| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES | 2. Summary
of Significant Accounting Policies and Practices Basis
of presentation The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) for information pursuant to the rules and regulations of the SEC. Principles
of consolidation The
consolidated financial statements include the financial statements of the Company and its subsidiaries, which include the wholly- foreign
owned enterprise (“WFOE”) and variable interest entities (“VIEs”) over which the Company exercises control and,
when applicable, entities for which the Company has a controlling financial interest or is the primary beneficiary. All transactions
and balances among the Company and its subsidiaries have been eliminated upon consolidation. Variable Interest Entity Agreements On May 14, 2020, Weibao Enterprise
Management Consulting (Shijiazhuang) Co., Ltd. (“Weibao Enterprise”), Guian New Area Zhongyuan Technology Co., Ltd. (“Zhongyuan
Technology”), and Messrs. Yilin Wang, Weidong Feng, and Xianlong Wu, citizens of China and shareholders of Zhongyuan Technology,
entered into the following agreements, or collectively, the “Variable Interest Entity Agreements” or “VIE Agreements,”
pursuant to which Weibao Enterprise has contractual rights to control and operate the business of Zhongyuan Technology (the “VIE”).
Therefore, pursuant to ASC 810, Zhongyuan Technology has been included in the Company’s consolidated financial statements since
then. The VIE Agreements are as follows:
1) Technical Consulting and Service Agreement by and between Weibao Enterprise and Zhongyuan Technology. Pursuant to the Exclusive Technical Consulting and Service Agreement, Weibao Enterprise agreed to act as the exclusive consultant of Zhongyuan Technology and provide technical consulting and services to Zhongyuan Technology. In exchange, Zhongyuan Technology agreed to pay Weibao Enterprise a technical consulting and service fee, the amount of which is to be equivalent to the amount of net profit before tax of Zhongyuan Technology, payable on a quarterly basis after making up losses of previous years (if necessary) and deducting necessary costs, expenses and taxes related to the business operations of Zhongyuan Technology. Without the prior written consent of Weibao Enterprise, Zhongyuan Technology may not accept the same or similar technical consulting and services provided by any third party during the term of the agreement. All the benefits and interests generated from the agreement, including but not limited to intellectual property rights, know-how and trade secrets, will be Weibao Enterprise’s sole and exclusive property. This agreement has a term of 20 years and may be extended unilaterally by Weibao Enterprise with Weibao Enterprise’s written confirmation prior to the expiration date. Zhongyuan Technology cannot terminate the agreement early unless Weibao Enterprise commits fraud, gross negligence or illegal acts, or becomes bankrupt or winds up.
2) Equity Interest Purchase Option Agreement by and among Weibao Enterprise, Zhongyuan Technology, and Messrs. Yilin Wang, Weidong Feng and Xianlong Wu. Pursuant to the Exclusive Purchase Option Agreement, Messrs. Yilin Wang, Weidong Feng and Xianlong Wu granted to Weibao Enterprise and any party designated by Weibao Enterprise the exclusive right to purchase, at any time during the term of this agreement, all or part of the equity interests in Zhongyuan Technology, or the “Equity Interests,” at a purchase price equal to the registered capital paid by Messrs. Yilin Wang, Weidong Feng and Xianlong Wu for the Equity Interests, or, in the event that applicable law requires an appraisal of the Equity Interests, the lowest price permitted under applicable law. Pursuant to powers of attorney executed by Messrs. Yilin Wang, Weidong Feng and Xianlong Wu, they irrevocably authorized any person appointed by Weibao Enterprise to exercise all shareholder rights, including but not limited to voting on their behalf on all matters requiring approval of Zhongyuan Technology’s shareholders, disposing of all or part of the shareholders’ equity interest in Zhongyuan Technology, and electing, appointing or removing directors and executive officers. The person designated by Weibao Enterprise is entitled to dispose of dividends and profits on the equity interest without reliance on any oral or written instructions of Messrs. Yilin Wang, Weidong Feng and Xianlong Wu. The powers of attorney will remain in force for so long as Messrs. Yilin Wang, Weidong Feng and Xianlong Wu remain the shareholders of Zhongyuan Technology. Messrs. Yilin Wang, Weidong Feng and Xianlong Wu have waived all the rights which have been authorized to Weibao Enterprise’s designated person under the powers of attorney.
