1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____ to ____ .
Commission file number: 0-28926
ePlus inc.
(Exact name of registrant as specified in its charter)
Delaware 54-1817218
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Herndon Parkway, Herndon, VA 20170
(Address, including zip code, of principal offices)
Registrant's telephone number, including area code: (703) 834-5710
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [ X ] No [ ___ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ___] No [ X ]
The number of shares of common stock outstanding as of
August 11, 2003, was 9,500,201.
TABLE OF CONTENTS
ePlus inc. AND SUBSIDIARIES
Part I. Financial Information:
Item 1. Financial Statements - Unaudited:
Condensed Consolidated Balance Sheets as of March 31, 2003
and June 30, 2003 2
Condensed Consolidated Statements of Earnings, Three Months
Ended June 30, 2002 and 2003 3
Condensed Consolidated Statements of Cash Flows, Three
Months Ended June 30, 2002 and 2003 4
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 20
Part II. Other Information:
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 23
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ePlus inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As of March 31, 2003 As of June 30, 2003
-------------------------------------------
ASSETS
Cash and cash equivalents $ 27,784,090 $ 23,160,246
Accounts receivable, net of allowance for doubtful
accounts of $3,346,055 and $3,357,937 as of
March 31, 2003 and June 30, 2003, respectively 38,384,841 51,306,987
Notes receivable 53,098 107,455
Inventories 1,373,168 1,622,889
Investment in leases and leased equipment - net 182,169,324 174,400,897
Property and equipment - net 5,249,087 4,706,223
Goodwill 19,147,132 19,154,038
Other assets 4,779,946 5,156,063
-------------------------------------------
TOTAL ASSETS $ 278,940,686 $ 279,614,798
===========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable - equipment $ 5,635,776 $ 6,392,859
Accounts payable - trade 25,914,385 25,720,231
Salaries and commissions payable 619,860 486,082
Accrued expenses and other liabilities 13,978,942 14,074,823
Income taxes payable - 118,425
Recourse notes payable 2,736,298 -
Nonrecourse notes payable 115,678,353 115,072,707
Deferred tax liability 4,760,029 5,763,168
-------------------------------------------
Total Liabilities 169,323,643 167,628,295
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 2,000,000 shares
authorized; none issued or outstanding - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 10,540,135 issued and 9,451,651 outstanding
at March 31, 2003 and 10,546,685 issued and 9,458,201
outstanding at June 30, 2003 $ 105,400 $ 105,466
Additional paid-in capital 62,905,727 62,954,409
Treasury Stock, at cost, 1,088,484 shares (7,511,124) (7,511,124)
Retained earnings 54,057,732 56,420,369
Accumulated other comprehensive income -
Foreign currency translation adjustment 59,308 17,383
-------------------------------------------
Total Stockholders' Equity 109,617,043 111,986,503
-------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 278,940,686 $ 279,614,798
===========================================
See Notes to Condensed Consolidated Financial Statements.
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ePlus inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
June 30,
2002 2003
----------------------------------------
REVENUES
Sales of product $ 52,886,739 $ 65,295,787
Sales of leased equipment 4,611,303 -
----------------------------------------
57,498,042 65,295,787
Lease revenues 10,575,403 12,375,547
Fee and other income 4,101,835 2,196,184
----------------------------------------
14,677,238 14,571,731
----------------------------------------
TOTAL REVENUES 72,175,280 79,867,518
----------------------------------------
COSTS AND EXPENSES
Cost of sales, product 46,183,424 57,511,924
Cost of sales, leased equipment 4,535,001 -
----------------------------------------
50,718,425 57,511,924
Direct lease costs 910,776 2,348,130
Professional and other fees 773,073 516,045
Salaries and benefits 10,384,783 10,147,191
General and administrative expenses 3,628,301 3,816,453
Interest and financing costs 2,410,584 1,746,349
----------------------------------------
18,107,517 18,574,168
----------------------------------------
TOTAL COSTS AND EXPENSES 68,825,942 76,086,092
----------------------------------------
EARNINGS BEFORE PROVISION FOR INCOME TAXES 3,349,338 3,781,426
----------------------------------------
PROVISION FOR INCOME TAXES 1,373,203 1,478,098
----------------------------------------
NET EARNINGS $ 1,976,135 $ 2,303,328
========================================
NET EARNINGS PER COMMON SHARE - BASIC $ 0.19 $ 0.24
========================================
NET EARNINGS PER COMMON SHARE - DILUTED $ 0.19 $ 0.24
========================================
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 10,404,895 9,455,381
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 10,506,489 9,601,499
See Notes to Condensed Consolidated Financial Statements.
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ePlus inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
June 30,
2002 2003
------------------------------------------------
Cash Flows From Operating Activities:
Net Earnings $ 1,976,135 $ 2,303,328
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation and amortization 1,497,121 1,650,219
Provision for credit losses 222,223 41,569
Deferred taxes 395,500 1,003,139
Gain on sale of operating lease equipment (59,851) -
Payments from lessees directly to lenders - (302,847)
Loss on disposal of property and equipment - 152,776
Changes in:
Accounts receivable (13,454,095) (12,963,714)
Other receivables (708,952) (54,357)
Inventories (598,512) (249,722)
Other assets 302,276 (383,022)
Accounts payable - equipment 842,273 757,083
Accounts payable - trade 11,374,535 (194,154)
Salaries and commissions payable, accrued
expenses and other liabilities 5,369,313 80,527
------------------------------------------------
Net cash provided (used) by operating activities 7,157,966 (8,159,175)
------------------------------------------------
Cash Flows From Investing Activities:
Purchases of operating lease equipment (254,575) (4,155,067)
(Increase) decrease in investment in direct financing and
sales-type leases (10,359,732) 3,306,168
Purchases of property and equipment (424,190) (262,453)
Proceeds from sale of operating equipment - 98,511
------------------------------------------------
Net cash used in investing activities (11,038,497) (1,012,841)
------------------------------------------------
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ePlus inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(UNAUDITED)
Three Months Ended
June 30,
2002 2003
------------------------------------------------
Cash Flows From Financing Activities:
Borrowings:
Nonrecourse 20,469,775 17,729,162
Repayments:
Nonrecourse (11,400,914) (10,510,823)
Recourse (75,778) (2,736,298)
Purchase of treasury stock (347,000) -
Proceeds from issuance of capital stock, net of expenses 271,128 48,748
Net payments on lines of credit (1,000,000) -
------------------------------------------------
Net cash provided by financing activities 7,917,211 4,530,789
------------------------------------------------
Effect of Exchange Rate Changes on Cash - 17,383
------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 4,036,680 (4,623,844)
Cash and Cash Equivalents, Beginning of Period 28,223,503 27,784,090
------------------------------------------------
Cash and Cash Equivalents, End of Period $ 32,260,183 $ 23,160,246
================================================
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 1,797,374 $ 941,135
================================================
Cash paid for income taxes $ 261,142 $ 339,762
================================================
See Notes To Condensed Consolidated Financial Statements.
