The following discussion and analysis of our results of operations, financial
condition and liquidity and capital resources should be read in conjunction with
our financial statements and related notes for the twenty-six weeks ended June
30, 2019 and July 1, 2018, as applicable. Certain statements made or
incorporated by reference in this report and our other filings with the
Securities and Exchange Commission, in our press releases and in statements made
by or with the approval of authorized personnel constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, and are subject to the safe harbor created thereby.
Forward-looking statements reflect intent, belief, current expectations,
estimates or projections about, among other things, our industry, management's
beliefs, and future events and financial trends affecting us. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates,"
"may," "will" and variations of these words or similar expressions are intended
to identify forward-looking statements. In addition, any statements that refer
to expectations, projections or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. Although we believe the expectations reflected in any
forward-looking statements are reasonable, such statements are not guarantees of
future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, our actual results could
differ materially and adversely from those expressed in any forward-looking
statements as a result of various factors. These differences can arise as a
result of the risks described in the section entitled "Item 1A. Risk Factors" in
our Annual Report on Form 10-K filed on March 29,2019 "Item 1A. Risk Factors"
and elsewhere in this report, as well as other factors that may affect our
business, results of operations, or financial condition. Forward-looking
statements in this report speak only as of the date hereof, and forward-looking
statements in documents incorporated by reference speak only as of the date of
those documents. Unless otherwise required by law, we undertake no obligation to
publicly update or revise these forward-looking statements, whether as a result
of new information, future events or otherwise. In light of these risks and
uncertainties, we cannot assure you that the forward-looking statements
contained in this report will, in fact, transpire.
The management's discussion and analysis is based on our financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires us to make certain estimates and judgments that affect the
reported amounts of assets, liabilities and expenses and related disclosure of
contingent assets and liabilities. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions.
The following discussion and analysis of financial condition and results of
operations should be read together with our Consolidated Financial Statements
and Notes thereto, which appear elsewhere herein.
FAT Brands Inc., formed in March 2017 as a wholly owned subsidiary of Fog Cutter
Capital Group, Inc. ("FCCG"), is a leading multi-brand restaurant franchising
company that develops, markets, and acquires predominantly fast casual
restaurant concepts around the world. As a franchisor, we generally do not own
or operate restaurant locations, but rather generate revenue by charging
franchisees an initial franchise fee as well as ongoing royalties. This asset
light franchisor model provides the opportunity for strong profit margins and an
attractive free cash flow profile while minimizing restaurant operating company
risk, such as long-term real estate commitments or capital investments. Our
scalable management platform enables us to add new stores and restaurant
concepts to our portfolio with minimal incremental corporate overhead cost,
while taking advantage of significant corporate overhead synergies. The
acquisition of additional brands and restaurant concepts as well as expansion of
our existing brands are key elements of our growth strategy.
As of June 30, 2019, the Company owns eight restaurant brands: Fatburger,
Buffalo's Cafe, Buffalo's Express, Hurricane Grill & Wings, Ponderosa and
Bonanza Steakhouses, Yalla Mediterranean and Elevation Burger, that have over
380 locations open and more than 200 under development.
With minor exceptions, our operations are comprised exclusively of franchising a
growing portfolio of restaurant brands. Our growth strategy is centered on
expanding the footprint of existing brands and acquiring new brands through a
centralized management organization which provides substantially all executive
leadership, marketing, training and accounting services. While there are
variations in the brands, the nature of our business is fairly consistent across
our portfolio. Consequently, our management assesses the progress of our
operations as a whole, rather than by brand or location, which has become more
significant as the number of brands has increased.
As part of our ongoing franchising efforts, we will, from time to time, make
opportunistic acquisitions of operating restaurants in order to convert them to
franchise locations. During the refranchising period, the Company may operate
Our chief operating decision maker ("CODM") is our Chief Executive Officer. Our
CODM reviews financial performance and allocates resources at an overall level
on a recurring basis. Therefore, management has determined that the Company has
one operating and reportable segment.
Results of Operations
Results of Operations of FAT Brands Inc.
The following table summarizes key components of our combined results of
operations for the thirteen weeks and twenty-six weeks ended June 30, 2019 and
July 1, 2018. The results of Hurricane, Elevation, and Yalla were not included
in the operating results for the thirteen and twenty-six week periods ended July
1, 2018 because those transactions occurred subsequent to that date.
