The following discussion should be read in conjunction with the financial
statements and related for the years ended December 31, 2021 and 2020, which are
included elsewhere in this Annual Report on Form 10-K. This Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains statements that are forward-looking. These statements are based on
current expectations and assumptions that are subject to risk, uncertainties and
other factors. These statements are often identified by the use of words such as
"may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate,"
or "continue," and similar expressions or variations. Actual results could
differ materially because of the factors discussed in "Risk Factors" elsewhere
in this Annual Report on Form 10-K, and other factors that we have not
identified.
The Company
Allied Esports Entertainment Inc. ("AESE" or the "Company") operates a premier
public esports and entertainment company, consisting of the Allied Esports
business. AESE also operated the World Poker Tour business until AESE sold such
business on July 12, 2021.
Allied Esports
Gaming is one of the largest and fastest growing markets in the entertainment
sector, with an estimated 2.56 billion gamers playing esports globally, and
esports is the major driver of this growth. Esports, short for "electronic
sports," is a general label that comprises a diverse offering of competitive
electronic games that gamers play against each other. It is projected that by
2023, 646 million people will be watching esports globally, and that global
esports revenue will grow to approximately $1.5 billion.
The esports gaming industry is relatively new and is challenging. Competition is
rapidly developing. Allied Esports' business relies upon its ability to grow and
garner an active gamer community, and successfully monetize this community
through tournament fees, live event ticket sales, and advertising and
sponsorships utilizing a three-pillar approach, which includes:
? in-person experiences;
? developing multiplatform content; and
? providing interactive services.
Its growth also depends, in part, on its ability to respond to technological
evolution, shifts in gamer trends and demands, introductions of new games, game
publisher intellectual property right practices, and industry standards and
practices. While change in this industry may be inevitable, Allied Esports will
try to adapt its business model as needed to accommodate change and remain on
the forefront of its competitors.
Allied Esports' business plan requires significant capital expenditures, and it
expects its operating expenses to increase significantly as it continues to
expand its marketing efforts and operations in existing and new geographies and
vertical markets (including its online esports tournament and gaming
subscription platform it intends to develop). A key element of Allied Esports'
growth strategy is to extend its brand by opening additional flagship arenas
throughout the world and by licensing the Allied Esports brand to third party
esports arena operators, which it believes will provide attractive returns on
investment.
COVID-19 Pandemic. The recent outbreak of the COVID-19 respiratory illness has
had an adverse effect on the Company. As a global entertainment company that
hosts numerous live events with spectators and participants in destination
cities, such outbreak has caused people to avoid traveling to and attending our
events. Allied Esports and WPT businesses have cancelled or postponed live
events, and until Allied Esports' flagship gaming arena located at the Luxor
Hotel in Las Vegas, Nevada reopened on June 25, 2020 these businesses were
operating online only. The arena is currently running under a modified schedule
for daily play and weekly tournaments, and the WPT business continued to operate
primarily online through the date of its sale on July 12, 2021, although live
events recently resumed under appropriate health safety protocols. Production of
certain content has been temporarily halted. At this time, we cannot determine
the full extent of the impact that such outbreak may have on our operations.
21
Results of Operations
Continuing Operations
Our continuing operations consist of our esports gaming operations, which take
place at global competitive esports properties designed to connect players and
fans via a network of connected arenas. Through our subsidiary Allied Esports,
we offer esports fans state-of-the-art facilities to compete against other
players in esports competitions, host live events with esports superstars that
potentially stream to millions of viewers worldwide, produce and distribute
esports content with at our on-site production facilities and studios. At our
flagship arena in Las Vegas, Nevada, we provide an attractive facility for
hosting corporate events, tournaments, game launches or other events.
Additionally, Allied Esports has two mobile esports arenas, which are
18-wheel semi-trailers that convert into first class esports arenas and
competition stages with full content production capabilities and interactive
talent studios.
Discontinued Operations
The World Poker Tour ("WPT") is an internationally televised gaming and
entertainment with brand presence in land-based poker tournaments, television,
online and mobile. Leading innovation in the sport of poker since 2002, WPT
helped ignite the global poker boom with the creation of a unique television
show based on a series of high-stakes poker tournaments.
