Filing summary
Entity and period: The supplied filing is Akerna Corp.’s Form 10-K for the fiscal year ended December 31, 2021, filed March 31, 2022. It is not a filing for American Bitcoin Corp.; investors should confirm the intended issuer. The filing compares 2021 with a reconstructed, unaudited calendar-year 2020 in parts of MD&A; the audited statements separately present the six months ended December 31, 2020 and the year ended June 30, 2020.
Business context
Akerna sells cannabis-industry compliance, inventory-management and enterprise software, government track-and-trace systems, data products and consulting services. Revenue is primarily subscription-based. The company completed acquisitions of Viridian Sciences in April 2021 and 365 Cannabis in October 2021.
Key financial metrics
| Metric | FY 2021 | FY 2020 comparator |
|---|---|---|
| Revenue | $20.7 million | $13.9 million, unaudited reconstructed calendar year |
| Software revenue | $19.0 million | $12.0 million |
| Consulting revenue | $1.5 million | $1.7 million |
| Gross profit / margin | $12.6 million / 61% | $7.5 million / 54% |
| Operating loss | $(33.4) million | $(26.8) million |
| Net loss | $(31.3) million | $(26.9) million, unaudited reconstructed calendar year |
| Adjusted EBITDA (non-GAAP) | $(7.9) million | $(11.7) million |
Revenue rose 49%, mainly from acquired and expanding software operations; software made up 92% of revenue. Gross margin improved, which management attributed to acquisition synergies, operating efficiencies and a larger B2B customer mix. Operating loss widened 24%, including a $14.4 million long-lived-asset impairment charge, versus $6.9 million in the 2020 comparator. The 2021 net loss also reflects a $2.2 million PPP loan-forgiveness gain and a $2.3 million income-tax benefit.
- Cash flow: Operating cash use was $8.2 million and investing cash use was $10.5 million; financing provided $14.7 million. Cash and restricted cash ended at $14.4 million, including $13.9 million unrestricted cash.
- Liquidity: Current assets were $18.2 million against current liabilities of $29.2 million, a reported working-capital deficit of $10.9 million.
- Debt: The October 2021 senior secured convertible notes had $20 million face principal and a $17.3 million year-end fair-value carrying amount. They convert at $4.05 per share, mature October 2024 and are secured by substantially all assets. Installment payments began in January 2022; $13.2 million of principal was classified current.
Changes, outlook and material risks
- Acquisitions contributed materially to software growth and increased costs, acquired intangibles and goodwill. The 365 Cannabis deal included $6.3 million of contingent consideration at year-end.
- Management reported substantial doubt about the company’s ability to continue as a going concern. It said additional financing would be needed in the second quarter of 2022 to fund working capital and meet debt covenants. Plans included using the ATM equity facility, cost cuts and potentially paying obligations in shares; there was no assurance of sufficient funding.
- The $25 million ATM facility had raised $1.9 million gross by year-end. Additional equity or conversion of debt could materially dilute shareholders. The notes’ default provisions include potential higher interest, discounted conversion, redemption rights and enforcement against collateral.
- No specific revenue, earnings or cash-flow guidance is provided. Management’s stated priorities include expanding customers and products, integrating acquisitions, growing partnerships and pursuing organic growth and further acquisitions.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to material weaknesses in key financial-reporting processes. Remediation was underway; the weaknesses were not yet fully remediated. The auditor’s financial-statement opinion was unqualified but included a going-concern explanatory paragraph.
- Other notable exposures include a $14.4 million impairment tied to the non-enterprise reporting unit, COVID-related consulting delays, cannabis federal-law and banking risks, cybersecurity and privacy risks, and two disputed lawsuits for which loss contingencies of $0.5 million and $0.2 million were accrued.
Investor verification priorities
- Confirm the intended issuer: the provided document identifies Akerna Corp. (ticker KERN), not American Bitcoin Corp.
- Review the going-concern note, subsequent financing and liquidity developments, and the company’s ability to satisfy debt installments and covenants.
- Check the convertible notes’ actual repayment or share-settlement terms, potential conversion dilution, security interests and any covenant waivers or defaults.
- Assess acquisition contribution and integration, including final purchase-price allocations, contingent consideration and whether impairment assumptions remain supportable.
- Track remediation and testing of the disclosed material weaknesses, and review the outcomes and updated accruals for the pending lawsuits.