3) Equity Pledge Agreement by and among Weibao Enterprise, Zhongyuan Technology, and Messrs. Yilin Wang, Weidong Feng and Xianlong Wu. Pursuant to the Equity Pledge Agreement, Mr. Messrs. Yilin Wang, Weidong Feng and Xianlong Wu pledged all of the Equity Interests to Weibao Enterprise to secure the full and complete performance of the obligations and liabilities on the part of Zhongyuan Technology and them under this and the above contractual arrangements. If Zhongyuan Technology, Messrs. Yilin Wang, Weidong Feng or Xianlong Wu breaches their contractual obligations under these agreements, then Weibao Enterprise, as pledgee, will have the right to dispose of the pledged equity interests. Messrs. Yilin Wang, Weidong Feng and Xianlong Wu agree that, during the term of the Equity Pledge Agreements, they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests, and they also agree that Weibao Enterprise’s rights relating to the equity pledge should not be interfered with or impaired by the legal actions of the shareholders of Zhongyuan Technology, their successors or designees. During the term of the equity pledge, Weibao Enterprise has the right to receive all of the dividends and profits distributed on the pledged equity. The Equity Pledge Agreement will terminate as soon as reasonably practical when Zhongyuan Technology, Messrs. Yilin Wang, Weidong Feng and Xianlong Wu have completed all their obligations under the contractual agreements described above.
4) Voting Rights Proxy and Financial Support Agreement by and among Weibao Enterprise, Zhongyuan Technology, and Messrs. Yilin Wang, Weidong Feng and Xianlong Wu. Pursuant to the Voting Rights Proxy and Financial Support Agreement, Messrs. Yilin Wang, Weidong Feng and Xianlong Wu entrusts Weibao Enterprise or Weibao Enterprise’s designee to vote on their behalf at the shareholder meetings of Zhongyuan Technology. As consideration for the entrustment of the voting rights of Messrs. Yilin Wang, Weidong Feng and Xianlong Wu at Zhongyuan Technology’s shareholder meetings to Weibao Enterprise, Weibao Enterprise agreed to arrange for funds to be provided as necessary in connection with the business operations of Zhongyuan Technology. Weibao Enterprise further agreed that if the business were to fail in the ordinary course of business, none of Messrs. Yilin Wang, Weidong Feng and Xianlong Wu shall have any obligation to repay the financial support provided by Weibao Enterprise. Reverse
Acquisitions of China Rapid Finance by SOS On
May 18, 2020, the Company completed the reverse acquisition with Yong Bao Two Ltd. (“YBT”), the parent company of SOS Information
Technology Co., Ltd. (“SOS”), acquiring 37,985,203 Class A ordinary shares, and 3,465,574 Class B ordinary shares, par value
$0.193 per ordinary share, for its SOS’s asset injection and private placement transactions. Following
the completion of the acquisition, the operations of the Company were primarily comprised of the operations of SOS. SOS
was determined to be the accounting acquirer of the Company. As such, the historical financial statements are those of SOS, and
SOS’s equity has been re-cast to reflect the equity structure of the Company and the shares of common stock received. The
reverse acquisition was accounted for as asset acquisitions. The purchase price for China Rapid Finance (“CRF”) was $9.7
million. The transaction price of CRF includes 100% of all outstanding stock valued at net $9.7 million. The stock exchanged equal to
the 72,636,230 shares of CRF outstanding prior to the issuance of additional shares in the acquisition, at the market price of $0.133
per share. The total purchase price has been allocated based on an estimate of the fair value of CRF’s assets acquired and liabilities
assumed with the remainder recorded as an expense. On
May 18, 2020, the fair value of the following assets and liabilities were acquired resulting in the total loss of approximately $5.7
million:
Dollars in thousands
Total Purchase Price $ 9,660
Net Assets (Liabilities) Acquired:
Assets
Cash and cash equivalents 13,664
Restricted cash 26,524
Accounts receivable 7,426
Inventories 8
Prepaid expenses and other current assets 110
Intangible assets 2,969
Other assets 2,682
Total Assets 53,419
Liabilities
Warrant derivative liability -
Accounts payable & accrued liabilities (49,437 )
Total Liabilities (49,437 )
Net Assets (Liabilities) Acquired 3,982
Loss on Acquisitions $ 5,679 On
August 3, 2020, SOS Limited (the “Company,” previously known as China Rapid Finance Limited) and Hantu (Hangzhou) Asset Management
Co., Ltd. (the “Purchaser”) entered into certain share purchase agreement (the “Disposition SPA”). Pursuant to
the Disposition SPA, the Purchaser agreed to purchase CRF China Holding Co. Limited, a Hong Kong limited company (“CRF China”),
China Capital Financial LLC, a Delaware limited liability company (“China Capital”), CRF China Limited, a British Virgin Islands
company (“CRF BVI”), CRF Technology LLC, a California limited liability company (“CRF Technology”), and HML China
LLC, a Delaware limited liability company (“HML”) (collectively, the “Subsidiaries”) in exchange for cash consideration
of $3.5 million (the “Purchase Price”). Upon the closing of the transaction (the “Disposition”) contemplated by
the Disposition SPA, the Purchaser will become the sole shareholder of the Subsidiaries and as a result, assume all assets and liabilities
of all the subsidiaries and variable interest owned or controlled by the Subsidiaries. On August 3, 2020, the fair value of
