-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MmAUACjqNT3PsiQsiyFUDPnkfIMIW1IWqeJqDdB9kWVkJeWsAR+mHYboyYfbqmOn 4GB+Pkpr5Yp4wvKvWEScLw== 0001022408-06-000012.txt : 20060214 0001022408-06-000012.hdr.sgml : 20060214 20060213184246 ACCESSION NUMBER: 0001022408-06-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060214 DATE AS OF CHANGE: 20060213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EPLUS INC CENTRAL INDEX KEY: 0001022408 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE LESSORS [6172] IRS NUMBER: 541817218 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28926 FILM NUMBER: 06605794 BUSINESS ADDRESS: STREET 1: 13595 DULLES TECHNOLOGY DRIVE CITY: HERNDON STATE: VA ZIP: 20171-3413 BUSINESS PHONE: 7039848400 MAIL ADDRESS: STREET 1: 13595 DULLES TECHNOLOGY DRIVE CITY: HERNDON STATE: VA ZIP: 20171-3413 FORMER COMPANY: FORMER CONFORMED NAME: MLC HOLDINGS INC DATE OF NAME CHANGE: 19960906 10-Q 1 f_10q20051231.txt UNITED STATES 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 December 31, 2005 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.) 13595 Dulles Technology Drive, Herndon, VA 20171-3413 (Address, including zip code, of principal offices) Registrant's telephone number, including area code: (703) 984-8400 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 a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check one): Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X] The number of shares of common stock outstanding as of February 2, 2006, was 8,143,191. TABLE OF CONTENTS ePlus inc. AND SUBSIDIARIES Part I. Financial Information: Item 1. Financial Statements - Unaudited: Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2005 2 Condensed Consolidated Statements of Earnings, Three Months Ended December 31, 2004 and 2005 3 Condensed Consolidated Statements of Earnings, Nine Months Ended December 31, 2004 and 2005 4 Condensed Consolidated Statements of Cash Flows, Nine Months Ended December 31, 2004 and 2005 5 Notes to Unaudited Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Item 4. Controls and Procedures 23 Part II. Other Information: Item 1. Legal Proceedings 24 Item 1A. Risk Factors 24 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27 Item 3. Defaults Upon Senior Securities 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 5. Other Information 27 Item 6. Exhibits 28 Signatures 29
1 ePlus inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) As of March 31, 2005 As of December 31, 2005 -------------------- ----------------------- ASSETS Cash and cash equivalents $ 38,851,714 $ 17,416,397 Accounts receivable, net of allowance for doubtful accounts of $1,959,049 and $2,238,904 as of March 31, 2005 and December 31, 2005, respectively 93,555,462 120,003,176 Notes receivable 114,708 151,350 Inventories 2,116,855 3,671,913 Investment in leases and leased equipment - net 189,468,926 205,819,210 Property and equipment - net 6,647,781 5,961,351 Other assets 3,859,791 3,708,287 Goodwill 26,125,212 26,125,212 -------------------- ----------------------- TOTAL ASSETS $ 360,740,449 $ 382,856,896 ==================== ======================= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Accounts payable - equipment $ 8,965,022 $ 5,961,928 Accounts payable - trade 54,751,962 73,604,506 Salaries and benefits payable 3,273,700 4,728,368 Accrued expenses and other liabilities 31,024,749 17,396,264 Income taxes payable - 1,449,011 Recourse notes payable 6,264,897 7,000,000 Non-recourse notes payable 114,838,994 134,411,118 Deferred tax liability 9,519,309 7,179,820 -------------------- ----------------------- Total Liabilities 228,638,633 251,731,015 COMMITMENTS AND CONTINGENCIES (Note 7) - - STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued or outstanding - - Common stock, $.01 par value; 25,000,000 shares authorized; 10,807,392 issued and 8,581,492 outstanding at March 31, 2005 and 10,831,042 issued and 8,158,086 outstanding at December 31, 2005 $ 108,074 $ 108,310 Additional paid-in capital 65,181,862 65,418,576 Treasury stock, at cost, 2,225,900 and 2,672,956 shares, respectively (22,887,881) (28,620,209) Retained earnings 89,499,096 93,926,395 Accumulated other comprehensive income - Foreign currency translation adjustment 200,665 292,809 -------------------- ----------------------- Total Stockholders' Equity 132,101,816 131,125,881 -------------------- ----------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 360,740,449 $ 382,856,896 ==================== ======================= See Notes to Condensed Consolidated Financial Statements.
2 ePlus inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Three Months Ended December 31, 2004 2005 -------------------- -------------------- REVENUES Sales of product $ 133,728,559 $ 146,384,576 Lease revenues 11,147,094 13,758,427 Fee and other income 2,774,614 2,930,615 -------------------- -------------------- TOTAL REVENUES 147,650,267 163,073,618 -------------------- -------------------- COSTS AND EXPENSES Cost of sales, product 120,892,787 131,734,303 Direct lease costs 3,060,531 4,741,811 Professional and other fees 600,484 2,464,259 Salaries and benefits 14,365,021 15,677,592 General and administrative expenses 4,370,363 4,468,922 Interest and financing costs 1,622,837 1,950,431 -------------------- -------------------- TOTAL COSTS AND EXPENSES 144,912,023 161,037,318 -------------------- -------------------- EARNINGS BEFORE PROVISION FOR INCOME TAXES 2,738,244 2,036,300 -------------------- -------------------- PROVISION FOR INCOME TAXES 1,122,680 824,701 -------------------- -------------------- NET EARNINGS $ 1,615,564 $ 1,211,599 ==================== ==================== NET EARNINGS PER COMMON SHARE - BASIC $ 0.18 $ 0.15 ==================== ==================== NET EARNINGS PER COMMON SHARE - DILUTED $ 0.17 $ 0.14 ==================== ==================== WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 8,957,280 8,215,221 WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 9,375,666 8,890,948 See Notes to Condensed Consolidated Financial Statements.
3 ePlus inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Nine Months Ended December 31, 2004 2005 -------------------- -------------------- REVENUES Sales of product $ 363,762,423 $ 440,663,026 Lease revenues 35,213,926 36,968,881 Fee and other income 8,558,351 9,488,230 -------------------- -------------------- TOTAL REVENUES 407,534,700 487,120,137 -------------------- -------------------- COSTS AND EXPENSES Cost of sales, product 326,396,119 397,564,106 Direct lease costs 8,667,800 12,335,864 Professional and other fees 5,180,734 5,188,068 Salaries and benefits 40,040,719 45,482,831 General and administrative expenses 13,025,413 13,905,504 Interest and financing costs 4,315,623 5,202,926 -------------------- -------------------- TOTAL COSTS AND EXPENSES 397,626,408 479,679,299 -------------------- -------------------- EARNINGS BEFORE PROVISION FOR INCOME TAXES 9,908,292 7,440,838 -------------------- -------------------- PROVISION FOR INCOME TAXES 4,062,401 3,013,540 -------------------- -------------------- NET EARNINGS $ 5,845,891 $ 4,427,298 ==================== ==================== NET EARNINGS PER COMMON SHARE - BASIC $ 0.65 $ 0.53 ==================== ==================== NET EARNINGS PER COMMON SHARE - DILUTED $ 0.62 $ 0.49 ==================== ==================== WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 8,933,702 8,411,268 WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 9,358,693 8,992,035 See Notes to Condensed Consolidated Financial Statements.
