<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED DECEMBER 31, 1999
Commission file number: 000-23735
---------
PRECEPT BUSINESS SERVICES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2487353
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1909 Woodall Rodgers Freeway, Suite 500 75201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 754-6600
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. [X] Yes [ ] No
As of February 14, 2000, there were 9,599,780 outstanding shares of Class A
Common Stock and 592,142 outstanding shares of Class B Common Stock.
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<PAGE>
PRECEPT BUSINESS SERVICES, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Balance Sheets as of
December 31, 1999 and June 30, 1999 .............................. 3
Condensed Consolidated Statements of Operations
for the three-month and six-month periods ended
December 31, 1999 and 1998........................................ 4
Condensed Consolidated Statements of Cash Flows for the
six-month periods ended
December 31, 1999 and 1998........................................ 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity for the six-month periods
ended December 31, 1999 and 1998.................................. 6
Notes to Condensed Consolidated Financial Statements.................. 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 12
Item 3 Quantitative and Qualitative Disclosure for Market Risk............... 18
PART II OTHER INFORMATION
Item 1 Legal Proceedings..................................................... 18
Item 2 Changes in Securities and Use of Proceeds............................. 18
Item 3 Defaults Upon Senior Securities....................................... 18
Item 4 Submission of Matters to a Vote of Security Holders................... 18
Item 5 Other Information..................................................... 19
Item 6 Exhibits and Reports on Form 8-K...................................... 19
Signature............................................................. 19
</TABLE>
2
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30
1999 1999
------------ ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 380,548 $ -
Trade accounts receivable........................................... 21,732,930 19,791,669
Accounts receivable from affiliates................................. 850,252 1,053,712
Other accounts receivable........................................... 704,195 1,544,920
Inventory........................................................... 6,366,787 4,815,228
Other current assets................................................ 2,669,395 785,246
Deferred income taxes and income taxes refundable................... 2,942,836 1,734,214
--------------- ---------------
Total current assets............................................ 35,646,943 29,724,989
Property and equipment, net............................................ 11,122,871 11,009,195
Intangible assets, net................................................. 51,694,466 43,368,313
Deferred income taxes.................................................. 1,009,848 1,009,849
Other assets........................................................... 170,155 1,030,293
--------------- ---------------
Total assets.................................................... $ 99,644,283 $ 86,142,639
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.............................................. $ 10,659,762 $ 8,421,736
Accrued expenses. 2,700,341 5,611,748
Accrued compensation 1,904,056 2,124,776
Current portion of long-term debt................................... 3,822,946 3,918,733
--------------- ---------------
Total current liabilities....................................... 19,087,105 20,076,993
Long-term debt......................................................... 46,778,076 36,943,618
Mandatory redeemable convertible preferred stock....................... 3,162,600 194,400
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1.00 par value; 3,000,000 authorized shares,
none issued..................................................... - -
Class A Common Stock, $0.01 par value; 100,000,000 authorized shares
and 9,500,253 and 8,876,680 issued
shares in 2000 and 1999, respectively........................... 95,003 88,766
Class B Common Stock, $0.01 par value; 10,500,000 authorized shares
and 592,142 issued shares ...................................... 5,921 5,921
Additional paid-in capital.......................................... 39,710,876 39,717,113
Retained earnings (accumulated deficit)............................. (7,984,223) (9,673,097)
---------------- ----------------
31,827,577 30,138,703
Class A treasury stock - 148,636 shares............................. (1,211,075) (1,211,075)
---------------- ----------------
Total shareholders' equity...................................... 30,616,502 28,927,628
--------------- ---------------
Total liabilities and shareholders' equity.................. $ 99,644,283 $ 86,142,639
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months Six months
Ended Ended
December 31, December 31,
1999 1998 1999 1998
-------------- -------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Business products $ 36,867,937 $ 37,843,754 $ 70,086,963 $ 68,777,067
Transportation.............................. 7,920,398 6,992,112 16,107,016 10,876,726
------------- ------------- ------------- -------------
44,788,335 44,835,866 86,193,979 79,653,793
Costs and expenses:
Cost of goods sold.......................... 29,759,123 30,002,472 56,541,590 53,001,370
Sales commissions 4,930,531 4,900,262 9,601,226 9,179,607
Selling, general and administrative......... 6,285,169 6,698,664 12,337,632 12,178,157
Depreciation and amortization............... 1,189,712 877,025 2,582,212 1,526,940
------------- ------------- ------------- -------------
42,164,535 42,478,423 81,062,660 75,886,074
------------- ------------- ------------- -------------
Operating income............................... 2,623,800 2,357,443 5,131,319 3,767,719
Interest expense............................... 941,338 723,609 2,060,527 1,191,695
------------- ------------- ------------- -------------
Income before income taxes..................... 1,682,462 1,633,834 3,070,792 2,576,024
Income tax provision .......................... 757,169 784,144 1,381,918 1,236,492
------------- ------------- ------------- -------------
Net income..................................... $ 925,293 $ 849,690 $ 1,688,874 $ 1,339,532
============= ============= ============= =============
Basic net income (loss) per share:
Net income (loss) per share................. $ 0.09 $ 0.10 $ 0.17 $ 0.17
============= ============= ============= =============
Weighted average shares outstanding......... 9,817,871 8,458,534 9,713,072 8,057,836
Diluted net income per share:
Net income per share........................ $ 0.09 $ 0.10 $ 0.18 $ 0.17
============= ============= ============= =============
Weighted average shares outstanding......... 10,261,010 8,753,122 10,099,639 8,265,520
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended December 31,
