AKERNA CORP.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined balance sheet as of September 30, 2021 and the unaudited pro forma condensed combined statements of operations for the twelve months ended December 31, 2020 and nine months ended September 30, 2021, are based on the historical financial statements of Akerna Corp. (“Akerna”, “we”, “our”) and The NAV People, Inc. and Subsidiary (“NAV”) after giving effect to the acquisition of NAV (the “Acquisition”) and after applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined statements of operations for the twelve months ended December 31, 2020 and nine months ended September 30, 2021 give effect to the Acquisition as if it had occurred on January 1, 2020, the first day of the first year presented.

The unaudited pro forma condensed combined balance sheet as of September 30, 2021, gives effect to the Acquisition as if it had occurred on September 30, 2021.

The Acquisition of NAV has been accounted for pursuant to Financial Accounting Standards Board Accounting Standards Codification 805, Business Combinations. The total consideration transferred, as described in Note 1 to these unaudited pro forma condensed combined financial statements, is allocated to the net tangible assets and intangible assets of NAV acquired in connection with the Acquisition, based on their estimated fair values as of the date of the Acquisition, and the excess is allocated to goodwill. We have made a preliminary allocation of the estimated purchase price to the tangible and intangible assets acquired and liabilities assumed. The acquisition accounting is dependent upon certain valuations and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement.  We have made significant assumptions and estimates in determining the preliminary estimated purchase price and the preliminary allocation of the estimated purchase price in the unaudited pro forma condensed combined financial statements. These preliminary estimates and assumptions are subject to change during the estimated purchase price allocation period (generally one year from the acquisition date) as we finalize the valuations of the net intangible assets. The final valuations of identifiable intangible assets, fixed assets and deferred revenue and associated tax effects may change significantly from our preliminary estimates. Differences between these preliminary estimates and the final acquisition accounting could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined company’s future results of operations and financial position. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial statements.

The historical consolidated financial information has been adjusted in the unaudited pro forma condensed consolidated financial statements to give effect to pro forma events that are (1) directly attributable to the Acquisition; (2) factually supportable; and (3) with respect to the unaudited pro forma condensed consolidated statements of operations, expected to have a continuing impact on the combined results.

The unaudited pro forma condensed consolidated financial statements have been prepared by management for illustrative purposes only and are not necessarily indicative of the consolidated results of operations or financial position of Akerna that would have been reported had the Acquisition been completed as of the dates presented and should not be taken as representative of the future consolidated results of operations or financial position of Akerna. The unaudited pro forma financial statements do not reflect any operating efficiencies and cost savings that Akerna may achieve, or any additional expenses that it may incur, with respect to the combined companies. 

1



The unaudited pro forma condensed combined financial statements, including the notes thereto should be read in conjunction with: 

 

 

 

 

 

 

 

2


 UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF SEPTEMBER 30, 2021

  

 

Akerna Corp.


The NAV People,
Inc. & Subsidiary

(Note 1)


Pro forma
adjustments


Note 3

Pro forma
combined

ASSETS


 



 



 


 


 

CURRENT ASSETS:


 



 



 


 


 

Cash

$

  9,608,788


$

531,723


$

(5,606,017)


A

$

4,534,494

Restricted cash


508,261








508,261

Accounts receivable, net


1,647,619



961,140




 


2,608,759

Prepaid expenses and other current assets


2,194,221



266,826




 


2,461,047

Total current assets


13,958,889



1,759,689



(5,606,107)


 


10,112,561

Fixed assets, net


52,322



92,437




 


144,759

Investments, net


226,101






 


226,101

Capitalized software, net


6,167,413






 


6,167,413

Intangible assets, net


7,311,541



1,362,710



4,244,507


C


12,918,758

Goodwill


46,790,018





21,037,766


B


67,827,784

Deposits




11,361




 


11,361

TOTAL ASSETS

$

74,506,284


$

3,226,197


$

19,676,256


 

$

97,408,737

 





 

 


 


 

LIABILITIES AND STOCKHOLDERS' EQUITY


 



 



 


 


 

CURRENT LIABILITIES:


 



 



 


 


 

