Business context and reporting period
Filing identity differs from the request: the supplied document is Akerna Corp.’s Form 10-Q, not an American Bitcoin Corp. filing. It reports the quarter and nine months ended March 31, 2020 (Akerna fiscal Q3), with comparisons to the periods ended March 31, 2019. Akerna provides cannabis-industry regulatory and inventory-management software and consulting services. The statements are unaudited.
Financial results and liquidity
| Metric | Three months ended March 31, 2020 | Nine months ended March 31, 2020 |
|---|---|---|
| Revenue | $3.07 million, up 32% | $9.57 million, up 33% |
| Gross profit / margin | $1.65 million / 53.7%, versus 49.9% | $5.11 million / 53.4%, versus 50.7% |
| Operating expenses | $7.13 million, up 95% | $17.91 million, up 74% |
| Net loss | $5.45 million; $5.35 million attributable to Akerna stockholders | $12.63 million; $12.53 million attributable to Akerna stockholders |
| Net loss per share | $0.43 | $1.11 |
Revenue growth reflected software revenue gains and sharply higher consulting revenue: consulting increased 219% for the quarter and 172% for the nine-month period. Nine-month software revenue rose 16%; other revenue declined 14%. Higher operating costs—particularly selling, general and administrative expenses, including acquisition-related and public-company costs—outpaced revenue growth.
At March 31, 2020, cash was $14.31 million, restricted cash was $0.50 million, current assets were $17.90 million, and current liabilities were $4.77 million; working capital was approximately $13.13 million. Total assets were $41.35 million. The balance sheet reports accounts payable/accrued liabilities and deferred revenue as liabilities, but no debt line. Nine-month operating cash use was $11.60 million, investing cash use was $0.20 million, and financing cash provided was $4.25 million, primarily from warrant exercises. Cash and restricted cash fell $7.56 million from June 30, 2019.
Material changes and notable transactions
- Revenue increased 33% year over year for the nine months, while net loss attributable to Akerna stockholders widened 90% to $12.53 million.
- Gross margin improved to 53.4% for the nine-month period, up from 50.7%, partly due to higher consulting revenue.
- On January 15, 2020, Akerna acquired an 80.4% interest in Solo Sciences for 1.95 million Akerna shares valued at $17.55 million. Purchase accounting, including contingent consideration and an option related to the remaining interest, was not complete at quarter-end.
- Prior-period financial statements were revised for errors involving duplicated revenue and the classification of consulting costs. Management said the errors were not material to prior periods individually, but cumulative corrections would be material if recorded in the period identified.
Outlook, risks and contingencies
- Management expected cash on hand to cover working-capital needs for the next 12 months and planned a fiscal fourth-quarter cost-reduction program expected to lower recurring annual operating expenses by $2 million to $3 million. These are management expectations, not guarantees.
- COVID-19 had not significantly affected reported software revenue through March 31, but management warned that onboarding delays, customer financial stress, and postponed cannabis legislation could hurt future results; the impact and duration were not estimable.
- In April 2020, Akerna acquired Trellis for shares valued at approximately $2.5 million, plus possible contingent stock consideration. Also in April, it received a $2.20 million Paycheck Protection Program loan bearing 1% interest, potentially forgivable under program terms. The company said it was evaluating subsequent federal guidance affecting the loan.
- Akerna disclosed ineffective disclosure controls and material weaknesses in internal control over financial reporting, including inadequate control documentation, segregation-of-duties documentation, and controls over financial-statement presentation. Remediation efforts included outside consultants, additional accounting resources, and planned system upgrades; management said remediation required further testing over time.
- The filing states there were no legal proceedings requiring financial-statement recognition or disclosure as of issuance. A $500,000 standby letter of credit was classified as restricted cash and was due to expire June 22, 2020.
Important facts for investors to verify
- Confirm the filing issuer and period: this document is Akerna Corp.’s quarter ended March 31, 2020, not an American Bitcoin Corp. 2020 Q3 filing.
- Review subsequent filings for the completed valuations and accounting for Solo’s contingent consideration and noncontrolling-interest option, and for Trellis purchase accounting.
- Track operating cash burn, liquidity, progress on the promised $2 million–$3 million annual expense reductions, and whether additional financing is needed.
- Monitor COVID-19 effects on customer renewals, implementation schedules, consulting demand, and legislative activity.
- Review remediation and testing of the disclosed material weaknesses, as well as the consequences of the prior-period financial-statement revisions.
- Confirm the PPP loan’s eligibility, forgiveness outcome, and repayment obligations; also note that the filing checked “No” when asked whether all required Exchange Act reports had been filed during the preceding 12 months.