------------------------------
1999 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from (used in) operating activities:.............................. $ (4,871,466) $ 2,254,350
Cash flows provided by (used in) investing activities:
Acquisitions of businesses, including earnout payments.................... (4,143,165) (9,192,545)
Acquisition of property and equipment, net................................ (188,667) (327,198)
Sale of assets of discontinued operations................................. - 1,115,125
------------- -------------
Net cash used in investing activities................................. (4,331,832) (8,404,618)
-------------- --------------
Cash flows provided by (used in) financing activities:
Payments on long-term debt and other long-term liabilities, net........... (127,339) (1,197,838)
Preferred stock redemption and dividend payments.......................... (154,825) -
Borrowings on revolving line of credit, net............................... 9,866,010 7,804,522
------------- -------------
Net cash provided by financing activities............................. 9,583,846 6,606,684
------------- -------------
Net change in cash and cash equivalents...................................... 380,548 456,416
Cash and cash equivalents at beginning of period............................. - 2,291,303
------------- -------------
Cash and cash equivalents at end of period................................... $ 380,548 $ 2,747,719
============= =============
Supplemental disclosure:
Cash paid for:
Interest.............................................................. $ 1,958,004 $ 1,287,896
Income taxes ......................................................... $ 650,534 $ 394,406
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
CLASS A CLASS B ADDITIONAL EARNINGS TOTAL
COMMON COMMON PAID-IN (ACCUMULATED SHAREHOLDERS'
STOCK STOCK CAPITAL DEFICIT) OTHER EQUITY
------------ ----------- ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 ... $ 68,701 $ 5,921 $ 23,515,022 $ (1,395,905) $ (191,271) $ 22,002,468
Issuance of shares to
acquire businesses .... 10,646 -- 12,533,319 -- -- 12,543,965
Net income ............... -- -- -- 1,339,532 -- 1,339,532
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 $ 79,347 $ 5,921 $ 36,048,341 $ (56,373) $ (191,271) $ 35,885,965
============ ============ ============ ============ ============ ============
Balance, June 30, 1999 ... $ 88,766 $ 5,921 $ 39,717,113 $ (9,673,097) $ (1,211,075) $ 28,927,628
Issuance of shares to
acquire businesses .... 6,237 -- (6,237) -- -- --
Net income ............... -- -- -- 1,688,874 -- 1,688,874
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 $ 95,003 $ 5,921 $ 39,710,876 $ (7,984,223) $ (1,211,075) $ 30,616,502
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BUSINESS
Precept Business Services, Inc. and its subsidiaries ("Precept" or
the "Company") primarily engage in business products distribution management
and services and, to a lesser extent, in executive chauffeured limousine,
livery and courier services. The Business Products Division arranges for the
manufacture, storage, and distribution of business forms, computer supplies,
advertising information and other related business products for medium- to
large-sized corporate customers. Precept operates from offices throughout the
United States. The Transportation Division provides chauffeured corporate
transportation, livery and courier services from locations in the tri-state
New York metropolitan, Cincinnati, Dearborn and Dallas/Fort Worth markets.
PUBLICLY TRADED COMPANY
Precept's Class A common stock trades under the Nasdaq symbol "PBSI".
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements comprise the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
PRO FORMA INFORMATION
The pro forma information included in these financial statements and
notes is unaudited.
FISCAL YEAR END AND QUARTERLY REPORTING PERIODS
The Company maintains a June 30 fiscal year end and ends its
quarterly reporting periods on September 30, December 31, and March 31,
respectively. For purposes of the Company's current report on Form 10-Q,
references to 1999 and 1998 are meant to be the three-month and six-month
reporting periods ended December 31, 1999 and 1998, respectively. References
to fiscal years 2000 and 1999 are for the fiscal year ending June 30, 2000
and the fiscal year ended June 30, 1999, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in the preparation of the
consolidated financial statements are consistent with the accounting policies
described in the Company's notes to consolidated financial statements
included in the Company's Annual Report to Shareholders and Form 10-K for the
fiscal year ended June 30, 1999.
INTERIM FINANCIAL INFORMATION
The accompanying unaudited interim financial statements and
information have been prepared in accordance with generally accepted
accounting principles for interim financial statements, accordingly, certain
information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted, although the Company believes that the disclosures
included herein are adequate to make the information presented not
misleading. These interim financial statements should be read in conjunction
with the Company's consolidated financial statements for the year ended June
30, 1999. In the opinion of management, he interim financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the Company's financial position, its
results of operations and its cash flows. Operating results for any
particular interim period are not necessarily indicative of the operating
results for a full fiscal year.
The financial information for the year ended June 30, 1999 is
derived from the Company's audited financial statements for the same year as
included in the Company's Form 10-K for fiscal year 1999.
7
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. ACQUISITIONS
During the first quarter of fiscal year 2000, Precept acquired two
business products distribution companies with combined annual revenues of
$10.6 million. These acquisitions were accounted for using the purchase
method of accounting. For each of these purchase acquisitions, the aggregate
acquisition cost was allocated to the net assets acquired based on the fair
market value of such net assets. The operating results of such companies have
been included in the Company's historical results of operations for all
periods following the acquisition. The aggregate acquisition cost for such
purchased businesses amounted to $5.5 million and consisted of $1.3 million
in cash, funded by the Company's revolving line of credit, $3.1 million in
redemption value of mandatory redeemable convertible preferred stock and $1.1
million in assumed debt and deal costs.
During the second quarter of fiscal year 1999, the Company acquired
one corporate transportation services company located in North Arlington, New
Jersey, which provides executive limousine and town car service to the
tri-state New York metropolitan area with annual revenues of $14.0 million.
This acquisition was accounted for using the purchase method of accounting.