Sale of WPT Business. On January 19, 2021, the Company and its direct and
indirect wholly-owned subsidiaries, Allied Esports Media, Inc. ("Esports Media,"
and together with the Company, the "Selling Parties") and Club Services, Inc.
("CSI"), entered into a Stock Purchase Agreement (the "Original Agreement") with
Element Partners, LLC ("Buyer"), pursuant to which the Selling Parties have
agreed to sell 100% of the outstanding capital stock of CSI to Buyer. CSI is the
Company's indirect wholly-owned subsidiary that directly or indirectly owns 100%
of the outstanding capital stock of each of the legal entities that collectively
operate or engage in the Company's poker-related business and assets (the "WPT
Business"). The sale of CSI is referred to herein as the "Sale Transaction". The
Selling Parties, CSI and Buyer entered into an Amended and Restated Stock
Purchase Agreement on March 19, 2021, and thereafter amended such agreement on
March 29, 2021 (as amended, the "Stock Purchase Agreement").
Under the Stock Purchase Agreement, the Buyer agreed to pay Esports Media a
total purchase price of $105 million for the stock of CSI (the "base purchase
price") at the closing of the Sale Transaction, as further described below. The
base purchase price was adjusted to reflect the amount of CSI's cash,
indebtedness and accrued and unpaid transaction expenses as of the closing of
the Sale Transaction. Buyer remitted a $10.0 million advance payment of the base
purchase price in connection with the execution of the Stock Purchase Agreement
and paid the balance of the base purchase price at the closing of the Sale
Transaction.
On July 12, 2021, we consummated the sale of the WPT business for $106.0
million. The Company recorded a gain on the sale of WPT as follows:
Cash consideration for sale of WPT(1) $ 106,049,884
Less: book value of assets sold
Cash 3,579,988
Accounts receivable 2,999,352
Restricted cash 100,000
Prepaid expenses and other assets 264,385
Property and equipment, net 1,429,706
Goodwill 4,083,621
Intangible assets, net 10,986,463
Deposits 79,500
Deferred production costs 12,684,054
Net book value of assets sold 36,207,069
Add: liabilities assumed by buyer
Accounts payable 487,579
Accrued expenses and other liabilities 5,567,072
Deferred revenue 1,807,176
Deferred rent 2,619,967
Total liabilities assumed 10,481,794
Less: transaction expenses(2) 2,465,774
Gain on sale of WPT(3) $ 77,858,835
(1) Includes $105,120 of post-closing adjustments
(2) Includes $1,165,774 of legal and professional fees and $1,300,000 of amounts
reimbursed to the Company's principal stockholder. See Note 7 - Accrued
Expense and Other Current Liabilities for additional details
(3) Management has determined that there are no current federal or state income
taxes payable in connection with the sale of WPT, after considering the
Company's tax basis in the stock of WPT, as well as the Company's projected
tax losses for the 2021 tax year.
22
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
For the
Years Ended
December 31, Favorable
(in thousands) 2021 2020 (Unfavorable)
Revenues:
In-person $ 4,201 $ 2,988 $ 1,213
Multiplatform content 755 223 532
Total Revenues 4,956 3,211 1,745
Costs and Expenses:
In-person (exclusive of depreciation and
amortization) 3,689 2,808 (881 )
Multiplatform content (exclusive of depreciation
and amortization) 387 54 (333 )
Online operating expenses 202 187 (15 )
Selling and marketing expenses 294 260 (34 )
General and administrative expenses 12,851 16,284 3,433
Depreciation and amortization 3,306 3,609 303
Impairment of investment in ESA - 6,139 6,139
Impairment of property and equipment - 5,596 5,596
Loss From Operations (15,773 ) (31,726 ) 15,953
Gain on forgiveness of PPP loans and interest 912 - 912
Other income 69 176 (107 )
Conversion inducement expense - (5,247 ) 5,247
Extinguishment loss on acceleration of debt
redemption - (3,438 ) 3,438
Interest expense (268 ) (5,549 ) 5,281
Loss from continuing operations (15,060 ) (45,784 ) 30,724
Income from discontinued operations
Income from discontinued operations before sale of
WPT
67 725 (658 )
Gain on sale of WPT 77,859 - 77,859
Income from discontinued operations 77,926 725 77,201
Net income (loss) $ 62,866 $ (45,059 ) $ 107,925
Revenues
In-person experience revenues increased by approximately $1.2 million, or 41%,
to approximately $4.2 million for the year ended December 31, 2021 from
approximately $3.0 million for the year ended December 31, 2020. The increase of
in-person experience revenues was driven by (a) a $1.9 million increase in event
revenue, (b) a $0.1 million increase in ticket and gaming revenue, and (c) a
$0.1 million increase in food and beverage revenue, partially offset by a $1.0
million decrease in sponsorship and truck event revenues in Europe. The
year-over-year revenue increases in the United States are primarily attributable
to the removal of COVID-19 pandemic-related capacity restrictions at the
Company's HyperX Esports Arena in Las Vegas. The Company's truck events in
Europe continue to be negatively impacted by the COVID-19 pandemic, resulting in
decreases in sponsorship and other revenues from these events.
