RENOVARE ENVIRONMENTAL, INC. The following discussion should be read in conjunction with the information contained in the consolidated financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 . Readers should carefully review the risk factors disclosed in this Form 10-K and other documents filed by the Company with theSEC .
As used in this report, the terms "Company", "we", "our", and "us" refer to
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements can be identified by
the use of words such as "believes," "estimates," "intends", "plans", "could,"
"possibly," "probably," anticipates," "projects," "expects," "may," "will," or
"should," "designed to," "designed for," or other variations or similar words or
language. The forward-looking statements are based on the current expectations
of the Company and are subject to certain risks, uncertainties and assumptions,
including those set forth in the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in this report.
Actual results may differ materially from results anticipated in these
forward-looking statements. We base the forward-looking statements on
information currently available to us, and we assume no obligation to update
them.
20
Company Overview
The Company's mission is to reduce the environmental impact of the waste
management industry through the development and deployment of cost-effective
technology solutions. The Company's suite of technologies includes on-site
biological processing equipment for food waste, patented processing facilities
for the conversion of municipal solid waste into an E.P.A. recognized renewable
fuel, and proprietary real-time data analytics tools to reduce food waste
generation. These proprietary solutions may enable certain businesses and
municipalities of all sizes to lower disposal costs while having a positive
impact on the environment. When used individually or in combination, we believe
that the Company's solutions can reduce the carbon footprint associated with
waste transportation, repurpose non-recyclable plastics, and significantly
reduce landfill usage.
Revolution Series™ Digesters
The Company currently markets an aerobic digestion technology solution for the disposal of food waste at the point of generation. Its line of Revolution Series Digesters have been described as self-contained, robotic digestive systems that we believe are as easy to install as a standard dishwasher with no special electrical or plumbing requirements. Units range in size depending upon capacity, with the smallest unit approximately the size of a residential washing machine. The digesters utilize a biological process to convert food waste into a liquid that is safe to discharge down an ordinary drain. This process can result in a substantial reduction in costs for customers including restaurants, grocery stores, cruise lines and hotel/hospitality companies by eliminating the transportation and logistics costs associated with food waste disposal. The process also reduces the greenhouse gases associated with food-waste transportation and decomposition in landfills that have been linked to climate change. The Company offers its Revolution Series Digesters in several sizes targeting small to mid-sized food waste generators with both sale and rental options that are often more economical than traditional disposal methods. The Revolution Series Digesters are manufactured and assembled inthe United States . In an effort to expand the capabilities of its digesters, the Company developed a sophisticated Internet of Things ("IoT") technology platform to provide its customers with transparency into their waste generation and operational practices. This patented process collects weight related data from the digesters to deliver real-time data that provides valuable information that when analyzed, can improve efficiency and validate corporate sustainability efforts. The Company provides its IoT platform through a SaaS ("Software as a Service") model that is either bundled in its rental agreements or sold through a separate annual software license. Prior to the launch of its Revolution Series Digesters, the Company marketed earlier generations of its digesters under the Eco-Safe brand. These units were larger sized and typically marketed to mid- and large-sized food waste generators, including the Federal Government. The Company continues to add new capacity sizes to its line of Revolution Series Digesters to meet customer needs.
HEBioT Resource Recovery Technology
The Company expanded its technology business in 2016 through the acquisition of
certain development rights to a patented Mechanical Biological Treatment ("MBT")
technology developed by a European engineering firm that relies upon High
Efficiency Biological Treatment ("HEBioT") to process waste at the municipal or
enterprise level. The technology results in a substantial reduction in landfill
usage by converting a significant portion of intake, including organic waste and
non-recyclable plastics, into a United States EPA recognized alternative fuel
that can be used as a partial replacement for coal. The Company is currently
exploring additional uses for its Solid recovered fuel ("SRF") such as fuel for
cogeneration and as a feedstock for bio-plastics.