For this purchase acquisition, the aggregate acquisition cost was allocated
to the net assets acquired based on the fair market value of such net assets.
The operating results of this company have been included in the Company's
historical results of operations for all periods following the acquisition.
The aggregate acquisition cost for this purchased business amounted to $9.0
million and consisted of $3.4 million in cash, funded by working capital and
the Company's revolving line of credit, 0.3 million shares of Class A common
stock with an aggregate fair market value of $2.9 million, and $2.7 million
in assumed debt and transaction costs.
During the first quarter of fiscal year 1999, Precept acquired four
business products distribution companies with combined annual revenues of
$34.3 million. These acquisitions were accounted for using the purchase
method of accounting. For each of these purchase acquisitions, the aggregate
acquisition cost was allocated to the net assets acquired based on the fair
market value of such net assets. The operating results of such companies have
been included in the Company's historical results of operations for all
periods following the acquisition. The aggregate acquisition cost for such
purchased businesses amounted to $18.6 million and consisted of $5.7 million
in cash, funded by working capital and the Company's revolving line of
credit, 0.7 million shares of Class A common stock with an aggregate fair
market value of $9.6 million, and $3.3 million in seller notes, assumed debt
and deal costs.
The following table summarizes the consideration for the purchase
acquisitions completed and the fair value of the assets acquired.
<TABLE>
<CAPTION>
Six months ended
December 31,
------------------------------
Purchase consideration: 1999 1998
------------- -------------
<S> <C> <C>
Cash paid..................................................... $ 1,498,000 $ 9,193,000
Amounts due sellers of acquired businesses.................... - 1,380,000
Common and preferred stock issued............................. 3,060,000 12,544,000
Liabilities assumed........................................... 1,037,000 1,777,000
Other......................................................... 51,000 151,000
------------- -------------
Fair value of net assets acquired.................................. $ 5,646,000 $ 25,045,000
============= =============
Six months ended
December 31,
------------------------------
Allocation of fair value of net assets acquired: 1999 1998
------------- -------------
Goodwill and intangible assets................................ $ 3,887,000 $ 20,771,000
Accounts receivable........................................... 1,286,000 3,939,000
Inventory and other, net...................................... 473,000 335,000
------------- -------------
$ 5,646,000 $ 25,045,000
============= =============
</TABLE>
8
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
The following table presents the pro forma results of continuing
operations as if all the acquisitions described above had occurred at the
beginning of each period presented. Pro forma adjustments reflect additional
amortization expense since the excess of acquisition cost over the fair value of
the assets acquired is amortized for a full period. Pro forma adjustments also
reflect additional interest expense due to the related debt being outstanding
for a full period. The income tax effect of the pro forma adjustments has also
been reflected. These pro forma results are presented for comparative purposes
only and do not purport to be indicative of what would have occurred had the
businesses actually been acquired as of those dates or of results which may
occur in the future.
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
--------------------------------- --------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total revenues................... $ 45,774,699 $ 46,602,869 $ 90,836,298 $ 91,916,927
Income before income taxes ...... $ 1,753,573 $ 1,982,916 $ 3,356,891 $ 3,347,352
Net income....................... $ 964,465 $ 1,090,604 $ 1,846,290 $ 1,841,044
Diluted net income per share..... $ 0.10 $ 0.11 $ 0.18 $ 0.18
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
Estimated Lives 1999 1999
--------------- ------------- -------------
<S> <C> <C> <C>
Land $ 150,000 $ 150,000
Buildings and leasehold improvements 1 to 40 years 2,188,880 2,551,888
Equipment and vehicles 3 to 5 years 15,237,011 15,383,941
Capitalized leasehold rights 3 to 5 years 1,253,411 1,368,557
------------- -------------
18,829,302 19,454,386
Accumulated depreciation and amortization.................... 7,706,431 8,445,191
------------- -------------
$ 11,122,871 $ 11,009,195
============= =============
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------- -------------
<S> <C> <C>
Goodwill..................................................... $ 56,572,554 $ 47,380,903
Other........................................................ 599,579 569,579
------------- -------------
57,172,133 47,950,482
Accumulated amortization..................................... 5,477,667 4,582,169
------------- -------------
$ 51,694,466 $ 43,368,313
============= =============
</TABLE>
The change in goodwill from June 30, 1999 to December 31, 1999 consists
of the goodwill acquired as part of the acquisition of the four business
products companies during the first six months of fiscal year 2000, $3.9
million, the finalization of the purchase price allocation for three companies
acquired since July 1, 1998, $2.4 million, and the amounts paid or incurred as
debt in order to settle future earnout obligations, $2.9 million.
9
<PAGE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------- -------------
<S> <C> <C>
Revolving line of credit..................................... $ 40,966,010 $ 31,100,000
Note payable and long-term liability to shareholder.......... 309,432 246,587
Notes payable 8,397,312 8,109,916
Capitalized lease obligations................................ 928,268 1,405,848
------------- -------------
50,601,022 40,862,351
Less current portion due within one year..................... 3,822,946 3,918,733
------------- -------------
Long-term debt............................................... $ 46,778,076 $ 36,943,618
============= =============
</TABLE>
7. MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK
As part of its acquisition of two businesses during the first quarter
of fiscal year 2000 and one acquisition during the third quarter of fiscal year
1999, the Company issued 3,200 shares of mandatory redeemable preferred stock in
three series with an aggregate initial redemption value of $3,260,000. The
preferred stock pays dividends at annual rates ranging from 6.0% to 9.0% on a
monthly and quarterly basis. The preferred stock includes a mandatory redemption
in the following annual amounts: $0.7 million in fiscal year 2000; $0.3 million
in 2001; $0.3 million in 2002; $1.8 million in 2003; and $0.1 million in 2004.
