Unless the context otherwise requires, references in this report to "the
Company," "Veritas Farms," "we," "us" and "our" refer to Veritas Farms, Inc. and
its subsidiary.
All share and per share information in this report has been adjusted to give
effect to a one-for-four reverse stock split implemented by the Company on
September 19, 2019.
Forward-Looking Statements
Certain statements made in this report are "forward-looking statements"
regarding the plans and objectives of management for future operations. Such
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. The forward-looking statements
included herein are based on current expectations that involve numerous risks
and uncertainties. Our plans and objectives are based, in part, on assumptions
involving judgments with respect to, among other things, future economic,
competitive and market conditions and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
our control. Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein particularly in view of the current state of our operations, the
inclusion of such information should not be regarded as a statement by us or any
other person that our objectives and plans will be achieved. We undertake no
obligation to revise or update publicly any forward-looking statements for any
reason.
Business Overview
Veritas FarmsTM is a vertically-integrated agribusiness focused on growing,
producing, marketing, and distributing superior quality, whole plant, full
spectrum hemp oils and extracts containing naturally occurring phytocannabinoids
(collectively, "CBD"). Veritas Farms owns and operates a 140-acre farm in
Pueblo, Colorado, capable of producing over 200,000 proprietary full spectrum
hemp plants containing naturally occurring phytocannabinoids which can
potentially yield a minimum annual harvest of over 200,000 pounds of
outdoor-grown industrial hemp. While part of the cannabis family, hemp, which
contains less than 0.3% tetrahydrocannabinol ("THC"), the psychoactive compound
that produces the "high" in marijuana, is distinguished from marijuana by its
use, physical appearance and lower THC concentration (marijuana generally has a
THC level of 10% or more). The Company also operates approximately 15,000 sq.
ft. of climate-controlled greenhouses to produce a consistent supply of
year-round indoor-cultivated hemp. In addition, there is a 10,000 sq. ft. onsite
facility used for processing raw hemp, oil extraction, formulation laboratories,
and quality/purity testing. Veritas Farms is registered with the Colorado
Department of Agriculture to grow industrial hemp and with the Colorado
Department of Public Health and Environment to process hemp and manufacture hemp
products in accordance with Colorado's hemp program.
Veritas Farms meticulously processes its hemp crop to produce superior quality
whole-plant hemp oil, extracts and derivatives which contain the entire full
spectrum of cannabinoids extracted from the flowers and leaves of hemp plants.
Veritas Farms employs the use of the cold ethanol extraction method to extract
the whole plant hemp oil from its hemp crop. Whole-plant hemp oil is known to
provide the essential phytocannabinoid "entourage effect" resulting from the
synergistic absorption of the entire full spectrum of unique hemp cannabinoids
by the receptors of the human endocannabinoid system. As a result, Veritas Farms
believes that its products are premier quality cannabinoids and are highly
sought after by consumers and manufacturers of premium hemp products.
Veritas Farms has developed a wide variety of formulated phytocannabinoid-rich
hemp products containing naturally occurring phytocannabinoids which are
marketed and distributed by the Company under its Veritas Farms brand name. Our
products are also available in bulk, white label and private label custom
formulations for distributors and retailers. These types of products are in high
demand by health food markets, wellness centers, pet suppliers, physicians and
other healthcare practitioners.
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Veritas Farms products (50+ SKUs) include capsules, gummies, tinctures, lotions,
salves, creams, balm sticks, lip balms and pet chews. All product applications
come in various flavors and strength formulations, in addition to bulk volume
sales. Many of the Company's whole-plant hemp oil products and formulations are
available for purchase online directly from the Company through its Veritas
Farms website, www.theVeritasFarms.com, as well as through numerous other online
retailers and "brick and mortar" retail outlets.
The branding of the Company's line of hemp oil and extract product has enabled
market penetration during 2020 and 2021 into large retail chains vastly
increasing brand exposure and awareness. The initial rollouts have been
successful in creating distribution opportunities into thousands of new retail
outlets across the country (over 8,000 retail outlets as of the date of this
report). The shift from smaller order fulfilment to larger "Big Box" orders
creates an economy of scale that offers the opportunity for the Company to
achieve profitability.