The Company also, through a series of transactions in 2017 and 2018, acquired a
controlling interest in the Nation's first municipal waste processing facility
utilizing the HEBioT technology located in Martinsburg, West Virginia (the
"Martinsburg Facility"). The Martinsburg Facility, which commenced operations in
2019, is capable of processing up to 110,000 tons of mixed municipal waste
annually. At full capacity, the Martinsburg Facility can achieve an estimated
annual savings of over 2.3 million cubic feet of landfill space and eliminate
many of the greenhouse gases associated with landfilling that waste. The Company
plans to build additional HEBioT facilities in the coming years.
Combined Offering
The Company's suite of products and services positions it as a provider of cost-effective, technology-based alternatives to traditional waste disposal inthe United States . The use of the Company's technology solutions independently or in combination, can help its customers meet sustainability goals by achieving a significant reduction in greenhouse gases associated with waste transportation and landfilling. In addition, the repurposing of municipal waste into a cleaner burning,EPA recognized, renewable fuel can further reduce potentially harmful emissions associated with traditional means of disposal. The overall reduction in carbon and other greenhouse gases that are linked to climate change that could be achieved through the utilization of the Company's technology can serve as a model for the future of waste disposal inthe United States . 21 New Product Offering
In addition to the Company's products focused on reducing the environmental impact of the waste management industry through the development and deployment of cost-effective technology solutions, as a result of symmetry with our customers and prospects and a new demand for post COVID environmental technologies, onMay 12, 2020 , the Company entered into a distribution agreement withAltapure, LLC , a technology developer and manufacturer of ultrasonic based disinfecting products, to distribute its patented line of environmentally-friendly, automated and touchless high-level disinfection sub-micron aerosol system that we believe provides a safe process and rapid kill of spores, viruses, and vegetative bacteria. The Company commenced live product demonstrations inJune 2020 and recognized its first sale inOctober 2020 . Results of operations for the year endedDecember 31, 2020 compared to the year ended December 31, 2019 Year ended December 31, Digester and Corporate HEBioT Total 2020 2019 Change 2020 2019 Change 2020 2019 Change Revenue HEBioT - - -$ 1,878,107 $ 1,111,071 $ 767,036 $ 1,878,107 $ 1,111,071 $ 767,036 Rental, services and maintenance$ 1,607,519 $ 1,946,597 $ (339,078 ) - - - 1,607,519 1,946,597 (339,078 ) Equipment sales 2,268,647 186,780 2,081,867 - - - 2,268,647 186,780 2,081,867 Management and advisory fees and other 124,380 975,000 (850,620 ) - - - 124,380 975,000 (850,620 ) Total Revenue 4,000,546 3,108,377 892,169 1,878,107 1,111,071 767,036 5,878,653 4,219,448 1,659,205 Operating Expenses HEBioT - - - 3,571,314 2,064,139 1,507,175 3,571,314 2,064,139 1,507,175 Rental, services and maintenance 856,751 784,291 72,460 - - - 856,751 784,291 72,460 Equipment sales 1,224,185 113,063 1,111,122 - - - 1,224,185 113,063 1,111,122 Selling, general and administrative 6,387,587 6,097,817 289,770 2,232,542 965,874 1,266,668 8,620,129 7,063,691 1,556,438 Impairment - - - 975,420 - 975,420 975,420 - 975,420 Depreciation and amortization 496,645 495,709 936
1,810,388 1,233,769 576,619 2,307,033 1,729,478 577,555 Total operating expenses 8,965,168 7,490,880 1,474,288
8,589,664 4,263,782 4,325,882 17,554,832 11,754,662 5,800,170
Loss from operations (4,964,622 ) (4,382,503 ) (582,119 ) (6,711,557 ) (3,152,711 ) (3,558,846 ) (11,676,179 ) (7,535,214 ) (4,140,965 )
Other expenses, net 1,439,865 688,621 751,244 2,625,795 2,056,226 569,569 4,065,660 2,744,847 1,320,813 Net loss
$ (6,404,487 ) $ (5,071,124 ) $ (1,333,363
)
Digester and Corporate
