FUSE MEDICAL, INC. The following discussion highlights our results of operations and the principal factors that have affected our consolidated financial condition, our liquidity and our capital resources for the periods described. The discussion also provides information that our management believes is relevant for an assessment and understanding of our consolidated financial condition and results of operations presented herein. The following discussion and analysis are based on our Financial Statements contained in this Annual Report, which have been prepared in accordance with generally accepted accounting principles inthe United States of America ("GAAP"). The discussion and analysis should be read in conjunction with our Financial Statements and the related notes therein.
Explanatory Note
As described in "Item 1. Business, Corporate and Available Information," and elsewhere in this Annual Report, our Financial Statements include the accounts of our Company and our wholly-owned subsidiaries, CPM and, prior to its dissolution, Maxim. Intercompany transactions have been eliminated in consolidation.
Overview
We are a Manufacturer, distributor, and wholesaler of medical devices offering a broad portfolio of Orthopedic Implants, Biologics, and other medical devices. A more detailed description of our business operation can be found in "Item 1. Business" within this Annual Report. We believe 2022 proved pivotal for our growth as a Manufacturer and innovative product developer. Our focus to shift our business model from a sole distributor to an integrated Manufacturer and distributor has seen successful results in 2022, with continued growth and success leading into 2023. Highlights of our 2022 strategic milestones include the following:
• Fuse Branded Portfolio
As an emerging manufacturer of medical device implants, we have continued to
expand our Fuse branded portfolio of orthopedic implants and biologics, with
three new product launches in 2022. In the second quarter of 2022, we launched
the Sterizo Tibial Revision System, which includes a modular baseplate design,
with stem and augment options for primary applications. In the third quarter, we
launched the Fuse PSS Pedicle Screw System with Minimally Invasive Surgery
("MIS") features, and the Fuse PSS Pedicle Screw System for open surgeries with
both low and mid top reduction options. We anticipate a continued emphasis on
the commercialization of these products through our Retail Model, as we continue
to expand our national distribution footprint.
• Fuse Sales Force Expansion
During 2022 and into 2023, we have continued to expand our direct sales team to include portfolio specific leadership. In November of 2022, we recruited an experienced Vice President of Sales to oversee all product categories. In December of 2022, we hired a National Director of Sales for Orthopedics, and in February of 2023, we hired a National Director of Sales for Extremities. This strategic sales initiative focuses on the expansion of our national distribution footprint, via surgeon and independent distributor recruitment and retention.
• Research and Development
During the first quarter of 2022, we established a newScientific Advisory Board , ("SAB"), for Sports Medicine and Extremities to further expand our efforts to manufacture Fuse branded products. This newSAB was created for the internal design and development of new products utilizing novel materials with osseointegration capabilities and anti-bacterial properties. Our projects continue to move through the development process towards FDA clearance and commercialization, with anticipated "first to market" designations on these new and differentiated technologies. This newSAB complements our existing Spine and Orthopedic SABs, which have been instrumental in our design and launch of multiple Fuse product lines within our portfolio.
Impact of COVID-19 to Fuse
Currently, the future trajectory of the COVID-19 pandemic remains uncertain, both in theU.S. and in other markets. Progress has been made on therapeutic treatments and the development and distribution of vaccines, though the efficacy, timing, and adoption of various treatments and vaccines is uncertain, particularly with respect to new variants of COVID-19 which have emerged. Given these various uncertainties, it is unclear the extent to which lingering slowdowns in elective procedures could affect our business during 2023 and beyond. COVID-19 has also continued to present uncertainties and delays in theU.S. and global supply chain, for both raw materials and finished goods through increased pricing pressures and labor shortages. This disruption in our supply chain has adversely impacted lead times to manufacture products, launch product lines, and commercialize our products in the marketplace. As a result, we are 23
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continuing to source alternate suppliers to help mitigate the impact to our supply chain. Any prolonged decrease in demand for our products or disruption to our business resulting from COVID-19, or similar public health emergencies, would adversely affect our revenues and results of operations.
