kern-20230630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

☐ 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.)

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

Registrant’s telephone number, including area code: (888) 492-3540

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 Capital Market)
Warrants to purchase one share of common stock	KERNW	Nasdaq Stock Market LLC (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). Yes ☒ 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 August 11, 2023, there were 7,802,018 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

	INDEX	Page Number


PART I	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Balance Sheets (unaudited)	1
	Condensed Consolidated Statements of Operations (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Loss (unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Deficit (unaudited)	4
	Condensed Consolidated Statements of Cash Flows (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
	SIGNATURES	44

AKERNA CORP.

Condensed Consolidated Balance Sheets

(unaudited)

	June 30,			December 31,
	2023			2022
Assets
Current assets
Cash	$	828,133		$	877,755
Restricted cash		500,000			7,000,000
Accounts receivable, net		249,797			674,626
Prepaid expenses and other current assets		827,304			1,209,623
Assets held for sale		—			5,130,028
Total current assets		2,405,234			14,892,032

Fixed assets, net		33,604			48,879
Capitalized software, net		344,302			654,556
Intangible assets, net		1,920,000			2,164,722
Goodwill		1,708,303			1,708,303
Total assets	$	6,411,443		$	19,468,492

Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable, accrued expenses and other accrued liabilities	$	3,995,736		$	4,426,419
Contingent consideration payable		—			2,283,806
Current portion of deferred revenue		313,100			568,771
Current portion of long-term debt		7,770,543			13,200,000
Liabilities held for sale		—			2,246,222
Total current liabilities		12,079,379			22,725,218

Deferred revenue, noncurrent		—			161,802
Long-term debt, less current portion		2,494,457			1,407,000
Total liabilities		14,573,836			24,294,020

Commitments and contingencies (Note 8)		—			—

Stockholders’ deficit
Preferred stock, par value $0.0001; 5,000,000 shares authorized, 1 share special voting preferred stock issued and outstanding at June 30, 2023 and December 31, 2022		—			—
Special voting preferred stock, par value $0.0001; 1 share authorized, issued and outstanding as of June 30, 2023 and December 31, 2022, with $1 preference in liquidation; exchangeable shares, no par value, 252,224 and 285,672 shares issued and outstanding as of June 30, 2023 and December 31, 2022 respectively		1,929,514			2,185,391
Common stock, par value $0.0001; 150,000,000 shares authorized, 6,999,290 and 4,602,780 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		700			460
Additional paid-in capital		162,692,715			160,207,367
Accumulated other comprehensive income		337,103			347,100
Accumulated deficit		(173,122,425	)		(167,565,846	)
Total stockholders’ deficit		(8,162,393	)		(4,825,528	)
Total liabilities and stockholders’ deficit	$	6,411,443		$	19,468,492

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

AKERNA CORP.

Condensed Consolidated Statements of Operations

(unaudited)

		For the Three Months Ended						For the Six Months Ended
		June 30,						June 30,
		2023		2022				2023			2022
Revenue
Software	$	2,242,792		$	3,366,333		$	4,839,554		$	7,169,085
Consulting		39,800			115,300			39,800			542,309
Other revenue		5,276			8,043			11,203			23,362
Total revenue		2,287,868			3,489,676			4,890,557			7,734,756
Cost of revenue		962,896			1,175,261			2,013,977			2,698,270
Gross profit		1,324,972			2,314,415			2,876,580			5,036,486
Operating expenses
Product development		659,287			1,275,372			1,504,765			2,991,119
Sales and marketing		650,358			1,979,091			1,431,849			4,030,224
General and administrative		1,495,947			2,658,017			3,057,848			4,580,348
Depreciation and amortization		278,456			1,442,560			570,252			2,924,005
Impairment of long-lived assets		—			15,115,843			—			30,562,944
Total operating expenses		3,084,048			22,470,883			6,564,714			45,088,640
Loss from operations		(1,759,076	)		(20,156,468	)		(3,688,134	)		(40,052,154	)
Other (expense) income
Interest (expense) income, net		(227,055	)		(212,987	)		(714,371	)		(213,727	)
Change in fair value of convertible notes		(893,000	)		(294,000	)		(1,048,457	)		(1,727,000	)
Change in fair value of derivative liability		—			33,845			—			51,896
Other expense, net		(202,820	)		—			(202,820	)		—
Total other (expense) income		(1,322,875	)		(473,142	)		(1,965,648	)		(1,888,831	)

