Ealixir, Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the attached financial statements and notes thereto. Except for the historical information contained herein, the matters discussed below are forward-looking statements that involve certain risks and uncertainties, including, among others, the risks and uncertainties discussed below. CRITICAL ACCOUNTING POLICIES We described our critical accounting policies in Item 6, "Management's Discussion and Analysis or Plan of Operation," of our Annual Report on Form 10-KSB for the year ended March 31, 2008. Our critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations, and require our management's significant judgments and estimates and such consistent application fairly depicts our financial condition and results of operations for all periods presented. OVERVIEW In the first quarter of fiscal year 2008 we sold our Global Market Pro family of financial data products to Stockgroup, since those products serve a specific market that Stockgroup has a larger presence in. During the first quarter of our fiscal year 2009 we have continued to focus on sales of our HipLink family of software applications and services utilized by businesses and their employees to wirelessly connect to critical business systems, information and processes. These products maintain high gross and operating margins and form the core of our enterprise software marketing strategy with wireless and mobile features available in the software. We also continue to work towards closing the acquisition of the majority of the assets and liabilities of Flint Telecom, Inc. (“Flint”). Although all contractual extensions have expired, we are working with Flint to execute an extension that will provide enough time for Flint to complete the outstanding closing contingencies. If however, the Flint transaction does not close, we will continue to look for another merger partner. Management believes that it has adequate working capital for the next 12 months. We had a net loss of $(234,565), $(0.10) per share basic and diluted, in the three months ended June 30, 2008, as compared to net income of $195,146, $0.11 per share basic and $0.09 per share diluted, in the three months ended June 30, 2007. Our overall cash increased by $4,217 in the three months ended June 30, 2008, compared to the three months ended June 30, 2007, in which our overall cash increased by $82,387. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2008 AND 2007 REVENUES Revenues for the three months ended June 30, 2008 decreased 27% to $230,735 as compared to $314,331 in the same three month period ended June 30, 2007. This is due to a continued weakness in our software sales for the first quarter of FY 2009 due to a continued weakness in the wireless messaging software market. COST OF REVENUES AND GROSS MARGIN The overall gross profit margin increased to 99% in the three months ended June 30, 2008 from 93% in the same three month period ended June 30, 2007. The increase in gross profit margin is principally due to the sale of the financial data and software services assets, which had higher costs and a lower gross profit. The cost of revenues principally includes costs of engineering development directed to specifically identified products, and costs of servicing and hosting customer products. Other costs directly related to the financial data software and services assets, are data feed costs, which have been eliminated with the sale of those assets. OPERATING EXPENSES Operating expenses decreased 3% to $461,219 in the three months ended June 30, 2008 versus $473,191 for the same three month period in the last fiscal year, mainly due to a decrease in research and development expenses as a result of moving engineering and development offshore, as well as a decrease in stock and option compensation expenses due to a reduction in stock and option grants. These expenses were offset somewhat by the increase in sales and marketing expenses as new sales staff and marketing programs were initiated. We categorize operating expenses into four major categories: research and development, sales and marketing, general and administrative, and stock, option and warrant expense. The table below summarizes the changes in these four categories of operating expenses (unaudited): Three Months Ended June 30, Description 2008 2007 Research and development $ 24,585 $ 42,496 Sales and marketing 208,223 157,000 General and administrative 213,039 216,093 Stock, option and warrant expense 15,372 57,602 ----------------- ------------------ Total $ 461,219 $ 473,191 Research and development expenses are expenses incurred in developing new products and product enhancements for current products. These expenditures are charged to expense as incurred. These costs decreased substantially due to moving our research and development efforts offshore. Remaining engineering costs are due to production projects for existing products and services. Sales and marketing expenses consist of costs incurred to develop and implement marketing and sales programs for our product lines. These include costs required to staff the marketing department and develop a sales and marketing strategy, participation in trade shows, media development and advertising, and web site development and maintenance. These costs also include the expenses of hiring sales personnel and maintaining a customer support call center. These costs increased compared to last year due to an increase in sales and marketing personnel. General and administrative expenses include senior management, accounting, legal, business development consulting, rent, administrative personnel, and other overhead related costs. This category also includes the costs associated with being a publicly traded company, including the costs of SEC filings, and investor and public relations. These costs decreased slightly during the three months ended June 30, 2008 versus 2007 due to a decrease in the use of outside services from independent contractors and our move from the American Stock Exchange (“Amex”) to the OTC Bulletin Board and the resulting elimination of costs related to being listed on the Amex. The non-cash charges for compensation consist mainly of grants