VICTORY OILFIELD TECH, INC. Introduction
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help the reader understand
? Cautionary Information about Forward-Looking Statements
? Business Overview ? Results of Operations
? Liquidity and Capital Resources
? Critical Accounting Policies and Estimates;
? Recently Adopted Accounting Standards; and
? Recently Issued Accounting Standards.
MD&A is provided as a supplement to, and should be read in conjunction with, the
consolidated financial statements and notes thereto included elsewhere in this
Quarterly Report on Form 10-Q and Items 7 and 8 of our Annual Report on Form
10-K for the year ended
In MD&A, we use "we," "our," "us," "Victory" and "the Company" to refer to
As reported in the Report of Independent Registered Public Accounting Firm on
our
On
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Cautionary Information about Forward-Looking Statements
Many statements made in the following discussion and analysis of our financial
condition and results of operations and elsewhere in this Quarterly Report on
Form 10-Q that are not statements of historical fact, including statements about
our beliefs and expectations, are "forward-looking statements" within the
meaning of federal securities laws and should be evaluated as such.
Forward-looking statements include information concerning possible or assumed
future results of operations, including descriptions of our business plan,
strategies and capital structure. In particular, the words "anticipate,"
"expect," "suggests," "plan," "believe," "intend," "estimates," "targets,"
"projects," "should," "could," "would," "may," "will," "forecast," variations of
such words, and other similar expressions identify forward-looking statements,
but are not the exclusive means of identifying such statements and their absence
does not mean that the statement is not forward-looking. We base these
forward-looking statements or projections on our current expectations, plans and
assumptions that we have made in light of our experience in the industry, as
well as our perceptions of historical trends, current conditions, expected
future developments and other factors we believe are appropriate under the
circumstances and at such time. As you read and consider this Quarterly Report
on Form 10-Q, you should understand that these statements are not guarantees of
performance or results. The forward-looking statements and projections are
subject to and involve risks, uncertainties and assumptions, including, but not
limited to, the risks and uncertainties described in Item 1A "Risk Factors" of
our Annual Report on Form 10-K for the year ended
? continued operating losses;
? adverse developments in economic conditions and, particularly, in conditions in
the oil and gas industries;
? volatility in the capital, credit and commodities markets;
? our inability to successfully execute on our growth strategy;
? the competitive nature of our industry;
? credit risk exposure from our customers;
? price increases or business interruptions in our supply of raw materials;
? failure to develop and market new products and manage product life cycles;
? business disruptions, security threats and security breaches, including
security risks to our information technology systems;
? terrorist acts, conflicts, wars, natural disasters, pandemics and other health
crises that may materially adversely affect our business, financial condition
and results of operations;
? failure to comply with anti-terrorism laws and regulations and applicable trade
embargoes;
? risks associated with protecting data privacy;
? significant environmental liabilities and costs as a result of our current and
past operations or products, including operations or products related to our
licensed coating materials;
? transporting certain materials that are inherently hazardous due to their toxic
nature;
? litigation and other commitments and contingencies;
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? ability to recruit and retain the experienced and skilled personnel we need to
compete;
? work stoppages, labor disputes and other matters associated with our labor
force;
? delays in obtaining permits by our future customers or acquisition targets for
their operations;
? our ability to protect and enforce intellectual property rights;
? intellectual property infringement suits against us by third parties;
? our ability to realize the anticipated benefits of any acquisitions and
divestitures;
? risk that the insurance we maintain may not fully cover all potential
exposures;
? risks associated with changes in tax rates or regulations, including unexpected
impacts of the new
regulatory guidance and changes in our current interpretations and assumptions;
? our substantial indebtedness;
? the results of pending litigation;
? our ability to obtain additional capital on commercially reasonable terms may
be limited;
? any statements of belief and any statements of assumptions underlying any of
the foregoing;
? other factors disclosed in this Quarterly Report on Form 10-Q and our other
filings with the
? other factors beyond our control.
These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this Quarterly Report on Form 10-Q. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. Potential investors should not make an investment decision based solely on our projections, estimates or expectations.