As of the date of this report the Company has secured distribution into the
following chain stores:
Southern Wine Rite Aid Kinney Drugs Niemann Supermarkets
Bashas Giant Eagle Tops Harris Teeter
Bi Mart Smiths Fred Meyer QFC
King Soopers Winn Dixie Bi-Lo Mariano's
Fruth Weis Bartell Drugs
Kroger Save Mart Publix
Recent Developments
Securities Purchase Agreement
On May 11, 2021 the Company entered into a Securities Purchase Agreement ("SPA")
with the Cornelis F. Wit Revocable Living Trust, of which Cornelis F. Wit is
trustee ("Wit Trust"), an existing shareholder, pursuant to which the Company
contemporaneously sold to the Wit Trust an aggregate of (a) 2,000,000 shares of
its Series A Convertible Preferred Stock ("Series A Preferred Shares"); and (b)
1,000,000 shares of its Series B Convertible Preferred Stock ("Series B
Preferred Shares," and together with the Series A Preferred Shares,
collectively, "Preferred Shares") in exchange for (i) the payment of $2,000,000
(including $302,500 principal plus accrued but unpaid interest in bridge
financing provided by the Wit Trust to the Company during April 2021); and (ii)
the surrender of 2,000,000 units ("Units"), each Unit consisting of two shares
of common stock and one warrant to purchase an additional share of common stock
in accordance with the terms of the subscription agreements for the purchase of
the Units entered into by the Wit Trust and the Company in September and October
2020. As a result of the transaction and the voting rights accorded the
Preferred Shares, the Wit Trust then held approximately 87% of the voting power
of the Company and accordingly, a "Change in Control" occurred.
Pursuant to the SPA, the Wit Trust and the Company agreed to fix the number of
members of the board of directors of the Company at five (5), three of whom
shall be designated by the Wit Trust and two of whom shall be "independent" and
acceptable to the Wit Trust. In addition, the Wit Trust has been accorded
certain registration rights under the Securities Act of 1933, as amended, with
respect to the shares of Common Stock issuable upon conversion of the Preferred
Shares and ongoing financial and other information rights with respect to the
Company.
On September 30, 2021, the Company completed a private offering which commenced
on August 5, 2021 of Series A Preferred Shares to certain investors, pursuant to
which the Company sold an aggregate of 2,000,000 Series A Preferred Shares at a
purchase price of $1.00 per share ("Private Placement") in exchange for (i) the
payment of $1,860,000 (including $1,644,068.49 principal plus accrued but unpaid
interest in bridge financing provided by certain investors during July and
August 2021 upon the conversion of the investors' secured convertible promissory
notes, and conversion of an account payable); and (ii) the surrender of 280,000
units (the "Units"), each Unit consisting of two shares of common stock and one
warrant to purchase an additional share of common stock in accordance with the
terms of the subscription agreements for the purchase of the Units entered into
by certain investors and the Company in February through April 2021. The
investors in the Private Placement included: Mr. Johnson upon the conversion of
$50,000 promissory note; Mr. Pino upon the conversion of $25,000 promissory
note; Mr. Vickers upon conversion of $50,000 promissory note and accounts
payable; Kuno van der Post, a member of the Board of Director of the Company, in
the amount of $50,000, and; the Wit Trust, in the amount of $65,931.51 and upon
conversion of $1,500,000 secured convertible promissory notes and $19,068.49 in
accrued and unpaid interest.
Management Changes
In connection with the consummation of the issuance and sale of the Preferred
Shares to the Wit Trust pursuant to the SPA in May 2021, Alexander M. Salgado
stepped down as the Company's Chief Executive Officer and director, and Dr. Bao
T. Doan and Marc J. Horowitz resigned as directors of the Company. In addition,
Michael Pelletier stepped down as an employee of the Company and entered into a
three-month consulting agreement with the Company to continue as the Company's
Chief Financial Officer until his successor is appointed.
Contemporaneously therewith, Stephen E. Johnson ("Mr. Johnson"), Kuno D. van der
Post ("Mr. van der Post") and Craig J. Fabel were elected and appointed as the
Wit Trust's designees on the board of directors. In addition, Mr. Johnson was
appointed as Chief Executive Officer and President of the Company, and Ramon A.