2020 was a challenging year that was impacted by COVID-19. As the Company's digester business has had significant revenues from restaurants, hospitality and other commercial food waste generators that were impacted by governmental restrictions that are now beginning to be lifted, our historical business was a challenge. Early in 2020, the Company announced a digester sales contract withCarnival Cruise Lines that was originally anticipated to commence in the second quarter of 2020, but due to the shutdown of the cruise industry, sales only commenced at the end of the third quarter of 2020 and have expanded forward from there. Total equipment sales in the third quarter of 2020 amounted to$293,876 , while the sales in the fourth quarter of 2020 increased to$1,651,655 , 5.6 times the third quarter amount and greater than each year's annual equipment sales since the Company went public in 2015. Overall, the contribution from digester sales, rental, service and maintenance amounted to$1,795,230 for the year endedDecember 31, 2020 , a$559,207 (45.2%) increase from 2019. This increase in contribution was offset by the$850,620 decrease in management fees as Gold Medal and the Company wound down the agreement. Selling, general and administrative expenses increased to$6,387,587 , a$289,770 (4.8%) increase for the year endedDecember 31, 2020 as compared to 2019. The composition of the selling, general and administrative expenses are as follows for the years endingDecember 31 : 2020 2019 Change Staffing$ 2,610,090 $ 3,005,045 $ (394,955 ) Stock based Compensation 1,475,961 1,083,789 392,172 Professional fees 1,104,062 751,523 352,539 Other expenses 459,653 392,298 67,355 Other costs 737,821 865,162
(127,341 )
Total selling, general and administrative
Staffing expenses decreased to$4,086,052 for the year endedDecember 31, 2020 and was comprised of$1,475,961 in stock based compensation for the year endedDecember 31, 2020 , as compared to$1,083,789 for the year endedDecember 31, 2019 . The non-stock based compensation, which also included severance of$225,631 related to re-aligning the corporate staff, decreased for the year endedDecember 31, 2020 by$394,955 from 2019. 22 Professional fees are comprised of the following for the years endingDecember 31 : 2020 2019 Change Accounting$ 387,359 $ 431,636 $ (44,277 ) Investor relations & banking 334,225 163,506 170,719 Legal 245,661 173,866 71,795 Marketing 136,817 (17,485 ) 154,302 Total Professional fees$ 1,104,062 $ 751,523 $ 352,539 Accounting fees decreased during the year endedDecember 31, 2020 by$44,277 (10.3%) as compared to the year endedDecember 31, 2019 as the result of a reduction in special tax services and reduced complex transactions. Investor relations and banking increased by$170,719 (104.4%) as compared to the year endedDecember 31, 2019 due to costs associated with the Altapure distributorship transaction and other investment banking activities. Legal fees increased by$71,795 (41.3%) during the year endedDecember 31, 2020 due to capital raising, acquisition, HEBioT siting and personnel related activities. Marketing fees increased during the year endedDecember 31, 2020 by$154,302 as compared to the year endedDecember 31, 2019 due to an increase in digital optimization of various social media platforms, as well as due to 2019 including a$44,500 reduction in marketing professional fees due to a favorable resolution to a litigation matter that had been expensed to marketing professional fees prior to 2019. The loss from operations increased to$4,964,622 , a$582,119 (13.3%) increase primarily to the$850,620 decrease in management fee revenue offset by the$559,207 increase in contribution from the digester business, decreased by the$289,770 increase in selling general and administrative expenses. HEBioT Facility The HEBioT business was also impacted by COVID-19, but in ways different from the digester business. On the intake side of the business, the creation, transportation and disposal of municipal solid waste continued, although the primary offtake SRF customer was negatively impacted by the demand for its product - cement. This resulted in that customer reducing production and closing the facility off and on during the year. This in-turn resulted in the HEBioT plant not being able to receive incoming municipal waste as there was not adequate secondary sources to deliver the SRF to. In addition to the customer driven pressures the facility was recovering early in the year from a fire that had halted full production for an extended period and as a result of turning the plant over to production prior to its commissioning being completed 100%, there were mechanical and technological failures that also contributed to unplanned down time. The unplanned down times and closures resulted in an interruption of the normal supply chain deliveries of municipal solid waste. In the second half of 2020, the Company replaced its contracted management team with another team, who spend much of the second half of 2020 re-commissioning the plant, developing improved maintenance protocols and improved fire watch procedures to minimize the potential for recurring maintenance and fire related interruptions. While