the following assets and liabilities were disposed of resulting in the total gain of approximately $0.063 million:
Dollars in thousands
Total Selling Price $ 3,500
Net Assets (Liabilities) Disposed:
Total Assets 53,654
Total Liabilities (50,217 )
Net Assets (Liabilities) Acquired 3,437
Income
from disposal of discontinued operations $ 63 Loss on discontinued operations
for the year ended December 31, 2020 was as follows:
Dollars in thousands
Revenue $ 453
Expenses (998 )
Loss on discontinued operations $ (545 ) Use
of estimates and assumptions The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates
reflected in the Company’s consolidated financial statements include the useful lives of plant and equipment and intangible assets,
capitalized development costs, impairment of long-lived assets, allowance for doubtful accounts, revenue recognition, allowance for deferred
tax assets and uncertain tax position, and inventory allowance. Actual results could differ from these estimates. Foreign
currency translation and transaction The
reporting currency of the Company is the U.S. dollar. The Company in China conducts its businesses in the local currency, Renminbi (RMB),
as its functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of
China at the end of the period. The statement of income accounts is translated at the average translation rates and the equity accounts
are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive
income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than
the functional currency are included in the results of operations as incurred. Translation
adjustments included in accumulated other comprehensive income (loss) amounted to $738,038, ($16,358) and $4,875 as of December 31, 2020,
2019 and 2018, respectively. The balance sheet amounts, with the exception of shareholders’ equity at December 31, 2020, 2019 and
2018 were translated at 6.8632 RMB, 6.9762 RMB and 6.5249 RMB, respectively. The shareholders’ equity accounts were stated at their
historical rate. The average translation rates applied to statement of income accounts for the years ended December 31, 2020, 2019 and
2018 were 6.6174 RMB, 6.8985 RMB and 6.8976 RMB to $1.00, respectively. Cash flows are also translated at average translation rates for
the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding
balances on the consolidated balance sheet. Cash
and cash equivalents Cash
and cash equivalents consist of cash on hand; demand deposits and time deposits placed with banks or other financial institutions and
have original maturities of less than three months. Accounts
receivable, net Accounts
receivable include trade accounts due from customers. Accounts are considered overdue after 30 days. In establishing the required allowance
for doubtful accounts, management considers historical collection experience, aging of the receivables, the economic environment, industry
trend analysis, and the credit history and financial conditions of the customers. Management reviews its receivables on a regular basis
to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off
against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. Other
receivables, net Other
receivables primarily include deposits for business acquisitions, setup of research center, advances to employees, and others. Management
regularly reviews the aging of receivables and changes in payment trends and records allowances when management believes collection of
amounts due are at risk. Accounts considered uncollectable are written off against allowances after exhaustive efforts at collection
are made. Property
and equipment, net Property
and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. The estimated useful lives are as follows:
Category Depreciation
method Estimated
useful lives
Office equipment, fixtures
and furniture Straight-line 5 years The
cost and accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included
in the consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are charged to earnings as
incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company
also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful
lives. Intangible
assets Goodwill Goodwill
of $71,977 was recognized as of December 31, 2020 in connection with the SOS IT Acquisition. In future years, the Company
will complete an annual impairment test for goodwill that includes an assessment of qualitative factors including, but not limited to,
macroeconomic conditions, industry and market conditions, and entity specific factors such as strategies and financial performance. The
Company will perform annual impairment tests as of December 31, 2020 or earlier if indicators of impairment exist. There were no indicators
of goodwill impairment as of December 31, 2020. Impairment
for long-lived assets Long-lived
assets, including property and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes
in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that
the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted
future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows
expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying
value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value
based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of December 31, 2020, 2019
and 2018, no impairment of long-lived assets was recognized. Long-term
investments Long-term
investments include cost method investment and equity method investments. Entities
in which the Company has the ability to exercise significant influence, but does not have a controlling interest, are accounted for using