Current Trends and Outlook
Seasonality
We are subject to seasonal fluctuations in sales, which cause fluctuations in quarterly results of operations. Because of the seasonality of our business, results for any quarter are not necessarily indicative of results that may be achieved in other quarters or for a full fiscal year. Historically, we have experienced greater revenue and greater sales volume, as a percentage of revenue, during the last two calendar quarters of our fiscal year compared to the first two calendar quarters of the year. We believe this revenue trend is primarily due to the increase in elective surgeries during the last two quarters of the calendar year, which are partially satisfied by patient annual healthcare deductibles being met in those two quarters. We use this seasonality trend to assist us in enterprise-wide resource planning, such as purchasing, product inventory logistics, and human capital demands.
For the years ended
Retail and Wholesale Cases
We believe our fulsome selection of Orthopedic Implants and Biologics products
is pivotal to our ability to acquire new customers, increase sales to existing
customers and increase overall sales volume, revenues, and profitability. We
continue to review and evaluate our product lines, ensuring we maintain a
high-quality and cost-effective selection of Orthopedic Implants and Biologics.
We measure sales volume based on medical procedures in which our products were
sold and used (each a Case). We consider Cases resulting from direct sales to
hospitals and medical facilities to be Retail Cases and Cases resulting from
sales to third-parties, such as distributors, or sub-distributors, to be
Wholesale Cases. Some of our sales for Wholesale Cases are on a consignment
basis with the third-party. (See "Item 1. Business" for additional information).
Retail. Under our retail distribution model, ("Retail Model"), we sell directly
to our end customers, which consist of hospitals and medical facilities,
utilizing (i) our full-time sales representatives whom we employ or engage as
independent contractors and (ii) independent sales representatives who work on a
non-exclusive basis. In both instances, we pay the sales representative a
commission with respect to sales made by the representative. We refer to sales
through our Retail Model as Retail Cases.
Wholesale. Under our wholesale distribution model, ("Wholesale Model"), we sell
our products directly to independent distributors rather than to hospitals and
medical facilities who are the ultimate end customer. We do not pay or receive
commissions from any sales by the independent distributor to the end customer.
We refer to sales through our Wholesale Model as Wholesale Cases.
Retail Cases in our industry command higher revenue price points than Wholesale
Cases. Because Retail Cases involve direct sales to our end customers, we
typically receive a higher gross profit margin due to the absence of any third
party in the sales process. However, we may pay commissions to our full-time or
independent sales representatives with respect to Retail Sales increasing our
commission expenses. Retail Cases generally generate substantially more gross
profit than Wholesale Case transactions but are subject to commission expenses,
which we do not incur with respect to Wholesale Cases.
Wholesale Cases in our industry command lower revenue price-points than Retail
Cases as the third-party reseller must build in its own profit margin. Because
Wholesale Cases involve sales to third parties who sell our products to end
customers, our profit margins are reduced for these Cases due to the lower sales
price. Consequently, our Wholesale Cases generate substantially lower gross
profit than our Retail Cases, which is offset in part by the fact that we do not
incur any commission costs on Wholesale Cases.
Pricing Pressures
Pricing pressure has increased in our industry due to (i) continuous
consolidation among healthcare providers, (ii) trends toward managed care
healthcare, (iii) increased government oversight of healthcare costs, and (iv)
new laws and regulations that address healthcare reimbursement and pricing.
Pricing pressure, reductions in reimbursement levels or coverage, or other cost
containment measures can significantly impact our business, future operating
results and financial condition.
To offset pricing pressures, we employ strategies which include locating and
retaining new customers, increasing volume with existing customers, and
continued emphasis on promoting sales through our Retail Model. Our strategy to
emphasize our Retail Model proved successful as Retail Cases represented
approximately 93% of revenue for 2022, which is an approximate 1% increase over
2021.
24
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The Company employs strategies to reduce the cost of revenues by increasing Fuse
branded product lines to further offset the impact of pricing pressures. For
2022 and 2021, our average cost of revenues per Case was $1,694 and $2,948 ,
respectively. Our strategy to increase Fuse branded products proved successful
as the revenues produced by these products increased to approximately 46% of
revenue for 2022, which is an approximate 16% increase over 2021.
Compensation Initiatives
We expect to continue to offer compensation and other valuable long-term incentives, such as equity incentives, to key distributors, executives, and employees as a means to expand our strategic partnerships and industry relationships. During 2022, our Board granted equity incentives to our Board of Directors. (See "Item 1. Business" for additional information).
