Filing summary
Entity discrepancy: The supplied filing is Akerna Corp.’s Form 10-Q, not an American Bitcoin Corp. filing. It covers the quarter ended September 30, 2021, and the nine months then ended. Akerna provides software and consulting for cannabis compliance, inventory management, and related business operations.
Financial results and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $5.14 million | $3.71 million | $14.06 million | $9.79 million |
| Gross profit / margin | $3.16 million / 62% | $1.97 million / 53% | $8.72 million / 62% | $4.83 million / 49% |
| Operating loss | $3.72 million | $5.52 million | $13.28 million | $16.59 million |
| Net loss | $1.55 million | $3.99 million | $14.12 million | $14.66 million |
| Adjusted EBITDA, non-GAAP | $(1.54) million | $(3.00) million | $(5.02) million | $(9.74) million |
Q3 software revenue increased 37% year over year; consulting revenue increased 66%. For the nine-month period, software revenue rose 50%, while consulting revenue declined 2%. Management attributed growth mainly to acquired businesses and higher data revenue, and improved gross margin to acquisition synergies, operating-effectiveness initiatives, and a greater mix of higher-margin business-to-business customers.
For the nine months, net cash used in operating activities was $5.08 million, compared with $12.46 million in 2020; investing activities used $3.37 million, and financing activities provided $0.23 million. Cash and restricted cash totaled $10.12 million at September 30, including $9.61 million of unrestricted cash. Working capital was $7.7 million. Long-term debt was $3.83 million, with no current portion shown at quarter-end. Total liabilities were $10.09 million.
Changes, transactions, and unusual items
- Gross margin improved to 62% for both the quarter and nine-month period. Operating losses narrowed year over year; the nine-month net loss improved modestly.
- Akerna recorded a $2.23 million gain from forgiveness of its PPP loan in Q3. The nine-month results also included approximately $2.9 million of described one-time expenses, including transaction-related and restructuring costs; the non-GAAP reconciliation reports $2.45 million of restructuring charges.
- The April 2021 Viridian acquisition contributed $1.9 million of revenue and $0.6 million of net income from acquisition through September 30. On October 1, Akerna acquired 365 Cannabis for $17 million ($5 million cash and $12 million stock).
- On October 5, Akerna issued $20 million of senior secured convertible notes at a 10% original issue discount. After expenses and repayment of approximately $3.3 million of prior notes, reported net proceeds were approximately $14.6 million. The notes mature in 2024, require monthly installments beginning January 2022, and may be repaid in cash or shares. They are convertible at $4.05 per share, subject to terms that could create substantial additional dilution; the notes are secured by substantially all company assets.
- The company revised its accounting for private warrants, reclassifying them as derivative liabilities and recording period-to-period fair-value changes in earnings. The company said the revisions did not affect cash and were not material to individual prior periods, but cumulative corrections would have been material if recorded in the period identified.
Outlook, risks, and controls
No quantified revenue or earnings guidance is provided. Management said it expected consulting services to grow as additional jurisdictions adopt legalization reforms and stated that it believed available working capital, the ATM program, and subsequent note financing would support operations for at least 12 months from issuance of the financial statements. It also identified potential expense reductions and future financing as possible liquidity measures, without assurance they would be available or successful.
Key risks include continuing operating losses and cash use; dependence on cannabis-industry growth and changing regulation; customer retention and acquisition; acquisition integration; ability to raise capital and service debt; and potential dilution, default, or foreclosure risk under the secured notes. Akerna reported ineffective disclosure controls and material weaknesses involving control documentation, IT procedures, and evidence of operating controls, including segregation of duties. It described remediation efforts, but said the weaknesses would not be fully remediated until controls had operated long enough to be tested. Disclosed litigation included claims against subsidiaries with recorded loss contingencies of $0.6 million and $0.1 million, respectively.
Investor verification checklist
- Confirm that this Akerna 10-Q is the intended filing; it does not identify American Bitcoin Corp. as the registrant.
- Review the detailed terms, repayment schedule, security interests, default provisions, and share-conversion mechanics of the October 2021 senior convertible notes.
- Track cash burn, working capital, subsequent financing proceeds, and whether management’s stated 12-month liquidity assessment remains supportable.
- Assess progress in remediating ineffective controls and the accounting and reporting effects of warrant-liability remeasurement.
- Verify integration and performance of Viridian and 365 Cannabis, and monitor acquisition-related cash, stock issuance, and dilution.
- Review the status and potential exposure of the disclosed litigation and other contingencies.