Ealixir, Inc. 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. 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. OVERVIEW At the end of fiscal year 2003 we had completed our Centralization and Consolidation Plan. Through fiscal year 2004 to present, we have focused on growing revenues within our two core product lines: i) financial services with the Global Market Pro and Equity Market Pro products and services and ii) enterprise wireless messaging and communications with the HiplinkXS family of products and services. These products maintain high gross and operating margins and form the core of the enterprise software marketing strategy with wireless and mobile features available in the software. FACTORS AFFECTING COMPARABILITY; STRATEGIC REPOSITIONING We have transitioned our business from consumer driven wireless products and services to enterprise-based application software products and services with emphasis in the mobile and wireless software markets. This transition has mostly taken place since March 2000. As part of the transition, we acquired six companies Cross, Simkin, Wares, Five Star, WizShop and ADA. For specific information concerning the acquired companies see Note 4 to the Financial Statements, "Acquisitions". Each subsidiary provided revenues and a significant customer base to allow us to add to our technology, expand our product offerings and penetrate targeted vertical markets. However, due to the continued economic recession and limited capital spending, we centralized and consolidated our operations and closed Five Star and Wares, sold ADA, discontinued WizShop and consolidated Simkin and Cross (See the "Centralization and Consolidation Plan" below). After the Centralization and Consolidation Plan was largely completed by March 31, 2003, we determined that our ongoing operations were in one segment, wireless and mobile enterprise software. Through fiscal year 2004 to the present, we have been focused on growing revenues within our two core product lines: i) financial services with the Global Market Pro and Equity Market Pro products and services and ii) enterprise wireless messaging and communications with the HiplinkXS family of products and services. These products maintain high gross and operating margins and form the core of the enterprise software marketing strategy with wireless and mobile features available in the software. CENTRALIZATION AND CONSOLIDATION PLAN In May 2002, the Board of Directors determined that we needed to focus our operations on our core enterprise software products. Given the continued economic recession and limited capital spending, as well as the reduced access to capital, we economically utilized our limited resources on those products with the best margins and cash flow generation. As part of that effort, we reduced our e-commerce operations and closed the FiveStar business as of the end of June 2002 and closed the Wares' business as of August 2002. WizShop was discontinued as of September 2003. Both Simkin's and Cross' business operations were also consolidated. Additionally, we reflected ADA as a discontinued operation as of March 31, 2003, and in May 2003, GBG purchased the remaining 51% ownership of ADA. Accordingly, we redirected our human and capital resources towards more profitable products and services. (See "Factors Affecting Comparability; Strategic Repositioning"). IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL Our management performs an on-going analysis of the recoverability of our goodwill and other intangibles and the value of our investments in accordance with SFAS 144 and SFAS 142, "Goodwill and Other Intangible Assets". Based on quantitative and qualitative measures, we assess the need to record impairment losses on long-lived assets used in operations when impairment indicators are present. A number of factors indicated that impairment may have arisen in the period ended March 31, 2002 for certain amounts of goodwill related to the acquisitions of Simkin, Wares and WizShop. Also, an impairment may have arisen with the recorded asset value of our Global Market Pro intellectual property. For Simkin, the analysis was to determine if a further reduction in goodwill was necessary. We had previously taken a $650,000 net impairment charge in the quarter ended June 30, 2001. See Note 7 to the Financial Statements, "Sale of Technology and Net Impairment of Goodwill". For Wares and WizShop, we analyzed the current carrying value of the goodwill related to both acquisitions. The result of this analysis necessitated charges to income of certain intangible assets which include goodwill, GMP intellectual property and acquired software. Those charges total approximately $7 million for the fiscal year ended March 31, 2002. See Notes 6 and 7 to the Financial Statements, "Impairment of Long-Lived Assets and Goodwill" and "Sale of Technology and Net Impairment of Goodwill" respectively. No further impairment charges in continuing operations have been taken in fiscal year ended March 31, 2004 and 2003, although a net loss from discontinued operations