the plant was generally operational, sometimes at low levels, for much of 2020, the growth in revenues of$767,036 (69.0%) to$1,878,107 , which is well below its operational capacity and as much of the facility is a relatively fixed cost base, combined with: added maintenance and repair costs relating to the re-commissioning and fire recovery, an impairment charge of$917,420 resulting from claims relating to the facility, a goodwill impairment charge of$58,000 , and a$1,266,668 increase in selling, general and administrative expenses resulting from increased activities, an increase in insurance costs and a state imposed waste generation tax, and a one-time settlement amounting to$646,196 with one of its non-controlling investors relating to previous claimed charges and services, the plant sustained an operational loss of$6,711,557 , an increase of over 100%. Net loss was further increased due to a$569,569 increase in other expenses, net, primarily driven by an increase in interest expense related to having a full year of interest in 2020, while only nine months in 2019 as the plant was not commissioned untilMarch 31, 2019 and interest prior to commissioning was capitalized. Consolidated Total revenue increased by 39.3% ($1,659,205 ) for the year endedDecember 31, 2020 due to a$2,081,867 increase in equipment sales that were primarily driven by digester sales toCarnival Cruise Lines and a$767,036 increase in HEBioT revenues offset by a$339,078 decrease in rental, services and maintenance that was impacted by COVID-19 and a$850,620 decrease in management fees and other resulting from the wind-down of the executive services provided toGold Medal Group .
Total operating expenses before depreciation and amortization increased by 52.1% ($5,222,615 ), which were driven by$975,420 impairment expenses relating to the HEBioT facility and its goodwill and a$646,196 settlement related to HEBioT expenses relating to services previously provided by a non-controlling investor, and increase in HEBioT direct costs of$1,507,175 resulting from a full year of operations and high maintenance and repairs, an increase of$910,242 in selling, general and administrative, excluding the$646,196 settlement, ($289,770 from Digester and Corporate and$620,472 from HEBioT) and an increase in equipment sales costs of$1,111,122 related to the increase in equipment sales that also resulted in an increase in the contribution margin from 39% in 2019 to 46% in 2020. Depreciation and amortization increased by$577,555 primarily due to the HEBioT facility operating for a full year in 2020, as compared to 9 months
in
2019.
23
The loss from operations increased by 55.0% (
Other expenses, net increased 48.1% primarily due to the 2019 amounts including an offsetting gain of$562,617 on the sale of an affiliate and a$569,569 increase at the HEBioT plant due primarily to interest for a full year in 2020, as compared to 9 months in 2019, as the plant was under construction throughMarch 31, 2019 . For the years endedDecember 31, 2020 and 2019 there was no net provision for income tax due to the losses incurred and management's evaluation of the recovery of the tax asset resulting in net operating loss carryforward. As ofDecember 31, 2020 and 2019, the Company had net operating loss carryforwards of approximately$39,889,000 and$30,385,000 , respectively, available to reduce future federal taxes. The federal net operating losses of approximately$14,266,000 , generated in tax years beginning beforeJanuary 1, 2018 , will begin to expire in 2036 if not utilized. The balance of the net operating losses, approximately$25,623,000 , do not expire, and is subject to an 80% taxable income annual limitation. In addition, as ofDecember 31, 2020 and 2019, the Company had NOL carryforwards of approximately$28,417,000 and$20,105,000 available to reduce state taxable income that expire through 2040. Pursuant to Section 382 of the Internal Revenue Code, or IRC, annual use of the Company's net operating losses (NOL) carryforwards may be limited or eliminated in the event a cumulative change in ownership of more than 50% occurs within a three-year period. Thus these carryforwards could be subject to certain limitations in the event that there is a change in control of the company pursuant to IRC 382, though the Company has not performed a study to determine if the loss carryforwards are subject to these limitations. If additional changes in ownership occur after year end, NOL carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation reserve.
Net loss increased by 53.1% (26.3% at Digester and Corporate and 79.3% at HEBioT).