The preferred stock is generally convertible at the option of the holder at a
range of $8.00 to $30.00 for one share of Class A Common Stock.
8. SEGMENT INFORMATION
The following financial information summarizes certain financial
information about the operations of the Company as of and for the three and
six-month periods ended December 31, 1999.
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------------------ --------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating income:
Business products.................. $ 2,483,873 $ 2,425,647 $ 4,188,972 $ 5,098,693
Transportation..................... 1,128,867 1,151,074 2,342,330 1,722,311
Other.............................. (988,940) (1,219,278) (1,399,983) (3,053,285)
------------ ------------- ------------- -------------
Total operating income......... 2,623,800 2,357,443 5,131,319 3,767,719
Interest expense........................ (941,338) (723,609) (2,060,527) (1,191,695)
------------ ------------- ------------- -------------
Income before income taxes.............. $ 1,682,462 $ 1,633,834 $ 3,070,792 $ 2,576,024
============ ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Identifiable assets:
Business products................................................. $ 55,438,992 $ 52,517,901
Transportation services........................................... 41,754,928 27,582,295
Corporate......................................................... 2,450,363 6,219,810
Total identifiable assets..................................... ------------- -------------
$ 99,644,283 $ 86,320,006
============= =============
</TABLE>
10
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
8. WEIGHTED AVERAGE SHARES OUTSTANDING
The following table provides information to reconcile the basic and
diluted weighted average shares outstanding for the three-month and six-month
periods ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------------------- ----------------------------
1999 1998 1999 1998
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Basic weighted average shares outstanding:
Common shares, Class A and Class B, outstanding
at the beginning of the period.............. 9,753,895 8,122,565 9,320,186 7,393,919
Common shares used to acquire businesses during
the period.................................. 189,864 335,969 623,573 1,064,615
----------- ---------- ----------- ----------
Common shares, Class A and Class B, outstanding
at the end of the period.................... 9,943,759 8,458,534 9,943,759 8,458,534
=========== ========== =========== ==========
Weighted average number of common shares
outstanding during the period based on the
number of days outstanding (A).............. 9,817,871 8,458,534 9,713,072 8,057,836
=========== ========== =========== ==========
Diluted weighted average shares outstanding:
Common stock options:
Number of outstanding options............... 1,222,016 663,832 1,222,016 663,832
Number of options vested.................... 16,284 66,405 16,284 66,405
Number of options which would be exercised
based on average market value of
common stock during the period......... - 46,405 - 46,405
Proceeds from exercise of options...........$ - $ 68,218 $ - $ 68,218
Common shares repurchased with proceeds..... - 23,058 - 21,593
Common shares issued from exercise of
options, net (B)....................... - 23,349 - 24,814
=========== ========== =========== ==========
Warrants to purchase common stock:
Number of warrants outstanding.............. 43,096 333,930 43,096 333,930
Number of warrants which would be exercised
based on average market value of
common stock during the period......... - - - -
Net proceeds from exercise of warrants......$ - $ - $ - $ -
Common shares repurchased with proceeds..... - - - -
Common shares issued from exercise of
warrants (C)........................... - - - -
Convertible notes payable:
Face value of notes which would be converted
based on average market value of common
stock during the period................$ 1,624,000 $2,470,000 $ 1,624,000 $2,470,000
Common shares issued upon conversion (D).... 443,139 271,239 386,567 182,870
=========== ========== =========== ==========
Interest expense reduction, net of income
taxes, associated with notes which are
converted..............................$ 34,098 $ 25,700 $ 136,390 $ 36,017
=========== ========== =========== ==========
Diluted weighted average common shares
outstanding (A + B + C + D)................ 10,261,010 8,753,122 10,099,639 8,265,520
=========== ========== =========== ==========
</TABLE>
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR ANTICIPATED RESULTS.
OVERVIEW
Precept is an independent distributor of custom and stock business
products and provider of document management services ("Business Products")
to businesses in a variety of industries throughout the United States. We
were one of the first distributor companies to begin nationwide consolidation
of operating companies in the Business Products industry.
A component of our business strategy is to increase the size of our
operations through strategic acquisitions and internally generated growth. We
place substantial emphasis on improving operational and information system
capabilities while integrating acquired operations. Our operational focus
also includes continuous upgrading of management systems allowing improved
customer access to financial inventory and order status information; new
product and service offerings; preferred vendor programs incorporating volume
purchasing; regional and district management oversight; and recruiting
experienced sales individuals. We believe that these strategies will lead to
lower cost of goods and increased sales of various products and services to
existing and new customers.
We also operate corporate transportation services ("Transportation")
companies in the United States. We provide corporate town car, limousine,
livery, bus and courier services to corporate customers in the tri-state New
York metropolitan, Cincinnati, Dearborn, and Dallas/Fort Worth markets.
ACQUISITIONS
Our results of operations and the comparability of our results of
operations from period to period have been significantly affected by
businesses acquired in each period. From 1991 through the date of this
report, we completed 40 acquisitions: 24 Business Products distribution
companies and 16 Transportation companies.
In the three-month period ended September 30, 1999, the Company
completed the acquisition of two Business Products companies located in North
Carolina and one Transportation company with aggregate annual revenues of
$10.6 million. Such acquisitions were paid for with $1.3 million in cash,
financed by the Company's working capital and its revolving line of credit,
$3.1 million in mandatory redeemable convertible preferred stock and $1.1
million in assumed debt and deal costs.