of $799,090 was taken for the operations of Five Star, Wares and ADA, mostly comprised of an impairment to goodwill of $635,724 at ADA. Management has determined that the remaining goodwill of $1,430,141 (net of accumulated amortization prior to the adoption of SFAS 142, of $727,058) is fairly valued using the impairment tests as described in SFAS 144 and SFAS 142, which includes discounted cash flow analysis and comparable company analysis. This remaining amount of goodwill consists entirely of one of our wireless enterprise application software product lines, the HipLink family of software products, which is generating current revenue and cash flow. CRITICAL ACCOUNTING POLICIES The critical accounting policies are revenue recognition, cost allocation to revenue and valuation of intangible assets. REVENUE RECOGNITION We recognize revenues based upon contract terms and completion of the sales process. Revenue is generated from one-time software licensing fees, annual maintenance fees and monthly wireless services fees provided to enterprises and consumers. We also receive a small revenue stream from pager rentals. Revenues are recognized over the service period and any revenue that relates to more than one service period is recognized ratably over those service periods. In the premise-based business, wireless software is delivered to the customer and revenue is recognized upon shipment, assuming no significant obligations remain. The revenue for the maintenance fees received through the Hiplink contracts are recognized ratably over the life of the maintenance contract. In the financial services, the monthly wireless services are billed in arrears and are recognized upon invoicing. For any professional or related services, revenue is generated from software engineering, training and consultation services; revenue is recognized when the engineering, training or consultation work has been performed in accordance with the contract. For consumer wireless services and pager rentals, revenue is recognized monthly upon credit card billing as the monthly service is delivered. COST OF REVENUE The cost of revenue principally includes costs to obtain data feeds from various exchanges, costs of engineering development directed to specifically identified products, costs of servicing and hosting customer products, costs for pager rental or depreciation and pager airtime for those customers without their own pagers, and certain telephone, computer and other direct operational costs. VALUATION OF LONG-LIVED ASSETS Our management performs an on-going analysis of the recoverability of our goodwill and other intangibles and the value of our acquired net assets in accordance with SFAS 144 and SFAS 142. Based on quantitative and qualitative measures, we assess the need to record impairment losses on long-lived assets used in operations when impairment indicators are present. In accordance with SFAS 144 and SFAS 142, we perform an undiscounted cash flow analysis of the long-lived assets and acquired net assets to determine whether an impairment exists. When the undiscounted cash flows are less than the carrying value of the net assets, management determines a range of fair values using a combination of valuation methodologies. The methodologies include: Discounted cash flow analysis, which is based upon converting expected future cash flows to present value. Changes in market value since the date of acquisition relative to the following: The Company's stock price; Comparable companies; Contribution to the Company's market valuation and overall business prospects. We adopted SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and Other Intangible Assets" as of April 1, 2002. Accordingly, we no longer amortize intangible assets with an indefinite useful life or goodwill, but instead will assess potential future impairments of such intangible assets and goodwill by performing impairments tests on a quarterly basis to analyze the current fair market value of the intangible assets and goodwill in relation to the carrying value of the assets. In prior years, we had capitalized the fair value of contracts acquired in business combinations as required by APB 16 "Business Combinations". Fair value was determined by estimating the cost expected to be incurred in order to perform the obligations under the contract plus adding a reasonable profit associated with the performance effort. The capitalized cost was amortized into cost of revenue as revenues were recognized and was fully amortized as of March 31, 2003. For other accounting policies see Note 3 to the Financial Statements, "Summary of Significant Accounting Policies". RESULTS OF OPERATIONS All financial results for the fiscal years ended March 31, 2004, 2003 and 2002 have been restated for the discontinued operations of Five Star, Wares, ADA and WizShop. REVENUES Revenues for the years ended March 31, 2004, 2003 and 2002 were $1,338,373, $1,339,190 and $1,416,940, respectively. Revenues for the fiscal year ended March 31, 2004 versus 2003 remained essentially the same. While there has been some