Summary of Significant Accounting Policies (Policies)
|3 Months Ended
Sep. 30, 2020
|Accounting Policies [Abstract]
|Basis of Presentation
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain footnotes and other financial information normally required by accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted in accordance with such rules and regulations. In management’s opinion, these condensed consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and notes thereto and include all adjustments, consisting of normal recurring items, considered necessary for the fair presentation. The operating results for the three months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year transition period comprised of six months ending December 31,2020.
The condensed consolidated balance sheet for the year ended June 30, 2020, has been derived from our audited financial statements at that date but does not include all disclosures and financial information required by GAAP for complete financial statements. The information included in this quarterly report on Form 10-Q should be read in conjunction with our consolidated financial statements and notes thereto for the year ended June 30, 2020, which were included in our annual report on Form 10-K filed on September 29, 2020.
|Principles of Consolidation
Principles of Consolidation
Our accompanying condensed consolidated financial statements include the accounts of Akerna, our wholly owned subsidiaries and those entities in which we otherwise have a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation.
We evaluate our ownership interests, contractual rights and other interests in entities to determine if the entities are variable interest entities, or VIEs, when we have a variable interest in those entities. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. These evaluations can be complex and involve judgment and the use of estimates and assumptions based on available historical information.
If we determine that we hold a variable interest in a VIE and we are the primary beneficiary of the VIE, we must consolidate the VIE in our financial statements. In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and the similarity with and significance to our business activities and the business activities of the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of these VIE’s operations and general market conditions. We determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and reassess our status on an ongoing basis.
Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance and information for different revenue streams is not evaluated separately. As such, the Company has one operating segment, and the decision-making group is the senior executive management team. In the following table, revenue is disaggregated by primary geographical markets and revenue source.
|Use of Estimates
Use of Estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes thereto. Actual results could differ materially from those estimates.
|Accounts Receivable, Net
Accounts Receivable, Net
We maintain an allowance for doubtful accounts equal to the estimated uncollectible amounts based on our historical collection experience and review of the current status of trade accounts receivable. The allowance for doubtful accounts was $0.2 million as September 30, 2020 and $0.2 million as of June 30, 2020.
|Concentrations of Credit Risk
Concentrations of Credit Risk
We grant credit in the normal course of business to customers in the United States. We periodically perform credit analysis and monitor the financial condition of our customers to reduce credit risk.
During the three months ended September 30, 2020, and 2019, one government client accounted for 17% and 24% of total revenues, respectively. As of September 30, 2020, two government clients accounted for a total of 38% and 20% of net accounts receivable and one government client had outstanding receivables as of September 30, 2019, which accounted for 63% of net accounts receivable.
|Goodwill Impairment Assessment
Goodwill Impairment Assessment
We evaluate and test the recoverability of our goodwill for impairment at least annually during October of each year or more often if circumstances indicate that goodwill may not be recoverable. To date, we have not recorded any impairment of our goodwill.
|Foreign Currency Translation
Foreign Currency Translation
We have Canadian operations with Canadian Dollar as the functional currency. Foreign exchange gains and losses and translation adjustments, which result from the process of remeasuring foreign currency transactions into the appropriate functional currency, were immaterial during the quarter ended September 30, 2020.
|Supplemental Information Regarding Noncash Investing and Financing Activities
Supplemental Information Regarding Noncash Investing and Financing Activities
During the three months ended September 30, 2020, we acquired 100% of the outstanding equity interest in Ample Organics, Inc., or Ample, in exchange for Akerna common stock valued at $25.2 million, please refer to Note 3 for additional information about the transaction and a schedule of the assets acquired and liabilities assumed in conjunction with this transaction
We measured stock-based compensation based on the fair value of the share-based awards on the date of grant and recognize the related costs on a straight-line basis over the requisite service period, which is generally the vesting period. During the three months ended September 30, 2020, we granted 451,925 shares of Restricted Stock Units at an aggregate grant date fair value of approximately $2.2 million, vesting equally over four years.
|Reclassifications and Revisions
Reclassifications and Revisions
Certain prior year financial statement amounts have been reclassified for consistency with the current year presentation. Additionally, certain prior year financial statement amounts have been revised to correct misstatements in the prior year, please refer to Note 9 for additional information regarding the corrections.
