Filing identity and reporting period
Important mismatch: The request identifies American Bitcoin Corp. and 2021 Q1, but the supplied filing is Akerna Corp.’s Form 10-Q for the quarter ended September 30, 2020 (filed November 16, 2020). The figures below summarize the supplied filing, not an American Bitcoin filing.
Akerna provided software and consulting services for regulatory compliance, inventory management, and tracking, primarily serving the cannabis industry. The company changed its fiscal year-end from June 30 to December 31, making this quarter part of a six-month transition period ending December 31, 2020.
Financial results and liquidity
- Revenue: $3.71 million, up 16% from $3.19 million in the prior-year quarter. Software revenue rose 40% to $3.15 million, mainly following the Ample acquisition; consulting revenue fell 60% to $0.33 million, which management attributed primarily to COVID-19-related delays.
- Profitability and margins: Gross profit was $1.97 million, up 9%; gross margin declined to 53% from 57%. Operating loss widened to $5.52 million from $2.40 million. Net loss attributable to Akerna shareholders was $4.74 million, or $0.34 per share, compared with $2.33 million, or $0.21 per share. The quarter included a $0.78 million gain from the change in fair value of convertible notes.
- Costs: Operating expenses rose 78% to $7.50 million, including higher product development and amortization, acquisition-related costs, and expenses associated with acquired businesses. Management cited approximately $1.1 million of one-time costs.
- Cash flow: Operating cash use was $4.18 million versus $3.14 million a year earlier. Investing cash use was $5.70 million, primarily reflecting the Ample acquisition and software development. Cash and restricted cash decreased by about $9.90 million during the quarter.
- Liquidity: September 30 cash was $14.26 million, plus $0.50 million restricted cash; working capital was $0.9 million. On October 30, Akerna completed a public offering of 5 million shares for approximately $11.0 million net proceeds. Management expected available working capital to fund operations and commitments for at least 12 months from issuance of the financial statements.
- Debt: Balance-sheet current and long-term debt totaled approximately $15.63 million. The $17.0 million face-value convertible notes were carried at a fair value of $13.42 million at quarter-end; the filing describes the valuation as Level 3 and based on significant unobservable inputs. Management noted possible future financing or renegotiation of note terms, without assurance.
Material changes and notable items
- Akerna acquired 100% of Ample Organics on July 7, 2020, issuing shares valued at $25.2 million and paying $5.7 million in cash, including amounts used to settle debt and transaction costs. Ample contributed $1.2 million of revenue and $0.4 million of net loss from acquisition through quarter-end. Purchase-price allocation remained preliminary; contingent consideration was recorded at $0.82 million.
- Management said cost-reduction actions were expected to produce an additional $3.0 million to $4.0 million in annual savings.
- The company revised previously issued financial statements to correct software-development cost accounting errors. The filing says the errors were not material to individual prior periods, but cumulative correction in the period identified would have been material.
- Disclosure controls and procedures were deemed ineffective as of September 30, 2020, with material weaknesses involving control documentation, segregation of duties, and timely, accurate GAAP financial reporting. Remediation efforts included hiring accounting resources, upgrading systems, and engaging an outside consultant.
Outlook, risks, and contingencies
Management expected consulting demand to improve following cannabis legalization ballot initiatives passed in November 2020, while acknowledging that consulting revenue depends on legislative activity and can vary by quarter. The company cited ongoing operating losses and cash use, the COVID-19 pandemic, the need for continued access to capital, convertible-debt servicing, acquisition integration, customer retention and growth, and cannabis regulatory changes among its risks. A $2 million PPP loan might be forgiven, but forgiveness was not assured. The filing reported no material pending litigation requiring financial-statement recognition or disclosure.
Key facts investors should verify
- Confirm the issuer and period: the supplied filing is Akerna Corp., quarter ended September 30, 2020, not American Bitcoin Corp. or 2021 Q1.
- Review the Ample acquisition’s final purchase-price allocation, contingent consideration, and subsequent operating contribution.
- Assess liquidity after the October offering against ongoing operating cash use, debt maturities, and the assumptions behind management’s 12-month funding expectation.
- Track progress on the disclosed material weaknesses and whether remediation controls have been tested and found effective.
- Evaluate the impact of the prior-period software-cost revisions and the expected accounting changes related to revenue recognition.