Pino ("Mr. Pino"), was appointed as Executive Vice President of Finance,
Treasurer and Secretary of the Company.
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Corporate Information
The Company was incorporated in the state of Nevada on March 15, 2011 under the
name Armeau Brands Inc. and changed its name to SanSal Wellness Holdings, Inc.
on October 13, 2017. On January 31, 2019, the Company changed its name from
SanSal Wellness Holdings, Inc. to Veritas Farms, Inc.
Our executive offices are located at 1815 Griffin Road, Suite 401, Dania Beach,
FL 33004 and our telephone number is (833) 691-4367. Our corporate website is
www.theveritasfarms.com. Information appearing on our website is not part of
this Quarterly Report on Form 10-Q.
Results of Operations
The nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020
Revenues. Revenues for the nine months ended September 30, 2021 decreased to
$2,004,071, as compared to revenues of $4,830,523 for the nine months ended
September 30, 2020. The COVID-19 outbreak had an adverse effect on "brick and
mortar" sales of our products and the timing of orders from a number of our
retail customers. Sales include bulk oils for wholesale, vegan capsules,
tinctures, lotions, salves and pet chews, all in various potency levels and
flavors. In addition to the more established CBD channels, the Company expanded
its product lines to include beauty products, pet chews, pet health and sports
through strategic partnerships with contract manufacturers.
Cost of Goods Sold. All expenses incurred to grow, process, and package the
finished goods are included in our cost of goods sold. Cost of goods sold for
the nine months ended September 30, 2021 decreased to $1,287,505 from $2,252,016
for the nine months ended September 30, 2020. The decrease in cost of sales can
be attributed to the decrease in sales during the nine months ended September
30, 2021 as compared to the nine months ended September 30, 2020.
Gross Margin. We had gross profit of $716,566 for the nine months ended
September 30, 2021, as compared to gross profit of $2,578,507 for the nine
months ended September 30, 2020. The decrease in gross profit can be attributed
to the decrease in sales during the nine months ended September 30, 2021 as
compared to the nine months ended September 30, 2020.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $4,360,129 for the nine months ended
September 30, 2021, from $7,613,994 for the nine months ended September 30,
2020. This reduction reflects expense reductions, including a reduction in
personnel and 20% pay cuts taken by management and other senior staff in
response to the COVID-19 outbreak. General and administrative expenses consist
primarily of administrative personnel costs, facilities expenses, professional
fee expenses and marketing costs for our Veritas Farms brand products.
Other Income/(Expense). Interest expense for the nine months ended September 30,
2021 was $97,111, as compared to $97,723 for the nine months ended September 30,
2020. Interest expense decreased in the 2021 nine month period from the 2020
nine month period primarily due to the interest method amortization of a
beneficial conversion feature. We recorded an extra-ordinary loss on lease
termination of $244,840 for the nine months ended September 30, 2021 compared to
$-0- for the nine months ended September 30, 2020. We also recorded an
extra-ordinary gain on loan forgiveness of $932,462 for the nine months ended
September 30, 2021 compared to $-0- for the nine months ended September 30, 2020
which was primarily driven by the forgiveness of a loan in the amount of
$803,994 received under the U.S. Small Business Administration ("SBA") Paycheck
Protection Program ("2020 PPP Loan") as part of the business incentives offered
in the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and all
accrued interest.
Net Loss. As a result of all of the foregoing, net loss for the nine months
ended September 30, 2021, increased to ($3,381,921) or ($0.08) per share based
on 43,968,420 weighted average shares outstanding, from ($5,133,210) or ($0.12)
per share for the nine months ended September 30, 2020, based on 41,606,299
weighted average shares outstanding.
The three months ended September 30, 2021 compared to the three months ended
September 30, 2020
Revenues. Revenues for the three months ended September 30, 2021 decreased to
$555,870, as compared to revenues of $1,466,824 for the three months ended
September 30, 2020. The COVID-19 outbreak had an adverse effect on "brick and
mortar" sales of our products and the timing of orders from a number of our
retail customers. Sales include bulk oils for wholesale, vegan capsules,
tinctures, lotions, salves and pet chews, all in various potency levels and
flavors. In addition to the more established CBD channels, the Company expanded
its product lines to include beauty products, pet chews, pet health and sports
through strategic partnerships with contract manufacturers.
