The following discussion and analysis of our Company's financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in the report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors. See "Cautionary Note Concerning Forward-Looking Statements" on page 2. The description of our business included in this quarterly report is summary in nature and only includes material developments that have occurred since the latest full description. The full discussion of the history and general development of our business is included in "Item 1. Description of Business" section of the Company's Annual Report on Form 10-K filed with theSEC onMarch 25, 2021 , which section is incorporated by reference. Currency and exchange rate Unless otherwise noted, all currency figures quoted as "U.S. dollars", "dollars" or "US$" refer to the legal currency ofthe United States . References to "Hong Kong Dollar" are to the Hong Kong Dollar, the legal currency of theHong Kong Special Administrative Region ofthe People's Republic of China . Throughout this report, assets and liabilities of the Company's subsidiaries are translated intoU.S. dollars using the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders' equity. Overview We were incorporated under the laws of theState of Delaware onMarch 6, 2014 , under the name "Jovanovic-Steele, Inc. " Our name was changed toBaja Custom Designs, Inc. onOctober 26, 2017 . OnMay 8, 2020 , we acquiredLuduson Holding Company Limited , a limited liability company organized under the laws ofBritish Virgin Islands ("LHCL"). As a result of our acquisition of LHCL, we entered into the business-to-business gaming technology industry. We, through our operating subsidiaries, are a business-to-business gaming technology company that provides events marketing strategies with a combination of digital interactive solutions and content production services inHong Kong . In digital marketing industry, we offer business-to-business digital marketing solutions on our proprietary and secure network, which accommodates a wide range of devices and theme-based gaming content, including multi-touch table, body motion sensing, indoor positioning device and electronic circuit system, together with the customized game contents, as an integrated marketing solution. We, through our subsidiaries, are principally engaged in developing and granting a right-to-use digital entertainment - interactive game software and providing system development consultancy and maintenance services to our customers and interactive games installations in shopping mall events, exhibitions and brand promotions.
We provide our business customers in the entertainment industry with a full line of custom-made interactive gaming services. In this entertainment segment, we offer a customized device box with a library of self-developed interactive game content such as sport-themed social games, motion-sensing action games, logic and puzzle games, original IP character education games for children, etc., to meet with our business customers' operational use or business-to-business social solutions. Our goal is to provide innovative and effective interactive solution services to satisfy diverse marketing needs. We are committed to working at a high-quality standard to address the needs of differing budgets. We provide services to a wide range of customers across different industry segments and regions. 19
We are not aHong Kong operating company but aNevada holding company with operations conducted through our wholly owned subsidiaries based inHong Kong . This structure presents unique risks as our investors may never directly hold equity interests in ourHong Kong subsidiary and will be dependent upon contributions from our subsidiaries to finance our cash flow needs. Further, in light of the recent statements and regulatory actions by the PRC government, such as those related toHong Kong's national security, the PRC's trend of increased oversight and control ofHong Kong , the promulgation of regulations prohibiting foreign ownership of Chinese companies operating in certain industries, which are constantly evolving, and anti-monopoly concerns, we may be subject to the risks of uncertainty of any future actions of the PRC government in this regard including the risk that the PRC government could disallow our holding company structure, which may result in a material change in our operations, including our ability to continue our existing holding company structure, carry on our current business, accept foreign investments, and offer or continue to offer securities to our investors. These adverse actions could value the value of our common stock to significantly decline or become worthless. We may also be subject to penalties and sanctions imposed by the PRC regulatory agencies, including theChinese Securities Regulatory Commission , if we fail to comply with such rules and regulations, which could adversely affect the ability of the Company's securities to continue to trade on the Over-the-Counter Bulletin Board, which may cause the value of our securities to significantly decline or become worthless. There may be prominent risks associated with our operations being inHong Kong . For example, as aU.S. -listedHong Kong public company, we may face heightened scrutiny, criticism and negative publicity, which could result in a material change in our operations and the value of our common stock. It could also significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. Additionally, changes in Chinese internal regulatory mandates, such as the M&A rules, Anti-Monopoly Law, and the soon to be effective Data Security Law, may target the Company's corporate structure and impact our ability to conduct business inHong Kong , accept foreign investments, or list on anU.S. or other foreign exchange. For a detailed description of the risks facing the Company and the offering associated with our operations inHong Kong , please refer to "Risk Factors - Risk Factors Relating to Our Operations inHong Kong " as disclosed in our Registration Statement on Form S-1 filed with theSecurities and Exchange Commission onOctober 29, 2021 .