Thirteen Weeks Ended Twenty-six Weeks Ended
June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018
Statement of operations data:
Royalties $ 3,663 $ 2,860 $ 7,127 $ 5,432
Franchise fees 994 299 1,306 698
Store opening fees 184 105 289 105
Advertising fees 1,031 630 2,008 1,226
Management fees and other income 23 14
Total revenues 5,895 3,908 10,768 7,493
Costs and expenses
General and administrative
expenses 2,959 2,451 5,542 4,499
Advertising expenses 1,031 630 2,008 1,226
Refranchising restaurant costs
and expenses, net of revenue 503 - 1,021 -
Costs and expenses 4,493 3,081 8,571 5,725
Income from operations 1,402 827 2,197 1,768
Other expense, net (566 ) (342 ) (2,790 ) (590 )
(Loss) income before income tax
expense 836 485 (593 ) 1,178
Income tax expense 1,344 112 625 296
Net (loss) income $ (508 ) $ 373 $ (1,218 ) $ 882
For the twenty-six weeks ended June 30, 2019 and July 1, 2018:
Net Income - Net loss for the twenty-six weeks ended June 30, 2019 totaled
$1,218,000 consisting of revenues of $10,768,000 less costs and expenses of
$8,571,000, other expense of $2,790,000 and income tax expense of $625,000. Net
income for the twenty-six weeks ended July 1, 2018 totaled $882,000 consisting
of revenues of $7,493,000 less general and administrative expenses of
$5,725,000, other expense of $590,000 and income taxes of $296,000.
Revenues - Revenues consist of royalties, franchise fees, store opening fees,
advertising fees and other revenues. We had revenues of $10,768,000 for the
twenty-six weeks ended June 30, 2019 compared to $7,493,000 for the twenty-six
weeks ended July 1, 2018. The increase of $3,275,000 was primarily the result of
an increase in royalties of $1,695,000 which was largely the result of the
acquisition of Hurricane; an increase in franchise and store opening fees of
$792,000 and an increase in advertising revenue of $782,000.
Costs and Expenses - Costs and expenses consist primarily of general and
administrative costs, advertising expense and refranchising restaurant operating
costs, net of associated sales. Our costs and expenses increased from $5,725,000
in the first half of 2018 to $8,571,000 in the first half of 2019.
For the twenty-six weeks ended June 30, 2019, our general and administrative
expenses totaled $5,542,000. For the twenty-six weeks ended July 1, 2018, our
general and administrative expenses totaled $4,499,000. The increase in the
amount of $1,043,000 was primarily the result of increases in compensation
expenses and professional fees.
During the twenty-six weeks ended June 30, 2019, the refranchising efforts
resulted in restaurant operating costs and expenses, net of associated sales in
the amount of $1,021,000. We did not have comparable refranchising activity
the prior period.
Advertising expenses totaled $2,008,000 during the first half of 2019, with
$1,226,000 during the prior year period, representing an increase in advertising
expense of $782,000. These expenses vary in relation to the advertising revenue
Other Expense - Other net expense for the twenty-six weeks ended June 30, 2019
totaled $2,790,000 and consisted primarily of net interest expense of
$3,382,000, which was partially offset by the gain on sale of two refranchised
restaurants in the amount of $970,000. Other expense for the twenty-six weeks
ended July 1, 2018 totaled $590,000 and consisted primarily of net interest
expense of $514,000. An increase in total debt outstanding and the related costs
resulted in the higher interest expense.
Income Tax Expense - We recorded income tax expense of $625,000 for the
twenty-six weeks ended June 30, 2019 and a provision for income taxes of
$296,000 for the twenty-six weeks ended July 1, 2018. These tax results were
based on a net loss before taxes of $593,000 for 2019 compared to net income
before taxes of $1,178,000 for 2018. However, non-deductible expenses, such as
dividends paid on preferred stock, contributed to the higher tax expense for
For the thirteen weeks ended June 30, 2019 and July 1, 2018:
Net Income - Net loss for the thirteen weeks ended June 30, 2019 totaled
$508,000 consisting of revenues of $5,895,000 less costs and expenses of
$4,493,000, other expense of $566,000 and income tax expense of $1,344,000. Net
income for the thirteen weeks ended July 1, 2018 totaled $373,000 consisting of
revenues of $3,908,000 less general and administrative expenses of $3,081,000,
other expense of $342,000 and income taxes of $112,000.