4 ePlus inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended December 31, 2004 2005 -------------------- -------------------- Cash Flows From Operating Activities: Net earnings $ 5,845,891 $ 4,427,298 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 7,887,206 12,673,230 Write-off of non-recourse debt (489,607) (21,952) Provision for credit losses 197,841 (279,855) Tax benefit of stock options exercised - 49,569 Deferred taxes 832,315 (2,339,489) Payments from lessees directly to lenders (3,100,205) (5,644,747) (Gain) loss on disposal of property and equipment (3,766) 142,351 Gain on disposal of operating lease equipment (142,803) (931,993) Changes in: Accounts receivable (57,464,540) (26,354,060) Other receivable (91,816) (36,642) Inventories (2,860,418) (1,555,058) Decrease (increase) in investment in leases and leased equipment 906,856 (4,525,598) Other assets (2,226,429) 151,504 Accounts payable - equipment (4,511,283) (2,958,889) Accounts payable - trade 27,293,168 18,247,310 Salaries and commissions payable, accrued expenses and other liabilities 5,505,703 (10,143,775) -------------------- -------------------- Net cash used in operating activities (22,421,887) (19,100,796) -------------------- -------------------- Cash Flows From Investing Activities: Purchases of operating lease equipment (10,569,185) (22,577,625) Purchases of property and equipment (2,237,600) (1,927,303) Proceeds from sale of operating equipment 751,147 1,647,664 Proceeds from sale of property and equipment - 1,620 Cash used in acquisitions, net of cash acquired (5,000,000) - -------------------- -------------------- Net cash used in investing activities (17,055,638) (22,855,644) -------------------- --------------------
5 ePlus inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued (UNAUDITED) 2004 2005 -------------------- -------------------- Cash Flows From Financing Activities: Borrowings: Non-recourse $ 55,794,988 $ 68,681,848 Repayments: Non-recourse (38,747,494) (43,443,025) Purchase of treasury stock (701,258) (5,732,328) Proceeds from issuance of capital stock, net of expenses 450,935 187,381 Net borrowings on lines of credit 16,122,323 735,103 -------------------- -------------------- Net cash provided by financing activities 32,919,494 20,428,979 -------------------- -------------------- Effect of Exchange Rate Changes on Cash 89,991 92,144 -------------------- -------------------- Net Decrease in Cash and Cash Equivalents (6,468,040) (21,435,317) Cash and Cash Equivalents, Beginning of Period 25,155,011 38,851,714 -------------------- -------------------- Cash and Cash Equivalents, End of Period $ 18,686,971 $ 17,416,397 ==================== ==================== Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 2,258,823 $ 2,093,575 ==================== ==================== Cash paid for income taxes $ 2,573,578 $ 3,695,095 ==================== ==================== Non-Cash Investing Activities: Purchase of property and equipment included in accounts payable $ - $ 24,203 ==================== ==================== See Notes To Condensed Consolidated Financial Statements.
6 ePlus inc. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The unaudited condensed consolidated interim financial statements of ePlus inc. and subsidiaries included herein have been prepared by us, pursuant to the rules and regulations of 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 note 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. For the nine months ended December 31, 2004 and 2005, accumulated other comprehensive income increased $89,991 and $92,144, respectively, resulting in total comprehensive income of $5,935,882 and $4,519,442, respectively. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K (No. 0-28926) for the year ended March 31, 2005. Operating results for the interim periods are not necessarily indicative of results for an entire year. 2. STOCK-BASED COMPENSATION As of December 31, 2005, we had three stock-based employee compensation plans. We account 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 Nine Months Ended December 31, December 31, (unaudited) (unaudited) 2004 2005 2004 2005 --------------- --------------- --------------- --------------- Net earnings, as reported $ 1,615,564 $ 1,211,599 $ 5,845,891 $ 4,427,298 Stock based compensation expense (202,919) (202,051) (911,217) (627,321) --------------- --------------- --------------- --------------- Net earnings, pro forma $ 1,412,645 $ 1,009,548 $ 4,934,674 $ 3,799,977 =============== =============== =============== =============== Basic earnings per share, as reported $0.18 $0.15 $0.65 $0.53 Basic earnings per share, pro forma $0.16 $0.12 $0.55 $0.45 Diluted earnings per share, as reported $0.17 $0.14 $0.62 $0.49 Diluted earnings per share, pro forma $0.15 $0.11 $0.53 $0.42
7 3. INVESTMENTS IN LEASES AND LEASED EQUIPMENT - NET Investments in leases and leased equipment - net consists of the following: As of March 31, 2005 December 31, 2005 (In Thousands) --------------------------------------- Investment in direct financing and sales-type leases-net $ 157,519 $ 161,460 Investment in operating lease equipment-net 31,950 44,359 ------------------ ------------------ $ 189,469 $ 205,819 ================== ==================
Our net investment in leases is collateral for non-recourse and recourse equipment notes, if any. INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES Our investment in direct financing and sales-type leases consists of the following: As of March 31, 2005 December 31, 2005 (In Thousands) --------------------------------------- Minimum lease payments $ 151,139 $ 155,280 Estimated unguaranteed residual value (1) 23,794 23,870 Initial direct costs, net of amortization (2) 1,850 1,739 Less: Unearned lease income (16,208) (16,374) Reserve for credit losses (3,056) (3,055) ------------------ ------------------ Investment in direct finance and sales-type leases-net $ 157,519 $ 161,460 ================== ==================
(1) Includes estimated unguaranteed residual values of $801 and $950 as of March 31, 2005 and December 31, 2005, respectively, for direct financing SFAS 140 leases. (2) Initial direct costs are shown net of amortization of $2,387 and $1,877 as of March 31, 2005 and December 31, 2005, respectively. INVESTMENT IN OPERATING LEASE EQUIPMENT Investment in operating lease equipment primarily represents leases that do not qualify as direct financing leases 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, 2005 December 31, 2005 (In Thousands) ---------------------------------------- Cost of equipment under operating leases $ 45,453 $ 63,158 Less: Accumulated depreciation and amortization (13,503) (18,799) ------------------ ------------------ Investment in operating lease equipment-net $ 31,950 $ 44,359 ================== ==================
8 4. PROVISION FOR CREDIT LOSSES As of March 31 and December 31, 2005, our provision for credit losses was $5,014,905 and $5,294,234, respectively. Our provision for credit losses are segregated between our accounts receivable and our lease-related assets as follows (in thousands): Accounts Lease-Related Receivable Assets Total --------------- --------------- --------------- Balance April 1, 2004 $ 1,584 $ 3,146 $ 4,730 Bad Debts Expense 1,131 - 1,131 Recoveries (350) - (350) Write-offs and other (406) (90) (496) --------------- --------------- --------------- Balance March 31, 2005 1,959 3,056 5,015 --------------- --------------- --------------- Bad Debts Expense 982 - 982 Recoveries (202) - (202) Write-offs and other (500) (1) (501) --------------- --------------- --------------- Balance December 31, 2005 $ 2,239 $ 3,055 $ 5,294 =============== =============== =============== 5. SEGMENT REPORTING We manage our business segments on the basis of the products and services offered. Our reportable segments consist of our traditional financing business unit and our 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 ("IT") 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. We evaluate segment performance on the basis of segment net earnings. Both segments utilize our 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. Service fees generated by our proprietary software and services are also included in the technology sales 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 our 2005 Form 10-K. Corporate overhead expenses are allocated on the basis of revenue volume, or estimates of actual time spent by corporate staff, or asset utilization, depending on the type of expense. Certain items have been reclassified in the three- and nine-month periods ended December 31, 2004 to conform to the December 31, 2005 presentation. 