Our principal executive and registered offices are located at 17/F,
Equity Line Purchase Agreements
Investment Agreement with
The Company is a party to an Investment Agreement dated as ofApril 6, 2021 , or the "Investment Agreement," with Strattner pursuant to which Strattner is committed to purchase up to$5,000,000 , or the "Strattner Total Commitment," worth of the Company's common stock,$0.0001 par value, over the 36-month term of the Investment Agreement. From time to time over the term of the Investment Agreement, commencing on the trading day immediately following the date on which the initial registration statement is declared effective by theSecurities and Exchange Commission , or the "Commission," as further discussed below, the Company may, in its sole discretion, provide Strattner with written notices, or a "Strattner Put Notice," stating the amount of Common Shares of the Company that the Company intends to sell to Strattner, or the "Strattner Put Amount," with each put subject to the limitations discussed below. The maximum amount of common stock that the Company shall be entitled to put to Strattner under any applicable put notice, or the "Maximum Strattner Put Amount," shall be an amount of shares up to or equal to 200% of the average of the daily trading volume of our common stock for the ten (10) consecutive trading days immediately prior to the applicable date on which we make our put to Strattner, so long as such amount is at least$5,000 and does not exceed$250,000 , as calculated by multiplying the number of shares under our put by the average daily volume weighted average price for the 10 consecutive trading days immediately prior to the applicable date we submit our put to
Strattner. 20 Once presented with a Strattner Put Notice, Strattner is required to purchase the number of Strattner Put Shares underlying the Strattner Put Notice. The per share purchase price for the Common Shares subject to a Strattner Put Notice shall be equal to 85% of the lowest volume weighted average price of the Common Shares during the five (5) consecutive trading days including and immediately following the applicable Strattner Put Notice date, provided, however, an additional 10% will be added to the discount of each Put if (i) the Company is not DWAC eligible and (ii) an additional 15% will be added to the discount of each Put if the Company is under DTC "chill" status on the applicable Strattner Put Notice Date.
Among other conditions, the Company is prohibited from issuing a Strattner Put Notice if (i) the amount requested in such Strattner Put Notice exceedsTwo Hundred Fifty Thousand Dollars ($250,000 ), as calculated by multiplying the Strattner Put Amount by the average daily VWAP for the ten (10) consecutive trading days immediately prior to the applicable Strattner Put Notice Date, (ii) the sale of Shares pursuant to such Strattner Put Notice would cause the Company to issue or sell or Strattner to acquire or purchase an aggregate dollar value of Shares that would exceedFive Million Dollars ($5,000,0000 ), or (iii) the sale of Shares pursuant to the Strattner Put Notice would cause the Company to sell or Strattner to purchase an aggregate number of shares of the Company's common stock which would result in beneficial ownership by Strattner of more than 9.99% of the Company's common stock (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder). The Company cannot make more than one put in any pricing period and must allow 10 days to elapse between the completion of the settlement of any one put and the commencement of a pricing period for any other put. The foregoing description of the Investment Agreement is qualified in its entirety by reference to the Investment Agreement, which is filed as Exhibit 10.2 to this quarterly report and incorporated herein by reference.