Multiplatform content revenues increased by approximately $532 thousand, or
239%, to approximately $755 thousand for the year ended December 31, 2021 from
approximately $223 thousand for the year ended December 31, 2020. The increase
of multiplatform revenues was driven by a new contract entered into in the
second quarter of 2021.
23
Costs and expenses
In-person costs (exclusive of depreciation and amortization) increased by
approximately $0.9 million, or 31%, to approximately $3.7 million for the year
ended December 31, 2021 from approximately $2.8 million for the year ended
December 31, 2020. The increase of in-person costs is primarily related to the
increase of in-person revenues as a result of the removal of COVID-19
pandemic-related capacity restrictions during 2021.
Multiplatform costs (exclusive of depreciation and amortization) increased by
approximately $333 thousand, or 617%, to approximately $387 thousand for the
year ended December 31, 2021 from approximately $54 thousand for the year ended
December 31, 2020. The increase of multiplatform costs was driven by a new
contract entered into in the second quarter of 2021.
Online operating expenses increased by approximately $15 thousand, or 8%, to
approximately $202 thousand for the year ended December 31, 2021 from
approximately $187 thousand for the year ended December 31, 2020.
Selling and marketing expenses increased by approximately $34 thousand, or 13%,
to approximately $294 thousand for the year ended December 31, 2021 from
approximately $260 thousand for the year ended December 31, 2020.
General and administrative expenses decreased by approximately $3.4 million, or
21%, to approximately $12.9 million for the year ended December 31, 2021 from
approximately $16.3 million for the year ended December 31, 2020. Stock-based
compensation decreased by approximately $3.2 million primarily due to a $3.6
million stock-based compensation expense in 2020 related to the return of cash
held in escrow associated with an escrow agreement with Simon Properties during
2020, in addition, professional fees decreased by approximately $0.6 million,
which included higher legal fees in 2020 related to registration costs,
trademark matters and discussions around the restructuring of ELC Gaming GMBH.
This was slightly offset by a $0.4 million increase in severance pay during the
year ended December 31, 2021.
Depreciation and amortization decreased by approximately $303 thousand, or 8%,
to approximately $3.3 million for the year ended December 31, 2021, from
approximately $3.6 million for the year ended December 31, 2020.
We recorded $6.1 million of impairment of investments during the year ended
December 31, 2020, of which $5.0 million was the result of the write-off of our
investment in TV Azteca, for which management determined that the future cash
flows are not expected to be sufficient to recover the carrying value of this
investment, and $1.1 million was related to the impairment of our investment in
Esports Arena, LLC. There was no impairment of investments during the year ended
December 31, 2021.
Impairment of property and equipment was approximately $0 for the year ended
December 31, 2021 as compared to $5.6 million for the year ended December 31,
2020. The impairment resulted from management's determination that the projected
cash flows from our leasehold improvements and software will not be sufficient
to recover the carrying value of those assets.
Gain on forgiveness of PPP loans and interest
We recognized a gain on the full forgiveness of the PPP loans and related
interest of approximately $912 thousand during the year ended December 31, 2021.
Other income (expense)
Other income decreased by approximately $107 thousand to approximately $69
thousand for the year ended December 31, 2021 from approximately $176 thousand
for the year ended December 31, 2020. The decrease is the result of a tax refund
received for the year ended December 31, 2020.
