# Meridian Holdings Inc./NV (MRDN) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Meridian Holdings Inc./NV's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1437925/000147793221002744/gmgi_10k.htm
Accession: 0001477932-21-002744
Filing date: 2021-04-30
Report date: 2021-01-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/MRDN/
All MD&A years: /company/MRDN/mda/
Next year: /company/MRDN/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking statements

The following discussion of the Company’s historical performance and financial condition should be read together with the consolidated financial statements and related notes in “Item 8. Financial Statements and Supplemental Data” of this Report. This discussion contains forward-looking statements based on the views and beliefs of our management, as well as assumptions and estimates made by our management. These statements by their nature are subject to risks and uncertainties, and are influenced by various factors. As a consequence, actual results may differ materially from those in the forward-looking statements. See “Item 1A. Risk Factors” of this report for the discussion of risk factors and see “Cautionary Statement Regarding Forward-Looking Statements” for information the forward-looking statements included below.

[[GREPCENT_TABLE]]
[["57"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

Overview

We derive revenues primarily from licensing fees received from gaming operators located in the Asia Pacific (APAC) region that utilize the Company’s technology.

The Company’s goal is to expand our customer base globally and to integrate additional operators, launch additional synergistic products and appoint more distributors. Currently the Company has more than 1.5 million registered users across all gaming operators that utilize the Company’s technology and is currently integrating additional operators to expand this usage.

Our financial focus is on long-term, sustainable growth in revenue with the goal of marginal increases in expenses. The Company’s activity is highly scalable. We are highly encouraged by recent revenue growth, clearly demonstrating the acceptance and reputation of the Company’s GM-X System and its gaming content. We plan to continuously add new products to our offerings and anticipate revenue growth assuming we are successful therewith.

Novel Coronavirus (COVID-19)

In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a “Public Health Emergency of International Concern” on January 30, 2020 and a global pandemic on March 11, 2020. In March and April, many U.S. states and local jurisdictions began issuing ‘stay-at-home’ orders. Although to date we have not experienced any significant issues associated with the ongoing pandemic, the range of possible impacts on the Company’s business from the coronavirus pandemic could include: (i) changing demand for the Company’s products and services; (ii) rising bottlenecks in the Company’s supply chain; and (iii) increasing contraction in the capital markets. At this time, the Company believes that it is premature to determine the potential impact on the Company’s business prospects from these or any other factors that may be related to the coronavirus pandemic; however, it is possible that COVID-19 and the worldwide response thereto, may have a material negative effect on our operations, cash flows and results of operations.

Currently we believe that we have sufficient cash on hand, and availability to raise additional funding, or borrow additional funding, as needed, to support our operations for the foreseeable future; however, we will continue to evaluate our business operations based on new information as it becomes available and will make changes that we consider necessary in light of any new developments regarding the pandemic. 

The future impact of COVID-19 on our business and operations is currently unknown. The pandemic is developing rapidly and the full extent to which COVID-19 will ultimately impact us depends on future developments, including the duration and spread of the virus, as well as potential seasonality of new outbreaks.

Results of Operations

Revenues

The Company currently has two distinctive revenue streams.

1) The Company charges gaming operators for the use of its unique intellectual property (IP) and technology systems. Revenues derived from such charges were based on the usage of the systems by the clients. Total revenues recognized from the usage of our Gaming IP and technology systems in the years ended January 31, 2021 and 2020, the six months periods ended January 31, 2020 and 2019, and the fiscal years ended July 31, 2019 and 2018 are shown in the following table:

[[GREPCENT_TABLE]]
[["","","Years Ended January 31","","","Six Months Ended January 31","","","Years Ended July 31"],["","","2021","","","2020","","","2020","","","2019","","","2019","","","2018"],["","","","","","(unaudited)","","","","","","(unaudited)"],["Related party","","$","2,248,877","","","$","2,167,773","","","$","1,087,816","","","$","1,349,485","","","$","2,429,442","","","$","915,804"],["Third party","","","595,819","","","","1,120,802","","","","670,783","","","","2,752","","","","452,771","","","","-"],["Total","","","2,844,696","","","","3,288,575","","","","1,758,599","","","","1,352,237","","","","2,882,213","","","","915,804"]]
[[/GREPCENT_TABLE]]

The decrease in revenues for the fiscal year ended 2021, compared to the fiscal year ended 2020, is due to a marginal decrease in revenues from one of our customers.

The increase in revenues in the six-month transition period ended January 31, 2020, compared to the six-month period ended January 31, 2019, is attributable to an increase in registered end-users from our third-party customer.  

[[GREPCENT_TABLE]]
[["58"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

The increase in revenues in fiscal year 2019, compared to fiscal year 2018, is attributable to the addition of a new distributor as well as the global expansion by one of our distributors.: (1) on July 1, 2018, Red Label Technology Pte Ltd and the Company entered into a License Agreement. Red Label desired to license the use of the GM-X System to support its business-to-business (B2B) business. During the year ended July 31, 2019, Red Label Technology Pte Ltd contributed to 16% of the total revenue; and (2) on July 1, 2018, Articulate Pty Ltd and the Company entered into an Addendum to License Agreement (the “Addendum”). Articulate requested that the Company provide system for usage in Malaysian Currency. The new market also contributed to 26% of the total revenue in fiscal year 2019.

2) Since June 2020, the Company has contracted with certain clients to offer third party gaming content and as such become a reseller of this gaming content. During the year ended January 31, 2021, $2,378,363 in revenues were derived from the reselling of gaming content. There were no such revenues in the previous years or periods. The Company believes that there is a significant opportunity to scale this new revenue stream with low related expenses and no capital expenditures and also to expand its global reach. The new revenue stream is highly scalable i.e., the running and support costs relative to the incremental revenues are low, and will reduce exponentially as a percentage of revenues as revenues grow. The Company plans to strive to roll out this new product offering to its existing client base and expects to scale up its revenues as a result.

Costs of goods sold 

The Company currently has two distinctive costs of goods sold.

1) The Company recognized the amortization of stock options granted to consultants under the 2018 Equity Incentive Plan as a cost of goods sold. This recognition is based on the fact that the stock options directly contributed to the revenues generated by the Company’s GM2 Asset. The amortization expenses of the consultants’ stock options recognized in the years ended January 31, 2021 and 2020, the six months periods ended January 31, 2020 and 2019, and the fiscal years ended July 31, 2019 and 2018 are shown in the following table:

[[GREPCENT_TABLE]]
[["","","Years Ended January 31","","","Six Months Ended January 31","","","Years Ended July 31"],["","","2021","","","2020","","","2020","","","2019","","","2019","","","2018"],["","","","","","(unaudited)","","","","","","(unaudited)"],["Amortization expenses of consultants\u2019 stock options","","$","275,780","","","$","(59,280",")","","$","57,224","","","$","138,502","","","$","21,998","","","$","72,003"]]
[[/GREPCENT_TABLE]]

The increase in the option amortization expense in fiscal year 2021, compared to 2020 is attributable to the options issued during the year. The increase in the share price has also increased the option valuation based on the Black-Scholes valuation model and therefore increased the amortization expenses.

The decrease in the option amortization expenses in the six-month transition period ended 2020, compared to the six months ended January 31, 2019, and the fiscal year ended 2019, compared to the fiscal year ended July 31, 2018, is due to the adoption of new accounting standard ASU 2018-07, in which the Company was not required to re-value options at each reporting date.

2) From June 2020, due to the reselling of the gaming content, the cost of usage of the third-party content is recognized as a cost of goods sold. During the year ended January 31, 2021, $1,724,272 of costs were recognized. There were no such costs before.