Liquidity and Capital Resources
The Company currently generates revenues from sales and rentals of its digesters
and related goods and services, and revenues from the HEBioT technologies. The
Company's other known sources of capital are common and common and preferred
stock offerings, proceeds from private placements, issuance of notes payable,
convertible notes payable, and investments, loans and advances from related and
unrelated parties and cash from future revenues.
We will require additional financing in order to execute our business expansion
and development plans and we may require additional financing in order to
sustain substantial future business operations for an extended period of time.
Subsequent to December 31, 2020 , the Company entered into an At Market Issuance
Sales Agreement with B. Riley Securities, Inc. , which provides for up to
$25,000,000 in sales of the Company's common stock subject to limitations under
the S-3 Registration Statement to which the shares may be sold and the related
prospectus supplement, which may be amended, that limits the amount raised to
$11,150,000 , of which the Company has raised $7,211,729 in gross proceeds from
the sales of 3,416,663 shares of common stock through March 22, 2021 . While the
Company has a history of obtaining adequate capital and maintaining liquidity,
it is actively soliciting other forms of financing but do not have any firm
commitments for additional financing. Should we not be able to obtain financing
when required, in the amounts necessary to execute on our plans in full, or on
terms which are economically feasible we may be unable to sustain the necessary
capital to pursue our strategic plan and may have to reduce the planned future
growth and scope of our operations.
Cash
As of
Borrowings and Debt
The table below presents borrowings as of
(Carrying
Amount) Face Amount Due in:
December 31, 2025 and
2020 2021 2022 2023 2024 thereafter Total
Line of credit $ 1,498,975 $ 1,500,000 $ - $ - $ - $ - $ 1,500,000
Advance from related
party 935,000 935,000 - - - - 935,000
Notes payable 100,000 - 100,000 - - - 100,000
Junior note 971,426 - - - 1,044,477 - 1,044,477
Senior note payable 4,494,424 1,875,000 2,500,000 625,000 - - 5,000,000
West Virginia EDA Bond 31,336,359 2,860,000 1.175,000
1,265,000 1,360,000 26,340,000 33,000,000 Payroll Protection Program Loan 421,300 327,678 93,622 - - - 421,300 Vehicle loans 8,200 4,380 3,820 - - - 8,200 Total$ 39,765,684 $ 7,502,058 $ 3,872,442 $ 1,890,000 $ 2,404,477 $ 26,340,000 $ 42,008,977 24 Cash Flows Cash flows used in operating activities - We used$8,758,207 of cash in operating activities during the year endedDecember 31, 2020 , an increase of$1,623,607 over$7,134,600 of cash used in operating activities during the year endedDecember 31, 2019 . Our net loss for the year endedDecember 31, 2020 of$15,741,839 was reduced by$5,869,787 of non-cash operating income and expenses resulting in$9,872,052 of operational cash usage before changes in operational assets and liabilities, as compared to operational cash usage before changes in operating assets and liabilities of$7,005,821 for the year endedDecember 31, 2019 . This increase in in usage before changes in operational assets and liabilities was primarily driven by the increased net loss in 2020. Cash flows used in investing activities - We used$1,016,650 of cash in investing activities during the year endedDecember 31, 2020 , a decrease of$1,862,735 from$2,879,385 of cash used in investing activities during the year endedDecember 31, 2020 . The decrease in usage is primarily due to a$4,887,626 decrease in capex spending offset by a$650,000 investment inEast Short Port Ventures in 2020, as compared to proceeds of$2,250,000 from the sale of an investment in 2019. Cash flows from financing activities - Cash flows from financing activities amounted to$11,139,625 during the year endedDecember 31, 2020 , an increase of$4,792,884 from$6,346 ,741of cash flows from investing activities during the year endedDecember 31, 2019 . This increase was primarily due to an increase in cash flows from the issuance of common stock shares of$5,401,923 offset by a$1,400,000 decrease in investments in subsidiaries by non-controlling interests, supplemented by a$421,300 Payroll Protection Program loan and an increase of advances from related party of$515,000 in 2020. 25
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Use of Estimates - The preparation of consolidated financial statements, in conformity with GAAP requires the extensive use of management's estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. Estimates are used when accounting for items and matters including, but not limited to, valuation of deferred tax assets, share based compensation, allowance for uncollectible accounts receivable, obsolete, slow moving and excess inventory, asset valuations, including intangibles, and useful lives and other provisions and contingencies. Product and Services Revenue Recognition - The Company records revenue based on a five-step model in accordance with ASC 606, Revenue from Contracts with Customers, which require that we: 1.Identify the contract with a customer; 2. Identify the performance obligations in the contract; 3. Determine the transaction price of the contract; 4. Allocate the transaction price to the performance obligations in the contract, and; 5. Recognize revenue when the performance obligations are met or delivered. When revenue is earned based on product sales, such