Accounts payable, accrued expenses and other accrued liabilities

$

5,185,519





$

944,806


A, E, G

$

6,130,325

Accounts payable




384,697



(384,697)


E


Accrued expenses




500,185



(500,185)


E


Convertible note payable




1,520,000



(1,520,000)


A


Deferred revenue


908,256



2,448,982



(431,411)


F


2,925,827

Derivative liability


160,201






 


160,201

Total current liabilities


6,253 ,976



4,853,864



(1,891,487)


 


9,216,353

Long-term debt, less current portion


3,834,001








3,834,001

Stockholder notes payable




3,496,759



(3,496,759)


A


Notes payable




148,817



(148,817)


A


TOTAL LIABILITIES


10,087,977



8,499,440



(5,537,063)


 


13,050,354

STOCKHOLDERS' EQUITY:


 



 



 


 


 

Special voting preferred stock


2,952,495






 


2,952,495

Common stock


2,717



5,000



(4,643)


A, D


3,074

Additional paid-in capital


132,803,659



2,000



20,020,463


A, D


152,826,122

Accumulated other comprehensive loss


(44,639)



(11,410)



(11,410)


D


(67,459)

Accumulated deficit


(71,295,925)



(5,268,833)



5,208,909


D, G


(71,355,849)

TOTAL STOCKHOLDERS' EQUITY


64,418,307



(5,273,243)



25,213,319


 


84,358,383

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

74,506,284


$

3,226,197


$

19,676,256


 

$

97,408,737

 

            See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information

3


 

  UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2020  

  

 

Akerna Corp.

(Note 1)


The NAV People,
Inc. & Subsidiary

(Note 1)


Pro forma
adjustments


Note 4

Pro forma
combined

 


 



 



 


 


 

Revenue


 



 



 


 


 

Software

$

  11,963,028



 


$

7,108,536


A

$

19,071,564

Consulting


1,739,683



 




 


1,739,683

Other


196,257



426,293




 


622,550

Recurring revenue




4,875,121



(4,875,121)


A


Services revenue




2,233,415



(2,233,415)


A


Total net revenue


13,898,968



7,534,829




 


21,433,797

Cost of revenue


6,355,825



2,202,534




 


8,558,359

Gross Profit


7,543,143



5,332,295




 


12,875,438

Operating expenses:


 



 



 


 


 

Product development


5,129,814






 


5,129,814

Sales and marketing


8,085,897



46,954




 


8,132,851

General and administrative


11,018,356



784,785



5,798,166


A


17,601,307

Operations and support




5,374,077



(5,374,077)


A


Bad debt expense




424,089



(424,089)


A 


Depreciation and amortization


3,223,844



301,064



542,799


B


4,067,707

Impairment of long-lived assets


6,887,000






 


6,887,000

Total operating expenses


34,344,911



6,930,969



542,799


 


41,818,679

Loss from operations


(26,801,768)



(1,598,674)



(542,799)


 


(28,943,241)

Other income (expense):


 



 




 


Interest income (expense)


(161,646)



(151,773)



151,773


C


(161,646)

Change in fair value of convertible notes


(195,273)






 


(195,273)

Change in fair value of derivative liability


376,811






 


376,811

Other income (expense), net


(59,397)



(467)




 


(59,864)

Net loss before income taxes and equity in losses of investee


(26,841,273)



(1,750,914)



(391,026)


 


(28,983,213)

Income tax expense


(31,185)



(6,204)




 


(37,389)

Equity in losses of investee


(16,335)






 


(16,335)

Net income (loss)

$

  (26,888,793)


$

(1,757,118)


$

(391,026)


 

$

(29,036,937)

Earnings per share


 



 



 


 


 

Basic

$

(1.87)



 



 


 

$

(1.61)

Diluted

$

(1.87)



 



 


 

$

(1.61)

Shares used in computing earnings per share


 



 



 


 


 

Basic


14,409,780



 



3,571,429


 


17,981,209

Diluted


14,409,780



 



3,571,429


 


17,981,209

 

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information 

4


 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021

 

 

 

Akerna Corp.


