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OURPETS CO - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) FORWARD LOOKING STATEMENTS This quarterly report on Form 10-Q contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which represent our expectations or beliefs concerning future events. Forward-looking statements generally include words such as "anticipates," "believes," "expects," "planned," "scheduled" or similar expressions and statements. Although we believe these forward-looking statements are based on reasonable assumptions, statements made regarding future results are subject to a number of assumptions, uncertainties and risks that could cause future results to be materially different from the results stated or implied in this document. Uncertainties, risks, and other factors that may cause actual results or performance to differ materially from any results of performance expressed or implied by forward-looking statements in this Form 10-Q include: (1) our ability to manage our operating expenses and realize operating efficiencies, (2) our ability to maintain and grow our sales with existing and new customers, (3) our ability to retain existing members of our senior management team and to attract additional management employees, (4) our ability to manage fluctuations in the availability and cost of key materials and tools of production, (5) general economic conditions that might impact demand for our products, (6) competition from existing or new participants in the pet products industry, (7) our ability to design and bring to market new products on a timely and profitable basis, (8) challenges to our patents or trademarks on existing or new products, (9) our ability to secure access to sufficient capital on favorable terms to manage and grow our business, or (10) we may experience impairment charges of our goodwill and other intangible assets. We caution that these risk factors are not exclusive. Additionally, we do not undertake to update any forward looking statements that may be made from time to time by or on behalf of us except as required by law. Overview OurPet's develops, designs, produces and markets a broad line of consumer brands containing innovative, high-quality accessory and consumable pet products for improving the health, safety, comfort and enjoyment of pets. The products sold have increased from the initial "Big Dog Feeder" to approximately 600 products for dogs, cats and wild birds. These products form our portfolio of brands, including Play-N-Squeak®www.playnsqueak.com, SmartScoop® www.smartscoop.com, ecoPure Naturals® www.ecopurenaturals.com, Flappy® Dog Toys www.flappydogtoys.com, Go! Cat Go!® cat toys, Clipnosis® cat products, Durapet® premium stainless steel bowls, Pet Zone® dog waste management products, Cosmic Pet® catnip and cat toy products, and a variety of raised feeders. These products are manufactured by domestic and foreign subcontractors and then sold by us to retailers and distributors who then sell the products to the end consumer. According to the 2011/2012 APPA National Pet Owners Survey, approximately 72.9 million U.S. households currently own a pet with an estimated pet population of 78.2 million dogs, 86.4 million cats and 16.2 million birds.. 12 As discussed below and in Liquidity and Capital Resources on Pages 15 through 17, we have funded our operations principally from operating activities for the year ended December 31, 2011 and for the nine months ended September 30, 2012. Under our credit facilities with our bank we can borrow up to $5,000,000 based on the level of qualifying accounts receivable and inventories. At September 30, 2012 we had a balance due of $2,704,996 under the line of credit with the bank at an interest rate of prime plus .50%. RESULTS OF OPERATIONS Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011 In the following discussion all references to 2012 are for the three months ended September 30, 2012 and all references to 2011 are for the three months ended September 30, 2011. Net revenue for 2012 was $4,269,952, a decrease of 5.5% in revenue from $4,516,078, in 2011, consisting of net sales of proprietary products for the retail pet business. This decrease of approximately $246,000 resulted from the net of: (i) increased sales to our largest customer of approximately $50,000, (ii) increased sales to new customers of approximately $64,000, (iii) net decreased sales to one club stores customer of approximately $307,000, and (iv) decreased sales to all other customers of approximately $53,000. Total sales to all customers of new products in the third quarter of 2012 were approximately $102,000. These included approximately (i) $83,000 of new Play-N-Squeak® products, and (ii) $19,000 of other new products. Our sales to foreign customers decreased by approximately $43,000, or 8%, from 2011 