9 Financing Technology Sales Business Unit Business Unit Total ----------------- ----------------- ----------------- Three months ended December 31, 2004 Sales of product $ 702,699 $ 133,025,860 $ 133,728,559 Lease revenues 11,147,094 - 11,147,094 Fee and other income 492,001 2,282,613 2,774,614 ----------------- ----------------- ----------------- Total revenues 12,341,794 135,308,473 147,650,267 Cost of sales 676,116 120,216,671 120,892,787 Direct lease costs 3,060,531 - 3,060,531 Selling, general and administrative expenses 5,196,957 14,138,911 19,335,868 ----------------- ----------------- ----------------- Segment earnings 3,408,190 952,891 4,361,081 Interest expense 1,418,530 204,307 1,622,837 ----------------- ----------------- ----------------- Earnings before income taxes $ 1,989,660 $ 748,584 $ 2,738,244 ================= ================= ================= Assets as of December 31, 2004 $ 202,861,730 $ 151,471,799 $ 354,333,529 ================= ================= ================= Three months ended December 31, 2005 Sales of product $ 1,069,202 $ 145,315,374 $ 146,384,576 Lease revenues 13,758,427 - 13,758,427 Fee and other income 153,199 2,777,416 2,930,615 ----------------- ----------------- ----------------- Total revenues 14,980,828 148,092,790 163,073,618 Cost of sales 779,060 130,955,243 131,734,303 Direct lease costs 4,741,811 - 4,741,811 Selling, general and administrative expenses 5,490,791 17,119,982 22,610,773 ----------------- ----------------- ----------------- Segment earnings 3,969,166 17,565 3,986,731 Interest expense 1,807,764 142,667 1,950,431 ----------------- ----------------- ----------------- Earnings before income taxes $ 2,161,402 $ (125,102) $ 2,036,300 ================= ================= ================= Assets as of December 31, 2005 $ 273,979,436 $ 108,877,460 $ 382,856,896 ================= ================= ================= Nine months ended December 31, 2004 Sales of product $ 2,443,502 $ 361,318,921 $ 363,762,423 Lease revenues 35,213,926 - 35,213,926 Fee and other income 1,927,268 6,631,083 8,558,351 ----------------- ----------------- ----------------- Total revenues 39,584,696 367,950,004 407,534,700 Cost of sales 2,302,364 324,093,755 326,396,119 Direct lease costs 8,667,800 - 8,667,800 Selling, general and administrative expenses 16,045,118 42,201,748 58,246,866 ----------------- ----------------- ----------------- Segment earnings 12,569,414 1,654,501 14,223,915 Interest expense 3,984,492 331,131 4,315,623 ----------------- ----------------- ----------------- Earnings before income taxes $ 8,584,922 $ 1,323,370 $ 9,908,292 ================= ================= ================= Assets as of December 31, 2004 $ 202,861,730 $ 151,471,799 $ 354,333,529 ================= ================= ================= Nine months ended December 31, 2005 Sales of product $ 3,150,694 $ 437,512,332 $ 440,663,026 Lease revenues 36,968,881 - 36,968,881 Fee and other income 953,714 8,534,516 9,488,230 ----------------- ----------------- ----------------- Total revenues 41,073,289 446,046,848 487,120,137 Cost of sales 3,033,509 394,530,597 397,564,106 Direct lease costs 12,335,864 - 12,335,864 Selling, general and administrative expenses 16,395,638 48,180,765 64,576,403 ----------------- ----------------- ----------------- Segment earnings 9,308,278 3,335,486 12,643,764 Interest expense 4,861,126 341,800 5,202,926 ----------------- ----------------- ----------------- Earnings before income taxes $ 4,447,152 $ 2,993,686 $ 7,440,838 ================= ================= ================= Assets as of December 31, 2005 $ 273,979,436 $ 108,877,460 $ 382,856,896 ================= ================= =================
10 6. EARNINGS PER SHARE The weighted average number of common shares used in determining basic and diluted net income per share for the three and nine months ended December 31, 2004 and 2005 are as follows: Three Months Ended Nine Months Ended December 31, December 31, 2004 2005 2004 2005 ----------- ----------- ----------- ----------- Basic common shares outstanding 8,957,280 8,215,221 8,933,702 8,411,268 Common stock equivalents 418,386 675,727 424,991 580,767 ----------- ----------- ----------- ----------- Diluted common shares outstanding 9,375,666 8,890,948 9,358,693 8,992,035 =========== =========== =========== ===========
7. COMMITMENTS AND CONTINGENCIES We are involved in three lawsuits concerning a lessee named Cyberco Holdings, Inc. who was allegedly perpetrating a fraud. The schedules were all non-recourse to us; however, the underlying lenders are seeking repayment. We are engaged in other ordinary and routine litigation incidental to our business. While we cannot predict the outcome of these various legal proceedings, management believes that the resolution of these matters will not have a material adverse effect on our financial position or results of operations. In addition, we are the plaintiff in a lawsuit filed against SAP America, Inc. and SAP AG whereby we are alleging patent infringement. For the quarter ended December 31, 2005, we incurred $1,600,130 in legal fees seeking to enforce our patent. 8. RELATED PARTIES On December 23, 2004, we entered into an office lease agreement with Norton Building 1, LLC, the Landlord, pursuant to which we lease 50,322 square feet for use as our principal headquarters. The property is located at 13595 Dulles Technology Drive, Herndon, Virginia. The term of the lease is for five years with one five-year renewal option. The annual base rent is $19.50 per square foot for the first year, with a rent escalation of three percent per year for each year thereafter. Phillip G. Norton is the Trustee of Norton Building 1, LLC and is Chairman of the Board, President, and Chief Executive Officer of ePlus inc. The lease is at or below market taking into consideration the rental charges and the ability to terminate the lease. For the three and nine months ended December 31, 2005, rent expense paid to the Landlord was $219,263 and $657,788, respectively. During the quarter ended June 30, 2005, we reimbursed the landlord for certain construction costs in the amount of $280,163, which are being amortized over the lease term. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 our Annual Report on Form 10-K (No. 0-28926) for the year ended March 31, 2005. Operating results for interim periods are not necessarily indicative of results for an entire year. 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, our services, economic conditions, the impact of competition and pricing, results of financing efforts and other factors affecting our business that are beyond our control. We undertake no obligation and do not intend to update, revise or otherwise publicly release the results of any revisions to 11 these forward-looking statements that may be made to reflect future events or circumstances. See "Part II. Other Information - Item 1A. Risk Factors." 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 have expanded our product and service offerings under the Enterprise Cost Management ("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 current operations consist of traditional financing and technology sales. The financing business unit generates revenue by offering lease-financing solutions to corporations and government entities nationwide. These revenues are primarily made up of lease revenues and sales of products under eECM. Our technology sales business unit generates revenue from the sale of IT equipment and software and related services to corporations and governmental entities nationwide. These revenues primarily consist of sales of products under eECM. Our total sales and marketing staff at our 30 locations in the United States consisted of 206 people as of December 31, 2005. On May 28, 2004, we purchased certain assets and assumed certain liabilities of Manchester Technologies, Inc. The acquisition added to our IT reseller and professional services business. Approximately 125 former Manchester Technologies, Inc. personnel have been hired by ePlus as part of the transaction and are located in four established offices, two in metropolitan New York, one in South Florida and one in Baltimore. These IT reseller activities and services, and the associated expenses with this business acquisition have substantially increased our expenses, and our ability to sell these products and services is expected to fluctuate depending on the customer demand for these products and services. The products and services from this acquisition are included in our technology sales business unit segment, and are combined with our other sales of IT products and services. As a result of all our acquisitions and changes in the number of sales locations, our historical results of operations and financial position may not be indicative of future performance over time. CRITICAL ACCOUNTING POLICIES SALES OF PRODUCT. Sales of product includes the following types of transactions: (1) sales of new or used equipment; (2) service revenue in our technology sales business unit; (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 and sales of off-lease equipment are recognized when constructive title passes to the purchaser. Service revenue is recognized as the related services are rendered. SOFTWARE SALES AND RELATED COSTS. Revenue from hosting arrangements is recognized in accordance with Emerging Issues Task Force ("EITF") 00-3, "Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity's Hardware." Hosting arrangements that are not in the scope of SOP 97-2 require that allocation of the portion of the fee allocated to the hosting elements be recognized as the service is provided. Currently, the majority of our software revenues are generated through hosting agreements. 12 Revenue from sales of our 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: there is persuasive evidence that an arrangement exists, delivery has occurred, no significant obligations by us related to services essential to the functionality of the software remain with regard to implementation, the sales price is determinable, and it is probable that collection will occur. At the time of each sale transaction, we make an assessment of the collectibility of the amount due from the customer. Revenue is only recognized at that time if management deems that collection is probable. In making this assessment, we consider customer credit-worthiness and assess whether fees are fixed or determinable and free of contingencies or significant uncertainties. If the fee is not fixed or determinable, revenue is recognized only as payments become due from the customer, provided that all other revenue recognition criteria are met. In assessing whether the fee is fixed or determinable, we consider the payment terms of the transaction and our collection experience in similar transactions without making concessions, among other factors. Our software license agreements generally do not include customer acceptance provisions. However, if an arrangement includes an acceptance provision, we record revenue only upon the earlier of (1) receipt of written acceptance from the customer or (2) expiration of the acceptance period. Our software agreements often include implementation and consulting services that are sold separately under consulting engagement contracts or as part of the software license arrangement. When we determine that such services are not essential to the functionality of the licensed software and qualify as "service transactions" under SOP 97-2, we record revenue separately for the license and service elements of these agreements. Generally, we consider that a service is not essential to the functionality of the software based on various factors, including if the services may be provided by independent third parties experienced in providing such consulting and implementation in coordination with dedicated customer personnel. If an arrangement does not qualify for separate accounting of the license and service elements, then license revenue is recognized together with the consulting services using either the percentage-of-completion or completed-contract method of contract accounting. Contract accounting is also applied to any software agreements that include customer-specific acceptance criteria or where the license payment is tied to the performance of consulting services. Under the percentage-of-completion method, we may estimate the stage of completion of contracts with fixed or "not to exceed" fees based on hours or costs incurred to date as compared with estimated total project hours or costs at completion. If we do not have a sufficient basis to measure progress towards completion, revenue is recognized upon completion of the contract. When total cost estimates exceed revenues, we accrue for the estimated losses immediately. The use of the percentage-of-completion method of accounting requires significant judgment relative to estimating total contract costs, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed, and anticipated changes in salaries and other costs. When adjustments in estimated contract costs are determined, such revisions may have the effect of adjusting, in the current period, the earnings applicable to performance in prior periods. We generally use the residual method to recognize revenues from agreements that include one or more elements to be delivered at a future date, when evidence of the fair value of all undelivered elements exists. Under the residual method, the fair value of the undelivered elements (e.g., maintenance, consulting and training services) based on vendor-specific objective evidence (VSOE) is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements (i.e., software license). If evidence of the fair value of one or more of the undelivered services does not exist, all revenues are deferred and recognized when delivery of all of those services has occurred or when fair values can be established. We determine VSOE of the fair value of services revenues based upon our recent pricing for those services when sold separately. VSOE of the fair value of maintenance services may also be determined based on a substantive maintenance renewal clause, if any, within a customer contract. Our current pricing practices are influenced primarily by product type, purchase volume, maintenance term and customer location. We review services revenues sold separately and maintenance renewal rates on a periodic 13 basis and update, when appropriate; our VSOE of fair value for such services to ensure that it reflects our recent pricing experience. Maintenance services generally include rights to unspecified upgrades (when and if available), telephone and Internet-based support, updates and bug fixes. Maintenance revenue is recognized ratably over the term of the maintenance contract (usually one year) on a straight-line basis. When consulting qualifies for separate accounting, consulting revenues under time and materials billing arrangements are recognized as the services are performed. Consulting revenues under fixed-price contracts are generally recognized using the percentage-of-completion method. If there is a significant uncertainty about the project completion or receipt of payment for the consulting services, revenue is deferred until the uncertainty is sufficiently resolved. Training services include on-site training, classroom training, and computer-based training and assessment. Training revenues are recognized as the related training services are provided. LEASE CLASSIFICATION. 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 in accordance with Statement of Financial Accounting Standards ("SFAS") 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. 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. 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 that 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 present value of minimum lease payments computed at the interest rate implicit in the lease and its cost or carrying amount. Interest earned on the present value of the lease payments and residual value is recognized over the lease term using the interest method. 14 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 leased 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. Lease revenues consist of rentals due under operating leases and amortization of unearned income on direct financing and sales-type leases. Equipment under operating leases is recorded at cost on the balance sheet as investment in leases and leased equipment and depreciated on a straight-line basis over the lease term to our estimate of residual value. For the periods subsequent to the lease term, where collectability is certain, revenue is recognized on an accrual basis. Where collectability is not reasonably assured, revenue is recognized upon receipt of payment from the lessee. 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 included as part of the investment in direct financing and sales-type leases. The residual values for operating leases are included in the leased equipment's net book value and are reported in the investment in leases and leased 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 a quarterly basis and record any required changes in accordance with SFAS No. 13, paragraph 17.d., in which impairments of residual value, other than temporary, are recorded in the period in which the impairment is determined. 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 sales of product and cost of sales, product when title is transferred to the buyer. 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. OTHER SOURCES OF REVENUE. Amounts charged for hosting arrangements in which the customer accesses the programs from an ePlus-hosted site and does not have possession, and for Procure+, our procurement software package, are recognized as services are rendered. Amounts charged for Manage+, our asset management software service, are recognized on a straight-line basis over the period the services are provided. In addition, other sources of revenue are derived 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; (4) agent fees received from various manufacturers in the IT reseller business unit; (5) settlement fees related to disputes or litigation; and (6) interest and other miscellaneous income. These revenues are included in fee and other income in our condensed 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 our 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 15 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). Our allowance also includes consideration of uncollectible vendor receivables which arise from vendor rebate programs and other promotions. CAPITALIZATION OF COSTS OF SOFTWARE FOR INTERNAL USE. We have 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. Capitalized costs, net of amortization, totaled $615,526 and $639,896 and as of March 31, 2005 and December 31, 2005, respectively. 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. We had $1,193,657 and $1,001,955 of capitalized costs, net of amortization, as of March 31, 2005 and December 31, 2005, respectively. RESULTS OF OPERATIONS - Three and Nine Months Ended December 31, 2005 Compared to Three and Nine Months Ended December 31, 2004 Total revenues generated by us during the three-month period ended December 31, 2005 were $163,073,618 compared to revenues of $147,650,267 in the comparable period in the prior fiscal year, an increase of 10.4%. The increase is primarily the result of increased sales of product and leased equipment. Total revenues generated by us during the nine-month period ended December 31, 2005 were $487,120,137 compared to revenues of $407,534,700 in the comparable period in the prior fiscal year, an increase of 19.5%. Our revenues are composed of sales, leases, and other revenue, and may vary considerably from period to period. See "POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS." Sales of product revenues are generated primarily through our technology sales business unit subsidiaries. Sales of product consist primarily of sales of new equipment and service engagements. Many customers purchase from us using a contract vehicle known as a Master Purchase Agreement ("MPA") in which the terms and conditions of our relationship are stipulated. Some MPAs contain pricing arrangements known as cost plus arrangements. However, the MPAs do not contain purchase volume commitments and most have 30 day termination for convenience clauses. In addition, many of our customers place orders using purchase orders without an MPA in place. There is no guarantee that our sales of product volume can be maintained or increased. Sales of product represented 89.8% and 90.6% of total revenue for the three months ended December 31, 2005 and December 31, 2004, respectively. Sales of product increased 9.5% to $146,384,576 during the three-month period ended December 31, 2005, as compared to $133,728,559 in the comparable period in the prior fiscal year. Our top ten customers accounted for 33.1% of sales of product for the quarter ended December 31, 2005, as compared to 25.6% for the same period in the prior fiscal year. For the nine-month period ended December 31, 2005, sales of product increased 21.1% to $440,663,026 from $363,762,423 generated in the comparable period in the prior fiscal year. The increase was a result of higher sales within our technology sales business unit subsidiaries primarily due to organic growth within our existing customer base and due to an addition of approximately 245 customers during the quarter ended December 31, 2005. A substantial portion of our sales of product is from sales of Hewlett Packard and CISCO products which represents approximately 29.0% and 23.0%, respectively, for the quarter ended December 31, 2005. 