This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
Section 27A of the Securities Act of 1933, as amended (the "Securities Act").
All statements contained in this Annual Report on Form 10-K (this "Annual
Report") other than statements of historical fact are forward-looking
statements. When used in this Annual Report or elsewhere by management from time
to time, the words "believe", "anticipate", "intend", "plan", "estimate",
"expect", "may", "will", "should", "seeks" and similar expressions are
forward-looking statements. Such forward-looking statements are based on current
expectations, but the absence of these words does not necessarily mean that a
statement is not forward-looking. Forward-looking statements are not guarantees
of future performance and involve risks and uncertainties. Actual events or
results may differ materially from those discussed in the forward-looking
statements as a result of various factors. For a more detailed discussion of
such forward-looking statements and the potential risks and uncertainties that
may impact upon their accuracy, see Item 1A entitled "Risk Factors" in Part I of
this Annual Report and the "Overview" and "Liquidity and Capital Resources"
sections of this Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations". These forward-looking statements reflect
our view only as of the date of this Annual Report. Except as required by law,
we undertake no obligations to update any forward-looking statements.
Accordingly, you should also carefully consider the factors set forth in other
reports or documents that we file from time to time with the Securities and
Exchange Commission ("SEC").
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations (this "MD&A") is intended to help the reader better
understand Track Group, our operations and our present business environment. Our
fiscal year ends on September 30 of each year. Reference to "Fiscal 2022" refers
to the year ended September 30, 2022, and reference to "Fiscal 2021" refers to
the year ended September 30, 2021 (Fiscal 2022 and Fiscal 2021 are collectively
"Fiscal Years 2022 and 2021"). This MD&A is provided as a supplement to, and
should be read in conjunction with, our consolidated financial statements for
Fiscal Years 2022 and 2021, and the accompanying notes thereto contained in this
Annual Report. This introduction summarizes MD&A, which includes the following
sections:
? Overview - a general description of our business and the markets in which
we operate; our objectives; our areas of focus; and challenges and risks
of our business.
? Results of Operations - an analysis of our consolidated results of
operations for the last two fiscal years presented in our consolidated
financial statements.
? Liquidity and Capital Resources - an analysis of cash flows; off-balance
sheet arrangements and aggregate contractual obligations; and the impact
of inflation and changing prices.
? Off-Balance Sheet Arrangements
? Critical Accounting Policies - a discussion of accounting policies that
require critical judgments and estimates.
We intend for this discussion to provide the reader with information that will
assist in understanding our financial statements, the changes in certain key
items in those financial statements from year to year, and the primary factors
that accounted for those changes, as well as how certain accounting principles
affect our financial statements.
Overview
Our core business is based on the leasing of patented tracking and monitoring
solutions to federal, state and local law enforcement agencies, both in the U.S.
and abroad, for the electronic monitoring of offenders and offering unique data
analytics services on a platform-as-a-service ("PaaS") business
model. Currently, we deploy offender-based management services that combine
patented GPS tracking technologies, fulltime 24/7/365 global monitoring
capabilities, case management, and proprietary data analytics. We offer
customizable tracking solutions that leverage real-time tracking data, best
practices monitoring, and analytics capabilities to create complete, end-to-end
tracking solutions.
Recent Developments
Manufacturing of New Devices
In September 2022, the Company received one component after an extended delay
which allowed us to resume the manufacturing of antennae circuit boards required
to build new devices for both existing and new customers.
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Results of Operations
Continuing Operations - Fiscal 2022 Compared to Fiscal 2021
Revenue
During Fiscal 2022, we had revenue of $36,968,499 compared to revenue of
$39,661,325 for Fiscal 2021, a decrease of $2,692,826, or approximately 7%. Of
this revenue, $35,768,090 and $39,179,699 were from monitoring and other related
services revenue during Fiscal 2022 and Fiscal 2021, respectively, representing
a decrease of $3,411,609 or approximately 9%. The decrease in revenue was
principally the result of a decrease of our North American monitoring operations
driven by clients in Illinois, Virginia, the Bahamas and Indiana, partially
offset by increases of our customers in Saudi Arabia, Canada and Chile.
Product and other revenue for Fiscal 2022 increased to $1,200,409 from $481,626
in the same period in 2021, an increase of $718,783 or approximately 149%. The
increase in product and other revenue was largely due to higher international
product sales, principally in Saudi Arabia. We continue to largely focus on
recurring subscription-based opportunities as opposed to equipment sales.