mainly due to decreased sales to customers in Canada. Cost of goods sold decreased by approximately $632,000 or 16.4%, from $3,848,527 in 2011 to $3,216,957 in 2012. Approximately $406,000 of this decrease was due to the one-time charge for establishing a reserve for excess and obsolete inventory in the third quarter of 2011 that was not incurred in 2012. Other reasons for the decrease in cost of goods sold were the following: (i) the cost of purchased products sold and freight decreased 4.2%, or approximately $112,000, due to lower sales, (ii) salaries, wages, payroll taxes and benefits expenses for operations decreased by approximately $81,000, and (iii) other operating expenses decreased by approximately $33,000, mainly due to decreased depreciation. Our variable and fixed warehouse and overhead costs decreased by 16.0% from the comparable quarter in 2011 due to decreased payroll and depreciation expenses. The net revenue decrease of 5.5% offset by the larger decrease in the cost of goods sold of 16.4% resulted in our gross profit on sales increasing by 57.7%, or $385,444, from $667,551 in 2011 to $1,052,995 in 2012. Gross profit margin increased from 14.8% in 2011 to 24.7% in 2012. This 9.9% increase in gross profit margin mostly came from not needing to recognize as large of an inventory reserve compared to the $450,000 recorded in the third quarter of 2011. Selling, general and administrative expenses in 2012 were $1,200,874, an increase of 12.7%, or $135,565, from $1,065,309 in 2011. This increase resulted from (i) an increase of approximately $52,000 in marketing expenses primarily due to increased customer rebate costs and relocation expenses, (ii) an increase of approximately $53,000 in salary and payroll expenses, (iii) an increase of approximately $24,000 in IT expenses mainly related to our ERP system and EDI activity, (iv) a decrease in bad debt expense of approximately $21,000, and (v) an increase in remaining selling, general and administrative expenses of approximately $28,000. "Loss from operations" improved by $249,879 from a loss of $397,758 in 2011 to a loss of $147,879 in 2012. This improvement is largely attributed to the increase in gross profit on sales due to the lower inventory reserve expense. Other income was negligible in 2012 compared to $12,883 in 2011. Other income in 2011 was primarily from our receipt of $13,333 as settlement from a competitor in connection with a patent infringement lawsuit we had filed against them. Interest expense for 2012 was $36,019, a decrease of $7,126, from $43,145 in 2011. This change was due to (i) an increase in interest expense for our bank line of credit of approximately $3,200, resulting from a higher average balance of approximately $2,763,000 in 2012 from $2,473,000 in 2011 (interest rate remained the same at 3.75%), (ii) an increase in interest expense of approximately $1,400 from the addition of a $225,000 State of Ohio 166 loan obtained in September 2011, and (iii) an increase in interest expense of approximately $300 from a lease obtained for inventory scanning equipment. These increases were offset by (i) a decrease in interest expense of approximately $6,900 related to the reduction during the end of 2011 of outstanding balances of contributor notes from $767,500 to $300,000 and (ii) a decrease in interest expense of approximately $5,100 from the reduced principal balances of existing term loans. Income tax benefit decreased by $89,096 from $142,965 in 2011 to $53,869 in 2012. The reduction was primarily due to (i) a decrease in federal income tax benefit for 2012 versus 2011 of approximately $81,000 due to a larger loss in 2011, (ii) a decrease in the estimate of local tax benefit of approximately $18,000, and (iii) a decrease in Maryland state income tax expense of approximately $10,000. 13 Net loss for 2012 was $130,097 as compared to a net loss of $285,055 for 2011, or an increase in profitability of $154,958. This increase was a result of the following changes from 2011 to 2012: Net revenue decrease of 5.5% $ (246,126 ) Cost of goods sold decrease of 16.4% 631,570 Gross profit on sales increase of 57.7% 385,444 Selling, general and administrative expenses increase of 12.7% (135,565 ) Income from operations, increase 249,879 Other income and expense, net decrease (12,951 ) Interest expense decrease of 16.5% 7,126 Income tax benefit decrease (89,096 ) Increase in Profitability $ 154,958 Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011 In the following discussion all references to 2012 are for the nine months ended September 30, 2012 and all references to 2011 are for the nine months ended September 30, 2011. Net revenue for 2012 was $14,213,342, a decrease of 1.9% in revenue from $14,490,499 in 2011, consisting of net sales of proprietary products for the retail pet business. This decrease of approximately $277,000 was the net result of (i) a one- time promotional sale of $1,710,000 in 2011 that did not occur this year, (ii) increased sales to new customers of approximately $556,000, (iii) increased sales to our top five largest existing customers of approximately $868,000, and (iv) a net increase of approximately $9,000 of sales to all other customers. Total sales to all customers of new products in 2012 that were not sold in 2011 were approximately $1,879,000. These included $975,000 of new Play-N-Squeak products, $446,000 of new Durapet fashion bowls, $277,000 of new Cosmic products, and approximately $181,000 of all other new products. Our Play-N-Squeak and Cosmic Pet product sales increased approximately $1,129,000 and $556,000 respectively over the same period a year ago. Our sales to foreign customers increased by approximately $364,000, or 26%, from 2011 mainly due to increased sales to customers in Brazil, Japan, and the United Kingdom. Cost of goods sold decreased by 1.3%, from $10,893,987 in 2011 to $10,758,318 in 2012. Comprising this approximately $136,000 decrease in cost of goods sold were the following: (i) the cost of purchased products sold and freight increased 3.6%, or approximately $296,000, despite the decrease in sales, mainly due to sales of slower moving inventory and increased freight out costs, (ii) reserves for excess and slow moving inventory decreased approximately $318,000, (iii) salary and payroll expenses decreased approximately $211,000, and (iv) other operating expenses increased by approximately $97,000 and are mostly attributed to the Cosmic Pet facility and included increased warehouse rent and moving expenses. Our variable and fixed warehouse and overhead costs decreased by 3.4% from the comparable nine months in 2011 due to the lower payroll expenses. The net revenue decrease combined with the slight decrease in cost of goods, resulted in our gross profit on sales decreasing by 3.9%, or $141,488, from $3,596,512 in 2011 to $3,455,024 in 2012. Gross profit margin remained fairly constant changing from 24.8% in 2011 to 24.3% in 2012. Selling, general and administrative expenses in 2012 were $3,395,142, an increase of 11.5%, or $350,786, from $3,044,356 in 2011. This increase was a result of (i) an increase in salaries and wages, payroll taxes, and employee benefits of approximately $162,000, (ii) an increase in sales and marketing expenses of approximately $100,000, mainly due to increased expenses related to Smartscoop® advertising and new employee relocation expenses, (iii) an increase in travel and entertainment expenses of approximately $45,000, (iv) an increase in IT costs of approximately $54,000 as we invested in upgrading our IT infrastructure and software support, and (v) an increase in other expenses of approximately $19,000. These increases were offset by a decrease in bad debt expense of approximately $29,000. Income from operations decreased by $492,274 from $552,156 in 2011 to $59,882 in 2012, as a result of our gross profit on sales decreasing by $141,488, or 3.9%, and selling, general and administrative expenses increasing by $350,786 or 11.5%. Approximately 29% of the decrease came from the decrease in gross profit on sales with the other 71% coming from the increased selling, general and administrative costs. Other income for 2012 was $8,344, compared to $22,868 in 2011. In June, 2012, the Company was awarded a $7,000 grant from the City of Mentor towards its relocation of the Cosmic Pet operation to Mentor, Ohio. Other income in 2011was primarily from our receipt of settlements from competitors in connection with patent infringement lawsuits we had filed against them. 14 Interest expense for 2012 was $119,174, a decrease of $16,461 from $135,635 in 2011. For 2012, we experienced (i) an increase in interest expense for our bank line of credit of approximately $10,200, resulting from a higher average balance of approximately $2,913,000 in 2012 from approximately $2,583,000 in 2011 (interest rate remained the same at 3.75%), (ii) an increase in interest expense of approximately $4,500 from the addition of a $225,000 State of Ohio 166 loan obtained in September 2011, and (iii) an increase in interest expense of approximately $300 from a lease obtained for inventory scanning equipment . However, these increases were offset by (i) a decrease in interest expense of approximately $19,000 related to the reduction during 2011 of outstanding balances of contributor notes from $767,500 to $300,000 and (ii) a decrease in interest expense of approximately $11,300 from the reduced principal balances of existing term loans. A decrease of miscellaneous finance charges accounted for the other approximately $1,100 in lower interest expense from 2012 to 2011. Income tax benefit in 2012 was $11,033 compared to an income tax expense of $166,060 