In the three-month period ended December 31, 1998, the Company
acquired one Transportation company located in North Arlington, New Jersey,
which provides executive limousine and town car service to the tri-state New
York metropolitan area with annual revenues of $14.0 million. This
acquisition was paid for with $3.4 million in cash, financed by the Company's
revolving line of credit, $3.0 million in fair market value of 336,000 shares
of Class A common stock, and $2.6 million in assumed debt.
In the three-month period ended September 30, 1998, the Company
completed the acquisitions of four Business Products companies located in
Salt Lake City, Utah; Houston, Texas; Bangor, Maine; and Florence, South
Carolina with combined annual revenues of $34.3 million. Such acquisitions
were paid for with an aggregate of $5.7 million in cash, financed by the
Company's working capital and revolving line of credit, $1.4 million in
seller notes, 0.7 million shares of Class A common stock with a fair market
value of $9.6 million, and $1.9 million in assumed debt and deal costs.
12
<PAGE>
PURCHASE ACCOUNTING EFFECTS
The Company's acquisitions have been primarily accounted for using
the purchase accounting method. The results of operations of the acquired
companies have been included in our results of operations from the dates of
acquisition. The acquisitions have currently affected, and will prospectively
affect, the Company's results of operations in certain significant respects.
The Company's revenues and operating expenses will be directly affected by
the timing of the acquisitions. The aggregate acquisition costs, including
assumption of debt, are allocated to the net assets acquired based on the
fair market value of such net assets. The allocation of the purchase price
results in an increase in the historical book value of certain assets,
including property and equipment, and will generally result in the allocation
of a portion of the purchase price to goodwill, which results in incremental
annual and quarterly amortization expense.
RESULTS OF OPERATIONS
The following table sets forth various items from operations as a
percentage of revenues for the three-month and six-month periods ended
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Business Products............................................ 82.3% 84.4% 81.3% 86.3%
Transportation............................................... 17.7% 15.6% 18.7% 13.7%
------- ------- ------- -------
100.0% 100.0% 100.0% 100.0%
------- ------- ------- -------
Costs and operating expenses:
Cost of goods sold........................................... 66.4% 66.9% 65.6% 66.5%
Sales commissions............................................ 11.0% 10.9% 11.1% 11.5%
Selling, general and administrative.......................... 14.0% 14.9% 14.3% 15.3%
Depreciation and amortization................................ 2.7% 2.0% 3.0% 1.9%
------- ------- ------- -------
94.1% 94.7% 94.0% 95.2%
------- ------- ------- -------
Operating income.................................................. 5.9% 5.3% 6.0% 4.8%
Interest expense.................................................. 2.1% 1.7% 2.4% 1.5%
------- ------- ------- -------
Income before income taxes........................................ 3.8% 3.6% 3.6% 3.3%
Income tax provision.............................................. 1.7% 1.7% 1.6% 1.6%
------- ------- ------- -------
Net income........................................................ 2.1% 1.9% 2.0% 1.7%
======= ======= ======= =======
</TABLE>
FISCAL YEAR END AND QUARTERLY REPORTING PERIODS
The Company maintains a June 30 fiscal year end and ends its
quarterly reporting periods on September 30, December 31, and March 31,
respectively. For purposes of the Company's current report on Form 10-Q,
references to 1999 and 1998 are meant to be the three-month and six-month
reporting periods ended December 31, 1999 and 1998, respectively. References
to fiscal years 2000 and 1999 are for the fiscal year ending June 30, 2000
and the fiscal year ended June 30, 1999, respectively.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1998
REVENUE for 1999 amounted to $44.8 million, a slight 0.1% decrease
from 1998. Business Products revenue decreased by $0.9 million, or 2.6%, from
$37.8 million in 1998 to $36.9 million in 1999. During the second quarter of
fiscal year 2000, Business Products revenue increased from internal growth by
$1.1 million or 3.3%. In addition, Business Products revenue increased by
$2.8 million due to the effect of one company acquired during the first
quarter of fiscal year 2000. The Business Products internal growth rate
excludes the effect of $4.9 million of lost revenue from MBF Corporation.
Transportation revenue in 1999 increased by $0.9 million, or 13.3%, from $7.0
million in 1998 to $7.9 million in 1999. Revenues from companies acquired
since January 1, 1999 generated $2.2 million of the increase. Revenue from
existing
13
<PAGE>
operations declined by $1.3 million due in part to the non-renewal of the
Ford bus service contract after June 30, 1999 and in part to lower volume of
town car and limousine rides by the division's operations in the tri-state
New York metropolitan market.
COST OF GOODS SOLD during 1999 decreased by $0.2 million, or 0.8%,
from $30.0 million to $29.8 million. Cost of goods sold for Business Products
during 1999 decreased by $1.1 million, or 4.3%, from $25.9 million in 1998 to
$24.8 million in 1999. In dollar amounts, such change was due to the effects
of the companies acquired - $1.9 million, the effect of the lost cost of
goods sold from MBF - $3.3 million and internal growth of the Company - $0.3
million. As a percentage of revenue, cost of goods sold improved from 68.4%
in 1998 to 67.2% in 1999 due primarily to the effects of changes in product
mix and vendor pricing for the existing operations of the Company that
contributed 1.4% of the change. The effect of cost of goods sold from
companies acquired was offset by the effect of the lost cost of goods sold
from MBF. Cost of goods sold for Transportation increased by $0.9 million, or
21.4%, from $4.1 million in 1998 to $5.0 million in 1999. Cost of goods sold
for companies acquired since January 1, 1999 contributed $1.3 million to this
increase. Cost of goods sold for existing operations declined by $0.4 million
due to cost reduction and control efforts. As a percentage of revenue, cost
of goods sold for Transportation amounted to 63.0% in 1999 versus 58.8%
during 1998. This increase is primarily due to higher fuel and labor costs
during 1999.