The NAV People,
Inc. & Subsidiary


Pro forma
adjustments


Note 5

Pro forma
combined

 


 



 



 


 


 

Revenues


 



 



 


 


 

Software

$

  12,809,841



 


$

6,469,240


A

$

19,279,081

Consulting


1,135,033






 


1,135,033

Other


111,540



685,213




 


796,753

Recurring revenue




4,397,990



(4,397,990)


A


Services revenue




2,071,250



(2,071,250)


A


Total revenues


14,056,414



7,154,453




 


21,210,867

Cost of revenue


5,339,929



1,913,331




 


7,253,260

Gross Profit


8,716,485



5,241,122




 


13,957,607

Operating expenses:


 



 



 


 


 

Product development


4,517,836





 


 


4,517,836

Sales and marketing


5,564,519



35,213




 


5,599,732

General and administrative


8,306,417



543,784



4,691,077


D, A


13,541,278

Operations and support




4,584,170



(4,584,170)


A


Bad debt expense




286,094



(286,094)


A 


Acquisition costs




172,550



(172,550)


A


Depreciation and amortization


3,605,435



189,664



439,218


B


4,234,317

Total operating expenses


21,994,207



5,811,475



87,481


 


27,893,163

Loss from operations


(13,277,722)



(570,353)



(87,481)


 


(13,935,556)

Other (expense) income:


 



 



 


 


 

Interest (expense) income, net


(1,175,789)



(161,029)



161,029


C


(1,175,789)

Change in fair value of convertible notes


(2,030,904)






 


(2,030,904)

Change in fair value of derivative liability


151,175






 


151,175

Gain on forgiveness of PPP Loan


2,234,730



954,984




 


3,189,714

Other (expense) income, net


243



(19,585)




 


(19,342)

Total other (expense) income


(820,545)



774,370



161,029


 


114,854

Net loss before income taxes and equity in losses of investee


(14,098,267)



204,017



73,548


 


(13,820,702)

Income tax expense


(10,570)



(5,251)




 


(15,821)

Equity in losses of investee


(7,564)






 


(7,564)

Net loss before income taxes and equity in losses of investee

$

  (14,116,401)


$

198,766


$

73,548


 

$

(13,844,087)

Earnings per share


 



 



 


 


 

Basic

$

(0.58)



 



 


 

$

(0.50)

Diluted

$

(0.58)



 



 


 

$

(0.50)

Shares used in computing earnings per share



 



 


 


 

Basic


24,312,510



 



3,571,429


 


27,883,939

Diluted


24,312,510



 



3,571,429


 


27,883,939

 

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information

5


  

Note 1: Basis of Pro Forma Presentation

Accounting Periods Presented

The unaudited pro forma condensed combined balance sheet as of September 30, 2021, is presented as if the NAV acquisition had occurred on September 30, 2021. Certain pro forma adjustments to record differences between historical book values and preliminary values as of the date of the pro forma condensed combined financial statements are based on the assumption that the Acquisition occurred on September 30, 2021. The actual adjustments to be recorded in Akerna’s financial statements will be as of the acquisition date and the option exercise date.

The unaudited pro forma condensed combined statements of operations of Akerna and NAV for the twelve months ended December 31, 2020 and the nine months ended on September 30, 2021, are presented as if the Acquisition had taken place on January 1, 2020. As disclosed in the Akerna 2020 10-K, we changed our fiscal year from June 30 to December 31. In the Akerna 2020 10-K we presented the Consolidated statements of operations for the fiscal year ended June 30, 2020 and the transition period for the six months ended December 31, 2020. For the pro forma condensed combined statements of operations we have elected to present Akerna results for the year ended December 31, 2020 which consists of the combined transition period for the six months ended December 31, 2020 plus the six months period from January 1, 2020 to June 30, 2020 consistent with rules 13a-10 and 15d-10 of the Exchange Act.

These unaudited pro forma condensed combined financial information, including the preliminary purchase price allocation, are presented for illustrative purposes only and do not necessarily reflect the operating results or financial position that would have occurred if the Acquisition had been consummated on the dates indicated, nor is it necessarily indicative of the results of operations or financial condition that may be expected for any future period or date. Accordingly, such information should not be relied upon as an indicator of future performance, financial condition or liquidity.