Net loss from continuing operations before income taxes		(3,081,951	)		(20,629,610	)		(5,653,782	)		(41,940,985	)
Income tax benefit on continuing operations		—			128,042			—			227,486
Net loss from continuing operations		(3,081,951	)		(20,501,568	)		(5,653,782	)		(41,713,499	)
Net gain (loss) from discontinued operations		—			(9,064,379	)		97,203			(9,805,341	)
Net loss	$	(3,081,951	)	$	(29,565,947	)	$	(5,556,579	)	$	(51,518,840	)

Basic and diluted weighted average common shares outstanding		5,969,086			1,773,889			5,663,424			1,684,734
Basic and diluted loss per common share from continuing operations	$	(0.52	)	$	(11.56	)	$	(1.00	)	$	(24.76	)
Basic and diluted earnings (loss) per common share from discontinued operations	$	—		$	(5.11	)	$	0.02		$	(5.82	)
Basic and diluted loss per common share	$	(0.52	)	$	(16.67	)	$	(0.98	)	$	(30.58	)

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

AKERNA CORP.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Net loss	$	(3,081,951	)	$	(29,565,947	)	$	(5,556,579	)	$	(51,518,840	)
Other comprehensive (loss) income
Foreign currency translation		8,574			10,629			29,003			(23,171	)
Unrealized (loss) gain on convertible notes		(25,000	)		163,000			(39,000	)		264,000
Comprehensive loss	$	(3,098,377	)	$	(29,392,318	)	$	(5,566,576	)	$	(51,278,011	)

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

AKERNA CORP.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

For the Six Months Ended June 30, 2023

(unaudited)

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

Balance – January 1, 2023	285,672		$	2,185,391			4,602,780	$	460	$	160,207,367	$	347,100		$	(167,565,846	)	$	(4,825,528	)
Conversion of exchangeable shares to common stock	(640	)		(4,896	)		32		—		4,896		—			—			—
Settlement of convertible notes	—			—			1,164,251		116		1,396,985		—			—			1,397,101
Stock-based compensation	—			—			—		—		109,133		—			—			109,133
Issuance of common stock upon vesting of restricted stock units	—			—			587		—		—		—			—			—
Foreign currency translation adjustments	—			—			—		—		—		20,429			—			20,429
Unrealized loss on convertible notes	—			—			—		—		—		(14,000	)		—			(14,000	)
Net loss	—			—			—		—		—		—			(2,474,628	)		(2,474,628	)
Balance – March 31, 2023	285,032		$	2,180,495			5,767,650	$	576	$	161,718,381	$	353,529		$	(170,040,474	)	$	(5,787,493	)
Conversion of exchangeable shares to common stock	(32,808	)		(250,981	)		1,640		1		250,980		—			—			—
Settlement of convertible notes	—			—			230,000		23		114,977		—			—			115,000
Stock-based compensation	—			—			—		—		108,477		—			—			108,477
Shares issued in a private placement offering	—			—			1,000,000		100		499,900		—			—			500,000
Foreign currency translation adjustments	—			—			—		—		—		8,574			—			8,574
Unrealized loss on convertible notes	—			—			—		—		—		(25,000	)		—			(25,000	)
Net loss	—			—			—		—		—		—			(3,081,951	)		(3,081,951	)
Balance – June 30, 2023	252,224		$	1,929,514			6,999,290	$	700	$	162,692,715	$	337,103		$	(173,122,425	)	$	(8,162,393	)

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 Six Months Ended June 30, 2022

(unaudited)