Revenues - Revenues consist of royalties, franchise fees, store opening fees,
advertising fees and other revenue. We had revenues of $5,895,000 for the
thirteen weeks ended June 30, 2019 compared to $3,908,000 for the thirteen weeks
ended July 1, 2018. The increase of $1,987,000 was primarily the result of an
increase in royalties of $803,000 which was largely the result of the
acquisition of Hurricane; an increase in franchise fees and store opening fees
of $774,000 and an increase in advertising revenue of $401,000. The majority of
the increase in recognized franchise fees was primarily the result of the
forfeiture of non-refundable deposits.
Costs and Expenses - Costs and expenses consist primarily of general and
administrative costs, advertising expense and refranchising restaurant operating
costs, net of associated sales. Our costs and expenses increased from $3,081,000
in the second quarter of 2018 to $4,493,000 in the second quarter of 2019.
For the thirteen weeks ended June 30, 2019, our general and administrative
expenses totaled $2,959,000. For the thirteen weeks ended July 1, 2018, our
general and administrative expenses totaled $2,451,000. The increase in the
amount of $508,000 was primarily the result of increases in compensation
expenses and professional fees.
During the second quarter of 2019, our refranchising efforts resulted in
restaurant operating costs and expenses, net of associated sales in the amount
of $503,000. We did not have comparable refranchising activity in the prior
Advertising expenses totaled $1,031,000 during the second quarter of 2019,
compared with $630,000 during the prior year period, representing an increase in
advertising expense of $401,000. These expenses vary in relation to the
advertising revenue recognized.
Other Expense - Other net expense for the thirteen weeks ended June 30, 2019
totaled $566,000 and consisted primarily of net interest expense of $1,265,000.
Other expense for the thirteen weeks ended July 1, 2018 totaled $342,000 and
consisted primarily of net interest expense of $300,000. An increase in total
debt outstanding and the related costs resulted in the higher interest expense.
Income Tax Expense - We recorded an income tax expense of $1,344,000 for the
thirteen weeks ended June 30, 2019 and a provision for income taxes of $112,000
for the thirteen weeks ended July 1, 2018. These tax results were based on a net
income before taxes of $836,000 for 2019 compared to net income before taxes of
$485,000 for 2018. Non-deductible expenses, such as dividends paid on preferred
stock, contributed to the higher tax expense for 2019.
Liquidity and Capital Resources
Liquidity is a measurement of our ability to meet potential cash requirements,
including ongoing commitments to repay borrowings, fund business operations,
acquisitions, and expansion of franchised restaurant locations and for other
general business purposes. In addition to our cash on hand, our primary sources
of funds for liquidity during the twenty-six weeks ended June 30, 2019 consisted
of net proceeds from the refinance of our long-term debt which contributed to
the total cash provided by financing activities of $1,874,000.
We are involved in a world-wide expansion of franchise locations, which will
require significant liquidity, primarily from our franchisees. If real estate
locations of sufficient quality cannot be located and either leased or
purchased, the timing of restaurant openings may be delayed. Additionally, if we
or our franchisees cannot obtain capital sufficient to fund this expansion, the
timing of restaurant openings may be delayed.
We also plan to acquire additional restaurant concepts. These acquisitions
typically require capital investments in excess of our normal cash on hand. We
would expect that future acquisitions will necessitate financing with additional
debt or equity transactions. If we are unable to obtain acceptable financing,
our ability to acquire additional restaurant concepts may be negatively
Comparison of Cash Flows
Our cash balance was $540,000 as of June 30, 2019, compared to $653,000 as of
December 30, 2018.
The following table summarize key components of our consolidated cash flows for
the twenty-six weeks ended June 30, 2019 and July 1, 2018:
For the Twenty-six Weeks Ended
June 30, 2019July 1, 2018
Net cash used in operating activities $ (491 ) $
Net cash used in investing activities (1,496 )
Net cash provided by financing activities 1,874
Increase (decrease) in cash flows $ (113 ) $ 923
Net cash used in operating activities decreased $12,000 during the twenty-six
weeks ended June 30, 2019 compared to the same period in 2018. There were
variations in the components of the cash from operations between the two
periods. Our net loss in 2019 was $1,218,000 compared to a net income in the
2018 period of $882,000. Non-cash items included in the reported net loss for
the twenty-six weeks ended June 30, 2019 netted to positive $727,000 and had the
effect of increasing the net cash provided by operating activities.
