Filing summary
Issuer mismatch: The supplied filing is Akerna Corp. (Nasdaq: KERN), not American Bitcoin Corp. It is a Form 10-Q for the quarter ended September 30, 2022, filed November 14, 2022. The summary below reflects the filing provided.
Business context and reporting period
Akerna provides software for cannabis-industry regulatory compliance, inventory management and business operations, plus consulting services. The company reports one operating segment. Figures below compare the three and nine months ended September 30, 2022 with the corresponding 2021 periods. Share and per-share amounts reflect the filing’s retrospective application of a 20-for-1 reverse split completed November 8, 2022.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $5.41 million | $5.14 million | $18.45 million | $14.06 million |
| Gross profit | $3.36 million | $3.16 million | $12.36 million | $8.72 million |
| Gross margin | 62% | 62% | 67% | 62% |
| Operating loss | $0.84 million | $3.72 million | $50.70 million | $13.28 million |
| Net loss | $2.30 million | $1.55 million | $53.82 million | $14.12 million |
| Operating cash flow | Not separately stated | Not separately stated | $(10.45) million | $(5.08) million |
Q3 software revenue grew 17% year over year, while consulting revenue fell 86%. For the nine-month period, software revenue rose 39%, substantially reflecting the 2021 acquisitions of Viridian and 365 Cannabis; consulting revenue declined 45%. Nine-month results included $39.6 million of long-lived-asset impairment charges, partly offset by a $3.0 million gain from reducing the fair value of acquisition-related contingent consideration. Adjusted EBITDA loss was $1.39 million for Q3 and $5.79 million for the nine months; these non-GAAP measures should be considered alongside GAAP results.
At September 30, cash was $2.49 million and restricted cash was $7.01 million, for combined cash and restricted cash of $9.50 million. Current liabilities exceeded current assets by approximately $6.8 million. Debt was carried at a fair value of $14.48 million, including $9.90 million classified as current; the notes report $14.66 million of face-value principal payable. The company raised $9.2 million net in its July unit offering, but deposited $7.0 million into restricted accounts under its debt amendment. Nine-month investing cash outflow was $2.95 million and financing cash inflow was $8.49 million.
Material changes versus prior comparable periods
- Nine-month revenue increased 31%, but the company’s operating cash use more than doubled. Gross margin improved five percentage points.
- Nine-month operating loss widened significantly, primarily because of impairment charges: $36.4 million related to goodwill and $3.2 million related to certain intangible assets and capitalized software. No Q3 impairment was recorded.
- Operating expenses excluding impairment were affected by acquisition-related costs and amortization, as well as cost reductions. In May, the company cut its workforce by 59 employees, about 33%, and executives accepted temporary 25% salary reductions.
- Q3 operating loss improved year over year, with the comparison helped by the $3.0 million contingent-consideration fair-value gain. Q3 net loss nevertheless increased, including a larger loss from remeasuring convertible notes.
Outlook, risks and unusual items
- Going concern: Management stated that recurring losses, operating cash outflows, a working-capital deficit and limited unrestricted cash raise substantial doubt about the company’s ability to continue as a going concern for one year after issuance. Management’s plans do not fully alleviate that doubt.
- Debt and funding: Senior convertible-note amortization payments were deferred through January 1, 2023. The notes impose cash-balance and restricted-account requirements and are secured by a first-priority interest in specified assets. Management said it expected its plans to support normal operations for the remainder of 2022, while pursuing financing and strategic alternatives; additional funding may be needed through the first half of 2023. Failure to raise funds or meet covenants could lead to default and enforcement against collateral.
- Subsequent financing and listing actions: A preferred-stock offering generated approximately $4.75 million gross in October 2022, but all preferred shares were redeemed for $5.25 million on November 9, using escrowed funds. A 20-for-1 reverse split took effect November 8 to address Nasdaq’s minimum-bid-price deficiency. The company said it believed it would regain compliance; that outcome was not assured in the filing.
- Potential dilution: The company had substantial warrants outstanding, and its ATM program was limited to $3.5 million under the cited shelf-registration restriction. It reported $0.9 million of ATM sales through November 10.
- Controls: Management concluded disclosure controls and procedures were ineffective as of September 30, 2022 because of a material weakness in the design and/or operation of key financial-reporting controls. Remediation was underway but not complete.
- Other items: The company recorded a $0.5 million lease-termination charge. It settled litigation involving TechMagic and former Solo directors and reversed a previously accrued $0.5 million loss contingency; a separate TreCom matter remained accrued at $0.2 million. No specific revenue or earnings guidance was provided.
Most important facts for investors to verify
- Confirm the intended issuer: this filing is Akerna Corp., not American Bitcoin Corp.
- Review subsequent cash balances, financing availability and the status of management’s going-concern plans.
- Verify debt principal, payment schedule, covenant compliance, restricted-cash release terms and any amendments or defaults.
- Check whether Nasdaq bid-price compliance was regained and whether listing requirements continued to be met.
- Assess the effect of the impairment charges, acquisition performance and any further impairment risk.
- Track remediation of the material weakness and the company’s progress in restoring effective controls.
- Evaluate potential dilution from warrants, ATM issuance and other capital-raising instruments.