Preliminary Purchase Consideration

On October 1, 2021, we entered into an arrangement agreement (the “Agreement”) to acquire all of the issued and outstanding shares of NAV. Under the terms of the Agreement, the aggregate consideration for the NAV shares consists of (1) $5,000,000 in cash, (2) $12,000,000 in stock and (3) contingent value rights to be issued pursuant to a rights indenture entitling the holders thereof to receive, subject to certain adjustments as set forth in the Agreement, an aggregate of up to $8,000,000 in stock, in the event that NAV achieves certain revenue targets as specified in the Agreement. These rights are accounted for as contingent consideration and are currently recorded at preliminary fair value which will be updated upon finalization of purchase accounting.  

 


 

Cash

$

5,606,017

Common shares
12,000,000

Contingent consideration


8,000,000

Total purchase consideration

$

25,606,017

 

Preliminary Purchase Consideration Allocation

The following represents the preliminary allocation of the fair value of the purchase consideration to the acquired assets and assumed liabilities based on NAV’s balance sheet as of September 30, 2021 and is for illustrative purposes only.

Cash

$

  531,723

Accounts receivable
961,140
Prepaid expenses and other current assets
266,826
Fixed assets, net
92,437
Deposits
11,361

Intangible assets:


              

Customer relationships


 3,509,861

Acquired technology


 2,011,750

Trade Name


              85,606

    Goodwill
21,037,766
Deferred revenue
(2,017,571)
Accounts payable and accrued expenses

(884,882)

Total purchase consideration

$

25,606,017

Goodwill of approximately $21.0 million represents the excess of the purchase consideration over the fair value of the net tangible and intangible assets acquired. Goodwill is primarily attributable to expected post-acquisition synergies from integrating NAV’s industry-leading ERP platform into Akerna’s supply chain solutions. None of the goodwill recorded as part of the NAV acquisition is expected to be deductible for U.S. federal income tax purposes.

Akerna has considered the existing intangible assets of NAV prior to the Acquisition and while we anticipate there will be deferred tax assets arising from the purchase price, we expect these would have a full valuation allowance given historical losses.

6



The following table sets forth the components of identifiable intangible assets acquired and their preliminary estimated useful lives as of the date of Acquisition:

Intangible assets:


Preliminary Fair
Value


Estimated Useful
Life (in years)
 

Customer relationships

$

          3,509,861 


 10

Acquired technology


 2,011,750


 5

Trade name


              85,606


2

Total

$

5,607,217


 

Following the end of Akerna’s fiscal year ended June 30, 2020, Akerna transitioned to a December 31 fiscal year-end date. The following table presents a reconciliation to Akerna’s historical unaudited financial data for the twelve months ended December 31, 2020 which was derived by adding the audited six-month transition period ended December 31, 2020 to Akerna’s three-month period ended March 31, 2020 and three-month period ended June 30, 2020. 

 

 


Historical

Akerna Corp.

three months ended
3/31/2020

(unaudited)


Akerna Corp.

three months ended
6/30/2020

(unaudited)


Akerna Corp.

six months ended
12/31/2020

(audited)


Akerna Corp.

twelve months ended
12/31/2020

(unaudited)

 

Net revenue:


 



 



 



 

Software

$

     2,346,309


$

2,849,734


$

6,766,985


$

11,963,028

Consulting


 692,584



 131,000



 916,099



 1,739,683

Other


 31,652



 22,905



 141,700



 196,257

Total net revenue


 3,070,545



 3,003,639



 7,824,784



 13,898,968

Cost of revenue


 1,396,219



 1,818,565



 3,141,041



 6,355,825

Gross profit


 1,674,326



 1,185,074



 4,683,743



 7,543,143

Operating expenses:


 



 



 



 

Product development


 874,787



 1,088,939



 3,166,088



 5,129,814

Sales and marketing


       2,040,751



       2,117,118



       3,928,028



       8,085,897

General and administrative


 3,457,262



       3,126,027



 4,435,067



 11,018,356

Depreciation and amortization


          180,229



       1,036,378



       2,007,237



       3,223,844

Impairment of long-lived assets


                   



                   