SALES COMMISSIONS for 1999 remained relatively flat from 1998 to 1999
at $4.9 million. As a percentage of revenue, sales commissions increased
slightly from 10.9% in 1998 to 11.0% in 1999. Sales commissions for Business
Products increased from 12.9% to 13.3% of Business Products revenue due
primarily to the higher dollar amount of commissions paid to existing
salespersons due to improved gross profit levels.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE for 1999 decreased by
$0.4 million, or 6.2%, from $6.7 million in 1998 to $6.3 million in 1999. As
a percentage of revenue, such expense decreased from 14.9% in 1998 to 14.0%
in 1999. The Company reduced its selling, general and administrative expense
from existing operations by $0.6 million due to integration and cost control
efforts. Increased selling, general and administrative expenses of $0.9
million from companies acquired were offset by $0.7 million of expenses from
MBF that did not recur.
DEPRECIATION AND AMORTIZATION EXPENSE increased $0.3 million in 1999
from $0.9 million in 1998 to $1.2 million in 1999 due largely to the size and
timing of the companies acquired since October 1, 1998.
INTEREST EXPENSE increased by $0.2 million or 30.1% during 1999, from
$0.7 million in 1998 to $0.9 million in 1999 principally due to additional
debt incurred by us in fiscal years 1999 and 2000 to finance our business
acquisitions and changes in working capital.
INCOME TAXES are provided for at a 45.0% effective rate in 1999
versus a 48.0% effective rate in 1998. The change in the effective income tax
rate is primarily due to the results of integration efforts as various
subsidiaries have been merged.
NET INCOME increased by $0.1 million, or 8.9% in 1999, from $0.8
million in 1998 to $0.9 million in 1999 due to the improved operating results
described and partially offset by increased amortization and interest
expense. Diluted earnings per share from continuing operations decreased
$0.01, or 10%, from $0.10 in 1998 to $0.09 in 1999 due to the 17.2% increase
in the number of diluted weighted average shares outstanding.
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1998
REVENUE for 1999 increased by $6.5 million, or 8.2%, from $79.7
million in 1998 to $86.2 million in 1999. Business Products revenue in 1999
increased by $1.3 million, or 1.9%, from $68.8 million in 1998 to $70.1
million in 1999. During the first six months of fiscal year 2000, Business
Products revenue increased from internal growth by $2.5 million or 4.3%. In
addition, revenue increased by $8.6 million due to the effect of two
companies acquired during the first quarter of fiscal year 2000 and four
companies
14
<PAGE>
acquired during the first quarter of fiscal year 1999. The internal growth
rate excludes the effect of $9.8 million of lost revenue from MBF
Corporation. Transportation revenue in 1999 increased by $5.2 million, or
48.1%, from $10.9 million in 1998 to $16.1 million in 1999. Revenue from
companies acquired since July 1, 1998 accounted for $4.4 million of the
increase. Existing operations grew by 7.2% or $0.8 million in 1999 as
compared to 1998.
COST OF GOODS SOLD for 1999 increased by $3.5 million, or 6.7%, from
$53.0 million in 1998 to $56.5 million in 1999. Cost of goods sold for
Business Products for 1999 increased by $0.3 million, or 0.6%, from $46.6
million in 1998 to $46.9 million in 1999. In dollar amounts, such change was
due to the effects of the companies acquired - $5.8 million, the effect of
the lost cost of goods sold from MBF - $6.6 million and internal growth of
the Company -$1.1 million. As a percentage of revenue, cost of goods sold
improved from 67.7% in 1998 to 66.9% in 1999 due primarily to the effects of
changes in product mix and vendor pricing for the existing operations of the
Company that contributed 1.1% of the change. The effect of cost of goods sold
from companies acquired was offset by the effect of the lost cost of goods
sold from MBF. Cost of goods sold in 1999 for Transportation increased by
$3.3 million, or 51.0%, from $6.4 million in 1998 to $9.7 million in 1999.
Companies acquired since July 1, 1998 accounted for $2.5 million of this
increase while the cost of goods sold from existing operations increased by
$0.8 million due to increases in the volume of rides. As a percentage of
revenue, cost of goods sold for Transportation in 1999 amounted to 60.1% as
compared to 59.0% in 1998. This increase is due primarily to increases in
fuel and labor costs during 1999.
SALES COMMISSIONS for 1999 increased by $0.4 million, or 4.6%, from
$9.2 million in 1998 to $9.6 million in 1999. As a percentage of revenue,
sales commissions decreased slightly from 11.5% in 1998 to 11.1% in 1999. The
overall percentage decrease is due to the proportionately higher level of
Transportation revenue to consolidated revenue. As a percentage of Business
Products revenue, sales commissions for the Business Products Division
increased from 13.3% in 1998 to 13.6% in 1999 due primarily to the higher
dollar amount of commissions paid to existing salespersons due to improved
gross profit levels.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE increased by $0.1
million, or 1.3%, in 1999 from $12.2 million in 1998 to $12.3 million in
1999. Increased selling, general and administrative expenses of $2.0 million
from companies acquired were offset by $1.5 million of expenses from MBF that
did not recur. As a percentage of revenue, selling, general and
administrative expenses have decreased from 15.3% in 1998 to 14.3% in 1999.
This percentage decrease reflects the results of the Company's continued
integration and cost control efforts.
DEPRECIATION AND AMORTIZATION EXPENSE increased $1.1 million in 1999
from $1.5 million in 1998 to $2.6 million in 1999 due largely to the size and
timing of the companies acquired since July 1, 1998.
