Filing identity and reporting period
The supplied filing is Akerna Corp.’s Form 10-K for the fiscal year ended June 30, 2019, filed September 23, 2019. It is not a filing for American Bitcoin Corp. and does not report a standalone 2019 Q4 period; annual results are compared with the year ended June 30, 2018. The financial statements reflect MJ Freeway’s historical results and the combined company after the June 17, 2019 business combination.
Business context
Akerna provided cannabis compliance, seed-to-sale inventory tracking and enterprise software, consulting, and related products. Its Leaf Data Systems served government regulators; MJ Platform served licensed businesses. The company said it did not handle cannabis or process U.S. cannabis sales, and generally earned fixed-fee subscription revenue. Washington and Pennsylvania were its government customers; Utah was added after year-end.
Financial performance and liquidity
| Metric | FY ended June 30, 2019 | FY ended June 30, 2018 |
|---|---|---|
| Revenue | $10.92 million | $10.48 million |
| Gross profit / margin | $6.29 million / 58% | $6.11 million / 58% |
| Operating expenses | $18.70 million | $8.58 million |
| Operating loss | $12.42 million | $2.46 million |
| Net loss | $12.31 million | $2.49 million |
| Basic and diluted loss per share | $2.04 | $0.51 |
| Cash used in operations | $9.05 million | $3.74 million |
| Cash and restricted cash at year-end | $22.37 million | $2.57 million |
Revenue grew 4%. Software revenue was $8.26 million, consulting revenue $2.40 million, and other revenue $0.26 million. Government software revenue was approximately $4.25 million, or about 39% of total revenue. One customer contributed 30% of annual revenue. The filing reports no long-term debt on the balance sheet presented; current liabilities were $2.44 million. Cash excluding restricted cash was $21.87 million, and working capital was approximately $22.1 million, versus $1.6 million a year earlier.
Changes, unusual items, and outlook
- Operating expenses increased 118%, driven by higher product-development and selling, general and administrative costs, including hiring, sales and marketing investment, and public-company costs.
- FY2019 included approximately $3.9 million of non-cash stock-based compensation, including a one-time charge of about $3.4 million associated with vested profit-interest units at the merger. Another approximately $2.1 million of restricted-stock compensation was expected to be recognized over three years.
- The June 2019 business combination and private placement materially strengthened liquidity. The filing reports approximately $18 million of net proceeds from the combination and placement; the cash-flow statement separately presents $18.84 million received in connection with the reverse merger and $10 million from share issuance.
- Management expected available capital to fund anticipated expenses for at least 12 months from issuance of the financial statements, while warning that losses were likely to continue in the near term. No quantified revenue or earnings guidance was provided.
- In August 2019, Akerna signed Utah’s five-year contract, with implementation expected to roll out in phases through 2020. Government contracts may be terminated, and implementation timing and costs create execution risk.
- The filing says disclosure controls and procedures were ineffective at June 30, 2019. Management did not assess internal control over financial reporting because doing so would require unreasonable effort or expense following the merger. The auditor gave an unqualified opinion on the financial statements but did not opine on internal controls.
- Quarterly financial statements for earlier quarters were revised to reclassify consulting costs from operating expenses to cost of revenue. The filing said the revisions did not affect net loss and were not material to the affected quarterly statements.
Key investor verification points
- Confirm the issuer and period: the document is Akerna Corp.’s FY2019 10-K, not an American Bitcoin Corp. filing or a standalone Q4 report.
- Review cash burn, the stated 12-month funding outlook, and whether subsequent financing or warrant exercises changed liquidity.
- Assess the drivers and sustainability of the sharp rise in operating expenses and net loss, including stock compensation and merger-related costs.
- Verify customer and government-contract concentration, performance and renewal terms, and Utah implementation and subscription milestones.
- Follow remediation of ineffective disclosure controls and the planned assessment of internal control over financial reporting.
- Consider cannabis federal-law and regulatory uncertainty, privacy and cybersecurity exposure, customer credit concentration, and dilution from warrants and equity awards.