The industry in which the Company operates, as well as many other industries
(automotive, consumer products and medical devices), have been impacted by the
global semiconductor shortage initially caused by the slowdown of many chip
makers and logistics companies due to COVID-19. The availability of
semiconductor parts has improved in the second half of calendar 2022; however,
long lead time remain with certain parts. As a result, until such time as chip
manufacturers are able to meet global demand, our future operating results may
be negatively impacted.
Cost of Revenue
During Fiscal 2022, cost of revenue totaled $19,615,543, compared to cost of
revenue during Fiscal 2021 of $18,554,011, an increase of $1,061,532, or
approximately 6%. The increase in cost of revenue was largely the result of
higher software amortization of $930,163, higher server costs of $416,517,
higher communication costs of $119,119 and higher repair costs of $265,700.
These increases were offset by lower lost, stolen and damaged device costs of
$96,167, lower monitoring costs of $627,160, lower commission costs of $74,654
and lower device amortization of $94,560.
Depreciation and amortization included in cost of revenue for Fiscal Years 2022
and 2021, totaled $3,237,970 and $2,402,367, respectively. The increase of
$835,603, or approximately 35%, largely represents software amortization of our
new monitoring platform which began in July 2021. Amortization of a patent
related to GPS and satellite tracking are also included in depreciation and
amortization. Devices are depreciated over either a three- or five-year useful
life. Monitoring software is amortized over a seven-year life. Royalty
agreements are being amortized over a ten-year useful life. The Company believes
these lives are appropriate due to changes in electronic monitoring technology
and the corresponding potential for obsolescence. Management periodically
assesses the useful life of the devices for appropriateness.
Gross Profit and Margin
During Fiscal 2022, gross profit totaled $17,352,956, resulting in a 47% gross
margin, compared to $21,107,314, or a 53% gross margin, during Fiscal 2021, a
decrease of $3,754,358. The decrease in absolute gross profit of $3,754,358 is
due to a decrease in revenue of $2,692,826 and increases in certain costs of
revenue, including higher depreciation and amortization costs of $835,603,
higher server costs, higher device repair costs, higher software maintenance
costs, higher communication costs and higher product sales costs, partially
offset by lower monitoring costs and lower lost, stolen and damaged costs.
General and Administrative Expense
During Fiscal 2022, our general and administrative expense totaled $12,462,931,
compared to $10,232,116 for Fiscal 2021. The increase of $2,230,815, or
approximately 22%, in general and administrative cost resulted largely from the
impairment of intangible assets of $1,728,961 associated with the discontinuance
of two product lines, higher insurance costs of $268,307, higher legal and
professional fees of $372,987, partially offset by lower payroll expense of
$601,108 and lower bad debt of $142,123.
Selling and Marketing Expense
For Fiscal 2022, our selling and marketing expense was $2,993,749 compared to
$2,716,283 for Fiscal 2021. The increase of $277,466 or approximately 10%
resulted largely from higher wages and related payroll taxes of $85,993, higher
travel costs of $70,189 and higher trade show costs of $64,664.
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Research and Development Expense
During Fiscal 2022, we incurred research and development expense of $2,432,448
compared to those costs recognized during Fiscal 2021 totaling $1,548,527, an
increase of $883,921 or approximately 57%. The increase was largely the result
of continuous improvements of our existing software, resulting in increased
payroll and related tax expense of $689,222 after our implementation and
subsequent commencement of amortization of our new monitoring software, higher
outside service costs of $38,920 and higher travel costs of $35,461. As a result
of the implementation of our new monitoring software on July 1, 2021,
capitalization of developed technology decreased to $865,263 during Fiscal 2022,
which represents technology projects currently in development, compared to
$1,349,550, which was capitalized in Fiscal 2021. A portion of this expense
would have been recognized as research and development expense, absent the
significant enhancements to the technology.
Depreciation and Amortization Expense
We maintain a significant portion of our tangible and intangible assets that are
amortized or depreciated. During Fiscal 2022, depreciation and amortization
included in operating expense totaled $1,563,729, compared to $1,896,481 for
Fiscal 2021. This was a decrease of $332,752, or approximately 18%, was largely
due to fully depreciated assets.
