UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Six Months Ended June 26, 1999
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: 001-14753_
INTERNATIONAL SMART SOURCING, INC.
(Exact Name of Small Business Issuer as specified in its charter)
Delaware 11-3423157
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
320 Broad Hollow Road
Farmingdale, NY 11735
(Address of principal executive offices)
(516) 293-0750
(Issuer's telephone number)
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 _____
As of July 20, 1999, the Registrant had 3,382,500 shares of its Common
Stock, $0.001 par value, issued and outstanding.
<PAGE>
INTERNATIONAL SMART SOURCING, INC.
FORM 10-QSB
JUNE 26, 1999
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Financial Statements 4-5
Item 2 - Management's Discussion and Analysis or
Plan of Operation 6-7
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 8
Item 2 - Changes in Securities and Use of Proceeds 8
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 10
SIGNATURE 11
Exhibits 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 26, 1999
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $4,039,434
Accounts Receivable 437,139
Accounts Receivable - Related Party 532,233
Inventory 786,054
Prepaid Expenses 136,593
TOTAL CURRENT ASSETS 5,931,453
---------
Property and Equipment (net) 664,032
Goodwill 1,651,254
License Agreement 474,998
Other Assets 68,578
-----------
TOTAL ASSETS $8,790,315
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $405,169
Current portion of long term debt 1,242,582
Current portion of obligations under capital lease 62,086
---------
TOTAL CURRENT LIABILITIES 1,709,837
Long term debt 421,270
Obligations under capital lease 82,380
----------
TOTAL LIABILITIES $2,213,487
-----------
STOCKHOLDERS' EQUITY
Common Stock, $0.001 par value, authorized 10,000,000
shares, issued and outstanding 3,382,500 3,383
Additional Paid-in Capital 6,909,134
Deficit (335,689)
---------
TOTAL STOCKHOLDERS' EQUITY 6,576,828
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,790,315
============
See Notes to Financial Statements
1
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
June 26, 1999 June 27, 1998 June 26, 1999 June 27, 1998
<S> <C> <C> <C> <C>
NET SALES $1,119,176 $1,509,063 $2,452,367 $2,947,506
---------- --------- --------- ---------
COST OF GOODS SOLD 777,627 970,320 1,650,215 1,871,952
--------- --------- --------- ---------
GROSS PROFIT 341,549 538,743 802,152 1,075,554
OPERATING EXPENSES
Selling and Shipping 115,092 114,489 219,841 251,335
General and Administrative 619,878 276,635 1,009,521 572,599
-------- --------- --------- ---------
TOTAL OPERATING EXPENSES 734,970 391,124 1,229,362 823,934
-------- --------- --------- ---------
INCOME (LOSS) BEFORE INTEREST INCOME AND EXPENSE (393,421) 147,619 (427,210) 251,620
INTEREST & OTHER INCOME 69,586 0 69,586 0
INTEREST EXPENSE 53,863 49,789 111,580 100,043
-------- -------- -------- --------
NET INCOME (LOSS) (377,698) 97,830 (469,204) 151,577
=========== =========== ========== =========
NET INCOME (LOSS) PER SHARE - BASIC $ (0.13) $ 0.07 $ (0.19) $ 0.10
========== =========== ========== =========
AND ASSUMING DILUTION
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,917,225 1,500,000 2,431,100 1,500,000
=========== =========== ========== ==========
</TABLE>
See Notes to Financial Statements
2
<PAGE>
INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE SIX MONTHS ENDED
June 26, 1999 June 27, 1998
Cash Flows from Operating Activities
Net Income (Loss) ($469,204) $151,577
---------- --------
Adjustments to Reconcile Net Income (Loss) to Net Cash
used in operating activities:
Depreciation 140,983 129,309
Amortization 111,900 0
Changes in Assets and Liabilities:
Decrease in Accounts Receivable 74,383 101,141
Decrease in Accounts Receivable from Related Parties 102,828 0
(Increase) Decrease in Inventory (1,054) (43,906)
(Increase) Decrease in Prepaid Expenses 26,962 (56,545)
(Increase) Decrease in Other Assets 5,242 (474,574)
Increase (Decrease) In Accounts Payable and Accrued Expenses (568,519) 172,357
---------- ---------
Total Adjustments (107,275) (172,218)
---------- ---------
Cash Used in Operating Activities (576,479) (20,641)
---------- ---------