of stock, options and warrants for services provided to us. Such services include financial, legal and business development consulting. The common stock issued was valued at its fair market value at the date of issuance. The decline in this expense is directly related to the reduction in the number and amount of stock and option grants in the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. OTHER INCOME (EXPENSE) The $2,493 in other expense for the three months ended June 30, 2008 is comprised mainly of accrued interest on the note payable to Flint, offset by interest and other miscellaneous income. The $374,716 in other income for the three months ended June 30, 2007 is comprised mainly from the gain on the sale of the financial data software and services assets offset by interest expense from the amortization of the debt discount and the accrued interest on notes payable. LIQUIDITY AND CAPITAL RESOURCES The overall cash increased by $4,217 for the three months ended June 30, 2008 as compared to an increase in cash of $82,387 for the three months ended June 30, 2007. The sources and uses of cash are summarized as follows (unaudited): Three Months Ended June 30, 2008 2007 Cash used in operating activities $ (212,107) $ (82,263) Cash provided by investing activities 16,324 165,025 Cash provided by (used in) financing activities 200,000 (375) --------------------- ---------------------- Net increase in cash and cash equivalents $ 4,217 $ 82,387 During the three months ended June 30, 2008, cash used in operating activities from continuing operations consisted principally of an operating loss of $232,072 resulting from gross profits of $229,147 and operating expenses of $461,219. Other operating activities contributing to a decrease in cash were a decline in accounts payable and deferred revenue offset by cash produced mainly through a decrease in accounts receivable, including the receivable from Stockgroup, and an increase in accrued expenses and other current liabilities. During the three months ended June 30, 2007, cash used in operating activities from continuing operations consisted principally of an operating loss of $179,570 resulting from gross profits of $293,621 and operating expenses of $473,191. Also, a gain on the sale of the financial data and software services assets offset by interest expense of $25,989 produced other income of $374,716. Other operating activities contributing to the increase in cash were mainly from an increase in deferred revenue of $62,955. Activities that contributed to a decrease in cash were an increase in accounts receivable, including the receivable from Stockgroup and a decrease in accounts payable of $33,616. Cash provided by investing activities in the three months ended June 30, 2008 consisted of proceeds resulting from the interim services agreement with Stockgroup. During the three months ended June 30, 2007, cash provided by investing activities consisted of proceeds resulting from the asset sale to Stockgroup and from the interim services agreement with Stockgroup. Cash provided by financing activities for the three months ended June 30, 2008 consisted of $200,000 in proceeds from the issuance of a convertible promissory note to Flint Telecom, Ltd. (See Note 6). Cash used in financing activities for the three months ended June 30, 2007 consisted of payment on an equipment loan. As of June 30, 2008, we had cash and cash equivalents of $226,601, an increase of $4,217 from the balance at March 31, 2008, which was $222,384. Our working capital deficit remained basically constant as of June 30, 2008 at ($42,166) as compared to a working capital deficit of ($42,103) at March 31, 2008. We have not yet generated sufficient revenues to cover the costs of continued product development and support, sales and marketing efforts and general and administrative expenses. We have an operating lease for our facility in Los Gatos, California for which the future minimum lease payments are $62,496 in fiscal 2009 and $3,600 in fiscal 2010. There are no material commitments for capital expenditures at June 30, 2008. Management believes that it has adequate working capital for the next 12 months. RECENT ACCOUNTING PRONOUNCEMENTS In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We do not believe that the adoption of FIN 48 currently has a material impact on our financial statements. In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements (SFAS 157). The standard provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS 157 must be adopted prospectively as of the beginning of the year it is initially applied. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We do not believe that the adoption of SFAS 157 currently has a material impact on our financial statements. FORWARD LOOKING STATEMENTS AND RISK FACTORS This report includes forward-looking statements relating to, among other things, projections of future results of operations, our plans, objectives and expectations regarding our future services and operations, and general industry and business conditions applicable to us. We have based these forward-looking statements on our current expectations and projections about future events. You can find many of these forward-looking statements by looking for words such as "may", "should", "believes", "expects", "anticipates", "estimates", "intends", "projects", "goals", "objectives", or similar expressions in this document or in documents incorporated herein. These forward-looking statements are subject to a number of risks, uncertainties and assumptions about us that could cause actual results to differ materially from those in such forward-looking statements. Such risks, uncertainties and assumptions include, but are not limited to, our limited operating history, our historical losses, the infancy of the wireless data industry where there is no established market for our products and services, our ability to adapt to rapid technological changes, our dependence on wireless networks owned and controlled by others, and the other factors that we describe in the section entitled "Risk Factors" in the Form 10KSB for the year ended March 31, 2008. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable.