 |
|
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The Company's common stock has been publicly traded on the NASDAQ Stock Market since September 28, 1994 under the
symbol "TESS." The quarterly range of prices per share during fiscal years 2001 and 2002 are as follows:
|
| |
|
HIGH |
|
LOW |
|
| Fiscal 2001 |
| First Quarter |
|
$24.38 |
|
$16.38 |
| Second Quarter |
|
37.50 |
|
23.38 |
| Third Quarter |
|
26.00 |
|
18.00 |
| Fourth Quarter |
|
22.25 |
|
8.13 |
|
| Fiscal 2002 |
| First Quarter |
|
$14.38 |
|
$11.35 |
| Second Quarter |
|
16.00 |
|
10.64 |
| Third Quarter |
|
17.85 |
|
13.25 |
| Fourth Quarter |
|
18.85 |
|
13.11 |
|
As of March 31, 2002, the number of shareholders of record of the Company was 56. The Company estimates
that the number of beneficial owners as of that date was 2,600.
The Company has never declared or paid any cash dividends on its common stock and does not expect to pay
any cash dividends in the foreseeable future. The Company's revolving line of credit agreement prohibits the payment of
cash dividends without the prior written consent of the lender.
Item 6. Selected Financial Data.
|
| FISCAL YEARS ENDED |
MARCH 31, 2002 |
APRIL 1, 2001 |
MARCH 26, 2000 |
MARCH 28, 1999 |
MARCH 29, 1998 |
|
| Statement of Income Data |
|
|
|
|
|
| Revenues |
$248,915,100 |
$258,769,800 |
$196,830,300 |
$160,582,200 |
$131,658,200 |
| Costs of goods sold |
180,432,600 |
188,271,200 |
142,523,000 |
118,535,300 |
95,858,800 |
|
| Gross profit |
68,482,500 |
70,498,600 |
54,307,300 |
42,046,900 |
35,799,400 |
|
| Selling, general and administrative expenses |
60,596,500 |
59,953,000 |
44,027,400 |
42,046,900 |
35,799,400 |
| Asset impairment and restructuring charge |
-- |
-- |
-- |
831,000 |
-- |
|
| Income from operations |
7,886,000 |
10,545,600 |
10,279,900 |
4,422,400 |
6,137,200 |
| Interest and other expense, net |
1,496,100 |
2,039,100 |
1,340,300 |
1,240,800 |
712,600 |
|
| Income before provision for income taxes |
6,389,900 |
8,506,500 |
8,939,600 |
3,181,600 |
5,424,600 |
| Provision for income taxes |
2,484,000 |
3,232,500 |
3,397,000 |
1,209,200 |
2,049,000 |
|
| Net income |
$3,905,900 |
$5,274,000 |
$5,542,600 |
$1,972,400 |
$3,375,600 |
|
| Diluted earnings per share |
$0.85 |
$1.13 |
$1.20 |
$0.43 |
$0.73 |
| Diluted weighted average shares outstanding |
4,575,900 |
4,682,600 |
4,599,500 |
4,600,100 |
4,610,300 |
|
| Percentage of Revenues |
|
|
|
|
|
| Revenues |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
| Cost of goods sold |
72.5 |
72.8 |
72.4 |
73.8 |
72.8 |
|
| Gross profit |
27.5 |
27.2 |
27.6 |
26.2 |
27.2 |
|
| Selling, general and administrative expenses |
24.3 |
23.2 |
22.4 |
22.9 |
22.5 |
| Asset impairment and restructuring charge |
-- |
-- |
-- |
0.5 |
-- |
|
| Income from operations |
3.2 |
4.1 |
5.2 |
2.8 |
4.7 |
| Interest and other expense, net |
0.6 |
0.8 |
0.7 |
0.8 |
0.5 |
|
| Income before provision for income taxes |
2.6 |
3.3 |
4.5 |
2.0 |
4.1 |
| Provision for income taxes |
1.0 |
1.2 |
1.7 |
0.8 |
1.6 |
|
| Net income |
1.6% |
2.0% |
2.8% |
1.2% |
2.6% |
|
| Selected Operating Data |
|
|
|
|
|
| Average commercial buyers per month |
8,900 |
8,700 |
8,000 |
7,500 |
7,000 |
| Average consumer buyers per month |
13,600 |
15,600 |
14,100 |
12,200 |
3,700 |
| Total orders shipped |
772,000 |
760,000 |
645,000 |
426,500 |
302,000 |
| Revenues per employee |
$471,400 |
$493,800 |
$507,300 |
$462,100 |
$454,000 |
|
| Balance Data Sheet |
|
|
|
|
|
| Working capital |
$31,156,600 |
$30,826,100 |
$28,232,100 |
$23,050,700 |
$22,270,100 |
| Total assets |
100,229,300 |
87,413,500 |
84,443,100 |
63,062,400 |
59,926,900 |
| Short-term debt |
5,785,800 |
10,356,500 |
6,194,900 |
4,690,200 |
294,000 |
| Long-term debt |