Cash Flows from Investing Activities:
Expenditures for Property and Equipment (212,295) (110,049)
--------- ---------
Net Cash Used in Investing Activities (212,295) (110,049)
--------- ---------
Cash Flows from Financing Activities:
Net Proceeds from Issuance of Stock 5,116,908 0
Distributions 0 (45,000)
Proceeds from Loans 231,080 159,000
Payments on Loans (535,926) (175,297)
---------- ---------
Net Cash Provided By (Used) in Financing Activities 4,812,062 (61,297)
---------- ---------
Net Increase (Decrease) in Cash 4,023,288 (191,987)
Cash - Beginning of Period 16,146 351,740
---------- ---------
Cash - End of Period $4,039,434 $159,753
============== ==============
See Notes to Financial Statements
3
</TABLE>
<PAGE>
INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 26, 1999
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial statements and with the instructions to Form
10-QSB and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and disclosures required for annual
financial statements. These financial statements should be read in
conjunction with the consolidated financial statements and related
footnotes for the year ended December 26, 1998 included in the
Company's registration statement on Form SB-2.
In the opinion of the Company's management, all adjustments (consisting
of normal recurring accruals) necessary to present fairly the Company's
financial position as of June 26, 1999 and the results of operations
and cash flows for the six - month periods ended June 26, 1999 and June
27, 1998 have been included.
The results of operations for the three and six-month period ended June
26, 1999, are not necessarily indicative of the results to be expected
for the full year ended December 26, 1999. Certain prior year amounts
have been reclassified to conform with the current year's presentation.
INITIAL PUBLIC OFFERING
On April 23, 1999 the Company offered for sale to the public 1,250,000
shares of its common stock at $4.50 per share and 1,250,000 redeemable
common stock purchase warrants at $0.10 to purchase one share of common
stock at $5 per share. The Company received approximately $4,300,000 of
net proceeds from the initial public offering.
On June 10, 1999 the Underwriter exercised its option to purchase
187,500 additional shares of the Company's common stock and 187,500
redeemable common stock purchase warrants on the same terms and
conditions as set forth above, solely for the purpose of covering
over-allotments, if any. The Company received approximately $750,000 of
net proceeds from this transaction.
4
<PAGE>
1 NOTES PAYABLE OFFICERS
During the second quarter of 1999, the Officers' were repaid $455,000
from the proceeds of the offering. These repayments represent short-term loans
made to the Company prior to the Offering.
5
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
General
International Smart Sourcing, Inc. (together with its wholly-owned subsidiaries
Electronic Hardware Corp. and Compact Disc Packaging Corp. the "Company") was
formed for the purpose of developing or acquiring domestically manufactured
injection molded plastic products or assemblies, redesigning the products to
improve function and appearance and by using its relationships with vendors in
China, to manufacture the products offshore in order to deliver them at lower
prices and improved profit margins. Electronic Hardware Corporation ("EHC"), the
Company's principal subsidiary, has over 28 years of experience in the design,
marketing and manufacture of injection molded plastic components used in
industrial, consumer and military products. The Company believes that its
long-term experience in the manufacture and assembly of injection molded plastic
components, coupled with direct access to manufacturing facilities in China,
will enable the Company to provide improved products at lower prices with
improved profit margins.
The Company, through Compact Disc Packaging Corp. (CDP), a wholly-owned
subsidiary, has entered into an exclusive international licensing agreement to
manufacture, market, sell and sub-license the Pull Pack TM, a proprietary Disc
packaging system. The Pull Pack TM is a redesigned " Jewel Box", the packaging
currently used for Compact Discs, CD-ROMs and DVD.