Other Income (Expense)
During Fiscal 2022, total other expense was $4,406,973 compared to $554,392
during Fiscal 2021, an increase of $3,852,581. The increase in Fiscal 2022 was
primarily due to a legal settlement of $1,600,000 offset principally by the
forgiveness of an accrued expense by a significant vendor of approximately
$633,000, compared to income from extinguishment of debt of $1,000,756 related
principally to the forgiveness of a $932,000 PPP loan and a note receivable of
$67,566 in Fiscal 2021, negative exchange rate movement of $2,234,379 caused by
the approximate 19% appreciation of the US Dollar vs. the Chilean Peso in Fiscal
2022 and lower interest expense of $200,806. The lower interest expense was
primarily due to the restructuring of the Conrent Amended Facility. See Note 7
to the Consolidated Financial Statements.
Income taxes
During Fiscal 2022, income tax expense totaled $883,488 compared to $717,109
during Fiscal 2021. Tax expense in both fiscal years are income taxes largely
related to a foreign jurisdiction.
Net Income (Loss) Attributable to Common Stockholders
We had a net loss for Fiscal 2022 totaling ($7,390,362) or $(0.64) and $(0.64)
per basic and diluted common share, respectively, compared to net income of
$3,442,406 or $0.30 and $0.29 per basic and diluted common share for Fiscal
2021. This net loss is largely due to lower gross profit, higher general and
administrative expense, higher selling and marketing expense, higher research
and development expense, higher other expense and higher tax expense, partially
offset by lower depreciation and amortization. The higher general and
administrative expense was primarily due to the impairment of intangible assets.
Liquidity and Capital Resources
The Company is currently self-funded through net cash provided by operating
activities. As of September 30, 2022, excluding interest, approximately $42.9
million is still owed to Conrent under the Amended Facility.
On May 19, 2020, the Company received net proceeds of $933,200 from the PPP Loan
received pursuant to the PPP enacted by Congress under the CARES Act,
administered by the SBA. On December 8, 2020, the Company filed the application
for forgiveness with the Lender and on January 8, 2021, the Company received a
notification from the Lender that the SBA remitted funds to fully repay the PPP
Loan, and that the funds were utilized to pay-off and close the PPP Loan and
that the PPP Loan was fully forgiven.
On October 21, 2020, the Company requested, in writing, an additional extension
to the maturity date of the $30.4 million Amended Facility Agreement. On
November 25, 2020, the Noteholders held a meeting to address the Company's
request and approved a new maturity date of July 1, 2024. On December 21, 2020,
Conrent and the Company signed the Amended Facility, which extended the maturity
date of the Amended Facility Agreement to July 1, 2024, capitalized the accrued
and unpaid interest which increased the outstanding principal amount and reduced
the interest rate of the Amended Facility from 8% to 4%. On March 1, 2021,
Conrent completed their documentation and the updated registration process to
implement these changes and the Company transferred $12,531,556 of accrued
interest to the note payable for total principal of $42,931,556. Conrent forgave
$67,556 of the amount due and the new Amended Facility principal and interest
became $42,864,000. Interest payments were scheduled to be made on June 30 and
December 31 each year, which began on June 30, 2021. We began amortizing
deferred financing fees of approximately $360,000 on July 1, 2021. As of
September 30, 2022, $42,864,000 of principal and $438,165 of interest was owed
to Conrent.
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On January 6, 2021, the Company borrowed 70,443,375 Chilean Pesos ("CLP")
($101,186USD) from HP Financial Services Chile Limitada. To facilitate the Loan,
the Company entered into a Note Payable Agreement with HP Financial Services
Chile Limitada as lender. The loan was used to purchase PABX (private automatic
branch exchange phone equipment) for the construction of the Gendarmeria de
Chile monitoring centers in Santiago and Puerto Montt, Chile. The loan bears an
interest rate of 6.56% per annum, payable monthly with principal beginning
February 2021, and a maturity date of February 6, 2024.
On January 12, 2021, the Company borrowed 347,198,500CLP ($482,965USD), net of
2,801,500CLP fees ($3,897USD), from Banco Santander. To facilitate the Loan, the
Company entered into a Note Payable Agreement with Banco Santander as lender.