|Recent Accounting Pronouncements
Recent Accounting Pronouncements
The Financial Accounting Standards Board, or the FASB, has issued guidance to simplify the remeasurement of goodwill when impairment is identified. Under existing guidance we would have to perform procedures to determine the fair value of our assets and liabilities as of the testing date in a manner similar to the procedures necessary to allocate purchase price to acquired assets and liabilities in a business combination. Under the new guidance, the goodwill impairment charge is equal to the excess of the carrying value of the reporting unit to which goodwill is assigned and the fair value of that reporting unit. We have elected to adopt the guidance early effective July 1, 2020 and will utilize this approach if necessary when we perform our annual goodwill impairment test.
The FASB has issued guidance related to the accounting for share-based compensation to nonemployees, which eliminates the separate accounting model for nonemployee share-based payment awards and generally requires companies to account for share-based payment transactions with nonemployees in the same way as share-based payment transactions with employees. Under the new guidance, nonemployee share-based payment transactions are measured at the grant-date fair value and are no longer remeasured at the then-current fair values at each reporting date until the share options have vested. The amended guidance is effective for our fiscal year end transition financial statements for the six months ending December 31, 2020 and for interim periods beginning on January 1, 2021. We have completed our implementation procedures and concluded that there will be no material impact to our results of operations or financial condition as a result of this new standard.
The FASB has issued guidance to revise accounting for revenue from contracts with customers, which supersedes the revenue recognition requirements and industry-specific guidance currently in effect for us. The new revenue standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. The new revenue standard is effective for our fiscal 2021 annual reporting period and for interim periods thereafter. The new revenue standard allows for either full retrospective or modified retrospective adoption. We will adopt the new standard using the modified retrospective approach and anticipate that the timing of recognition of incremental costs of obtaining contracts will be the most significant change to our results of operations upon adoption. As a result of our announced change in fiscal year end to December 31, 2020, as further discussed in Note 1, we will adopt the new standard in our transition period financial statements for the six months ending December 31, 2020. We are in the process of finalizing our implementation of this standard and expect to record a cumulative catch up adjustment to defer certain direct contract costs that have previously been recognized as expense as incurred, Additionally, we expect to adjust the recognition pattern for certain implementation fees earned in connection with government contracts.
The FASB has issued new guidance related to the accounting for leases. The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. Following our change in fiscal year effective on December 31, 2020, the new standard is effective for us beginning with our fiscal year ending December 31, 2022 and in interim periods thereafter. We have limited assets subject to operating lease and therefore expect the adoption of the new standard to result in the recognition of right of use assets and lease liabilities for any office or vehicle leases in effect at that date, we do not expect a significant impact to our results of operations.
The FASB has issued guidance to introduce a new model for recognizing credit losses on financial instruments based on estimated current expected credit losses, or CECL. Under the new standard, an entity is required to estimate CECL on trade receivables at inception, based on historical information, current conditions, and reasonable and supportable forecasts. Following our change in fiscal year-end effective December 31, 2020, the new guidance is effective for us beginning on January 1, 2023. We are evaluating the impact of adoption of the new standard on our consolidated financial statements.
The FASB has issued guidance regarding whether internal-use software development costs should be capitalized or charged to expense. Depending upon on the nature of the costs and the project stage in which they are incurred. Capitalized development costs are subject to amortization and impairment guidance consistent with existing internal-use software development cost guidance. Following our change in fiscal year end effective December 31, 2020, the guidance is applicable for us for the year ending December 31, 2021 and in interim periods thereafter, with early adoption permitted, including adoption in an interim period. We are evaluating the impact of adoption of the new standard on our financial statements.
The FASB has issued guidance clarifying the interactions between various standards governing investments in equity securities. The new guidance addresses accounting for the transition into and out of the equity method and measurement of certain purchased options and forward contracts to acquire investments. The standard is effective for us for annual and interim periods beginning on January 1, 2022, with early adoption permitted. Adoption of the standard requires changes to be made prospectively. We do not anticipate a significant impact to our financial statements as a result of this new guidance.