General and administrative Expenses

General and administrative expenses consist primarily of advertising and promotion expenses, travel expenses, website maintenance expenses, and administrative expenses. Total general and administrative expenses in the years ended January 31, 2021 and 2020, the six months periods ended January 31, 2020 and 2019, and the fiscal years ended July 31, 2019 and 2018 are shown in the following table:

[[GREPCENT_TABLE]]
[["","","Years Ended January 31","","","Six Months Ended January 31","","","Years Ended July 31"],["","","2021","","","2020","","","2020","","","2019","","","2019","","","2018"],["","","","","","(unaudited)","","","","","","(unaudited)"],["G&A expense","","$","566,593","","","$","337,140","","","$","149,177","","","$","133,376","","","$","321,339","","","$","186,040"]]
[[/GREPCENT_TABLE]]

The increase in the general and administrative expenses in fiscal year 2021, compared to 2020, is mainly due to the marketing compensation granted to one of the Company’s customers. As per the Company’s Software Agreement with the customer, if the customer reaches a certain amount of usage (based on net income usage), the customer will be granted marketing compensation of 1% per month.

The general and administrative expenses remained consistent during the six-month transition period ended January 31, 2020, compared to the six-month period ended January 31, 2019.

[[GREPCENT_TABLE]]
[["59"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

The increase in general and administrative expenses in fiscal year 2019, compared to fiscal year 2018, is attributable to the increase in travel expenses and advertising expenses. During the fiscal year 2019, there was a need for increased travel by management overseas to meet suppliers and attend trade shows. The Company also increased its marketing and awareness efforts, which resulted in higher advertising expenses.

General and administrative Expenses – Related Parties

General and administrative expenses from related parties consist primarily of amortization expenses due to stock options granted to Directors, back-office expenses, consulting expenses and salary expenses payable to the Company's CEO and CFO. The components of general and administrative expenses from related parties in the years ended January 31, 2021 and 2020, the six months periods ended January 31, 2020 and 2019, and the fiscal years ended July 31, 2019 and 2018 are shown in the following table:

[[GREPCENT_TABLE]]
[["","","Years Ended January 31","","","Six Months Ended January 31","","","Years Ended July 31"],["","","2021","","","2020","","","2020","","","2019","","","2019","","","2018"],["","","","","","(unaudited)","","","","","","(unaudited)"],["Amortization expenses of Directors\u2019 stock options","","$","1,630,403","","","$","484,763","","","$","392,101","","","$","114,180","","","$","206,842","","","$","129,109"],["Back office expenses","","","132,000","","","","99,000","","","","66,000","","","","20,200","","","","53,200","","","","27,600"],["Consulting & salary expenses","","","288,037","","","","160,380","","","","81,972","","","","68,040","","","","146,448","","","","181,500"],["Total","","","2,050,440","","","","744,143","","","","540,073","","","","202,420","","","","406,490","","","","338,209"]]
[[/GREPCENT_TABLE]]

During the fiscal years ended January 31, 2021 and 2020, the amortization expenses increased due to the stock options granted to three Independent Directors under the 2018 Equity Incentive Plan; the back office expenses increased due to the increasing cost per month from $5,500 to $11,000 since August 1, 2019; the consulting expenses increased due to the increasing number of Directors and the consulting services provided by Mr. Brett Goodman, a consultant, and the son of our CEO, who has been engaged in to assist the Company with building a Peer-to-Peer gaming system.

During the six months ended January 31, 2020 and 2019, the increasing in stock option amortization expenses were due to the stock options granted to our CEO and CFO on September 19, 2019; and the increasing back office expenses were due to the increasing cost per month from $2,300 to $5,500 since December 1, 2018.

During the fiscal years ended July 31, 2019 and 2018, the increase in general and administrative expenses from related parties were mainly due to the increase in amortization expenses.