The loan was used to comply with the construction of Gendarmeria de Chile
monitoring center in Santiago, Chile and remodeling a temporary monitoring
center. The loan bears an interest at a rate of 5.04% per annum, payable monthly
with principal beginning February 2021, and a maturity of May 11, 2024. The
Company also paid 19,607,843CLP ($27,275USD) in broker fees which are amortized
over the life of the loan.
On February 2, 2021, the Company borrowed 247,999,300CLP ($338,954USD), net of
2,000,700CLP fees ($2,734USD), from Banco Estado. To facilitate the Loan, the
Company entered into a Note Payable Agreement with Banco Estado as lender. The
loan provided was used for the construction of the Gendarmeria de Chile
monitoring center in Santiago city and computer equipment for Gendarmeria branch
offices. The loan bears an interest rate of 3.50% per annum, initially having a
6-month grace period with the first payment including the 6 months of interest
plus 1 month of principal on August 2, 2021, then monthly interest with
principal, and a maturity date of January 2, 2024. The Company also paid
14,124,294CLP ($19,304USD) in broker fees which are amortized over the life of
the loan.
On February 4, 2021, the Company borrowed 149,794,432CLP ($205,330USD) from HP
Financial Services Chile Limitada. To facilitate the Loan, the Company entered
into a Note Payable Agreement with HP Financial Services Chile Limitada as
lender. The loan was used to purchase computer equipment for the Gendarmeria de
Chile monitoring center in Santiago, Chile. The loan bears an interest at a rate
of 6.61% per annum, payable monthly with principal beginning March 2021, and a
maturity of March 4, 2024.
On February 5, 2021, the Company borrowed of 99,808,328CLP ($136,564USD), net of
210,485CLP fees ($286USD), from Banco de Chile. To facilitate the Loan, the
Company entered into a Note Payable Agreement with Banco de Chile as lender. The
loan provided was used to purchase HVAC equipment for Gendarmeria de Chile
monitoring center in Santiago, Chile. The loan bears an interest rate of 2.54%
per annum, payable monthly with principal beginning March 2021, and a maturity
date of March 4, 2024.
On February 15, 2021, the Company borrowed 500,000,000CLP ($678,214USD) from
Banco de Chile. To facilitate the Loan, the Company entered into a Note Payable
Agreement with Banco de Chile as lender. The loan proceeds were used as working
capital and to complete with the construction of the Gendarmeria monitoring
center in Puerto Montt, Chile. The loan bears an interest at a rate of 3.12% per
annum, payable monthly with principal beginning March 2021, and a maturity of
February 17, 2025. The Company also paid 28,248,588CLP ($38,317USD) in broker
fees which are amortized over the life of the loan.
No additional funds were borrowed in the fiscal year ended September 30, 2022.
See Note 7 to the Consolidated Financial Statements for the loan balances at
September 30, 2022.
Management will continue to seek other sources of capital, refinancing options,
prepayment of debt at a discount and potentially other transactions including
the exchange of some debt for an equity related security to reduce its total
debt and assist in meeting all of its future obligations. While management
believes it will be successful in completing one of these alternatives prior to
the maturity of the Amended Facility Agreement in July 2024, no assurances can
be given.
Net Cash Flows Provided by Operating Activities.
During Fiscal 2022, we had net loss of ($7,390,362) and we had cash flows from
operating activities of $802,961, compared to net income from continuing
operations of $3,442,406 and cash flows from operating activities of $4,822,182
for Fiscal 2021. The decrease in cash from operations was largely the result of
lower operating income and a decrease in accounts payable and accrued
liabilities, partially offset by a lower use of cash related to performance
bonds and monitoring center assets and a decline in accounts receivable.
Net Cash Flows used in Investing Activities.
The Company used $3,060,280 of cash for investing activities during Fiscal 2022,
compared to $4,507,696 of cash used during Fiscal 2021, a decrease of
$1,447,416. Cash used for investing activities was used for significant
enhancements of our software platform and for purchases of monitoring and other
equipment to meet customer demand during Fiscal 2022. Capitalized software
decreased by $484,287 compared to the prior period.
Net Cash Flows Provided by (used in) Financing Activities.
($515,500) of cash was used in financing activities during Fiscal 2022, compared
to $1,377,224 of cash provided by financing activities during Fiscal 2021.