Results of Operations
Year Ended
The following table sets forth certain financial information from our
consolidated statements of operations along with a percentage of net revenue and
should be read in conjunction with the Financial Statements and related notes
included in this report.
For the For the
Year Ended % of Total Year Ended % of Total
December 31, Revenues December 31, Revenues
2022 2022 2021 2021
Net revenues $ 18,644,784 100% $ 20,414,268 100.0%Cost of revenues 7,103,033 38% 8,478,561 42% Gross profit 11,541,751 62% 11,935,707 58% Operating expenses Selling, general, administrative, and other 6,537,382 35% 7,013,297 34% Commissions 5,682,038 30% 7,050,278 35% Depreciation and amortization 137,403 1% 67,638 0% Total operating expenses 12,356,823 66% 14,131,213 69% Operating loss (815,072 ) -4% (2,195,506 ) -11% Other income (expense): 0% Change in fair value of contingent purchase consideration 4,108,134 22%
342,168 2%
Interest expense (171,294 ) -1% (78,230 ) 0% Gain on Payroll Protection Program Loan extinguishment - 0%
361,400 2%
Total other income (expense) 3,936,840 21% 625,338 3% Operating loss before income tax 3,121,768 17% (1,570,168 ) -8% Income tax expense 23,655 0% 17,723 0% Net Income (loss)$ 3,098,113 17%$ (1,587,891 ) -8% Net Revenues For the year endedDecember 31, 2022 , our net revenues were$18,644,784 compared to$20,414,268 for the year endedDecember 31, 2021 , a decrease of$1,769,484 , or approximately 8.7%. For the year endedDecember 31, 2022 , Retail Case volume increased approximately 42.4%, while the average revenue per Retail Case decreased approximately 34.4%, compared to the year endedDecember 31, 2021 , resulting in revenues from Retail Cases decreasing by approximately 7.4% compared to revenues from Retail Cases for the year endedDecember 31, 2021 . Revenues from Retail Cases as a percentage of total revenues increased to 93% of revenues for the year endedDecember 31, 2022 , from 92% of revenues for the year endedDecember 31, 2021 . We believe the increase in revenue from Retail Cases as a percent of total revenues reflects the execution of our strategies to shift more of our business to higher margin Retail Cases and improvement of our supply chain management. Consequently, wholesale revenue as a percent of total revenue has decreased. As discussed above in "Current Trends and Outlook", we believe that as our industry faces increased pricing pressures, we will need to focus on increased volume of Retail Cases to maintain gross profit levels. We intend to increase our Retail Case volume by increasing sales volumes with our existing retail customer base, as well as expanding our national distribution by on-boarding new medical facilities, surgeons, and distributors. 25
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Cost of Revenues
For the year ended
As a percentage of revenues, cost of revenues was approximately 38% for the year endedDecember 31, 2022 , compared to 42% for the year endedDecember 31, 2021 . As a percentage of revenues, this decrease was primarily driven by (a)(i) an approximate 1% decrease in cost of revenues primarily driven by product mix, (ii) an approximate 1% decrease in the inventory loss provision for slow-moving and obsolescence, (a)(iii) an approximate 1% decrease in vendor cost variance, offset in part by, an approximate 7% increase in inventory shrink.
Gross Profit
For the year endedDecember 31, 2022 , our gross profit was$11,541,751 compared to$11,935,707 for the year endedDecember 31, 2021 , representing a decrease of$393,956 , or approximately 3.3%. As a percentage of revenues, gross profit increased 3.4% to approximately 61.9% from approximately 58.5% for the years endedDecember 31, 2022 and 2021, respectively. As a percentage of revenues, the increase primarily resulted from those items discussed in Cost of Revenues.
Selling, General, Administrative and Other
For the year endedDecember 31, 2022 , our selling, general, administrative, and other expenses (SG&A) were$6,537,382 compared to SG&A of$7,013,297 for the year endedDecember 31, 2021 , representing a decrease of$475,915 or 6.8%. As a percentage of net revenues, SG&A accounted for approximately 35% for the year endedDecember 31, 2022 , and 34% for the year endedDecember 31, 2021 . As a percentage of revenues, the increase of approximately 1% was primarily driven by: (a)(i) a$52,027 increase in leased staffing costs, (a)(ii) a$16,108 increase in other administrative expenses, (a)(iii) a$32,237 increase in travel, entertainment, and marketing, offset, in part by, (b)(i) a$24,389 decrease in professional fees; (b)(ii) a$235,062 reduction in stock based compensation, and (b)(iii) a$316,836 reduction in bad debt expense.