-5-
ePlus inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated interim financial statements of ePlus inc. and
subsidiaries (the "Company") included herein have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC") and reflect all adjustments that are, in the
opinion of management, necessary for a fair statement of results for the interim
periods. All adjustments made were normal, recurring accruals. Certain prior
period amounts have been reclassified to conform to the current period's
presentation.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to SEC
rules and regulations.
These interim financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-K (No. 0-28926) for the year ended March 31, 2003 (the "Company's
2003 Form 10-K"). Operating results for the interim periods are not necessarily
indicative of results for an entire year.
2. RECLASSIFICATIONS
Certain service revenues and related costs which were directly related to the
sale of certain products have been reclassified for the three months ended June
30, 2002 to conform to our current reporting format. $2.3 million of revenue was
reclassified from fee and other income to sales of product, and $0.8 million of
costs were reclassified from salaries and benefits to cost of sales, product.
3. INVESTMENTS IN LEASES AND LEASED EQUIPMENT - NET
Investments in leases and leased equipment - net consists of the following:
As of
March 31, 2003 June 30, 2003
(In Thousands)
--------------------------------------
Investment in direct financing and sales-type leases, net $ 173,394 $ 162,566
Investment in operating lease equipment, net 8,775 11,835
--------------------------------------
Investments in leases and leased equipment, net $ 182,169 $ 174,401
======================================
The Company's net investment in leases is collateral for non-recourse and
recourse equipment notes, if any.
-6-
INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES
The Company's investment in direct financing and sales-type leases consists of
the following:
As of
March 31, 2003 June 30, 2003
(In Thousands)
------------------------------------------
Minimum lease payments $ 168,385 $ 156,547
Estimated unguaranteed residual value 26,631 25,818
Initial direct costs, net of amortization (1) 3,072 2,783
Less: Unearned lease income (21,287) (19,175)
Reserve for credit losses (3,407) (3,407)
------------------------------------------
Investment in direct financing and sales-
type leases, net $ 173,394 $ 162,566
==========================================
(1) Initial direct costs are shown net of amortization of $3,691 and $2,005 at
March 31 and June 30, 2003, respectively.
INVESTMENT IN OPERATING LEASE EQUIPMENT
Investment in operating lease equipment primarily represents equipment generally
leased for two-year terms or are leases that are short-term renewals on
month-to-month status. The components of the net investment in operating lease
equipment are as follows:
As of
March 31, 2003 June 30, 2003
(In Thousands)
-------------------------------
Cost of equipment under operating leases $ 12,824 $ 16,155
Less: Accumulated depreciation and amortization (4,049) (4,320)
-------------------------------
Investment in operating lease equipment, net $ 8,775 $ 11,835
===============================
4. RESERVES FOR CREDIT LOSSES
As of March 31 and June 30, 2003, the Company's reserve for credit losses was
$6,753,433 and $6,765,314, respectively. The Company's reserves for credit
losses are segregated between our accounts receivable and our lease assets as
follows (in thousands):
Accounts
Receivable Lease Assets Total
--------------------------------------------------------
Balance April 1, 2002 $ 3,719 $ 3,052 $ 6,771
Provision for bad debts 176 440 616
Recoveries (140) - (140)
Write-offs and other (409) (85) (494)
--------------------------------------------------------
Balance March 31, 2003 $ 3,346 $ 3,407 $ 6,753
--------------------------------------------------------
Provision for bad debts 33 - 33
Write-offs and other (21) - (21)
--------------------------------------------------------
Balance June 30, 2003 $ 3,358 $ 3,407 $ 6,765
========================================================
Balances in "Write-offs and other" include actual write-offs and
reclassifications from prior years.
-7-
5. STOCK BASED COMPENSATION
As of June 30, 2003, the Company had three stock-based employee compensation
plans. The Company accounts for those plans under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related Interpretations issued by the Financial Accounting
Standards Board. No stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure," to
stock-based employee compensation:
Three Months Ended June 30,
2002 2003
-----------------------------------
Net earnings, as reported $ 1,976,135 $ 2,303,328
Stock based compensation expense (913,482) (595,742)
-----------------------------------
Net earnings, pro forma $ 1,062,653 $ 1,707,586
===================================
Basic earnings per share, as reported $0.19 $0.24
Basic earnings per share, pro forma $0.10 $0.18
Diluted earnings per share, as reported $0.19 $0.24
Diluted earnings per share, pro forma $0.10 $0.18
6. SEGMENT REPORTING
The Company manages its business segments on the basis of the products and
services offered. The Company's reportable segments consist of its traditional
financing business unit and its technology sales business unit. The financing
business unit offers lease-financing solutions to corporations and governmental
entities nationwide. The technology sales business unit sells information
technology equipment and software and related services primarily to corporate
customers on a nationwide basis. The technology sales business unit also
provides Internet-based business-to-business supply chain management solutions
for information technology and other operating resources. The Company evaluates
segment performance on the basis of segment net earnings.
Both segments utilize the Company's proprietary software and services throughout
the organization. Sales and services and related costs of e-procurement software
are included in the technology sales business unit. Fees and other income
relative to services generated by our proprietary software and services are
included in the financing business unit.
