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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________to ___________________

Commission file number: 001-38703

VELODYNE LIDAR, INC.
(Exact name of registrant as specified in its charter)

Delaware
83-1138508
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification Number)
Velodyne Lidar, Inc.
5521 Hellyer Avenue
San Jose, CA
95138
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (669) 275-2251
Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.0001 per shareVLDRThe Nasdaq Stock Market LLC
Warrants, each exercisable for three-quarters of one share of common stockVLDRWThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of November 4, 2020, the registrant had 168,713,296 shares of common stock, $0.0001 par value per share, outstanding.



VELODYNE LIDAR, INC. AND SUBSIDIARIES

Table of Contents

Page
Item 6.Exhibits104
Signatures105

1


PART I. Financial Information

Item 1. Consolidated Financial Statements

VELODYNE LIDAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

September 30,December 31,
20202019
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$297,853 $60,004 
Short-term investments 2,199 
Accounts receivable, net19,405 11,863 
Inventories, net16,422 14,987 
Prepaid and other current assets10,906 12,918 
Total current assets344,586 101,971 
Property, plant and equipment, net17,808 26,278 
Goodwill1,189 1,189 
Intangible assets, net723 982 
Contract assets5,626  
Other assets632 5,755 
Total assets$370,564 $136,175 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$10,447 $6,923 
Accrued expense and other current liabilities41,134 31,160 
Contract liabilities6,574 18,261 
Total current liabilities58,155 56,344 
Long-term tax liabilities605 1,360 
Other long-term liabilities26,302 2,225 
Total liabilities85,062 59,929 
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 25,000,000 shares authorized, zero shares issued and outstanding
  
Common stock, $0.0001 par value; 2,250,000,000 shares authorized; 168,713,296 and 137,911,975 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
17 14 
Additional paid-in capital489,920 240,464 
Accumulated other comprehensive loss(211)(216)
Accumulated deficit(204,224)(164,016)
Total stockholders' equity285,502 76,246 
Total liabilities and stockholders' equity$370,564 $136,175 
See accompanying notes to condensed consolidated financial statements.

2


VELODYNE LIDAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)

Three Months Ended September 30,Nine Months Ended
September 30,
2020201920202019
Revenue:
Product
$26,099 $11,698 $53,948 $63,234 
License and services6,000 1,819 23,568 19,192 
Total revenue32,099 13,517 77,516 82,426 
Cost of revenue:
Product16,482 14,430 46,027 51,384 
License and services648 180 1,032 1,498 
Total cost of revenue17,130 14,610 47,059 52,882 
Gross profit14,969 (1,093)30,457 29,544 
Operating expenses:
Research and development10,535 16,521 39,653 42,211 
Sales and marketing4,126 5,126 12,798 15,945 
General and administrative10,579 4,148 26,942 10,637 
Gain on sale of assets held-for-sale(7,529) (7,529) 
Restructuring  1,043  
Total operating expenses17,711 25,795 72,907 68,793 
Operating loss(2,742)(26,888)(42,450)(39,249)
Interest income2 191 119 946 
Interest expense(31)(18)(69)(45)
Other income (expense), net 38 (42)(105)(15)
Loss before income taxes(2,733)(26,757)(42,505)(38,363)
Provision for (benefit from) income taxes2,562 70 (4,098)122 
Net loss$(5,295)$(26,827)$(38,407)$(38,485)
Net loss per share:
Basic and diluted$(0.04)$(0.20)$(0.28)$(0.29)
Weighted-average shares used in computing net loss per share:
Basic and diluted140,490,370 133,033,927 139,425,745 133,033,927 







See accompanying notes to condensed consolidated financial statements.

3


VELODYNE LIDAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)


Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Net loss$(5,295)$(26,827)$(38,407)$(38,485)
Other comprehensive income (loss), net of tax:
Changes in unrealized gain on available for sale securities (4) 18 
Foreign currency translation adjustments39 (8)5 (67)
Total other comprehensive income (loss), net of tax39 (12)5 (49)
Comprehensive loss$(5,256)$(26,839)$(38,402)$(38,534)







See accompanying notes to condensed consolidated financial statements.

