Filing identity and reporting period
The supplied filing is Akerna Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2023, filed May 15, 2023. It is not a filing for American Bitcoin Corp.; the company and ticker identified in the filing are Akerna Corp. (Nasdaq: KERN; warrants: KERNW).
Akerna provided cannabis-industry software and regulatory-compliance services. During the quarter, it was pursuing a strategic exit from SaaS, including sales and planned wind-downs of business units.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $2.60 million | $4.25 million |
| Gross profit / margin | $1.55 million / 60% | $2.72 million / 64% |
| Operating loss | $1.93 million | $19.90 million |
| Net loss | $2.47 million | $21.95 million |
| Cash used in operating activities | $2.54 million | $3.59 million |
| Adjusted EBITDA (non-GAAP) | $(1.19) million | $(2.63) million |
At March 31, 2023, cash was $0.88 million and restricted cash was $0.50 million. Current assets were $2.71 million and current liabilities $11.21 million, a working-capital deficit of approximately $8.5 million. Debt was reported at fair value of $8.46 million, including $6.89 million current and $1.58 million noncurrent. Stockholders’ deficit was $5.79 million.
Net cash declined by $6.80 million during the quarter. Investing activities provided $0.60 million, primarily from business-sale proceeds; financing activities used $4.92 million for convertible-note principal payments. The filing reports $4.9 million of those payments in cash and $1.4 million of principal settled in shares.
Material changes versus the prior year
- Revenue fell 39%; software revenue declined 32%, and consulting revenue was zero versus $0.43 million. Management attributed the software decline to lower government-client revenue, planned platform exits, and customer churn, partly offset by new business.
- Gross margin decreased from 64% to 60%, which management attributed to a less favorable contract mix and servicing products being wound down without new revenue streams.
- Operating expenses fell 85%, mainly reflecting lower expenses after 2022 impairments and restructuring. Q1 2022 included $15.45 million of impairment charges; Q1 2023 had none.
- Operating cash use improved year over year, which management attributed to restructuring and lower activity. Debt repayments and the reduced cash balance nevertheless left liquidity constrained.
Outlook, transactions, and risks
- Akerna completed sales of 365 Cannabis and LCA in January 2023. The quarter included a $0.21 million net gain on discontinued-operations sales; discontinued operations overall contributed a $0.10 million net gain after operating losses.
- After quarter-end, Akerna agreed to sell its MJF and Ample businesses to an Alleaves subsidiary for $5.0 million, comprising $4.0 million cash at closing and a $1.0 million loan to be deemed paid upon closing, subject to conditions and adjustments. A separate proposed merger with Gryphon Digital Mining would leave former Gryphon holders with approximately 92.5% and Akerna holders with 7.5% of the combined company on a fully diluted basis. Both transactions required approvals and were expected by management to close after a planned third-quarter 2023 stockholder meeting; completion was not assured.
- On May 3, 2023, Akerna received a $1.0 million secured note from the buyer, bearing 10% annual simple interest and due April 28, 2024 unless the sale closes. The security interest covers company personal property and certain subsidiaries’ obligations are guaranteed; repayment is subordinated to the senior convertible notes.
- Management stated that recurring losses, cash usage, the working-capital deficit, and Nasdaq listing deficiencies raised substantial doubt about Akerna’s ability to continue as a going concern for the following year. Continued operations depended on completing the proposed transactions and/or obtaining funding. Failure could lead to further curtailments or liquidation; debt covenant default could expose assets to seizure and sale.
- Nasdaq notified Akerna that its share price did not meet the $1.00 minimum bid requirement and stockholders’ equity was below the $2.5 million listing standard. Akerna had until September 18, 2023 to regain bid-price compliance and had submitted an equity-compliance plan, then awaiting Nasdaq’s response.
- Disclosure controls were deemed ineffective due to a material weakness in the design and/or operation of key financial-reporting controls. Remediation was underway but not complete. Litigation included Dutchie’s claims, for which Akerna said it could not estimate potential loss, and a TreCom matter with a $0.2 million accrual. Transaction-related commitments included a financial-advisor success fee with a $1.5 million minimum and approximately $1.4 million of potential employee payments.
Important facts for investors to verify
- Confirm the filing’s identity: it is Akerna Corp.’s 10-Q, not an American Bitcoin Corp. filing.
- Track stockholder and regulatory approvals, closing conditions, working-capital adjustments, and termination-fee exposure for the proposed asset sale and merger.
- Assess cash runway and obligations, including the senior convertible notes, the secured 10% MJA note, and the dependence on transaction proceeds or new financing.
- Check whether Akerna regained Nasdaq bid-price and stockholders’-equity compliance and whether its financial-reporting material weakness was remediated.
- Distinguish continuing operations from discontinued operations and note that management’s transaction and closing expectations were forward-looking, not assured outcomes.