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

Balance – January 1, 2022	309,286		$	2,366,038			1,550,094		$	155		$	146,030,203		$	61,523		$	(88,508,236	)	$	59,949,683
Conversion of exchangeable shares to common stock	(2,434	)		(18,620	)		122			—			18,620			—			—			—
Settlement of convertible notes	—			—			169,843			17			3,299,983			—			—			3,300,000
Shares withheld for withholding taxes	—			—			(222	)		—			(5,615	)		—			—			(5,615	)
Shares returned in connection with acquisition	—			—			(13,988	)		(1	)		(939,999	)		—			—			(940,000	)
Stock-based compensation	—			—			—			—			316,855			—			—			316,855
Issuance of common stock upon vesting of restricted stock units	—			—			2,174			—			—			—			—			—
Liabilities with shares	—			—			732			—			45,066			—			—			45,066
Foreign currency translation adjustments	—			—			—			—			—			(33,800	)		—			(33,800	)
Unrealized gain on convertible notes	—			—			—			—			—			101,000			—			101,000
Net loss	—			—			—			—			—			—			(21,952,893	)		(21,952,893	)
Balance – March 31, 2022	306,852		$	2,347,418			1,708,755		$	171		$	148,765,113		$	128,723		$	(110,461,129	)	$	40,780,296
Conversion of exchangeable shares to common stock	(15,660	)		(119,799	)		783			—			119,799			—			—			—
Settlement of convertible notes	—			—			37,584			4			625,496			—			—			625,500
Shares withheld for withholding taxes	—			—			(337	)		—			(7,552	)		—			—			(7,552	)
Shares returned in connection with the ATM offering program	—			—			90,809			9			761,169			—			—			761,178
Stock-based compensation	—			—			—			—			148,444			—			—			148,444
Issuance of common stock upon vesting of restricted stock units	—			—			3,011			—			25,000			—			—			25,000
Liabilities with shares	—			—			732			—			4,464			—			—			4,464
Foreign currency translation adjustments	—			—			—			—			—			10,629			—			10,629
Unrealized gain on convertible notes	—			—			—			—			—			163,000			—			163,000
Net loss	—			—			—			—			—			—			(29,565,947	)		(29,565,947	)
Balance – June 30, 2022	291,192		$	2,227,619			1,841,337		$	184		$	150,441,933		$	302,352		$	(140,027,076	)	$	12,945,012

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

AKERNA CORP.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	For the Six Months Ended June 30,
	2023			2022
Cash flows from operating activities
Net loss	$	(5,556,579	)	$	(51,518,840	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on sale of discontinued operations, net		(212,601	)		—
Credit loss expense		(29,010	)		112,475
Stock-based compensation expense		217,610			477,681
Impairment of long-lived assets		—			39,600,587
Amortization of deferred contract cost		37,576			205,408
Non-cash interest expense		—			60,500
Depreciation and amortization		594,759			3,976,224
Foreign currency (gain) loss		(22,932	)		14,689
Change in fair value of convertible notes		1,048,457			1,727,000
Change in fair value of derivative liability		—			(51,896	)
Changes in operating assets and liabilities:
Accounts receivable, net		167,318			(580,387	)
Prepaid expenses and other current assets		343,846			23,530
Accounts payable, accrued expenses and other current liabilities		(218,746	)		119,355
Deferred income tax liabilities		—			(206,805	)
Deferred revenue		(460,326	)		(1,146,966	)
Net cash used in operating activities		(4,090,628	)		(7,187,445	)
Cash flows from investing activities
Developed software additions		—			(1,737,120	)
Fixed asset additions		—			(27,383	)
Cash returned from business combination working capital settlement		—			400,000
Proceeds from sale of discontinued operations		600,000			—
Net cash provided by (used in) investing activities		600,000			(1,364,503	)
Cash flows from financing activities
Value of shares withheld related to tax withholdings		(49	)		(13,167	)
Proceeds from secured loan		1,000,000			—
Principal payments of convertible notes		(4,917,356	)		(1,515,000	)
Proceeds received from private placement offering		500,000			—
Proceeds received from the ATM offering program, net		—			761,178
Net cash used in financing activities		(3,417,405	)		(766,989	)
Effect of exchange rate changes on cash and restricted cash		52,911			9,225
Net change in cash and restricted cash		(6,855,122	)		(9,309,712	)
Cash and restricted cash of continuing operations - beginning of period		7,877,755			13,087,627
Cash and restricted cash of discontinued operations - beginning of period		305,500			1,354,899
Cash and restricted cash - beginning of period		8,183,255			14,442,526
Cash and restricted cash of continuing operations - end of period		1,328,133			4,409,290
Cash and restricted cash of discontinued operations - end of period		—			723,524
Cash and restricted cash - end of period	$	1,328,133		$	5,132,814
Cash paid for interest	$	787,187		$	151,500
Cash paid for income taxes, net of refunds received	$	—		$	19,466
Supplemental disclosures of non-cash investing and financing activities:
Settlement of convertible notes in common stock	$	1,512,101		$	3,925,500
Conversion of exchangeable shares to common stock		255,877			138,419
Settlement of other liabilities in common stock		—			49,528
Stock-based compensation capitalized as software development		—			12,618
Vesting of restricted stock units		—			25,000
Capitalized software additions included in accounts payable		—			1,045,299
Fixed asset additions included in accounts payable		—			24,614
Termination of contingent consideration obligation in connection with sale of discontinued operations		2,283,806			—
Shares of common stock returned in connection with acquisition		—			940,000
Reduction to accrued expenses from an acquisition-related working capital settlement		—			160,000