The primary components of these adjustments included:
? An upward adjustment due to accretion expense of a long-term loan, mandatorily
redeemable preferred shares, and acquisition purchase price payable of
$1,388,000 in 2019. There was no comparable activity in the 2018 quarterly
? An upward adjustment due to an increase in accounts payable and accrued
expenses of $2,337,000 in 2019 compared to a decrease of $410,000 in the 2018
? A downward adjustment due to a decrease in accrued interest payable of
$1,185,000 in 2019 compared to $405,000 in the 2018 quarterly period, primarily
due to the payoff of our term loan;
? A downward adjustment for the recognized gain on sale of refranchised
restaurants of $970,000. There was no comparable activity in the 2018 quarterly
period. The cash received relating to the sales is classified in Investing
? A downward adjustment due to a decrease in deferred income of $1,335,000 in
2019 compared to $290,000 in the 2018 quarterly period, due to the recognition
of income related to cash collected in a prior period.
Net cash used in investing activities totaled $1,496,000 during the twenty-six
weeks ended June 30, 2019 compared to $88,000 during the comparable 2018 period.
The 2019 expenditures primarily included the net cash used to acquire Elevation
Burger of $2,332,000 which was partially offset by cash proceeds from the sale
of refranchised restaurants in the amount of $870,000.
Net cash provided by financing activities increased by $360,000 during the
twenty-six weeks ended June 30, 2019 compared to the comparable 2018 period.
During 2019, our net cash provided by financing activities included proceeds
from a new loan in the amount of $23,053,000, which was partially offset by the
repayment of the term loan in the amount of $16,417,000 and increases in amounts
due from affiliates of $4,760,000. During the 2018 quarterly period, our net
cash provided by financing activities was comprised primarily from the issuance
of preferred stock in the amount of $8,000,000 and proceeds from borrowings in
the amount of $1,882,000 net of the repayment of $8,121,000 of certain related
Our Board of Directors declared a stock dividend on February 7, 2019 equal to
2.13% on its common stock, representing the number of shares equal to $0.12 per
share of common stock based on the closing price as of February 6, 2019. The
stock dividend was paid on February 28, 2019 to stockholders of record as of the
close of business on February 19, 2019. The Company issued 245,376 shares of
common stock at a per share price of $5.64 in satisfaction of the dividend. No
fractional shares were issued, instead the Company paid stockholders cash
totaling $1,670 for fractional shares based on the market value of the common
stock on the record date.
The declaration and payment of future dividends, as well as the amount thereof,
are subject to the discretion of our Board of Directors. The amount and size of
any future dividends will depend upon our future results of operations,
financial condition, capital levels, cash requirements and other factors. There
can be no assurance that we will declare and pay dividends in future periods.
Loan and Security Agreement
On January 29, 2019, we refinanced the Term Loan. The Company as borrower, and
its subsidiaries and affiliates as guarantors, entered into a new Loan and
Security Agreement (the "Loan and Security Agreement") with The Lion Fund, L.P.
and The Lion Fund II, L.P. ("Lion"). Pursuant to the Loan and Security
Agreement, the we borrowed $20.0 million from Lion, and utilized the proceeds to
repay the existing $16.0 million term loan from FB Lending, LLC plus accrued
interest and fees, and provide additional general working capital to the
The obligation under the Loan and Security Agreement matures on June 30, 2020.
Interest on the term loan accrues at an annual fixed rate of 20.0% and is
payable quarterly. We may prepay all or a portion of the outstanding principal
and accrued unpaid interest under the Loan and Security Agreement at any time
upon prior notice to Lion without penalty, other than a make-whole provision
providing for a minimum of six months' interest.
In connection with the Loan and Security Agreement, we issued to Lion a warrant
to purchase up to 1,167,404 shares of the Company's Common Stock at $0.01 per
share (the "Lion Warrant"), exercisable only if the amounts outstanding under
the Loan and Security Agreement are not repaid in full prior to October 1, 2019.
If the Loan and Security Agreement is repaid in full prior to October 1, 2019,
the Lion Warrant will terminate in its entirety.
As security for its obligations under the Loan Agreement, we granted a lien on
substantially all of its assets to Lion. In addition, certain of our direct and
indirect subsidiaries and affiliates entered into a Guaranty (the "Guaranty") in
favor of Lion, pursuant to which they guaranteed our obligations under the Loan
and Security Agreement and granted as security for their guaranty obligations a
lien on substantially all of their assets.
