Our Competitor got a Really GOOD financing deal.
Kern got another $17M. They are so cash rich, and they just closed this deal last week:
Akerna Closes $17 Million Debt Financing
The financing is in the form of a Senior Secured Convertible Note (the “Note”), which is convertible into common stock at $11.50 per share. The Note, maturing on June 1, 2023, has a face value of $17 million and is being issued with an original issue discount of approximately 12%. The Note does not bear interest except upon the occurrence of an event of default and is to be repaid in monthly installments beginning on October 1, 2020.
It sounds great on the surface. That does show that they need more cash. As I said, they would be out of cash by next year at the current burn rate. OID's are confusing to me. They generally mean higher risk. You get into PIK and OID's, and you are getting into high finance. Makes my head hurt. The discount to an OID IS the interest.
This tells me that big money is out there for HLIX if they want it. HLIX has the stronger fundamentals to my understanding. We could consolidate all of our debt, and I like the fact that the conversion for KERN is out of the money. However, there are some caveats on the 8K:
The deal is great for KERN because the conversion happens at a high out-of-the-money price at $11.50. However, if they default, the conversion can happen at an 80% discount to price at time of default. And that's more toxic than us IFFFF they were to default. And they have left plenty of doors open for them to default under their definition of default. Inclluding not registering the shares -- Hello, S-1 Registration. And so on and so on.
But the COVENANTS leave more room for violation. Such as:
The Company also will be subject to financial covenants that requires it to maintain available cash in the amount of $8,000,000 at the end of each calendar month, subject to reduction by $1 million for each $3 million of Principal paid or converted with a floor of $5 million, a six month cash burn limit of $8 million and a quarterly cash burn of $4.5 million not to exceed $2.5 million in any one month.
So in reality, that's just a $9M loan to work with. The other $8M to be held as hostage earning interest in the form of a "discount." They have to travel the straight and narrow. So many rules to abide by, and if they weave or stray off that road in any way, they can get sandblasted.
They have really high cash burn right now. We, on the other hand, are so close to cash neutrality and have better margins. We are close in annual revenue comparisons. I bet HLIX could do something big like this. But they should be able to get better terms. I'd love to see them reach profitability and what kind of offers they could get.
This financing came from "two institutional investors." Maybe those were Whatsup's alleged friends. He claims Zac turned down $20M. Although, he refuses to give any details from this meeting he was allegedly at. Well, as we can see, $20M can come with lots of and lots of rules and stipulations. Has KERN walked into a trap, or will they navigate the mine field? Only time will tell...
The facts are these: KERN has a much stronger balance sheet than HLIX. HLIX, however, is much closer to profitability with toxic financing *to my understanding*. If KERN messes up, they can become highly toxic, and they are beholden to bondholders with great cash burn and high expectations.
Does this give HLIX more flexibility in the future? Does this corroborate Zac's testimony that offers are better these days? That all seems to be the case to me.
How will these two companies compare 365 days from now? That will be very interesting indeed!
