Interim Unaudited Financial Statements

9 Months Ended

Sep. 30, 2021

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. The year-end condensed consolidated balance sheet data was derived from the Company’s audited financial statements but does not include all disclosures required by U.S. GAAP. These condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 25, 2021. The unaudited financial information for the interim periods presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operation for the periods presented, with such adjustments consisting only of normal recurring adjustments.

The condensed consolidated financial statements include our accounts and our wholly-owned subsidiaries and variable interest entity (“VIE”) for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

We evaluate our ownership, contractual and other interests in entities that are not wholly-owned by us to determine if these entities are VIEs, and, if so, whether we are the primary beneficiary of the VIE. In determining whether we are the primary beneficiary of a VIE and therefore required to consolidate the VIE, we apply a qualitative approach that determines whether we have both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE. We continuously assess whether we are the primary beneficiary of a VIE as changes to existing relationships or future transactions may result in the consolidation or deconsolidation, as the case may be, of such VIE.

The equity method is used to account for investments in which we have the ability to exercise significant influence, but not control, over the investee. Such investments are recorded on the balance sheet, and the share of net income or losses of equity investments is recognized on a one quarter lag in investment and other income (expense), net.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.

Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to inform our critical accounting estimates.

Significant Accounting Policies

During the nine months ended September 30, 2021, there have been no changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 outside of the equity method accounting for investments and adoption and pending adoption of recent accounting pronouncements mentioned below.

Equity Method Accounting

We have significant influence, but not a controlling interest, in Zentera. From the deconsolidation of Zentera during July 2021 prospectively, this investment is accounted for using the equity method. Our share of earnings or losses of the investment entity are reported on the consolidated statement of operations through investment and other income, net, with a corresponding increase or decrease to the equity investment carried on the statement of financial position. This information is generally not received sufficiently timely for us to record our portion of earnings or loss in the current financial statements and therefore we report our portion of earnings or loss on a one quarter lag.

Adoption and Pending Adoption of Recent Accounting Pronouncements

The following table provides a brief description of recently issued accounting standards, those adopted in the current period and those not yet adopted:

Standard

Description

Effective Date

Effect on the Financial
Statements or Other
Significant Matters

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321)

This standard clarifies the interaction between accounting standards related to equity securities (ASC 321), equity method investments (ASC 323), and certain derivatives (ASC 815).

January 1, 2021

As of January 1, 2021, we did not hold equity securities, equity method investments or derivatives. The impact of this new accounting guidance in 2021 did not have a material impact to our consolidated financial statements at the time of adoption.

As of July 2021, we hold an equity method investment which is accounted for under ASC 323. The investment is recorded on the consolidated statement of financial position at fair value as of the date of deconsolidation. The Company’s share of earnings or losses of the investment entity are reported on the consolidated statement of operations through investment and other income, net with a corresponding increase or decrease to the equity investment.