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Business Overview
General
On
Our wear-resistant alloys reduce drill-string torque, friction, wear and corrosion in a cost-effective manner, while protecting the integrity of the base metal. We apply our coatings using advanced welding techniques and thermal spray methods. We also utilize common materials, such as tungsten carbide to chromium carbide, to deliver the optimal solution to the customers. Some of our hardbanding processes protect wear in tubulars using materials that achieve a low coefficient of friction to protect the drillstring and casing from abrasion.
Growth Strategy
We plan to continue our
We believe that a well-capitalized technology-enabled oilfield services business will provide the basis for more accessible financing to grow the Company and execute our oilfield services company acquisitions strategy. We anticipate new innovative products will come to market as we collaborate with drillers to solve their other down-hole needs.
Recent Developments
Impact of Coronavirus Pandemic
In
Although stay at home orders and lock downs on businesses in the areas where we operate have caused our staff to conduct business operations from their homes, this change has not resulted in a significant impact to our ability to operate. However, the spread of the coronavirus outbreak across the world has driven sharp demand destruction for crude oil as whole economies ordered curtailed activity. As a result, companies across the industry have responded with severe capital spending budget cuts, personnel layoffs, facility closures and bankruptcy filings. We expect industry activity levels and spending by customers to remain depressed throughout the remainder of 2021 as destruction of demand for oil and gas continues.
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As the coronavirus continues to spread throughout areas in which we operate, we believe the outbreak has the potential to have a material negative impact on our operating results and financial condition. The extent of the impact of the coronavirus on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our operators, employees and vendors, all of which are uncertain and cannot be predicted. The extent of the pandemic's continued effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, the pace at which jurisdictions across the country re-open and restrictions begin to lift, the availability of government financial support to our business and our customers, and whether a resurgence of the outbreak occurs. Given these uncertainties, we cannot reasonably estimate the related impact to our business, operating results and financial condition, but it could be material.
Subsequent Events
During the period of
Effective
On
On
On
On
Under the terms of the PPP2 Note and the PPP, interest accrues on the
outstanding principal at the rate of 1.0% per annum with a deferral of payments
for the first ten months. The term of the PPP2 Note is five years, though it may
be payable sooner in connection with an event of default under the PPP Note. To
the extent the amount of the PPP2 Loan is not forgiven under the PPP, the
Company will be obligated to make equal monthly payments of principal and
interest beginning after a ten-month deferral period provided in the PPP Note
and through
The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, the Company may apply for forgiveness for all or a part of the PPP2 Loan. The amount of PPP2 Loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors established by the SBA. Subject to the other requirements and limitations on PPP2 Loan forgiveness, only that portion of the PPP2 Loan proceeds spent on payroll and other eligible costs during the covered twenty four -week period will qualify for forgiveness. Although the Company has used the entire amount of the PPP2 Loan for qualifying expenses, no assurance is provided that the Company will obtain forgiveness of the PPP2 Loan in whole or in part. The foregoing description of the PPP2 does not purport to be complete is qualified in its entirety by reference to the full text of the PPP2 Note, a copy of which is filed as Exhibit 10.7 to this Quarterly Report on Form 10-Q.
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Factors Affecting our Operating Results
The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.
Total revenue
We generate revenue from hardbanding solutions to oilfield operators for drill pipe, weight pipe, tubing and drill collars and grinding services.
Our revenues are generally impacted by the following factors:
? our ability to successfully develop and launch new solutions and services
? changes in buying habits of our customers
? changes in the level of competition faced by our products
? domestic drilling activity and spending by the oil and natural gas industry in
the United States Total cost of revenue
The costs associated with generating our revenue fluctuate as a result of changes in sales volumes, average selling prices, product mix, and changes in the price of raw materials and consist primarily of the following:
? hardbanding production materials purchases
? hardbanding supplies ? labor
? depreciation expense for hardbanding equipment
? field expenses
Selling, general and administrative expenses ("SG&A")
Our selling, general and administrative expense consists of all expenditures incurred in connection with the sales and marketing of our products, as well as administrative overhead costs, including:
? compensation and benefit costs for management, sales personnel and
administrative staff, which includes share-based compensation expense
? rent expense, communications expense, and maintenance and repair costs
? legal fees, accounting fees, consulting fees and insurance expenses.