in 2011. The $177,093 decrease was mainly due to (i) a decrease in federal income tax expense for 2012 versus 2011 of approximately $170,900 due to a loss in 2012, (ii) a decrease in state tax expense of approximately $9,800, and (iii) a decrease in local income tax benefit of approximately $3,600. Net loss for 2012 was $39,915 as compared to net income of $273,329 for 2011, or a decrease in profit of $313,244. This decrease was a result of the following changes from 2011 to 2012: Net revenue decrease of 1.9% $ (277,157 ) Cost of goods sold decrease of 1.3% 135,669 Gross profit on sales decrease of 3.9% (141,488 ) Selling, general and administrative expenses increase of 11.5% (350,786 ) Income from operations , decrease (492,274 ) Other income, net decrease (14,524 ) Interest expense decrease of 12.1% 16,461 Income tax expense decrease 177,093 Decrease in profitability $ (313,244 ) LIQUIDITY AND CAPITAL RESOURCES Our operating activities provide cash from the sale of our products to customers with the principal use of cash being for the payments to suppliers that manufacture our products and for freight charges for shipments to our warehouse and to our customers. Our investing activities use cash mostly for the acquisition of equipment such as tooling, computers, and software. Our financing activities provide cash, if needed, under our line of credit with our bank that had $310,740 in available funds at September 30, 2012 based upon the balance of accounts receivable and inventories at that date. As of September 30, 2012, we had $3,468,383 in principal amount of indebtedness consisting of: Bank line of credit - $5,000,000 Prime plus .5% $ 2,704,996 Bank term note ($500,000 original balance) 4.18% 145,340 Contributor notes payable Prime plus 2% 300,000 Capitalized Leases Various 31,799 Ohio 166 Loan 3.00% 186,248 Other notes payable Prime plus 3% & 10% 100,000 The bank line of credit indebtedness is $2,704,996 which is comprised of a single line of credit under which we can borrow up to a total of $5,000,000 based on the level of qualifying accounts receivable and inventories. Total eligible collateral at September 30, 2012 was $3,015,736. The $5,000,000 line of credit is a two year revolver and therefore is classified as a long term liability on our balance sheet. Prior to the quarter ending June 30, 2011, the line of credit had always been a one year agreement and therefore classified as a current liability. Under our agreement with the bank we are required to: (i) maintain a debt service coverage ratio of at least 1.15; (ii) maintain a tangible net worth of no less than $3,000,000 through the quarter ending September 30, 2011, thereafter increasing to $4,500,000 starting with the quarter ending December 31, 2011; and (iii) obtain the bank's permission to incur additional indebtedness, make any expenditures for property and equipment in excess of $500,000 in any fiscal year, redeem any of our capital stock, pay cash dividends other than dividends on our preferred stock (subject to meeting the debt service coverage ratio), or repay any subordinated debt and accrued interest. 15 On March 26, 2012, our bank amended how we calculate the debt service coverage ratio for the reporting periods ending March 31, 2012, June 30, 2012 and September 30, 2012. A copy of the "Loan Amendment" was filed as Exhibit 10.66 with the Company's 10-K as filed on April 4, 2012. At September 30, 2012, we were not in compliance with the covenant and default provisions under the amended agreement with the bank and had a debt service coverage ratio of 0.75 and a tangible net worth of $4,676,948. We have received a covenant waiver from our bank for the trailing twelve months ended September 30, 2012, whereby the bank waived its rights and remedies of our breaches of the covenants described above A copy of the waiver is attached as Exhibit 10.70 to this report. Our bank is also in the process of amending how our debt service financial covenant will be calculated. The Company is presently finalizing a commitment from its bank for two facilities: (1) an extension of the $5,000,000 line of credit facility to June 30, 2014, and (2) a new $500,000 loan with a 3 year term at a fixed interest rate of approximately 5.35%. Approximately $145,000 of this new term loan will be used to pay off the remaining balance on an earlier bank term loan originated in July, 2010. In return for their personal guarantee of OurPet's repayment of both facilities, Dr. Steven Tsengas and Evangelina Tsengas will be issued 375,000 warrants, which is a ratio of one warrant to every eight dollars of additional obligation they guarantee. The Tsengas's had previously provided personal guarantees of up to $2,500,000 of the line of credit facility. The warrants will vest immediately, have an exercise price equal to the market share price on the day of