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, (Note 1) |
Pro forma |
Note 3 |
Pro forma |
|||||||
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, (Note 1) |
Pro forma |
Note 4 |
Pro forma |
|||||||
|
|
|
|
|
|
|||||||
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, |
Pro forma |
Note 5 |
Pro forma |
|||||||
|
|
|
|
|
|
|||||||
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 |
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.
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 |
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 |
Estimated Useful |
||
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 (unaudited) |
Akerna Corp. three months ended (unaudited) |
Akerna Corp. six months ended (audited) |
Akerna Corp. twelve months ended (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.
The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet for the Acquisition of NAV are as follows:
The pro forma adjustments included in the unaudited pro forma condensed combined statement of operations for the Acquisition of NAV are as follows:
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.
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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:
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.