The Loan and Security Agreement contains customary affirmative and negative
covenants, including covenants that limit or restrict our ability to, among
other things, incur other indebtedness, grant liens, merge or consolidate,
dispose of assets, pay dividends or make distributions, in each case subject to
customary exceptions. The Loan and Security Agreement also includes customary
events of default that include, among other things, non-payment, inaccuracy of
representations and warranties, covenant breaches, events that result in a
material adverse effect (as defined in the Loan and Security Agreement), cross
default to other material indebtedness, bankruptcy, insolvency and material
judgments. The occurrence and continuance of an event of default could result in
the acceleration of our obligations under the Loan and Security Agreement and an
increase in the interest rate by 5.0% per annum.
On June 19, 2019, we amended our existing loan facility with Lion. We entered
into a First Amendment to Loan and Security Agreement (the "First Amendment"),
which amends the Loan and Security Agreement originally dated January 29, 2019.
Pursuant to the First Amendment, we increased our borrowings by $3,500,000 in
order to fund the Elevation Buyer Note in connection with the acquisition of
Elevation, acquire other assets and pay fees and expenses of the transactions.
The First Amendment also added the acquired Elevation-related entities as
guarantors and loan parties.
Subsequent to the quarter end, on July 24, 2019, we entered into a first
amendment to the Lion Warrant, which extends the date on which the Lion Warrant
was initially exercisable from October 1, 2019 to June 30, 2020, which coincides
with the maturity date of the loan made under the Loan and Security Agreement.
The Lender Warrant is only exercisable if the amounts outstanding under the Loan
Agreement are not repaid in full prior to the extended Exercise Date.
We agreed to pay Lion an extension fee of $500,000 in the form of an increase in
the principal amount loaned under the Loan and Security Agreement, and on July
24, 2019 entered into a second amendment to the Loan Agreement (the "Second
Amendment") to reflect this increase. Under the Second Amendment, the parties
also agreed to amend the Loan and Security Agreement to provide for a late fee
of $400,000 payable if we fail to make any quarterly interest payment by the
fifth business day after the end of each fiscal quarter beginning in the third
quarter of 2019.
As of June 30, 2019, we do not have any material commitments for capital
Critical Accounting Policies and Estimates
Royalties: In addition to franchise fee revenue, we collect a royalty calculated
as a percentage of net sales from our franchisees. Royalties range from 0.75% to
6% and are recognized as revenue when the related sales are made by the
franchisees. Royalties are recognized as revenue when the related sales are made
by the franchisees. Royalties collected in advance of sales are classified as
deferred income until earned.
Franchise Fees: Franchise fee revenue from the sale of individual franchises is
recognized over the term of the individual franchise agreement. Unamortized
non-refundable deposits collected in relation to the sale of franchises are
recorded as deferred franchise fees.
The franchise fee may be adjusted at management's discretion or in a situation
involving store transfers. Deposits are non-refundable upon acceptance of the
franchise application. In the event a franchisee does not comply with their
development timeline for opening franchise stores, the franchise rights may be
terminated, and franchise fee revenue is recognized for non-refundable deposits.
Store opening fees: We recognize store opening fees from $35,000 to $60,000
depending on brand and domestic versus international stores, from the up-front
fees collected from franchisees. The remaining balance of the up-front fees are
then amortized as franchise fees over the life of the franchise agreement. If
the fees collected are less than the respective store opening fee amounts, the
full up-front fees are recognized at opening. The store opening fees are based
on our out-of-pocket costs for each store opening and are primarily comprised of
labor expenses associated with training, store design, and supply chain setup.
International fees recognized are higher due to the additional cost of travel.
Advertising: We require advertising payments based on a percent of net sales
from franchisees. We also receive, from time to time, payments from vendors that
are to be used for advertising. Advertising funds collected are required to be
spent for specific advertising purposes. Advertising revenue and associated
expense is recorded on the statement of operations. Assets and liabilities
associated with the related advertising fees are consolidated on the Company's
Goodwill and other intangible assets: Goodwill and other intangible assets with
indefinite lives, such as trademarks, are not amortized but are reviewed for
impairment annually, or more frequently if indicators arise. No impairment has
been identified as of June 30, 2019.
Assets classified as held for sale - Assets are classified as held for sale when
we commit to a plan to sell the asset, the asset is available for immediate sale
in its present condition and an active program to locate a buyer at a reasonable
price has been initiated. The sale of these assets is generally expected to be
completed within one year. The combined assets are valued at the lower of their
carrying amount or fair value, net of costs to sell and included as current
assets on the Company's consolidated balance sheet. Assets classified as held
for sale are not depreciated. However, interest attributable to the liabilities
associated with assets classified as held for sale and other expenses continue
to be accrued.