Results of Operations
For the three and six months ended June 26, 1999 compared to the three and six
months ended June 27, 1998
Net Sales
Net Sales for the three and six-month periods ended June 26, 1999 were $
1,119,176 and
$ 2,452,367, respectively, as compared to net sales of $ 1,509,063 and
$ 2,947,506, respectively, for the three and six-month periods ended June 27,
1998. The decrease of $ 389,887 or 26% for the three-month period and $ 495,139
or 17% for the six-month period were attributed to generally lower industry
bookings and a major customer extending deliveries on purchase orders until
their inventory is reduced.
Gross Profits
The Company realized an overall gross profit margin percentage for the three and
six-month periods ended June 26, 1999 of 31 % and 33 %, respectively, which
represents a decrease from the 36 % experienced during the three and six-months
ended June 27, 1998. This decrease can be attributed to the increased sales of
molded plastic components which have a lower gross profit than products which
are molded and have value-added operations.
6
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three and six-months ended
June 26, 1999 were $ 734,970 and $ 1,229,362, respectively, as compared to
$391,124 and $ 823,934 respectively for the three and six-month period ended
June 27, 1998. The increase of $ 343,846 or 88 % for the three month period
and $405,428 or 49% for the six- month period are primarily attributable
to $109,000 used for promotional activities for CDP, $48,000 for legal and
accounting fees, $30,000 for CDP reimbursement of expenses incurred in obtaining
a patent, $19,000 for travel to China to review and support the manufacturing
and engineering facilities, $17,000 in costs associated with being a public
company, $11,000 in consulting for selecting and qualifying manufacturers in
China, $8,000 on new office staff to support ISSI and CDP and $5,000 on
Directors and Officers Insurance. Additionally, there was an increase in
engineering consulting fees for new products designed by EHC to compliment the
knob line.
Liquidity and Capital Resources
The Company's liquidity needs arise from working capital requirements, capital
expenditures and principal and interest payments. Historically, the Company's
primary source of liquidity has been cash flow generated internally from
operations, supplemented by bank borrowings and long term equipment financing.
The Company's cash increased to $ 4,039,434 on June 26, 1999 from $ 16,146 on
December 26, 1998. Cash flow used in operating activities was $ 576,479 for the
six months ended June 26, 1999 on a net loss of $ 469,204. The decrease in
accounts receivable is the result of decreased volume of business. Working
capital was used to reduce accounts payable to an acceptable level.
Cash used in investing activities for the six months ended June 26, 1999 and
June 27, 1998 was
$ 212,295 and $ 110,049 respectively, which consisted of cash for the purchase
of tooling, molds, machinery and equipment.
Net cash provided by financing activities for the six months ended June 26, 1999
was $ 4,812,062 Cash of $ 231,080 was provided from borrowings on available
credit lines, which was offset by principal payments on loans of $ 535,926.
On April 23, 1999 the Company offered for sale to the public 1,250,000 shares of
its common stock at $ 4.50 per share and 1,250,000 redeemable common stock
purchase warrants at $0.10 to purchase one share of common stock at $ 5.00 per
share. The Company received approximately $ 4,300,000 of net proceeds from the
initial public offering. Additionally, on June 10, 1999 the Underwriter
exercised it's over allotment option in full to purchase 187,500 additional
shares of the Company's common stock and 187,500 redeemable common stock
purchase warrants. The Company received approximately $ 750,000 of net proceeds
from this transaction. Combined net proceeds to the Company from the initial
public offering and over allotment totaled approximately $ 5,050,000.
Cautionary Factors Regarding Future Operating Results
The matters discussed in this form 10-QSB other than historical material are
forward-looking statements. Any such forward-looking statements are based on
current expectations of future events and are subject to risks and uncertainties
which could cause actual results to vary materially from those indicated. Actual
results could differ due to a number of factors, including negative developments
relating to unforeseen order cancellations or push outs, the company's strategic
relationships, the impact of intense competition and changes in our industry.
The Company assumes no obligation to update any forward-looking statements as a
result of new information or future events or developments.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about April 20, 1999 a former non-officer employee of the Company filed a
complaint against EHC with the Division of Human Rights of the State of New York
("Division") charging violation of the Americans with Disabilities Act covering
disabilities relating to employment. The Company is vigorously defending this
action and believes, with no assurance, that it has a meritorious defense.