as sales of digester equipment and parts, solid recovered fuel and recycled materials, the Company's performance obligations are satisfied at the point in time when products are shipped to the customer, which is when the customer has title and control. Therefore, the Company's contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of products. When revenue is earned on services, such as management advisory fees and digester maintenance and repair services fees are recognized over the period the services are performed based on service milestones. Lease Revenue Recognition - Rental, service and maintenance revenues relating to the Company's rental agreements involve providing use of the Company's digesters at customer locations, access to our software as a service and preventative maintenance over the term. The agreements generally provide for flat monthly payments that the Company believes are consistent with our costs and obligations underlying the agreements. The Company selected the practical expedient not to separate non-lease components from lease components. The Company recognizes revenue from the rental of the digester units ratably on a monthly basis over the term of the lease, as it has determined that the rental agreements entered into in connection with its digester units qualify as operating leases, for which the Company is the operating lessor. In order to determine lease classification as operating, the Company evaluates the terms of the rental agreement to determine if the lease includes any provisions which would indicate sales type lease treatment. Long-Lived Assets - The Company assesses its long-lived assets, including definite-lived intangible assets, plant, property and equipment, which are held and used in our operations for impairment if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The amortization method and estimated period of useful life of definite-lived intangible assets are reviewed annually, or more frequently if events or changes in circumstances. We recognize impairment when the estimated undiscounted cash flow generated by those assets is less than the carrying amount of such assets. The amount of impairment is the excess of the carrying amount over the fair value of such assets. Income Taxes - Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given provisions of enacted laws. Deferred income tax provisions and benefits are based on changes to the asset or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates the future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax planning and strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the "more than likely" criteria. Financial Instruments, Convertible Instruments, Warrants and Derivatives - The Company reviews its convertible instruments for the existence of embedded conversion features that may require bifurcation. If certain criteria are met, the bifurcated derivative financial instrument is required to be recorded at fair value. The Company also reviews and re-assesses, at each reporting date, any common stock purchase warrants and other freestanding derivative financial instruments and classifies them on the consolidated balance sheet as equity, assets or liabilities based upon the nature of the instruments. Stock-Based Compensation - The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation - Stock Compensation." ASC 718 requires generally that all equity awards be accounted for at their "fair value." This fair value is measured on the grant date for stock-settled awards. Fair value is equal to the underlying value of the stock for "full-value" awards such as restricted stock and performance shares, and is estimated using an option-pricing model with traditional inputs for "appreciation" awards such as stock options and stock appreciation rights.
Recently Issued Accounting Standards
The Company has not implemented any recent accounting pronouncements during the
year ended
26
The Company has not implemented the following accounting standards:
InJune 2016 , the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This standard requires an allowance to be recorded for all expected credit losses for certain financial assets. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments. ASU 2016-13 is effective for public companies for interim and annual period beginningDecember 15, 2020 . Entities are required to apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company has not yet adopted this update and is currently evaluating the effect this new standard will have on its financial condition and results of operations. InMarch 2020 , the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as the market transitions from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The amendments in this update were effective upon issuance for all entities throughDecember 31, 2022 . The Company is currently evaluating the effect the updated standard will have on its financial position, results of operations or financial statement disclosure. InAugust 2020 , the FASB issued ASU No. 2020-06, Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity's own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. This guidance is effective as ofJanuary 1, 2022 (Early adoption is permitted effectiveJanuary 1, 2021 ). The Company is currently evaluating the effect the updated standard will have on its financial position, results of operations or financial statement disclosure.
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