4


VELODYNE LIDAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share data)
(Unaudited)



Series A Convertible Preferred StockSeries B Convertible Preferred StockSeries B-1 Convertible Preferred StockCommon Stock
(Pre-Combination)
Common StockAdditional Paid in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2019, as previously reported8,772,852 $1 1,375,440 $ 1,375,440 $ 34,252,578 $3  $ $240,474 $(216)$(164,016)$76,246 
Retroactive application of the recapitalization(8,772,852)(1)(1,375,440) (1,375,440) (34,252,578)(3)137,911,975 14 (10)   
Balance at December 31, 2019, as adjusted        137,911,975 14 240,464 (216)(164,016)76,246 
Share-based compensation— — — — — — — — — — 21 — — 21 
Other comprehensive loss, net of tax— — — — — — — — — — — (2)— (2)
Net loss— — — — — — — — — — — — (23,385)(23,385)
Balance at March 31, 2020    137,911,975$14 240,485 (218)(187,401)$52,880 
Issuance of Series B-1 convertible preferred stock at $10.25 per share on April 1, 2020, net of issuance cost of $81
— — — — — — — — 1,951,219 — 19,919 — — 19,919 
Share-based compensation— — — — — — — — — — 135 — — 135 
Other comprehensive loss, net of tax— — — — — — — — — — — (32)— (32)
Net loss— — — — — — — — — — — — (9,727)(9,727)
Balance at June 30, 2020139,863,19414260,539 (250)(197,128)63,175
Recapitalization transaction, net of transaction cost of $21,902
— — — — — — — — 29,025,846 3 229,296 — — 229,299 
Repurchase of common stock— — — — — — — — (175,744)— — — (1,801)(1,801)
Share-based compensation— — — — — — — — — — 85 — — 85 
Other comprehensive loss, net of tax— — — — — — — — — — — 39 — 39 
Net loss— — — — — — — — — — — — (5,295)(5,295)
Balance at September 30, 2020$ $ $ $ 168,713,296 $17 $489,920 $(211)$(204,224)$285,502 


See accompanying notes to condensed consolidated financial statements.

5


VELODYNE LIDAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share data)
(Unaudited)


Series A Convertible Preferred StockSeries B Convertible Preferred StockSeries B-1 Convertible Preferred StockCommon Stock
(Pre-Combination)
Common StockAdditional Paid in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2018, as previously reported8,772,852 $1 1,375,440 $  $ 34,252,578 $3  $ $190,549 $(148)$(96,790)$93,615 
Retroactive application of the recapitalization(8,772,852)(1)(1,375,440)   (34,252,578)(3)133,033,927 13 (9)   
Balance at December 31, 2018, as adjusted        133,033,927 13 190,540 (148)(96,790)93,615 
Share-based compensation— — — — — — — — — — 52 — — 52 
Other comprehensive loss, net of tax— — — — — — — — — — — (8)— (8)
Net loss— — — — — — — — — — — — (2,182)(2,182)
Balance at March 31, 2019    133,033,927$13 $190,592 $(156)$(98,972)$91,477 
Share-based compensation— — — — — 34 — — 34 
Other comprehensive loss, net of tax— — — — — — — — — — — (29)— (29)
Net loss— — — — — — — — — — — — (9,476)(9,476)
Balance at June 30, 2019        133,033,927 13 190,626 (185)(108,448)82,006 
Share-based compensation— — — — — — — — — — 25 — — 25 
Other comprehensive loss, net of tax— — — — — — — — — — — (12)— (12)
Net loss— — — — — — — — — — — — (26,827)(26,827)
Balance at September 30, 2019$ $ $ $ 133,033,927$13 $190,651 $(197)$(135,275)$55,192 
See accompanying notes to condensed consolidated financial statements.