Although the ultimate outcome of the action cannot be determined at this time,
the Company does not believe that the outcome will have a material adverse
effect on the Company's financial position or overall trends in results of
operations.
Item 2. Changes in Securities and Use of Proceeds
The Company completed its initial public offering pursuant to a Registration
Statement on Form SB-2 Registration No. 333-48701, declared effective on April
23, 1999. The Company issued 1,250,000 shares of common stock at a price of $
4.50 per share and 1,250,000 redeemable common stock purchase warrants at a
price of $.10 per warrant. The net proceeds of the initial public offering to
the Company after expenses was approximately $ 4,300,000. On June 10, 1999, the
underwriters in the initial public offering exercised their over-allotment
option to purchase additional shares of common stock and redeemable common
stock purchase warrants, with net proceeds to the Company of approximately
$ 750,000.Combined net proceeds from the initial public offering and over
allotment transaction totaled approximately $ 5,050,000 (the "Net Proceeds").
During the period ending June 26, 1999 the Company used an aggregate of $
1,785,385 of net proceeds of which $ 642,500 was used for repayment of debt, $
466,660 was used for cost related to the initial public offering, $ 224,252 was
used for working capital, $ 138,857 was used for tooling, $ 114,868 was used for
sales and marketing, $ 75,000 was used for Federal Income taxes, $ 60,000 was
used for research and development, $ 43,200 was used for CDP licensing
agreements and cost associated with CDP, $ 14,048 was used for travel to China
and $ 6,000 was used on facilities and equipment.
8
<PAGE>
Item 5. Other Information
Year 2000 Computer System Compliance
In March of this year the Company replaced all computer hardware and software
with a system that the Company believes is Year 2000 compliant. All payroll and
time keeping systems are maintained by ADP Payroll Services and are certified
Year 2000 compliant. The Company has received written verification from its
system vendors that systems such as alarms, telephones and sprinklers are Year
2000 compliant. The Company's product is mechanical in nature and does not
contain any embedded computer technology.
The year 2000 readiness of certain major suppliers and customers of the Company
is unclear. While the Company believes that its own systems are year 2000
compliant, if a significant number of the Company's suppliers and customers were
to experience business disruptions as a result of their lack of year 2000
readiness, their problems could have a material adverse effect on the financial
position and results of operations of the Company.
Agreement by and between EHC and U.S. Government Defense Supply Center
Philadelphia
EHC has been awarded a significant contract with the U. S. Government Defense
Supply Center Philadelphia (DSCP). The Company estimates that the full value of
the contract can be as much as $ 15,000,000 over the course of a potential five-
year period, with full benefits expected to begin accruing in the year 2000.
The Award of the contract by DSCP will transfer the current Government
responsibility to the Company for supplying Knobs, Dials and pointers ( Federal
Stock Class 5355) under an indefinite quantity contract for a base period of one
year, with four one year options on behalf of DSCP. This contract positions the
Company as the major supplier of Federal Stock Class 5355 for all U.S.
Government ordering activities worldwide. The contract also gives the Company
full responsibility as the only U.S. Government Inventory Stocking Point for
this class.
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
Exhibit Description
27 Financial Data Schedule
Exhibit 99(i) Agreement by and between
EHC and U.S. Government
Defense Supply Center
Philadelphia
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 26,
1999.
10
<PAGE>
27 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.
INTERNATIONAL SMART SOURCING, INC.