Registration Rights Agreement with
In connection with the execution of the Investment Agreement, onApril 6, 2021 , the Company and Strattner also entered into a Registration Rights Agreement, or the "Strattner Registration Rights Agreement." Pursuant to the Registration Rights Agreement, the Company has agreed to file an initial registration statement, the "Registration Statement," with the Commission to register an agreed upon number of Strattner Put Shares, on or prior toJuly 5, 2021 , or the "Filing Deadline," and have it declared effective on or before the 150th calendar day the Company has filed the Registration Rights Agreement, or the "Effectiveness Deadline." Notwithstanding anything to the contrary, the Company is not obligated to file Registration Statements with respect to securities not issued pursuant to the Investment Agreement. If at any time all of theRegistrable Securities (as defined in the Registration Rights Agreement) are not covered by the initial Registration Statement, the Company has agreed to file with the Commission one or more additional Registration Statements so as to cover all of theRegistrable Securities not covered by such initial Registration Statement, in each case, as soon as practicable, but in no event later than the applicable filing deadline for such additional Registration Statements as provided in the Registration Rights Agreement. The foregoing description of the Registration Rights Agreement with Strattner is qualified in its entirety by reference to the Registration Rights Agreement with Strattner, which is filed as Exhibit 10.3 to this quarterly report and incorporated herein by reference.
Equity Purchase Agreement with
The Company is a party to an Equity Purchase Agreement datedAugust 20, 2021 , or the "Equity Purchase Agreement," pursuant to which Williamsburg is committed to purchase up to$30,000,000 worth of the Company's common stock,$0.0001 par value, over the 36-month term of the Equity Purchase Agreement, or the "Williamsburg Total Commitment". From time to time over the term of the Equity Purchase Agreement, the Company may, in its sole discretion, provide Williamsburg with written notices, or a "Williamsburg Put Notice ," stating the amount of Common Shares of the Company that the Company intends to sell to Williamsburg, or the "Williamsburg Put Amount." Once presented with aWilliamsburg Put Notice , Williamsburg is required to purchase the number ofWilliamsburg Put Shares underlying the Williamsburg Put Notice with each put subject to the limitations discussed below. The per share purchase price for the Williamsburg Put Shares shall be equal to 88% the lowest traded price of the Common Stock on the principal market during the five (5) consecutive trading days immediately preceding the date which Williamsburg received the Williamsburg Put Shares as DWAC Shares in its brokerage account (as reported byBloomberg Finance L.P. , Quotestream, or other reputable source). 21
The exercise of each put option is subject to the following limitations:
(i) each investment amount must be at least than
of an amount that equals the lesser of (i) 200% of the average
daily
trading volume, and (ii)$500,000 ;
(ii) the aggregate investment amount of all option puts shall not exceed
$30,000,000 ;
(iii) the lowest traded price of the Common Stock in the five trading days
preceding the respective Put Date must exceed$0.01 per share;
and
(iv) at least ten trading days must have lapsed since the most recent Put
Notice.
The Equity Purchase Agreement provides that the number ofWilliamsburg Put Shares to be sold to Williamsburg shall not exceed the number of shares that when aggregated together with all other shares of the Company's common stock which Williamsburg is deemed to beneficially own, would result in Williamsburg owning more than 4.99% of the Company's outstanding common stock (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder). The Equity Purchase Agreement provides that any provision of the Investment Agreement may be amended or waived only by an instrument in writing signed by the party to be charged with enforcement. The foregoing description of the Equity Purchase Agreement is qualified in its entirety by reference to the Equity Purchase Agreement, which is filed as Exhibit 10.4 to this quarterly report and incorporated herein by reference.
The Company has paid to Williamsburg a commitment fee equal in the form of 100,000 restricted shares of the Company's common stock (the "Williamsburg Initial Commitment Shares").