variability in the number of customers, the overall revenue level has not changed. This is due to the fact that corporate capital spending has remained fairly constant through these last two fiscal years. The 5% decrease in revenues for the fiscal year ended March 31, 2003 versus 2002 was due to the continuation of the technology recession as the enterprise and commerce sales and the professional services segments had declines with fewer new customers and contracts. Wireless services generally maintained its level of revenues. COST OF REVENUES AND GROSS MARGIN The gross profit margin increased by 2% to 76% for the fiscal year ended March 31, 2004, due to the fact that we are continuing to sell our enterprise application software and wireless financial software and services, which have a high gross profit margin. Additionally, we continued to be more efficient in all of our business operations, which improved gross and operating margins. The gross profit margin increased by 12% in the fiscal year ended March 31, 2003 to 74%, due largely to the higher margin enterprise application software and wireless financial software and services, which was a much larger component of the overall revenue mix in the fiscal year ended March 31, 2003 as compared to fiscal year 2002. Further, through the Centralization and Consolidation Plan, we have become more efficient in all of our business operations, which improved gross and operating margins. OPERATING EXPENSES Operating expenses decreased by 33% in the fiscal year ended March 31, 2004, mainly due to the continued reduction in general and administrative expenses as described below. Operating expenses decreased by 59% in the fiscal year ended March 31, 2003, due to the continued reduction in overall expenses through the Centralization and Consolidation Plan. Further, there were not any impairment charges taken in continuing operations in the fiscal year ended March 31, 2003. We categorize operating expenses into five major categories: research and development, sales and marketing, general and administrative, depreciation and amortization and stock, option and warrant expense. For the fiscal year ended March 31, 2002, there are two categories of impairment charges that are categorized as operating expenses: goodwill and intangible assets. For the fiscal years ended March 31, 2003 and 2004, there were not any impairment charges from continuing operations. The table below summarizes the changes in these categories of operating expenses during the past three fiscal years: Year Ended March 31, Description 2004 2003 2002 Research and development $ 563,602 $ 719,965 $ 999,589 Sales and marketing 725,114 959,191 1,718,190 General and administrative 963,790 2,159,498 2,781,714 Impairment of goodwill -- -- 909,272 Impairment of intangible assets -- -- 3,420,000 Depreciation and amortization 201,181 1,255,635 2,360,771 Stock, option and warrant expense 952,473 52,455 496,181 Totals $ 3,406,160 $ 5,146,744 $ 12,685,717 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 are principally for the development of updates to existing products, such as Futures Market Pro, Equity Market Pro and Global Market Pro, and for releases of new versions of our enterprise application products, HiplinkXS, OpenLink, IQLink and RemLink. These expenses have declined over the past three fiscal years because the major development work for these products has been completed, and research and development expenses were reduced as part of the Centralization and Consolidation Plan. 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 have declined principally due to the reduction in general advertising and non-sales supported marketing. There has been a reduction in marketing personnel as we have shifted our emphasis to marketing and sales support for our existing products. General and administrative expenses include senior management, accounting, legal and consulting expenses. This category also includes the costs associated with being a publicly traded company, including the costs of the Nasdaq and AMEX listings, investor and public relations, rent, administrative personnel, and other overhead related costs. These costs declined during the fiscal years ended March 31, 2003 and March 31, 2004 as personnel and offices were reduced and operating functions were consolidated. In the fiscal year ended March 31, 2002, our management performed an on-going analysis of the recoverability of our goodwill and other intangibles and the value of our acquired net assets in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed Of" ("SFAS 121"), and, in the fiscal years ended March 31, 2004 and 2003, in accordance with SFAS 142. Based on quantitative and qualitative measures, we assessed the need to record impairment losses on long-lived assets used in operations when impairment indicators were present. As a result of our review, management determined that the carrying value of goodwill and recorded asset value were not fully recoverable and an impairment charge of $909,272 was taken, wholly comprised of an impairment charge to Simkin's