Cost of Goods Sold. All expenses incurred to grow, process, and package the
finished goods are included in our cost of goods sold. Cost of goods sold for
the three months ended September 30, 2021 decreased to $282,117 from $574,277
for the three months ended September 30, 2020. The decrease in cost of sales can
be attributed to the decrease in sales during the nine months ended September
30, 2021 as compared to the nine months ended September 30, 2020.
Gross Margin. We had gross profit of $273,753 for the three months ended
September 30, 2021, as compared to gross profit of $892,547 for the three months
ended September 30, 2020. The decrease in gross profit can be attributed to the
decrease in sales during the three months ended September 30, 2021 as compared
to the three months ended September 30, 2020.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $1,558,524 for the three months ended
September 30, 2021, from $2,429,989 for the three months ended September 30,
2020. This reduction reflects expense reductions, including a reduction in
personnel and 20% pay cuts taken by management and other senior staff in
response to the COVID-19 outbreak. General and administrative expenses consist
primarily of administrative personnel costs, facilities expenses, professional
fee expenses and marketing costs for our Veritas Farms brand products.
21
Other Income/(Expense). Interest expense for the three months ended September
30, 2021 was $34,801, as compared to $42,464 for the three months ended
September 30, 2020. Interest expense decreased in the 2021 quarter from the 2020
quarter due to the interest method amortization of a beneficial conversion
feature ending in Q1 2021. We also recorded an extra-ordinary gain on loan/debt
forgiveness of $109,625 for the three months ended September 30, 2021 compared
to $-0- for the three months ended September 30, 2020 which was primarily driven
by the forgiveness of accounts payable.
Net Loss. As a result of all the foregoing, net loss for the three months ended
September 30, 2021, increased to ($1,499,097) or ($0.04) per share based on
41,974,977 weighted average shares outstanding, from ($1,579,906) or ($0.04) per
share for the three months ended September 30, 2020, based on 41,646,716
weighted average shares outstanding.
Liquidity and Capital Resources
As of September 30, 2021, total assets were $11,906,309, as compared to
$12,408,021 at December 31, 2020. The decrease in assets is primarily due to a
decrease in right of use assets, net of accumulated amortization related to the
Majestic lease termination.
Total current liabilities as of September 30, 2021 were $2,243,894, as compared
to $3,751,963 at December 31, 2020. The decrease was mainly due to the
forgiveness of the 2020 PPP Loan of $803,994.
Net cash used in operating activities was $4,309,998 for the nine months ended
September 30, 2021, as compared to $2,470,841 for the nine months ended
September 30, 2020. The increase is largely attributable to the reduction in
stock-based compensation and increase in prepaid expenses.
Net cash used in investing activities was $53,898 for the nine months ended
September 30, 2021 as compared to net cash used of $77,423 for the nine months
ended September 30, 2020, reflecting reduced capital expenditures in 2021.
Net cash provided by financing activities was $4,498,499 for the nine months
ended September 30, 2021 as compared to $1,535,472 for the nine months ended
September 30, 2020. Net cash provided by financing activities for the nine
months ended September 30, 2021 included net proceeds of $803,994 from a loan
received under the SBA Paycheck Protection Program as part of the business
incentives offered in the CARES Act received in February 2021, and net proceeds
of $86,895 and $3,665,440 from private offerings of our equity securities. Net
cash provided by financing activities for the nine months ended September 30,
2020 included net proceeds from of a $200,000 convertible loan received in March
2020, the proceeds of $803,994 from the 2020 PPP Loan received in May 2020, and
proceeds from a loan in the amount of $150,000 from the SBA as an Economic
Injury Disaster Loan received in September 2020.
Our primary sources of capital to develop and implement our business plan and
expand our operations have been the proceeds from private offerings of our
equity securities and loans from shareholders.