16 Included in the sales of product in our technology sales business unit are certain service revenues that are bundled with sales of equipment and are integral to the successful delivery of such equipment. Our service engagements are generally governed by Statements of Work and/or Master Service Agreements. They are primarily fixed fee, however, some agreements are time and materials or estimates. We realized a gross margin on sales of product of 10.0% and 9.8% for the three and nine months ended December 31, 2005, respectively, and 9.6% and 10.3% for the three and nine months ended December 31, 2004, respectively. Our gross margin on sales of product is affected by the mix and volume of products sold and competitive pressure in the marketplace. Our lease revenues increased 23.4% to $13,758,427 for the three-month period ended December 31, 2005 compared to $11,147,094 in the comparable period in the prior fiscal year. For the nine-month period ended December 31, 2005, lease revenues increased 5.0% to $36,968,881 compared to $35,213,926 during the comparable period in the prior fiscal year. For both the three and nine month periods the increase in revenue is predominantly due to an increase in our operating lease portfolio combined with a rise in the sale of leased equipment. For the three months ended December 31, 2005, fee and other income increased 5.6% to $2,930,615 as compared to $2,774,614 in the comparable period in the prior fiscal year. For the nine months ended December 31, 2005, fee and other income increased 10.9% to $9,488,230, as compared to $8,558,351 in the comparable period in the prior fiscal year. This is a result of an increase in professional services, predominately programming, hosting, and procurement services provided by our technology business unit. Fee and other income includes revenues from adjunct services and fees, including broker and agent fees, support fees, warranty reimbursements, monetary settlements arising from disputes and litigation, and interest income. Our fee and other income includes earnings from certain transactions that are in our normal course of business, but there is no guarantee that future transactions of the same nature, size or profitability will occur. Our 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. For the three months ended December 31, 2005, cost of sales, product increased 9.0% to $131,734,303 as compared to $120,892,787 in the comparable period in the prior fiscal year. This is primarily attributable to the correlating increase in sales of product. For the nine months ended December 31, 2005, cost of sales, product increased 21.8% to $397,564,106 as compared to $326,396,119 in the comparable period in the prior fiscal year. A significant reduction in cost of sales is generated through programs provided by manufacturers. The programs are generally governed by our reseller authorization level with the manufacturer. The authorization level we achieve and maintain governs what types of product we can resell as well as such items as pricing received, funds provided for the marketing of these products and other special promotions. These authorization levels are achieved by us through sales volume, certifications held by sales executives or engineers and/or requirements as the manufacturers may specify. The authorizations are costly to maintain and these programs continually change and there is no guarantee of future reductions of costs provided by these programs. We currently maintain the following authorization levels with our major manufacturers: Manufacturer Manufacturer Authorization Level - ------------------------------- -------------------------------------------- Hewlett Packard HP Platinum/VPA (National) Cisco Systems Cisco Gold DVAR (National) Microsoft Microsoft Gold (National) Sun Microsystems Sun iForce Strategic Partner (National) IBM IBM Platinum (National) Lenovo Lenovo Platinum (National) Network Appliance, Inc. NetApp Platinum Citrix Systems, Inc. Citrix Gold (National) 17 Our direct lease costs increased 54.9% and 42.3% to $4,741,811 and $12,335,864 during the three- and nine-month periods ended December 31, 2005, respectively, as compared to the comparable periods in the prior fiscal year. The increase is the result of an increase in lease depreciation, specifically depreciation on the larger volume of operating lease assets for this period. Professional and other fees increased for the three-month period ended December 31, 2005 over the previous year by 310.4%, or $1,863,775. The increase for the three-month period is primarily due to increased expenses related to our pursuit of patent-infringement litigation against SAP America, Inc. and SAP AG, which was filed in April 2005. In the three-month period ended December 31, 2004, there was no expense related to patent-infringement litigation due to our deferral of the expense as a result of our settlement of the patent-infringement litigation against Ariba Inc. in the subsequent quarter. In the three month period ended December 31, 2005, the expense related to patent-infringement litigation was $1,600,130. In the nine-month period ended December 31, 2005, professional and other fees increased 0.1%, or $7,334 from the comparable period in the prior fiscal year. Although legal expenses increased for the nine-month period ending December 31, 2005, there was a reduction in expenses for outside services. This reduction was due to payments made to Manchester Technologies, Inc. during the nine-month period ending December 31, 2004 for professional services rendered by people that became our employees in a subsequent period, as well as a transition team that was involved in the purchase of Manchester Technologies, Inc. In the nine-month period ended December 31, 2004 and December 31, 2005, the expense related to patent-infringement litigation was $1,053,625, and $2,411,586, respectively. Salaries and benefits expenses increased 9.1% and 13.6% to $15,677,592 and $45,482,831, during the three and nine-month periods ended December 31, 2005, respectively, as compared to the same periods in the prior fiscal year. These increases are due in part to an increase in benefit costs and an increase in the average number of employees. We employed approximately 670 people as of December 31, 2005, as compared to 632 people at December 31, 2004. Our general and administrative expenses increased 2.3% to $4,468,922 during the three months ended December 31, 2005, as compared to the same period in the prior fiscal year. For the nine months ended December 31, 2005, general and administrative expenses increased 6.8% to $13,905,504 as compared to the same period in the prior fiscal year. The year-to-date increases are largely due to expenses relating to higher sales volume and depreciation costs for new capital acquisitions. Interest and financing costs incurred by us for the three and nine-month periods ended December 31, 2005 increased 20.2% and 20.6% to $1,950,431 and $5,202,926, respectively. This is partially due to an increase in our non-recourse debt portolio from $125,185,660 on December 31, 2004 to $134,411,118 on December 31, 2005. Additionally, interest rates on new debt have been slowly increasing during this period. Interest and financing costs include interest costs on our lease-specific and general working capital indebtedness. Our provision for income taxes decreased to $824,701 for the three months ended December 31, 2005 from $1,122,680 for the three months ended December 31, 2004, reflecting effective income tax rates of 40.5% and 41.0%, respectively. Our provision for income taxes decreased to $3,013,540 for the nine-month period ended December 31, 2005 from $4,062,401 for the nine-month period ended December 31, 2004. This decrease was due to reduced pre-tax earnings. The foregoing resulted in an 25.0% decrease in net earnings to $1,211,599 for the three-month period ended December 31, 2005 as compared to the same period in the prior fiscal year and a 24.3% decrease in net earnings to $4,427,298 for the nine-month period ended December 31, 2005. Basic and fully diluted earnings per common share were $0.15 and $0.14 for the three months ended December 31, 2005, respectively, as compared to $0.18 and $0.17 for the three months ended December 31, 2004, respectively. Basic and diluted weighted average common shares outstanding for the three months ended December 31, 2005 were 8,215,221 and 8,890,948, respectively. For the three months ended December 31, 2004, the basic and diluted weighted average shares outstanding were 8,957,280 and 9,375,666, 18 respectively. Basic and fully diluted earnings per common share were $0.53 and $0.49 for the nine months ended December 31, 2005, as compared to $0.65 and $0.62 for the nine months ended December 31, 2004. Basic and diluted weighted average common shares outstanding for the nine months ended December 31, 2005 were 8,411,268 and 8,992,035, respectively. For the nine months ended December 31, 2004, the basic and diluted weighted average shares outstanding were 8,933,702 and 9,358,693, respectively. LIQUIDITY AND CAPITAL RESOURCES During the nine-month period ended December 31, 2005, we used cash in operating activities of $19,100,796 and used cash in investing activities of $22,855,644. Cash flows generated by financing activities amounted to $20,428,979 during the same period. The effect of exchange rate changes during the period generated cash flows of $92,144. The net effect of these cash flows was a net decrease in cash and cash equivalents of $21,435,317 during the nine-month period. During the same period, our total assets increased $22,116,447, or 6.1%. The cash balance