ~~Liquidity and Capital Resources~~

Description of Business

Akerna Corp. ~~(the “Company”~~, herein referred to as we, us, our, the Company or ~~“Akerna”),~~Akerna, through ~~its~~our wholly-owned ~~subsidiary~~subsidiaries MJ Freeway, LLC, ~~(“MJF”) is a~~or MJF, Trellis Solutions, Inc., or Trellis, Ample Organics, Inc, the Company or Ample, solo sciences, inc., or Solo, Viridian Sciences Inc., or Viridian, and The NAV People, Inc. d.b.a. 365 Cannabis, or 365 Cannabis, provides enterprise software solutions that enable regulatory compliance and inventory ~~management technology company. The Company’s~~management. Our proprietary, ~~software platform is~~broad and growing suite of solutions are adaptable for industries in which interfacing with government regulatory agencies for compliance purposes is required, or where the tracking of organic materials from seed or plant to end products is desired. ~~The Company developed~~We develop products intended to assist states in monitoring licensed businesses’ compliance with state regulations and to help state-licensed businesses operate in compliance with such law. ~~The Company provides its~~We provide our commercial software platform, MJ Platform®, Trellis®, Ample, Viridian and 365 Cannabis to state-licensed businesses, and our regulatory software platform, Leaf Data Systems®, to state government regulatory ~~agencies,~~agencies. Through Solo, we provide an innovative, next-generation solution for state and ~~its commercial software platform,~~national governments to securely track product and waste throughout the supply chain with solo*TAG™. The integration of MJ Platform® and solo*CODE™ results in technology for consumers and brands that brings a consumer-facing mark designed to highlight the authenticity and signify transparency.

Our Viridian and 365 Cannabis offerings are considered enterprise offerings while all other solutions are considered non-enterprise offerings that meet the needs of our small and medium-sized business, or SMB, customers.

We consult with clients on a wide range of areas to 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 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.

Going Concern and Management's Liquidity Plans

In accordance with the Financial Accounting Standards Board’s (“FASB”) standard on going concern, Accounting Standard Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern (“ASU 2014-15”), we assess going concern uncertainty in our consolidated financial statements to ~~state-licensed businesses.~~determine if 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 defined to as the “look-forward period” in ASU 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable to 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 our ability to delay or curtail expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, we make certain assumptions regarding implementing curtailments or delays in the nature and timing of programs and expenditures to the extent we deem probable that such implementations can be achieved and we have the proper authority to execute them within the look-forward period in accordance with ASU 2014-15.

The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and ~~related notes reflect~~ the ~~historical results~~satisfaction of ~~MJF prior to the mergers completed in June 2019 (“the Mergers”) with MTech Acquisition Corp. (“MTech”) and other related entities, which resulted~~liabilities in the ~~combined company, and do not include the historical results~~normal course of ~~MTech prior to the completion of the Mergers.~~

~~Liquidity and Capital Resources~~

~~Since its~~business. However, since our inception ~~the Company has~~we have incurred recurring ~~operating~~ losses from operations, used cash from ~~operations,~~operating activities, and relied on capital raising transactions to continue ongoing operations. ~~Although~~During the six months ended June 30, 2022 and June 30, 2021, we incurred losses from operations of $49.9 million and $9.6 million, respectively, and used cash in operating activities of $7.2 million and $3.7 million, respectively. As of June 30, 2022, we had a working capital deficit of $13.2 million with $5.1 million in cash available to fund future operations.Furthermore, on May 24, 2022, we received a notice (the “Notice”) from The Nasdaq Stock Market LLC indicating that the bid price of the Company’s common stock, par value $0.0001 per share (“Common Stock”), is not currently in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on the Nasdaq Capital Market (the “Nasdaq Market”). The Notice has no immediate effect on the continued listing status of our Common Stock on the Nasdaq Market, and, therefore, our listing remains fully effective. We are provided a compliance period of 180 calendar days from the date of the Notice, or until November 21, 2022, to regain compliance with the minimum closing bid requirement. These factors raise substantial doubt regarding the ability of the Company to continue as a going concern.

Management’s plan for the Company to continue as a going concern includes several initiatives and actions including those impacting our short and intermediate term financing, continuing costs, primarily labor and employee benefits, our working capital and the liquidity of our Common Stock. Certain of these initiatives and actions began during the quarter ended June 30, 2022 while others were initiated in July 2022.

The most significant components of our plan include the following: (i) realizing annualized cost savings associated with the corporate restructuring initiative (the “Restructuring”) that we announced in May 2022 which resulted in a reduction in workforce and related operating costs (see Note 4), (ii) entering into an amendment and waiver agreement to the securities purchase agreement associated with our 2021 Senior Convertible Notes (the “Senior Convertible Notes”) on June 30, 2022 (the “Convertible Notes Amendment”) which, among other factors, provides for a deferral of the required amortization payments due and payable from July 1, 2022 through January 1, 2023 (see Note 4), (iii) deploying for working capital needs of the net proceeds of approximately $2 million received from our offering of Common Stock and warrants (the “Unit Offering”) in a transaction that closed on July 5, 2022 (see Note 4), net of underwriting discounts and commissions and other offering expenses and after depositing $7 million of the proceeds into certain restricted cash accounts in accordance with the Convertible Notes Amendment, (iv) conservatively managing our working capital through disciplined cost-containment efforts and strategic management of our accounts receivable and accounts payable cycles (v) addressing the potential liquidity of our Common Stock in connection with the minimum listing requirements for the Nasdaq Market through a proposed 1-to-20 reverse stock split (the “Reverse Stock Split”) and (vi) continuing to seek to grow our customer base and realize synergies as we continue to integrate our recent acquisitions.

We anticipate the initiatives and actions described above will provide us with sufficient liquidity in order to operate our business in the normal course for the second half of 2022 until such time that the an earn-out payment associated with a 2021 acquisition is due in December 2022 (see Note 4), in part, to the fact that the debt service obligations associated with the Senior Convertible Notes for the first half of 2023 have effectively been substantially pre-funded with the amounts deposited into restricted accounts as required by the Convertible Notes Amendment. In the second half of 2022, we plan to continue to rigorously explore potential financing alternatives and other strategic options in addition to enhancing the liquidity of our Common Stock. In addition to and to the extent practical in the future, based on market conditions, we will consider incremental offerings of Common Stock through our previously authorized ATM Program; however, we do not consider this a viable alternative unless and until we are able to successfully address the minimum listing requirements of the Nasdaq Market with the proposed Reverse Stock Split. Through July 31, 2022, we have ~~continuing negative cash flow from operations,~~utilized $2.7 million of the ~~Company anticipates~~total $25 million authorized by the ATM Program.

If we are unable to secure other potential financing alternatives or fail to execute any other strategic options to raise sufficient additional funds through the first half of 2023, including through the ATM Program, we will have to develop and implement more aggressive plans to address our liquidity needs and our ability to satisfy the scheduled maturity of our obligations under the Senior Convertible Notes. Such plans could include extending payables, further reductions of expenditures (including the termination of additional employees) and reducing or eliminating investments in and the funding of certain of our business units and initiatives, or otherwise substantially scale back our business plan until sufficient additional capital is raised through other equity or debt offerings. Such offerings may include the issuance of shares of common stock, warrants to purchase common stock, preferred stock, convertible debt or other instruments that ~~its~~may dilute our current ~~cash will~~stockholders. Accordingly, we may be ~~sufficient~~subject to additional risks, including retention of key employees and limitations on the extension of credit by our vendors and other service providers. If we are required to raise additional capital as discussed above and if we cannot timely raise additional funds, we may be unable to meet the ~~working capital requirements for~~financial covenants of the next twelve months. From time to time, we may pursue various strategic business opportunities. These opportunities may include investment in or ownership of additional technology companies through direct investments, acquisitions, joint ventures and other arrangements. We are currently exploring such opportunities and have entered into three non-binding letters of intent. We can provide no assurance that we will successfully identify such opportunities or that, if we identify and pursue any of these opportunities, any of them will be consummated. Consequently, the Company may raise additional equity or debt capital or enter into arrangements to secure necessary financing to fund the completion of such strategic business opportunities, although no assurance can be provided that we will be successful in completing a future capital raise. The sale of additional equitySenior Convertible Notes, which could result in ~~additional dilution~~an event of default under those instruments which could adversely impact the Company. See the risks detailed in our Form 10-K under “Item 1A. Risk Factors – Risks Relating to our Convertible Debt”.

Our ability to continue as a going concern is dependent upon our ability to successfully execute the plans described above and attain profitable operations. Despite the comprehensive scope of our 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 the consolidated financial statements. Accordingly, if we are unable to raise sufficient capital we may have to reduce operations which could significantly and adversely 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 ~~Company’s existing stockholders,~~recoverability and ~~financing arrangements may not~~classification of assets and liabilities that might be ~~available~~necessary if the Company is unable to us, or may not be available in sufficient amounts or on acceptable terms. Our future operating performance will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. See “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 forcontinue as a ~~discussion of the risks related to our liquidity and capital structure.~~going concern.

Principles of Consolidation

Our accompanying consolidated financial statements include the ~~Company~~accounts of Akerna and our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the consolidated financial statements and accompanying notes thereto. Our most significant estimates and assumptions are related to the valuation of acquisition-related assets and liabilities, capitalization of internal costs associated with software development, fair value measurements, impairment assessments, loss contingencies, valuation allowance associated with deferred tax assets, stock based compensation expenses, and useful lives of long-lived intangible assets. We base our estimates on ~~September 23, 2019.~~historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results could differ from those estimates.

InSubsequent Events

Management has evaluated all of our activities through the ~~opinion~~issuance date of ~~management, these~~our condensed consolidated financial statements and has concluded that, with the exception of the issuance of common stock and warrants in an offering that closed on July 5, 2022, as disclosed in Note 4, no subsequent events have ~~been prepared on the same basis as the annual~~occurred that would require recognition in our condensed consolidated financial statements ~~and~~or disclosure in the notes thereto of the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of the Company’s financial position and operating results. The results for the three months ended September 30, 2019 are not necessarily indicative of the operating results for the year ending June 30, 2020, or any other interim or future periods.thereto.

Accounts Receivable, Net

~~The Company provides~~We maintain an allowance for doubtful accounts equal to the estimated uncollectible ~~amounts. The Company’s estimate is~~amounts based on our historical collection experience and a review of the current status of trade accounts receivable. ~~It is reasonably possible that~~Receivables are written-off and charged against the ~~Company’s estimate of the~~recorded allowance ~~for doubtful accounts will change and that losses ultimately incurred could differ materially from the amounts estimated in determining the allowance.~~when we have exhausted collection efforts without success. The allowance for doubtful accounts was ~~$357,419 as September 30, 2019~~$0.7 million and ~~$190,088~~$0.3 million as of June 30, ~~2019.~~2022 and December 31, 2021, respectively.

Concentrations of Credit Risk

~~The Company grants~~We grant credit in the normal course of business to ~~its customers. The Company~~customers in the United States and Canada. We periodically ~~performs~~perform credit analysis and ~~monitors~~monitor the financial condition of ~~its~~our customers to reduce credit risk.

During the ~~three~~six months ended ~~September~~June 30, ~~2019, one customer~~2022 and 2021, 1 government client accounted for ~~24%~~11% and 11% of total ~~revenues. At September~~revenues, respectively. As of June 30, ~~2019, the same customer~~2022, 1 government client accounted for ~~63%~~30% of net accounts receivable and as of December 31, 2021 2 government clients accounted for 37% of net accounts receivable. ~~During~~

Segment Reporting

We operate our business as 1 operating segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the ~~three months ended September 30, 2018, two customers accounted for 35%~~chief operating decision maker (“CODM”), our Chief Executive Officer, in deciding how to allocate resources and ~~10% of total revenues, respectively. There were no accounts receivable outstanding as of September 30, 2018.~~assess performance. Our CODM allocates resources and assesses performance based upon discrete financial information at the consolidated level.

~~Revenue Recognition~~

~~The Company recognizes revenue only when all of~~In the following ~~criteria have been met: persuasive evidence~~table, we disclose the combined gross balance of ~~an arrangement exists, delivery has occurred or services have been performed, the fee for the arrangement is~~our fixed ~~or determinable,~~assets, capitalized software, and ~~collectability is reasonable assured.~~intangible assets by geographical location (in thousands):

	As of June 30, 2022		As of December 31, 2021
Long-lived assets:
United States	$	28,231	$	32,356
Canada		5,932		5,229
Total	$	34,163	$	37,585

~~The Company’s software-as-a-service fees are earned through arrangements in which customers pay the Company a recurring subscription fee based upon the terms~~

The FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, (“ASU 2021-04”) which provides clarification and reduces diversity in practice with respect to an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. We adopted ASU 2021-04 effective January 1, 2022 and there was no material impact to our balance sheets and statements of operations.

Recent Accounting Pronouncements Pending Adoption

The FASB issued ASU No. 2016-13,~~Financial Instruments - Credit Losses:~~ Measurement of Credit Losses on Financial Instruments~~. Among other things, these amendments require the measurement of all~~ (“ASU 2016-13”) which introduced a new model for recognizing credit losses on financial instruments based on estimated current expected credit losses, ~~for financial assets held~~or CECL. ASU 2016-13 requires and entity to estimate CECL on trade receivables at ~~the reporting date~~inception, based on historical ~~experience,~~information, current conditions, and reasonable and supportable forecasts. ~~Financial institutions~~ASU 2016-13, and ~~other organizations will now use forward-looking information to better inform their credit loss estimates. The new standard~~subsequent amendments, is effective for ~~the Company~~us beginning ~~July~~on January 1, ~~2021 with early adoption permitted. The Company is~~2023. We are currently evaluating the impact of the adoption of ~~the new standard~~ASU 2016-13 on ~~its~~our consolidated financial statements.

~~In June 2018,~~The FABS issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”), which simplified the accounting for convertible instruments. ASU 2020-06 eliminated certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, ASU 2020-06 eliminates certain of the conditions for equity classification for contracts in an entity's own equity. ASU 2020-06 also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effects of shares settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. ASU 2020-06 is required to be adopted by us beginning on January 1, 2023 and must be applied using either a modified or full retrospective approach. We are currently evaluating the impact ASU 2020-06 will have on our consolidated financial statements.