the equity method. Significant influence is generally considered to exist when the Company has voting shares between 20% and 50%, and
other factors, such as representation on the Board of Directors, voting rights and the impact of commercial arrangements, are considered
in determining whether the equity method of accounting is appropriate. Under this method of accounting, the Company records its proportionate
share of the net earnings or losses of equity method investees and a corresponding increase or decrease to the investment balances. Dividends
received from the equity method investments are recorded as reductions in the cost of such investments. The
Company accounts for investments with less than 20% of the voting shares and does not have the ability to exercise significant influence
over operating and financial policies of the investee using the cost method. The Company records cost method investments at the historical
cost in its consolidated financial statements and subsequently records any dividends received from the net accumulated earrings of the
investee as income. Dividends received in excess of earnings are considered a return of investment and are recorded as reduction in the
cost of the investments. Long-term
investments are evaluated for impairment when facts or circumstances indicate that the fair value of the long-term investments is less
than its carrying value. Impairment is recognized when a decline in fair value is determined to be other-than-temporary. The Company
reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (i)
nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; financial condition
and near term prospects of the investments; and (v) ability to hold the security for a period of time sufficient to allow for any anticipated
recovery in fair value. No event had occurred and indicated that other-than-temporary impairment existed and therefore the Company did
not record any impairment charges for its investments for the years ended December 31, 2020, 2019 and 2018. Fair
value measurement The
accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and
requires disclosure of the fair value of financial instruments held by the Company. The
accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance
disclosure requirements for fair value measures. The three levels are defined as follow: Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. Level
3 inputs to the valuation methodology are unobservable and significant to the fair value. Revenue
recognition The
Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606). The ASU requires
the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify
the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including
variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction
price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance
obligation. The
Company recognizes services revenue for all kind of services provided according to monthly statements with customers, depending on the
terms, provided that: there will be acknowledgment by customer as services provided; persuasive evidence of an agreement exists documenting
the specific terms of the transaction; the sales price is fixed or determinable; and collectability is reasonably assured. Management
assesses the business environment, the customer’s financial condition, historical collection experience, accounts receivable aging,
and customer disputes to determine whether collectability is reasonably assured. The
products sold in the PRC are subject to a Chinese value-added tax (“VAT”). VAT taxes are presented as a reduction of revenue. Operating
leases A
lease for which substantially all the benefits and risks incidental to ownership remain with the lessor is classified by the lessee as
an operating lease. All leases of the Company are currently classified as operating leases. The Company records the total expenses on
a straight-line basis over the lease term, and the accounting of operating lease in this report has been updated to reflect the adoption
of FASB’s new guidance on the recognition and measurement of leases. Value
added taxes Revenue
represents the invoiced value of service, net of VAT. The VAT is based on gross sales price and VAT rates range up to 6%, depending on
the type of service provided. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against
their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in tax payable. All of the VAT returns filed
by the Company’s subsidiaries in China have been and remain subject to examination by the tax authorities for five years from the
date of filing. Income
taxes The
Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. The charge for taxation is based
on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that
have been enacted or substantively enacted by the balance sheet date. Deferred
taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the
carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation
of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets
are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences
can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the
liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged
directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. Comprehensive
income Comprehensive
income consists of two components, net income and other comprehensive (loss) income. Other comprehensive (loss) income refers to revenue,
expenses, gains and losses that under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from net income.