The accounting policies of the financing and technology sales business units are
the same as those described in Note 1, "Organization and Summary of Significant
Accounting Policies" in the Company's 2003 Form 10-K. Corporate overhead
expenses are allocated on the basis of revenue volume, estimates of actual time
spent by corporate staff, and asset utilization, depending on the type of
expense.
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Technology
Financing Sales
Business Business
Unit Unit Total
-------------------------------------------------------
Three months ended June 30, 2002
Sales $ 5,034,425 $ 52,463,617 $ 57,498,042
Lease Revenues 10,575,403 - 10,575,403
Fee and other income 3,030,053 1,071,782 4,101,835
-------------------------------------------------------
Total revenues 18,639,881 53,535,399 72,175,280
Cost of sales 5,249,429 45,468,996 50,718,425
Direct lease costs - 910,776 - 910,776
Selling, general and administrative 6,662,813 8,123,344 14,786,157
expenses -------------------------------------------------------
Segment earnings 5,816,863 (56,941) 5,759,922
Interest expense 2,256,498 154,086 2,410,584
-------------------------------------------------------
Earnings (Loss) before income taxes $ 3,560,365 $ (211,027) $ 3,349,338
=======================================================
Assets $ 229,781,841 $ 63,298,486 $ 293,080,327
=======================================================
Three months ended June 30, 2003
Sales $ 778,871 $ 64,516,916 $ 65,295,787
Lease revenues 12,375,547 - 12,375,547
Fee and other income 671,372 1,524,812 2,196,184
-------------------------------------------------------
Total revenues 13,825,790 66,041,728 79,867,518
Cost of sales 747,801 56,764,122 57,511,923
Direct lease costs 2,348,130 - 2,348,130
Selling, general and administrative
expenses 5,549,040 8,930,649 14,479,689
-------------------------------------------------------
Segment earnings 5,180,819 346,957 5,527,776
Interest expense 1,617,428 128,920 1,746,348
-------------------------------------------------------
Earnings before income taxes $ 3,563,391 $ 218,037 $ 3,781,428
=======================================================
Assets $ 233,711,261 $ 45,903,537 $ 279,614,798
=======================================================
7. EARNINGS PER SHARE
The weighted average number of common shares used in determining basic and
diluted net income per share for the three months ended June 30, 2002 and 2003
are as follows:
Three Months Ended
June 30,
2002 2003
------------------------
Basic common shares outstanding 10,404,895 9,455,381
Common stock equivalents 101,594 146,118
========================
Diluted common shares outstanding 10,506,489 9,601,499
8. COMMITMENTS AND CONTINGENCIES
There are no material legal proceedings to which the Company is a party. We are
engaged in ordinary and routine litigation incidental to our business. While we
cannot predict the outcome of these various legal proceedings, it is
management's opinion that the resolution of these matters will not have a
material adverse effect on our financial position or results of operations.
-9-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion and analysis of results of operations and financial
condition of the Company should be read in conjunction with the condensed
consolidated financial statements and the related notes included in Item 1 of
this report, and the Company's 2003 Form 10-K.
Overview
Certain statements contained herein are not based on historical fact, but are
forward-looking statements that are based upon numerous assumptions about future
conditions that may not occur. Actual events, transactions and results may
materially differ from the anticipated events, transactions or results described
in such statements. Our ability to consummate such transactions and achieve such
events or results is subject to certain risks and uncertainties. These risks and
uncertainties include, but are not limited to, the existence of demand for, and
acceptance of, the Company's services, economic conditions, the impact of
competition and pricing, results of financing efforts and other factors
affecting the Company's business that are beyond our control. The Company
undertakes no obligation and does not intend to update, revise or otherwise
publicly release the results of any revisions to these forward-looking
statements that may be made to reflect future events or circumstances. See
"Factors That May Affect Future Operating Results."
Our results of operations are susceptible to fluctuations for a number of
reasons, including, without limitation, customer demand for our products and
services, supplier costs, interest rate fluctuations and differences between
estimated residual values and actual amounts realized related to the equipment
we lease. Operating results could also fluctuate as a result of the sales of
equipment in our lease portfolio prior to the expiration of the lease term to
the lessee or to a third party. Such sales of leased equipment prior to the
expiration of the lease term may have the effect of increasing revenues and net
earnings during the period in which the sale occurs, and reducing revenues and
net earnings otherwise expected in subsequent periods. See "Potential
Fluctuations in Quarterly Operating Results."
We currently derive the majority of our revenue from sales and financing of
information technology and other assets. We have expanded our product and
service offerings under the Enterprise Cost Management, or eECM, model which
represents the continued evolution of our original implementation of ePlus
e-commerce products entitled ePlusSuite. Our eECM model is our framework for
combining IT sales and professional services, leasing and financing services,
asset management software and services, procurement software, and electronic
catalog content management software and services.
Our total sales and marketing staff consisted of approximately 180 people as of
June 30, 2003, located at our 30 current locations, all of which are in the
United States.
On May 15, 2001, we acquired from ProcureNet, Inc. the e-commerce procurement
software asset, products, and software technology for cleaning and categorizing
product descriptions for e-commerce catalogues. These products and services and
the associated expenses with this business acquisition have substantially
increased our expenses, and the ability to sell these services and products is
expected to fluctuate depending on the customer demand for these products and
services, which to date is still unproven. These products and services are
included in our technology sales business unit segment, combined with our other
sales of IT products and services. Our leasing and financing activities are
included in our financing business unit segment in our financial statements.
As a result of our acquisitions and changes in the number of sales locations,
the Company's historical results of operations and financial position may not be
indicative of its future performance over time.
-10-
CRITICAL ACCOUNTING POLICIES
The manner in which lease finance transactions are characterized and reported
for accounting purposes has a major impact upon reported revenue and net
earnings. Lease accounting methods critical to our business are discussed below.
We classify our lease transactions, as required by Statement of Financial
Accounting Standards No. 13, "Accounting for Leases," as: (1) direct financing;
(2) sales-type; or (3) operating leases. Revenues and expenses between
accounting periods for each lease term will vary depending upon the lease
classification.
For financial statement purposes, we present revenue from all three
classifications in lease revenues, and costs related to these leases in direct
lease costs.
