SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 1O-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,1999
Commission File Number 0-17977
BOUNDLESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
13-3469637
(I.R.S. EMPLOYER IDENTIFICATION NO.)
100 Marcus Blvd.
Hauppauge, NY
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
11788
(ZIP CODE)
(516) 342-7400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 October 5, 1999, the Registrant had approximately 4,438,376 shares of
Common Stock, $.01 par value per share outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1999 (unaudited) and
December 31, 1998................................................... 3
Consolidated Statements of Operations (unaudited)
for the three and nine months ended September 30, 1999 and 1998..... 4
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1999 and 1998............... 5
Notes to Consolidated Financial Statements (unaudited)................... 6
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<CAPTION>
BOUNDLESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
<S> <C> <C>
September 30, December 31,
1999 1998
--------------- ----------------
Current assets: (unaudited)
Cash and cash equivalents................................................................... $ 5 $ 732
Trade accounts receivable, net.............................................................. 16,489 13,274
Income tax refunds.......................................................................... 1,350 1,905
Inventories................................................................................. 11,698 12,565
Deferred income taxes....................................................................... 2,470 2,470
Prepaid expenses and other current assets................................................... 869 462
--------------- ----------------
Total current assets..................................................................... 32,881 31,408
Property and equipment, net.................................................................... 10,309 10,251
Goodwill, net.................................................................................. 6,542 7,350
Other assets................................................................................... 1,359 339
--------------- ----------------
$ 51,091 $ 49,348
=============== ================
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 8)................................................. $ 1,426 $ 8,000
Accounts payable............................................................................ 6,255 6,817
Accrued expenses............................................................................ 7,905 7,074
Deferred revenue............................................................................ 434 116
--------------- ----------------
Total current liabilities................................................................ 16,020 22,007
--------------- ----------------
Long-term liabilities:
Long-term debt, less current maturities (Note 8)........................................... 14,476 5,500
Deferred income taxes....................................................................... 1,002 1,002
Other ...................................................................................... 665 627
--------------- ----------------
Total long-term liabilities............................................................. 16,143 7,129
--------------- ----------------
Total liabilities....................................................................... 32,163 29,136
Mandatorily redeemable preferred stock of subsidiary.......................................... - 3,555
--------------- ----------------
Stockholders' equity:
Preferred stock............................................................................ - -
Common stock............................................................................... 44 44
Additional paid-in capital................................................................. 31,267 30,940
Accumulated deficit........................................................................ (12,383) (14,327)
--------------- ----------------
Total stockholders' equity.............................................................. 18,928 16,657
--------------- ----------------
$ 51,091 $ 49,348
=============== ================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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BOUNDLESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<S> <C> <C>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- ------------------------
1999 1998 1999 1998
---------- ----------- ----------- -----------
(unaudited) (unaudited)
Revenue.......................................... $ 61,256 $ 68,349 $ 19,970 $ 23,555
Cost of revenue.................................. 43,610 49,184 14,011 16,754
---------- ----------- ----------- -----------
Gross margin.......................... 17,646 19,165 5,959 6,801
---------- ----------- ----------- -----------
Operating expenses:
Sales and marketing........................... 7,303 6,013 2,910 1,728
General and administrative.................... 4,859 4,634 1,475 1,612
Research and development...................... 3,884 2,597 1,489 959
Other charges (credits)....................... (2,832) (111) (2,282) 350
---------- ----------- ----------- -----------
Total operating expenses................... 13,214 13,133 3,592 4,649
---------- ----------- ----------- -----------
Operating income...................... 4,432 6,032 2,367 2,152
Interest expense, net......................... 1,110 2,045 359 698
Other nonrecurring expenses................... 101 - - -
---------- ----------- ----------- -----------
Income before income taxes....................... 3,221 3,987 2,008 1,454
Income tax expense............................... 1,226 1,411 765 629
---------- ----------- ----------- -----------
Net income....................................... 1,995 2,576 1,243 825
Dividend on preferred stock of subsidiary........ 51 373 - 124
---------- ----------- ----------- -----------
Earnings available for common stockholders....... $ 1,944 $ 2,203 $ 1,243 $ 701
========== =========== =========== ===========
Weighted average common shares outstanding....... 4,432 4,941 4,438 4,539
========== =========== =========== ===========