These expenses are not expected to materially increase or decrease directly with changes in total revenue.
Depreciation and amortization
Depreciation and amortization expenses consist of amortization of intangible assets, depreciation of property, plant and equipment, net of depreciation of hardbanding equipment which is reported in Total cost of revenue
Interest expense
Interest expense, net consists primary of interest expense and loan fees on borrowings as well as amortization of debt issuance costs and debt discounts associated with our indebtedness.
Other (income) expense, net
Other (income) expense, net represents costs incurred, net of income, from various non-operating items including costs incurred in conjunction with our debt refinancing and extinguishment transactions, interest income, gain or loss on disposal of fixed assets, as well as non-operational gains and losses unrelated to our core business.
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Income tax benefit (provision)
We are subject to income tax in the various jurisdictions in which we operate. While the extent of our future tax liability is uncertain, our operating results, the availability of any net operating loss carryforwards, any future business combinations, and changes to tax laws and regulations are key factors that will determine our future book and taxable income.
Income from discontinued operations
Income from discontinued operations consist of revenues, related expenses and loss on disposal of Aurora. See Note 3, Discontinued Operations, to the consolidated financial statements for further information.
Results of Operations
The following discussion should be read in conjunction with the information contained in the accompanying unaudited financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Our historical results of operations summarized and analyzed below may not necessarily reflect what will occur in the future
Three Months EndedJune 30, 2020 compared to the Three Months EndedJune 30, 2019 For the Three Months Ended June 30, Percentage ($ in thousands) 2020 2019 Change Change Total revenue$ 365.3 $ 584.0 $ (218.7 ) -37 % Total cost of revenue 177.7 289.6 (111.9 ) -39 % Gross profit 187.6 294.5 (106.8 ) -36 % Operating expenses Selling, general and administrative 275.4 392.4 (117.0 ) -30 % Depreciation and amortization 4.9 62.0 (57.1 ) -92 % Total operating expenses 280.2 454.4 (174.1 ) -38 % Loss from operations (92.6 ) (159.9 ) 67.3 -42 % Other expense Interest expense (27.0 ) (77.0 ) 50.0 -65 % Total other income/(expense) (27.0 ) (77.0 ) 50.0 -65 % Loss from continuing operations (119.6 ) (236.9 ) 117.3 -50 % Income from discontinued operations - 6.5 (6.5 ) -100 % Loss applicable to common stockholders$ (119.6 ) $ (230.4 ) $ 110.8 -48 % Total Revenue
Total revenue decreased in the three months ended
Total Cost of Revenue
Total cost of revenue decreased in the three months ended
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Selling, general and administrative
Selling, general and administrative expenses decreased due to the following:
? Accounting fees were reduced by eliminating a consultant.
? Payroll related expenses were reduced due to employee downsizing.
Depreciation and amortization
Depreciation and amortization decreased due to reduction of amortization of Intangible Assets which were impaired at the end of 2019.
Interest expense
Interest expense decreased in the 2020 period primarily due to the restructuring of our notes payable to VPEG as well as the Rogers Note. See Note 6, Notes Payable, to the consolidated financial statements for more information.
Loss from Continuing Operations, Income from Discontinued Operations, and Loss Applicable to Common Stockholders
We reported a loss from continuing operations for the three months ended
Income from discontinued operations in the 2019 period consists of revenues and related expenses resulting from the trailing activity of Aurora and loss on disposal of Aurora. See Note 3, Discontinued Operations, to the consolidated financial statements for further information.