DIRECT FINANCING AND SALES-TYPE LEASES. Direct financing and sales-type leases
transfer substantially all benefits and risks of equipment ownership to the
customer. A lease is a direct financing or sales-type lease if the
creditworthiness of the customer and the collectability of lease payments are
reasonably certain and it meets one of the following criteria: (1) the lease
transfers ownership of the equipment to the customer by the end of the lease
term; (2) the lease contains a bargain purchase option; (3) the lease term at
inception is at least 75% of the estimated economic life of the leased
equipment; or (4) the present value of the minimum lease payments is at least
90% of the fair market value of the leased equipment at the inception of the
lease.
Direct financing leases are recorded as investment in direct financing leases
upon acceptance of the equipment by the customer. At the commencement of the
lease, unearned lease income is recorded which represents the amount by which
the gross lease payments receivable plus the estimated residual value of the
equipment exceeds the equipment cost. Unearned lease income is recognized, using
the interest method, as lease revenue over the lease term.
Sales-type leases include a dealer profit or loss that is recorded by the lessor
at the inception of the lease. The dealer's profit or loss represents the
difference, at the inception of the lease, between the fair value of the leased
property and its cost or carrying amount. The equipment subject to such leases
may be obtained in the secondary marketplace, but most frequently is the result
of re-leasing our own portfolio. This profit or loss that is recognized at lease
inception is included in net margin on sales-type leases. For equipment supplied
from our technology sales business unit subsidiaries, the dealer margin is
presented in equipment sales revenue and cost of equipment sales. Interest
earned on the present value of the lease payments and residual value is
recognized over the lease term using the interest method and is included in our
lease revenues.
OPERATING LEASES. All leases that do not meet the criteria to be classified as
direct financing or sales-type leases are accounted for as operating leases.
Rental amounts are accrued on a straight-line basis over the lease term and are
recognized as lease revenue. Our cost of the leased equipment is recorded on the
balance sheet as investment in leases and lease equipment and is depreciated on
a straight-line basis over the lease term to our estimate of residual value.
Revenue, depreciation expense and the resulting profit for operating leases are
recorded on a straight-line basis over the life of the lease.
-11-
As a result of these three classifications of leases for accounting purposes,
the revenues resulting from the "mix" of lease classifications during an
accounting period will affect the profit margin percentage for such period and
such profit margin percentage generally increases as revenues from direct
financing and sales-type leases increase. Should a lease be financed, the
interest expense declines over the term of the financing as the principal is
reduced.
RESIDUAL VALUES. Residual values represent our estimated value of the equipment
at the end of the initial lease term. The residual values for direct financing
and sales-type leases are reported as part of the investment in direct financing
and sales-type leases, on a net present value basis. The residual values for
operating leases are included in the leased equipment's net book value and are
reported in the investment in operating lease equipment. The estimated residual
values will vary, both in amount and as a percentage of the original equipment
cost, and depend upon several factors, including the equipment type,
manufacturer's discount, market conditions and the term of the lease.
We evaluate residual values on an ongoing basis and record any required changes
in accordance with SFAS No. 13. Residual values are affected by equipment supply
and demand and by new product announcements by manufacturers. In accordance with
accounting principles generally accepted in the United States of America,
residual value estimates are adjusted downward when such assets are impaired.
We seek to realize the estimated residual value at lease termination through:
(1) renewal or extension of the original lease; (2) sale of the equipment either
to the lessee or on the secondary market; or (3) lease of the equipment to a new
customer. The difference between the proceeds of a sale and the remaining
estimated residual value is recorded as a gain or loss in lease revenues when
title is transferred to the lessee, or, if the equipment is sold on the
secondary market, in equipment sales revenues and cost of equipment sales when
title is transferred to the buyer. For lease transactions subsequent to the
initial term, our policy is to recognize revenues upon the payment by the
lessee.
INITIAL DIRECT COSTS. Initial direct costs related to the origination of direct
financing or operating leases are capitalized and recorded as part of the net
investment in direct financing leases, or net operating lease equipment, and are
amortized over the lease term.
SALES OF PRODUCT. Sales of product includes the following types of transactions:
(1) sales of new or used equipment which is not subject to any type of lease;
(2) service revenue in our technology sales business unit which is recognized as
services are rendered; (3) sales of off-lease equipment to the secondary market;
and (4) sales of procurement software. Sales of new or used equipment are
recognized upon shipment. Sales of off-lease equipment are recognized when
constructive title passes to the purchaser.
SOFTWARE SALES. Revenue from sales of procurement software is recognized in
accordance with the American Institute of Certified Public Accountants Statement
of Position (SOP) 97-2, "Software Revenue Recognition", as amended by SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2," and SOP 98-9,
"Modification of SOP 97-2 With Respect to Certain Transactions." We recognize
revenue when all the following criteria exist: when there is persuasive evidence
that an arrangement exists, delivery has occurred, no significant obligations by
the Company with regard to implementation remain, the sales price is
determinable, and it is probable that collection will occur. Our accounting
policy requires that revenue earned on software arrangements involving multiple
elements be allocated to each element on the relative fair values of the
elements and recognized when earned. Revenue related to maintenance and support
is recognized ratably over the maintenance term (usually one year) and revenue
allocated to training, implementation or other services is recognized as the
services are performed.
-12-
SALES OF LEASED EQUIPMENT. Sales of leased equipment consists of sales of
equipment subject to an existing lease, under which we are lessor, including any
underlying financing related to the lease. Sales of equipment subject to an
existing lease are recognized when constructive title passes to the purchaser.
OTHER SOURCES OF REVENUE. Amounts charged for Procure+, our e-procurement
software package, are recognized as services are rendered. Amounts charged for
the Manage+, our asset management software service, are recognized on a
straight-line basis over the period the services are provided. Fee and other
income results from: (1) income from events that occur after the initial sale of
a financial asset; (2) re-marketing fees; (3) brokerage fees earned for the
placement of financing transactions; and (4) interest and other miscellaneous
income. These revenues are included in fee and other income in our consolidated
statements of earnings.