Conversion inducement expense
Conversion inducement expense of approximately $5.2 million during the year
ended December 31, 2020 resulted from the reduction in the conversion price and
the increase in interest payable to induce the conversion of certain convertible
debt converted during the period. There was no conversion inducement expense
recorded for the year ended December 31, 2021.
24
Extinguishment loss on acceleration of debt redemption
Extinguishment loss on acceleration of debt redemption of approximately $3.4
million during the year ended December 31, 2020, resulted from the acceleration
of monthly payments on the Senior Secured notes that were issued in June 2020.
There was no extinguishment loss recorded for the year ended December 31, 2021.
Interest expense
Interest expense was approximately $0.3 million and approximately $5.5 million
for the years ended December 31, 2021 and 2020, respectively, representing a
decrease of $5.3 million, or 95%. The decrease is a result of the decrease in
the principal balance of notes payable and convertible notes outstanding during
the period since debt balances were repaid from the proceeds of the sale of WPT.
Results of Discontinued Operations
We recognized income from discontinued operations, net of tax, of approximately
$77.9 million and $0.7 million during the year ended December 31, 2021 and 2020,
respectively, representing an increase of $77.2 million. The improvement in
results from discontinued operations is primarily due to the gain on the sale of
the WPT business of approximately $77.9 million, in addition to an increase in
revenues from our subscription-based poker service and other online products
during the period in response to the COVID-19 pandemic. This was partially
offset by bonus expenses and acceleration of stock-based compensation, each in
connection with the sale of the WPT business.
Liquidity and Capital Resources
The following table summarizes our total current assets, liabilities and working
capital surplus (deficiency) from continuing operations at December 31, 2021 and
December 31, 2020, respectively.
December 31,
(in thousands) 2021 2020
Current Assets $ 94,261 $ 1,605 (1)
Current Liabilities $ 5,249 $ 16,492Working Capital Surplus (Deficiency) $ 89,012 $ (14,887 )
1) $5 million in prior year restricted cash included as current assets at
December 31, 2020 was reclassed to non-current assets at December 31, 2021.
Our primary sources of liquidity and capital resources are cash on the balance
sheet and funds raised through debt or equity financing.
As of December 31, 2021, we had cash of $92.9 million (not including
approximately $5 million of restricted cash) and working capital from continuing
operations of approximately $89.0 million. For the years ended December 31, 2021
and 2020, we incurred net losses from continuing operations of approximately
$15.1 million and $45.8 million, respectively, and used cash in continuing
operations of approximately $10.1 million and $5.2 million, respectively.
Further, convertible debt and bridge note obligations in the aggregate gross
principal amount of $3.4 million that were scheduled to mature on February 23,
2022 but were paid upon the closing of the sale of WPT on July 12, 2021. Cash
requirements for our current liabilities include approximately $5.1 million for
accounts payable and accrued expenses. Cash requirements for non-current
liabilities include approximately $1.9 million for lease payments. The Company
intends to meet these cash requirements form its current cash balance.
In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus ("COVID-19") as a pandemic which continues to spread throughout the
United States. As a global entertainment company that hosts numerous live events
with spectators and participants in destination cities, the outbreak has caused
people to avoid traveling to and attending these events. Allied Esports has
cancelled or postponed live events, and before the reopening of Allied Esports'
flagship gaming arena located at the Luxor Hotel in Las Vegas, Nevada on June
25, 2020, the business was operating online only. The arena is currently running
at full capacity for daily play and weekly tournaments. We continue to monitor
the outbreak of COVID-19 and the related business and travel restrictions, and
changes to behavior intended to reduce its spread, and the related impact on our
operations, financial position and cash flows, as well as the impact on our
employees. The magnitude and duration of the pandemic has had a significant
adverse impact on our historical operations and liquidity. Given the positive
effects of vaccines where we operate, along with relaxed restrictions on travel
and social gatherings, we expect that such impacts will be less significant on
our future operations and liquidity.
On July 12, 2021, we completed the sale of the WPT business for an aggregate
purchase price of $106.0 million. With the sale of the WPT business, we believe
our current cash on hand is sufficient to meet our operating and capital
requirements for at least the next twelve months from the date of this Report.