6


VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
20202019
Cash flows from operating activities:
Net loss
$(38,407)$(38,485)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization6,342 5,804 
Stock-based compensation241 111 
Write-off of deferred IPO costs3,548  
Gain on sale of assets held-for-sale(7,529) 
Provision for doubtful accounts525 418 
Other74 (418)
Changes in operating assets and liabilities:
Accounts receivable, net(8,067)7,769 
Inventories, net3,329 (2,074)
Prepaid and other current assets2,510 (5,164)
Contract assets(8,439)38 
Other assets358 703 
Accounts payable3,188 4,631 
Accrued expenses and other liabilities(9,812)7,932 
Contract liabilities2,512 (1,275)
Net cash used in operating activities(49,627)(20,010)
Cash flows from investing activities:
Purchase of property, plant and equipment(2,197)(4,805)
Proceeds from sale of assets held-for-sale12,275  
Proceeds from sales of short-term investments 8,903 
Proceeds from maturities of short-term investments2,200 48,250 
Purchase of short-term investments (28,823)
Considerations paid for acquisition (2,473)
Net cash provided by investing activities12,278 21,052 
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance costs of $81
19,919  
Proceeds from Business Combination and PIPE offering, net of transaction costs of $2,830
248,303  
Repurchase of common stock(1,801) 
Cash paid for IPO costs(1,144) 
Proceeds from notes payable10,000  
Net cash provided by (used in) financing activities
275,277  
Effect of exchange rate fluctuations on cash and cash equivalent(79)(67)
Net increase in cash and cash equivalents237,849 975 
Beginning cash and cash equivalents60,004 23,904 
Ending cash and cash equivalents$297,853 $24,879 
Supplemental disclosures of cash flow information:
Cash paid for interest$69 $45 
Cash paid for (received from) income taxes, net(7,806)540 
Supplemental disclosure of noncash investing and financing activities:
Changes in accrued purchases of property, plant and equipment
$237 $105 
Transaction costs included in accounts payable339  
Transaction costs included in accrued liabilities18,733  
See accompanying notes to condensed consolidated financial statements.

7


VELODYNE LIDAR, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Description of Business and Summary of Significant Accounting Policies

Description of Business, Background and Nature of Operations

Velodyne Lidar, Inc. (the Company, Velodyne or Velodyne Lidar) provides smart vision solutions that are advancing the development of safe automated systems throughout the world. The Company’s technology, which is used in various automotive and non- automotive applications, is empowering the autonomous revolution by allowing machines to see their surroundings in real-time and in 3D.

Graf Industrial Corp. (Graf), the Company’s predecessor, was originally incorporated in Delaware as a special purpose acquisition company. On September 29, 2020 (the Closing Date), Graf consummated a business combination (the Business Combination) pursuant to an Agreement and Plan of Merger dated as of July 2, 2020, as amended on August 20, 2020 and clarified in an Acknowledgement Letter dated as of the same day (the Merger Agreement) by and among Graf, VL Merger Sub Inc., a wholly owned subsidiary of Graf, and Velodyne Lidar, Inc. (the pre-combination Velodyne). Immediately upon the consummation of the Business Combination, VL Merger Sub Inc. merged with and into the pre-combination Velodyne, with the pre-combination Velodyne surviving the merger as a wholly owned subsidiary of the Company. Graf changed its name to Velodyne Lidar, Inc. and the pre-combination Velodyne changed its name to Velodyne Lidar USA, Inc.

The Company’s common stock and warrants are now listed on the Nasdaq Global Select market under the symbols “VLDR” and “VLDRW”, respectively. Unless the context otherwise requires, “we,” “us,” “our,” “Velodyne,” “Velodyne Lidar” and the “Company” refers to Velodyne Lidar Inc., the combined company and its subsidiaries following the Business Combination. Refer to Note 2 for further discussion of the Business Combination.

The Company has evaluated how it is organized and managed and has identified only one operating segment.

Unaudited Interim Financial Statements

The condensed consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP). The condensed consolidated financial statements include the
accounts of the Company’s wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.

The accompanying condensed consolidated financial statements are unaudited and have been prepared on the
same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments,
which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of
operations, comprehensive loss and cash flows for the periods presented, but are not necessarily indicative of the results of
operations to be anticipated for any future annual or interim period. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s definitive proxy statement filed with the Securities and Exchange Commission on September 14, 2020.