goodwill in fiscal year 2002. Furthermore, we took an impairment charge of $3,420,000 for GMP Intellectual Property in the quarter ended March 31, 2002. See Notes 6 and 7, "Impairment of Long-Lived Assets and Goodwill" and "Sale of Technology and Net Impairment of Goodwill" respectively, to the Financial Statements in this Form 10K. There were no impairment charges from continuing operations in the fiscal years ended March 31, 2003 or 2004, although an impairment charge of $635,724 was taken in the discontinued operations of ADA. Management has determined that the remaining goodwill of $1,430,141 (net of accumulated amortization of $727,058) is fairly valued using the impairment tests as described in SFAS 144 and SFAS 142, which includes discounted cash flow analysis and comparable company analysis. This remaining amount of goodwill consists entirely of the HipLink family of software products, which is generating current revenue and cash flow. Depreciation and amortization expense includes depreciation of computers and other related hardware and certain fixtures. Amortization includes goodwill costs and certain intellectual property costs. The decline in this expense through fiscal year 2003 is as a result of the impairment charges in fiscal 2002 which reduced the asset balances to be amortized and from our decline in capital spending. The decline in this expense from fiscal year 2003 to fiscal year 2004 is due to the final amortization of GMP in fiscal year 2003, and the fact that there were no acquisitions of property, plant or equipment in fiscal year 2004. The non-cash charges for compensation consists mainly of grants of stock, options and warrants for services. Such services include financial, marketing and public relations consulting. Additionally, common stock was issued for settlement of certain accrued liabilities. The decline in non-cash charges for compensation in fiscal year 2003 was due mainly to the termination of contracts with service providers, which called for stock or warrant compensation, as well as the decline in the stock and option grants to service providers, in the fiscal years ended March 31, 2003 and 2002. The increase in non-cash charges for compensation in fiscal 2004 is due to new contracts for services being entered into, an increase in stock and option grants to service providers, and variable accounting charges for repriced options. The common stock issued was valued at the fair market value of stock issued, or in the instance of common stock purchase warrants, in accordance with the Black-Scholes pricing guidelines. Certain employee stock options, which have been repriced, are subject to the variable plan requirements of APB No. 25, that requires us to record compensation expense for changes in the fair value of our common stock. While no compensation expense was required to be recognized in fiscal year 2003 or fiscal year 2002, in fiscal year 2004 there was a stock compensation expense recognized in the amount of $894,409, due to the compensation expense adjustment for the repriced stock options based on the increase in the common stock price in fiscal year 2004. Compensation expense will be recognized in the future if the stock price increases above the exercise price of the repriced options. NON-OPERATING INCOME AND EXPENSES Non-operating income and expenses are primarily made up of interest income from invested cash, interest expense from a note payable and retired bank lines of credit, amortization of advances from technology sales received in previous periods, and the owner's fees and offsetting interest income recognized, related to the technology sales. The following tables reflect the changes in non-operating income and expenses: Year Ended March 31, Description 2004 2003 2002 Net interest income $ 22,666 $ 54,532 $ 260,152 Owners fee on sales of technology -- (1,176,750) (1,569,000) Interest on note from sales of technology -- 1,176,750 1,569,000 Amortization of technology advances -- 206,724 306,908 Gain from cancellation of sales of technology contracts -- 628,927 -- Miscellaneous income (expenses) 11,450 112,422 (7,645) Total non operating income, net $ 34,116 $ 1,002,605 $ 559,415 Non-operating income, net of expenses, decreased in the year ended March 31, 2004 versus 2003, due to the cancellation of the technology sales contracts at the end of fiscal year 2003; no further income will be amortized from those contracts. Non-operating income, net of expenses, increased in the fiscal year ended March 31, 2003 versus 2002, due to the cancellation of the technology sales contracts, of which the remaining deferred balances were recognized as income. This was offset somewhat due to less cash available for investment during the year resulting from the operating losses and the decrease in the amortization of technology advances amount. COMPREHENSIVE LOSS The decrease in the comprehensive loss for the fiscal year ended March 31, 2004 to ($2,232,707) or $(0.11) per share was due to a continued improvement in our overall operating efficiency. The decrease in the comprehensive loss for the