loan closing, and will have a five year term. The warrant issuance is consistent with how the Company has in the past compensated loan guarantors. On October 2, 2009, we obtained an $800,000 term loan from our bank. The term loan has a fixed interest rate of 4.61% and was payable monthly over a three year period in equal installments of $23,859 that include interest. The loan was secured by our accounts receivable, inventory, equipment, trademarks, patents and the personal guarantee of certain stockholders. At September 30, 2012, this loan was completely paid off. On July 16, 2010, we obtained an additional $500,000 term loan from our bank in connection with our 2010 asset purchase of Cosmic Pet. The loan is payable in equal monthly installments of $14,817 over a three year term at a fixed interest rate of 4.18%. This loan is secured by accounts receivable, inventory, equipment, trademarks, patents and the personal guarantee of certain stockholders. At September 30, 2012, the principal balance outstanding was $145,340. Contributor notes totaling $1,367,500 were issued in 2008 to fund patent litigation expenses related to a lawsuit filed against us by a competitor. In February 2010, the amount of $600,000 was retired from the notes through a cash payment of $329,988 and conversion of $270,012 of the notes to Preferred Stock. Of the remaining $767,500 in outstanding contributor notes, $317,500 was paid off in July, 2011; $100,000 was paid off in August, 2011; and $50,000 was paid off in October, 2011. At September 30, 2012, the outstanding amount of contributor notes was $300,000. On October 31, the Company had $300,000 of subordinated debt and approximately $63,000 of accrued interest become due and payable to one note holder. The original obligation was a four year term loan with interest accruing at a rate of prime plus 200 basis points (5.25%) as of October 31, 2012. As of the date of this report, the Company has not paid this outstanding balance since to do so would put the Company in further violation of its debt service ratio coverage as required by its bank The Company fully intends on repaying this loan as permitted upon compliance with its bank's financial covenants. Effective November 1, 2012, the interest rate on this loan increased to prime plus 500 basis points (8.25% as of the date of this report). On July 29, 2010, the Company assumed two capital leases for equipment purchased from Cosmic Pet. The capital leases were payable in monthly payments of $2,424 through September 2011 and $1,527 through October 2012. At September 30, 2012, the remaining balance on these capital leases totaled $1,528. On June 11, 2012, the Company entered into a capital lease for equipment purchased in connection with our total warehouse logistics initiatives. This equipment will facilitate wireless connectivity throughout our Fairport Harbor facility. The capital lease is payable in 48 monthly payments of $838 per month from July 2012 through June 2015. As of September 30, 2012, the remaining balance on this capital lease totaled $30,271. On September 30, 2011, the Company incurred $225,000 of long term debt payable to the State of Ohio under its 166 loan program. Funds were used to purchase new tooling for our raised feeder product line. The Loan is payable in equal monthly installments of $4,043 over a five year term at a fixed interest rate of 3.00% plus an additional .25% servicing fee. Payments begin on November 1, 2011 with a maturity date of October 1, 2016. At September 30, 2012, this loan had a principal balance outstanding of $186,248. The other notes payable are due in the amount of $75,000 on December 1, 2013, to Beachcraft L.P. and $25,000 on November 1, 2013, to Over the Hill Ltd., plus accrued interest. Our indebtedness, which is secured by liens on our assets, was used to finance our equipment and working capital requirements. The agreements related to such indebtedness contain the customary covenants and default provisions. 16 The note payable to Beachcraft L.P. was originally for $150,000, $75,000 of which was repaid in 2003. As of February 1, 2004, a new note payable to Beachcraft L.P. was issued to replace the $75,000 remaining balance. The replacement note is due in December 2012 with interest payable quarterly at prime plus 3%. In consideration for this refinancing we issued warrants for the purchase of 56,250 shares of common stock to Beachcraft L.P. at an exercise price of $0.30 per share with an expiration date of February 1, 2010. Subsequent to their issuance the warrants were adjusted to 57,204 warrants exercisable at $0.295 per share in accordance with the anti-dilution provisions of the warrants. These warrants were exercised in 2007. On November 8, 2012, the Company received $350,000 in funds and issued $350,000 of subordinated notes to four parties. A copy of the