The FASB issued ASU No. ~~2018-07,~~~~Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment~~ 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which ~~eliminates~~amends the ~~separate~~ accounting ~~model for nonemployee share-based payment awards~~related to contract assets and liabilities acquired in business combinations. Under current GAAP, an entity generally ~~requires companies to account for share-based payment transactions~~recognizes assets and liabilities acquired in a business combination, including contract assets and contract liabilities arising from revenue contracts with ~~nonemployees in the same way as share-based payment transactions with employees. Under the new guidance, nonemployee share-based payment transactions are measured~~customers, at ~~the grant-date~~ fair value on the acquisition date. ASU 2021-08 requires that entities recognize and are no longer remeasured at the then-current fair values at each reporting date until the share options have vested. The amended guidance is effective for the Company’s fiscal 2020 annual reporting periodmeasure contract assets and ~~for interim periods thereafter, with early adoption permitted. The Company is evaluating the impact of adoption of the new standard on its consolidated financial statements.~~

~~In August 2018, the FASB issued ASU No. 2018-15~~~~, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred~~contract liabilities acquired in a ~~Cloud Computing Arrangement That Is a Service Contract~~, which broadens the scope of existing guidance applicable to internal-use software development costs. The update requires costs to be capitalized or expensed based on the nature of the costs and the project stage in which they are incurred subject to amortization and impairment guidance consistent with existing internal-use software development cost guidance. The guidance is applicable for the Company beginning July 1, 2021 with early adoption permitted, including adoption in an interim period. The Company is evaluating the impact of adoption of the new standard on its financial statements.

~~AKERNA CORP.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 3 - Balance Sheet Disclosures~~

~~Prepaid expenses consist of the following:~~

September 30, June 30,
2019 2019
Software and technology $ 321,432 $ 237,930
Professional services 428,348 169,804
Insurance 68,241 159,940
Deposit 51,925 10,000
$ 869,946 $ 577,674

The Company deferred approximately $164,000 in professional services costs related to the contract with the State of Utah. These costs will be recognized at the same time as the related revenue is recognized, under the matching principle.

~~Accrued liabilities consist of the following:~~

September 30, June 30,
2019 2019
Professional fees $ 85,000 $ 49,205
Sales taxes 41,104 36,358
Compensation 298,585 354,724
Leaf Data Systems contractors 19,557 19,557
Other 49,272 40,706

$ 493,518 $ 500,550

The accrued compensation as of June 30, 2019, and September 30, 2019, includes approximately $215,000 of accrued bonus earned by the Company’s Chief Executive Officer with respect to fiscal year 2019. The balance was paid in October, 2019.

~~Note 4 - Loss Per Share~~

~~Basic net loss per share is calculated based on the weighted-average number of shares of common stock outstanding~~business combination in accordance with ASC Topic ~~260, Earnings per Share. Diluted~~606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to businesses combinations occurring on or after the effective date of the amendment. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

Note 3 – Revenue

We recognize revenue when a customer obtains the benefit of promised services, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those services. In determining the amount of revenue to be recognized, we perform the following steps: (i) identification of the contract with a customer; (ii) identification of the promised services in the contract and determination of whether the promised services are performance obligations, including whether they are distinct in the context of the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

Software Revenue. Our software revenue is generated from subscriptions and services related to the use of our commercial software platforms, MJ Platform®, Ample, Trellis, Viridian, 365 Cannabis, and our government regulatory platform, Leaf Data Systems, and the sale of business intelligence, data analytics and other software related services. For our SMB customers, software contracts are generally annual contracts paid monthly in advance of service and typically cancellable upon 30 days’ notice after the end of the contract period. Leaf Data Systems contracts are generally multi-year contracts payable annually or quarterly in advance of service. Commercial software and Leaf Data Systems contracts generally may only be terminated early for breach of contract as defined in the respective agreements. Our enterprise contracts are typically multi-year contracts paid monthly in advance of services and are generally cancellable with at least one month's notice before the end of the contract period. 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. We typically invoice customers at the beginning of the term, in multi-year, annual, quarterly, or monthly installments. When a collection of fees occurs in advance of service delivery, revenue recognition is deferred until such services commence. Revenue for implementation fees is recognized ratably over the expected term of the contract, including expected renewals.

We include service level commitments to customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits if those levels are not met. In addition, customer contracts often include: specific obligations that require us to maintain the availability of the customer’s data through the service and that customer content is secured against unauthorized access or loss, and indemnity provisions whereby we indemnify customers from third-party claims asserted against them that result from our failure to maintain the availability of their content or securing the same from unauthorized access or loss. To date, we have not incurred any material costs as a result of such commitments. Any such credits or payments made to customers under these arrangements are recorded as a reduction of revenue.

Consulting Revenue. Consulting services revenue is generated by providing solutions for operators in the pre-application oflicensuresand pre-operational phases of development andconsists of contracts with fixed terms and fee structures based upon the volume and activity or fixed-price contracts for consulting and strategic services. 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. When these services are not combined with subscription revenues as a single unit of account, these revenues are recognized as services are rendered and accepted by the customer.

Other Revenue. Our other revenue is derived primarily frompoint-of-sale hardware and other non-recurring revenue. We recognize revenue as these products are delivered and title has transferred.

Cost of Revenue. Cost of revenue consists primarily of costs related to providing subscription and other services to our customers, including employee compensation and related expenses for data center operations, customer support and professional services personnel, payments to outside technology service providers, security services, and other tools.

Deferred Revenue. Deferred revenue consists of payments received in advance of revenue recognition from subscription, implementation and consulting services. The deferred revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, contract duration, and invoice frequency. Deferred revenue that will be recognized during the succeeding twelve-month period is recorded as deferred revenue, which is presented as a current liability while amounts that will be recognized in periods greater than twelve months in the future are recognized as a noncurrent liability on the accompanying consolidated balance sheets.

Disaggregation of Revenue

We derive the majority of our revenue from subscription fees paid for access to and usage of our “software as a service,” or 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. 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 tour software at any time.

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

The following tables summarizes our revenue disaggregation of enterprise offerings and non-enterprise offerings for the following periods (in thousands):

	Six Months Ended June 30,
	2022		2021
Enterprise	$	5,898	$	1,638
Non-enterprise	7,139		7,283
	$	13,037	$	8,921

	Six Months Ended June 30,
	2022		2021
United States	$	9,243	$	6,267
Canada	3,794		2,654
	$	13,037	$	8,921

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 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.

Transaction Price Allocated to Future Performance Obligation

GAAP 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 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 June 30, 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 $22.3 million as of June 30, 2022, of which $11.9 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 to three years. Deferred revenue is included in the accompanying consolidated balance sheets under current liabilities, net ~~loss per common share~~of any long-term portion that is ~~calculated~~included in noncurrent liabilities.

The following table summarizes deferred revenue activity for the six months ended June 30, 2022 (in thousands):

	As of December 31, 2021				Net additions			Revenue recognized			As of June 30, 2022
Deferred revenue	$	4,126			8,881			(10,002	)		$	3,005

Of the $13.0 million of revenue recognized in the six months ended June 30, 2022, $3.1 million was included in deferred revenue at December 31, 2021.

Costs to Obtain Contracts

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 and marketing expense over the expected period of benefit, which we have determined to be one to three years based on the ~~weighted-average number~~estimated customer relationship period.

The following table summarizes deferred contract cost activity for the six months ended June 30, 2022 (in thousands):

	As of December 31, 2021				Additions			Amortized costs			As of June 30, 2022
Deferred contract costs	$	261			279			(246	)		$	294

Note 4 – Significant Transactions

Convertible Notes Amendment

On June 30, 2022, we and the holders Senior Convertible Notes entered into the Convertible Notes Amendment to add covenants such that (a) we will be subject to a daily cash test beginning on July 1, 2022 of having an available cash balance of at least $7 million, which amount shall be reduced by $1 million on each of the dates at which the aggregate principal due upon the Senior Convertible Notes is equal to or less than $14 million and $11 million, subject in all cases to a minimum of $5 million, and (b) we will establish and maintain bank accounts for each holder and deposit in such accounts an aggregate amount of $7 million with such amount to be released from the accounts only upon the written consent of such holder, provided that $1 million will automatically release from the 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 million and $11 million, subject to certain conditions. Further the holders of the Senior Convertible Notes waived provisions such that (i) no amortization payments are 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 Senior Convertible Notes which would provide for reset of the conversion price of the Senior Convertible Notes as a result of the issuance of securities under the Unit Offering and instead agree to a reset of the conversion price equal to a per share price of 135% of the Unit Offering price, or $0.3105 per unit.

Unit Offering

On June 30, 2022, we entered into an underwriting agreement (the “Underwriting Agreement”) with A.G.P./Alliance Global Partners (the “Underwriter”), in connection with the Unit Offering which is comprised of an aggregate of (i) 29,382,861 units of the Company consisting of 29,382,861 shares of Common Stock together with Common Stock warrants (the “Common Warrants”) to purchase up to 29,382,861 shares of Common Stock and (ii) 14,095,400 pre-funded units, consisting of 14,095,400 pre-funded warrants (“Pre-Funded Warrants”), with each Pre-Funded Warrant exercisable for one share of Common Stock, together with Common Warrants to purchase up to 14,095,400 shares of Common Stock. 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. Each Share and each Pre-Funded Warrant was sold with an accompanying Common Warrant but were issued separately and are immediately tradeable separately upon issuance.

The Pre-Funded Warrants are immediately exercisable at a nominal exercise price of $0.0001 or on a cashless basis and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. The Common Warrants have an exercise price of $0.23 per share subject to certain adjustments, are immediately exercisable and will expire five years from the date of issuance.

The Pre-Funded Warrants were sold to purchasers whose purchase of shares of Common Stock in the Offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or at the election of the purchaser, 9.99%) of our outstanding Common Stock immediately following the consummation of the Unit Offering, in lieu of shares of Common Stock. Each Pre-Funded Warrant represents the right to purchase 1 share of Common Stock at an exercise price of $0.0001 per share.

Pursuant to the Underwriting Agreement, we granted the Underwriter a 45-day option from June 30, 2022 to purchase from the Company (i) additional shares of Common Stock and/or (ii) Common Warrants and/or (iii) Pre-Funded Warrants, in any combination thereof, up to, and not to exceed, 13,043,478 shares of Common Stock or shares of Common Stock underlying Pre-Funded Warrants or Common Warrants, in the aggregate, solely to cover over-allotments, if any.

Pursuant to the Underwriting Agreement and upon closing of the Unit Offering, we issued to the Underwriter warrants to purchase up to 2,173,913 shares of Common Stock (the “Underwriter Warrants” and, together with the Common Warrants and the Pre-Funded Warrants, the “Warrants”), which is 5.0% of the aggregate number of Shares and Shares issuable upon exercise of the Pre-Funded Warrants sold in the Unit Offering. The Underwriter Warrants are exercisable at any time and from time to time, in whole or in part, commencing from six months after June 29, 2022 (the "Effective Date") and ending five years from the Effective Date, at a price per share equal to $0.23, which is the public offering price per unit.

The Unit Offering closed on July 5, 2022 and we received net proceeds of approximately $9.3 million after deducting underwriting discounts and commissions and related expenses. In connection with the Convertible Notes Amendment, a total of $7 million of the proceeds were deposited into certain restricted cash accounts. We intend to use the remaining net proceeds from the Unit Offering for general corporate purposes, including working capital, marketing, product development and capital expenditures.

Restructuring

In May 2022, we implemented the Restructuring as approved by our board of directors. The Restructuring resulted in a reduction of the Company's workforce by 59 employees, or approximately 33 percent of the Company. We incurred costs of approximately $0.5 million in severance benefits, including employee insurance, associated payroll taxes and legal costs in connection with the Restructuring. Of the total amount incurred, $0.3 million was included in Sales and marketing costs, $0.2 million was recorded in Product development and less than $0.1 million was included in Cost of revenue and General and administrative expenses, respectively. All amounts directly attributable to the severed employees were settled in cash during the quarter ended June 30, 2022. Accordingly, we have no material obligations remaining associated with the Restructuring. In addition to the reduction in force, the Company's executive leadership team agreed to a temporary 25 percent reduction in salary, subject to certain conditions.

2021 Transactions

Viridian Sciences

On April 1, 2021, we completed the acquisition of Viridian Sciences Inc. (“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 ~~outstanding plus~~valued at $6.0 million. In addition to the ~~effect~~stock consideration, the agreement provides for contingent consideration of ~~potentially dilutive issuances of common stock. When the Company reports a net loss, the calculation of diluted net loss per~~up to $1.0 million, payable in additional common stock, ~~excludes issuances of common stock as the effect would be anti-dilutive. For~~if Viridian meets certain revenue criteria. We finalized our purchase price accounting during the three months ended ~~September 30, 2019, 6,029,268 potentially dilutive issuances~~March 31, 2022 and there were no changes to the previously disclosed purchase price accounting.

365 Cannabis

On October 1, 2021, we acquired all the issued and outstanding shares of365Cannabis. Under the terms of the stock purchase agreement (the “Stock Purchase Agreement”), the aggregate consideration for the 365 Cannabis shares consisted of an initial purchase price of (1) $5,000,000in cash, (2) $12,000,000in stock, which was to be settled by issuing3.6 millionshares 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 $8,000,000in stock, in the event that 365 Cannabis 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.

We reached a working capital settlement agreement during the first quarter of 2022 in the amount of $1.5 million. As a result of this post-close adjustment, the 365 Cannabis purchase price was reduced by $1.5 million. This was recorded as follows: 1) a receivable of $400,000 was booked in other current assets in our condensed consolidated balance sheet as of March 31, 2022 and was received in the second quarter of 2022, 2) a reduction of $160,000 was made to the working capital accrual that was booked as of December 31, 2021, and 3) 279,762 shares worth $940,000 that were held in escrow were released back to Akerna to cover the remainder of the working capital adjustment.

On May 23, 2022, we and the sellers of 365 Cannabis entered into an amendment (the "Amendment") to the Stock Purchase Agreement in order to provide the Sellers an election to have the potential earn-out payment, recognized as contingent consideration in the table below, paid in cash or Common Stock or in any combination thereof. Under the Amendment, if a seller elects to have any portion of the earn-out payment paid in cash such amount payable will be reduced by 25%.