fiscal year ended March 31, 2003 to ($3,383,296) or $(0.19) per share was due to an improvement in our overall operating efficiency as the Consolidation and Centralization Plan was implemented. The gross profit margin improved and the operating costs were reduced. Further, impairment charges decreased by approximately $3,600,000 in the year ended March 31, 2003. SEGMENT INFORMATION After the Consolidation and Centralization Plan was largely completed by March 31, 2003, we determined that our ongoing operations were in one segment, wireless and mobile enterprise software. Our products consist mainly of the Global Market Pro family of products and the Hiplink family of products. Utilizing the definitions described in SFAS 131, "Disclosures about Segments of an Enterprise and Related Information", the nature of the products and services are all similar. Accordingly, starting in the current fiscal year, we will report the single line of business of wireless and mobile enterprise software and will no longer report operations from three prior segments: Enterprise and Commerce Sales, Professional and Related Services and Logistics. Further, per SFAS 131, the corresponding information for the earlier period presented has been reclassified accordingly to conform to the single segment current year presentation. LIQUIDITY AND CAPITAL RESOURCES Our cash flow position has improved at March 31, 2004, due to the continued improvement in operations and due to the cash received from the private placement financing and exercise of stock options. Although our cash position had decreased at March 31, 2003 due to our continued operating losses, this cash loss was reduced through our Centralization and Consolidation Plan. The overall decrease in our cash position at March 31, 2002 was due to our continued operating losses. Cash continued to be spent on operating resources and upgrading wireless products although a cash management and cost reduction program was implemented and reduced the overall cash loss. The sources and uses of cash are summarized as follows: Year Ended March 31, 2004 2003 2002 Net cash used in operating activities of continuing operations $ (1,384,379) $ (1,824,848) $ (4,493,464) Net cash provided by (used in) investing activities of continuing operations -- (15,889) 1,388,983 Net cash provided by (used in) financing activities of continuing operations 1,112,543 (210,941) (195,450) Net decrease in cash and cash equivalents (252,858) (2,100,732) (3,260,107) Cash used in operating activities at March 31, 2004 consisted principally of a net loss of $2,251,685 offset somewhat by non-cash charges of $201,181 for depreciation and amortization, $77,783 for the amortization of notes receivable, a stock and option compensation expense of $952,473, and a charge of $105,834 for the net income from discontinued operations. Further, there was a non-cash charge of $44,578 for a non-cash settlement of liabilities. Other operating activities that used cash were accounts payable and accrued liabilities in the amounts of $296,978 and $40,345, respectively. Cash used in operating activities at March 31, 2003 consisted principally of a net loss of $3,432,350 offset somewhat by non-cash charges of $1,255,635 for depreciation and amortization, $593,259 for the amortization and forgiveness of notes receivable, net, and $176,346 for a non-cash legal settlement. Further there was a charge for the net loss from discontinued operations of $403,698 and a gain on the cancellation of technology contracts of $628,927. Other operating activities that used cash were accrued liabilities of $116,603. Cash used in operating activities at March 31, 2002 consisted principally of a net loss of $18,444,478 offset somewhat by non-cash charges of $4,329,272 of impairment charges, depreciation and amortization of $2,360,771 and stock based compensation of $471,181. Other operating activities that provided cash were a reduction in accounts receivable of $250,365, and an increase in deferred revenue of $162,651 offset by a reduction in accounts payable of $104,559. During the fiscal year ended March 31, 2004, there was no cash used in investing activities. Cash used in investing activities of $15,889 at March 31, 2003 resulted principally from $16,949 of capital expenditures offset somewhat by $560 from the sale of assets and $500 from cash received from certain acquisitions during the fiscal year. Cash provided by investing activities in 2002 of $1,388,983 resulted principally from $1,063,571 of cash provided by discontinued operations, net of assets acquired of $24,588, and $350,000 from the sale of the Kinetidex technology. Cash flows from financing activities during the fiscal year ended March 31, 2004 produced a net increase in cash of $1,112,543. This resulted from net proceeds from a private placement of $977,474, and from the proceeds from the exercise of stock options and warrants for $211,584. This was offset slightly by the repayments of notes payable and capital leases by $56,224 and $20,291, respectively. During fiscal year ended March 31, 2003, cash flows