Compensation Expense – Acquisition Cost - Related Party

The acquisition cost was a result of an Asset Purchase Agreement entered into on February 28, 2018, with Luxor Capital, LLC (“Luxor”), which is wholly-owned by the Company’s Chief Executive Officer Anthony Brian Goodman. Pursuant to the Asset Purchase Agreement, the Company purchased certain Intellectual Property and Know-how (the “GM2 Asset”) and agreed that 50% of the revenues generated by the GM2 Asset during the 12-month period of March 1, 2018 to February 28, 2019 would be paid to Luxor. As of July 31, 2018, the Company estimated a number for the acquisition cost at $1,242,812.

[[GREPCENT_TABLE]]
[["60"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

During the fiscal years ended January 31, 2021 and 2020, the acquisition cost was $0 and $6,791. The acquisition cost for the fiscal year ended January 31, 2020, was an adjustment to the estimated number.

During the six months ended January 31, 2020 and 2019, the acquisition cost was $0 and $84,082, respectively. The acquisition cost for the six months ended January 31, 2019, was an adjustment to the estimated number.

During the years ended July 31, 2019 and 2018, the acquisition cost was $90,873 and $1,242,812, respectively. The acquisition cost for the year ended July 31, 2019, was an adjustment to the estimated number.

Research and development expense

Research and development expense was incurred in connection with the building of the Company’s Proprietary Peer-to-Peer gaming system. During the year ended January 31, 2021, the research and development expense was $47,558. There was not research and development expense before.

Professional fees 

Professional fees consisted primarily of SEC filing fees, legal fees and accounting and audit fees. The professional fees in the fiscal years ended January 31, 2021 and 2020, the six months periods ended January 31, 2020 and 2019, and the fiscal years ended July 31, 2019 and 2018 are shown in the following table:

[[GREPCENT_TABLE]]
[["","","Years Ended January 31","","","Six Months Ended January 31","","","Years Ended July 31"],["","","2021","","","2020","","","2020","","","2019","","","2019","","","2018"],["","","","","","(unaudited)","","","","","","(unaudited)"],["Professional fees","","$","159,091","","","$","57,507","","","$","26,944","","","$","30,068","","","$","60,631","","","$","67,687"]]
[[/GREPCENT_TABLE]]

The increase in the professional fees in fiscal year 2021 compared to 2020 is attributable to the corporate actions during the year including the change of fiscal year, stock reverse split and fees in connection with the filing of our NASDAQ uplisting application, which increased the legal service fees for the current year compared to the prior period.

The professional fees remained consistent during the six-month transition period ended January 31, 2020, compared to the six-month period ended January 31, 2019, and fiscal year ended July 31, 2019 compared to the fiscal year ended July 31, 2018, due to the fact that audit costs and legal fees also remained fairly consistent over those periods. 

Bad Debt Expense

During the fiscal years ended January 31, 2021 and 2020, bad debt expenses were $0 and $179,396. There was no bad debt expense recorded during this year.

During the six months ended January 31, 2020 and 2019, bad debt expenses were $10,839 and $0, respectively. As of January 31, 2020, the Company had an accounts receivable of $10,839 from Globaltech Software Services LLC, a Company from which our CEO previously had an interest but does not have an interest as of this date. The amount was over one year past due, so the Company decided to record a bad debt expense for the total amount of $10,839.

[[GREPCENT_TABLE]]
[["61"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

During the years ended July 31, 2019 and 2018, bad debt expenses were $168,557 and $0, respectively. As of July 31 2019, the Company had an accounts receivable of $433,115 for Red Label Technology Pte Ltd. While management is confident that Red Label Technology will settle the debt, it has recorded a bad debt expense in the amount of $168,557.

Interest Expense   

During the fiscal years ended January 31, 2021 and 2020, interest expenses were $11,852 and $63,583, respectively. The decrease of interest expense is mainly due to the decrease in the outstanding balance of notes payable.

During the six months ended January 31, 2020 and 2019, interest expenses were $26,227 and $7,994 respectively. The principal reason for the increase in the interest expense was that the Company issued a Promissory Note of $1,031,567 to Luxor on April 1, 2019. The interest rate for the Promissory Note was 6% per annum. 

