Business Context and Reporting Period
This Form 8-K, dated June 17, 2019 and filed by Akerna Corp. (formerly MTech Acquisition Holdings Inc.), reports the completion of its business combination with MJ Freeway, LLC (MJF). The filing text does not identify American Bitcoin Corp.; investors should verify the issuer identity and filing metadata.
MJF provides compliance, inventory-management, and regulatory software for cannabis, hemp, and CBD businesses and government agencies through its MJ Platform and Leaf Data Systems products. Akerna ceased being a shell company, changed its name, and became the successor issuer to MTech. Its common stock and warrants began trading on Nasdaq on June 18, 2019 under KERN and KERNW, subject to continued listing review.
The operating results presented cover MJF for the three and nine months ended March 31, 2019 and 2018. Akerna’s post-closing fiscal-year financial information is incorporated by reference rather than fully presented in the filing.
Key Financial Metrics
| Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Nine Months Ended March 31, 2019 | Nine Months Ended March 31, 2018 |
|---|---|---|---|---|
| Total revenue | $2.33 million | $2.32 million | $7.30 million | $7.85 million |
| Gross profit | $1.29 million | $1.58 million | $4.10 million | $4.51 million |
| Gross margin | 55% | 68% | 56% | 57% |
| Operating expenses | $3.79 million | $1.20 million | $10.67 million | $7.01 million |
| Net income (loss) | $(2.49) million | $0.36 million | $(6.48) million | $(2.54) million |
| Cash provided by (used in) operating activities | Not provided | Not provided | $(6.36) million | $(3.49) million |
- Software revenue was $6.27 million for the nine months ended March 31, 2019, up 3% year over year, while consulting revenue declined 50% to $0.83 million.
- As of March 31, 2019, MJF reported $6.21 million of cash and restricted cash, including approximately $5.2 million of unrestricted cash, and $4.1 million of working capital excluding restricted cash.
- Financing activities provided $10.0 million during the nine months ended March 31, 2019, primarily from Series C preferred-unit financing.
- At closing, Akerna received approximately $18 million of net proceeds from the business combination and private placement.
- The filing does not provide a clear post-closing debt balance or a separate consolidated liquidity schedule for Akerna.
Material Changes Versus the Prior Comparable Period
- Nine-month revenue decreased 7%, primarily because of lower activity under the Washington government contract and reduced consulting engagements. The decline was partly offset by increased software subscriptions.
- Quarterly revenue was broadly flat, but gross margin fell from 68% to 55%, mainly because of higher Amazon Web Services hosting and Oracle integration costs.
- Nine-month gross margin declined modestly from 57% to 56%, reflecting the reduced contribution from consulting revenue and changes in government-contract activity.
- Nine-month operating expenses increased 52%, including a 36% increase in product-development expenses and a 59% increase in selling, general and administrative expenses. The increase included merger-related professional fees, sales and marketing investments, cybersecurity and product-development spending, and the absence of certain insurance proceeds recognized in the prior-year period.
- The quarterly result shifted from net income of $0.36 million to a net loss of $2.49 million; the nine-month net loss expanded from $2.54 million to $6.48 million.
- Operating cash use increased 82% year over year, from $3.49 million to $6.36 million, partly reflecting the net loss and a $1.49 million increase in receivables.
Transaction, Capitalization, Outlook, and Risks
- The transaction issued 6,520,099 shares to MJF securityholders at an implied $10.16 per share. Of these, 652,010 shares were placed in escrow for potential merger-adjustment and indemnification claims, and 215,063 shares were subject to restricted stock agreements.
- Public shareholders redeemed 4,452,042 shares for an aggregate $45.6 million, or $10.23841733 per share. Following the transaction and private placement, 10,400,381 common shares and warrants to purchase 5,993,750 shares were outstanding.
- The private placement issued 901,074 shares for $9.2 million. Investors also received 100,120 shares transferred by the sponsor and received options, subject to conditions, to purchase additional shares at $10.21 per share.
- Former MJF securityholders owned approximately 62.7% of outstanding shares after closing, former MTech securityholders owned approximately 27.7%, and private-placement investors owned approximately 9.6%.
- Management expected consulting revenue to improve in the quarter ending June 30, 2019 based on opportunities in Missouri, Utah, New Jersey, and Arkansas, as well as client licensing activity in Ohio and pending applications in Maryland and Missouri. This was an expectation, not formal financial guidance.
- The company cited expansion opportunities across U.S. and international cannabis, hemp, and CBD markets, including potential growth in Asia. It also expected product-development, selling, general and administrative expenses to continue increasing with growth.
- Principal risks include failure to integrate the MTech and MJF businesses, inability to grow profitably, competition, changes in cannabis-related laws and regulations, variability in consulting and government-contract revenue, customer concentration, cybersecurity and technology costs, and continued operating losses and cash usage.
- MJF stated that, following the transaction and other financing activities, it had no substantial doubt about its ability to continue as a going concern for at least twelve months from issuance of its March 31, 2019 financial statements.
- The founders entered into four-year noncompetition and nonsolicitation agreements. Consideration shares were subject to lock-ups, generally restricting transfers for at least one year, with additional restrictions on half of the shares until specified market-price conditions were met.
Most Important Facts for Investors to Verify
- Confirm the issuer: the supplied filing is for Akerna Corp., not American Bitcoin Corp.
- Review the incorporated financial statements and pro forma financial statements to assess Akerna’s post-closing revenue, cash, liabilities, debt, and share count.
- Evaluate the sustainability of recurring software revenue versus variable consulting and government change-order revenue.
- Assess the effect of operating cash burn, merger-related costs, product-development spending, and customer receivables on future liquidity.
- Verify Nasdaq’s continuing-listing status and the potential dilution from warrants, escrow shares, equity awards, and the $10.21-per-share option shares.
- Review the merger agreement, escrow terms, indemnification provisions, lock-ups, and related-party ownership disclosures for potential claims, restrictions, or control risks.