Basic earnings per common share.................. $ 0.44 $ 0.45 $ 0.28 $ 0.15
========== =========== =========== ===========
Weighted average dilutive shares outstanding..... 4,456 4,986 4,461 4,539
========== =========== =========== ===========
Diluted earnings per common share............... $ 0.44 $ 0.44 $ 0.28 $ 0.15
========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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<CAPTION>
BOUNDLESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
For the Nine Months Ended September 30,
(unaudited)
<S> <C> <C>
1999 1998
----------- -----------
Cash flows from operating activities:
Net income....................... ............................... $ 1,995 $ 2,576
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 1,597 2,460
Loss from disposal of assets................................... 22 40
Deferred revenues.............................................. 318 53
Provision for doubtful accounts................................ 313 203
Provision for excess and obsolete inventory.................... 1,462 874
Options and warrants issued for services....................... 272 300
Changes in assets and liabilities:
Trade accounts receivable...................................... (3,528) 217
Income tax refunds............................................. 555 -
Inventories.................................................... (595) 152
Other assets................................................... (1,206) (35)
Accounts payable and accrued expenses.......................... 307 (1,717)
---------- -----------
Net cash provided by operating activities............................ 1,512 5,123
---------- -----------
Cash flows from investing activities:
Capital expenditures.............................................. (753) (560)
---------- -----------
Cash flows from financing activities:
Payment of mandatorily redeemable preferred stock................. (3,555) -
Purchase of treasury stock........................................ - (3,000)
Net change in loans payable....................................... 2,065 (2,400)
Payment of preferred stock dividend............................... (51) -
Proceeds from exercise of employee stock options.................. 55 -
---------- -----------
Net cash used in financing activities................................ (1,486) (5,400)
---------- -----------
Net decrease in cash and cash equivalents............................ (727) (837)
Cash and cash equivalents at beginning of period..................... 732 2,929
---------- -----------
Cash and cash equivalents at end of period........................... $ 5 $ 2,092
========== ===========
Non-cash transactions:
Dividend on preferred stock of subsidiary......................... $ - $ 124
Options, warrants and common stock issued for services............ 272 -
Cash paid for:
Interest.......................................................... 1,035 347
Taxes............................................................. 370 125
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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BOUNDLESS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS
(dollar amounts in thousands)
(unaudited)
1. Condensed Consolidated Financial Statements
BASIS OF PRESENTATION
- ---------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of only normal
occurring accruals) considered necessary for a fair presentation have been
included. Certain prior period amounts in these financial statements have been
reclassified to conform to current period presentation. Operating results for
the nine-month period ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999. For
further information refer to the consolidated financial statements and footnotes
thereto in the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
2. Background
Boundless Corporation (the "Company") is engaged, through its subsidiary,
Boundless Technologies, Inc. ("Boundless"), in designing and manufacturing
computer terminals for business use. The Company's general strategy is to
provide access to corporate computing environments, including mainframes, LANs,
WANs, intranets and the Internet. Boundless principally designs, assembles,
sells and supports (i) General Display Terminals, (ii) Windows(R)-based
Terminals ("WBTs"), sometimes referred to as "thin clients", and (iii) other
terminal products that are used in multi-user, personal computer and
mini-computer-based environments.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in first-out basis. The major components of inventories are as follows:
September 30, December 31,
1999 1998
--------------- --------------
Raw materials and purchased components.......... $ 9,730 $ 10,264
Finished goods.................................. 1,545 1,915
Demonstration equipment......................... 54 71
Service parts................................... 369 315
--------------- --------------
Total inventories............................... $ 11,698 $ 12,565
--------------- --------------
4. Equity
At September 30, 1999 and December 31, 1998 stockholders' equity consisted of
the following:
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<S> <C> <C>
September 30, December 31,
1999 1998
--------------- --------------
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, none issued ................................ $ - $ -
Common stock, $0.01 par value, 25,000,000 shares
authorized, 4,438,376 and 4,428,609 issued at
September 30, 1999 and December 31, 1998, respectively.. 44 44
Additional paid-in capital ................................ 31,267 30,940
Accumulated deficit ....................................... (12,383) (14,327)
--------------- --------------
Total stockholders' equity ............................. $ 18,928 $ 16,657
--------------- --------------
</TABLE>
5. Major Customers
The Company markets its terminal products through original equipment
manufacturers ("OEMs") and reseller distribution channels. Customers can buy
Boundless' products from an international network of value-added resellers
(VARs) and regional distributors. Through its sales force, the Company sells
directly to large VARs and regional distributors and also sells to major
national and international distributors. For the third quarter ended September
30, 1999 and 1998, sales to two major OEMs as a percentage of total revenues
were 23% and 28%, respectively.