During the Fiscal Years 2022 and 2021, the Company received net proceeds of $0
and $1,943,213 from borrowings, respectively and made principal payments of
$494,626 and $275,628 on notes payable, respectively. The net proceeds of
$1,943,213 received in Fiscal 2021 was for the new Chile monitoring center
buildout.
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Liquidity, Working Capital and Management's Plan
As of September 30, 2022, the Company had unrestricted cash of $5,311,104,
compared to unrestricted cash of $8,421,162 as of September 30, 2021. As of
September 30, 2022, we had working capital of $7,296,297, compared to working
capital of $9,190,430 as of September 30, 2021. This decrease in working capital
of $1,894,133 is principally due to the purchase of monitoring equipment and
parts as well as the settlement of the Sabag legal matter described in Item 3,
partially offset by cash provided by operations.
On October 21, 2020, the Company requested, in writing, an additional extension
to the maturity date of the Amended Facility Agreement. On November 25, 2020,
the Noteholders held a meeting to address the Company's request and approved a
new maturity date of July 1, 2024. On December 21, 2020, Conrent and the Company
signed an Amendment to the Amended Facility Agreement which extended the
maturity date of the agreement to July 1, 2024, capitalized the accrued and
unpaid interest which increased the outstanding principal amount and reduced the
interest rate of the Amended Facility Agreement from 8% to 4%. On June 28, 2021,
the Company restarted interest payments to Conrent which have been made
semi-annually since that time. See Note 7 to the Consolidated Financial
Statements.
During Fiscal 2021, the Company borrowed approximately $1.95 million though six
notes payable to fund the construction of monitoring centers in Chile required
by our new contract. These six notes mature between January 2024 to February
2025 and the principal repayments on these six notes have all commenced. No
additional funds were borrowed in Fiscal 2022. See Note 7 to the Consolidated
Financial Statements.
Inflation
We do not believe that inflation has had a material impact on our historical
operations or profitability prior to 2021; however, the rise in inflation
experienced in 2021 and so far in 2022 have impacted the Company's cost of labor
and materials.
Off-Balance Sheet Financial Arrangements
The Company has not entered into any transactions with unconsolidated entities
whereby the Company has financial guarantees, derivative instruments, or other
contingent arrangements that expose the Company to material continuing risks,
contingent liabilities, or any other obligation that provides financing,
liquidity, market risk, or credit risk support to the Company, except as
described below.
Bond guarantees
As of September 30, 2022, Company has two performance bonds in connection with a
foreign customer totaling $2,027,970 (collectively, the "Performance Bonds") of
which $1,449,497 is held in an interest-bearing account on behalf of the
customer. The remaining amount of $578,473 is guaranteed by a foreign financial
institution on behalf of the Company. The amounts held in cash on the
Performance Bonds will be released approximately 90 days after the expiration of
the Performance Bonds, as follows: $284,426 in calendar year 2023 and 1,165,071
in calendar year 2024. In March 2021, the Company has placed a $653,220 deposit
into an interest-bearing account with a financial institution to replace the
performance bond expiring on July 2, 2024, whereby the portion guaranteed by the
financial institution will increase from 30% to 65% of the total bond. The
current bond expiring July 2, 2024 will be released upon acceptance by the
foreign customer. See Note 12 to the Consolidated Financial Statements.
Critical Accounting Policies
In Note 2, "Summary of Significant Accounting Policies" to the audited
Consolidated Financial Statements included in this Annual Report, we discuss
those accounting policies we consider to be significant in determining the
results of operations and our financial position.
The preparation of financial statements requires management to make significant
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue, and expense. By their nature, these estimates and judgments are subject
to an inherent degree of uncertainty. On an on-going basis, we evaluate our
estimates, including those related to bad debts, inventories, intangible assets,
warranty obligations, product liability, revenue, and income taxes. We base our
estimates on historical experience and other facts and circumstances that are
believed to be reasonable, and the results form the basis for making judgments
about the carrying value of assets and liabilities. The actual results may
differ from these estimates under different assumptions or conditions.
With respect to revenue recognition, impairment of long-lived assets, leases,
stock-based compensation and allowance for doubtful accounts receivable, we
apply critical accounting policies discussed below in the preparation of our
financial statements.
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Revenue Recognition
Our revenue is predominantly derived from two sources: (i) monitoring services,
and (ii) product sales.