25
Cash Flows from Operating, Investing and Financing Activities
The tables below summarize cash flows from continuing operations for the years
ended December 31, 2021 and 2020, respectively.
For the Years Ended
December 31,
(in thousands) 2021 2020
Net cash provided by (used in)
Operating activities $ (10,079 ) $ (5,174 )
Investing activities $ 105,858 $ (5,507 )
Financing activities $ (3,421 ) $ 9,162Net Cash Used in Operating Activities
Net cash used in operating activities primarily represents the results of
operations exclusive of non-cash expenses plus the impact of changes in
operating assets and liabilities.
Net cash used in operating activities for the years ended December 31, 2021 and
2020 was approximately $10.1 million and $5.2 million, representing an increase
of $4.9 million. During the years ended December 31, 2021 and 2020, the net cash
used in operating activities was primarily attributable to the net loss from
continuing operations of approximately $15.1 million and $45.8 million,
respectively, $3.8 million and $33.9 million, respectively, of net non-cash
expenses, and approximately $1.2 million and $6.7 million, respectively, of cash
provided by changes in the levels of operating assets and liabilities.
Net Cash Provided By (Used in) Investing Activities
Net cash provided by (used in) investing activities primarily relates to cash
used for the purchase of property and equipment and other investment activity.
Net cash provided by investing activities during the year ended December 2021
was approximately $105.9 million, which consisted primarily of approximately
$106.0 million cash consideration for the sale of WPT, partially offset by
approximately $192 thousand of cash used for the purchase of property and
equipment.
Net cash (used in) investing activities for the year ended December 31, 2020 was
approximately $5.5 million, resulting primarily from approximately $3.7 million
of cash used for the return of the Simon Investment, $1.5 million of cash used
for our investment in TV Azteca , and $0.4 million used for the purchases of
property and equipment.
Net Cash (Used in) Provided by Financing Activities
Net cash (used in) provided by financing activities for the year ended December
31, 2021 was approximately $(3.4) million compared to approximately $9.2 million
for the year ended December 31, 2020. Net cash used in financing activities
during the year ended December 31, 2021 represented the repayments of bridge
loans during the period. During the year ended December 31, 2020, we received
approximately $9.0 million of proceeds from the issuance of convertible debt,
$7.0 million of proceeds from the sale of our common stock and approximately
$0.9 million of proceeds received from loans payable, partially offset by
approximately $(7.0) million of convertible debt repayments and $(0.8) million
of issuance costs paid in connection with convertible debt.
Cash Flows from Discontinued Operations
Cash held by the WPT business of approximately $3.6 million was sold in
connection with the sale of the WPT business. No cash was provided by, or (used
in), discontinued operations as of December 31, 2021.
Capital Expenditures
As of December 31, 2021, the Company had no material commitments for capital
expenditures.
26
Off-Balance Sheet Arrangements
The Company does not engage in any off-balance sheet financing activities, nor
does the Company have any interest in entities referred to as variable interest
entities.
Critical Accounting Estimates and Policies
The preparation of financial statements and related disclosures must be in
conformity with U.S. GAAP. These accounting principles require us to make
estimates and judgments that can affect the reported amounts of assets and
liabilities as of the date of the financial statements as well as the reported
amounts of revenue and expense during the periods presented. We believe that the
estimates and judgments upon which it relies are reasonably based upon
information available to us at the time that it makes these estimates and
judgments. To the extent that there are material differences between these
estimates and actual results, our financial results will be affected. The
accounting policies that reflect our more significant estimates and judgments
and which we believe are the most critical to aid in fully understanding and
evaluating our reported financial results are described below.
The following is not intended to be a comprehensive list of all of our
accounting policies or estimates. Our accounting policies are more fully
described in Note 2 - Significant Accounting Policies, in our financial
statements included at the end of this Annual Report.
Income Taxes
We recognize deferred tax assets and liabilities for the expected future tax
consequences of items that have been included in the financial statements or tax
returns. Under this method, deferred tax assets and liabilities are based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance to the extent management concludes it is more likely than
not that the assets will not be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statements of
operations in the period that includes the enactment date.
We recognize the tax benefit from an uncertain income tax position only if it is
more likely than not that the tax position will be sustained on examination by
the taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than 50% likelihood of
being realized upon ultimate settlement by examining taxing authorities.
