RESULTS OF OPERATIONS
The following table sets forth certain historical financial information
from our consolidated statements of operations expressed as a percent of
revenues.
FISCAL YEARS ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------- -------------------
2000 2001 2000 2001
------- ------- ----------- -----
(UNAUDITED)
Product revenue................................... 64.9% --% --% --%
Service fee revenue............................... 35.1 95.8 95.6 94.7
Service fee revenue -- affiliate.................. -- -- -- 4.9
Other revenue..................................... -- 4.2 4.4 0.4
----- ----- ----- -----
Total revenues.......................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of product revenue (as % of product
revenue)........................................ 94.5 -- -- --
Cost of service fee revenue (as % of service fee
revenue)........................................ 76.1 71.0 72.0 64.3
Cost of other revenue (as % of total revenues).... -- 4.9 6.2 (2.2)
----- ----- ----- -----
Total costs of revenues................. 88.1 72.9 75.1 61.9
----- ----- ----- -----
Gross profit...................................... 11.9 27.1 24.9 38.1
Selling, general and administrative expenses...... 20.2 50.5 49.2 61.0
Other............................................. -- -- -- (18.3)
----- ----- ----- -----
Loss from operations.............................. (8.3) (23.4) (24.3) (4.6)
Interest expense (income), net.................... 0.5 (2.0) (2.3) (1.8)
----- ----- ----- -----
Loss before income taxes.......................... (8.8) (21.4) (22.0) (2.8)
Income tax expense (benefit)...................... (2.0) -- 0.1 (0.8)
----- ----- ----- -----
Net loss.......................................... (6.8)% (21.4)% (22.1)% (2.0)%
===== ===== ===== =====
NINE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
2000
Service Fee Revenue (including service fee revenue -- affiliate). Service
fee revenue was $28.0 million for the nine months ended December 31, 2001 as
compared to $37.0 million for the nine months ended December 31, 2000, a
decrease of $9.0 million or 24.5%. The decrease in service fee revenue over the
prior period was due to the impact of certain contract terminations, primarily
the Daisytek contract, as well as certain other lower margin producing
contracts. This reduction was partially offset by the impact of new service
contract relationships and growth in existing client relationships. In
conjunction with the $10.9 million sale of a distribution facility to Daisytek
in May 2001 (discussed below in "Liquidity and Capital Resources"), we
terminated certain of our transaction management services agreements entered
into between us and Daisytek and a Daisytek subsidiary. Concurrently with the
closing of the facility sale, we entered into a six-month transition services
agreement to provide Daisytek with certain transitional and information
technology services, under which we earned $2.6 million. The net impact of the
changes in our services provided to Daisytek was a reduction in revenue of $10.6
million for the nine months ended December 31, 2001. The reduction in revenue
attributed to the termination of lower margin producing contracts was $8.2
million for the nine months ended December 31, 2001. For the nine months ended
December 31, 2001, the increase in revenue attributed to new client contract
relationships was $7.2 million. For the nine months ended December 31, 2001, the
increase in revenue from existing contracts was $2.6 million. We believe this
increase was negatively impacted by the recent slowdown in the U.S. economy.
Pursuant to the terms of the Company's transaction management services
agreement with Supplies Distributors, the Company earned service fees, which are
reported as service fee revenue -- affiliate in the accompanying consolidated
financial statements, of approximately $1.4 million for the nine months ended
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