6,063,400 |
6,441,200 |
6,795,800 |
7,128,700 |
7,441,400 |
| Shareholders' equity |
50,807,400 |
46,739,200 |
41,082,200 |
35,456,700 |
33,391,500 |
|
Quarterly Results of Operations
|
|
FISCAL 2002 QUARTERS ENDED |
FISCAL 2001 QUARTERS ENDED |
|
|
MAR. 31, 2002 |
DEC. 30, 2001 |
SEP. 30, 2001 |
JUL. 1, 2001 |
APR 1, 2001 |
DEC. 24, 2000 |
SEP. 24, 2000 |
JUN. 25, 2000 |
|
| Revenues |
$61,995,800 |
$65,025,100 |
$62,040,000 |
$59,894,200 |
$59,988,000 |
$69,657,200 |
$66,602,100 |
$62,522,500 |
| Cost of goods sold |
44,381,900 |
47,056,400 |
45,282,600 |
43,711,700 |
43,628,600 |
50,321,500 |
48,622,000 |
45,699,100 |
|
| Gross profit |
17,573,900 |
17,968,700 |
16,757,400 |
16,182,500 |
16,359,400 |
19,335,700 |
17,980,100 |
16,823,400 |
|
Selling, general and
administrative expenses |
15,088,700 |
15,344,000 |
14,895,500 |
15,268,300 |
15,447,300 |
16,105,800 |
14,629,700 |
13,770,200 |
|
| Income from operations |
2,485,200 |
2,624,700 |
1,861,900 |
914,200 |
912,100 |
3,229,900 |
3,350,400 |
3,053,200 |
| Interest and other expense, net |
336,500 |
339,900 |
362,400 |
457,300 |
556,800 |
519,400 |
480,900 |
482,000 |
|
Income before provision
for income taxes |
2,148,700 |
2,284,800 |
1,499,500 |
456,900 |
355,300 |
2,710,500 |
2,869,500 |
2,571,200 |
| Provision for income taxes |
796,700 |
913,900 |
599,800 |
173,600 |
135,000 |
1,030,000 |
1,090,400 |
977,100 |
|
| Net income |
$1,352,000 |
$1,370,900 |
$899,700 |
$283,300 |
$220,300 |
$1,680,500 |
$1,779,100 |
$1,594,100 |
|
| Diluted earnings per share |
$0.29 |
$0.30 |
$0.20 |
$0.06 |
$0.05 |
$0.36 |
$0.37 |
$0.34 |
|
| Percentage of Revenues |
|
|
|
|
|
|
|
|
| Revenues |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
| Cost of goods sold |
71.6 |
72.4 |
73.0 |
73.0 |
72.7 |
72.2 |
73.0 |
73.1 |
|
| Gross profit |
28.4 |
27.6 |
27.0 |
27.0 |
27.3 |
27.8 |
27.0 |
26.9 |
|
Selling, general and
administrative expenses |
24.4 |
23.6 |
24.0 |
25.5 |
25.8 |
23.1 |
22.0 |
22.0 |
|
| Income from operations |
4.0 |
4.0 |
3.0 |
1.5 |
1.5 |
4.6 |
5.0 |
4.9 |
| Interest and other expense, net |
0.5 |
0.5 |
0.6 |
0.8 |
0.9 |
0.7 |
0.7 |
0.8 |
|
Income before provision
for income taxes |
3.5 |
3.5 |
2.4 |
0.8 |
0.6 |
3.9 |
4.3 |
4.1 |
| Provision for income taxes |
1.3 |
1.4 |
1.0 |
0.3 |
0.2 |
1.5 |
1.6 |
1.6 |
|
| Net income |
2.2% |
2.1% |
1.5% |
0.5% |
0.4% |
2.4% |
2.7% |
2.5% |
|
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Fiscal 2002 Compared to Fiscal 2001
Revenues decreased by $9.9 million, or 4%, to $248.9 million in fiscal 2002 compared to $258.8 million in fiscal 2001. The overall
decrease was primarily due to a decrease in network infrastructure sales as a result of the difficulty experienced by wireless
carriers and supporting companies in financing their infrastructure needs and growth plans. Revenues from network infrastructure
and mobile devices and accessories decreased, while revenues from test and maintenance products increased. Network infrastructure,
mobile devices and accessories and test and maintenance products and services accounted for approximately 43%, 32% and 25%,
respectively, of fiscal 2002 revenue, as compared to 49%, 32% and 19%, respectively, of fiscal 2001 revenues. Revenue increases
in the dealers and resellers and international user categories were offset by decreases in systems operators and consumer
categories. The largest increase was experienced in the dealers and resellers category, while the largest decrease was in the
systems operator category. Systems operators, dealers and resellers, consumers and international users accounted for
approximately 50%, 38%, 8% and 4%, respectively, of fiscal 2002 revenues, as compared to 57%, 31%, 8% and 4%, respectively,
of fiscal 2001 revenues.
Gross profit decreased by $2.0 million, or 3%, to $68.5 million in fiscal 2002 compared to $70.5 million in
fiscal 2001. The decrease in gross profit is due to the decrease in revenues. The gross profit margin increased to 27.5% in
fiscal 2002 from 27.2% in fiscal 2001. The increase in gross profit margin was primarily attributable to a significant
increase in sales for test and maintenance products combined with a decrease in sales of network infrastructure products.
We account for inventory at the lower of cost or market, and as a result, write-offs/write-downs occur due to damage,
deterioration, obsolescence, changes in prices and other causes.
Total selling, general and administrative expenses increased by $643,500, or 1%, to $60.6 million in fiscal
2002 compared to $60.0 million in fiscal 2001. Total selling, general and administrative expenses increased as a percentage
of revenues to 24.3% in fiscal 2002, from 23.2% in fiscal 2001. This relatively nominal overall increase occurred notwithstanding
substantial increases in some specific items or categories of selling, general and administrative expenses associated with and
incurred in an effort to drive future growth. These include investments in sales and marketing personnel, facility improvements
and expansion and depreciation and amortization charges relative to information system enhancements. The increases in these
items or categories of expenses were, however, largely offset by significant decreases in fulfillment costs and corporate
support categories, including shipping charges, off-site storage facility costs, bad debt expenses and recruiting and
professional services expenses. We continually evaluate the credit worthiness of our existing customer receivable portfolio
and provide an appropriate reserve, based on this evaluation. We also evaluate the credit worthiness of prospective customers
and make decisions regarding extension of credit terms to such prospects based on this evaluation. Accordingly, we recorded a
provision for bad debts of $823,300 and $972,200 for the years ended March 31, 2002 and April 1, 2001, respectively.
As a result of the factors described above, income from operations decreased by $2.7 million, or 25%, to
$7.9 million in fiscal 2002 compared to $10.5 million in fiscal 2001. The operating income margin decreased to 3.2% in
fiscal 2002 from 4.1% in fiscal 2001.
Net interest and other expense decreased by $543,000, or 27%, to $1.5 million in fiscal 2002 compared to
$2.0 million in fiscal 2001. This decrease is due to decreased levels of borrowing under our revolving credit facility and
lower interest rates.
Income before the provision for income taxes decreased $2.1 million or 25%, to $6.4 million in fiscal 2002
compared to $8.5 million in fiscal 2001 as a result of the factors described above. The effective tax rates in fiscal 2002
and 2001 were 38.9% and 38.0%, respectively. Net income and diluted earnings per share for fiscal 2002 decreased 26% and
25%, respectively, compared to fiscal 2001.
As described in further detail below, our fiscal 2001 financial performance, as measured by revenue and
earnings per share growth, was strong for the first nine months, but weakened during the fourth quarter of fiscal 2001.
This trend continued during the first quarter of fiscal 2002, when revenues declined 4% compared to the prior year's first
quarter and earnings per share was $0.06. During the second and third quarters of fiscal 2002, we experienced sequential
growth in revenues and earnings per share. Earnings for the fourth quarter of fiscal 2002 were essentially flat compared
to the third quarter. This occurred even though revenue declined 5% sequentially, because our gross margin percentage
increased and operating expenses decreased in the fourth quarter as compared to the third quarter of fiscal 2002.