In March 2020, the Company received a $200,000 loan from a single investor,
evidenced by a one-year convertible promissory note ("Convertible Note"). The
Convertible Note bears interest at the rate of ten percent (10%) per annum,
which accrues and is payable together with principal at maturity. Principal and
accrued interest under the Convertible Note may, at the option of the holder, be
converted in its entirety into shares of our common stock at a conversion price
of $0.40 per share, subject to adjustment for stock splits, stock dividends and
similar recapitalization transactions. On May 14, 2021, the Company paid $20,000
in accrued interest to the holder, and the Company and the investor extended the
maturity date of the Convertible Note to September 6, 2021. In September 2021,
the Company and the investor further extended the maturity date of the
Convertible Note to October 1, 2022.
In September 2020, the Company commenced a $4.0 million private offering of up
to 8,000,000 Units ("Units") at a price of $0.50 per Unit, which private
offering ended April 30, 2021. Each Unit consists of (a) two shares of common
stock; and (b) one warrant, entitling the holder to purchase one share of our
common stock at an exercise price of $0.50 at any time through August 31, 2025.
As of December 31, 2020, the Company sold 2,080,000 Units in the private
offering for gross proceeds of $1,040,000 with offering costs of $154,965
resulting in net proceeds of $885,035. From January 1, 2021 through April 30,
2021, the Company sold an additional 200,000 Units for gross proceeds of
$100,000 with offering costs of $13,105 resulting in net proceeds of $86,895.
The terms of this offering provided that, if during the one-year period from the
final closing of the offering, the Company undertakes a subsequent private
offering of its equity, equity equivalent or debt securities (a "Subsequent
Offering"), the investor will be entitled to exchange their Units purchased in
the offering for an equivalent dollar amount of securities sold in the
Subsequent Offering (based on the respective offering prices). The Company also
entered into a registration rights agreement with these investors which states,
among other things, that the Company shall use commercially reasonable efforts
to prepare and file with the United States Securities and Exchange Commission a
registration statement covering, among other things, the resale of all or such
portion of the registrable securities that are not then registered on an
effective registration statement. As of September 30, 2021, all Unit holders
converted their Units to Series A Preferred Shares.
On May 11, 2021, the Company consummated the issuance and sale of the Preferred
Shares to the Wit Trust described under "Recent Developments" above, which
generated gross proceeds of $2,000,000 (including certain bridge financing
previously furnished by the Wit Trust to the Company in April 2021).
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On September 30, 2021, the Company completed a private offering which commenced
on August 5, 2021 of Series A Preferred Shares to certain investors, pursuant to
which the Company sold an aggregate of 2,000,000 Series A Preferred Shares at a
purchase price of $1.00 per share ("Private Placement") in exchange for (i) the
payment of $1,860,000 (including $1,644,068.49 principal plus accrued but unpaid
interest in bridge financing provided by certain investors during July and
August 2021 upon the conversion of the investors' secured convertible promissory
notes, and conversion of an account payable); and (ii) the surrender of 280,000
Units. The investors in the Private Placement included: Mr. Johnson upon the
conversion of $50,000 promissory note; Mr. Pino upon the conversion of $25,000
promissory note; Mr. Vickers upon conversion of $50,000 promissory note and
accounts payable; Mr. van der Post, a member of the Board of Director of the
Company, in the amount of $50,000, and; the Wit Trust, in the amount of
$65,931.51 and upon conversion of $1,500,000 secured convertible promissory
notes and $19,068.49 in accrued and unpaid interest. As a result of the Private
Placement and the voting rights accorded the Series A Preferred Shares and
Series B Preferred Shares, the Wit Trust now holds approximately 87% of the
voting power of the Company.
Subsequent to September 30, 2021, on October 12, 2021, the Company issued a
secured convertible credit line promissory note in the principal amount for up
to $1,500,000 (the "Secured Convertible Promissory Note"), which Secured
Convertible Promissory Note was issued to the Wit Trust. The Secured Convertible
Promissory Note is secured by the Company's assets and contain certain covenants
and customary events of default, the occurrence of which could result in an
acceleration of the Secured Convertible Promissory Note. The Secured Convertible
Promissory Note is convertible as follows: aggregate loaned principal and
accrued interest under the Secured Convertible Promissory Note may, at the
option of the holder, be converted in its entirety into shares of our common
stock at a conversion price of $0.05 per share. The Secured Convertible
Promissory Note will accrue interest on the aggregate amount loaned at a rate of
10% per annum. All unpaid principal, together with any then unpaid and accrued
interest and other amounts payable under the Secured Convertible Promissory
Note, is due and payable if not converted pursuant to the terms and conditions
of the Secured Convertible Promissory Note on the earlier of (i) October 1,
2024, or (ii) following an event of default.