INTEREST EXPENSE increased by $0.9 million or 72.9% during 1999, from
$1.2 million in 1998 to $2.1 million in 1999 principally due to additional
debt incurred by us in fiscal years 1999 and 2000 to finance our business
acquisitions.
INCOME TAXES are provided for at a 45.0% effective rate in 1999
versus a 48.0% effective rate in 1998. The change in the effective income tax
rate is primarily due to the results of integration efforts as various
subsidiaries have been merged.
NET INCOME increased by $0.4 million, or 26.1% in 1999, from $1.3
million in 1998 to $1.7 million in 1999 due to the improved operating results
described and partially offset by increased amortization and interest
expense. Diluted earnings per share from continuing operations increased
$0.01 from $0.17 in 1998 to $0.18 in 1999 as the increase in net income, when
combined with the interest savings from the assumed conversion of notes
payable, offsets the increase in the number of diluted weighted average
shares outstanding.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
NET CASH FLOWS FROM OPERATING ACTIVITIES. In the first six months of
fiscal year 2000, the Company used $4.9 million of cash for operating needs
as compared to cash provided of $2.3 million in the first three months of
fiscal year 1999. This change is primarily due to an increase in working
capital at December 31, 1999 as compared to December 31, 1998. Such increase
is primarily the result of increases in trade accounts receivable of $3.0
million due to increased revenue and a reduction in accrued expenses of $5.0
million due to payments of liabilities of companies acquired since July 1,
1998. During the first six months of fiscal year 1999, the Company generated
$2.3 million from operating activities due primarily to the results of
operations and to a reduction in its working capital investment.
NET CASH FLOWS FROM INVESTING ACTIVITIES. During the first six
months of fiscal year 2000, Precept used $4.3 million in cash for investing
activities as compared to a use of $8.4 million for investing activities in
the first six months of fiscal year 1999. During 2000, the Company acquired
four Business Products distribution companies and one Transportation company
using $1.5 million. In addition, the Company used $2.6 million in cash as
consideration for contingent obligations relating to businesses previously
acquired, primarily payments to settle future earnout obligations. The
Company also acquired $0.2 million of equipment, net of disposals, primarily
vehicles for Transportation. During the first six months of 1999, the Company
acquired four Business Products distribution businesses and one
Transportation company for $9.2 million in cash and acquired $0.3 million of
equipment. In addition, the Company sold its net assets from discontinued
operations for $1.1 million.
NET CASH FLOWS FROM FINANCING ACTIVITIES. In the first six months of
fiscal year 2000, $9.6 million of cash was generated by financing activities
as compared to $6.6 million of cash generated by financing activities in the
first six months of fiscal year 1999. During the first six months of 2000,
Precept increased its outstanding revolving line of credit balance by
approximately $9.9 million, primarily to finance acquisitions, service
existing debt and provide cash to fund operating cash flow needs. In
addition, the Company paid $0.2 million for preferred stock redemption and
dividends and $0.1 million for net payments on its other long-term debt.
During the first six months of 1999, the Company decreased its long-term debt
and capital lease obligations by $1.2 million and increased its outstanding
revolving line of credit balance by $7.8 million to fund acquisitions.
During the quarter ended December 31, 1999, the Company's banking
group increased the amount available under the Company's line of credit by
$1.3 million to a total amount available of $41.3 million. In addition, the
maximum amount of debt allowed under the credit agreement was modified to be
no higher than three and a half times the trailing twelve months pro forma
EBITDA (earnings before interest expense, income taxes, depreciation and
amortization).
Management believes that the current levels of operations and the
cash flow from such operations and the amount available for borrowing under
the existing revolving line of credit agreement of $0.7 million at February
11, 2000 will be adequate for fiscal year 2000 to make required payments of
principal and interest on the Company's indebtedness, to fund anticipated
capital expenditures of approximately $1.5 million for the remainder of
fiscal year 2000, and to meet working capital needs.
OTHER
INFLATION
Certain of Precept's Business Products offerings, particularly paper
products, have been and are expected to continue to be subject to significant
price fluctuations due to inflationary and other market conditions. In the
last five to ten years, the prices for commodity grades of paper have shown
considerable volatility. Precept generally is able to pass such increased
costs on to its customers through price increases, although it may not be
able to adjust its prices immediately. Significant increases in paper and
other costs in the future could materially affect Precept's profitability if
these costs cannot be passed on to customers. In addition, Precept
Transportation division's operating results may be affected by increases in
the prices of
16
<PAGE>
fuel if the division is not able to pass along such increases to its
customers on a timely basis. In general, Precept does not believe that
inflation has had a material effect on its results of operations in recent
years. However, there can be no assurance that Precept's business will not be
affected by inflation, the price of paper or the price of fuel in the future.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a results of these planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000
date change. The Company is not aware of any material problems resulting form
Year 2000 issues, either with its services and products, its internal
systems, or the products and services of third parties. The Company will
continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout the Year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, that is effective for reporting periods
beginning after June 15, 1999. As this statement requires only additional
disclosures or does not cover matters relating to Precept, it will have no
effect on Precept's financial position, results of operations or cash flows.
Precept intends to adopt the disclosure requirements of this standard during
its fiscal year ended June 30, 2000.
FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statement in this
Form 10-Q to make applicable and take advantage of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 for any
forward-looking statements made by, or on behalf of, the Company. This
section should be read in conjunction with the "Risk Factors Affecting the
Company's Prospects" located in Item I of the Company annual report on Form
10-K for the year ended June 30, 1999. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements which are other
than statements of historical facts. From time to time, the Company may
publish or otherwise make available forward-looking statements of this
nature. All such subsequent forward-looking statements, whether written or
oral and whether made by or on behalf of the Company, are also expressly
qualified by these cautionary statements. Certain statements contained herein
are forward-looking statements and accordingly involve risks and
uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. The
forward-looking statements contained herein are based on various assumptions,
many of which are based, in turn, upon further assumptions. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third
parties, but there can be no assurance that management's expectations,
beliefs or projections will result or be achieved or accomplished. In
addition to the other factors and matters discussed elsewhere herein, the
following are important factors that, in the view of the Company, could cause
actual results to differ materially from those discussed in the
forward-looking statements.