We believe that our reinvestment into marketing and commercializing new product lines, adding additional highly qualified staff members, and utilization of professional services will drive sales in later periods.
Commissions
For the year endedDecember 31, 2022 , our commissions expense decreased to$5,682,038 from$7,050,278 for the year endedDecember 31, 2021 , a decrease of$1,368,240 , or approximately 19.4%. As a percentage of net revenues, commissions expense accounted for approximately 30% for the year endedDecember 31, 2022 , and 35% for the year endedDecember 31, 2021 . The overall reduction of commissions expense directly relates to the reduction of revenue for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 , and the decrease in commissions expense as a percent of revenue is a result of lower average commission rates of the total revenues.
Depreciation and Amortization
For the year endedDecember 31, 2022 , our depreciation and amortization expense increased to$137,403 from$67,638 for the year endedDecember 31, 2021 , an increase of$69,765 . The increase is primarily the result of an approximate$73,764 increase in amortization of intangible assets related to fees associated with obtaining the Credit Agreement with eCapitalHealthcare Corp. f/k/aCNH Finance Fund I, L.P.
Change in Fair Value of Contingent Purchase Consideration
For the year endedDecember 31, 2022 , we determined that the earnings thresholds, as detailed in the CPM Acquisition Agreement, were not met for payments under the earn-out ("Earn-Out"). Therefore, based on our 2022 financial performance, we will make no payments to NC 143 for either the base Earn-Out or the bonus Earn-Out for 2022. As ofDecember 31, 2022 , the fair value of the Earn-Out liability was re-measured to fair value under the probability weighted income approach, as further explained in Note 2 of our accompanying consolidated Financial Statements, entitled "Significant Accounting Policies, Fair Value Measurements." As a result, the current fair value of the Earn-Out liability was reduced by$4,108,134 , from$11,593,832 to$7,485,698 . For more information on the change in the fair value of contingent purchase consideration, please see Note 2 on our accompanying Financial Statements, entitled "Significant Accounting Policies, Fair Value Measurements." 26
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Interest
For the year endedDecember 31, 2022 , our interest expense increased to$171,294 from$78,230 for the year endedDecember 31, 2021 , which is an increase of$93,064 , or approximately 119%. The increase of$93,064 was primarily driven by an increase in interest related to our Credit Agreement. The interest expense from our RLOC increased by$97,895 and is primarily driven by (a)(i) an approximate$38,290 increase in interest related to total borrowings, (b)(i) an approximate$59,605 increase in interest related to interest rates.
Income Tax
For the year ended
Net Income (Loss)
For the year endedDecember 31, 2022 , we had net income of$3,098,113 , compared to net loss of$1,587,891 for the year endedDecember 31, 2021 , reflecting an increase in net income of$4,686,004 as a result of the decrease in fair value of contingent purchase consideration and the other factors discussed above.
Liquidity and Capital Resources
Cash Flows
A summary of our cash flows is as follows:
Year Ended
December 31,
2022 2021
Net cash provided by/(used in) operating activities
- -
Net cash (used in)/provided by financing activities (440,135 ) 1,144,060
Net increase (decrease) in cash and cash equivalents
Net Cash Provided by/(Used In) Operating Activities
Our net cash provided by operating activities was$34,799 for the year endedDecember 31, 2022 , compared to cash used in operating activities of$1,778,328 for the year endedDecember 31, 2021 . The increase of cash provided by operating activities of$1,813,127 primarily resulted from: (a)(i) an approximate$2,733,370 of cash provided by non-cash adjustments, (a)(ii) an approximate$1,328,965 increase in cash provided by accrued expenses, (a)(iii) an approximate$13,546 increase in cash provided by accounts payable, offset in part by, (b)(i) an approximate$1,448,515 increase in cash used in accounts receivable, (b)(ii) an approximate$373,330 increase in cash used in long term accounts receivables, (b)(iii) an approximate$302,526 increase in cash used in inventories, and (b)(iv) an approximate$138,383 increase in cash used in prepaid expenses and other current assets.