Monitoring and Other Related Services
Monitoring services include two components: (i) lease contracts pursuant to
which the Company provides monitoring services and leased devices to
distributors or end users and the Company retains ownership of the leased
device; and (ii) monitoring services purchased by distributors or end users who
have previously purchased monitoring devices and opt to use the Company's
monitoring services. Monitoring revenue is recognized ratably over time, as the
customer simultaneously receives and consumes the benefit of these services as
they are performed. Payment due or received from the customers prior to
rendering the associated services are recorded as deferred revenue.
Product Sales and Other
The Company sells devices and replacement parts to customers under certain
contracts, as well as law enforcement software licenses and maintenance, and
analytical software. Revenue from the sale of devices and parts is recognized
upon their transfer of control to the customer, which is generally upon
delivery. Delivery is considered complete at either the time of shipment or
arrival at destination, based on the agreed upon terms within the contract.
Payment terms are generally 30 days from invoice date. When purchasing products
(such as ReliAlert™ and Shadow™ devices) from the Company, customers may, but
are not required to, enter into monitoring service contracts with us. The
Company recognizes revenue on monitoring services for customers that have
previously purchased devices at the end of each month that monitoring services
have been provided.
Multiple Element Arrangements
The majority of our revenue transactions do not have multiple elements. However,
on occasion, the Company may enter into revenue transactions that have multiple
elements. These may include different combinations of products or services that
are included in a single billable rate. These products or services are delivered
over time as the customer utilizes our services. In cases where obligations in a
contract are distinct and thus require separation into multiple performance
obligations, revenue recognition guidance requires that contract consideration
be allocated to each distinct performance obligation based on its relative
standalone selling price. The value allocated to each performance obligation is
then recognized as revenue when the revenue recognition criteria for each
distinct promise or bundle of promises has been met.
Other Matters
The Company considers an arrangement with payment terms longer than the
Company's normal terms not to be fixed or determinable. Normal payment terms for
the sale of monitoring services and products are due upon receipt to 30 days.
The Company sells devices and services directly to end users and to
distributors. Distributors do not have general rights of return. Also,
distributors may not have price protection or stock protection rights with
respect to devices sold to them by us. Generally, title and risk of loss pass to
the buyer upon delivery of the devices.
Shipping and handling fees charged to customers are included as part of total
revenue. The related freight costs and supplies directly associated with
shipping products to customers are included as a component of cost of revenue.
Our revenue is predominantly derived from two sources: (i) monitoring services,
and (ii) product sales.
Impairment of Long-Lived Assets and Goodwill
We review our long-lived assets including goodwill and intangibles for
impairment when events or changes in circumstances indicate that the book value
of an asset may not be recoverable, and in the case of goodwill, at least
annually. We evaluate whether events and circumstances have occurred which
indicate possible impairment as of each balance sheet date. We use an equity
method of the related asset or group of assets in measuring whether the assets
are recoverable. If the carrying amount of an asset exceeds its market value, an
impairment charge is recognized for the amount by which the carrying amount
exceeds the estimated fair value of the asset. Impairment of long-lived assets
is assessed at the lowest levels for which there are an identifiable fair market
value that is independent of other groups of assets. See Note 13 to the
Consolidated Financial Statements.
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Allowance for Doubtful Accounts
We must make estimates of the collectability of accounts receivable. In doing
so, we analyze accounts receivable and historical bad debts, customer
credit-worthiness, current macroeconomic and geopolitical trends, and changes in
customer payment patterns when evaluating the adequacy of the allowance for
doubtful accounts.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial
Accounting Standards Board ("FASB") or other standard setting bodies, which are
adopted by us as of the specified effective date. Unless otherwise discussed, we
believe that the impact of recently issued standards that are not yet effective
will not have a material impact on our financial position or results of
operations upon adoption.
Accounting for Stock-Based Compensation
We recognize compensation expense for stock-based awards expected to vest on a
straight-line basis over the requisite service period of the award based on
their grant date fair value. We estimate the fair value of stock options using a
Black-Scholes option pricing model which requires us to make estimates for
certain assumptions regarding risk-free interest rate, expected life of options,
expected volatility of stock, and expected dividend yield of stock.
Government Regulation
Our operations are subject to various federal, state, local and international
laws and regulations. We are not involved in any pending or, to our knowledge,
threatened governmental proceedings, which would require curtailment of our
operations because of such laws and regulations.
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