1. Changes in economic conditions, in particular those that affect the end
users of business products and transportation services, primarily
corporations.
2. Changes in the availability and/or price of paper, in particular if
increases in the price of paper are not passed along to the Company's
customers.
3. Changes in executive and senior management or control of the Company.
4. Inability to obtain new customers or retain existing customers and
contracts.
5. Significant changes in the composition of the Company's sales force.
17
<PAGE>
6. Significant changes in competitive factors, including product-pricing
conditions, affecting the company.
7. Governmental and regulatory actions and initiatives, including those
affecting financing.
8. Significant changes from expectations in operating expenses.
9. Occurrences affecting the Company's ability to obtain funds from
operations, debt, or equity to finance needed capital acquisitions and
other investments.
10. Significant changes in rates of interest, inflation, or taxes.
11. Significant changes in the Company's relationship with its employees
and the potential adverse effects if labor disputes or grievances were
to occur.
12. Changes in accounting principles and/or the application of such
principles to the Company.
13. Vendors and customers inability to address year 2000 issues on a
timely basis.
The foregoing factors could affect the Company's actual results and
could cause the Company's actual results during fiscal year 2000 and beyond
to be materially different from any anticipated results expressed in any
forward-looking statement made by or on behalf of the Company.
The Company disclaims any obligation to update any forward-looking
statements to reflect events or other circumstances after the date of this
report on Form 10-Q.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE FOR MARKET RISK
The principal market risk (i.e. the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is
interest rates on its debt. At February 11, 2000, we had $40.6 million of
debt outstanding under our revolving line of credit which provides for
interest to be charged at the prime rate or at a LIBOR rate plus a margin of
2.75%. Based on that level of outstanding revolving line of credit, a 1.0%
change in interest rate would result in a $0.4 million annual change in
interest expense. The remainder of our debt is at fixed interest rates that
are not subject to changes in interest rates. We do not own nor are we
obligated for other significant debt or equity securities that would be
affected by fluctuations in market risk. The Company does not hold or issue
derivative financial instruments for speculation or trading purposes.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
There have been no significant changes to ongoing litigation matters
during the quarter ended December 31, 1999.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
As of December 31, 1999, there were no changes in securities and use
of proceeds.
ITEM 3 DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
As of December 31, 1999, the Company was not in default of any of
its debt or equity securities.
ITEM 4 RESULTS OF VOTES OF HOLDERS
The Company's annual shareholder meeting was held in Dallas, Texas
on November 3, 1999. At such meeting, the following proposals were voted upon
and approved by the Company's shareholders. The Class B shareholder voted all
592,142 shares in favor of all four proposals.
18
<PAGE>
<TABLE>
<CAPTION>
Class A and B Common Shares Voted
Proposal Description ---------------------------------
- -------- ----------- Broker Non-
Votes/Withheld/
For Against Abstained
---------- -------- ---------------
<S> <C> <C> <C>
1. Election of the following directors:
Robert N. Bazinet 10,044,490 11,986
J.D. Greco 9,867,442 189,034
Peter H. Trembath 10,038,658 17,818
2. Amendments to the Company's 1998 Stock Incentive
Plan. 7,842,820 193,506 2,020,150
3. Ratification of Ernst & Young LLP as
independent auditors for the fiscal year
ending June 30, 2000. 10,043,466 5,105 7,905
</TABLE>
ITEM 5 OTHER INFORMATION
There is no other significant information that the Company believes
should be disclosed in this report other than the information that is
presented herein and by exhibit.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
ITEM 6(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
27.1 Financial Data Schedule (1)
(1) Included as an exhibit to this report.
ITEM 6(b) REPORTS ON FORM 8-K FILED DURING THE PERIOD FROM OCTOBER 1,
1999 THROUGH FEBRUARY 14, 2000
The Company has not filed any reports on Form 8-K for the period
from October 1, 1999 through February 14, 2000.
SIGNATURE
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, as of February 14, 2000.
PRECEPT BUSINESS SERVICES, INC.
/s/ William W. Solomon, Jr.
- ---------------------------
William W. Solomon, Jr.
Executive Vice President and Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 380,548
<SECURITIES> 0
<RECEIVABLES> 21,732,930<F1>
<ALLOWANCES> 722,000
<INVENTORY> 6,366,787
<CURRENT-ASSETS> 35,646,943
<PP&E> 11,122,871
<DEPRECIATION> 7,706,431
<TOTAL-ASSETS> 99,644,283
<CURRENT-LIABILITIES> 19,087,105
<BONDS> 0
3,162,600
0
<COMMON> 100,924
<OTHER-SE> 30,515,578<F2>
<TOTAL-LIABILITY-AND-EQUITY> 99,644,283
<SALES> 44,788,335
<TOTAL-REVENUES> 44,788,335
<CGS> 29,759,123
<TOTAL-COSTS> 42,164,535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,623,800
<INCOME-PRETAX> 1,682,462
<INCOME-TAX> 757,169
<INCOME-CONTINUING> 925,293
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 925,293
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
<FN>
<F1>Amount represents net accounts receivable.
<F2>Amount includes additional paid-in capital, retained earnings, and treasury
stock.
</FN>
</TABLE>