August 9, 1999 /s/ Andrew Franzone
Date Andrew Franzone
Chief Executive Officer
August 9, 1999 /s/ Steven Sgammato
Date Steven Sgammato
Chief Financial Officer
11
Continuation Sheet
SP0500-99-D-0038
DIALS, KNOBS AND P0INTERS
A. DESCRIPTION OF SUPPLIES AND SCOPE OF WORK
1. CONTRACT AWARD:
a. This contract constitutes the Government's acceptance of the
Contractor's offer, and incorporates ELECTRONIC HARDWARE CORPORATION'S technical
and business proposals and all written revisions thereto including the best and
final offer dated May 18, 1999, and any subsequent revisions under Request for
Proposal SP0500-98-R-0037, as revised by Amendments 001 through 0003. This
contract is an indefinite quantity indefinite delivery type contract under which
the Electronic Hardware Corporation (EHC) shall provide Dials, Knobs and
Pointers that are required by military and other federal customers in and out of
the continental United States including sales to foreign military (FMS).
b. Performance under this contract shall be governed by the terms
and conditions of SP0500-98-R- 0037, the Statement of Work (SOW), and also
those terms and conditions negotiated prior to award which were accepted
by both the Contractor and the Government.
2. CONTRACT PERIOD AND GUARANTEED MINIMUM:
a. This contact will continue for one base year (twelve months)
with four one year option periods. The Government reserves the
right to exercise, at a later date one or more of the option
years. Acceptance of these options by the contractor is
mandatory.
b. For the base year of the contract the ordering period shall
commence on the date of award and shall continue for one
calender year thereafter. If and when any option is exercised,
the ordering period for the option year shall commence on
the day following the last day of the preceding contract
period and shall continue for one calender year thereafter.
c. The dollar value Comprising the Guaranteed Minimum for the
base year of this contract is $ 100,000.00. The Guaranteed
Minium will be $50,000.00 for each of the four option years.
3. COVERED PRODUCTS:
a. ELECTRONIC HARDWARE CORPORATION will supply one hundred
percent (100%) of all items in Federal Stock Class (FSC) 5355 and
any other items listed in the solicitation or agreed to during
negotiations.
b. As negotiated, DISC may add or delete items covered by this
contract on an "as needed" basis during any term of this
contract, base year or option year period, subsequent to
contract award.
<PAGE>
4. ORDERING ACTIVITIES:
Ordering Activities. The Defense Industrial Supply Center (DISC)
(which will be known as the Defense Supply Center Philadelphia (DSCP) after
July 2, 1999) is the sole ordering activity for initial implementation of this
contract. During any term of this contract ( base year or option years), DISC
may add or delete customer ordering activities. For ordering activities added
to the contract after award, ordering points, receiving points, the listing of
personnel and the extent of their authorization to access the contractor's
on-line catalog, will be incorporated into the contract by modification which
will add the activities to the contract.
5. DELIVERY ORDER LIMITATIONS:
a. Minimum Order Value: There is no minimum ordering value
per shipment.
b. Minimum Order Quantity: There shall be no minimum ordering
quantity under this contract.
6. ON-LINE CATALOG PRICES AND ORDERING ACTIVITIES:
On-line Catalog Prices. As prescribed by the SOW, prices cited in
the contractor's on-line price and product catalogue shall represent the
delivered price for each product, a price which will consist of the product
price (material cost plus the adder) plus the DISC administrative fee. As of
the date of award, the DISC administrative fee will be ten and two tenths
percent (10.2%). The DISC administrative fee may be modified at any time after
award through a contract modification.
7. DELIVERY:
a. Place or Delivery: Supplies ordered under this contract shall
be delivered f.o.b. destination to the point specified by the ordering activity.
All shipments points, including FMS, will be f.o.b. continental USA, excluding
Alaska.
b. Delivery as follows:
Type of item Delivery
All Emergency Requirements 24Hours
EHC Manufactured Catalog Items 30Days
EHC Manufactured Non-Catalog Items 60Days
3rd Party Manufactured Catalog Items 3Days
3rd Party Manufactured Non Catalog Items 90Days
Delivery shall be made to the receiving point designated in the order within
the number of hours or days after date of order as specified by the above
delivery schedule and the order document.
c. Exceptions to b. above. With the Contractor's concurrence, the
DISC customer may specify deliveries outside the schedule as
defined in b. above. However, such alternate deliveries shall
apply only to the order in which the alternate delivery is
specified, and will not constitute a "change" to the delivery
requirements for this contract or any other orders.
d. Special Note: The foregoing delivery provisions also apply to
items to be delivered to ordering activities added to this
contract after the award date, unless alternate delivery
provisions are negotiated between the parties.