The updated consideration transferred is reflected in the table below (in thousands):

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

The opening balance sheet presented below reflects our updated purchase price allocation, summarizing 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		12,543
Accounts payable and accrued expenses		(2,642	)
Deferred tax liabilities		(826	)
Deferred revenue		(3,300	)
Net assets acquired	$	22,342

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.

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):

		Six Months Ended
		June 30,
		2021
Revenue	$	14,698
Net loss	$	(13,317	)

	Three Months Ended
	June 30,
		2021
Revenue	$	7,291
Net loss	$	(6,743	)

The pro forma financial information for the period presented above has been calculated after adjusting the results of Viridian and 365 Cannabis to reflect the business combination accounting effects resulting from this acquisition, including the amortization expense from acquired intangible assets as though the acquisition occurred as of the beginning of the periods indicated above as well as direct acquisition costs. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the years indicated above.

Special Voting Preferred Stock and Exchangeable Shares

In connection with the Ample acquisition, which was completed on July 7, 2020, 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 no votes attached to it, the share shall be automatically cancelled. The exchangeable shares do not have ~~been excluded from~~a par value.

During the ~~computation~~six months ended June 30, 2022, several Ample shareholders exchanged a total of ~~diluted weighted average~~18,094 exchangeable shares ~~outstanding because~~with a value of $138,419 for the ~~effect would be anti-dilutive. Of the total securities excluded, 5,814,205~~same number of shares ofAkerna common ~~stock~~stock. The exchange was accounted for as an equity transaction and we did not recognize a gain or loss on this transaction. As of June 30, 2022, there were a total of 291,192 exchangeable shares issued and outstanding.

Note 5 - Supplemental Balance Sheet Disclosures

Prepaid expenses and other current assets consisted of the following:

	As of		As of
	June 30,		December 31,
	2022		2021
Software and technology	$	470,505	$	687,740
Professional services, dues and subscriptions		505,282		546,126
Insurance		74,196		264,097
Deferred contract costs		293,618		260,899
Unbilled receivables		733,045		506,984
Other		78,800		117,918
Total prepaid expenses and other current assets	$	2,155,446	$	2,383,764

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

	As of		As of
	June 30,		December 31,
	2022		2021
Accounts payable	$	3,793,079	$	1,943,457
Professional fees		182,015		319,590
Sales taxes		572,567		360,361
Compensation		901,304		1,123,467
Contractors		551,388		1,288,730
Settlements and legal		920,736		681,045
Other		129,590		346,870
Total accounts payable, accrued expenses, and other accrued liabilities	$	7,050,679	$	6,063,520

Note 6 - Fair Value

Fair Value Option Election – Convertible Notes

We issued convertible notes with a principal amount of $17.0 million at a purchase price of $15.0 million (the “2020 Notes”) on June 9, 2020. The 2020 Notes were paid in full on October 5, 2021 and were replaced by the Senior Convertible Notes of $20.0million at a purchase price of $18.0million on the same date. We elected to account for both the 2020 Notes and the Senior 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 remeasured at its 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 (expense) income in our condensed consolidated statements of operations under the caption, change in fair value of convertible notes.

For the 2020 Notes and the Senior Convertible Notes, which are ~~underlying outstanding warrants~~measured at fair value categorized within Level3of the fair value hierarchy, the following is a reconciliation of the fair values for the three and six months endedJune 30, 2022 and June 30, 2021:

	Three Months Ended June 30,
	2022			2021
Fair value balance at beginning of period	$	15,337,000		$	7,705,000
Payments on Convertible Notes		(2,080,000	)		(1,572,405	)
Change in fair value reported in the statements of operations		294,000			16,405
Change in fair value reported in other comprehensive loss		(163,000	)		3,000
Fair value balance at end of period	$	13,388,000		$	6,152,000

	Six Months Ended June 30,
	2022			2021
Fair value balance at beginning of period	$	17,305,000		$	13,398,000
Payments on Convertible Notes		(5,380,000	)		(9,269,677	)
Change in fair value reported in the statements of operations		1,727,000			2,007,677
Change in fair value reported in other comprehensive loss		(264,000	)		16,000
Fair value balance at end of period	$	13,388,000		$	6,152,000

The estimated fair value of the Senior Convertible Notes as of June 30, 2022 and December 31, 2021, was computed using a Monte Carlo simulation, which incorporates significant inputs that are not observable in the market, and thus represents a Level3measurement as defined by GAAP. The unobservable inputs utilized for measuring the fair value of the Senior Convertible Notes reflect our assumptions about the assumptions that market participants would use in valuing the Senior Convertible Notes as of the issuance date and subsequent reporting period. The Convertible Notes Amendment qualifies as a troubled debt restructuring (“TDR”); however, there is 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.

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

Fair Value Assumptions - Convertible Notes	June 30, 2022			December 31, 2021
Face value principal payable	$	14,620,000		$	20,000,000
Original conversion price (1)	$	0.3105		$	4.05
Value of Common Stock	$	0.14		$	1.75
Expected term (years)		2.3			2.8
Volatility		79	%		75	%
Market yield		43.4	%		37.1	%
Risk free rate		3.0	%		1	%
Issue date		October 5, 2021			October 5, 2021
Maturity date		October 5, 2024			October 5, 2024
(1) In accordance with the Convertible Notes Amendment, the conversion price has been lowered to $0.3105 per share from $4.05 per share.

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 ~~215,063 were related~~1 warrant of MTech (“MTech Public Warrant”). Each MTech Public Warrant entitled the holder to ~~the unvested shares~~purchase 1 share of ~~restricted common stock. For the three months ended September 30, 2018, 5,993,750 potentially dilutive issuances of shares of~~MTech’s common stock ~~all related to warrants~~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 ~~shares~~1 share of MTech’s common stock ~~have been excluded from the computation~~at an exercise price of ~~diluted weighted average shares of common stock outstanding because the effect would be anti-dilutive.~~$11.50.

~~AKERNA CORP.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 5 - Stockholders’ Equity~~

~~Issuances for Cash~~

In August 2018, MJF issued 4,115,042 Series C Preferred Units (1,099,376 shares of common stock after retroactively applying the exchange ratio) for cash consideration of $10,000,000. Following the Mergers, all the Units were converted into Akerna’s common stock.

~~Restricted Shares~~

Prior to the Mergers, MJF had in place a Profit Interest Incentive Plan (the “Profits Interest Plan”) whereby it could grant profit interest units (“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 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, ~~in June 2019, the non-vested PIUs were exchanged for restricted shares of~~we also issued 189,365 common stock ~~(“Restricted Shares”) subject~~purchase warrants upon the cashless exercise of a unit purchase option, which warrants have identical terms to ~~restricted stock agreements with varying vesting terms that reflect~~ the ~~vesting conditions applicable~~Public Warrants and are included in references to ~~PIUs of the applicable MJF equity holders at the time of the Mergers.~~Public Warrants and Warrants herein.

During the three months ended September 30, 2018, 185,324 PIUs were granted (which were exchanged for 49,519 Restricted Shares in the Mergers) and 30,000 PIUs (which would equate to 8,016 Restricted Shares after applying the exchange ratio) were forfeited.

~~At September 30, 2019, there were 498,147 Restricted Shares outstanding, of which 215,063 were vested. During the three months ended September 30, 2019, no Restricted Shares were forfeited.~~

For the ~~three months ended September 30, 2019, stock-based compensation expense related to the ratable amortization~~Private Warrants classified as derivative liabilities, which are measured at fair value categorized within Level 3 of the unvested Restricted Shares was $161,165. Approximately $2.6 million of total unrecognized costs related to Restricted Shares will be ratably recognized over an estimated weighted average remaining vesting period of 1.17 years.

~~Warrants~~

~~A summary~~fair value hierarchy, the following is a reconciliation of the ~~status of outstanding warrants to purchase common stock at September 30, 2019 and the changes during the three months then ended, is presented in the following table:~~

Shares issuable upon exercise of warrants Weighted average exercise price Weighted average remaining life
Outstanding at July 1, 2019 6,183,115 $ 11.50 3.72
Issued - - -
Exercised (368,910 ) 11.50 -
Expired/cancelled - - -
Outstanding at September 30, 2019 5,814,205 $ 11.50 3.40

~~There was no aggregate intrinsic value for the warrants outstanding as of September 30, 2019.~~

~~Note 6 - Commitments and Contingencies~~

~~Operating Leases~~

~~The Company leases facilities, equipment, and vehicles under non-cancelable operating leases. Rent expense~~fair values for the three months ended ~~September~~June 30, ~~2019~~2022 and ~~2018 was $35,247~~June 30, 2021:

	Three Months Ended June 30,
	2022			2021
Fair value balance at beginning of period	$	45,127		$	487,372
Change in fair value reported in the statements of operations		(33,845	)		(133,125	)
Fair value balance at end of period	$	11,282		$	354,247

	Six Months Ended June 30,
	2022			2021
Fair value balance at beginning of period	$	63,178		$	311,376
Change in fair value reported in the statements of operations		(51,896	)		42,871
Fair value balance at end of period	$	11,282		$	354,247

We utilized a binomial lattice model, which incorporates significant inputs, specifically the expected volatility, that are not observable in the market, and ~~$43,475, respectively.~~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.

~~On September 30, 2019, the Company entered into an office service agreement (the “Office Lease”) effective~~We record the fair value of the Private Warrants in the consolidated balance sheets under the caption “derivative liability” and ~~commencing February 1, 2020 and expiring January 31, 2022, unless earlier terminated by either party in accordance with~~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 ~~Office Lease. The Office Lease relates~~Private Warrants and any exercise will reclassify the Private Warrants, at the time of exercise, to ~~new office space located at 1630 Welton Street, Denver, Colorado, 80202. The Company was required~~shareholder’s equity to ~~pay a security deposit equal~~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	June 30, 2022			December 31, 2021
Number of Private Warrants		225,635			225,635
Original conversion price	$	11.50		$	11.50
Value of Common Stock	$	0.14		$	1.75
Expected term (years)		1.96			2.46
Volatility		107.0	%		93.9	%
Risk free rate		2.9	%		0.8	%

Note 7 - Commitments and Contingencies

Litigation

On December 4, 2020, TechMagic USA LLC (“TechMagic”) filed suit against our wholly-owned subsidiary, Solo, in the Massachusetts Superior Court, Department Business Litigation, seeking recovery for certain unpaid invoices pursuant to a ~~one-month payment~~Master Services Agreement dated February 5, 2018 (the “Master Services Agreement”) by and ~~initial set-up~~between TechMagic and Solo. The suit sought recovery for continued fees under the Master Services Agreement through the end of ~~$43,925. The monthly payments will be in the amount~~January 2021. Akerna provided a notice of ~~$41,925 subject to a 4% annual indexation increase at each anniversary~~termination of the ~~commencement~~Master Services Agreement on November 23, 2020 and the parties disputed the effective date of the termination. Solo disputed 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 5% 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 ~~term of the Office Lease~~.

Future minimum lease payments to be made pursuant to the Office Lease and the current leases are approximately $276,000 for the remainder of the year ended June 30, 2020, approximately $530,000 for the year ended June 30, 2021, and approximately $316,000 for the yearquarter ended June 30, 2022.

~~AKERNA CORP.~~

~~Notes~~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 ~~Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Letter-of-Credit~~

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 ~~September~~December 31, 2021 and June 30, ~~2019, the Company had~~2022, we recognized a ~~standby letter-of-credit with a bank in the amount~~loss contingency of $500,000, which was classified as restricted cash on the balance sheets. The beneficiary of the letter-of-credit is an insurance company. Upon its termination on June 22, 2019, the letter-of-credit was renewed with the required balance reduced to $500,000. Accordingly, the restricted cash on the balance sheet as of September 30, 2019 is $500,000. The letter-of-credit will expire on June 22, 2020.$0.2 million.

~~Litigation~~

From time to time, ~~the Company~~we may be involved in litigation relating to claims arising out of ~~its~~our operations in the normal course of business. ~~The Company~~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 ~~September~~June 30, ~~2019,~~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.

~~Note 7 – Revisions of Previously Issued Financial Statements~~Operating Leases

During the ~~course~~first half of ~~preparing this Quarterly Report~~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 is management’s best estimate of the costs to exit our existing lease. The lease termination expense is included within the General and Administrative expense line item on ~~Form 10-Q~~the condensed consolidated statement of operations.

Note 8 - Loss Per Share

During the three and six months ended June 30, 2022 and 2021, we used the two-class method to compute net loss per share because we issued securities other than common stock 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 interest in Ample. The two-class method requires earnings for the period to be allocated between the 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 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 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:

	As of June 30,
	2022		2021
Shares issuable upon exchange of Exchangeable Shares		291,192	1,039,373
Shares of common stock issuable upon conversion of convertible notes (1)		47,085,346	1,761,929
Warrants		5,813,804	5,813,804
Unvested restricted stock units		445,646	998,104
Unvested restricted stock awards		6,679	32,394
Total		53,642,667	9,645,604

(1) In accordance with the Convertible Notes Amendment, the conversion price has been lowered to $0.3105 per share from $4.05 per share.

Note 9 - Goodwill and Intangible Assets, net

Impairments

Based on our qualitative assessment of goodwill, we determined it was necessary to perform a quantitative valuation of goodwill as of March 31, 2022 and June 30, 2022. Unchanged from the year ended 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 valuations 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. Our 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 our ongoing estimates of future cash flows are not met, we may have to record additional impairment charges in future periods. We also use 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.

Enterprise Reporting Unit

For the three and six months ended June 30, 2022, due primarily to a continued decline in market valuation from December 31, 2021, we recorded an impairment expense of $12.9 million to goodwill for our enterprise reporting unit. 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 three and six months ended June 30, 2022, primarily due to a continued decline in market valuation from December 31, 2021, we recorded impairment expenses of $11.2 million and $23.5 million, respectively, 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 during the three and six months ended June 30, 2022 and as a result of these analyses, we recorded impairments of $3.2 million attributable to certain intangible assets and capitalized software associated with one specific business line within the Non-Enterprise Reporting Unit.

