Filing summary
Entity and period: The supplied filing is Akerna Corp.’s unaudited Form 10-Q for the three months ended September 30, 2019—not an American Bitcoin Corp. filing or a 2020 calendar first-quarter report. The financial statements reflect MJ Freeway’s historical results before the June 2019 mergers and do not include MTech’s pre-merger results.
Business and financial performance
Akerna provides regulatory-compliance and inventory-management software, including Leaf Data Systems for government agencies and MJ Platform for licensed businesses, as well as consulting services.
| Metric | Quarter ended September 30, 2019 | Prior-year quarter |
|---|---|---|
| Revenue | $3.19 million | $2.30 million |
| Gross profit / gross margin | $1.80 million / 56.2% | $1.24 million / 53.8% |
| Operating expenses | $4.71 million | $2.95 million |
| Operating loss | $2.92 million | $1.71 million |
| Net loss | $2.85 million | $1.70 million |
| Net loss per share | $0.26 | $0.31 |
| Net cash used in operations | $3.68 million | $0.97 million |
Revenue rose 39% year over year: software revenue increased 23% to $2.30 million, consulting revenue increased 125% to $831,363, and other revenue was $57,047. Management attributed growth mainly to MJ Platform and consulting. Gross profit increased, but operating expenses rose 60%, principally from hiring and sales, marketing, and administrative costs. The filing reports no investing cash flow. Financing provided $4.24 million from warrant exercises, versus $10.0 million from a share issuance in the comparable quarter.
Liquidity, capital and outlook
- At September 30, 2019, cash was $22.43 million and restricted cash was $500,000. Working capital was approximately $23.32 million. Current liabilities were $3.00 million; the balance sheet lists no debt.
- Management said cash on hand was expected to cover working-capital needs for the next 12 months, while acknowledging recurring operating losses and negative operating cash flow.
- The company was exploring strategic opportunities and had signed three non-binding letters of intent; completion was not assured. Management said pursuing opportunities could require additional equity or debt financing, with potential dilution and no assurance of financing availability or acceptable terms.
- No formal revenue or earnings guidance is provided. Management expected product-development and selling, general and administrative expenses to continue increasing with growth.
Material changes, risks and unusual items
- The company revised previously reported financial information for duplicated revenue and misclassified consulting costs. For the September 2018 quarter, revised revenue was $2.30 million and net loss was $1.70 million. It also revised prior-period gross profit and balance-sheet amounts, but concluded the errors were not material and amendments were not required.
- Disclosure controls and procedures were deemed ineffective as of September 30, 2019. The company described remediation efforts, including outside assistance, additional accounting resources, and planned systems upgrades; remediation was not yet complete.
- Customer concentration was significant: one customer represented 24% of quarterly revenue and 63% of net accounts receivable at quarter-end.
- Restricted cash of $500,000 supported a standby letter of credit expiring June 22, 2020. A new office agreement was scheduled to begin February 2020, with monthly payments of $41,925, subject to annual increases.
- Subsequent events included a $250,000 minority investment in ZolTrain and a related software licensing arrangement. The filing reported no legal proceedings requiring recognition or disclosure.
Important facts to verify
- Confirm the intended issuer and reporting period: the source is Akerna Corp. and covers the quarter ended September 30, 2019.
- Review the prior-period revisions and the company’s conclusion that the errors were not material.
- Assess progress and evidence of remediation for ineffective disclosure controls.
- Evaluate customer concentration, receivables collection, and the sustainability of cash given operating losses and cash burn.
- Check the status and financing implications of the three non-binding strategic letters of intent.