During the years ended July 31, 2019 and 2018, interest expenses were $45,350 and $162,041 respectively. The principal reason for the decrease in the interest expense was that the Company did not issue any convertible notes during this year, and therefore did not incur any interest expenses due to derivative liabilities.  

Gain (loss) on derivative liability - note conversion feature 

During the fiscal years ended January 31, 2021 and 2020, the loss on derivative liability was $0 and $3,182, respectively. The loss on derivative liability during last year was mainly due to the fair value change of derivative liabilities. The Company has settled all the derivative liabilities on January 31, 2020 and thus has no gains or losses on derivative liabilities this year.

During the six months ended January 31, 2020 and 2019, loss on derivative liability was $0 and $1,899, respectively. The decrease in the expense was mainly due to the settlement of the convertible notes and fair value change of derivative liabilities. 

During the fiscal years ended July 31, 2019 and 2018, loss on derivative liability was $5,081 and $165,514, respectively. The decrease in the expense was mainly due to the settlement of the convertible notes. 

Gain (loss) on extinguishment of debt 

There was no gain or loss on extinguishment of debt for the fiscal years ended January 31, 2021 and 2020.  

During the six months ended January 31, 2020 and 2019, loss on extinguishment of debt was $0 and $106. The loss was due to the settlement of convertible notes (Convertible Note #46) with LG Capital Funding, LLC. 

Loss on extinguishment of debt was $106 for the fiscal year ended July 31, 2019 as compared to gain on extinguishment of debt of $129 for the fiscal year ended July 31, 2018.  

Interest income

During the fiscal years ended January 31, 2021 and 2020, interest income was $1,611 and $26,779, respectively. The decrease in interest income is due to the decrease in the interest from the Wells Fargo bank.  

[[GREPCENT_TABLE]]
[["62"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

During the six months ended January 31, 2020 and 2019, interest income was $18,659 and $0, respectively. The interest income was from interest on amounts held in the Company’s Wells Fargo Saving account which the Company opened in February 2019.

During the fiscal years ended July 31, 2019 and 2018, interest income was $8,120 and $0, respectively.

Foreign Exchange Gain (loss)  

We had $8,996 of foreign exchange gain during the year ended January 31, 2021. The foreign exchange gain was due to the fluctuation of the Euro against the US dollar, and as a result of certain suppliers billing the Company in Euros.

Net Income (loss) 

During the fiscal years ended January 31, 2021 and 2020, net income was $398,080 and $1,982,892, respectively. The decrease in net income is mainly due to the increase in the option amortization expenses, which increased by $1.4 million for the fiscal year ended January 31, 2021, compared to prior period.

During the six months ended January 31, 2020 and 2019, net income was $966,774 and $753,790. The increase in net income was due to the increase in revenues and the decrease in acquisition costs and costs of goods sold.

The Company had net income of $1,769,908 for the financial year ending July 31, 2019 and had a loss of $1,318,373 for the previous year ending July 31, 2018. The increase in net income was due to the increase in revenues and the decrease in acquisition costs, the decrease in interest expenses and the lower derivative expenses as stated above.

Liquidity and Capital Resources

[[GREPCENT_TABLE]]
[["","","As of January 31,"],["","","2021","","","2020"],["Cash and cash equivalents","","$","11,706,349","","","$","1,856,505"],["Working capital","","","13,261,937","","","","2,473,198"],["Shareholders\u2019 equity","","","13,261,937","","","","2,473,198"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Years Ended January 31","","","Six Months Ended January 31","","","Years Ended July 31"],["","","2021","","","2020","","","2020","","","2019","","","2019","","","2018"],["","","","","","(unaudited)","","","","","","(unaudited)"],["Cash provided by (used in) operating activities","","$","1,878,043","","","$","1,599,319","","","$","986,723","","","$","839,338","","","$","1,451,934","","","$","302,716"],["Cash provided by (used in) investing activities","","","192","","","","-","","","","-","","","","-","","","","-","","","","-"],["Cash provided by (used in) financing activities","","","7,971,610","","","","(861,313",")","","","(861,313",")","","","(167,420",")","","","(167,420",")","","","118,698"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["63"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