RESERVE FOR CREDIT LOSSES. The reserve for credit losses is maintained at a
level believed by management to be adequate to absorb potential losses inherent
in the Company's lease and accounts receivable portfolio. Management's
determination of the adequacy of the reserve is based on an evaluation of
historical credit loss experience, current economic conditions, volume, growth,
the composition of the lease portfolio, and other relevant factors. The reserve
is increased by provisions for potential credit losses charged against income.
Accounts are either written off or written down when the loss is both probable
and determinable, after giving consideration to the customer's financial
condition, the value of the underlying collateral and funding status (i.e.,
discounted on a non-recourse or recourse basis).
CAPITALIZATION OF COSTS OF SOFTWARE FOR INTERNAL USE. The Company has
capitalized certain costs for the development of internal-use software under the
guidelines of SOP 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." These capitalized costs are included in the
accompanying condensed consolidated balance sheets as a component of property
and equipment - net. As of June 30, 2003, capitalized costs, net of
amortization, totaled $1,259,484 as compared to $1,316,123 as of March 31, 2003.
CAPITALIZATION OF COSTS OF SOFTWARE TO BE MADE AVAILABLE TO CUSTOMERS. In
accordance with SFAS No. 86, "Accounting for Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed," software development costs are expensed as
incurred until technological feasibility has been established, at such time such
costs are capitalized until the product is made available for release to
customers. These capitalized costs are included in the accompanying condensed
consolidated balance sheets as a component of other assets. The Company had
$293,265 of capitalized costs as of March 31, 2003 and June 30, 2003.
RESULTS OF OPERATIONS - Three Months Ended June 30, 2003 Compared to Three
Months Ended June 30, 2002
Total revenues generated by the Company during the three-month period ended June
30, 2003 were $79,867,518 compared to revenues of $72,175,280 during the
comparable period in the prior fiscal year, an increase of 10.7%. The increase
is primarily the result of increased sales of product and leased equipment. The
Company's revenues are composed of sales and other revenue, and may vary
considerably from period to period. See "POTENTIAL FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS".
Sales revenue, which includes sales of product and sales of leased equipment,
increased 13.6% to $65,295,787 during the three-month period ended June 30,
2003, as compared to $57,498,042 generated during the corresponding period in
the prior fiscal year.
Sales of product are generated primarily through the Company's technology sales
business unit subsidiaries and represented 100% and 92.0% total sales revenue
for the three months ended June 30, 2003 and 2002, respectively. Sales of
product increased 23.5% to $65,295,787 during the current period compared to
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$52,886,739 generated during the comparable period in the prior fiscal year.
Included in the sales of product in our technology sales business unit are
certain service revenues which are bundled with sales of equipment and are
integral to the successful delivery of such equipment. The increase was a result
of higher sales within our technology sales business unit subsidiaries. The
Company realized a gross margin on sales of product of 11.9% and 12.7% for the
three-month periods ended June 30, 2003 and 2002, respectively. The Company's
gross margin on sales of product is affected by the mix and volume of products
sold.
The Company also recognizes revenue from the sale of leased equipment. During
the three months ended June 30, 2003, the Company recognized no sales of leased
equipment. During the three months ended June 30, 2002, the Company recognized a
gross margin of 1.7% on leased equipment sales of $4,611,303. Leased equipment
sales reflects equity that the Company sold to outside investors. Leases that
are not equity-sold to investors remain on the Company's books and lease
earnings are recognized accordingly. In addition, the revenue and gross margin
recognized on sales of leased equipment can vary significantly depending on the
nature and timing of the sale, as well as the timing of any debt funding
recognized in accordance with SFAS No. 140.
The Company's lease revenues increased 17.0% to $12,375,547 for the three months
ended June 30, 2003 compared with the corresponding period in the prior fiscal
year. The increase is the result of an increase in sales of off-lease equipment
to lessees and also an increase in revenue recognized based on sales of lease
receivables, offset somewhat by a decrease in renewal rent revenue.
For the three months ended June 30, 2003, fee and other income decreased 46.5%
over the comparable period in the prior fiscal year. Fee and other income
includes revenues from adjunct services and fees, including broker and agent
fees, support fees, warranty reimbursements, and interest income. The current
period decrease in fee and other income is attributable to settlement money of
$2.0 million received from Toshiba during the three months ended June 30, 2002,
while no such settlement income was received for the three months ended June 30,
2003. The Company's fee and other income includes earnings from certain
transactions which are in the Company's normal course of business, but there is
no guarantee that future transactions of the same nature, size or profitability
will occur. The Company's ability to consummate such transactions, and the
timing thereof, may depend largely upon factors outside the direct control of
management. The earnings from these types of transactions in a particular period
may not be indicative of the earnings that can be expected in future periods.
The Company's direct lease costs increased 157.8% during the three-month period
ended June 30, 2003 as compared to the same period in the prior fiscal year. The
increase is the result of an increase in lease depreciation, specifically
depreciation on the increased operating lease assets and on the Company's
matured lease portfolio.
The decrease in professional and other fees of 33.3%, or $257,028, for the
current period over the comparable period in the prior fiscal year was primarily
the result of decreased expenses related to the Company's outside technical
services.
Salaries and benefits expenses decreased 2.3% during the three-month period
ended June 30, 2003 over the same period in the prior year. Salaries and
benefits expense decreased due a decrease in the average number of employees
during the quarter ended June 30, 2003 as compared to the quarter ended June 30,
2002. The Company employed approximately 565 and 590 people as of June 30, 2003
and 2002, respectively.
The Company's general and administrative expenses increased 5.2% to $3,816,453
during the three months ended June 30, 2003, as compared to the same period in
the prior fiscal year.
Interest and financing costs incurred by the Company for the three months ended
June 30, 2003 decreased 27.6% due to decreased borrowing under the Company's
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lines of credit and because our weighted average interest rate on new
lease-related non-recourse debt decreased during the three months ended June 30,
2003, as compared to the same period in the prior fiscal year. Interest and
financing costs relate to interest costs on the Company's indebtedness, both
lease-specific and general working capital. Payments for interest costs on the
majority of the Company's non-recourse and certain recourse notes are typically
remitted directly to the lender by the lessee.