Other comprehensive (loss) income consists of a foreign currency translation adjustment resulting from the Company not using the U.S.
dollar as its functional currencies. Earnings
per share The
Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires
companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average ordinary share outstanding
for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential ordinary shares (e.g., convertible securities,
options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential
ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded
from the calculation of diluted EPS. For the years ended December 31, 2020, there are 162,963,343 dilutive share. For the years ended
December 31, 2019 and 2018, there were no dilutive shares. Share-based
compensation The
Company recognizes compensation expense for all share–based payments in accordance with FASB ASC Topic 718, Compensation –
Stock Compensation. The Company follows the fair value method of accounting for awards granted to employees, directors, officers and
consultants. Share-based awards are measured at their estimated fair value on each respective grant date. The Company recognizes share-based
payment expenses over the vesting period. The Company’s share-based compensation awards are subject only to service based vesting
conditions. Forfeitures are accounted for as they occur. The fair value of an option award is estimated on the date of grant using the
Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that
are inputs into the model. These assumptions are the expected stock volatility, the risk–free interest rate, the expected life
of the option and the expected dividend yield which is based on the historical dividends issued by the Company. The Company has never
paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. Expected volatility is calculated based
on the analysis of other public companies. Risk–free interest rates are calculated based on risk–free rates for the appropriate
term. The expected life is calculated as (i) the mid-point between the average vested date and the contractual expiration of the option
for executives and directors and (ii) three years from the average vesting date for all others due to limited exercise history. Determining
the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the subjective
assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s
best estimates, which involve inherent uncertainties and the application of management’s judgment. Employee
benefits The
full-time employees of the Company are entitled to staff welfare benefits including medical care, housing fund, pension benefits, unemployment
insurance and other welfare, which are government mandated defined contribution plans by law. The Company is required to accrue for these
benefits based on certain percentages of the employees’ respective salaries, subject to certain ceilings, in accordance with the
relevant PRC regulations, and make cash contributions to the state-sponsored plans out of the amounts accrued. Recently
issued accounting pronouncements In
January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint
Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic
815 (a consensus of the FASB Emerging Issues Task Force) (“ASU 2020-01”), which clarifies the interactions of the accounting
for certain equity securities under ASC 321, investments accounted for under the equity method of accounting in ASC 323, and the accounting
for certain forward contracts and purchased options accounted for under ASC 815. ASU 2020-01 could change how an entity accounts for
(i) an equity security under the measurement alternative and (ii) a forward contract or purchased option to purchase securities that,
upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting
or the fair value option in accordance with ASC 825. These amendments improve current U.S. GAAP by reducing diversity in practice and
increasing comparability of the accounting for these interactions. The new guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 31, 2020. Early adoption is permitted. The Company is currently in the process of
evaluating the of adopting ASU 2020-01 on its consolidated financial statements and related disclosure. In
August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU
2020-06”), which focuses on amending the legacy guidance on convertible instruments and the derivatives scope exception for contracts
in an entity’s own equity. ASU 2020-06 simplifies an issuer’s accounting for convertible instruments by reducing the number
of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment
that entities are required to perform to determine whether a contract qualifies for equity classification. Further, ASU 2020-06 enhances
information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS)
guidance, i.e., aligning the diluted EPS calculation for convertible instruments by requiring that an entity use the if-converted method
and that the effect of potential share settlement be included in the diluted EPS calculation when an instrument may be settled in cash
or shares, adding information about events or conditions that occur during the reporting period that cause conversion contingencies to
be met or conversion terms to be significantly changed. This update will be effective for the Company’s fiscal years beginning
after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years
beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through
either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently in the process
of evaluating the impact of adopting ASU 2020-06 on its consolidated financial statements and related disclosure. |