Note 10 - Income Taxes

Our effective tax rate was 0.44% and 0.08% for the six months ended June 30, 2022 and 2021, respectively. Differences between the statutory rate and our effective tax rate resulted from changes in valuation allowance and permanent differences for tax purposes in the treatment of certain nondeductible expenses. Our effective tax rate is impacted by indefinite-lived deferred tax liabilities, resulting primarily from the acquisition of 365 Cannabis, which cannot be considered as a source of future taxable income available to utilize recorded deferred tax assets based on the Company's scheduling and the 80% limit on the utilization of net operating loss carry forwards under current US tax law. Uncertain tax positions related to penalties of less than $0.1 million have been reversed for the three months ended September 30, 2019, the Company identified certain previously duplicated revenues, which resulted in the overstatement of total assets and revenue during the periods outlined below, and the understatement of net losses for the periods outlined below. Additionally, during the course of preparing its Annual Report on Form 10-K for the fiscal year ended June 30, ~~2019, the Company identified certain costs of revenue related to consulting services previously being recorded in operating expenses, which resulted in the overstatement~~2022 as a result of the ~~gross profit for each~~Internal Revenue Service's dismissal of the ~~quarters during the fiscal year ended June 30, 2019.~~

June 30, 2018
As reported Adjustment As revised
Consolidated Balance Sheet
Total assets $ 3,017,731 $ (223,766 ) $ 2,793,965
Total liabilities 1,393,902 - 1,393,902
Total stockholders’ equity 1,623,829 (223,766 ) 1,400,063

September 30, 2018
As reported Adjustment As revised
Condensed Consolidated Balance Sheet
Total assets 12,090,810 (296,267 ) 11,794,543
Total liabilities 2,090,163 - 2,090,163
Total stockholders’ equity 10,000,647 (296,267 ) 9,704,380

Condensed Consolidated Statements of Operations
Total revenue 2,371,900 (72,501 ) 2,299,399
Cost of revenue 956,123 107,012 1,063,135
Gross profit 1,415,777 (179,513 ) 1,236,264
Operating expenses 3,055,976 (107,012 ) 2,948,964
Net loss (1,623,182 ) (72,501 ) (1,695,683 )
Net loss per share (0.30 ) (0.31 )

December 31, 2018
As reported Adjustment As revised
Condensed Consolidated Balance Sheet
Total assets 9,836,178 (320,434 ) 9,515,744
Total liabilities 2,205,735 - 2,205,735
Total stockholders’ equity 7,630,443 (320,434 ) 7,310,009

Condensed Consolidated Statements of Operations
Total revenue 2,598,079 (24,167 ) 2,573,912
Cost of revenue 1,198,911 122,084 1,320,995
Gross profit 1,399,168 (146,251 ) 1,252,917
Operating expenses 3,826,539 (122,084 ) 3,704,455
Net loss (2,370,204 ) (24,167 ) (2,394,371 )
Net loss per share (0.39 ) (0.40 )

potential penalties.

~~AKERNA CORP.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

March 31, 2019
As reported Adjustment As revised
Condensed Consolidated Balance Sheet
Total assets 8,199,718 (320,434 ) 7,879,284
Total liabilities 3,059,378 - 3,059,378
Total stockholders’ equity 5,140,340 (320,434 ) 4,819,906

Condensed Consolidated Statements of Operations
Total revenue 2,327,880 - 2,327,880
Cost of revenue 1,042,403 124,079 1,166,482
Gross profit 1,285,477 (124,079 ) 1,161,398
Operating expenses 3,788,644 (124,079 ) 3,664,565
Net loss (2,490,103 ) - (2,490,103 )
Net loss per share (0.41 ) (0.41 )

June 30, 2019
As reported Adjustment As revised
Consolidated Balance Sheet
Total assets 24,522,671 (320,434 ) 24,202,237
Total liabilities 2,442,503 - 2,442,503
Total stockholders’ equity 22,080,168 (320,434 ) 21,759,734

Consolidated Statements of Operations
Total revenue 10,919,785 (96,668 ) 10,823,117
Cost of revenue 4,633,844 - 4,633,844
Gross profit 6,285,941 (96,668 ) 6,189,273
Operating expenses 18,701,619 - 18,701,619
Net loss (12,306,547 ) (96,668 ) (12,403,215 )
Net loss per share (2.04 ) (2.05 )

In accordance with SEC Staff Accounting Bulletin No 108, the Company has evaluated these errors, based on an analysis of quantitative and qualitative factors, as to whether it was material to the condensed consolidated statements of operations for the three months ended September 30, 2018, December 31, 2018, and March 31, 2019, and consolidated statements of operations for the year ended June 30, 2019, as well as to the consolidated balance sheets as of June 30, 2019 and 2018, condensed consolidated balance sheets as of September 30, 2018, December 31, 2018, and March 30, 2019, and as to whether amendments of previously filed financial statements with the SEC are required. The Company has determined that quantitatively and qualitatively, the errors have no material impact to the above mentioned financial statements.

~~Note 8 - Subsequent Events~~

~~Appointment of Chief Revenue Officer~~

On October 1, 2019, the Company entered into a letter agreement with Nina Simosko pursuant to which Ms. Simosko will serve as the Company’s Chief Revenue Officer effective as of September 23, 2019. The letter agreement provides for an at-will employment relationship. Ms. Simosko will receive an annual base salary of $200,000 and Ms. Simosko may be eligible for a bonus. On October 7, 2019, Ms. Simosko was granted 125,156 of Restricted Stock Units, which will vest as to 25% on the first anniversary of the grant date, as to the next 25% on the second anniversary of the grant date, as to the next 25% on the third anniversary of the grant date and as to the remaining 25% on the fourth anniversary of the grant date. In accordance with the terms of the letter agreement, upon a change of control transaction, Ms. Simosko’s unvested restricted stock units or any other equity interests that she may be granted, will immediately vest. If Ms. Simosko’s employment is terminated by the Company without cause or by her with good reason, she is entitled to her base salary through the date of termination and the immediate vesting of 33% of the restricted stock units that are unvested on the date of termination.

~~AKERNA CORP.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~License Agreement with Zol Solutions, Inc.~~

The Company entered into a license agreement with Zol Solutions, Inc. (“ZolTrain”), effective October 24, 2019, to provide ZolTrain’s online cannabis training platform as a co-branded integration option into the Company’s MJ Platform and Leaf Data Systems.

The Company and ZolTrain will share subscription-based revenue generated from the Company’s customers. The share of revenue for each of the Company and ZolTrain will be based on the number of training modules accessed by a customer and which of the Company and ZolTrain created the accessed content. Preceding the entry into the license agreement, on October 7, 2019, the Company participated in a series seed preferred stock purchase offering of ZolTrain along with other investors. The Company purchased approximately 203,000 shares of preferred stock for a purchase price of $250,000, which represents a minority investment in ZolTrain. The definitive agreements provide the Company with rights of first refusal with respect to newly issued securities of ZolTrain as well as issued and outstanding securities of ZolTrain that are offered to third parties. In connection with the investment, Nina Simosko, our Chief Revenue Officer, was appointed as a member of ZolTrain’s board of directors. In the event that Ms. Simosko or any other representative of the Company is not a member of ZolTrain’s board of directors, the Company is entitled to consult with and advise ZolTrain’s management on significant business issues.

~~Compensation Agreement with Jessica Billingsley~~

On November 11, 2019, the Compensation Committee of the Board of Directors of the Company established the terms on which Ms. Billingsley, the Company’s Chief Executive Officer, may earn a bonus for the fiscal year ended June 30, 2020. The Compensation Committee determined that Ms. Billingsley will be eligible for a bonus derived from the same targets with respect to her bonuses in fiscal year 2019, which were as follows:

The annual bonus was determined based upon the following four (4) budget components, each of which scales linearly between achieving 75% to 100%, and greater than 100% with respect to platform recurring revenue and government recurring revenue budget components respectively, of the applicable fiscal year’s budget for each such component (with 50% of the target bonus payable upon achievement of 75% of budget, 100% of the target bonus payable upon achievement of budget (and, with respect to the platform recurring revenue and government recurring revenue budget components, with 200% of each weighted portion of the target bonus payable upon achievement of 125% of the corresponding component of budget (the “Accelerator”), with linear interpolation between points)).

~~However, during fiscal year 2020 the Accelerator may be paid at the sole discretion of the Compensation Committee in cash, stock, or a combination thereof.~~

In addition, the Compensation Committee determined that, during fiscal year 2020, Ms. Billingsley is eligible to earn a performance based incentive of $250,000, payable in stock, whereby (a) 50% of the bonus is automatically granted if the Company’s stock price/shareholder return increases by 15% (measuring point starts at $10 per share) with respect to the consecutive 20-day volume weighted average price prior to and including June 30, 2020, and (b) the remaining 50% of the bonus may be paid at the sole discretion of the Compensation Committee.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~

Operations

~~The Management’s Discussion~~The following discussion and ~~Analysis of the Financial Condition and Results of Operations~~analysis should be read ~~together~~in conjunction with our unaudited condensed consolidated financial statements for the ~~Management’s Discussion~~three and ~~Analysis of Financial Condition and Results of Operations~~six months ended June 30, 2022, and the ~~Audited Consolidated Financial Statements and~~ related notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP").

Akerna Corp. ~~(“Akerna”)~~, herein referred to as “we”, “us”, “our,” the “Company” or “Akerna”, through our wholly-owned subsidiaries MJ Freeway, LLC, Trellis Solutions, Inc., Ample Organics, Inc., solo sciences, inc., Viridian Sciences Inc., and ~~subsidiaries’ (the “Company,” “us,” “our” or “we”) Annual Report on Form 10-K for the fiscal year ended June 30, 2019.~~The NAV People, Inc. d.b.a. 365 Cannabis.

Forward-Looking Statements

~~Forward-Looking Statements~~

This Quarterly Report on Form 10-Q ~~contains statements which constitute forward-looking statements~~including all exhibits hereto contain “forward-looking statements” within the meaning of ~~Section 27A of~~ the Private Securities Litigation Reform Act of ~~1933, as amended,~~1995, including statements regarding future events or our future results of operations, financial condition, business, strategies, financial needs, and ~~Section 21E of~~ the ~~Securities Exchange Act of 1934, as amended. These forward-looking statements generally relate to our strategies,~~ plans and objectives ~~for~~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 Quarterly Report and our management’s good faith belief as of such date with respect to future ~~operations~~events and are ~~based upon management’s current plans~~subject to a number of risks, uncertainties, and beliefs or estimates of future results or trends. Forward-looking statements also involve risks and uncertainties, including, but not restricted to, the risks and uncertainties described in Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2019, whichassumptions that could cause actual performance or results to differ materially from those ~~contained~~expressed in ~~any~~or suggested by the forward-looking ~~statement. Many~~statements, in particular the substantial risks and uncertainties related to the ongoing COVID-19 pandemic. Important factors that could cause such differences include, but are not limited to:

	●	our ability to continue as a going concern and manage our cash flow;
	●	our ability to manage our history of losses;
	●	our ability to sustain our revenue growth rate, to achieve or maintain profitability, and to effectively manage our anticipated growth;
	●	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;
	●	our ability to respond to changes within the cannabis 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 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 implement effective disclosure controls and procedures and internal control over financial reporting;
	●	our ability to service our convertible debt and meet ongoing covenants under our convertible notes;
	●	our accounting treatment of certain of our private warrants;
	●	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 Quarterly Report on Form 10-Q, including the sections of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and under Part II, Item 1A. “Risk Factors” and in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission, or the SEC, on March 31, 2022, under Part I, Item 1A, “Risk Factors.”

Should one or more of these ~~factors are beyond our ability~~risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated, or expected. We caution readers not to ~~control or predict.~~

~~You should not~~ place undue reliance on any such forward-looking statements, which ~~are based on current expectations. Further, forward-looking statements~~ speak only as of the date ~~they are made, and we will not update these~~made. We disclaim any obligation to revise subsequently any forward-looking statements ~~even if our situation changes~~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 Quarterly Report by the future. We caution the reader that a number of important factors discussed herein, and in other reports filed with the Securities and Exchange Commission, could affect our actual results and cause actual results to differ materially from those discussed in forward-lookingforegoing cautionary statements.

Business Overview

~~We are~~Akerna is a leading provider of 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) 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 ~~company. Our proprietary software platform is~~backbone of the cannabis industry. While designed specifically for the unique needs of the cannabis market, our solutions are adaptable for other industries ~~in which interfacing with~~requiring government regulatory ~~agencies for compliance purposes is required,~~oversight, or where the tracking of organic materials from seed or plant to end products is desired. ~~Ten years ago,~~

Executing upon our expansion strategy, we ~~identified a need for organic material tracking~~acquire complementary software brands that service the cannabis industry to grow the scope of Akerna’s cannabis ecosystem. Since 2019, we have integrated six new brands into the Akerna product and ~~regulatory compliance software a~~ service ~~(“SaaS”~~offering. Our first acquisition, Solo Sciences (“Solo”) ~~solutions~~, 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. 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 ~~cannabis~~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 ~~hemp industry. We developed products intended to assist states in monitoring licensed businesses’~~scalability capabilities, all while helping maintaining compliance with ~~state regulations, and to~~their governing regulations.

On the commercial side, our products help state-licensed businesses operate in compliance with ~~such law. We~~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 track and trace solutions that allow state governments to monitor compliance of licensed cannabis businesses. To date, our ~~regulatory~~ software ~~platform, Leaf Data Systems~~^®~~, to government regulatory agencies, and our business software platform, MJ Platform~~^®~~, to state and federally-licensed businesses. Although we have~~has helped monitor ~~legal~~the compliance ~~for~~of more than ~~$16~~$30 billion in legal cannabis. While our software facilitates the success of legal cannabis ~~sales to date,~~businesses, we do not handle any ~~cannabis related~~cannabis-related material, do not process cannabis sales transactions within the United States (“U.S.”), and our revenue ~~generation~~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 our software and consulting offerings within the cannabis, hemp, and 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 ~~revenues~~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.

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 ~~generated~~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 overview of their operations.

Track-and-Trace is the compliance reporting system used by ~~us on a fixed-fee based subscription model.~~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.

~~Our core products,~~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 ~~MJ Platform,~~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 ~~highly-versatile platforms~~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 ~~provide~~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 ~~a central data management system for tracking regulated products – from seed~~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 ~~initial plant growth~~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 product – throughout the complete supply chain, using a global unique identifier method. Our platforms also provide clients with integrated security, transparency and scalability capabilities. These capabilities allow our state-licensed clients to control inventory, operate efficiently in athis fast-changing industry and comply with state, local, and federal (in countries such as Canada, Italy, Macedonia, and Colombia) ~~regulation~~. Akerna and our family of companies is well-positioned to provide compliance solutions for the expanding national and international legal cannabis market.