Income taxes: We account for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are determined based on
the differences between financial reporting and tax reporting bases of assets
and liabilities and are measured using enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
Realization of deferred tax assets is dependent upon future earnings, the timing
and amount of which are uncertain.
We utilize a two-step approach to recognize and measure uncertain tax positions.
The first step is to evaluate the tax position for recognition by determining if
the weight of available evidence indicates that it is more likely than not that
the position will be sustained upon tax authority examination, including
resolution of related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount that is more than 50% likely
of being realized upon the ultimate settlement.
Share-based compensation: We have a stock option plan which provides for options
to purchase shares of our common stock. For grants to employees and directors,
we recognize an expense for the value of options granted at their fair value at
the date of grant over the vesting period in which the options are earned.
Cancellations or forfeitures are accounted for as they occur. Fair values are
estimated using the Black-Scholes option-pricing model. For grants to
non-employees for services, we revalue the options each reporting period while
the services are being performed. The adjusted value of the options is
recognized as an expense over the service period. See Note 15 in our
consolidated financial statements for more details on our share-based
Use of estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reported periods. Actual results
could differ from those estimates.
Recently Adopted Accounting Standards
In June 2018, the FASB issued ASU No.2018-07, Compensation - Stock Compensation
(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The
amendments in this update expand the scope of Topic 718 to include share-based
payment transactions for acquiring goods and services from nonemployees. Prior
to this update, Topic 718 applied only to share-based transactions to employees.
Consistent with the accounting requirements for employee share-based payment
awards, nonemployee share-based payment awards within the scope of Topic 718 are
measured at grant-date fair value of the equity instruments that an entity is
obligated to issue when the good has been delivered or the service has been
rendered and any other conditions necessary to earn the right to benefit from
the instruments have been satisfied. The Company adopted Topic 718 on December
31, 2018. The adoption of this accounting standard did not have a material
effect on the Company's consolidated financial statements.
In July 2018, the FASB issued ASU 2018-09, Codification Improvements. This ASU
makes amendments to multiple codification Topics. The transition and effective
date guidance is based on the facts and circumstances of each amendment. Some of
the amendments in this ASU do not require transition guidance and will be
effective upon issuance of this ASU. The Company adopted ASU 2018-09 on December
31, 2018. The adoption of this ASU did not have a material effect on the
Company's financial position, results of operations, and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), requiring a
lessee to recognize on the balance sheet the assets and liabilities for the
rights and obligations created by those leases with a lease term of more than
twelve months. Leases will continue to be classified as either financing or
operating, with classification affecting the recognition, measurement and
presentation of expenses and cash flows arising from a lease. This ASU is
effective for interim and annual period beginning after December 15, 2018 and
requires a modified retrospective approach to adoption for lessees related to
capital and operating leases existing at, or entered into after, the earliest
comparative period presented in the financial statements, with certain practical
expedients available. The adoption of this standard on December 31, 2018
resulted in the Company recording Right of Use Assets and Lease Liabilities on
its consolidated financial statements in the amount of $4,313,000 and
$4,225,000, respectively. The adoption of this standard did not have a
significant effect on the amount of lease expense recognized by the Company.
Recently Issued Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):
Disclosure Framework - Changes to the Disclosure Requirements for Fair Value
Measurement." This ASU adds, modifies and removes several disclosure
requirements relative to the three levels of inputs used to measure fair value
in accordance with Topic 820, "Fair Value Measurement." This guidance is
effective for fiscal years beginning after December 15, 2019, including interim
periods within that fiscal year. Early adoption is permitted. The Company is
currently assessing the effect that this ASU will have on its financial
position, results of operations, and disclosures.
The FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use
Software (Subtopic 350-40). The new guidance reduces complexity for the
accounting for costs of implementing a cloud computing service arrangement and
aligns the requirements for capitalizing implementation costs incurred in a
hosting arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use
software (and hosting arrangements that include an internal use software
license). For public companies, the amendments in this ASU are effective for
fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019, with early adoption permitted. Implementation should be
applied either retrospectively or prospectively to all implementation costs
incurred after the date of adoption. The effects of this standard on the
Company's financial position, results of operations or cash flows are not
expected to be material.
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