Registration Rights Agreement with
In connection with the Equity Purchase Agreement, onAugust 20, 2021 , the Company and Williamsburg also entered into a Registration Rights Agreement, or the "Williamsburg Registration Rights Agreement." Pursuant to the Williamsburg Registration Rights Agreement, the Company has agreed to file an initial registration statement, or the "Registration Statement," with the Commission to register the Williamsburg Initial Commitment Shares and that number ofWilliamsburg Put Shares as set forth in the Williamsburg Registration Rights Agreement, within 90 days after the execution date, or the "Filing Deadline.". If at any time all of theRegistrable Securities (as defined in the Registration Rights Agreement) are not covered by the initial Registration Statement, the Company has agreed to file with the Commission one or more additional Registration Statements so as to cover all of theRegistrable Securities not covered by such initial Registration Statement, in each case, as soon as practicable, but in no event later than the applicable filing deadline for such additional Registration Statements as provided in the Registration Rights Agreement. The foregoing description of the Registration Rights Agreement with Williamsburg is qualified in its entirety by reference to the Registration Rights Agreement with Williamsburg, which is filed as Exhibit 10.5 to this quarterly report and incorporated herein by reference. Results of Operations.
Comparison of the three months ended September30, 2021 and 2020.
The following table sets forth certain operational data for the three months
ended
Three Months Ended September 30, 2021 2020 Revenues$ 269,922 $ 1,824,479 Cost of revenue (34,280 ) (592,792 ) Gross profit 235,642 1,231,687 Total operating expenses (78,361 ) (455,833 ) Other income - (1,375 ) Income before Income Taxes 157,281 774,479 Income tax expense (32,508 ) (49,191 ) Net income 124,773 725,288 22
Revenue. We generated revenues of
During the three months ended
Three Months ended September 30, September 2021 30, 2021 Percentage Accounts Customer Revenues of revenues receivable Ease Audio Group Limited$ 192,802 72%$ 2,479,760 Yu Lin Nuo Ya Interactive Entertainment Company Limited 38,560 14% 1,473,355 Shenzhen Jiu Sheng Optoelectronic Comm Tech Co., Ltd 38,560 14% 1,140,444 Total:$ 269,922 100%$ 5,093,559 Three months ended September 30, September 2020 30, 2020 Percentage Accounts Customer Revenues of revenues receivable Ease Audio Group Limited$ 1,302,010 71%$ 1,245,736 Yu Lin Nuo Ya Interactive Entertainment Company Limited 483,291 26% 481,194$ 1,785,301 $ 97%$ 1,726,930
All of our major customers are located in
Cost of Revenue. Cost of revenue for the three months endedSeptember 30, 2021 , was$34,280 , and as a percentage of net revenue, approximately 12.7%. Cost of revenue for the three months endedSeptember 30, 2020 , was$592,792 , and as a percentage of net revenue, approximately 32.5%. Cost of revenue decreased primarily as a result of the decrease in our business volume.
Gross Profit. We achieved a gross profit of
General and Administrative Expenses ("G&A"). We incurred G&A expenses of$78,361 and$455,833 for the three months endedSeptember 30, 2021 , and 2020, respectively. The decrease in G&A is primarily attributable to the decrease
in our professional fee.