The Company had $11,706,349 of cash on hand at January 31, 2021 and total assets of $13,814,547 (all of which were current assets). The Company had total working capital of $13,261,937 as of January 31, 2021. The Company had total liabilities (which were all current liabilities) of $552,610 as of January 31, 2021, which included $208,521 of accounts payable to related parties, $115,314 of consideration payable to Anthony Brian Goodman, the CEO of the Company, for the acquisition of Global Technology Group Pty Ltd, $78,913 of accounts payable and accrued liabilities, and $149,640 of customer deposits.

We do not currently have any additional commitments or identified sources of additional capital from third parties or from our officers, directors or majority stockholders. Additional financing may not be available on favorable terms, if at all.

In the future, we may be required to seek additional capital by selling additional debt or equity securities, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. We also plan to sell equity in connection with an underwritten offering pursuant to which we plan to uplist our common stock on The NASDAQ Capital Market, which offering may not be completed on favorable terms, if at all. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then stockholders. Financing may not be available in amounts or on terms acceptable to us, or at all. In the event we are unable to raise additional funding and/or obtain revenues sufficient to support our expenses, we may be forced to scale down our operations, which could cause our securities to decline in value.

See “Note 5 – Notes Payable”, for a description of outstanding notes payable; “Note 7 – Customer Deposits”, for a description of customer deposits; and “Note 8 – Related Party Transactions”, for a description of related party transactions, each included herein under “Item 8. Financial Statements and Supplementary Data.”

The Company generated cash from operating activities of $1,878,043, $1,599,319, $986,723, $839,338, $1,451,934 and $302,716 during the calendar years ended January 31, 2021 and 2020, the six months ended January 31, 2020 and 2019 and during the fiscal years ended July 31, 2019 and 2018, respectively. Cash flows from operating activities include net income adjusted for certain non-cash expenses, and changes in operating assets and liabilities. Significant non-cash expenses for the period include stock-based compensation and imputed interest. The $1,878,043 cash generated during this year was due primarily to $398,080 of net income, and non-cash expenses relating to stock-based compensation (including options issued for services and stock issued for services) which were $1,906,183 during the year ended January 31, 2021. 

Net cash provided by investment activities was $192 for the year ended January 31, 2021. There was no cash provided by investing activities for the year ended January 31, 2020. The $192 of cash provided by investment activities during the 2021 fiscal year was due to the acquisition of Global Technology Group Pty Ltd. More details as discussed in “Note 6 – Asset Acquisition – Related Party” to the consolidated financial statements included herein under “Item 8. Financial Statements and Supplementary Data”.

Net cash provided by (used in) financing activities was $7,971,610, $(861,313), $(861,313), $(167,420), $(167,420) and $118,698 for the calendar years ended January 31, 2021, and 2020, the six months ended January 31, 2020 and 2019 and for the fiscal years ended July 31, 2019 and 2018, respectively. The $7,971,610 cash provided during this year was due primarily to the sales of equity securities in August 2020 and January 2021 through private placements and warrant exercises as discussed in “Note 9 – Equity” to the consolidated financial statements included herein under “Item 8. Financial Statements and Supplementary Data”.

[[GREPCENT_TABLE]]
[["64"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

Material Events and Uncertainties

Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable development stage companies.

There can be no assurance that we will successfully address such risks, expenses, and difficulties.

Off‑Balance Sheet Arrangements

We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments 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 amount of net sales and expenses for each period. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

Stock-Based Compensation

The Company accounts for stock-based compensation to employees in accordance with Accounting Standards Codification (ASC) 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Stock option forfeitures are recognized at the date of employee termination.

See also the summary of accounting policies below under “Item 8. Financial Statements and Supplementary Data” under “Note 2 – Summary of Accounting Policies.”