Key Developments

The following general business development had or may have a significant impact on our results of operations, financial position and cash flows.

Convertible Notes Amendment

On June 30, 2022, we and the holders that are parties to the securities purchase agreement associated with our 2021 Senior Convertible Notes (the “Senior Convertible Notes”) entered into an amendment and waiver agreement (the “Convertible Notes Amendment”) to add covenants such that (a) we will be subject to a daily cash test beginning on July 1, 2022 of having an available cash balance of at least $7 million, which amount shall be reduced by $1 million on each of the dates at which the aggregate principal due upon the Senior Convertible Notes is equal to or less than $14 million and $11 million, subject in all ~~times,~~cases to a minimum of $5 million, and ~~allows~~(b) we will establish and maintain bank accounts for each holder and deposit in such accounts an aggregate amount of $7 million with such amount to be released from the accounts only upon the written consent of such holder, provided that $1 million will automatically release from the 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 million and $11 million, subject to certain conditions. Further the holders of the Senior Convertible Notes waived provisions such that (i) no amortization payments are 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 Senior Convertible Notes which would provide for reset of the conversion price of the Senior Convertible Notes as a result of the issuance of the Company’s common stock, par value $0.0001 per share (“Common Stock”) and warrants (the “Unit Offering”) and instead agree to a reset of the conversion price equal to a per share price of 135% of the Unit Offering price, or $0.3105 per unit.

Unit Offering

The Pre-Funded Warrants were sold to purchasers whose purchase of shares of Common Stock in the Offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or at the election of the purchaser, 9.99%) of our outstanding Common Stock immediately following the consummation of the Unit Offering, in lieu of shares of Common Stock. Each Pre-Funded Warrant represents the right to purchase one share of Common Stock at an exercise price of $0.0001 per share.

Pursuant to the Underwriting Agreement and upon closing of the Unit Offering, we issued to the Underwriter warrants to purchase up to 2,173,913 shares of Common Stock (the “Underwriter Warrants” and, together with the Common Warrants and the Pre-Funded Warrants, the “Warrants”), which is 5.0% of the aggregate number of Shares and Shares issuable upon exercise of the Pre-Funded Warrants sold in the Unit Offering. The Underwriter Warrants are exercisable at any time and from time to time, in whole or in part, commencing from six months after June 29, 2022 (the “Effective Date”) and ending five years from the Effective Date, at a price per share equal to $0.23, which is the public offering price per unit.

Restructuring

In May 2022, we implemented a corporate restructuring initiative (the “Restructuring”) as approved by our board of directors. The Restructuring resulted in a reduction of the Company's workforce by 59 employees, or approximately 33 percent of the Company. We incurred costs of approximately $0.7 million in severance benefits, including employee insurance, associated payroll taxes and legal costs in connection with the Restructuring. Of the total amount incurred, $0.3 million was included in Sales and marketing costs, $0.2 million was recorded in Product development and less than $0.1 million was included in Cost of revenue and General and administrative expenses, respectively. All amounts directly attributable to the severed employees were settled in cash during the quarter ended June 30, 2022. Accordingly, we have no material obligations remaining associated with the Restructuring. In addition to the reduction in force, the Company's executive leadership team agreed to a temporary 25 percent reduction in salary, subject to certain conditions.

Financial Results of Operations

Revenue

We generate revenue from two primary sources: (1) software and (2) consulting services. Revenue from software comprised approximately 95% and 93%of our revenue for the six months ended June 30, 2022 and 2021, respectively. Revenue from consulting services comprised approximately 4% and 7% of our revenue for six months ended June 30, 2022 and 2021, respectively.

Software. Our software is solutioned for our key markets, small and medium-sized business (“SMB”) and enterprise customers. Our SMB customers become a natural funnel for our larger, more robust enterprise offerings built on SAP and Microsoft. In either market, 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 ~~clients to effectively and cost-efficiently monitor licensees and ensure that commercial businesses are complying with their states’ regulations.~~

~~We generate revenue in three principal areas:~~

	●	Government Regulatory Software – Leaf Data Systems is our SaaS product for government agencies. Leaf Data Systems is a compliance tracking system designed to give regulators visibility into the activity of licensed cannabis businesses in their jurisdictions. We have been serving two clients for Leaf Data Systems, the State of Washington and the Commonwealth of Pennsylvania. As described below, we recently signed a third Leaf Data Systems client, the state of Utah.

	●	Commercial Software – MJ Platform is our SaaS offering for state and federally-licensed businesses. MJ Platform is an ERP (Enterprise Resource Planning) compliance system specific to the cannabis industry, including state-legal marijuana and hemp CBD industry. MJ Platform is comprised of integrated modules designed to meet the regulations and inventory management needs of cannabis and hemp CBD cultivators, manufacturers, distributors and retailers, but has applications in other industries.

●

Consulting Services – We provide consulting services to cannabis industry operators interested in entering the cannabis industry and in integrating our platforms into their respective operations and systems. We consult with clients on a wide range of areas to help them successfully operate in the cannabis industry in compliance with state law. We work with clients to efficiently comply with state requirements in connection with the launch and operations of their cannabis businesses. Our management team and key personnel have broad experience gained form working with numerous cannabis operations. Our consulting team has experience in most aspects of cannabis operations in most verticals (~~e.g.~~, cultivation, processing, distribution, manufacturing and retail). Our service providers understand the intricacies of the varying regulations governing cannabis in each jurisdiction and, to the extent necessary, modify the professional services based on the jurisdiction.

We provide project-focused consulting services to clients that are initiating or expanding their cannabis businesses 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 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 legal states

We also resell a limited number of printers for printing compliance product labels and scales that are National Type Evaluation Program (“NTEP”) certified legal for trade. Revenue from these resale activities was approximately 2% of total revenue in each of the three months ended September 30, 2019, and September 30, 2018, and is not expected to become a significant generator of revenue.

Our commercial software revenue growth is driven by leveraging our reputation and continued cannabis, hemp and Cannabidiol (CBD) industry growth. We believe we are well known in these industries and can leverage our reputation, brand recognition, and wealth of relevant experience to attract existing cultivation, manufacturing and dispensary customers, and attract new market entrants. We believe that the reputation of our existing products and our ability to provide services in all areas of the seed to sale life cycle will attract customers from competitors that are seeking more comprehensive services and will attract new customers as they enter into existing markets and markets that become newly legalized. We also experience revenue growth in mature, established states and countries by providing a solution to operators seeking to vertically integrate their operations and improve their operations. We provide not only a vertically integrated solution across the cannabis, hemp, and CBD supply chain, but also have the business intelligence capture which allows operators to run their businesses in a more informed and efficient manner. This business intelligence capture is derived from the suite of services provided by us and sets us apart from competitors.

~~Through our acquisition strategy, we are expanding the features available to new and existing customers of MJ Platform and~~platform, Leaf Data Systems, including the ability to track organic matter from seed-to-consumer, with an interactive consumer product experience. We believe that such features create further value by providing additional add-ins that should enhance utilization and the ~~experience~~sale of ~~our new~~business intelligence, data analytics and existing customers. For example : (i) our agreement with Netsuite will provide tax planning services to our customers in Canada; (ii) our license with ZolTrain will provide our MJ Platform customers with training modules to educate them and improve their experience by pairing education with product information at the point of sale; (iii) our Leaf Data System and Trace Seed to Sale Solution specifically customized for the State of Utah to include an electronic verification system and inventory control system, will utilize solo sciences’ solo*TAG™, the world’s first cryptographically-secure, cannabis product authentication system, exclusively for governments as an alternative to RFID tracking; and (iv) our agreement with Isolocity enables cannabis enterprises to pursue international expansion by providing a QMS framework to support local and national compliance needs and by leveraging such QMS, MJ Platform can support GMP certification requirements, including the stricter EU-GMP standard required for the export of medical cannabis into Europe and Asia.

~~Financial Results of Operations~~

~~Revenue~~

~~Our~~other software revenue is derived from MJ Platform, our SaaS enterprise resource planning tool offering for state-licensed businesses, and Leaf Data Systems, our track-and-trace product for government agencies. MJ Platformrelated services. Software contracts are generally quarterly, annual, or three-year long contracts paid monthly, quarterly, or annually in advance of service and cancellable upon 30 or 90 days’ notice, although we do have ~~some~~many multi-year ~~MJ Platform~~commercial software contracts. ~~We defer recognition of revenue from these payments until services have been provided.~~ Leaf Data Systems contracts are generally multi-year contracts payable annually or ~~quarterly. A percentage retainer or holdback fees (generally ranging from 10% to 30%) are common until all initial deliverables are complete. MJ Platform~~quarterly in advance of service. Commercial software and Leaf Data Systems contracts generally may only be terminated early for breach of contract as defined in the respective agreements. ~~Our consulting~~Amounts that have been invoiced are initially recorded as deferred revenue or contract liabilities. Subscription revenue is ~~derived throughout~~recognized on a straight-line basis over the ~~life cycle~~service term of ~~a customer. Our other revenue~~the arrangement beginning on the date that our solution is ~~derived primarily from point~~made available to the customer and ending at the expiration of ~~sale hardware and labels.~~the subscription term.

Consulting. Consulting services revenue ~~growth~~ is ~~driven~~generated by ~~numerous factors. In new emerging states, we provide~~providing solutions for ~~aspiring~~ 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 services are provided to post operational licensees to consult during the setup and buildout phases as they open and begin operating their businesses. We also provide business optimization services for established businesses that can benefit from consulting to increase efficiencies as they expand and grow.

~~We contract our consulting services through Statements of Work (SOW) for businesses or entrepreneurs interested in developing operations in the cannabis, hemp and CBD industries. SOW issued and~~projects completed during the pre-application phase generally solidify us as the ~~contractor~~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 ~~continue to~~ grow over time as more states emerge with legalization ~~reforms, such as Missouri, New Jersey, Illinois~~reforms.

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

Cost of Revenue and Operating Expenses

Cost of Revenue

Our cost of revenue is derived from direct costs ~~derived~~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 ~~from government contract subcontractor expenses in addition~~ to hosting and infrastructure costs ~~associated~~and subcontractor expenses incurred in connection with ~~operating MJ Platform and Leaf Data Systems. We record~~certain government contracts. Consulting cost of revenue ~~based on~~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. ~~Consulting cost of revenue is primarily determined as a result of our employees’ salaries and other related compensation expenses.~~

Product ~~and~~ Development Expenses

Our product ~~and~~ development expenses include salaries and benefits, nearshore contractor expenses, technology expenses, and other ~~overhead. These~~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 ~~have grown over time, and we expect these expenses to continue to increase with our growth.~~

~~Selling, General and Administrative Expenses~~

Our selling, general and administrative expenses include salaries and benefits, sales and marketing expenses, public relations and investor relations fees, outage expenses, professional fees, and other overhead. These expenses have grown over time, and we expect these expenses to continue to increase with our growth.

~~Marketing and sales expenses~~qualifying for capitalization, are ~~our largest cost and~~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 Expenses

Sales and marketing expense is primarily salaries and related expenses, including commissions, for our sales, marketing, and ~~marketing staff, including commissions, as well as~~client service staff. We also categorize payments to partners and marketing ~~programs.~~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 ~~customers,~~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, currently one year. 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.

General and Administrative Expenses

Our general and administrative expenses include salaries and benefits and other costs of departments serving administrative functions, such as executives, 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.

Other (Expense) Income, Net

Other (expense) income, 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 non-operating gains and losses.

Critical Accounting Policies and Estimates

~~The Company’s significant~~Our critical accounting policies are disclosed in ~~Note 2- Summary of Significant Accounting Policies in the Company’s~~our Annual Report on Form 10-K for the ~~years~~year ended ~~June 30, 2019 and 2018.~~December 31, 2021. Since the date of the Annual Report, there have been no material changes to ~~the Company’s significant~~our critical accounting ~~policies, except as disclosedabove.~~policies.

Results of Operations for the ~~Three months ended September~~Six Months Ended June 30, ~~2019 compared~~2022 Compared to ~~three months ended September~~Six Months Ended June 30, ~~2018~~2022

The following table highlights ~~the various sources of~~our operating revenues and expenses for the ~~three~~six months ended ~~September~~June 30, ~~2019~~2022 as compared to the ~~three~~six months ended ~~September~~June 30, ~~2018:~~2021:

Three months ended
September 30,
2019 2018
Revenues:
Software $ 2,304,480 $ 1,879,262
Consulting 831,363 370,083
Other 57,047 50,054
Total Revenue 3,192,890 2,299,399

Cost of revenues 1,397,361 1,063,135
Gross Profit 1,795,529 1,236,264

Operating expenses:
Product development: 1,130,880 801,472

Selling, general and administrative 3,583,815 2,147,492

Total operating expenses 4,714,695 2,948,964

Other income 73,095 17,017
Net loss $ (2,846,071 ) $ (1,695,683 )

	Six Months Ended June 30						Change
	2022			2021			Period over Period
Revenues:
Software	$	12,429,442		$	8,251,881		$	4,177,561		51	%
Consulting		542,309			583,631			(41,322	)	(7	)%
Other		64,971			85,399			(20,428	)	(24	)%
Total revenue		13,036,722			8,920,911			4,115,811		46	%

Cost of revenues		4,039,648			3,368,547			671,101		20	%
Gross profit		8,997,074			5,552,364			3,444,710		62	%
Gross profit margin		69	%		62	%

Operating expenses:
Product development:		3,866,789			2,951,358			915,431		31	%
Sales and marketing		6,421,431			3,562,058			2,859,373		80	%
General and administrative		4,989,541			6,228,943			(1,239,402	)	(20	)%
Depreciation and amortization		3,976,224			2,367,015			1,609,209		68	%
Impairment of long-lived assets		39,600,587			—			39,600,587		nm
Total operating expenses		58,854,572			15,109,374			43,745,198		nm