Income Tax Expense. Our income tax expenses for the quarters ended
Net Income. During the three months endedSeptember 30, 2021 , we incurred a net income of$124,773 , as compared to$725,288 for the same period endedSeptember 30, 2020 . The decrease in net income is primarily attributable to the decrease in our business volume from the weak economy amid COVID-19 pandemic in Hong
Kong andChina . 23
Comparison of the nine months ended
The following table sets forth certain operational data for the nine months
ended
Nine Months Ended September 30, 2021 2020 Revenues$ 927,053 $ 2,945,508 Cost of revenue (102,986 ) (743,860 ) Gross profit 824,067 2,201,648 Total operating expenses (181,215 ) (523,390 ) Other income - (1,341 ) Income before Income Taxes 539,080 1,676,917 Income tax expense (103,772 ) (178,846 ) Net income 539,080 1,498,071
Revenue. We generated revenues of
During the nine months ended
Nine Months ended September 30, September 2021 30, 2021 Percentage Accounts Customer Revenues of revenues receivable Ease Audio Group Limited$ 695,289 74%$ 2,479,760 Yu Lin Nuo Ya Interactive Entertainment Company Limited 115,882 13% 1,473,355 Shenzhen Jiu Sheng Optoelectronic Comm Tech Co., Ltd 115,882 13% 1,140,444 Total:$ 927,053 100%$ 5,093,559 September Nine months ended September 30, 2020 30, 2020 Percentage Accounts Customer Revenues of revenues receivable Ease Audio Group Limited$ 2,268,849 77%$ 1,245,736 Yu Lin Nuo Ya Interactive Entertainment Company Limited 541,301 18% 481,194$ 2,810,150 $ 95%$ 1,726,930
All of our major customers are located in
Cost of Revenue. Cost of revenue for the nine months endedSeptember 30, 2021 , was$102,986 , and as a percentage of net revenue, approximately 11.1%. Cost of revenue for the nine months endedSeptember 30, 2020 , was$743,860 , and as a percentage of net revenue, approximately 25.3%. Cost of revenue decreased primarily as a result of the decrease in our business volume. 24
Gross Profit. We achieved a gross profit of$824,067 and$2,201,648 for the nine months endedSeptember 30, 2021 and 2020, respectively. The decrease in gross profit is primarily attributable to the decrease in our business volume. General and Administrative Expenses ("G&A"). We incurred G&A expenses of$181,215 and$523,390 for the nine months endedSeptember 30, 2021 , and 2020, respectively. The decrease in G&A is primarily attributable to the decrease
in our professional fee.
Income Tax Expense. Our income tax expenses for the quarters ended
Net Income. During the nine months endedSeptember 30, 2021 , we incurred a net income of$539,080 , as compared to$1,498,071 for the same period endedSeptember 30, 2020 . The decrease in net income is primarily attributable to the decrease in our business volume from the weak economy amid COVID-19 pandemic.
Liquidity and Capital Resources.
As of
We believe that our current cash and other sources of liquidity discussed below are adequate to support general operations for at least the next 12 months.
Nine Months EndedSeptember 30, 2021 2020
Net cash provided by operating activities$ 16,344 $ 764,699 Net cash used in investing activities - (862,271 ) Net cash provided by (used in) financing activities$ 28,278
$ (119,198 )
Net Cash Provided By Operating Activities.
For the nine months endedSeptember 30, 2021 , net cash provided by operating activities was$16,344 , which consisted primarily of a net income of$539,080 , depreciation of plant and equipment of$119,081 , offset by an increase in accounts receivables of$599,208 , an increase in deposits, prepayments and other receivables of$164,056 , an increase in income tax payable of$103,772 and an increase in accrued expenses and other payables of$17,675 . For the nine months endedSeptember 30, 2020 , net cash provided by operating activities was$764,699 , which consisted primarily of a net income of$1,498,071 , depreciation of plant and equipment of$7,348 , stock-based compensation expense of$325,000 , an increase in tax payable of$179,689 , an increase in accrued expenses and other payable of$17,878 a decrease in lease liabilities of$658 , offset by an increase in accounts receivable of$1,003,875 and an increase in deposits, prepayments and other receivables of$258,754 .
We expect to continue to rely on cash generated through financing from our existing shareholders and private placements of our securities, however, to finance our operations and future acquisitions.
For the nine months ended
25
For the nine months ended
Net Cash Provided By (Used In) Financing Activities.
For the nine months ended
For the nine months ended
Off-Balance Sheet Arrangements
We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Critical Accounting Policies and Estimates.