at December 31, 2005 was $17,416,397 as compared to $38,851,714 at March 31, 2005. The decline of the cash balance is a result of the need for additional working capital due to higher sales volume and lease portfolio growth. Accounts receivable increased from $93,555,462 as of March 31, 2005, to $120,003,176 as of December 31, 2005, an increase of 28.3%. This is primarily the result of a 24.9% increase in sales of product over the three-month period ended December 31, 2005 compared to the three-month period ended March 31, 2005. Inventories increased 73.5% to $3,671,913 as of December 31, 2005, from $2,116,885 as of March 31, 2005. This increase was a result of sales orders in the configuration process from several of our large customers. Our debt financing activities typically provide approximately 80% to 100% of the purchase price of the equipment purchased by us for lease to our customers. Any balance of the purchase price (our equity investment in the equipment) must generally be financed by cash flow from our operations, the sale of the equipment leased to third parties, or other internal means. Although we expect that the credit quality of our leases and our residual return history will continue to allow us 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 our leasing activities has principally been provided by non-recourse and recourse borrowings. Historically, we have 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 its only recourse, upon default by the lessee, is against the lessee and the specific equipment under lease. During the nine-month period ended December 31, 2005, our lease-related non-recourse debt portfolio increased 17.0% to $134,411,118. Whenever possible and desirable, we arrange 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. We generally retain customer control and operational services, and have minimal residual risk. We usually reserve 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. Our "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 19 timing of lease originations. As of December 31, 2005, we had $5,961,928 of unpaid equipment cost, as compared to $8,965,022 at March 31, 2005. Our "Accounts payable - trade" increased 34.4% from $54,751,962 to $73,604,506 due to an increase in sales of product and, consequently, an increase in cost of goods sold, product from our technology business unit. This increase in purchases subsequently increased our trade payables. Our "Accrued expenses and other liabilities" includes deferred income and amounts collected and payable, such as sales taxes and lease rental payments due to third parties. As of December 31, 2005, we had $17,396,264 of accrued expenses and other liabilities. Credit Facility - Leasing Business - ---------------------------------- Working capital for our leasing business is provided through a credit facility which was scheduled to expire on July 21, 2006. On September 26, 2005, we terminated our $45,000,000 credit facility and simultaneously entered into a new, coterminous, $35,000,000 credit facility. Participating in this facility are Branch Banking and Trust Company ($15,000,000) and National City Bank ($20,000,000) as 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 us and is secured by a blanket lien against all of our assets such as chattel paper (including leases), receivables, inventory and equipment, and the common stock of all wholly-owned subsidiaries. The credit facility contains certain financial covenants and certain restrictions on, among other things, our ability to make certain investments, and sell assets or merge with another company. Borrowings under the credit facility bear interest at London Interbank Offered Rates ("LIBOR") plus an applicable margin or, at our option, the Alternate Base Rate ("ABR") plus an applicable margin. The ABR is the higher of the Agent bank's prime rate or Federal Funds plus 0.5%. The applicable margin is determined based on our recourse funded debt ratio and can range from 1.75% to 2.50% for LIBOR loans and from 0.0% to 0.25% for ABR loans. As of December 31, 2005, we had an outstanding balance of $7.0 million on the 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. The availability of the credit facility is subject to a borrowing base formula that consists of inventory, receivables, purchased assets, and lease assets. Availability under the credit facility may be limited by the asset value of the 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 minimum tangible net worth, cash flow coverage ratios, maximum debt to equity ratio, maximum guarantees of subsidiary obligations, mergers and acquisitions and asset sales. We were in compliance with these covenants as of December 31, 2005. Credit Facility - Technology Business - ------------------------------------- ePlus Technology, inc. has a financing facility from GE Commercial Distribution Finance Corporation ("GECDF") to finance its working capital requirements for inventories and accounts receivable. There are two components of this facility: a floor plan component and an accounts receivable component. The principal amounts outstanding of the two components may not exceed, in the aggregate, $75 million. However, the accounts receivable component has a sub-limit of $20 million. Availability under the GECDF facility may be limited by the asset value of equipment we purchase and may be further limited by certain covenants and terms and conditions of the facility. We were in compliance with these covenants as of December 31, 2005. 20 On July 22, 2005, the GECDF facility was modified to include a temporary credit limit increase of up to $25 million to a maximum balance of $75 million through July 31, 2005 after which the seasonal uplift period began which increased limit was $75 million. On November 14, 2005, the facility agreement was amended to eliminate the seasonal uplift period and permanently increase the aggregate limit of the two components to $75 million, which includes a sub-limit of the accounts receivable component of $20 million. The facility provided by GECDF requires a guaranty of up to $10,500,000 by ePlus inc. The loss of the GECDF credit facility could have a material adverse effect on our future results as we currently rely on this facility and its components for daily working capital and liquidity for our technology sales business and is an operational function of our accounts payable process. Floor Plan Component The traditional business of ePlus Technology, inc. as a seller of computer technology, related peripherals and software products is financed through a floor plan component in which interest expense for the first thirty- to forty-five days, in general, is not charged but is paid by the manufacturer/distributor. The floor plan 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 manufacturer/distributor. If the thirty- to forty-five day obligation is not paid timely, interest is then assessed at stated contractual rates. The respective floor plan component credit limits and actual outstanding balances were as follows: Maximum Maximum Credit Limit at Balance as of Credit Limit at Balance as of March 31, 2005 March 31, 2005 December 31, 2005 December 31, 2005 - -------------------------------------------------------------------------------- $ 75,000,000 $ 32,978,262 $ 75,000,000 $ 41,510,745 Accounts Receivable Component In addition to the floor plan component, ePlus Technology, inc. has an accounts receivable component from GECDF. At the due date of the invoices financed on the floor plan component, the invoices are paid by the Accounts Receivable Component. The balance on the Accounts Receivable Component is then reduced by collections from our customers and our available cash. The outstanding balance under the accounts receivable component is recorded as recourse notes payable. The respective accounts receivable component credit limits and actual outstanding balances were as follows: Maximum Maximum Credit Limit at Balance as of Credit Limit at Balance as of March 31, 2005 March 31, 2005 December 31, 2005 December 31, 2005 - -------------------------------------------------------------------------------- $ 15,000,000 $ 6,263,471 $ 20,000,000 $ 0 In some circumstances, mostly with state governments, we may provide certain customers with guarantees of our performance, which are generally backed by surety bonds that typically range from $50,000 to $500,000. In general, we would only be liable for the amount of these guarantees in the event of default in the performance of our obligations. We are in compliance with the performance obligations under all service contracts for which there is a performance guarantee, and we believe that any liability incurred in connection with these guarantees would not have a material adverse effect on our consolidated results of operations or financial position. 21 On November 17, 2004, a stock purchase program was authorized by our Board of Directors. This program authorized the repurchase of up to 3,000,000 shares of our outstanding common stock over a period of time ending no later than November 17, 2005 and was limited to a cumulative purchase amount of $7,500,000. On March 2, 2005, our Board of Directors approved an increase, from $7,500,000 to $12,500,000, for the maximum total cost of shares that could be purchased. Our Board of Directors authorized another stock repurchase program effective November 17, 2005 for the repurchase of up to 3,000,000 shares of our outstanding common stock, over a twelve-month period ending November 17, 2006, with a cumulative purchase limit of $12,500,000. During the three months ended December 31, 2005 and 2004, we repurchased 276,756 and 19,032 shares of our outstanding common stock for $3,656,118 and $208,705, respectively. During the nine months ended December 31, 2005 and 2004, we repurchased 447,056 and 58,032 shares of our outstanding common stock for $5,732,329 and $701,257, respectively. Since the inception of our initial repurchase program on September 20, 2001, and as of December 31, 2005, we had repurchased 2,672,956 shares of our outstanding common stock at an average cost of $10.71 per share for a total of $28,620,209. POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS Our future quarterly operating results and the market price of our common stock may fluctuate. In the event our 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 our common 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 IT reseller or software competitor or major customers or vendors of ours. Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, without limitation, reduction in IT spending, our entry into the e-commerce market, any reduction of expected residual values related to the equipment under our leases, timing and mix of specific transactions and other factors. See "Part II. Other Information - Item 1A. Risk Factors." Quarterly operating results could also fluctuate as a result of our sale of equipment in our 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. We believe that comparisons of quarterly results of our operations are not necessarily meaningful and that results for one quarter should not be relied upon as an indication of future performance. 22 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Although a substantial portion of our liabilities are non-recourse, fixed interest rate instruments, we are reliant upon lines of credit and other financing facilities that 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 National City Bank and GE Commercial 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 Commercial Distribution Finance Corporation facilities bear interest at a market-based variable rate. 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 December 31, 2005, the aggregate fair value of our recourse borrowings approximated their carrying value. During the year ended March 31, 2003, we began transacting business in Canada. As a result, we have entered into lease contracts and non-recourse, fixed interest rate financing denominated in Canadian Dollars. To date, Canadian operations have been insignificant and we believe that potential fluctuations in currency exchange rates will not have a material effect on our financial position. Item 4. CONTROLS AND PROCEDURES As required by Rule 13a-15(b) under the Securities and Exchange Act of 1934, as amended ("Exchange Act"), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective in alerting them, on a timely basis, to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings. There have been no significant changes in our internal controls over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 23 PART II. OTHER INFORMATION Item 1. Legal Proceedings We are involved in three lawsuits arising from four separate leasing schedules with a lessee named Cyberco Holdings, Inc. ("Cyberco"). The Cyberco principals were allegedly perpetrating a scam. Cyberco, related affiliates, and at least one principal are in Chapter 7 bankruptcy, and no future lease payments are expected. The first two lawsuits, both in the U.S.D.C. for the Southern District of New York, involve three of the schedules, which we had assigned on a non-recourse basis to GMAC Commercial Finance, LLC ("GMAC"). On January 4, 2005, GMAC filed suit against us seeking repayment of the underlying non-recourse promissory note, which is approximately $10,646,000. The same day, we filed suit against GMAC, Travelers Property Casualty Company of America ("Travelers") and Banc of America Leasing and Capital, LLC ("BoA"), seeking a declaratory judgment that any potential liability is covered by our liability policy with Travelers, and that we have no liability to GMAC or BoA. The two cases have been administratively consolidated, and we subsequently dismissed BoA from the suit. On February 9, 2006, the court granted summary judgment for Travelers, determining that our claim was not covered by our insurance policies. We are preparing an appeal of that decision. The ultimate decision on insurance coverage will apply to the claims filed both by GMAC and by BoA. Our suit against GMAC is proceeding, and we expect that this spring the court will set a trial date for the remaining issues. The third lawsuit, which stems from the remaining schedule between Cyberco and us, is between BoA and us in the Circuit Court for Fairfax County, Virginia. We sold the schedule to BoA under a Program Agreement. BoA seeks to recover its loss of approximately $3,063,000. The bulk of discovery is expected to begin in February 2006. We are rigorously asserting our defense in this lawsuit and believe that we have no liability to BoA. We also settled a fourth lawsuit (unrelated to the Cyberco matter above) this quarter. On or about November 22, 2002, General Electric Capital Corporation ("GECC") filed suit against us in state court in New York, which we removed to the U.S.D.C. for the Southern District of New York. GECC alleged that we were liable to it under a non-recourse loan between our and GECC's respective predecessors-in-interest. GECC's complaint demanded $2,632,830, plus interest, late charges and attorneys' fees. On or about March 23, 2005, the court denied GECC's motion for summary judgment. On or about January 7, 2006, the suit was settled. The terms of the settlement provided that ePlus pay to GECC $12,000, and there was no concession of liability by either party. Item 1A. Risk Factors Certain statements contained in this Form 10-Q, other periodic reports filed by us under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by us or on our behalf are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934. Such statements are not based on historical fact, but are based upon numerous assumptions about future conditions that may not occur. Forward-looking statements are generally identifiable by the use of forward-looking words such as "may," "will," "should," "intend," "estimate," "believe," "expect," "anticipate," "project," and similar expressions. Readers are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf. Any such statement speaks only as the date the statement was made. 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. 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 our 2005 Form 10-K: - we may not be able to realize our entire investment in the equipment we lease; 24 - we depend on creditworthy customers and may not have reserved adequately for credit losses; - capital spending by our customers may decrease; - we do not have long-term supply or guaranteed price agreement with our vendors. In addition, we do not have guaranteed purchase volume commitments from our customers; - direct marketing to end-users, rather than through reseller such as ourselves, by manufacturers such as Hewlett Packard, IBM, and Lenovo may affect future sales. Many competitors compete principally on the basis of price and may have lower costs than us and, therefore, current gross margins may not be maintainable; - inventory and accounts receivable financing may not be available; - our earnings may fluctuate; - we are dependent upon our current management team; - we are dependent upon the reliability of our information, telecommunication and other systems, which are used for sales, distribution, marketing, purchasing, inventory management, order processing, customer service and general accounting functions. Interruption of our information systems, Internet or telecommunications systems could have a material adverse effect on our business, financial condition, cash flows or results of operations; - despite the non-recourse nature of the loans financing our activities, non-recourse lenders have in the past, and currently, brought suit when the underlying transaction turns out poorly for the lenders, such as in the case of a suit recently resolved in our favor when the lessee of equipment filed a bankruptcy petition and the bankruptcy court ruled there was no true lease. We have vigorously defended such cases in the past and will do so in the future and believe investors should be aware that such suits are normal risks, and the cost of defense are normal costs, of our leasing activities; - we have the potential to acquire entities with either unknown liabilities, fraud, cultural or business environment issues or that may not have adequate internal controls as required by Section 404 of the Sarbanes-Oxley Act of 2002 or that we may not fully understand their business; - our disclosure controls and procedures and our internal controls over financial reporting may not be effective to detect all errors or to detect and deter wrongdoing, fraud or improper activities in all instances; - treating stock options and employee stock purchase plan participation as a compensation expense could significantly impair our ability to maintain profitability; and - our assessment as to the adequacy of our internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002 may cause our operating expenses to increase thus affecting our business, financial condition, cash flows or results of operations. In addition, if we are unable to certify the adequacy of our internal controls and our independent auditors are unable to attest thereto, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common stock. Our eECM model, 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, 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 our ability to: 25 - increase the total number of users of eECM services; - adapt to meet changes in our markets and competitive developments; and - continue to update our technology to enhance the features and functionality of our 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, we expect to derive more revenues from our asset management, procurement and electronic catalog content software, which is unproven. We expect to incur expenses that may negatively impact profitability. We also expect to incur significant sales and marketing, research and development, and general and administrative expenses in connection with the development of this area of our business. As a result, we may incur significant expenses, which may have a material adverse effect on our future operating results as a whole. Broad and timely acceptance of our asset management, procurement and electronic catalog content software, which is important to our 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 software applications may be needed to achieve initial widespread commercial and continued acceptance of the systems; - the pricing model may not be acceptable to customers; - if we are unable to develop and increase volume from our software applications, it is unlikely that we 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 our solution; - our ability to adapt to a new market that is characterized by rapidly changing technology, evolving industry standards, new product announcements and established competition; and - we may be unable to protect our intellectual property rights or face claims from third parties for infringement of their products or incur significant costs to protect our patents which may effect our earnings. 