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

AKERNA CORP.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Description of Business

Akerna Corp., herein referred to as we, us, our, the Company or Akerna was formed upon completion of the mergers between MTech Acquisition Corp. (“MTech”) and MJ Freeway, LLC (“MJF”) on June 17, 2019 as contemplated by the Merger Agreement dated October 10, 2018, as amended (the “Mergers”). Akerna provides software as a service (“SaaS”) solutions within the cannabis industry that enable regulatory compliance and inventory management through our wholly-owned subsidiaries MJF, Ample Organics, Inc., or Ample, Trellis Solutions, Inc., or Trellis, solo sciences, inc., or Solo and Viridian Sciences, Inc., or Viridian. Our proprietary 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. We also 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. We provide our commercial software platforms, MJ Platform®, Trellis®, Ample and Viridian to state-licensed businesses, and our regulatory software platform, Leaf Data Systems®, to state government regulatory agencies. Our solutions are considered non-enterprise offerings (“Non-Enterprise”) that meet the needs of our small and medium business (“SMB”) and government regulatory agency customers and our Viridian solutions are considered enterprise offerings (“Enterprise”).

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.

Strategic Shift in Business Strategy

During the fourth quarter of 2022, we committed to a number of significant actions described below that collectively represent a strategic shift in our business strategy for 2023 and beyond.

Exiting the Enterpris Software Business

The development of our Enterprise software business, which began with the acquisitions of Viridian and The NAV People Inc. d.b.a. 365 Cannabis (“365 Cannabis”) in 2021, did not achieve a sustainable scale in a timely manner consistent with our original plans. Accordingly, we committed to an effort to market this business unit and on January 11, 2023, we completed the sale of 365 Cannabis to 365 Holdco - LLC (the “Buyers”) pursuant to a stock purchase agreement (the “365 SPA”) for (i) cash in the amount of $0.5 million and the (ii) the termination and release of our obligation to the Buyers for contingent consideration in connection with our original acquisition of 365 Cannabis from the Buyers in 2021 (the “Earn-out Obligation”). In accordance with the 365 SPA, we and the Buyers agreed that the value of the Earn-out Obligation was $2.3 million for purposes of the sale of 365 Cannabis and was reflected as Contingent consideration payable on our condensed consolidated balance sheets as of December 31, 2022. In connection with the sale of 365 Cannabis, we terminated certain employees that were not requested to transfer with the business by the Buyers or whose positions were no longer necessary to support our reduced level of operations. We incurred and paid restructuring charges associated with this action for less that $0.1 million, primarily in the form of severance and related employee benefits, during the first quarter of 2023. The charges were included as a component of Cost of revenues in our condensed consolidated statements of operations.