Basis of Presentation
The Business Combination is accounted for as a reverse recapitalization as the pre-combination Velodyne was determined to be the accounting acquirer under Financial Accounting Standards Board (FASB)’s Accounting Standards Codification Topic 805, Business Combinations (ASC 805). The determination is primarily based on the evaluation of the following facts and circumstances:

• the equity holders of the pre-combination Velodyne hold the majority of voting rights in the Company;
• the board of directors of the pre-combination Velodyne represent majority of the board of directors of the Company;
• the senior management of the pre-combination Velodyne became the senior management of the Company; and
• the operations of the pre-combination Velodyne comprise the ongoing operations of the Company.

In connection with the Business Combination, outstanding capital stock of the the pre-combination Velodyne was converted into common stock of the Company, par value $0.0001 per share, representing a recapitalization, and the net assets

8


of the Company were acquired at historical cost, with no goodwill or intangible assets recorded. The pre-combination Velodyne was deemed to be the predecessor of the Company, and the consolidated assets and liabilities and results of operations prior to the Closing Date are those of the pre-combination Velodyne. The shares and corresponding capital amounts and net loss per share available to common stockholders, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement. The number of shares of preferred stock was also retroactively restated in shares reflecting the exchange ratio, and the carrying amounts of preferred stock are based on the fair value of its redemption amount on each reporting date. All preferred stock was converted into shares of the Company’s common stock on the Closing Date.

Principles of Consolidation and Liquidity

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The condensed consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The Company has funded its operations primarily through the Business Combination, issuances of preferred stock and sales to customers. As of September 30, 2020, the Company’s existing sources of liquidity included cash and cash equivalents of $297.9 million and available borrowing capacity of $25.0 million under a revolving credit facility. The Company has incurred losses and negative cash flows from operations. If the Company incurs additional losses in the future, it may need to raise additional capital through issuances of equity and debt. However, management believes that the Company’s existing sources of liquidity are adequate to fund its operations for at least one year from the date the unaudited interim condensed consolidated financial statements were available for issuance.

Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has opted to take advantage of such extended transition period available to emerging growth companies which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Concentration of Risk
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. The Company maintains its cash and cash equivalents, and short-term investments with high-quality financial institutes with investment-grade ratings. A majority of the cash balances are with U.S. banks and are insured to the extent defined by the Federal Deposit Insurance Corporation.
The Company’s accounts receivable are derived from customers located both inside and outside the U.S. The Company mitigates its credit risks by performing ongoing credit evaluations of its customers’ financial conditions and requires customer advance payments in certain circumstances. The Company does not require collateral.

The Company’s concentration of risk related to accounts receivable and accounts payable was as follows:


9


September 30,December 31,
20202019
Number of customers accounted for 10% or more of accounts receivable
33
Number of vendors accounted for 10% or more of accounts payable
32

One customer accounted for 28% of the Company’s accounts receivable as of September 30, 2020. One vendor accounted for 39% and 36% of accounts payable as of September 30, 2020 and December 31, 2019.

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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include standalone selling price (SSP) for each distinct performance obligation in its customer contracts, total estimated costs and related progress towards complete satisfaction of performance obligation in certain services arrangements, allowances for doubtful accounts, inventory reserves, warranty reserves, valuation allowance for deferred tax assets, stock-based compensation, useful lives of property, plant, and equipment and intangible assets, income tax uncertainties, and other loss contingencies. The Company bases its estimates on historical experience and also on assumptions that it believes are reasonable. Actual results could differ from those estimates, and such differences could be material to the Company’s consolidated financial condition and results of operations.

Reclassification
Certain prior year balance sheet amounts have been reclassified to conform with current year presentation.

Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with original maturity of three months or less at date of purchase to be cash equivalents. Cash equivalents were $286.2 million and $44.7 million as of September 30, 2020 and December 31, 2019, respectively.