6. Business Segments
The Company's manufacturing is conducted at its New York facility and its sales
force operates from six geographically dispersed locations in the United States
and European offices in the Netherlands and United Kingdom.
Operating segments are identified as components of an enterprise about which
separate financial information is available for evaluation by its decision
making group. To date, the Company has viewed its operations and manages its
business in principally one segment, hardware sales of computer terminals and
associated services. As a result, the financial information disclosed herein
represents all of the material information related to the Company's principal
operating segment.
Pertinent financial data by major geographic segments for the quarters ended
September 30, 1999 and 1998 are:
<TABLE>
<S> <C> <C>
September 30, December 31,
1999 1998
--------------- --------------
Net sales to unaffiliated customers:
United States.............................................. $ 13,495 $ 15,763
United Kingdom............................................. 2,121 2,476
Other European countries................................... 3,481 4,550
Other foreign areas........................................ 873 766
--------------- --------------
Total sales ............................................... $ 19,970 $ 23,555
--------------- --------------
</TABLE>
7. Comprehensive Income
The Company has no material items of other comprehensive income. Comprehensive
income for the periods ended September 30, 1999 and 1998 was equal to reported
net income.
8. Debt
Long term debt at September 30, 1999 and December 31, 1998 consisted of the
following:
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<S> <C> <C>
September 30, December 31,
1999 1998
--------------- --------------
Note payable to Independence Community Bank bearing interest at
7.75% payable monthly, balloon payment due on or before July 1, 2009
collaterlaized by land and building $ 6,735 $ -
Note payable to NCR, bearing interest at 8% payable
quarterly, principal due on or before July 15, 1999,
collaterlaized by land and building 8,000
Term loan 3,667
Revolving loan 5,500 5,500
--------------- --------------
15,902 13,500
Less current maturities on long-term debt 1,426 8,000
--------------- --------------
$ 14,476 $ 5,500
--------------- --------------
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
The numbers and percentages contained in this Item 2 are approximate. Dollar
amounts are stated in thousands.
For the Three and Nine Month Period Ending September 30, 1999
- -------------------------------------------------------------
General - During the quarter ended September 30, 1999 the Company made several
important announcements including the signing of an agreement to engineer and
manufacture text terminals for Hewlett-Packard Company; the creation of
Boundless Manufacturing Services, Inc., a new subsidiary that will pursue
opportunities within the electronic manufacturing services marketplace; and the
introduction of Viewpoint Administrator 2.1 software, a management software
utility specially designed to reduce administrative costs.
During the quarter ended September 30, 1999 the Company also completed
negotiations and signed agreements settling outstanding balances due from
General Automation, Inc. in connection with a royalty agreement associated with
the GAI Partnership. In return for a combination of cash, restricted equity and
debt securities the Company settled its claims to past due balances, waived its
rights to future royalties and sold its partnership interest.
Revenue - Revenue for the quarter ended September 30, 1999 was $19,970 as
compared to $23,555 for the quarter ended September 30, 1998. Revenue for the
nine months ended September 30 was $61,256 for 1999 versus $68,349 for 1998.
Sales of the Company's General Display Terminals declined 22% to $15,572 for the
quarter ended September 30, 1999 from $20,076 for the quarter ended September
30, 1998. Demand for General Display Terminals continues to decline as competing
technologies, including WBTs, are gaining market share. For these reasons, sales
of General Display Terminals for 1999 are not expected to reach the levels
achieved in 1998.
Sales of the Company's WBT hardware and software, marketed under the trade names
Viewpoint(R) TC and Capio and WBT software, marketed under the trade name
Viewpoint(R) Administrator, increased 40% to $3,326 from $2,382 for the quarters
ended September 30, 1999 and 1998, respectively. The Company is targeting the
approximately 35 million users of General Display Terminals and Network Graphics
Displays many of whom are currently transitioning or intending to transition to
graphical applications that include Windows, the Intranet and Java. In addition,
the Company is targeting the task-oriented users of older, less capable PCs that
are unable to run the latest Windows applications, including those users in
business and education. The Company believes its unique ability to customize its
Viewpoint TC products to meet specific end-customer needs will give it a
sustainable competitive advantage. Historically, this ability has been of great
value to the Company's terminal customers and the Company believes that this
strategy will be equally advantageous in the corporate thin client marketplace.