Capital markets continue to be tight, and therefore, a number of our customers, particularly those involved in building
out new or expanding or improving existing cellular or broadband systems, are experiencing difficulty in obtaining
consistent and continuing access to capital to finance their growth, and correspondingly, to finance the purchase of our
products. This difficulty affects primarily our infrastructure product category. Notwithstanding this difficulty, we
experienced only a modest decline in revenues for the 2002 fiscal year. This occurred in part because of strong demand
for mobile devices and accessories and replacement parts and because of strong sales of test and maintenance products,
as wireless infrastructures continue to age. Our modest revenue decline in this difficult environment demonstrates, we
believe, several important items: the strength of our business model; the advantage of our diverse product and
solutions offering; that we have made progress toward our ongoing goal of increasing market share; and that TESSCO
is well positioned in a difficult market.
Fiscal 2001 Compared to Fiscal 2000
Revenues increased by $61.9 million, or 31%, to $258.8 million in fiscal 2001 compared to $196.8 million in fiscal 2000.
The overall increase was primarily a result of increased unit volume due to strong market demand. Revenues from all of
our product lines increased. The largest percentage increase was experienced in the sale of test and maintenance
products. Network infrastructure, mobile devices and accessory and test and maintenance products and services accounted
for approximately 49%, 32% and 19%, respectively, of fiscal 2001 revenue, as compared to 49%, 36% and 15%, respectively,
of fiscal 2000 revenues. Revenue increases in the systems operators, dealers and resellers and consumer categories were
partially offset by a decrease in the international category. The largest increase was experienced in the dealers and
resellers category. Systems operators, dealers and resellers, consumers and international users accounted for
approximately 57%, 31%, 8% and 4%, respectively, of fiscal 2001 revenues, as compared to 56%, 30%, 8% and 6%,
respectively, of fiscal 2000 revenues.
Gross profit increased by $16.2 million, or 30%, to $70.5 million in fiscal 2001 compared to $54.3
million in fiscal 2000. The gross profit margin decreased to 27.2% in fiscal 2001 from 27.6% in fiscal 2000. The
decrease in gross profit margin was attributable to changes in product mix and increases in inventory write-offs
and write-downs. We account for inventory at the lower of cost or market, and as a result, write-offs/write-downs
occur due to damage, deterioration, obsolescence, changes in prices and other causes.
Total selling, general and administrative expenses increased by $15.9 million, or 36%, to $60.0
million in fiscal 2001 compared to $44.0 million in fiscal 2000. Total selling, general and administrative expenses
increased as a percentage of revenues to 23.2% in fiscal 2001, from 22.4% in fiscal 2000. The increase in selling,
general and administrative expenses is primarily attributable to an increased investment in personnel and order
fulfillment expense to support revenue, gross profit and order volume growth, as well as increases in depreciation
and amortization related to information systems enhancements and increased bad debt expense due to several customer
liquidity issues. We continually evaluate the credit worthiness of our existing customer receivable portfolio and
provide an appropriate reserve, based on this evaluation. Accordingly, we recorded a provision for bad debts of
$972,200 and $328,100 for the years ended April 1, 2001 and March 26, 2000, respectively.
As a result of the factors described above, income from operations increased by $265,700, or 3%,
to $10.5 million in fiscal 2001 compared to $10.3 million in fiscal 2000. The operating income margin decreased
to 4.1% in fiscal 2001 from 5.2% in fiscal 2000.
Net interest and other expense increased by $698,800, or 52%, to $2.0 million in fiscal 2001
compared to $1.3 million in fiscal 2000. This increase is due to increased levels of borrowing under our revolving
credit facility to finance capital expenditures, higher interest rates and higher credit card fees resulting from
an increased number of credit card payments received from customers.
Income before the provision for income taxes decreased $433,100, or 5%, to $8.5 million in fiscal
2001 compared to $8.9 million in fiscal 2000 as a result of the factors described above. The effective tax rate in
fiscal 2001 and 2000 was 38.0%. Net income and diluted earnings per share for fiscal 2001 decreased 5% and 6%,
respectively, compared to fiscal 2000.
At the end of the third quarter of fiscal 2001, year-to-date revenues and earnings per share were
up 41% and 20%, respectively, over the comparable periods of fiscal 2000. Then, after seven consecutive quarters of
record revenues and gross profits, our fourth quarter fiscal 2001 performance was hindered by general economic
conditions and a tightening of the capital markets. These factors combined to inhibit the ability of some of our
customers and potential customers to finance their growth plans. As a consequence, for the 2001 fiscal year,
revenues increased only 31% as compared to fiscal 2000, and net income and diluted earnings per share decreased
from $5.5 million and $1.20 to $5.3 million and $1.13, respectively. During fiscal 2001, many of our customers
began to struggle under the weight of excess inventories and supply chain costs. We believed, and continue to
believe, that our business model —particularly our ability to provide customers with real-time product
availability—will assist our customers by helping them to better deploy capital to revenue generation projects
as opposed to inventory ownership.