While we explored similar sale options for Viridian, we were unable to commit to any definitive transaction. Accordingly, we informed Viridian’s customers that we do not plan to continue software and support services beyond the date of existing contracts, most of which expired during the first half of 2023. With the sale of 365 Cannabis and our commitment to wind down the operations of Viridian, we have effectively exited the Enterprise software business. Accordingly, we have suspended efforts to seek any new revenue generating opportunities and will only service the existing customers of Viridian in connection with our contractual commitments. We have committed to winding down and terminating this business in advance of certain transactions in connection with our exit strategy (see below).

Disposal of Non-Core SMB Software Products and Brands

In addition to the our exit from the Enterprise software business, we initiated efforts to explore a sales process for the non-core components and brands of our SMB/Non-Enterprise business unit, including Trellis, a cultivation and compliance software platform, Solo, a seed-to-sale tagging and tracking software platform and Last Call Analytics (“LCA”), a retail analytics platform. On January 31, 2023, we completed the sale of LCA for cash in the amount of $0.1 million. While we pursued sale opportunities for Trellis and Solo, we were ultimately unable to commit to any definitive transactions. Accordingly, we have communicated with the remaining customers of those businesses that we will discontinue software service and support upon the expiration of existing contracts, most of which occurred during the first half of 2023. Similar to Viridian, as discussed above, we have suspended efforts to seek any new revenue generating opportunities and will only service the existing customers of Solo and Trellis in connection with our contractual commitments. We have committed to winding down and terminating these businesses in advance of certain transactions in connection with our exit strategy (see below).

Exit Strategy

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

On January 27, 2023, we entered into a securities purchase agreement (“MJF-Ample SPA”) with POSaBIT Systems Corp (“POSaBIT”) to sell MJF and Ample for $4.0 million in cash. Subsequently, we received a superior offer from Alleaves Inc. (“Alleaves”), as described below, which was presented to POSaBIT for an opportunity to match or exceed Alleaves’ offer in accordance with the MJF-Ample SPA. POSaBIT ultimately declined to present a counter-offer and on April 5, 2023, we terminated the MJF-Ample SPA. As a result of the termination, Akerna paid POSaBIT a termination fee and reimbursement for expenses of $0.2 million in June 2023. These costs were included as Other expense, net in our condensed consolidated statements of operations.

On January 27, 2023, we entered into an agreement and plan of merger (the “Merger Agreement”) with Gryphon Digital Mining, Inc. (“Gryphon”) and Akerna Merger Co. (“Akerna Merger”). Upon the terms and subject to the satisfaction of the conditions provided in the Merger Agreement, including the approval of the transaction by Akerna’s and Gryphon’s stockholders, Akerna Merger will be merged with and into Gryphon (the “Merger”), with Gryphon surviving the Merger as a wholly-owned subsidiary of Akerna. Following the closing of the Merger, the former Gryphon and Akerna stockholders immediately before the Merger are expected to own approximately 92.5 percent and 7.5 percent, respectively, of the outstanding capital stock on a fully diluted basis. Upon completion of the Merger, Akerna will change its name to Gryphon Digital Mining, Inc. The closing of the Merger is subject to customary closing conditions including the required approval of the stockholders of Akerna and Gryphon, the approval of the Nasdaq Capital Market (the “Nasdaq Market”) of the continued listing of Gryphon after the closing of the Merger and the simultaneous closing of the sale of MJF and Ample (see below, the “Sale Transaction”), among others. We and Gryphon may terminate the Merger upon mutual consent and either party may terminate the Merger unilaterally under certain conditions. In the event either party terminates the Merger pursuant to certain conditions, we will be required to pay Gryphon a termination fee of $275,000 less any reimbursed expenses. The Merger is expected to be treated by Akerna as a reverse merger, or a change of control, whereby the stockholders of Gryphon will have majority ownership and control of Akerna after the transaction is complete.