Net revenue from the Company's repairs and spare parts business was $602 for the
quarter ended September 30, 1999, up from $546 for the quarter ended September
30, 1998. For the nine months ended September 30, 1999, repairs and spare parts
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sales were $1,640 versus $1,852 for the comparable period in 1998.
IBM and Digital were the most significant customers for the Company's products,
accounting for 14% and 8% of revenue respectively, for the quarter ended
September 30, 1999. The loss of IBM or Digital as a customer, and as a
distribution channel for the Company's products, would have a material adverse
effect on the Company's results of operations and liquidity.
Gross Margin - Gross margin for the three and nine months ended September 30,
1999 were $5,959 (30% of revenue) and $17,646 (29% of revenue) respectively, as
compared to gross margins of $6,801 (29% of revenue) and $19,165 (28% of
revenue) for the comparable periods in 1998. Gross margin in the third quarter
of 1999 includes a write-down to market reserve of $358 against inventory
obsolescence risk associated with Boundless' first generation WBT. Excluding
this reserve, gross margin for the quarter ended September 30, 1999 would have
been 32%. While the Company intends to develop marketing programs to recover
this reserve or minimize future risks, there can be no assurance the Company
will be successful in its efforts.
In a continuing effort to maintain and improve margins in an industry otherwise
characterized by commodity pricing, management has focused on quality,
flexibility, and product cost reductions. From time-to-time margins are
adversely affected by industry shortages of key components. The Company
emphasizes product cost reductions in its research and development activities
and frequently reviews its supplier relationships with the view to obtaining the
best component prices available.
Total Operating Expenses - For the quarter ended September 30, 1999, operating
expenses were $3,592 (18% of revenue), compared to expenses for the third
quarter of 1998 of $4,649 (20% of revenue). For the nine months ended September
30, 1999, operating expenses were $13,214 (22% of revenue) compared to expenses
in the comparable period in 1998 of $13,133 (19% of revenue).
Sales and Marketing Expenses - Sales and marketing expenses increased 68% to
$2,910 (15% of revenue) for the quarter ended September 30, 1999 from $1,728 (7%
of revenue) for the quarter ended September 30, 1998. Expenses for the first
nine months were $7,303 in 1999 versus $6,013 in 1998. The increase in the third
quarter of 1999 is mainly the result of increased sales activities and personnel
targeting Boundless' OEM and WBT markets.
The Company promotes its products using media advertising, direct mail,
telemarketing, public relations and cooperative channel marketing programs. The
Company's installed base of over five million units of General Display Terminals
is the primary target market for its new line of Viewpoint TC WBTs. The
Company's plan to reach this market is based on direct mail, telemarketing and
advertising and an aggressive public relations campaign, including several
domestic and international press tours. The Company will also participate in
several key trade shows during the remainder of 1999.
General and Administrative Expenses - General and administrative expenses
decreased to $1,475 (7% of revenue), from $1,612 (7% of revenue) for the three
months ended September 30, 1999 and 1998, respectively. Expenses for the
nine-month period were $4,859 in 1999 versus $4,634 in 1998. The year-to-year
increase is mainly due to accruals related to employee bonus programs and to
expensing the estimated value of common stock options granted to Board members
for services provided to the Company.
Research and Development Expenses - Research and development expenses for the
third quarter increased 55% to $1,489 in 1999 from $959 in 1998. Expenses for
the nine-month period ended September 30, 1999 were $3,884, compared to $2,597
in the comparable period in 1998. The increase is related to development
expenses associated with the Company's WBT product family. Research and
development expenses are expected to exceed 1998 spending levels due to
investment in software development for the Company's WBTs as well as spending
associated with advanced development for Internet Appliances.
Other Charges (Credits) - During the third quarter of 1999 the Company reached a
settlement with General Automation, Inc. for outstanding royalties due under a
royalty agreement associated with the GAI Partnership. Since this receivable was
written off in 1997, recovery in the amount of $2,324 was reported as income.
Interest Expense - Interest expense for the quarter ended September 30, 1999 was
$359 compared to $698 for the comparable period in 1998. Interest expense for
the nine months were $1,110 in 1999 versus $2,045 in 1998. This decrease was
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mainly due to capitalized debt financing costs that were fully amortized in 1998
as non-cash interest expense. Replacement debt financing costs were incurred in
the third quarter of 1999 but at a lower level than in previous years.