Liquidity and Capital Resources
Working capital increased to $31.2 million as of March 31, 2002, from $30.8 million as of April 1, 2001.
Shareholders' equity increased to $50.8 million as of March 31, 2002, from $46.7 million as of April 1, 2001.
We generated $13.7 million of net cash from operating activities in fiscal 2002 compared to
$2.9 million in fiscal 2001. The increase in operating cash flow was primarily the result of a large increase
in trade accounts payable, partially offset by increases in inventory and accounts receivable.
Capital expenditures totaled $8.4 million in fiscal 2002, primarily related to the purchase of
the Reno facility and investments in information technology, compared to $7.8 million in fiscal 2001.
We used $4.8 million of net cash from financing activities in fiscal 2002 compared to net
proceeds of $4.1 million in fiscal 2001. In fiscal 2002, our revolving line of credit balance decreased from
$10.0 million at April 1, 2001, to $5.4 million at March 31, 2002.
Our revolving credit facility with a bank provides for a maximum borrowing capacity of $30.0
million and has a term expiring in September 2003. This agreement contains certain conditions, covenants and
representations, all of which were complied with as of March 31, 2002.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of our operations are based on our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts,
slow-moving inventory, income taxes, property and equipment and intangible assets. We base our estimates on
historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We have identified the policies below as critical to our business operations and the understanding
of our results of operations. For a detailed discussion on the application of these and other accounting policies,
see the Notes to the Consolidated Financial Statements.
Revenue Recognition. We record revenue when product is shipped to the customer or when services
are provided. Other than subscriber accessory sales relating to our private brand, Wireless Solutions®, we offer
no product warranties in excess of original equipment manufacturers' warranties. Warranty expense is estimated
and accrued at the time of sale. Warranty expense was immaterial for the fiscal years 2002, 2001 and 2000.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated
losses resulting from the inability of our customers to make required payments. If the economy and/or the financial
condition of our customers were to deteriorate, resulting in an impairment of their ability to make their payments,
additional allowances may be required.
Excess and Slow-Moving Inventory. We account for inventory at the lower of cost or market, and
as a result, write-offs/write-downs occur due to damage, deterioration, obsolescence, changes in prices and other
causes.
Valuation of Goodwill, Long-Lived Assets and Intangible Assets. We periodically evaluate our
goodwill, long-lived assets and intangible assets for potential impairment indicators. Our judgments regarding the
existence of impairment indicators are based on estimated future cash flows, market conditions, operational
performance and legal factors. Future events could cause us to conclude that impairment indicators exist and that
the net book value of long-lived assets and intangible assets is impaired. Any resulting impairment loss could
have a material adverse impact on our financial condition and results of operations.
Income Taxes. We recognize deferred tax assets and liabilities based on the differences between
the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our
deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income,
projected future taxable income and the expected timing of the reversals of existing temporary differences. If
we are unable to generate sufficient taxable income, or if there is a material change in the actual effective
tax rates or time period within which the underlying temporary differences become taxable or deductible, we
could be required to establish a valuation allowance against all or a significant portion of our deferred tax
assets, resulting in a substantial increase in our effective tax rate and a material adverse impact on our
operating results.
Summary Disclosures about Contractual Obligations and Commercial Commitments
The following tables reflect a summary of our contractual cash obligations and other commercial commitments
as of March 31, 2002:
|
|
|
PAYMENT DUE BY FISCAL YEAR ENDING |
|
|
|
|
|
TOTAL |
|
2003 |
|
2004 |
|
2005 |
|
2006 AND
THEREAFTER |
|
| Commercial bank financing |
|
$6,441,200 |
|
$377,800 |
|
$4,916,800 |
|
$133,300 |
|
1,013,300 |
| Revolving credit facility |
|
5,408,000 |
|
5,408,000 |
|
-- |
|
-- |
|
-- |
| Operating leases |
|
2,184,300 |
|
530,000 |
|
540,500 |
|
551,400 |
|
562,400 |
|
| Total contractual cash obligations |
|
$14,033,500 |
|
$6,315,800 |
|
$5,457,300 |
|
$684,700 |
|
$1,575,700 |
|
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 133
"Accounting for Derivative Instruments and Hedging Activities" (FAS No. 133). FAS No. 133 establishes accounting and
reporting standards for derivative instruments and derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value
of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variability in cash
flows attributable to a particular risk, or (c) a hedge of the foreign currency exposure of a net investment on a foreign
operation, an unrecognized firm commitment, an available for sale security and a forecasted transaction. FAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133"
was issued in June 1999 and deferred the effective date of FAS No. 133 to fiscal years beginning after June 15, 2000.
FAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," was issued on June 2000
and also amends FAS No. 133. FAS No. 138 addresses a limited number of issues causing implementation difficulties.
Consequently, the Company was required to implement FAS No. 133 for all fiscal quarters for the fiscal year beginning
April 2, 2001. The Company has no derivative instruments and therefore the adoption of this pronouncement has not had
a material effect on the Company's financial statements.
In June 2001, the Financial Accounting Standards Board approved FAS No. 141, "Business Combinations"
and FAS No. 142, "Goodwill and Other Intangible Assets." FAS No. 141 prospectively prohibits the pooling of interest
method of accounting for business combinations initiated after June 30, 2001. FAS No. 142 requires companies to cease
amortizing goodwill and certain other intangible assets. FAS No. 142 also establishes a new method of testing goodwill
for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce
the fair value of a reporting unit below its carrying value. The adoption of FAS No. 142 will result in the Company's
discontinuation of amortization of its goodwill; however, the Company will be required to test its goodwill for
impairment under the new standard, which could have an adverse effect on the Company's future results of operations if
an impairment occurs. The Company has completed its initial evaluation of goodwill and intangible assets and does not
anticipate any immediate material adverse affect of this pronouncement on its financial statements. During fiscal year
2002, the Company incurred goodwill amortization of $267,500, which approximates the amount that would have been
expensed for fiscal year 2003. In accordance with the provisions of FAS No. 142, this amount will not be expensed
in fiscal year 2003. As of March 31, 2002, the Company had goodwill, net of accumulated amortization of $2,452,200.
In August 2001, FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." This statement addresses financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes FAS No. 121 and ABP Opinion No. 30. This statement retains the fundamental provisions of
Statement 121 that requires testing of long-lived assets for impairment using undiscounted cash flows; however, the
statement eliminates the requirement to allocate goodwill to these long-lived assets. The statement also requires
that long-lived assets to be disposed of by a sale must be recorded at the lower of the carrying amount or the fair
value, less the cost to sell the asset and depreciation should cease to be recorded on such assets. Any loss
resulting from the write-down of the assets will be recognized in income from continuing operations. Additionally,
long-lived assets to be disposed of other than by sale may no longer be classified as discontinued until they are
disposed of. The provisions of this statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001. The Company will apply this guidance prospectively.
Forward-Looking Statements
This Report contains a number of forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, all of which are based on current expectations. These forward-looking statements may generally
be identified by the use of the words "may," "will," "believes," "should," "expects," "anticipates," "estimates,"
and similar expressions. Our future results of operations and other forward-looking statements contained in this
report involve a number of risks and uncertainties. For a variety of reasons, actual results may differ materially
from those described in any such forward-looking statement. Such factors include, but are not limited to, the
following: our dependence on a relatively small number of suppliers and vendors, which could hamper our ability
to maintain appropriate inventory levels and meet customer demand; the effect that the loss of certain customers
or vendors could have on our net profits; economic conditions that may impact customers' ability to fund purchases
of our products and services; the possibility that unforeseen events could impair our ability to service customers
promptly and efficiently, if at all; the possibility that, for unforeseen reasons, we may be delayed in entering
into or performing, or may fail to enter into or perform, anticipated contracts or may otherwise be delayed in
realizing or fail to realize anticipated revenues or anticipated savings; existing competition from national and
regional distributors and the absence of significant barriers to entry which could result in pricing and other
pressures on profitability and market share; and continuing changes in the wireless communications industry,
including risks associated with conflicting technologies, changes in technologies, inventory obsolescence and
evolving Internet business models and the resulting competition. Consequently, the reader is cautioned to
consider all forward-looking statements in light of the risks to which they are subject.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We do not use derivative financial instruments. Management believes that exposure to market risks, including
foreign currency exchange rate risk, interest rate risk and commodity price risk, is not material at the present
time.
Item 8. Consolidated Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable
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