As a result of the foregoing, loss applicable to common stockholders for the
three months ended
Six Months Ended
For the
Six Months Ended
June 30, Percentage
($ in thousands) 2020 2019 Change Change
Total revenue $ 587.7 $ 1,129.1 $ (541.5 ) -48 %
Total cost of revenue 343.6 552.2 (208.7 ) -38 %
Gross profit 244.1 576.9 (332.8 ) -58 %
Operating expenses
Selling, general and administrative 574.6 738.9 (164.3 ) -22 %
Depreciation and amortization 9.4 132.7 (123.3 ) -93 %
Total operating expenses 584.0 871.6 (287.7 ) -33 %
Loss from operations (339.9 ) (294.7 ) (45.2 ) 15 %
Other expense
Interest expense (52.8 ) (121.9 ) 69.1 -57 %
Total other income/(expense) (52.8 ) (121.9 ) 69.1 -57 %
Loss from continuing operations (392.6 ) (416.6 ) 24.0 -6 %
Income from discontinued operations - 66.5 (66.5 ) -100 %
Loss applicable to common stockholders $ (392.6 ) $ (350.1 ) $ (42.5 ) 12 %
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Total Revenue
Total revenue decreased in the six months ended
Total Cost of Revenue
Total cost of revenue decreased in the six months ended
Selling, general and administrative
Selling, general and administrative expenses decreased due to the following:
? Consulting fees were reduced by eliminating a consultant.
? Payroll related expenses were reduced due to employee downsizing.
Depreciation and amortization
Depreciation and amortization decreased due to reduction of amortization of Intangible Assets which were impaired at the end of 2019.
Interest expense
Interest expense decreased in the 2020 period primarily due to the restructuring of our notes payable to VPEG as well as the Rogers Note. See Note 6, Notes Payable, to the consolidated financial statements for more information.
Loss from Continuing Operations, Income from Discontinued Operations, and Loss Applicable to Common Stockholders
We reported a loss from continuing operations for the six months ended
Income from discontinued operations in the 2019 period consists of revenues and related expenses resulting from the trailing activity of Aurora and loss on disposal of Aurora. See Note 3, Discontinued Operations, to the consolidated financial statements for further information.
As a result of the foregoing, loss applicable to common stockholders for the six
months ended
Liquidity and Capital Resources
Going Concern
Historically we have experienced, and we continue to experience, net losses, net losses from operations, negative cash flow from operating activities, and working capital deficits. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date of issuance of the consolidated financial statements. The consolidated financial statements do not reflect any adjustments that might result if we are unable to continue as a going concern.
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Management anticipates that operating losses will continue in the near term as we continue efforts to leverage our intellectual property through the platform provided by the acquisition of Pro-Tech and, potentially, other acquisitions. In the near term, we are relying on financing obtained from VPEG through the New VPEG Note to fund operations as we seek to generate positive cash flow from operations. See Note 6 "Notes Payable," and Note 9 "Related Party Transactions," to the accompanying consolidated financial statements for additional information regarding the New VPEG Note. In addition to increasing cash flow from operations, we will be required to obtain other liquidity resources in order to support ongoing operations. We are addressing this need by developing additional capital sources which we believe will enable us to execute our recapitalization and growth plan. This plan includes the expansion of Pro-Tech's core hardbanding business through additional drilling services and the development of additional products and services including wholesale materials, RFID enclosures and mid-pipe coating solutions.
Based upon capital formation activities as well as the ongoing near-term funding provided through the New VPEG Note, we believe we will have enough capital to cover expenses through at least the next twelve months. We will continue to monitor liquidity carefully, and in the event we do not have enough capital to cover expenses, we will make the necessary and appropriate reductions in spending to remain cash flow positive.
Capital Resources
During the six months ended
Paycheck Protection Program Loan
On
Under the terms of the PPP Note and the PPP, interest accrues on the outstanding
principal at the rate of 1.0% per annum with a deferral of payments for the
first seven months. The term of the PPP Note is two years, though it may be
payable sooner in connection with an event of default under the PPP Note. To the
extent the amount of the PPP Loan is not forgiven under the PPP, we will be
obligated to make equal monthly payments of principal and interest beginning
after a seven-month deferral period provided in the PPP Note and through
The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, we may apply for forgiveness for all or a part of the PPP Loan. The amount of PPP Loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including: (i) the amount of PPP Loan proceeds that are used by the Company during the 24-week period after the PPP Loan origination date for certain specified purposes including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided that at least 75% of the PPP Loan amount is used for eligible payroll costs; (ii) our maintaining or rehiring employees, and maintaining salaries at certain levels; and (iii) other factors established by the SBA. Subject to the other requirements and limitations on PPP Loan forgiveness, only that portion of the PPP Loan proceeds spent on payroll and other eligible costs during the covered twenty four-week period will qualify for forgiveness. Although we currently intend to use the entire amount of the PPP Loan for qualifying expenses, no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.