There was no cash used in investing activities for 2022 or 2021.
Net Cash Provided by (Used In) Financing Activities
Our net cash used in financing activities was$440,135 for the year endedDecember 31, 2022 , compared to net cash provided by financing activities of$1,144,060 for the year endedDecember 31, 2021 . This decrease of$1,584,195 is primarily driven by a (a)(i)$2,868,405 increase in cash used for obtaining the Credit Agreement in 2021, a (a)(ii)$350,000 reduction in cash provided by EIDL Loan proceeds, a (a)(iii)$11,000 decrease in cash provided by stock option exercises; offset in part, by (b)(i)$913,352 decrease in cash used in paying Amegy RLOC, a (b)(ii)$500,000 decrease in cash used for payment of the EIDL Loan, (b)(iii) 231,858 decrease in cash used in paying for Credit Agreement. 27
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Liquidity
Our primary sources of liquidity are cash from our operations and the Credit and Security Agreement (the "Credit Agreement") with eCapitalHealthcare Corp. f/k/aCNH Finance Fund I, L.P. , aDelaware limited partnership ("eCapital") described below. OnDecember 31, 2022 , our current assets exceeded our current liabilities by$1,377,505 (our "Working Capital"), which included$147,854 in cash and cash equivalents. We believe cash from our operations and net borrowings on our Credit Agreement supports our Working Capital needs for 2023. Beyond 2023, we believe that we will be able to support ourselves through our Credit Agreement until we are able to support ourselves solely from the cash provided by operations. OnDecember 14, 2021 , we entered into the Credit Agreement with eCapital. The Credit Agreement provides for a secured revolving credit facility maturing onJanuary 1, 2025 (the "Facility") with an initial maximum principal in the amount of$5,000,000 . Borrowings under the Facility are subject to a borrowing base as set forth in the Credit Agreement. We used borrowings under the Facility to repay in full (i) our Amended and Restated Business Loan Agreement, datedDecember 31, 2017 , amongZB, N.A. (d/b/aAmegy Bank ) as amended (the "RLOC"), and (ii) theU.S. Small Business Administration Loan Authorization and Agreement, datedMay 12, 2020 , with theU.S. Small Business Association , as amended. Borrowings under the Credit Agreement may be used for working capital and payment of fees, costs and expenses incurred in connection with the Credit Agreement. Borrowings under the Facility bear interest at a floating rate, which will be at the Prime Rate plus 1.75%. Under the Facility, we must pay certain fees as set forth in the Credit Agreement. Our obligations with respect to the Credit Agreement are secured by a pledge of substantially all of our assets, including accounts receivables, deposit accounts, intellectual property, investment property, inventory, equipment and equity interests in our subsidiaries. The Credit Agreement contains customary affirmative and negative covenants, including limitations on our ability to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, pay subordinated indebtedness and enter into affiliate transactions. In addition, the Credit Agreement contains financial covenants requiring us on a consolidated basis to maintain, as of the last day of each calendar month (i) a current ratio of not less than 1.0 to 1.0, (ii) a fixed charge coverage ratio of not less than 1.0 to 1.0, (iii) a loan turnover rate of not greater than 60, and (iv) minimum liquidity of not less than$175,000 , provided that if we comply with the fixed charge coverage ratio for twelve consecutive months, the minimum liquidity covenant shall cease to be effective. The Credit Agreement also includes events of default customary for facilities of this type and upon the occurrence of any such event of default, all outstanding loans under the Facility may be accelerated and/or the lenders' commitments terminated. OnMarch 22, 2023 , we executed the First Amendment to the RLOC with eCapital (the "First Amendment"). The First Amendment (i) waived the fixed charge coverage ratio (FCCR) under the RLOC for the testing period then endingFebruary 28, 2023 , (ii) amended the FCCR test from a trailing twelve month test to a trailing three month test, and (iii) waived the minimum liquidity covenant defaults forNovember 30, 2022 andDecember 31, 2022 . The foregoing description does not constitute a complete summary of the terms of the Credit Agreement and is qualified in its entirety by reference to the full text of the Credit Agreement, which is filed as Exhibit [10.45] to this Form 10-K. We rely on the Credit Agreement for capital expenditures and day-to-day Working Capital needs. As ofMarch 14, 2023 , we had approximately$353,679 in available cash, and$1,963,512 available on our Credit Agreement for borrowing (subject to certain borrowing base limitations). Borrowings on our Credit Agreement are repaid from cash generated from our operations.