Stock-Based Compensation
We measure the cost of services received in exchange for an award of equity
instruments based on the fair value of the award on the date of grant. The fair
value amount of the shares expected to ultimately vest is then recognized over
the period for which services are required to be provided in exchange for the
award, usually the vesting period. The estimation of stock-based awards that
will ultimately vest requires judgment, and to the extent actual results or
updated estimates differ from original estimates, such amounts are recorded as a
cumulative adjustment in the period that the estimates are revised. We account
for forfeitures as they occur.
Impairment of Long-Lived Assets
The Company reviews for the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company measures the carrying amount of the asset against
the estimated undiscounted future cash flows associated with it. Should the sum
of the expected future net cash flows be less than the carrying value of the
asset being evaluated, an impairment loss would be recognized for the amount by
which the carrying value of the asset exceeds its fair value. The evaluation of
asset impairment requires the Company to make assumptions about future cash
flows over the life of the asset being evaluated. These assumptions require
significant judgment and actual results may differ from assumed and estimated
amounts.
Revenue Recognition
We recognize revenue from the following sources:
? Multiplatform content revenue is comprised of distribution revenue, sponsorship
revenue, music royalty revenue, content revenue and online advertising revenue.
? In-person revenue is comprised of event revenue, sponsorship revenue, food and
beverage revenue, ticket and gaming revenue, merchandising revenue and other
revenue.
We evaluate each of our contractual arrangements to identify the performance
obligations existing in the contract and allocate the transaction price to each
separate performance obligation. Revenue is recognized as each performance
obligation is fulfilled. Cash received in advance of the sale or rendering of
services is recorded as deferred revenue and is recognized when the related
performance obligation has been satisfied.
27
Discontinued Operations
The assets and liabilities of WPT as of December 31, 2020 are classified in the
accompanying Consolidated Balance Sheets as "Current assets of discontinued
operations," and "Current liabilities of discontinued operations". The results
of operations of WPT for the period from January 1 through July 12, 2021 and for
the year ended December 31, 2020 are included in "Income (loss) from
discontinued operations, net of tax provision" in the accompanying Consolidated
Statements of Operations and Comprehensive Loss.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02,
"Leases (Topic 842)." ASU 2016-02 requires that a lessee recognize the assets
and liabilities that arise from operating leases. A lessee should recognize in
the statement of financial position a liability to make lease payments (the
lease liability) and a right-of-use asset representing its right to use the
underlying asset for the lease term. For leases with a term of 12 months or
less, a lessee is permitted to make an accounting policy election by class of
underlying asset not to recognize lease assets and lease liabilities. In
transition, lessees and lessors are required to recognize and measure leases at
the beginning of the earliest period presented using a modified retrospective
approach. This amendment will be effective for private companies and emerging
growth companies for fiscal years beginning after December 15, 2021, and interim
periods within fiscal years beginning after December 15, 2022. The FASB issued
ASU No. 2018-10 "Codification Improvements to Topic 842, Leases" and ASU No.
2018-11 "Leases (Topic 842) Targeted Improvements" in July 2018, and ASU No.
2018-20 "Leases (Topic 842) - Narrow Scope Improvements for Lessors" in December
2018. ASU 2018-10 and ASU 2018-20 provide certain amendments that affect narrow
aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities
adopting ASU 2016-02 to choose an additional (and optional) transition method of
adoption, under which an entity initially applies the new leases standard at the
adoption date and recognizes a cumulative-effect adjustment to the opening
balance of retained earnings in the period of adoption. We expect that the
adoption of this ASU will have a material impact on the our consolidated
financial statements, primarily as the result of recording right-of-use assets
and lease liability obligations for its current operating lease.
In June 2016, the FASB issued ASU No. 2016-13 "Financial Instruments - Credit
Losses (Topic 326)" and also issued subsequent amendments to the initial
guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic
326). Topic 326 requires the measurement and recognition of expected credit
losses for financial assets held at amortized cost. This replaces the existing
incurred loss model with an expected loss model and requires the use of
forward-looking information to calculate credit loss estimates. We will be
required to adopt the provisions of this ASU on January 1, 2023, with early
adoption permitted for certain amendments. Topic 326 must be adopted by applying
a cumulative effect adjustment to retained earnings. The adoption of Topic 326
is not expected to have a material impact on our consolidated financial
statements or disclosures.