8. PHASE IN:
a. Sixty (60) Day Implementation Period. The first sixty days
following the date of the contract shall be considered the
implementation period. During the sixty day implementation
period, the performance requirements, as they relate to the
time of delivery, shall not apply.
<PAGE>
b. The following specifics have been negotiated by the parties
to this contract and shall commence on the date of award of the
contract:
1. EHC will be able to supply one hundred percent (100%) of all items covered by
FSC 5355
2. DISC will provide EHC with an inventory base line report of all FSC 5355
items currently in government inventory.
3. DISC will continue to draw and ship from existing inventory to support any
requirements for which government stock is available.
4. At the time of award EHC will be expected to supply all FSE 5355 requirements
not available to DISC from government inventory.
5. DISC will advise EHC when stock in an item falls below the DISC re-order
point at which time EHC will be expected to supply this item within the
delivery requirements set by this contract.
6. DISC will provide access to non-proprietary government drawings for FSC 5355,
upon request, for inspection purposes only.
7. DISC will not buy back any inventory from EHC in case of a contract
termination for cause or for convenience or upon completion of this contract.
8. Should this contract be terminated for cause or for convenience, and assuming
that EHC. Is eligible to receive a government contract, EHC will be solicited
like any other supplier for FSC 5355 items.
9. CONTRACT UNIT PRICE:
a. The unit prices submitted for the Market Basket of
items cited in the business proposal shall be the
effective prices for orders of those items as of the
date of this contract.
b. Identity and historical annual demand for all items covered
by this contract have been furnished to Electronic Hardware Corporation
on diskettes that were included with the solicitation and amendment
0002 dated Aug. 28, 1998. The contractor shall submit prices for these
items within thirty (30) days of the date of contract award. Each new
item price will be reviewed approved or disapproved by the contracting
officer.
c. The parties to this contract have negotiated the following
pricing structure: the product price as defined in the solicitation has
been divided in two components - "Material Costs" and "adder". The
material cost for items that Electronic Hardware Corporation does not
manufacture will be the invoice price it pays for those items. For the
items that Electronic Hardware Corporation does manufacture, the
material cost will include the cost to manufacture the items. The cost
to ware house pick, pack, inspect, and ship supplies will be included
in the adder. The adder will also include the profit and the cost of
money for the warehousing and shipping operations. Material cost will
be based upon current 1999 quoted item prices for the most economic
quantity.
d. For each order, the product price will be determined by
adding the "Adder" (a percentage of the material cost) to the material cost.
The Adder will have the following values:
TYPE OF ITEM PERCENTAGE VALUE
Catalog Items 66%
Non-catalog Items 59%
c. The price for each item is influenced by commercial market forces
such as supply and demand and competition among suppliers, and may, therefore,
fluctuate. Accordingly, each product price may be increased or decreased if
such adjustment is appropriate. Price change requests must be submitted to the
Contracting Officer or his or her representative. Product prices may be
adjusted no more than once a month. Upon request, the Vendor shall furnish
data to the Government, as requested by the Contracting Officer, to support
price changes and to confirm that the contract unit prices under this contract
are fair and reasonable. The contracting officer will review this data to
confirm the prices are based on the catalog or market prices which the Vendor
pays to its suppliers, or represent actual manufacturing costs if the Vendor
is the manufacturer. This supporting documentation shall be in the form of
product price invoices and unit prices charged to the Vendor's commercial
business as well as any other information as requested by the Contracting
Officer. If necessary, DISC will assist Electronic Hardware in price
negotiations with its suppliers.
<PAGE>
F. The contractor warrants that the unit prices in
effect at time of delivery order placement will be
honored and will not include any allowance for
possible future increases in the price. Billing will
be based on the applicable price in effect at the
time of order in lieu of the receipt date. Should
price verifications reveal any instances of
overpricing, the contractor further agrees to
promptly reimburse the government for that amount.
g. The Vendor's price to the government shall reflect any
"reduced price specials" or "sales" for items under this
contract that it received from its suppliers. Vendor shall offer
the government the same discounts, rebates and quantity price
breaks that it offers its commercial customers
h. The requirement of this clause shall also apply to new
items added to the contract after contract award.