       6,887,000



       6,887,000

Total operating expenses


 6,553,029



 7,368,462



 20,423,420



 34,344,911

Loss from operations


 (4,878,703)



 (6,183,388)



 (15,739,677)



 (26,801,768)

Interest income (expense), net


   33,522



   (2,084)



         (193,084)



   (161,646)

Change in fair value of convertible notes


                  



          766,000



         (961,273)



       (195,273)

Change in fair value of derivative liability


          236,917



       (606,958)



          746,852



         376,811

Other expense


 (124)





 (59,273)



 (59,397)

Loss before provision for income taxes


 (4,608,388)



 (6,026,430)



 (16,206,455)



 (26,841,273)

Provision for income taxes


                  



 (30,985)



 (200)



 (31,185)

Equity in losses of investee


                  



           (3,692)



         (12,643)



         (16,335)

Net loss


 (4,608,388)



   (6,061,107)



 (16,219,298)



  (26,888,793)

 

7



Note 2: Conforming Accounting Policies and Reclassification Adjustments

 

Based on a preliminary review of the accounting policies of Akerna and NAV, Akerna is not aware of any differences that would have a material impact on the combined company unaudited pro forma condensed combined financial information. Following completion of the Acquisition, or as more information becomes available, Akerna will perform a full and detailed review of the NAV accounting policies and financial statements. As a result of the review, accounting policy differences may be identified and these differences, when identified, could have a material impact on the combined company unaudited pro forma condensed combined financial information. Certain items included in the NAV historical combined financial information have been reclassified to conform the NAV financial statement presentation to Akerna’s financial statement presentation.

 

Note 3: Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2021

The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet for the Acquisition of NAV are as follows:

  1. To record the purchase consideration of $5,606,017 in cash which was used to pay NAV debtors in the amount of $988,874, NAV obligations in the amount of $890,000, and NAV shareholders in the amount of $2,103,425 and funded from cash and $12.0 million in common stock issued, which was used to pay down debtors in the amount of $4,299,280 and NAV shareholders in the amount of $7,700,721.

 

  1. To record estimated preliminary goodwill of $21,037,766.

 

  1. To adjust the historical NAV intangible assets to fair value in connection with the Acquisition.

 

  1. To eliminate NAV’s historical equity, accumulated deficit, paid in capital and accumulated other comprehensive loss.

 

  1. To record reclassifications to conform NAV financial statements with Akerna’s historical financial statement presentation.

 

  1. To record the estimated preliminary fair value of deferred revenue.

 

  1. To record transaction cost paid after the close of the Acquisition

 

Note 4: Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations for the twelve months ended December 31, 2020

The pro forma adjustments included in the unaudited pro forma condensed combined statement of operations for the Acquisition of NAV are as follows:

  1. To record reclassifications to conform NAV financial statements with Akerna’s historical financial statement presentation.

 

  1. To reflect $769,139 amortization expense of preliminarily estimated purchased intangible assets and to eliminate the historical amortization expense of $253,340.

 

  1. To eliminate interest expense related to the historical debt of NAV.


The pro forma combined basic and diluted net loss per share are based on the number of 17,981,209 shares common stock used in computing basic and diluted net loss per share for the acquisition of Solo, respectively. Dilutive potential common shares are included only if they have a dilutive effect on earnings per share.

 

8


 


Note 5: Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations for the nine months ended September 30, 2021

The pro forma adjustments included in the unaudited pro forma condensed combined statement of operations for the acquisition of NAV are as follows:

  1. To record reclassifications to conform NAV financial statements with Akerna’s historical financial statement presentation.

 

  1. To reflect $597,104 amortization expense of preliminarily estimated purchased intangible assets and to eliminate the historical amortization expense of $157,886.

 

  1. To eliminate interest expense related to the historical debt of NAV.

 

  1. To eliminate transaction related expenses of $179,187 from the historical financial statements of Akerna and $172,550 from the historical financial statements of NAV.

The pro forma combined basic and diluted net loss per share are based on the number of 27,883,939 shares common stock used in computing basic and diluted net loss per share for the acquisition of Solo, respectively. Dilutive potential common shares are included only if they have a dilutive effect on earnings per share.