26 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Total number of shares purchased Maximum number Total number as part of of shares that may of shares Average publicly yet be purchased purchased price per announced plans under the plans Period (1) share or programs or programs - ------------------------------------------------------------------------------------------------------------------------- April 1, 2005 through April 30, 2005 30,000 $ 11.20 30,000 621,212 (2) May 1, 2005 through May 31, 2005 25,000 $ 11.97 25,000 557,577 (3) June 1, 2005 through June 30, 2005 - $ 12.45 - 536,342 (4) July 1, 2005 through July 31, 2005 49,300 $ 12.70 49,300 476,890 (5) August 1, 2005 through August 31, 2005 20,000 $ 12.86 20,000 450,693 (6) September 1, 2005 through September 30, 2005 46,000 $ 12.76 46,000 409,293 (7) October 1, 2005 through October 31, 2005 230,685 $ 13.27 230,685 166,335 (8) November 1, 2005 through November 17, 2005 19,051 $ 13.76 19,051 141,384 (9) November 18, 2005 through Novembeer 30, 2006 2,800 $ 14.27 2,800 873,163 (10) December 1, 2005 through December 31, 2005 24,220 $ 13.99 24,220 866,318 (11)
(1) All shares acquired were in open-market purchases. (2) The share purchase authorization in place for the month ended April 30, 2005 had purchase limitations on both the number of shares (3,000,000) as well as a total dollar cap ($12,500,000). As of April 30, 2005, the remaining authorized dollar amount to purchase shares was $6,960,058 and, based on April's average price per share of $11.204, 621,212 represents the maximum shares that may yet be purchased. (3) The share purchase authorization in place for the month ended May 31, 2005 had purchase limitations on both the number of shares (3,000,000) as well as a total dollar cap ($12,500,000). As of May 31, 2005, the remaining authorized dollar amount to purchase shares was $6,675,308 and, based on May's average price per share of $11.972, 557,577 represents the maximum shares that may yet be purchased. (4) The share purchase authorization in place for the month ended June 30, 2005 had purchase limitations on both the number of shares (3,000,000) as well as a total dollar cap ($12,500,000). As of June 30, 2005, the remaining authorized dollar amount to purchase shares was $6,675,308 and, based on June's average price per share of $12.446, 536,342 represents the maximum shares that may yet be purchased. (5) The share purchase authorization in place for the month ended July 31, 2005 had purchase limitations on both the number of shares (3,000,000) as well as a total dollar cap ($12,500,000). As of July 31, 2005, the remaining authorized dollar amount to purchase shares was $6,056,503 and, based on July's average price per share of $12.700, 476,890 represents the maximum shares that may yet be purchased. (6) The share purchase authorization in place for the month ended August 31, 2005 had purchase limitations on both the number of shares (3,000,000) as well as a total dollar cap ($12,500,000). As of August 31, 2005, the remaining authorized dollar amount to purchase shares was $5,796,808 and, based on August's average price per share of $12.862, 450,693 represents the maximum shares that may yet be purchased. (7) The share purchase authorization in place for the month ended September 30, 2005 had purchase limitations on both the number of shares (3,000,000) as well as a total dollar cap ($12,500,000). As of September 30, 2005, the remaining authorized dollar amount to purchase shares was $5,221,348 and, based on September's average price per share of $12.757, 409,293 represents the maximum shares that may yet be purchased. (8) The share purchase authorization in place for the month ended October 31, 2005 had purchase limitations on both the number of shares (3,000,000) as well as a total dollar cap ($12,500,000). As of October 31, 2005, the remaining authorized dollar amount to purchase shares was $2,207,597 and, based on October's average price per share of $13.272, 166,335 represents the maximum shares that may yet be purchased. (9) The share purchase authorization in place during the period of November 1-17, 2005 had purchase limitations on both the number of shares (3,000,000) as well as a total dollar cap ($12,500,000). As of November 17, 2005, the remaining authorized dollar amount to purchase shares was $1,945,422 and, based on this period's average price per share of $13.761, 141,384 represents the maximum shares that may yet be purchased. (10) The share purchase authorization in place beginning November 18, 2005 had purchase limitations on both the number of shares (3,000,000) as well as a total dollar cap ($12,500,000). For the period of November 18-30, 2005, the remaining authorized dollar amount to purchase shares was $12,460,034 and, based on this period's average price per share of $14.274, 873,163 represents the maximum shares that may yet be purchased. (11) The share purchase authorization in place for the month ended December 31, 2005 had purchase limitations on both the number of shares (3,000,000) as well as a total dollar cap ($12,500,000). As of December 31, 2005, the remaining authorized dollar amount to purchase shares was $12,119,788 and, based on December's average price per share of $13.990, 866,318 represents the maximum shares that may yet be purchased.
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 27 Item 6. 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 Certificate of Incorporation of the Company, filed December 31, 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). 3.5 Certificate of Amendment of Certificate of Incorporation of the Company, filed October 1, 2003 (Incorporated herein by reference to Exhibit 3.5 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2003). 3.6 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). 10.8 Amendment and Restated 1998 Long-Term Incentive Plan (Incorporated herein by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2003). 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 the Chief Executive Officer of ePlus inc. pursuant to 18 U.S.C. ss. 1350. 32.2 Statement of the Chief Financial Officer of ePlus inc. pursuant to 18 U.S.C. ss. 1350.
28 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: February 14, 2006 /s/ PHILLIP G. NORTON --------------------------------------------- By: Phillip G. Norton, Chairman of the Board, President and Chief Executive Officer Date: February 14, 2006 /s/ STEVEN J. MENCARINI --------------------------------------------- By: Steven J. Mencarini Chief Financial Officer 29 EX-31 2 f_exh31-1.txt EXHIBIT 31.1 CERTIFICATION OF CEO PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A) (SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002) I, Phillip G. Norton, President and Chief Executive Officer of ePlus inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of ePlus inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 14, 2006 /s/ PHILLIP G. NORTON ------------------------------------- Phillip G. Norton President and Chief Executive Officer EX-31 3 f_exh31-2.txt EXHIBIT 31.2 CERTIFICATION OF CFO PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A) (SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002) I, Steven J. Mencarini, Senior Vice President and Chief Financial Officer of ePlus inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of ePlus inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: February 14, 2006 /s/ STEVEN J. MENCARINI ----------------------------------- Steven J. Mencarini Chief Financial Officer EX-32 4 f_exh32-1.txt EXHIBIT 32.1 STATEMENT OF THE CHIEF EXECUTIVE OFFICER OF EPLUS INC. PURSUANT TO 18 U.S.C. ss. 1350 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002) The undersigned hereby certifies in his capacity as the principal executive officer of ePlus inc. (the "Company") that, to his knowledge, this quarterly report on Form 10-Q for the period ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (this "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 14, 2006 /s/ PHILLIP G. NORTON ------------------------------------- Phillip G. Norton President and Chief Executive Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to ePlus inc. and will be retained by ePlus inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 5 f_exh32-2.txt EXHIBIT 32.2 STATEMENT OF THE CHIEF FINANCIAL OFFICER OF EPLUS INC. PURSUANT TO 18 U.S.C. ss. 1350 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002) The undersigned hereby certifies in his capacity as the principal financial officer of ePlus inc. (the "Company") that, to his knowledge, this quarterly report on Form 10-Q for the period ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (this "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 14, 2006 /s/ STEVEN J. MENCARINI --------------------------------------- Steven J. Mencarini Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to ePlus inc. and will be retained by ePlus inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----