form of note issued to each party is attached to this report as Exhibit 10.68. The Notes have a three year term, accrue interest at a variable rate of prime plus three percent (currently 6.25%) and are payable with accrued interest on November 8, 2015. In connection with these new notes, the Company also issued 350,000 warrants to the loan participants at a ratio of one warrant for each one dollar of funds loaned. The warrants vest immediately, have an exercise price of $.50 per share and have a five year term expiring on November 8, 2017. A copy of the form of warrant issued to each party is attached to this report as Exhibit 10.69. Our short-term and long-term liquidity will continue to depend on our ability to achieve cash-flow break even on our operations and to increase sales of our products. In 2011, although inventories increased by approximately $535,000, we relied primarily on funds from operating activities to fund operations. For the remainder of 2012, we should be able to fund our operating cash requirements primarily through inventory reductions and net income. Based on our bank's amended loan covenants we expect to meet the debt service coverage ratios and tangible net worth required by our bank to maintain our line of credit facility. We have no material commitments for capital expenditures. Net cash provided by operating activities for the nine months ended September 30, 2012 was $863,882. Cash of $464,065 was provided by the net loss for the six months of $39,915, plus the non-cash charges for depreciation of $446,229, amortization of $30,751, stock option expense of $18,000 and warrant expense of $9,000. Cash was provided by the net change of $399,816 in our operating assets and liabilities as follows: Accounts receivable decrease $ 299,223 Inventories decrease 695,357 Prepaid expenses increase (18,343 ) Patent costs increase (44,970 ) Deposits and other assets increase (9,883 ) Accounts payable decrease (498,264 ) Accrued expenses decrease (12,270 ) Deferred Tax liability, decrease (11,034 ) Net change $ 399,816 Net cash used in investing activities for the nine months ended September 30, 2012 was $275,482. This cash was used for the acquisition of property and equipment. Cash used in financing activities for the nine months ended September 30, 2012 was $733,266 and consisted of payments on the bank line of credit of $380,968 and by principal payments on debt of $352,298. Net cash provided by operating activities for the nine months ended September 30, 2011 was $834,922. Cash was provided by the net income for the nine months of $273,329, as well as the non-cash charges for depreciation of $396,189, amortization of $28,195, stock option expense of $18,000, and warrant expense of $18,000. Cash was also provided by the net change of $101,209 in our operating assets and liabilities. Net cash used in investing activities for the nine months ended September 30, 2011 was $549,029, which was used for the acquisition of tooling, computer software and equipment. Cash used in financing activities for the nine months ended September 30, 2011 was $288,357 and consisted of $263,964 in net bank line of credit borrowing, $225,000 in additional term debt borrowings from the state of Ohio 166 program, and $325 in issuance of common stock resulting from the exercise of stock options. Cash from financing activities was reduced by $777,646 in principal payments of term debt consisting of $417,500 of contributor's notes with the balance being the reduction of bank term loans, capital leases, and installment notes. CRITICAL ACCOUNTING POLICIES/ESTIMATES We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles. We have identified the accounting policies below as critical to our business operations and understanding of our results of operations. For a detailed discussion on the application of these and other accounting policies, see the footnote captioned Summary of Significant Accounting Policies accompanying our unaudited consolidated financial statements included elsewhere in this quarterly report on Form 10-Q. The application of these policies may require management to make judgments and estimates that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates. 17 In our Form 10-K for the fiscal year ended December 31, 2011, our most critical accounting policies and estimates upon which our financial status depends were identified as those relating to revenue recognition, research and development costs, income taxes, impairment, intangible assets, inventory and inventory reserves. We reviewed our policies and determined that those policies remain our most critical accounting policies for the three and nine months ended September 30, 2012. OFF-BALANCE SHEET ARRANGEMENTS We have no off-balance sheet arrangements that have or are likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. |