10. PAYMENT:
a. Electronic Invoicing. As provided in the solicitation, the
contractor shall submit electronic invoices to the following payment
office:
DFAS COLUMBUS CENTER (S36054)
ATTN: DFAS-CO-SEF
PO BOX 192317
COLUMBUS, OH 43218-6238
with an electronic copy being sent to:
DEFENSE SUPPLY CENTER
700 ROBBINS AVE
PHILADELPHIA, PA 19111-5096
The prices included in the invoice shall be "product prices" only as defined on
page 43 of the solicitation and in paragraph 9 above, exclusive of the DISC
Administrative fee. Invoices shall be submitted in accordance with ANSI X 12
standards, 810 Transaction Set, and shall be submitted through a VAN. Contractor
shall have an EDI Trading Partnership with DFAS prior to submission of any
invoices under this contract. The complete delivery order designation consisting
of the 17 alpha/numeric characters shall be cited on each invoice. (Example:
SP0500-99-D-0038-0001).
NOTE: Until such time as electronic invoicing is feasible, the contractor shall
use standard paper invoicing procedures.
b. Payment terms are 1%-20 days Net 30 days.
`
c. The contractor shall be paid for each item ordered, delivered, and accepted
by the ordering activity during the term of the
contract.
d. Unless a delivery order specifies otherwise, fast payment procedure shall
apply. See Clause "52 212-4(i)", as amended on
page 8 of the solicitation.
11. CONTRACT AND SUPPORT ADMINISTRATION:
a. Contract administration of all provisions of the contract
remains the responsibility of the Defense Industrial supply
Center, which will be known as the Defense Supply Center
Philadelphia after July 2, 1999.
b. Support administration, when necessary shall be preformed by:
DCMC LONG ISLAND (S3309A)
605 STEWART AVE
GARDEN CITY, N.Y. 11530-4761
<PAGE>
12. MISCELLANEOUS:
a. Clause 52 216-9125 ECONOMIC PRICE ADJUSTMENT INDUSTRIAL COMMODITIES DVD
(MAY 1996) DISC 52.216-9125, as found on pages 16-18 of Request For
Quotations SP0500-98-R-0037, is hereby deleted during all terms of this
contract.
b The first ten hours of any yearly surge test will be provided free of
charge; any additional hours will be provided at the rate of $94.00 per
hour.
c. Roll-Our Plan. The contractor / vendor shall successfully deploy a
fully operational on-line Electronic Order Entry system within ninety
(90) days of the date of the contract award.
d. Subparagraph (a)(2). which describes option prices, in the clause
entitled SPECIAL CONTRACT REQUIREMENTS:OPTION TO EXTEND THE TERM OF AN
INDEFINITE-DELIVERY CONTRACT-NOTICE OF EPA PROVISION (July 1997)(DISC),
as found on page 20 of Request For Quotations SP0500-98-R-0037, is
hereby deleted from this contract.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> JUN-26-1999
<CASH> 4,039,434
<SECURITIES> 0
<RECEIVABLES> 969,372
<ALLOWANCES> 0
<INVENTORY> 786,054
<CURRENT-ASSETS> 5,931,453
<PP&E> 5,079,344
<DEPRECIATION> 4,415,312
<TOTAL-ASSETS> 8,790,315
<CURRENT-LIABILITIES> 1,709,837
<BONDS> 503,650
0
0
<COMMON> 3,383
<OTHER-SE> 6,573,445
<TOTAL-LIABILITY-AND-EQUITY> 8,790,315
<SALES> 2,452,367
<TOTAL-REVENUES> 2,521,953
<CGS> 1,650,215
<TOTAL-COSTS> 1,650,215
<OTHER-EXPENSES> 1,229,362
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,580
<INCOME-PRETAX> (469,204)
<INCOME-TAX> 0
<INCOME-CONTINUING> (469,204)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (469,204)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