In February 2020, the FASB issued ASU No. 2020-02, Financial Instruments -
Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on
Effective Date ("ASU 2020-02") which provides clarifying guidance and minor
updates to ASU No. 2016-13 - Financial Instruments - Credit Loss (Topic 326)
("ASU 2016-13") and related to ASU No. 2016-02 - Leases (Topic 842). ASU 2020-02
amends the effective date of ASU 2016-13, such that ASU 2016-13 and its
amendments will be effective for the Company for interim and annual periods in
fiscal years beginning after December 15, 2022. The adoption of ASU 2016-13 is
not expected to have a material impact on our consolidated financial statements
or disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other
Options (Subtopic 470-20) and Derivatives and Hedging- Contracts in Entity's Own
Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity's Own Equity, to clarify the accounting for certain financial
instruments with characteristics of liabilities and equity. The amendments in
this update reduce the number of accounting models for convertible debt
instruments and convertible preferred stock by removing the cash conversion
model and the beneficial conversion feature model. Limiting the accounting
models will result in fewer embedded conversion features being separately
recognized from the host contract. Convertible instruments that continue to be
subject to separation models are (1) those with embedded conversion features
that are not clearly and closely related to the host contract, that meet the
definition of a derivative, and that do not qualify for a scope exception from
derivative accounting and (2) convertible debt instruments issued with
substantial premiums for which the premiums are recorded as paid-in-capital. In
addition, this ASU improves disclosure requirements for convertible instruments
and earnings-per-share guidance. The ASU also revises the derivative scope
exception guidance to reduce form-over-substance-based accounting conclusions
driven by remote contingent events. The amendments in this update are effective
for our fiscal years beginning after December 15, 2023, and interim periods
within those fiscal years. Early adoption will be permitted, but no earlier than
for fiscal years beginning after December 15, 2020. The adoption of ASU 2020-06
is not expected to have a material impact on our consolidated financial
statements or disclosures.
28
On May 3, 2021, the Financial Accounting Standards Board (the "FASB") issued
Accounting Standards Update ("ASU") 2021-04, Earnings Per Share (Topic 260),
Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own
Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or
Exchanges of Freestanding Equity-Classified Written Call Options. This new
standard provides clarification and reduces diversity in an issuer's accounting
for modifications or exchanges of freestanding equity-classified written call
options (such as warrants) that remain equity classified after modification or
exchange. This standard is effective for fiscal years beginning after December
15, 2021, including interim periods within those fiscal years. Issuers should
apply the new standard prospectively to modifications or exchanges occurring
after the effective date of the new standard. Early adoption is permitted,
including adoption in an interim period. If an issuer elects to early adopt the
new standard in an interim period, the guidance should be applied as of the
beginning of the fiscal year that includes that interim period. We do not expect
the adoption of this standard to have a material effect on its consolidated
financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):
Accounting for Contract Assets and Contract Liabilities from Contracts with
Customers, which requires an acquirer in a business combination to recognize and
measure contract assets and contract liabilities in accordance with Accounting
Standards Codification Topic 606. ASU 2021-08 is effective for fiscal years
beginning after December 15, 2022 and early adoption is permitted. While we are
continuing to assess the timing of adoption and the potential impacts of ASU
2021-08, it does not expect ASU 2021-08 will have a material effect, if any, on
our consolidated financial statements.
Recently Adopted Accounting Pronouncements
In March 2019, the FASB issued ASU 2019-02, which aligns the accounting for
production costs of episodic television series with the accounting for
production costs of films. In addition, ASU 2019-02 modifies certain aspects of
the capitalization, impairment, presentation and disclosure requirements in
Accounting Standards Codification ("ASC") 926-20 and the impairment,
presentation and disclosure requirements in ASC 920-350. This ASU must be
adopted on a prospective basis and is effective for annual periods beginning
after December 15, 2020, including interim periods within those years, with
early adoption permitted. This standard was adopted on January 1, 2021 and did
not have a material impact on our consolidated financial statements or
disclosures.
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