The Company's provision for income taxes increased to $1,478,098 for the three
months ended June 30, 2003 from $1,373,203 for the three months ended June 30,
2002, reflecting effective income tax rates of 39% for the three months ended
June 30, 2003 and 41% for the three months ended June 30, 2002. The reduction in
the effective tax rate for the period ended June 30, 2003 as compared to the
comparable period in the prior year is due primarily to "bonus depreciation" tax
laws put into effect in prior years.
The foregoing resulted in a 16.6% increase in net earnings for the three-month
period ended June 30, 2003 as compared to the same period in the prior fiscal
year. Basic and fully diluted earnings per common share were $0.24 and $0.24 for
the three months ended June 30, 2003, as compared to $0.19 and $0.19 for the
three months ended June 30, 2002. Basic and diluted weighted average common
shares outstanding for the three months ended June 30, 2003 were 9,455,381 and
9,601,499 respectively. For the three months ended June 30, 2002, the basic and
diluted weighted average shares outstanding were 10,404,895 and 10,506,489,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the three-month period ended June 30, 2003, the Company used cash flows
from operations of $8,159,175 and used cash flows from investing activities of
$1,012,841. Cash flows generated by financing activities amounted to $4,530,789
during the same period. The effect of exchange rate changes during the period
provided cash flows of $17,383. The net effect of these cash flows was a net
decrease in cash and cash equivalents of $4,623,844 during the three-month
period. During the same period, the Company's total assets increased $674,112,
or 0.2%. The cash balance at June 30, 2003 was $23,160,246 as compared to
$27,784,090 at March 31, 2003.
The Company's debt financing activities typically provide approximately 80% to
100% of the purchase price of the equipment purchased by the Company for lease
to its customers. Any balance of the purchase price (the Company's equity
investment in the equipment) must generally be financed by cash flow from its
operations, the sale of the equipment leased to third parties, or other internal
means. Although the Company expects that the credit quality of its leases and
its residual return history will continue to allow it to obtain such financing,
no assurances can be given that such financing will be available on acceptable
terms, or at all. The financing necessary to support the Company's leasing
activities has principally been provided by non-recourse and recourse
borrowings. Historically, the Company has obtained recourse and non-recourse
borrowings from banks and finance companies. Non-recourse financings are loans
whose repayment is the responsibility of a specific customer, although we may
make representations and warranties to the lender regarding the specific
contract or have ongoing loan servicing obligations. Under a non-recourse loan,
we borrow from a lender an amount based on the present value of the
contractually committed lease payments under the lease at a fixed rate of
interest, and the lender secures a lien on the financed assets. When the lender
is fully repaid from the lease payment, the lien is released and all further
rental or sale proceeds are ours. We are not liable for the repayment of
non-recourse loans unless we breach our representations and warranties in the
loan agreements. The lender assumes the credit risk of each lease, and their
only recourse, upon default by the lessee, is against the lessee and the
specific equipment under lease. The Company has programs with Key Corporate
Capital, Inc. and Fleet Business Credit Corporation. In addition to these
programs, recently the Company has regularly funded its leasing activities with
Citizens Leasing Corporation, GE Capital Corporation, De Lage Landen Financial
Services, Inc., Hitachi Leasing America, and Fifth Third Bank, among others.
These programs require that each transaction is specifically approved and done
solely at the lender's discretion. During the three-month period ended June 30,
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2003, the Company's lease related non-recourse debt portfolio decreased 0.5% to
$115,072,707.
Whenever possible and desirable, the Company arranges for equity investment
financing which includes selling assets, including the residual portions, to
third parties and financing the equity investment on a non-recourse basis. The
Company generally retains customer control and operational services, and has
minimal residual risk. The Company usually preserves the right to share in
remarketing proceeds of the equipment on a subordinated basis after the investor
has received an agreed to return on its investment. We actively sell or finance
our equity investment with Bank of America, Fleet Business Credit Corporation
and GE Capital Corporation, among others.
The Company's "Accounts payable - equipment" represents equipment costs that
have been placed on a lease schedule, but for which the Company has not yet
paid. The balance of unpaid equipment cost can vary depending on vendor terms
and the timing of lease originations. As of June 30, 2003, the Company had
$6,392,859 of unpaid equipment cost, as compared to $5,635,776 at March 31,
2003.
The Company's "Accrued expenses and other liabilities" includes deferred income,
reserves for credit losses, and amounts collected and payable, such as sales
taxes and lease rental payments due to third parties. As of June 30, 2003, the
Company had $14,074,823 of accrued expenses and other liabilities.
Working capital for our leasing business is provided through a $35,000,000
credit facility that was originally set to expire on April 17, 2004.
Participating in this facility are Branch Banking and Trust Company
($15,000,000) and National City Bank ($20,000,000), the agent. The ability to
borrow under this facility is limited to the amount of eligible collateral at
any given time. The credit facility has full recourse to the Company and is
secured by a blanket lien against all of the Company's assets including the
common stock of all wholly-owned subsidiaries. The credit facility contains
certain financial covenants and certain restrictions on, among other things, the
Company's ability to make certain investments, and sell assets or merge with
another company. As of June 30, 2003, the Company had no outstanding balance on
this facility. In general, we use the National City Bank facility to pay the
cost of equipment to be put on lease, and we repay borrowings from the proceeds
of: (1) long-term, non-recourse, fixed rate financing which we obtain from
lenders after the underlying lease transaction is finalized or (2) sales of
leases to third parties. The loss of this credit facility could have a material
adverse effect on our future results as we may have to use this facility for
daily working capital and liquidity for our leasing business.
On July 21, 2003, the Company early renewed this facility, increasing the
maximum amount that can be borrowed to $45,000,000, expiring on July 21, 2006.