Loss from operations	$	(49,857,498	)	$	(9,557,010	)	$	(40,300,488	)	nm

nm – percentage change not meaningful

Revenue

Software Revenue

Total ~~Revenue~~

~~Total~~software revenueincreasedto ~~approximately $3.2~~ $12.4million for the ~~three~~six months ended ~~September~~June 30, ~~2019~~ 2022from ~~approximately $2.3~~$8.3million for the ~~three~~six months ended ~~September~~June 30, ~~2018,~~2021, for anincreaseof ~~approximately $0.9~~ $4.2million, or ~~39%~~ 51%. ~~The increase in total~~Software revenue ~~was driven primarily by growth achieved across~~related to our ~~commercial~~enterprise offerings, Viridian and 365 Cannabis, for the six months ended June 30, 2022 were $5.9 million, compared to $0.9 for the six months ended June 30, 2021 and software ~~business,~~revenue related to our non-enterprise offerings, which include MJ Platform, ~~in addition to our consulting business. The revenues from our government regulatory software business,~~Ample, Trellis, Solo, and Leaf Data Systems, ~~have had a slight increase as well.~~

~~Software Revenue~~

~~Our total software revenue increased~~declined to ~~approximately $2.3~~$6.1 million for the ~~three~~six months ended ~~September~~June 30, ~~2019 from $1.9~~ 2022 compared to $6.6 million for the ~~three~~six months ended ~~September~~June 30, ~~2018, an increase of approximately~~ 2021. There was also a decrease in partnership and data revenue which was $0.4 million ~~or 23%. Total software~~for the six months ended June 30, 2022 compared to $0.7 million during the same period in the prior year. Software revenue accounted for ~~72%~~ 95% and ~~82%~~ 93% of total revenue for the ~~three~~six months ended ~~September~~June 30, ~~2019~~ 2022and ~~2018,~~2021, respectively. ~~The~~As indicated above, the increase in software revenue was primarily driven by total revenue growth of MJ Platform of approximately $0.3 million, or 39%. Software revenues generated from government customers under Leaf Data Systems increased to approximately $1.1 million forduring the ~~three~~six months ended ~~September~~June 30, ~~2019 from approximately $1.0 million for the three months ended September 30, 2018, for an increase of approximately $0.1 million, or 7%.~~

~~While our revenues from Leaf Data Systems from our contracts with the State of Washington and the State of Pennsylvania declined for the three months ended September 30, 2019~~2022 as compared to the ~~three~~six months ended ~~September~~June 30, ~~2018 by approximately $0.2 million as a result of the completion of software enhancements, we recorded~~ 2021 was attributable to revenue ~~of approximately $0.2 million~~generated from our enterprise offerings sourced primarily from 365 Cannabis which was acquired during the fourth quarter of 2021. Also contributing to the increase was $0.4 million of non-recurring contract ~~with the State of Utah, which commenced in August 2019.~~termination fees attributable to two customers.

Consulting Revenue

~~Our consulting~~Consulting revenue includes revenue generated from consulting ~~professional~~ services delivered to prospective and current cannabis, hemp and CBD businesses and business operators. Our consulting revenue was ~~approximately $0.8~~ $0.5million for the ~~three~~six months ended ~~September~~June 30, ~~2019~~ 2022compared to ~~approximately $0.4~~ $0.6million for the ~~three~~six months ended ~~September~~June 30, ~~2018, for an increase~~ 2021, decrease of ~~approximately $0.4~~less than $0.1 million, or ~~125%~~7%. The result was driven by a higher volume of consulting activities and engagements during the quarter. We delivered approximately 30 operational license applications on behalf of Missouri-based clients during the month of August alone, and we continue to experience strong demand for our consulting services in other emerging states. Further, we signed and have begun servicing an $894,000 contract with an Illinois-based client for the preparation, completion and delivery of operational license applications for a portfolio of recreational retail facilities. The Illinois Department of Financial and Professional Regulation announced the applications will be accepted by the department starting on December 10, 2019 and must be submitted by January 2, 2020. Consulting services are correlated to state legalizations and other regulatory expansion activity. As a result, individual period-over-period comparisons may experience variability depending on the timing of recent legislative changes.

Consulting revenue was ~~26%~~ 4% and ~~16%~~7% of total revenue for the ~~three~~six months ended ~~September~~June 30, ~~2019~~ 2022and ~~2018,~~2021, respectively. Due to the nature of consulting revenue, ~~and~~ our dependence on emerging market activity and the ongoing pandemic as a driver of demand, the ~~months in which we recognize~~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

~~Our~~Other revenue includes retail/resale revenue, ~~represents revenue~~which is generated from ~~point of sale~~point-of-sale hardware, and ~~labels. Retail/resale~~other non-recurring revenues. Other revenue ~~increased to approximately $57,000~~was less than $0.1 million for each of the ~~three~~six months ended ~~September~~June 30, 2019 from approximately $50,000 for the three months ended September 30, 2018, an increase of approximately $7,000, or 14%. Retail/resale revenue was 2% of total revenue for the three months ended September 30, 2019 2022 and ~~September 30, 2018.~~ 2021, respectively.

Cost of Revenue ~~and Gross Margin~~

Our cost of revenue was $4.0million for thesix months ended June 30,2022 compared to $3.4million for the ~~three~~six months ended ~~September~~June 30, ~~2019 was approximately $1.4 million,~~ 2021, an increase of ~~approximately $0.3~~$0.6 million, or ~~31%, as compared to~~20%. Total cost of revenue increased primarily as a result of an increase in software application and hosting expenses of $0.5 million and fees for Microsoft licenses in the amount of $0.9 million related to our acquisitions of Viridian and 365 Cannabis. These increases were partially offset by the reversal of a litigation contingency of approximately $0.5 million (see Note 7 – Commitments and Contingencies to the consolidated financial statements for further discussion of the reversal of the litigation reserves).

Gross Profit

Gross profit was $9.0 million for the ~~three~~six months ended ~~September~~June 30, ~~2018~~ 2022 compared to $5.6 million for the six months ended June 30, 2021, an increase of ~~approximately $1.1 million.~~$3.4 million or 62%. The gross profit margin increased to 69% for the six months ended June 30, 2022 from 62% for the six months ended June 30, 2021.

Operating Expenses

Product Development

Product development expense was $3.9million for thesix months ended June 30,2022, compared to $3.0million for thesix months ended June 30,2021, an increase of $0.9 million, or 31%. Product development expense increased due primarily to the Viridian and 365 Cannabis acquisitions, which resulted in a $0.9 million increase in salary-related and contractor expenses for the six months ended June 30,2022 compared to the same period in the prior ~~three-month period was primarily due to~~year as well as higher ~~direct labor~~software and application costs ~~of approximately $0.1 million~~and severance benefit costs associated with providing our consulting services and higher hosting and infrastructure costs of approximately $0.1 million incurred to support our Software business. Hosting and infrastructure costs grew from approximately $0.4 million to $0.5 million, an increase of approximately $0.1 million, or 26%, as we continued to increase Amazon Web Services usage as part of the ~~growth of MJ Platform. In addition, the cost of revenue from the contract with the State of Utah was approximately $0.3 million.~~

~~The overall increase in cost of revenue was~~Restructuring partially offset by ~~a decrease of $0.1~~lower recruiting and share-based compensation costs.

Sales and Marketing

Sales and marketing expense was $6.4 million ~~in third-party subcontractor costs associated with servicing our contract with~~for the Commonwealth of Pennsylvania. Since the applications and services available through the Leaf Data System are provided through relationships with third-party service providers, the costs are higher than those allocated from our employees’ salaries to support our MJ Platform and consulting contracts. Therefore, the gross profit margins from the government contracts are generally lower than those from our commercial software clients. Total costs of government revenues incurred by us, which are included in cost of revenues on the statement of operations, was approximately $0.7 million and $0.5 million during the threesix months ended ~~September~~June 30, ~~2019 and 2018, respectively.~~

~~Operating Expenses~~

~~The following table presents operating expense line items for the three months ended September 30, 2019 and 2018 and the period-over-period dollar and percentage changes for those line items:~~

Three months ended September 30,
2019 % of
revenue 2018 % of
revenue Change
Period over Period
Operating expenses:
Product development $ 1,130,880 35 % $ 801,472 35 % $ 329,408 41 %
Selling, general and administrative 3,583,815 112 % 2,147,492 93 % 1,436,323 67 %

Total operating expenses $ 4,714,695 148 % $ 2,948,964 128 % $ 1,765,731 60 %

~~Our operating expenses increased~~ 2022, compared to ~~approximately $4.7~~$3.6 million for the ~~three~~six months ended ~~September~~June 30, ~~2019 from approximately $2.9 million for the three months ended September 30, 2018,~~ 2021, an increase of ~~approximately $1.8~~$2.8 million, or ~~60%~~80%. The increase in ~~operating expenses was driven by higher product development expenses,~~sales and marketing expense is primarily related to the acquisitions of Viridian and 365 Cannabis which resulted in an increase of $2.5 million in salary-related and contractor expenses for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. In addition, the 2022 period included approximately $0.3 million ~~or 41%, in addition to higher selling, general~~of severance benefits associated with the Restructuring.

General and Administrative

General and administrative ~~expenses,~~expense was $5.0 million for thesix months ended June 30, 2022, compared to $6.2million for thesix months ended June 30, 2021, a decrease of $1.2million, or 20%. The period in 2022 and 2021 include charges associated with office lease terminations and, in the case of 2021, the associated write-off of certain leasehold improvements. During the 2022 period, we terminated our Las Vegas office space which resulted in a restructuring charge of $0.5 million while the 2021 period reflected charges of $2.4 million associated with the exit from our former Toronto office. There was also an increase of ~~approximately $1.4~~$0.2 million in salary-related and contractor expenses for the six months ended June 30, 2022 compared to the same period in the prior year.

Depreciation and Amortization

Depreciation and amortization expense increased to $4.0 million for the six months ended June 30, 2022 from $2.4 million for the six months ended June 30, 2021, an increase of $1.6 million, or ~~67%~~68%. The ~~overall~~ increase in amortization expense is primarily attributable to the acquired intangible assets from our Viridian and 365 Cannabis acquisitions in the amount of $0.8 million, which both occurred after June 30, 2021, as well as an increase in capitalized software in the amount of $0.8 million.

Impairment of Long-lived Assets

Due to a continued decline in market conditions from December 31, 2021 to June 30, 2022, we recorded impairment charges of $36.4 million including $23.5 million attributable to goodwill associated with the non-enterprise reporting unit and $12.9 million associated with the goodwill of the enterprise reporting unit during the six months ended June 30, 2022, compared to no impairment charge for the six months ended June 30, 2021. In addition, we recorded impairments of $3.2 million attributable to certain intangible assets and capitalized software associated with one specific business line within the non-enterprise reporting unit during the six months ended June 30, 2022 (see Note 9 – Goodwill and Intangible Assets, Net to the consolidated financial statements for further discussion on the impairments recorded).

Results of Operations for the Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The following table highlights our operating revenues and expenses for the three months ended ~~September~~June 30, ~~2019~~2022 as compared to the three months ended June 30, 2021:

	Three Months Ended June 30						Change
	2022			2021			Period over Period
Revenues:
Software	$	5,920,929		$	4,456,728		$	1,464,201		33	%
Consulting		115,300			410,884			(295,584	)	(72	)%
Other		49,652			39,275			10,377		26	%
Total revenue		6,085,881			4,906,887			1,178,994		24	%

Cost of revenues		1,835,977			1,914,380			(78,403	)	(4	)%
Gross profit		4,249,904			2,992,507			1,257,397		42	%
Gross profit margin		70	%		61	%

Operating expenses:
Product development:		1,761,428			1,527,258			234,170		15	%
Sales and marketing		3,185,318			1,826,143			1,359,175		74	%
General and administrative		2,419,109			4,375,981			(1,956,872	)	(45	)%
Depreciation and amortization		1,982,833			1,314,132			668,701		51	%
Impairment of long-lived assets		24,122,066			—			24,122,066		nm
Total operating expenses		33,470,754			9,043,514			24,427,240		nm

Loss from operations	$	(29,220,850	)	$	(6,051,007	)	$	(23,169,843	)	nm

nm – percentage change not meaningful

Revenue

Software Revenue

Total software revenueincreasedto $5.9million for the three months ended June 30, 2022from $4.5million for the three months ended June 30,2021, for anincreaseof $1.5million, or33%. Software revenue related to our enterprise offerings, Viridian and 365 Cannabis, for thethree months ended June 30, 2022 were $2.8 million, compared to $0.9 for the three months ended June 30, 2021 and software revenue related to our non-enterprise offerings, which include MJ Platform, Ample, Trellis, Solo, and Leaf Data Systems, were $2.9 million for the three months ended June 30, 2022 compared to $3.2 million for thethree months ended June 30, 2021. There was also a slight decrease in partnership and data revenue which was $0.2 million for the three months ended June 30, 2022 compared to $0.3 million during the same period in the prior year. Software revenue accounted for 97% and 91% of total revenue for the three months ended June 30,2022and2021, respectively. As indicated above, the increase in software revenue during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 was attributable to revenue generated from our enterprise offerings. Also contributing to the increase was $0.4 million of non-recurring contract termination fees attributable to two customers.

Consulting Revenue

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 $0.1million for the three months ended June 30,2022compared to $0.4million for the three months ended June 30, 2021, a decrease of $0.3 million, or 72%. Consulting revenue was 2% and 8% of total revenue for thethree months ended June 30, 2022and2021, respectively. Due to the nature of consulting revenue, our dependence on emerging market activity and 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

Other revenue includes retail/resale revenue, which is generated from point-of-sale hardware, and other non-recurring revenues. Other revenue was less than $0.1 million for each of thethree months ended June 30, 2022 and 2021, respectively.

Cost of Revenue

Our cost of revenue was $1.8million for thethree months ended June 30,2022 compared to $1.9million for thethree months ended June 30, 2021, a decrease of $0.1 million, or 4%. The 2022 period includes a benefit of approximately $0.5 million from the reversal of a litigation reserve (see Note 7 – Commitments and Contingencies to the consolidated financial statements for further discussion of the reversal of the litigation reserve). Excluding this item, the total cost of revenue increased primarily ~~driven~~as a result of an increase in Microsoft licenses in the amount of $0.4 million related to our acquisitions of Viridian and 365 Cannabis.

Gross Profit

Gross profit was $4.2 million for thethree months ended June 30, 2022 compared to $3.0 million for thethree months ended June 30, 2021, an increase of $1.3 million or 42%. Gross profit margin also improved from 61% for thethree months ended June 30, 2021 to 70% for the three months ended June 30, 2022. This improvement in gross margin was due primarily to operating synergies realized from our acquired assets, our ongoing initiatives to drive operating effectiveness, and acquiring additional business-to-business customers, that have a higher gross margin.

