10-Q/A: Bakkt Amends Quarterly Report, Cites Going Concern Risk and Business Updates Following Crypto Acquisition

Bakkt Holdings, Inc. has filed an amendment to its quarterly report to address going concern risks and provide updates following its acquisition of Bakkt Crypto.

Summary

• Bakkt has filed an amendment to its quarterly report on Form 10-Q/A for the period ended September 30, 2023, primarily to update risk factors and business activities following the acquisition of Bakkt Crypto.
• The amendment highlights a substantial doubt about the company's ability to continue as a going concern within 12 months without raising additional capital.
• The company has updated its risk factors to reflect changes in the business after the Bakkt Crypto acquisition, including the delisting of a significant number of crypto assets.
• Bakkt is focusing on a business-to-business-to-consumer (B2B2C) strategy, embedding crypto solutions into client environments.
• The company is working to integrate the Bakkt Crypto platform with Bakkt Marketplace, subject to regulatory approvals.
• Bakkt is exploring international expansion opportunities, including in the United Kingdom, Hong Kong, Spain, and Latin America.
• The company has delisted 37 of the 45 crypto assets that were previously available on the Bakkt Crypto platform.
• Bakkt is developing a solution to facilitate international remittances using crypto rails and is also planning to offer crypto rewards in the first quarter of 2024.
• The company has agreements with seven liquidity providers to ensure consistent liquidity for its supported crypto assets.
• Bakkt uses third-party custodians like Coinbase Custody and BitGo, as well as self-custody through Fireblocks, to secure customer crypto assets.

Sentiment

Score: 3

Explanation: The document expresses significant concerns about the company's financial viability and ability to continue as a going concern, which is a major negative. While there are some positive aspects, such as international expansion plans and new service offerings, the overall tone is cautious and indicates substantial risks.

Positives

• Bakkt is actively pursuing international expansion opportunities.
• The company is developing new services, such as international remittances and crypto rewards.
• Bakkt has established relationships with multiple liquidity providers to ensure consistent trading.
• The company has implemented a comprehensive set of policies and procedures relating to crypto assets and services.
• Bakkt maintains insurance coverage for crypto assets held in custody.

Negatives

• There is substantial doubt about Bakkt's ability to continue as a going concern without raising additional capital.
• The company has experienced significant operating losses and cash burn.
• Bakkt has delisted a large number of crypto assets, which may impact revenue.
• The company is subject to extensive and evolving regulations, which could lead to compliance issues.
• Bakkt faces risks related to the custody of crypto assets and potential legal challenges.

Risks

• Bakkt may not be able to raise sufficient capital to fund its operations.
• The company's ability to grow and manage growth profitably is uncertain.
• Changes in the crypto market and regulatory environment could adversely affect Bakkt's business.
• The company faces risks related to the integration of Bakkt Crypto.
• Bakkt could be subject to litigation and regulatory penalties.
• The company may not be able to maintain its listing on the New York Stock Exchange.
• There are risks associated with the custody of crypto assets, including potential bankruptcy issues.
• The company's internal controls over financial reporting may not be effective.
• The company is subject to risks related to the classification of crypto assets as securities.

Future Outlook

Bakkt's future success depends on its ability to raise capital, expand into new markets, and grow its revenue base. The company is seeking additional financing and evaluating financing alternatives to meet its cash requirements for the next 12 months. The company plans to merge Bakkt Crypto with Bakkt Marketplace and focus on a B2B2C strategy. Bakkt also plans to offer crypto rewards in the first quarter of 2024.

Management Comments

• Management has determined that there is substantial doubt about the company's ability to continue as a going concern.
• Management is seeking additional financing and evaluating financing alternatives.
• Management believes that the delisting of certain crypto assets will not have a material impact on the business.
• Management regularly considers whether to make any potential additional crypto assets available on the platform.

Industry Context

The document highlights the impact of broader crypto market conditions, including price volatility, loss of confidence, and regulatory actions. The company is navigating a complex and evolving regulatory landscape, which is impacting the entire crypto industry. The document also notes increased scrutiny by regulators and enforcement actions against crypto exchanges.

Comparison to Industry Standards

• The document mentions that Bakkt is using third-party custodians like Coinbase Custody and BitGo, which are common practices in the crypto industry for securing customer assets.
• The company's decision to delist a significant number of crypto assets is likely influenced by regulatory scrutiny and enforcement actions against other crypto exchanges, such as Bittrex, Coinbase, Binance, and Kraken.
• Bakkt's focus on a B2B2C strategy is a common approach for companies in the crypto space that aim to integrate their services into existing platforms and ecosystems.
• The company's use of omnibus wallets is a common practice in the industry, but it also carries risks related to the treatment of customer assets in the event of bankruptcy.
• The company's insurance coverage for crypto assets is consistent with industry practices, but the exclusions in the policies highlight the risks associated with crypto custody.

Legal Proceedings

• A putative class action lawsuit was filed against Bakkt and certain of its directors and officers, which has been settled in principle for $3.0 million, subject to court approval.
• An opt-out action related to the class action was filed against Bakkt and the individuals named in the class action.
• A derivative action related to the class action was filed against Bakkt and all of its directors, which was voluntarily dismissed without a settlement.
• Bakkt Crypto received requests from the SEC for documents and information about certain aspects of its business, and the company is in the process of responding.

Stakeholder Impact

• Shareholders face the risk of losing most or all of their investment if Bakkt cannot continue as a viable entity.
• Customers may be impacted by changes in the availability of crypto assets and services.
• Employees may be affected by potential cost-cutting measures or changes in the company's operations.
• Clients may be impacted by changes in the company's platform and service offerings.
• Creditors face the risk of not being repaid if Bakkt is unable to continue as a going concern.

Next Steps

• Bakkt will continue to seek additional financing to meet its cash requirements.
• The company will continue to integrate the Bakkt Crypto platform with Bakkt Marketplace.
• Bakkt will pursue regulatory approvals for its planned merger and international expansion.
• The company will launch crypto rewards in the first quarter of 2024.
• Bakkt will continue to monitor regulatory developments and assess its business model and supported assets.

Key Dates

Keywords

crypto, cryptocurrency, blockchain, custody, regulation, Bakkt Crypto, digital assets, trading platform, liquidity, B2B2C