Participating in this facility are Branch Banking and Trust Company, Bank of
America, and National City Bank as agent. Each bank has committed $15,000,000 to
the facility. Borrowings under the $45,000,000 facility will bear interest at
LIBOR plus 175 basis points or, at our option, at an alternative base rate which
is the higher of (i) the prime commercial lending rate of the Administrative
Agent, in its individual capacity as a bank, as announced from time to time at
its head office, or (ii) the Federal Funds Rate plus 1/2 of 1% (one-half of one
percent). The credit facility is secured by certain of the Company's assets such
as chattel paper (including leases), receivables, inventory, and equipment. In
addition, we have entered into pledge agreements for the stock of each of our
Subsidiaries. The availability of the credit facility is subject to a borrowing
base formula that consists of inventory, receivables, purchased assets, and
leases. Availability under the credit facility may be limited by the asset value
of equipment purchased by us or by terms and conditions in the credit facility
agreement. If we are unable to sell the equipment or unable to finance the
equipment on a permanent basis within a certain time period, the availability of
credit under the facility could be diminished or eliminated. The credit facility
contains covenants relating to the following: minimum tangible net worth; cash
flow coverage ratios; maximum debt to equity ratio; maximum amount of guarantees
of subsidiary obligations; mergers; acquisitions; and asset sales.
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ePlus Technology of NC, inc., ePlus Technology of PA, inc. and ePlus Technology,
inc., until they were merged on March 31, 2003, had separate credit facilities
to finance their working capital requirements for inventories and accounts
receivable. After the entities were merged into ePlus Technology, inc., the
credit facilities were effectively merged into one by GE Distribution Finance
Corporation. The floor planning line from IBM Credit Corporation was terminated
on March 31, 2003 and the outstanding balances were subsequently repaid.
The traditional business of ePlus Technology as a seller of computer technology
and related network equipment and software products is financed through an
agreement known as "floor planning" financing in which interest expense for the
first thirty to forty-five days is not charged but is paid by the
supplier/distributor. The floor planning liabilities are recorded as accounts
payable-trade, as they are normally repaid within the thirty to forty-five day
time-frame and represent an assigned accounts payable originally generated with
the supplier/distributor. If the thirty to forty-five day obligation is not paid
timely, interest is then assessed at stated contractual rates.
The respective floor planning inventory agreement maximum credit limits and
actual outstanding balances were as follows:
Credit Limit at Balance as of Credit Limit at Balance as of
Floor Plan Supplier March 31, 2003 March 31, 2003 June 30, 2003 June 30, 2003
- -----------------------------------------------------------------------------------------------------------------
GE Distribution Finance Corp. $ 26,000,000.00 $ 15,158,501.00 $ 26,000,000.00 $ 18,383,313.00
IBM Credit Corporation $ - $ 26,328.00 $ - $ -
The facility provided by GE Distribution Finance Corporation requires a guaranty
of up to $6,900,000 by ePlus inc. The loss of the GE Distribution Finance
Corporation floor planning facilities could have a material adverse effect on
our future results as we currently rely on these facilities for daily working
capital and liquidity for our technology sales business and operational accounts
payable functions.
In addition to the floor planning financing, ePlus Technology, inc. has an
accounts receivable facility through GE Distribution Finance Corporation with a
maximum amount that can be borrowed of $7,000,000. As of June 30, 2003 there was
no outstanding balance on this facility. As of March 31, 2003, the maximum
available that could be borrowed under the accounts receivable facility was
$7,000,000 and there was an outstanding balance of $2,726,347. Availability
under the lines of credit may be limited by the asset value of equipment
purchased by the Company and may be further limited by certain covenants and
terms and conditions of the facilities.
In the normal course of business, the Company may provide certain customers with
performance guarantees, which are generally backed by surety bonds. In general,
the Company would only be liable for the amount of these guarantees in the event
of default in the performance of our obligations, the probability of which is
remote in management's opinion. The Company is in compliance with the
performance obligations under all service contracts for which there is a
performance guarantee, and any liability incurred in connection with these
guarantees would not have a material adverse effect on the Company's
consolidated results of operations or financial position. In addition, the
Company has other guarantees that represent parent guarantees in support of the
ePlus Technology, inc. floor planning and accounts receivable financing up to
$6.9 million.
-17-
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's future quarterly operating results and the market price of its
stock may fluctuate. In the event the Company's revenues or earnings for any
quarter are less than the level expected by securities analysts or the market in
general, such shortfall could have an immediate and significant adverse impact
on the market price of the Company's stock. Any such adverse impact could be
greater if any such shortfall occurs near the time of any material decrease in
any widely followed stock index or in the market price of the stock of one or
more public equipment leasing and financing companies or major customers or
vendors of the Company.
The Company's quarterly results of operations are susceptible to fluctuations
for a number of reasons, including, without limitation, its entry into the
e-commerce market, any reduction of expected residual values related to the
equipment under the Company's leases, timing of specific transactions and other
factors. See "Factors That May Affect Future Operating Results." Quarterly
operating results could also fluctuate as a result of the sale by the Company of
equipment in its lease portfolio, at the expiration of a lease term or prior to
such expiration, to a lessee or to a third party. Such sales of equipment may
have the effect of increasing revenues and net income during the quarter in
which the sale occurs, and reducing revenues and net income otherwise expected
in subsequent quarters.
The Company believes that comparisons of quarterly results of its operations are
not necessarily meaningful and that results for one quarter should not be relied
upon as an indication of future performance.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Certain statements contained in this report are not based on historical fact,
but are forward-looking statements that are based upon numerous assumptions
about future conditions that may not occur. Actual events, transactions and
results may materially differ from the anticipated events, transactions, or
results described in such statements. The Company's ability to consummate such
transactions and achieve such events or results is subject to certain risks and
uncertainties. Such risks and uncertainties include, but are not limited to the
matters set forth below.
Our traditional businesses of equipment leasing and financing and technology
sales have the following risks, among others, which are described in the
Company's 2003 Annual Report:
- we may not be able to realize our entire investment in the equipment
we lease;
- we depend on creditworthy customers and may not have reserved
adequately for credit losses;
- capital spending by our customers may decrease;
- direct marketing by manufacturers rather than through distributors may
affect future sales; and
- inventory and accounts receivable financing may not be available.
Our eECM solution introduced in May 2002 has had a limited operating history.
Although we have been in the business of financing and selling information
technology equipment since 1990, we will encounter some of the challenges,
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risks, difficulties and uncertainties frequently encountered by early-stage
companies using new and unproven business models in rapidly evolving markets.