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States, which contemplate
continuation of the Company as a going concern. However, the Company has
sustained substantial losses from operations since its inception. As of and for
the period ended September 30, 2021, the Company had an accumulated deficit of
($30,049,068) and a net loss of ($3,381,921). These factors, among others, raise
substantial doubt about the ability of the Company to continue as a going
concern. Continuation as a going concern is dependent on the ability to raise
additional capital and financing until we can achieve a level of operational
profitability, though there is no assurance of success.
The Company believes that it will require additional financing to fund its
growth and achieve profitability The Company anticipates that such financing
will be generated from subsequent private offerings of its equity and/or debt
securities. While we believe additional financing will be available to us as
needed, there can be no assurance that such financing will be available on
commercially reasonable terms or otherwise, when needed. Moreover, any such
additional financing may dilute the interests of existing shareholders. The
absence of additional financing, when needed, could substantially harm the
Company, its business, results of operations and financial condition.
Effects of the Coronavirus (COVID-19) Pandemic on the Company
The adverse public health developments and economic effects of the current
COVID-19 pandemic in the United States, could adversely affect the Company's
customers and suppliers as a result of quarantines, facility closures, closing
of "brick and mortar" retail outlets and logistics restrictions imposed or which
otherwise occur in connection with the pandemic. More broadly, the high degree
unemployment resulting from the pandemic could potentially lead to an extended
economic downturn, which would likely decrease spending, adversely affect demand
for our products and services and harm our business, results of operations and
financial condition. The rapidly changing global market and economic conditions
as a result of the COVID-19 pandemic have negatively impacted, and are expected
to continue to negatively impact, our operations and business. The broader
implications of the COVID-19 pandemic and related global economic
unpredictability on our business, financial condition, and results of operations
remain uncertain. At this time, we cannot accurately predict the effect the
COVID-19 pandemic will have on the Company.
Critical Accounting Policies
Revenue Recognition
Under ASC 606, Revenue from Contracts with Customers ("ASC 606"), the Company
recognizes revenues when its customer obtains control of promised goods or
services, in an amount that reflects the consideration which it expects to
receive in exchange for those goods. The Company recognizes revenues following
the five-step model prescribed under Accounting Standards Update ("ASU")
2014-09: (i) identify contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price; (iv)
allocate the transaction price to the performance obligations in the contract;
and (v) recognize revenues when (or as) we satisfy the performance obligation.
Revenues from product sales are recognized when the customer obtains control of
the Company's product, which occurs at a point in time, typically upon delivery
to the customer. The Company expenses incremental costs of obtaining a contract
as and when incurred if the expected amortization period of the asset that it
would have recognized is one year or less or the amount is immaterial.
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Property, Plant and Equipment
Purchases of property, plant and equipment are recorded at cost. Improvements
and replacements of property, plant and equipment are capitalized. Maintenance
and repairs that do not improve or extend the lives of property and equipment
are charged to expense as incurred. When assets are sold or retired, their cost
and related accumulated depreciation are removed from the accounts and any gain
or loss is reported in the Statements of Operations. Depreciation is recognized
over the estimated economic useful lives of each class of assets and is computed
using the straight-line method.
Impairment of Long-Lived Assets
The carrying value of long-lived assets are reviewed when facts and
circumstances suggest that the assets may be impaired or that the amortization
period may need to be changed. The Company considers internal and external
factors relating to each asset, including cash flows, local market developments,
industry trends and other publicly available information. If these factors and
the projected undiscounted cash flows of the Company over the remaining
amortization period indicate that the asset will not be recoverable, the
carrying value will be adjusted to the fair market value.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates included deferred revenue, costs incurred related to deferred revenue,
the useful lives of property and equipment and the useful lives of intangible
assets.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
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