The preparation of financial statements in conformity with accounting principles generally accepted inthe United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management's subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following accounting policies are critical in the preparation of our financial statements. · Basis of presentation
These accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in
· Use of estimates and assumptions In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenues and expenses during the period reported. Actual results may differ from these estimates. · Basis of consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation. 26 · Accounts receivable Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from completion of service. Credit is extended based on evaluation of a customer's financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. At the end of fiscal year, the Company specifically evaluates individual customer's financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. · Revenue recognition
The Company adopted Accounting Standards Codification ("ASC") 606 - Revenue from Contracts with Customers" ("ASC 606"). Under ASC 606, a performance obligation is a promise within a contract to transfer a distinct good or service, or a series of distinct goods and services, to a customer. Revenue is recognized when performance obligations are satisfied and the customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for goods or services. Under the standard, a contract's transaction price is allocated to each distinct performance obligation. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: • identify the contract with a customer; • identify the performance obligations in the contract; • determine the transaction price; • allocate the transaction price to performance obligations in the contract; and
• recognize revenue as the performance obligation is satisfied. · Foreign currencies translation Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statement of operations. The reporting currency of the Company is United States Dollar ("US$") and the accompanying consolidated financial statements have been expressed in US$. In addition, the Company's operating subsidiaries inHong Kong andSeychelles maintain their books and record in its local currency, Hong Kong Dollars ("S$"), which is a functional currency as being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, " Translation of Financial Statement", using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the year. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statements of changes in stockholder's equity. 27 · Leases The Company adopted Topic 842, Leases ("ASC 842"). At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use ("ROU") assets, lease liabilities and long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as prepaid or accrued lease payments. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. In accordance with the guidance in ASC 842, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.). Subsequently, the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components. Lease expense is recognized on a straight-line basis over the lease terms. Lease expense includes amortization of the ROU assets and accretion of the lease liabilities. Amortization of ROU assets is calculated as the periodic lease cost less accretion of the lease liability. The amortized period for ROU assets is limited to the expected lease term. The Company has elected a practical expedient to combine the lease and non-lease components into a single lease component. The Company also elected the short-term lease measurement and recognition exemption and does not establish ROU assets or lease liabilities for operating leases with terms of 12 months or less. · Recent accounting pronouncements From time to time, new accounting pronouncements are issued by theFinancial Accounting Standards Board (FASB), or other standard setting bodies and adopted by the Company as of the specified effective date. Under the Jumpstart Our Business Startups Act of 2012 (JOBS Act), the Company meets the definition of an emerging growth company. The Company has elected to use the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company's financial position or results of operations upon adoption.
Recently Adopted Accounting Pronouncements
The Company adopts all applicable, new accounting pronouncements as of the specified effective dates.
InSeptember 2016 , the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) ("ASU 2016-13"), which requires the immediate recognition of management's estimates of current and expected credit losses. InNovember 2018 , the FASB issued ASU 2018-19, which makes certain improvements to Topic 326. In April andMay 2019 , the FASB issued ASUs 2019-04 and 2019-05, respectively, which adds codification improvements and transition relief for Topic 326. InNovember 2019 , the FASB issued ASU 2019-10, which delays the effective date of Topic 326 for Smaller Reporting Companies to interim and annual periods beginning afterDecember 15, 2022 , with early adoption permitted. InNovember 2019 , the FASB issued ASU 2019-11, which makes improvements to certain areas of Topic 326. InFebruary 2020 , the FASB issued ASU 2020-02, which adds anSEC paragraph, pursuant to the issuance ofSEC Staff Accounting Bulletin No. 119, to Topic 326. Topic 326 is effective for the Company for fiscal years and interim reporting periods within those years beginning afterDecember 15, 2022 . Early adoption is permitted for interim and annual periods beginningDecember 15, 2019 . The Company is currently evaluating the potential impact of adopting this guidance on the consolidated financial statements. 28 OnJanuary 1, 2020 , the Company adopted ASU No. 2017-04, "Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment", which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment charge based on the excess of a reporting unit's carrying value over its fair value. Adoption of this ASU did not have a material effect on the consolidated financial statements. OnJanuary 1, 2020 , the Company adopted ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820. Adoption of this ASU did not have a material effect on our consolidated financial statements. All new accounting pronouncements issued but not yet effective are not expected to have a material impact on our results of operations, cash flows or financial position with the exception of the updated previously disclosed above, there have been no new accounting pronouncements not yet effective that have significance to the consolidated financial statements.
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