from financing activities produced a net decrease in cash of $210,941. This resulted from the repurchase of preferred stock for $100,000, from the $78,869 of repayments of notes payable and $33,792 of repayments of capital leases, and from the $9,818 cash used in discontinued operations, offset slightly by $11,538 in cash received from the exercise of warrants. Cash flows used in financing activities at March 31, 2002 produced a net decrease in cash of $195,450. This resulted from $154,398 of repayments of notes payable and $40,423 of repayments of capital leases, and $12,297 in cash used in discontinued operations, offset slightly by $11,668 in cash received from the exercise of stock options. As of March 31, 2004, we had cash and cash equivalents of $1,717,052, a decrease of $252,858 from the prior year. Working capital increased to $1,682,495 from the fiscal year ended March 31, 2003 due to the cash received from the private placement financing and the exercise of stock options, to the payoff of the notes payable and capital leases and to the disposition of the discontinued operations. As of March 31, 2003, we had cash and cash equivalents of $1,969,910 a decrease of $2,100,732 from the prior year. Working capital decreased to $1,464,645 from the fiscal year ended March 31, 2002. The decrease in working capital is from the resources used in our operations, as explained above, somewhat offset by cash produced by the conversion of warrants and options into common stock. 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. As of March 31, 2002, we had cash and cash equivalents of $4,070,642 (exclusive of restricted cash of $693,286), a decrease of $3,260,107 from the prior year. The continued decrease in working capital is from the resources used in our operations as explained above. 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. In the fiscal year ended March 31, 2004, we elected to pay off all of our outstanding capital leases. There were no material commitments for capital expenditures at March 31, 2004 and we have no future capital lease payments. Operating lease expenses were $124,917 in fiscal 2004 and will be $52,153 in fiscal year 2005. The following table discloses our contractual commitments for future periods. Long term commitments are comprised solely of operating leases (See Note 20). Year ending March 31, 2005 52,153 2006 26,044 2007 27,440 2008 6,976 $ 112,613 At March 31, 2004 and 2003, we had a deferred tax asset of approximately $15,032,000 and $13,862,000, respectively, principally arising from net operating loss carryforwards available to offset future taxable income. As management cannot determine that it is more likely than not that we will realize the benefit of this asset, a 100% valuation allowance has been established. Management believes that it has adequate working capital for the next 12 months. RECENT PRONOUNCEMENTS: In November 2002, the Emerging Issues Task Force issued its final consensus on Revenue Arrangements with Multiple Deliverables. This guidance is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003 or alternatively, entities may elect to report the change in accounting as a cumulative-effect adjustment. EITF 00-21 discusses criteria necessary to determine when an arrangement may be viewed to have separate units of accounting (and thus revenue) and when an arrangement should be viewed as a single unit of accounting. As of March 31, 2004, we have not entered into any arrangements with multiple deliverables, nor do we currently foresee doing so. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51." This interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the interpretation. The interpretation applies immediately to variable interests in variable interest entities created or obtained after January 31, 2003. The interpretation is applied to the enterprise no later than the end of the first reporting period beginning after June 15, 2003. The application of this interpretation is not expected to have a material effect on our financial statements. The interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that we will consolidate or disclose information about variable interest entities when the interpretation becomes effective. As of March 31, 2004, we did not have any variable interest entities. In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement clarifies and creates more consistent reporting of contracts as either derivatives or hybrid financial instruments. The Statement is effective for contracts entered into or modified after June 30, 2003. We historically have not used derivatives or hedging instruments. Currently, we do have a small exposure to the Canadian -- U.S. dollar exchange rate, but at this time we have not deemed it necessary to hedge this exposure. In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective as of the beginning of the first interim period beginning after June 15, 2003. We adopted SFAS No. 150 on June 1, 2003. The adoption of SFAS No. 150 has not had a material impact on our results of operations or financial condition.