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The PPP Note may be prepaid in part or in full, at any time, without penalty. The PPP Note provides for certain customary events of default, including our: (i) failure to make a payment when due under the PPP Note; (ii) breach of the terms of the PPP Note; (iii) default on any other loan with the Lender; (iv) filing of a bankruptcy petition by or against us; (v) reorganization merger, consolidation or other change in ownership or business structure without the Lender's prior written consent; (vi) adverse change in financial condition or business operation that the Lender believes may affect our ability to pay the PPP Note; and (vii) default on any loan or agreement with another creditor, if the Lender believes the default may materially affect our ability to pay the PPP Note. Upon the occurrence of an event of default, the Lender has customary remedies and may, among other things, require immediate payment of all amounts owed under the PPP Note, collect all amounts owing from us and file suit and obtain judgment against us. The foregoing description of the PPP Note does not purport to be complete is qualified in its entirety by reference to the full text of the PPP Note, a copy of which is filed as Exhibit 10.5 to this Quarterly Report on Form 10-Q.
Economic Injury Disaster Loan
Additionally, on
Under the terms of the EIDL Note, interest accrues on the outstanding principal
at the rate of 3.75% per annum. The term of the EIDL Note is 30 years, though it
may be payable sooner upon an event of default under the EIDL Note. Under the
EIDL Note, we will be obligated to make equal monthly payments of principal and
interest beginning on
The EIDL Note provides for certain customary events of default, including: (i) a failure to comply with any provision of the EIDL Note, the related Loan Authorization and Agreement, or other EIDL loan documents; (ii) a default on any other SBA loan; (iii) a sale or transfer of, or failure to preserve or account to SBA's satisfaction for, any of the collateral or its proceeds; (iv) a failure of us or anyone acting on its behalf to disclose any material fact to SBA; (v) the making of a materially false or misleading representation to SBA by us or anyone acting on our behalf; (vi) a default on any loan or agreement with another creditor, if SBA believes the default may materially affect our ability to pay the EIDL Note; (vii) a failure to pay any taxes when due; (viii) if we become the subject of a proceeding under any bankruptcy or insolvency law; (ix) if a receiver or liquidator is appointed for any part of our business or property; (x) the making of an assignment for the benefit of creditors; (xi) has any adverse change in financial condition or business operation that SBA believes may materially affect our ability to pay the EIDL Note; (xii) effects any reorganization, merger, consolidation, or other transaction changing ownership or business structure without SBA's prior written consent; or (xiii) becomes the subject of a civil or criminal action that SBA believes may materially affect our ability to pay the EIDL Note. The foregoing description of the EIDL Note does not purport to be complete is qualified in its entirety by reference to the full text of the EIDL Note, a copy of which is filed as Exhibit 10.6 to this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current of future effect on our financial condition.
Cash Flow
The following table provides detailed information about our net cash flow for
the six months ended
Six Months Ended
June 30,
2020 2019
Net cash used in operating activities $ (188,110 ) $ (151,761 )
Net cash provided by (used in) investing activities (9,758 ) -
Net cash provided by financing activities 556,125 174,282
Net increase (decrease) in cash and cash equivalents 358,257 22,521 Cash and cash equivalents at beginning of period
17,076 76,746
Cash and cash equivalents at end of period $ 375,333 $ 99,267
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Net cash used in operating activities for the six months ended
This compares to cash used in operating activities for the six months ended
June, 2019 of
Net cash used in investing activities for the six months ended
Net cash provided by financing activities for the six months ended
We believe it will be necessary to obtain additional liquidity resources in order to support our operations. We are addressing our liquidity needs by developing additional backup capital sources.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with
Revenue Recognition
We recognize revenue as it satisfies contractual performance obligations by transferring promised goods or services to the customers. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised goods or services. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service.
We have one revenue stream, which relates to the provision of hardbanding services by its subsidiary Pro-Tech. All performance obligations of our contracts with customers are satisfied over the duration of the contract as customer-owned equipment is serviced and then made available for immediate use as completed during the service period. We have reviewed our contracts with Pro-Tech customers and determined that due to their short-term nature, with durations of several days of service at the customer's location, it is only those contracts that occur near the end of a financial reporting period that will potentially require allocation to ensure revenue is recognized in the proper period. We have reviewed all such transactions and recorded revenue accordingly.
For the six months ended
Because our contracts have an expected duration of one year or less, we have elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.
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Concentration of Credit Risk, Accounts Receivable and Allowance for Doubtful Accounts
Financial instruments that potentially subject us to concentrations of credit
risk primarily consist of cash and cash equivalents placed with high credit
quality institutions and accounts receivable due from Pro-Tech's customers.
Management evaluates the collectability of accounts receivable based on a
combination of factors. If management becomes aware of a customer's inability to
meet its financial obligations after a sale has occurred, we record an allowance
to reduce the net receivable to the amount that it reasonably believes to be
collectable from the customer. Accounts receivable are written off at the point
they are considered uncollectible. Due to historically very low uncollectible
balances and no specific indications of current uncollectibility, we have not
recorded an allowance for doubtful accounts at
As of
Property, Plant and Equipment
Property, Plant and Equipment is stated at cost. Maintenance and repairs are charged to expense as incurred and the costs of additions and betterments that increase the useful lives of the assets are capitalized. When property, plant and equipment is disposed of, the cost and related accumulated depreciation are removed from the consolidated balance sheets and any gain or loss is included in Other income/(expense) in the consolidated statement of operations.
Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, as follows:
Asset category Useful Life
Welding equipment, Trucks, Machinery and equipment 5 years Office equipment
5 - 7 years
Computer hardware and software 7 years
Finite-lived intangible assets are recorded at cost, net of accumulated amortization and, if applicable, impairment charges. Amortization of finite-lived intangible assets is provided over their estimated useful lives on a straight-line basis or the pattern in which economic benefits are consumed, if reliably determinable. We review our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
We perform an impairment test of goodwill annually and whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. A goodwill impairment loss is recognized for the amount that the
carrying amount of a reporting unit, including goodwill, exceeds its fair value,
limited to the total amount of goodwill allocated to that reporting unit. We
have determined that the Company is comprised of one reporting unit at
Our
Our contract-based intangible assets include an agreement to sublicense certain
patents belonging to AVV (the "AVV Sublicense"), a license (the "Trademark
License") to the trademark of
During the year ended
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Business Combinations
Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method, assets acquired and liabilities assumed are recorded at their respective fair values as of the acquisition date in our consolidated financial statements. The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill.
Share-Based Compensation
From time to time we may issue stock options, warrants and restricted stock as compensation to employees, directors, officers and affiliates, as well as to acquire goods or services from third parties. In all cases, the we calculate share-based compensation using the Black-Scholes option pricing model and expenses awards based on fair value at the grant date on a straight-line basis over the requisite service period, which in the case of third party suppliers is the shorter of the period over which services are to be received or the vesting period, and for employees, directors, officers and affiliates is typically the vesting period. Share-based compensation is included in general and administrative expenses in the consolidated statements of operations. See Note 7, Shareholder's Equity, for further information.
Income Taxes
We account for income taxes in accordance with ASC 740, Income Taxes, which requires an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Deferred tax assets include tax loss and credit carry forwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Earnings per Share
Basic earnings per share are computed using the weighted average number of
common shares outstanding at
Recently Adopted Accounting Standards
On
Recently Issued Accounting Standards
In
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