Income Tax Expense - Income tax expense for the quarter ended September 30, 1999
was $765 compared to $629 for the comparable period in 1998. For the nine months
ended 1999 and 1998 income tax expense was $1,226 and $1,411 respectively.
Net Income - For the quarter ended September 30, 1999, net income was $1,243 (6%
of revenue), compared to $825 (4% of revenue) for the comparable period in 1998.
Net income for the nine months ended September 30 was $1,995 (3% of revenue) and
$2,576(4% of revenue) in 1999 and 1998, respectively.
Impact of Inflation - The Company has not been adversely affected by inflation
because technological advances and competition within the microcomputer industry
have generally caused prices of products sold by the Company to decline. The
Company has flexibility in its pricing and could, if necessary, pass along price
changes to most of its customers.
LIQUIDITY AND CAPITAL RESOURCES
The discussion below regarding liquidity and capital resources should be read
together with the information included in the Notes to Consolidated Financial
Statements.
As of September 30, 1999, the Company had working capital of $16,861 as compared
to $9,401 at December 31, 1998. Historically, the Company has relied on cash
flow from operations, bank borrowings and sales of its common stock to finance
its working capital, capital expenditures and acquisitions.
The Company is highly leveraged. As of September 30, 1999, the Company had
tangible net worth of $11,865 and total liabilities of $32,163. The Company's
cash requirements at September 30, 1999 included repayment of a revolving loan
of $5,500 plus interest, a term loan in the amount of $3,667 plus interest
payable in twelve quarterly installments beginning June 1999 and a ten-year
promissory note in the amount of $6,735 which requires monthly principal and
interest payments through July 1, 2009.
On April 14, 1999, Boundless and Chase Manhattan Bank ("Chase"), acting as
agent, signed an agreement for a new, three-year, $15,000 revolving credit
agreement. Terms of the new revolving credit agreement are substantially similar
to terms of the expired agreement, allowing for loans and letters of credit,
based upon the availability of collateral, generally a percentage of inventory
and accounts receivable as specified in the agreement. The revised credit
agreement also provides for a $4,000 term loan, payable in equal quarterly
installments plus accrued interest beginning June 1999, over a three-year
period.
Borrowing under the revolving loan is based on a borrowing base formula of up to
80% of eligible receivables, plus 50% of delineated eligible inventory, plus 30%
of non-delineated eligible inventory. Up to $5,000 is available under the
revolving loan for letters of credit. As a result of the borrowing base formula,
the credit available to the Company could be adversely restricted in the event
of further declines in the Company's sales and increases in orders may not be
able to be financed under the Company's revolving credit line.
On June 24, 1999, Boundless entered into an agreement with a commercial lender
to refinance an $8,000 note originally scheduled to mature in June 1999. The
loan is secured by a mortgage on the Boundless facility located in Hauppauge,
NY. The loan, which is in the principal amount of $6,750 and carries a fixed
interest rate of 7.75%, is being amortized over a 25-year period with a balloon
payment due on July 1, 2009. The monthly payments are approximately $50. To
induce the lender to make the loan, the Company executed and delivered a
guaranty of Boundless' obligations to the lender.
Net cash provided by operating activities for the nine months ended September
30, 1999 was $1,512, due principally to net income of $1,995, an income tax
refund of $555 and non-cash expenses (principally depreciation) of $3,984 These
increases in cash were partially offset by an increase in trade receivables of
$3,528 driven primarily from the settlement of obligations outstanding under a
royalty agreement associated with the GAI Partnership. Net cash used in
investing activities was comprised of capital expenditures of $753. Net cash
used in financing activities included $3,606 to retire the Company's mandatorily
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redeemable preferred stock and pay its remaining dividend which was funded from
a $4,000 term loan with Chase. In addition, $8,000 was used to pay off the
existing note payable with NCR. A $6,750 mortgage loan from Independence
Community Bank was used to pay off NCR, with the balance of the funding coming
from the Company's revolving loan with Chase.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Form 10-Q contains forward-looking statements and information that are
based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this document, the words
"anticipate," "believe," "estimate," "expect," and, depending on the context,
"will," and similar expressions are intended to identify forward-looking
statements. Such statements reflect the Company's current views with respect to
future events and are subject to certain risks, uncertainties and assumptions,
including the specific risk factors described in the Company's Form 10-K for the
year ended December 31, 1998. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, believed, estimated or expected. The
Company does not intend to update these forward-looking statements and
information.