Operating Expenses

Product Development

Product development expense was $1.8million for thethree months ended June 30,2022, compared to $1.5million for thethree months ended June 30,2021, an increase of $0.3 million, or 15%. Product development expense increased primarily due the Viridian and 365 Cannabis acquisitions, which resulted in a $0.3 million increase in salary-related and contractor expenses for the six months ended June 30,2022 compared to the same period in the prior year. The 2022 period also includes severance benefit costs associated with the Restructuring partially offset by ~~increases in salary expenses across Engineering,~~ lower recruiting and share-based compensation costs

Sales and Marketing

Sales and ~~Administrative functions as we continued~~marketing expense was $3.2 million for thethree months ended June 30, 2022, compared to ~~add headcount~~$1.8 million for thethree months ended June 30, 2021, an increase of $1.4 million, or 74%. The increase in ~~order~~sales and marketing expense is primarily related to ~~support our growth.~~

~~Salary~~the acquisitions of Viridian and 365 Cannabis which resulted in an increase of $1.1 million in salary-related and contractor expenses for ~~Product Development functions increased by~~thethree months ended June 30, 2022 compared to thethree months ended June 30, 2021. In addition, the 2022 period included approximately ~~$0.4~~ $0.3 million of severance benefits associated with the Restructuring.

General and Administrative

General and administrative expense was $2.4 million for thethree months ended June 30, 2022, compared to $4.4million for thethree months ended June 30, 2021, a decrease of $2.0million, or ~~55%~~45%. ~~Salary expenses~~The period in 2021 includes $2.4 million of charges associated with the termination of our former Toronto office lease and the associated write-off of certain leasehold improvements. In addition, bad debt expense was lower by $0.2 million during the 2022 period when compared to the 2021 period. These decreases were partially offset by higher professional fees and severance benefits associated with the Restructuring.

Depreciation and Amortization

Depreciation and amortization expense increased to $2.0 million for ~~Sales and Marketing and Administrative functions increased by approximately $0.9~~the three months ended June 30, 2022 from $1.3 million for thethree months ended June 30, 2021, an increase of $0.7 million, or ~~95%~~51%. ~~Approximately $0.2 million of salaries~~The increase in amortization expense is primarily attributable to the acquired intangible assets from our Viridian and 365 Cannabis acquisitions in the ~~current three-month period were incurred~~amount of $0.3 million, which both occurred after June 30, 2021, as well as an increase in capitalized software in the ~~form~~amount of ~~non-cash stock-based compensation. No non-cash stock-based compensation expense was incurred~~$0.4 million.

Impairment of Long-lived Assets

Due to a continued decline in market conditions from March 31, 2022 to June 30, 2022, we recorded impairment charges of $24.1 million including $8.0 million attributable to goodwill associated with the non-enterprise reporting unit and $12.9 million associated with the goodwill of the enterprise reporting unit during the six months ended June 30,2022, compared to no impairment charge for the three months ended June 30,2021. In addition, we recorded impairments of $3.2 million attributable to certain intangible assets and capitalized software associated with one specific business line within the non-enterprise reporting unit during the three months ended ~~September~~June 30, ~~2018.~~2022 (see Note 9 – Goodwill and Intangible Assets, Net to the consolidated financial statements for further discussion on the impairments recorded).

Non-GAAP Financial Measures

~~Non-payroll~~

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 ~~expenses within Selling, General~~GAAP financial measures and ~~Administrative functions also increased~~the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.

EBITDA and Adjusted EBITDA

We believe that EBITDA and Adjusted EBITDA, when considered with the 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 interest income and expense, changes in fair value of convertible notes, changes in fair value of derivative liabilities, 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 ~~three months ended September 30, 2019 by approximately $0.5 million. These~~reasons set forth below:

	●	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, because this represents a non-cash charge and our mix of cash and share-based compensation may differ from other companies, which effects the comparability of results of operations and liquidity;
	●	cost 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 are not reflective of our ongoing operations;
	●	costs incurred in connection with non-recurring financing, including fees incurred as a direct result of electing the fair value option to account for our debt instruments;
	●	restructuring charges, which includes costs to terminate a lease and the related write-off of leasehold improvements and furniture, as we believe these costs are not representative of operating performance;
	●	gain on 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;
	●	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;
	●	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 which includes items such as a one-time gain on debt extinguishment and one-time loss on disposal of fixed assets, which effects the comparability of results of operations and liquidity.

The reconciliation of net loss to EBITDA and Adjusted EBITDA is as follows:

	Six Months Ended June 30,
	2022			2021
Net loss	$	(51,518,840	)	$	(12,562,954	)
Adjustments:
Interest expense (income)		213,724			937,504
Change in fair value of convertible notes		1,727,000			2,007,677
Change in fair value of derivative liability		(51,896	)		42,871
Income tax expense (benefit)		(227,486	)		10,570
Depreciation and amortization		3,976,224			2,367,015
EBITDA	$	(45,881,274	)	$	(7,197,317	)
Impairment of long-lived assets		39,600,587			—
Stock-based compensation expense		445,056			1,024,715
Business combination and merger related costs (income)		5,425			107,726
Non-recurring financing fees		353,483			129,594
Restructuring charges		1,067,943			2,453,776
Equity in losses of investee		—			7,564
Adjusted EBITDA	$	(4,408,780	)	$	(3,473,942	)

	Three Months Ended June 30,
	2022			2021
Net loss	$	(29,565,947	)	$	(6,105,251	)
Adjustments:
Interest expense (income)		212,983			163,124
Change in fair value of convertible notes		294,000			16,405
Change in fair value of derivative liability		(33,845	)		(133,125	)
Income tax expense (benefit)		(128,042	)		4,300
Depreciation and amortization		1,982,833			1,314,132
EBITDA	$	(27,238,018	)	$	(4,740,415	)
Impairment of long-lived assets		24,122,066			—
Stock-based compensation expense		132,132			521,335
Business combination and merger related costs (income)		6,062			63,735
Non-recurring financing fees		325,529			111,761
Restructuring charges		503,709			2,406,589
Equity in losses of investee		—			3,782
Adjusted EBITDA	$	(2,148,520	)	$	(1,633,213	)

Going Concern and Management's Liquidity Plans

In accordance with the Financial Accounting Standards Board’s (“FASB”) standard on going concern, Accounting Standard Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern (“ASU 2014-15”), we assess going concern uncertainty in our consolidated financial statements to determine if 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 ~~primarily comprised~~issued, which is defined to as the “look-forward period” in ASU 2014-15. As part of ~~Sales~~this assessment, based on conditions that are known and ~~Marketing expenses related~~reasonably knowable to 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 our ~~marketing initiatives including payments~~ability to ~~partners~~delay or curtail expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, we make certain assumptions regarding implementing curtailments or delays in the nature and ~~marketing programs. Marketing~~timing of programs ~~consist~~and expenditures to the extent we deem probable that such implementations can be achieved and we have the proper authority to execute them within the look-forward period in accordance with ASU 2014-15. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of ~~advertising, events, corporate communications, brand building~~assets and ~~product marketing activities. We plan~~liabilities that might be necessary if the Company is unable to continue ~~to invest~~as a going concern.

The accompanying condensed 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 ~~marketing and sales by expanding~~the normal course of business. However, since our domestic and international selling and marketing activities, building brand awareness, attracting new customers, and sponsoring additional marketing events. The timing of these marketing events will affect our marketing costs in a quarter. Non-payroll related expenses within Product development functions decreased by approximately $50,000 for the three months ended September 30, 2019, primarily driven by fewer professional fee expenses incurred.

~~Liquidity and Capital Resources~~

~~Liquidity and Capital Resources~~

~~As of September 30, 2019,~~inception we had cash of approximately $22.4 million, excluding restricted cash. We had a working capital balance of approximately $23.3 million as of September 30, 2019, as compared to $21.8 million as of June 30, 2019.

~~Since its inception, the Company has~~have incurred recurring ~~operating~~ losses from operations, used cash from ~~operations,~~operating activities, and relied on capital raising transactions to continue ongoing operations. ~~Although~~During the six months ended June 30, 2022 and June 30, 2021, we incurred losses from operations of $25.7 million and $9.6 million, respectively, and used cash in operating activities of $6.9 million and $3.7 million, respectively. As of June 30, 2022, we had a working capital deficit of $13.2 million with $5.1 million in cash available to fund future operations (subsequent to June 30, 2022, we received approximately $2 million in immediately available cash from the Unit Offering).Furthermore, on May 24, 2022, we received a notice (the “Notice”) from The Nasdaq Stock Market LLC indicating that the bid price of the Company’s common stock, par value $0.0001 per share (“Common Stock”), is not currently in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on the Nasdaq Capital Market (the “Nasdaq Market”). The Notice has no immediate effect on the continued listing status of our Common Stock on the Nasdaq Market, and, therefore, our listing remains fully effective. We are provided a compliance period of 180 calendar days from the date of the Notice, or until November 21, 2022, to regain compliance with the minimum closing bid requirement. These factors raise substantial doubt regarding the ability of the Company to continue as a going concern.

The most significant components of our plan include the following: (i) realizing annualized cost savings associated with the Restructuring that we announced in May 2022 which resulted in a reduction in workforce and related operating costs (see Note 4), (ii) entering into Convertible Notes Amendment which, among other factors, provides for a deferral of the required amortization payments due and payable from July 1, 2022 through January 1, 2023, (iii) deploying for working capital needs of the net proceeds of approximately $2 million received from the Unit Offering in a transaction that closed on July 5, 2022, net of underwriting discounts and commissions and other offering expenses and after depositing $7 million of the proceeds into certain restricted cash accounts in accordance with the Convertible Notes Amendment (an additional $2 million of which may be released upon reducing the principal amount of the Senior Convertible Notes to certain thresholds as described above in relation to the Convertible Notes Amendment), (iv) conservatively managing our working capital through disciplined cost-containment efforts and strategic management of our accounts receivable and accounts payable cycles (v) addressing the potential liquidity of our Common Stock in connection with the minimum listing requirements for the Nasdaq Market through a proposed 1-to-20 reverse stock split (the “Reverse Stock Split”) and (vi) continuing to seek to grow our customer base and realize synergies as we continue to integrate our recent acquisitions.

We anticipate the initiatives and actions described above will provide us with sufficient liquidity in order to operate our business in the normal course for the second half of 2022 until such time that the 365 Cannabis Earn-Out is due in December 2022, in part, to the fact that the debt service obligations associated with the Senior Convertible Notes for the first half of 2023 have effectively been substantially pre-funded with the amounts deposited into restricted accounts as required by the Convertible Notes Amendment. In the second half of 2022, we plan to continue to rigorously explore potential financing alternatives and other strategic options in addition to enhancing the liquidity of our Common Stock. In addition to and to the extent practical in the future, based on market conditions, we will consider incremental offerings of Common Stock through our previously authorized ATM Program; however, we do not consider this a viable alternative unless and until we are able to successfully address the minimum listing requirements of the Nasdaq Market with the proposed Reverse Stock Split. Through July 31, 2022, we have ~~continuing negative cash flow from operations,~~utilized $2.7 million of the ~~Company anticipates~~total $25 million authorized by the ATM Program leaving $22.3 million remaining under the ATM Program, subject to certain limitations imposed by Form S-3 on amounts we can raise in any 12-month period of time.

If we are unable to secure other potential financing alternatives or fail to execute any other strategic options to raise sufficient additional funds through the first half of 2023, including through the ATM Program, we will have to develop and implement more aggressive plans to address our liquidity needs and our ability to satisfy the scheduled maturity of our obligations under the Senior Convertible Notes. Such plans could include extending payables, further reductions of expenditures (including the termination of additional employees) and reducing or eliminating investments in and the funding of certain of our business units and initiatives, otherwise substantially scaling back our business plan until sufficient additional capital is raised through other equity or debt offerings or selling certain of our business units to generate funding for remaining operations. Additional equity or debt offerings may include the issuance of shares of common stock, warrants to purchase common stock, preferred stock, convertible debt or other instruments that ~~its~~may dilute our current ~~cash will~~stockholders significantly. Accordingly, we may be ~~sufficient~~subject to additional risks, including retention of key employees and limitations on the extension of credit by our vendors and other service providers. If we are required to raise additional capital as discussed above and if we cannot timely raise additional funds, we may be unable to meet the ~~working capital requirements for~~financial covenants of the ~~next twelve months.~~Senior Convertible Notes, which could result in an event of default under those instruments which could adversely impact the Company. See ~~“Risk Factors”~~the risks detailed in our ~~Annual Report on~~ Form 10-K under “Item 1A. Risk Factors – Risks Relating to our Convertible Debt”.

Our ability to continue as a going concern is dependent upon our ability to successfully execute the plans described above and attain profitable operations. Despite the comprehensive scope of our 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 ~~fiscal year ended June 30, 2019 for a discussion~~date of issuance of the ~~risks related~~consolidated financial statements. Accordingly, if we are unable to raise sufficient capital we may have to reduce operations which could significantly and adversely affect our ~~liquidity~~results of operations. If we fail to meet the financial covenants of the Senior Convertible Notes and ~~capital structure.~~

~~The industry in which we participate is highly fragmented,~~cannot obtain a waiver from such provisions or otherwise come to an agreement with ~~many small and thinly-capitalized competitors. As part~~the holders of our ~~growth strategy, we~~debt, such holders may ~~seek~~declare a default on the debt which could subject our assets to ~~acquire assets or companies that are synergistic with~~seizure and sale, negatively impacting our business.