Short-term investments generally consist of commercial paper and corporate debt securities. Short-term investments were zero and $2.2 million as of September 30, 2020 and December 31, 2019, respectively. They are classified as available-for-sale securities and are recognized at fair value. Unrealized gains and losses, net of tax, are reported as a separate component of accumulated other comprehensive loss within the stockholders’ equity. Unrealized gains and losses on the Company’s short-term investments were not significant as of September 30, 2020 and December 31, 2019 and therefore, the amortized cost of the Company’s short-term investments approximated their fair value.

Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable are reduced by an allowance for doubtful accounts, which is the Company’s best estimate of the amount of credit losses inherent in its existing accounts receivable. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. The Company writes off accounts receivable against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Changes in the Company’s allowance for doubtful accounts were as follows (in thousands):

Nine Months Ended
September 30,
20202019
Beginning balance$467 $357 
Charged to costs and expenses525 418 
Uncollectible accounts written off, net of recoveries(101) 
Ending balance$891 $775 


10


The Company does not have any off-balance-sheet credit exposure related to its customers.

Inventories
Inventories are stated at the lower of cost or estimated net realizable value. Costs are computed under the standard cost method, which approximates actual costs determined on the first-in, first-out basis. The Company charges cost of revenue for write-downs of inventories which are obsolete or in excess of anticipated demand based on a consideration of marketability and product life cycle stage, product development plans, component cost trends, demand forecasts, historical revenue, and assumptions about future demand and market conditions. The net change in the Company’s inventory reserve was $(1.8) million and $1.0 million for the three and nine months ended September 30, 2020, respectively, and $0.3 million and $2.4 million for the three and nine months ended September 30, 2019, respectively. The estimated cost of inventories not expected to be used in production within one year is reflected in other assets in the consolidated balance sheets.

Property, Plant, and Equipment
Property, plant, and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is calculated based on the straight-line method over the estimated useful lives of the respective assets. Additions, major improvements and betterments are capitalized, and maintenance and repairs are expensed as incurred. Assets are held in asset under construction until placed in service, upon which date, the Company begins to depreciate the assets over their estimated useful lives. The estimated useful lives of the assets are as follows: buildings, 15-30 years; building improvements, 7-15 years, leasehold improvements, 5-7 years which is the lesser of the life of the improvement or the lease term; machinery and equipment, furniture and fixtures, vehicles and software, 3-5 years.

Assets Held for Sale
The Company considers assets to be held for sale when management approves and commits to a plan to actively market the assets for sale at a reasonable price in relation to its fair value, the assets are available for immediate sale in their present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the assets is expected to be completed within one year and it is unlikely that significant changes will be made to the plan. Upon designation as held for sale, the Company ceases to record deprecation expenses and measures the assets at the lower of their carrying value or estimated fair value less costs to sell. Assets held for sale are included as other current assets in the Company’s consolidated balance sheets and the gain or loss from sale of assets held for sale is included in the Company's general and administrative expenses.

Business Combinations
For acquisitions meeting the definition of a business combination, the acquisition method of accounting is used. The acquisition date is the date on which the Company obtains operating control over the acquired business. The consideration paid is determined on the acquisition date and the acquisition-related costs, such as professional fees, are excluded from the consideration transferred and are expensed as incurred. Assets acquired and liabilities assumed by the Company are recorded at their estimated fair values, while goodwill is measured as the excess of the consideration transferred over the fair value of the net identifiable assets acquired and liabilities assumed.

Goodwill
Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets acquired and liabilities assumed when accounted for using the purchase method of accounting. Goodwill is not amortized, but reviewed for impairment. Goodwill is reviewed annually in the fourth quarter, and whenever events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable. When evaluating recoverability, the Company compares the fair value of the reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of our reporting unit, the Company would record an impairment loss equal to the difference.

Long-Lived Assets
Long-lived assets, such as property, plant and equipment, intangible assets and other long-term assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying

11


amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined using various valuation techniques including discounted cash flow models, quoted market values, as considered necessary. No impairment loss was recognized in the three and nine months ended September 30, 2020 and September 30, 2019.

Foreign Currency