YEAR 2000 COMPLIANCE
Computers, software and other equipment utilizing microprocessors that
use only two digits to identify a year in a date field may be unable to process
accurately certain date-based information referencing the year 2000. This is
commonly referred to as the "Year 2000 issue." The Company is addressing this
issue on several different fronts. With respect to products the Company offers
for sale, either to OEMs or through distribution, the Company has verified the
products are Year 2000 compliant. The Company has assigned a team to monitor
Year 2000 compliance. This team is charged with ensuring Year 2000 compliance
for all hardware and software products through its purchasing process, as well
as assessing Year 2000 readiness and risk to the Company with respect to the
compliance of its critical vendors and suppliers. Finally, the Company has a
team assigned to coordinate the Year 2000 program for its internal systems and
devices. At present, the audit of Year 2000 compliance of the Company's internal
systems and devices has been substantially completed. The Company has performed
testing, and will continue testing of compliance throughout 1999. The total
costs related to the Company's Year 2000 program are not estimated to be
material to the Company's financial position or results of operations, and are
charged to expense as incurred. The total cost estimate does not include
potential costs related to any customer or other claims or the cost of internal
software and hardware replaced in the normal course of business. The total cost
estimate is based on the current assessment of the Company's Year 2000 program
and is subject to change as it progresses. Based on current information and
assessment, the Company does not believe that the Year 2000 issue discussed
above as it relates to products sold to customers or the Company's internal
systems will be material to its financial position or results of operations or
that its business will be adversely affected in any material respect.
Nevertheless, achieving Year 2000 compliance is dependent on many factors, some
of which are not completely within the Company's control. Should either the
Company's internal systems or one or more critical vendors or suppliers fail due
to Year 2000 issues, the Company's business and its results of operations could
be adversely affected.
NEW ACCOUNTING STANDARD
SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities"
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires that an entity recognizes all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company is assessing the impact that the adoption of SFAS No. 133 will have, if
any, on its consolidated financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk for changes in interest rates, relates
primarily to the Company's revolving credit facility and long-term debt
obligations. The Company manages this risk through utilization of interest rate
swap agreements in amounts not exceeding the principal amount of its outstanding
obligations. At September 30, 1999, two interest rate swap agreements, in the
principal amount of $4,000 and $3,667, respectively, were outstanding.
The Company places its investments with high credit quality issuers and, by
policy, is averse to principal loss and ensures the safety and preservation of
its invested funds by limiting default risk, market risk and reinvestment risk.
As of September 30, 1999 the Company's investments consisted of the investment
of excess cash balances in overnight time deposits offered by Chase Manhattan
Bank in London.
All sales arrangements with international customers are denominated in
U.S. dollars. These customers are permitted to elect payment of their next
month's orders in local currency based on an exchange rate provided one month in
advance from the Company. The Company does not use foreign currency forward
exchange contracts or purchased currency options to hedge local currency cash
flows or for trading purposes. Foreign currency transaction gains or losses have
not been material to the Company's results of operations.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11: Statement Concerning Computation of Per Share Earnings is hereby
incorporated by reference to "Condensed Consolidated Statements of Operations"
in the Form 10-Q.
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K - None
12
<PAGE>
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.
Dated: November 12, 1999
Boundless Corporation
By: /s/Joseph Gardner
- ----------------------------------------
Joseph Gardner
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANICAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 17,050
<ALLOWANCES> 561
<INVENTORY> 11,698
<CURRENT-ASSETS> 32,881
<PP&E> 15,449
<DEPRECIATION> 5,140
<TOTAL-ASSETS> 51,091
<CURRENT-LIABILITIES> 16,020
<BONDS> 14,476
0
0
<COMMON> 44
<OTHER-SE> 18,884
<TOTAL-LIABILITY-AND-EQUITY> 51,091
<SALES> 61,256
<TOTAL-REVENUES> 61,256
<CGS> 43,610
<TOTAL-COSTS> 43,610
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 313
<INTEREST-EXPENSE> 1,110
<INCOME-PRETAX> 3,221
<INCOME-TAX> 1,226
<INCOME-CONTINUING> 1,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,995
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.44
</TABLE>