Cash Flows

Our cash and restricted cash balance ~~were approximately $22.9 million and $22.4~~was $5.1 million as of ~~September 30, 2019 and~~ June 30, ~~2019, respectively.~~2022. Cash flow information ~~for the three months ended September 30, 2019 and 2018~~ is as follows:

	Three months ended September 30,						Six Months Ended June 30,
	2019			2018			2022			2021
Cash provided by (used in):
Cash (used in) provided by:
Operating activities	$	(3,679,812	)	$	(967,287	)	$	(7,187,445	)	$	(3,715,198	)
Investing activities		-			-			(1,364,503	)		(2,004,609	)
Financing activities		4,242,454,			10,000,000			(766,989	)		(333,847	)
Net increase in cash	$	562,642		$	9,032,713
Effect of change in exchange rates on cash and restricted cash								9,225			(124	)
Net decrease in cash and restricted cash							$	(9,309,712	)	$	(6,053,778	)

Operating Activities

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 ~~increased to approximately $3.7 million during~~is impacted by our net loss adjusted for certain non-cash items, including depreciation and amortization expenses, impairments of long-lived assets, change in fair value of convertible notes and derivative liabilities, stock-based compensation, deferred income taxes, as well as the ~~three months ended September 30, 2019, from approximately $1.0 million during the three months ended September 30, 2018, an increase~~effect of ~~approximately $2.7 million. Cash~~changes in operating assets and liabilities.

Net cash used in operating activities increased to $7.2million during thesix months ended June 30,2022, from $3.7million during the six months ended June 30,2021, anincreaseof $3.5million. For the six months ended June 30, 2022, cash was ~~primarily driven~~consumed from operations by ~~the~~a net loss of ~~approximately $2.7,~~$51.5 million, less non-cash items of $46.1 million and a net change in ~~addition to an increase in outstanding receivables~~assets and ~~prepaid expenses.~~

Noliabilities of $1.8 million. For the six months ended June 30, 2021, cash was ~~provided~~consumed from operations by a net loss of $12.6 million, less non-cash items of $7.8 million and a net change in assets and liabilities of $1.0 million.

Investing Activities

Our primary investing activities have consisted of capitalization of internal-use software necessary to deliver significant new features and functionality in our platform which provides 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 $1.4million during the six months ended June 30,2022, as a result of cash outflows for the development of our software products. Net cash used by investing activities during the ~~three~~six months ended ~~September~~June 30, ~~2019 and September 30, 2018.~~2021,was $2.0million which was also related to our software development.

~~Net cash provided by~~Financing Activities

Our financing activities ~~totaled approximately $4.2 million during~~consist primarily of proceeds from issuance of our common stock, including those through our ATM Program, issuances and repayments attributable to the ~~three~~Senior Convertible Notes and the value of shares withheld from the vesting of certain stock-based compensation awards.

During the six months ended ~~September~~June 30, ~~2019 as a result~~2022, we made principal payments of ~~warrants that~~$1.5 million on the Senior Convertible Notes which were ~~exercised. Net cash provided~~partially offset by ~~financing activities totaled approximately $10~~the receipt of net proceeds of $0.8 million ~~during~~from the ~~three~~issuance of 1,816,184 shares of Common Stock through the ATM Program. During the six months ended ~~September~~June 30, ~~2018 as a result~~2022 and 2021, the value of ~~proceeds raised in~~shares withheld for income taxes from the vesting of stock-based compensation awards was less than $0.1 million and $0.3 million, respectively.

Contractual Obligations

For information concerning our ~~Series C financing in August 2018. Upon the consummation of the Business Combination, the Series C Preferred Units issued in connection with the transaction were converted into shares of~~contingent consideration, convertible debt, and operating lease obligations, see Notes 4, 6, and 7, respectively, to our ~~common stock.~~condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is ~~properly~~processed, recorded, summarized, and ~~timely~~ reported within the time periods specified in the Security and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error and circumvention or overriding of controls and therefore can provide only reasonable assurance with respect to reliable financial reporting. Furthermore, effectiveness of an internal control system in future periods cannot be guaranteed because the design of any system of internal controls is based in part upon assumptions about the likelihood of future events. There can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time certain controls may become inadequate because of changes in business conditions, or the degree of compliance with policies and procedures may deteriorate. As such, misstatements due to error or fraud may occur and not be detected.

We have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of ~~September~~June 30, ~~2019~~2022 with the participation, and under the supervision, of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September~~June 30, ~~2019,~~2022, our disclosure controls and procedures were ~~ineffective.~~ineffective in ensuring that: (i) information required to be disclosed by us in reports that we file or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for accurate and timely decisions regarding required disclosure.

~~Remediation:~~Material Weakness

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. Pursuant to our management’s review of disclosure controls and procedures and internal control over financial reporting, management determined that the following material weakness in our internal control over financial reporting and prevented management from determining that our disclosure controls and procedures and internal control over financial reporting were effective as of the end of the period covered by this report:

~~The Company has contracted an outside consultant to assist with remediating past reported disclosure control weaknesses and to assist~~

The Company’s internal control over financial reporting pertaining to certain key process areas of financial reporting were not properly designed and/or operating effectively.

Remediation Efforts

We are in the ~~overall evaluation~~process of executing our remediation plans to address the material weakness described above. As of June 30, 2022, we have:

	·	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 control 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.

We believe these actions and ~~operating effectiveness of its~~the improvements we expect to achieve, when fully implemented, will strengthen our internal ~~controls~~control over financial ~~reporting.~~

~~The Company has hired additional experienced resources to fill accounting functions~~reporting and expects to add further resources. In addition, the Company has identified upgraded IT, accounting and finance systems which the Company expects will automate critical control functions and improve operational effectiveness and efficiencies.

~~The Company believes that these actions will~~ remediate the ~~control~~material weaknesses. However, the material weaknesses will not be considered fully remediated until the applicable controls operate for a sufficient period of time for management to test the results for operating effectiveness. ~~Once implemented,~~While no assurance can be provided, the Company ~~intends to continue periodic testing~~believes it will make further progress in remediating these material weaknesses during 2022.

Notwithstanding the material weakness, management has concluded that the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations, and ~~reporting of the internal controls to ensure continuity of compliance.~~cash flows in conformity with GAAP.

Changes in Internal Control over Financial Reporting

During the most recently completed fiscal quarter, ~~except as described above in our remediation efforts,~~ there have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Management recognizes that a control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Item 1. Legal Proceedings.

Item 1A. Risk Factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities.

Item 4. Mine Safety Disclosures.

Item 5. Other Information.

SIGNATURES

~~SIGNATURES~~

In accordance with the requirements of Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	~~AKERNA CORP.~~
By:
	~~By:~~	/s/ Jessica Billingsley
		~~Name:~~	Jessica Billingsley,
			Chief Executive Officer and Director (Principal Executive Officer)

		~~Date:~~	~~November 14, 2019~~August 12, 2022

	By:	/s/ ~~Ruth Ann Kraemer~~L. Dean Ditto
		~~Name:~~	~~Ruth Ann Kraemer~~
				L. Dean Ditto, Chief Financial Officer (Principal Financial and Accounting Officer)

		~~Date:~~August 12, 2022

~~November 14, 2019~~44

	INDEX	Page Number

PART I	FINANCIAL INFORMATION
Item 1.
~~ITEM 1.~~	~~FINANCIAL STATEMENTS (Unaudited)~~	1
	Condensed Consolidated Balance Sheets ~~as of September 30, 2019~~ (unaudited) ~~and June 30, 2019~~	1
	~~Unaudited~~ Condensed Consolidated Statements of Operations ~~for the Three Months Ended September 30, 2019 and 2018~~(unaudited)	2
	~~Unaudited~~ Condensed Consolidated Statements of ~~Stockholders’ Equity for the Three Months Ended September 30, 2019 and 2018~~Comprehensive Loss (unaudited)	3
	~~Unaudited~~ Condensed Consolidated Statements of Changes in Equity (unaudited)	4
	Condensed Consolidated Statements of Cash Flows ~~for the Three Months Ended September 30, 2019 and 2018~~(unaudited)	56
	Notes to Condensed Consolidated Financial Statements (unaudited)	67
~~ITEM~~Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1424
~~ITEM~~Item 3.	Quantitative and Qualitative Disclosures ~~about~~About Market Risk	1937
~~ITEM~~Item 4.	Controls and Procedures	2038

PART II	OTHER INFORMATION

~~ITEM~~Item 1.	Legal Proceedings	2140
~~ITEM~~ Item 1A.	Risk Factors	2140
~~ITEM~~Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2142
~~ITEM~~Item 3.	Defaults Upon Senior Securities	2142
~~ITEM~~Item 4.	Mine Safety Disclosures	2142
~~ITEM~~Item 5.	Other Information	2142
~~ITEM~~Item 6.	Exhibits	2143
	~~Signatures~~SIGNATURES	2244

	September 30,			June 30,
	2019			2019
	(unaudited)
Assets

Current assets
Cash	$	22,429,931		$	21,867,289
Restricted cash		500,000			500,000
Accounts receivable, net		2,512,682			1,257,274
Prepaid expenses and other assets		869,946			577,674
Total current assets	$	26,312,559		$	24,202,237

Liabilities and Stockholders’ Equity

Current liabilities
Accounts payable	$	1,599,164		$	1,317,566
Accrued liabilities		493,518			500,550
Deferred revenue		902,595			624,387
Total current liabilities		2,995,277			2,442,503

Commitments and contingencies (Note 6)

Stockholders’ equity:
Preferred stock, par value $0.0001; 5,000,000 shares authorized, none are issued and outstanding at September 30, 2019 and June 30, 2019		-			-
Common stock, par value $0.0001; 75,000,000 shares authorized, 10,958,656 issued and outstanding at September 30, 2019, and 10,589,746 shares authorized, issued and outstanding at June 30, 2019		1,096			1,059
Additional paid-in capital		51,729,003			47,325,421
Accumulated deficit		(28,412,817	)		(25,566,746	)
Total stockholders’ equity		23,317,282			21,759,734

Total liabilities and stockholders’ equity	$	26,312,559		$	24,202,237

	Shares issuable upon exercise of warrants			Weighted average exercise price		Weighted average remaining life
Outstanding at July 1, 2019		6,183,115		$	11.50		3.72
Issued		-			-		-
Exercised		(368,910	)		11.50		-
Expired/cancelled		-			-		-
Outstanding at September 30, 2019		5,814,205		$	11.50		3.40

	June 30, 2018
	As reported			Adjustment			As revised
Consolidated Balance Sheet
Total assets	$	3,017,731		$	(223,766	)	$	2,793,965
Total liabilities		1,393,902			-			1,393,902
Total stockholders’ equity		1,623,829			(223,766	)		1,400,063

	September 30, 2018
	As reported			Adjustment			As revised
Condensed Consolidated Balance Sheet
Total assets		12,090,810			(296,267	)		11,794,543
Total liabilities		2,090,163			-			2,090,163
Total stockholders’ equity		10,000,647			(296,267	)		9,704,380

Condensed Consolidated Statements of Operations
Total revenue		2,371,900			(72,501	)		2,299,399
Cost of revenue		956,123			107,012			1,063,135
Gross profit		1,415,777			(179,513	)		1,236,264
Operating expenses		3,055,976			(107,012	)		2,948,964
Net loss		(1,623,182	)		(72,501	)		(1,695,683	)
Net loss per share		(0.30	)					(0.31	)

	December 31, 2018
	As reported			Adjustment			As revised
Condensed Consolidated Balance Sheet
Total assets		9,836,178			(320,434	)		9,515,744
Total liabilities		2,205,735			-			2,205,735
Total stockholders’ equity		7,630,443			(320,434	)		7,310,009

Condensed Consolidated Statements of Operations
Total revenue		2,598,079			(24,167	)		2,573,912
Cost of revenue		1,198,911			122,084			1,320,995
Gross profit		1,399,168			(146,251	)		1,252,917
Operating expenses		3,826,539			(122,084	)		3,704,455
Net loss		(2,370,204	)		(24,167	)		(2,394,371	)
Net loss per share		(0.39	)					(0.40	)

	March 31, 2019
	As reported			Adjustment			As revised
Condensed Consolidated Balance Sheet
Total assets		8,199,718			(320,434	)		7,879,284
Total liabilities		3,059,378			-			3,059,378
Total stockholders’ equity		5,140,340			(320,434	)		4,819,906

Condensed Consolidated Statements of Operations
Total revenue		2,327,880			-			2,327,880
Cost of revenue		1,042,403			124,079			1,166,482
Gross profit		1,285,477			(124,079	)		1,161,398
Operating expenses		3,788,644			(124,079	)		3,664,565
Net loss		(2,490,103	)		-			(2,490,103	)
Net loss per share		(0.41	)					(0.41	)

	June 30, 2019
	As reported			Adjustment			As revised
Consolidated Balance Sheet
Total assets		24,522,671			(320,434	)		24,202,237
Total liabilities		2,442,503			-			2,442,503
Total stockholders’ equity		22,080,168			(320,434	)		21,759,734

Consolidated Statements of Operations
Total revenue		10,919,785			(96,668	)		10,823,117
Cost of revenue		4,633,844			-			4,633,844
Gross profit		6,285,941			(96,668	)		6,189,273
Operating expenses		18,701,619			-			18,701,619
Net loss		(12,306,547	)		(96,668	)		(12,403,215	)
Net loss per share		(2.04	)					(2.05	)

	Three months ended September 30,
	2019		% of revenue			2018		% of revenue			Change Period over Period
Operating expenses:
Product development	$	1,130,880		35	%	$	801,472		35	%	$	329,408	41	%
Selling, general and administrative		3,583,815		112	%		2,147,492		93	%		1,436,323	67	%

Total operating expenses	$	4,714,695		148	%	$	2,948,964		128	%	$	1,765,731	60	%

~~10.1~~3.1		~~Office Service~~Amended and Restated Certificate of Incorporation as amended.
3.2		Amended and Restated Bylaws of Akerna Corp. (incorporated by reference to Exhibit 3.2 to Akerna Corp.'s Form 10-KT as filed with the Commission on March 31, 2021).
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).
4.1		Amendment and Waiver Agreement dated ~~September~~June 30, ~~2019, effective February 1, 2020~~2022 to the Securities Purchase Agreement dated October 5, 2021.
~~31.1~~4.2		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).
4.3		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).
4.4		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).
10.1		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).
31.1		Section 302 Certification of Principal Executive Officer.
31.2		Section 302 Certification of Principal Financial Officer.
32.1		Section 906 Certification of Principal Executive Officer
32.2		Section 906 Certification of Principal Financial Officer.
101		~~Interactive Data File (XBRL)~~ XBRL (Extensible Business Reporting Language). The following materials from Akerna Corp’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, tagged in XBRL: (i) condensed consolidated balance sheets; (ii) condensed consolidated statements of operations; (iii) condensed consolidated statements of comprehensive income; (iv) condensed consolidated statements of cash flows; and (v) notes to condensed consolidated financial statements.

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