On April 28, 2023, we entered into a securities purchase agreement (the “SPA”) with MJ Freeway Acquisition Co (“MJ Acquisition”), an affiliate of Alleaves. Upon the terms and subject to the satisfaction of the conditions described in the SPA, including approval of the transaction by Akerna’s stockholders, Akerna will sell MJF and Ample to MJ Acquisition for a purchase price of $5.0 million, consisting of $4.0 million in cash at closing and a loan by MJ Acquisition to Akerna in the principal amount of $1.0 million evidenced by a note and security documents (as described in detail below) with such note to be deemed paid in full upon closing. The purchase price is subject to adjustment at closing of the Sale Transaction attributable to variances from target working capital (as set forth in the SPA) and further adjustment post-closing upon delivery of a post-closing statement by MJ Acquisition within 75 days after the closing subject to a $0.5 million cap on any post-closing working capital adjustments. The closing of the Sale Transaction is subject to customary closing conditions as well as the required approval of the stockholders of Akerna and the closing of the Merger. The obligation of MJ Acquisition to close on the Sale Transaction is also subject to satisfaction of certain additional conditions regarding employee retention and contractual matters associated with MJF’s and Ample’s customers, among others. Under the SPA, Akerna and MJ Acquisition have agreed to provide limited indemnification to each other with respect to certain tax matters, in each case capped at a maximum amount of $0.5 million. We or MJ Acquisition may terminate the SPA upon mutual consent and either party may terminate the SPA unilaterally under certain conditions as described in the SPA. In the event that MJ Acquisition or Akerna terminates the SPA pursuant to certain of the sections set forth above, Akerna will be required to pay MJ Acquisition a termination fee of $290,000 and reimburse MJ Acquisition for its reasonable fees and expenses up to $60,000.

On June 14, 2023, the Merger Agreement was amended to add the defined term “Closing Acquiror Share Price” and amend and restate the definition of “Merger Consideration.” The term "Closing Acquiror Share Price” means the last reported sale price per share of Akerna Common Stock on Nasdaq on the second business day prior to the closing date of the Merger and the term “Merger Consideration” means the greater of (a) a number of shares of Akerna Common Stock equal to (i) the quotient obtained by dividing (A) Akerna's fully diluted share number, as defined in the Merger Agreement, by (B) 0.075, minus (ii) the Akerna's fully diluted share number minus (iii) the adjusted warrant share reserve number, as defined in the Merger Agreement, and (b) a number of shares of Akerna's Common Stock equal to the quotient obtained by dividing (i) $115,625,000 by (ii) the Closing Acquiror Share Price. The amendment effectively sets a floor of $115.6 million for the value attributable to Gryphon in the determination of post-Merger ownership.

Concurrent with the signing and in support of the Sale Transaction and the Merger, we and each of the holders of the 2021 Senior Secured Convertible Notes (the “Senior Convertible Notes”) entered into exchange agreements (the “Exchange Agreements”) whereby the holders would ultimately convert the principal amounts of each of their note holdings to a level that would represent 19.9 percent of the outstanding shares of our common stock, $0.0001 par value (“Common Stock”) prior to the closing of the Sale Transaction and the Merger. Immediately prior to the stockholder vote required for the closing of those transaction, the remaining Senior Convertible Notes outstanding would be converted into a special class of exchangeable preferred stock to facilitate the required stockholder vote and then be converted into shares of our Common Stock subject to the Merger. For a limited period, the conversion price of the Senior Convertible Notes was lowered to $1.20 per share from $4.75 per share. In accordance with the Exchange Agreements and upon the occurrence of an any additional capital raising transaction, the conversion price would be adjusted accordingly. In connection with an equity offering in June 2023 (see Note 9), the conversion price was further reduced to $0.50 per share. We anticipate scheduling a meeting of stockholders during the third quarter of 2023 to approve the Merger and the Sale Transaction and we expect these transactions to close shortly thereafter.

Restructuring

In May 2022, we implemented a corporate restructuring initiative (the “Restructuring”) that resulted in a charge of $0.5 million associated with a reduction of our workforce by 59 employees, or approximately 33 percent of our headcount at that time. The charge associated with the Restructuring, all of which was settled in cash during the second quarter of 2022, was comprised primarily of severance benefits and related costs and was fully attributable to our continuing operations. Of the total amount incurred, $0.3 million was included in Sales and marketing costs, approximately $0.2 million was included in Product development costs and less than $0.1 million was included in each of Cost of revenue and General and administrative expenses in our condensed consolidated statements of operations, respectively.