Some of these challenges relate to the Company's ability to:
- increase the total number of users of eECM services;
- adapt to meet changes in its markets and competitive developments; and
- continue to update its technology to enhance the features and
functionality of its suite of products.
We cannot be certain that our business strategy will be successful or that it
will successfully address these and other challenges, risks and uncertainties.
Over the longer term, the Company expects to derive a significant portion of its
revenues from its eECM business model, which is unproven. The Company expects to
incur expenses that may negatively impact profitability. The Company also
expects to incur significant sales and marketing, research and development, and
general and administrative expenses in connection with the development of this
business. As a result, the Company may incur significant expenses, which may
have a material adverse effect on the future operating results of the Company as
a whole.
Broad and timely acceptance of the eECM services, which is important to the
Company's future success, is subject to a number of significant risks. These
risks include:
- the electronic commerce business-to-business solutions market is
highly competitive;
- the system's ability to support large numbers of buyers and suppliers
is unproven;
- significant enhancement of the features and services of our eECM
solution may be needed to achieve widespread commercial initial and
continued acceptance of the system;
- the pricing model may not be acceptable to customers;
- if the Company is unable to develop and increase volume from our eECM
services, it is unlikely that it will ever achieve or maintain
profitability in this business;
- businesses that have already made substantial up-front payments for
e-commerce solutions may be reluctant to replace their current
solution and adopt the Company's solution;
- the Company's ability to adapt to a new market that is characterized
by rapidly changing technology, evolving industry standards, new
product announcements and established competition;
- we may be unable to protect our intellectual property rights or face
claims from third parties for infringement of their products.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Although a substantial portion of the Company's liabilities are non-recourse,
fixed interest rate instruments, the Company is reliant upon lines of credit and
other financing facilities which are subject to fluctuations in interest rates.
These instruments were entered into for other than trading purposes, are
denominated in U.S. Dollars, and, with the exception of amounts drawn under the
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National City Bank and GE Distribution Finance Corporation facilities, bear
interest at a fixed rate. Because the interest rate on these instruments is
fixed, changes in interest rates will not directly impact our cash flows.
Borrowings under the National City and GE Distribution Finance Corporation
facilities bear interest at a market-based variable rate, based on a rate
selected by the Company and determined at the time of borrowing. If the amount
borrowed is not paid at the end of the rate period, the rate is reset in
accordance with the Company's selection and changes in market rates. Due to the
relatively short nature of the interest rate periods, we do not expect our
operating results or cash flow to be materially affected by changes in market
interest rates. As of June 30, 2003, the aggregate fair value of our recourse
borrowings approximated their carrying value.
During the year ended March 31, 2003, the Company began transacting business in
Canada. As such, the Company has entered into lease contracts and non-recourse,
fixed interest rate financing denominated in Canadian Dollars. To date, Canadian
operations have been insignificant and the Company believes that potential
fluctuations in currency exchange rates will not have a material effect on its
financial position.
Item 4. CONTROLS AND PROCEDURES
Based on an evaluation carried out, as of the end of the period covered by this
report, under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
the Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) are effective. As of the
end of the period covered by this report, there have been no significant changes
in the Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 22, 2002, an affiliate of one of ePlus' lenders filed a
complaint against ePlus inc., as successor in interest to CLG, Inc. in
the Supreme Court of the State of New York. ePlus acquired CLG in
September 1999. In the complaint, the lender alleges that CLG
misrepresented that it had good title to certain assets that it had
leased to a customer and financed on a non-recourse basis with the
lender. The customer subsequently defaulted on its payments and then
filed for bankruptcy in Delaware. The bankruptcy court found that
title to the financed assets had passed to the customer and that CLG
was simply a lien holder. The lender is seeking approximately $2.6
million in damages, plus interest, late charges and attorney fees.
ePlus has removed the case to the United States District Court for the
Southern District of New York. Although, the ultimate outcome and
liability, if any, cannot be determined, the Company believes that it
has meritorious defenses in connection with the lawsuit and intends to
vigorously contest it. In the opinion of management, resolution of
this lawsuit is not expected to have a material adverse effect on the
financial position of the company.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Exhibit Description
- ----------- -------------------
3.1 Certificate of Incorporation of the Company, filed August 27, 1996
(Incorporated herein by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the period ended December 31,
2002).
3.2 Certificate of Amendment of Incorporation of the Company, filed
September 30, 1997 (Incorporated herein by reference to Exhibit
3.2 to the Company's Quarterly Report on Form 10-Q for the period
ended December 31, 2002).
3.3 Certificate of Amendment of Certificate of Incorporation of the
Company, filed October 19, 1999 (Incorporated herein by reference
to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for
the period ended December 31, 2002).
3.4 Certificate of Amendment of Certificate of Incorporation of the
Company, filed May 23, 2002 (Incorporated herein by reference to
Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for the
period ended December 31, 2002).
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3.5 Bylaws of the Company, as amended to date (Incorporated herein by
reference to Exhibit 3.5 to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 2002).
31.1 Certification Of the Chief Executive Officer of ePlus inc.
pursuant to the Securities Exchange Act Rules 13a-14(a) and
15d-14(a).
31.2 Certification Of the Chief Financial Officer of ePlus inc.
pursuant to the Securities Exchange Act Rules 13a-14(a) and
15d-14(a).
32.1 Statement of Chief Executive Officer Pursuant to 18 U.S.C.ss.1350.
32.2 Statement of Chief Financial Officer Pursuant to 18 U.S.C.ss.1350.
(b) Reports on Form 8-K
On June 26, 2003, the Company furnished pursuant to Item 9 a Current Report on
Form 8-K announcing a press release reporting its financial results for the
fiscal quarter and year ended March 31, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ePlus inc.
Date: August 14, 2003 /s/ PHILLIP G. NORTON
----------------------------------------------
By: Phillip G. Norton, Chairman of the Board,
President and Chief Executive Officer
Date: August 14, 2003 /s/ STEVEN J. MENCARINI
----------------------------------------------
By: Steven J. Mencarini, Senior Vice President
and Chief Financial Officer
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