Payroll Protection Program
OnApril 11, 2020 , we received approval from theU.S. Small Business Administration ("SBA") to fund our request for a PPP Loan created as part of the recently enacted Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") administered by the SBA. In connection with the PPP Loan, we entered into a promissory note in the principal amount of$361,400 . In accordance with the requirements of the CARES Act, we used the proceeds from the PPP Loan primarily for payroll costs. The PPP Loan was scheduled to mature onApril 11, 2022 , had a 1.00% interest rate, and was subject to the terms and conditions applicable to all loans made pursuant to the PPP. We applied for and received forgiveness for the total amount of the PPP Loan during the second quarter of 2021. (See Note 7, "Payroll Protection Program" of our accompanying consolidated notes to our Financial Statements, beginning on page F-1).
Economic Injury Disaster Loan
OnMay 12, 2020 , we executed the standard loan documents required for securing an EIDL Loan from the SBA in light of the impact of the COVID-19 pandemic on our business. Pursuant to that certain Loan Authorization and Agreement (the "SBA Loan Agreement"), the principal amount of the EIDL Loan was$150,000 , with proceeds used for working capital purposes. In connection therewith, we received a$10,000 advance, which did not have to be repaid and is reflected as an offset in Selling, General, Administrative and Other Expenses in our accompanying consolidated statements of operations in 2020. (See Note 8, "Economic Injury Disaster Loan" of our accompanying consolidated notes to our Financial Statements, beginning on page F-1). 28 -------------------------------------------------------------------------------- OnSeptember 24, 2021 , the Company executed the standard loan documents with the SBA for an amended and restated loan and authorization and agreement ("A&R SBA Loan Agreement") required for securing an increase in the Company's Original Note from the SBA EIDL Loan. Pursuant to the A&R SBA Loan Agreement, the principal amount for the EIDL Loan was increased by$350,000 to$500,000 , with proceeds used for working capital purposes. Interest accrued at the rate of 3.75% per annum. Installment payments, including principal and interest, were due monthly beginningMay 12, 2022 (twenty-four months from the date of the Original Note) in the amount of$2,515 . The balance of principal and interest was payable thirty years from the date of the A&R SBA Loan Agreement.
The A&R SBA Loan Agreement was paid in full in conjunction with entering into the Credit Agreement.
Strategic Growth Initiative Our strategic growth plan provides for capital investment for new product launches, private label branding, and the upgrade of our financial systems which support our infrastructure. We deem these investments essential to support our growth and expansion objectives. We estimate the range of this type of investment to be approximately$2 million to$3 million and anticipate these investments to occur primarily during the calendar year 2023. We expect sources of capital for these investments to be derived from cash from operations and utilizing the maximum limit with our new credit facility.
Impact of Inflation
We do not believe the effect of inflation, as measured by fluctuations in theU.S. Consumer Price Index, has had a material impact on our Financial Statements for the year endedDecember 31, 2022 .
Critical Accounting Policies and Estimates
The preparation of our Financial Statements and the related disclosures in conformity with GAAP, requires our management to make judgments, assumptions, and estimates that affect the amounts of revenue, expenses, income, assets, and liabilities, reported in our Financial Statements and accompanying notes. Understanding our accounting policies and the extent to which our management uses judgments, assumptions, and estimates in applying these policies is integral to understanding our Financial Statements. We describe our most significant accounting policies in "Note 2, Significant Accounting Policies" of our consolidated notes to our Financial Statements and found elsewhere in this Annual Report. These policies are considered critical because they may result in fluctuations in our reported results from period to period due to the significant judgments, estimates, and assumptions about highly complex and inherently uncertain matters. In addition, the use of different judgments, assumptions, or estimates could have a material impact on our financial condition or results of operations. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.
There have been no material changes to our critical accounting policies during the period covered by this report.
Recent Accounting Pronouncements
We describe recent accounting pronouncements in Note 2, "Significant Accounting Policies" of our consolidated notes to our Financial Statements.
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