Financial Reporting and Classification

As a result of the corporate actions described above, 365 Cannabis and LCA (together, the “Discontinued Group”) met the criteria to be considered “held for sale” as that term is defined in accounting principles generally accepted in the United States (“GAAP”). Accordingly. the assets and liabilities of these entities are classified and reflected on our condensed consolidated balance sheets as “held for sale” as of December 31, 2022 and their results of operations and the effect of their sales have been classified as “discontinued operations” in the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022, respectively. Certain financial disclosures including major components of the assets and liabilities and results of operations of the Discontinued Group are provided in Note 12. Our core SMB and governmental business unit (MJF and Ample), the businesses for which we have committed to terminate operations (Viridian, Solo and Trellis) and our publicly-held parent holding company (Akerna Corp.) comprise our continuing operations. Collectively, these entities are presented as continuing operations for all periods presented herein and until such time that stockholder approval is received for the Sale Transaction and the Merger.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

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 Going Concern (“ASU 2014-15”), we assess going concern uncertainty in our condensed consolidated financial statements to determine if we have sufficient cash, cash equivalents and working capital on hand and any available borrowings on loans, to operate for a period of at least one year from the date the condensed consolidated financial statements are issued. 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 one year from the date the condensed consolidated financial statements are issued.

The accompanying consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. However, since our inception in 2019 we have incurred recurring losses from operations, used cash from operating activities, and relied on capital raising transactions to continue ongoing operations. As of June 30, 2023, we had a working capital deficit of $9.7 million with $1.3 million in cash available to fund future operations including $0.5 million in cash that was classified as “restricted” as of June 30, 2023. The restrictions on those accounts were eliminated in July 2023 and the amounts became fully available for our use as working capital. We anticipate continuing to generate losses from operations and using cash from operating activities for the foreseeable future, although at lower than historical levels as a result of Restructuring during the second quarter of 2022 and the curtailment of activities associated with our discontinued operations as well as those business that we plan to terminate. Furthermore, on March 22 and March 23, 2023, respectively, we received notices (the “Notices”) from The Nasdaq Stock Market LLC (the “Nasdaq”) indicating that (i) the bid price of the Company’s Common Stock is not currently in compliance with the requirement to maintain a minimum bid price of $1.00 per share (the “Bid Price Notice”) and (ii) the Company’s stockholders’ equity is below the minimum listing standard requirement of $2.5 million for continued listing on the Nasdaq (the “Stockholders Equity Notice”). The Notices have no immediate effect on the continued listing status of our Common Stock on the Nasdaq, and, therefore, our listing remains fully effective. We are provided a compliance period of 180 calendar days from the date of the Bid Price Notice, or until September 18, 2023, to regain compliance with the minimum closing bid requirement. Regarding the Stockholders Equity Notice, we submitted the required compliance plan to the listings staff of the Nasdaq on May 8, 2023 which was conditioned upon the successful completion of the Merger. On June 15, 2023, we received a letter from Nasdaq granting an extension through September 19, 2023 to complete the Merger. The terms of the extension include: (i) receiving approval from Nasdaq to list the post-Merger entity, (ii) completion of the Merger transaction and (iii) meeting all of the initial and continued listing requirements for the Nasdaq Capital Market. Collectively, these factors raise substantial doubt regarding our ability to continue as a going concern for the twelve months from the date our condensed consolidated financial statements have been issued.

As described in Note 1, we have committed to the Sale Transaction to complete our intended exit from the SaaS industry and to the Merger as the most favorable strategic alternative for our stockholders. There can be no assurance that we will be successful in executing and completing the Sale Transaction and the Merger and obtaining sufficient funding, if necessary, on terms acceptable to us to fund continuing operations through the anticipated closing of the aforementioned transactions, if at all. Our ability to continue as a going concern is dependent upon our ability to successfully execute the aforementioned transactions. Despite the comprehensive scope of our collective plans, the inherent risks associated with their successful execution are not sufficient to overcome substantial doubt about our ability to continue as a going concern for one year from the date of issuance of our consolidated financial statements. Accordingly, if we are unable to execute our plans within the timeframe described above, we may have to reduce or otherwise curtail our continuing operations which could significantly and adversely affect our results of operations or we may determine to dissolve and