To maintain our current operating cash position, a portion of these
expenditures may be financed through debt, operating or capital leases or additional equity. We
may elect to modify or defer a portion of such anticipated investments in the event that we do not
achieve the revenue necessary to support such investments.
Net cash used in financing activities was approximately $2.1 million for the year ended
December 31, 2008, primarily representing payments on capital leases.
Net cash used in financing activities was approximately $3.1 million for the year ended
December 31, 2007, primarily representing $2.2 million of payments on capital leases and $1.7
million of payments on debt partially offset by a decrease in restricted cash of $0.8 million.
Our liquidity has been negatively impacted as a result of the merger with eCOST. Since the
merger, eCOST has experienced a net use of cash primarily due to operating losses. As a result, we
have had to support eCOSTs cash needs with the goal of reducing operating losses. The amount of
further cash needed to support eCOST operations will depend upon the financing available as well as
eCOSTs ability to improve its financial results. eCOSTs results, excluding the impact of any non-cash impairment charges, improved in 2007 and 2008 and we
currently expect continued improvement as a result of efforts to increase sales, improve product
mix and further improve operational efficiencies.
Our liquidity may also be negatively impacted by an expected decline in service fee revenue
due to the current general economic decline as well as the nonrenewal of a large contract with an
agency of the U.S. government and certain other clients. To help minimize the impact of lower service fee revenue we have
implemented certain measures that reduced variable costs and expenses and redeployed existing
infrastructure to other client activities. No assurance can be given that a further decline in
service fee revenue, beyond those noted above, will not have a material adverse effect upon our
business, financial condition or results of operations.
In June 2008, our Board of Directors authorized a 1-for-4.7 Reverse Split to reduce the number
of outstanding shares of common stock. There was no impact on the number of authorized shares or
the stated par value of our common stock as a result of the reverse stock split. All share and per
share amounts for common stock, warrants and stock options have been restated to reflect the
Reverse Split on a retro-active basis.
During the year ended December 31, 2008, our working capital decreased to $21.4 million from
$22.5 million at December 31, 2007. To obtain additional financing in the future, in addition to
our current cash position, we plan to evaluate various financing alternatives including the sale of
equity, utilizing capital or operating leases, borrowing under our credit facilities, expanding our
current credit facilities, entering into new debt agreements or transferring to third-parties a
portion of our subordinated loan balance due from Supplies Distributors. In conjunction with
certain of these alternatives, we may be required to provide certain letters of credit to secure
these arrangements. No assurances can be given that we will be successful in obtaining any
additional financing or the terms thereof. We currently believe that our cash position, financing
available under our credit facilities and funds generated from operations (including targeted cost
reductions related to the nonrenewal of our U.S. government contract) will satisfy our presently
known operating cash needs, our working capital and capital expenditure requirements, our current
debt and lease obligations, and additional loans to our subsidiaries Supplies Distributors and
eCOST, if necessary, for at least the next twelve months.
Recently, the credit markets and the financial services industry have been experiencing a
period of unprecedented turmoil and upheaval characterized by the bankruptcy, failure, collapse or
sale of various financial institutions and an unprecedented level of intervention from the United
States and foreign governments. While the ultimate outcome of these events cannot be predicted,
they may have a material adverse effect on our liquidity, financial condition, results of
operations and our ability to renew our credit facilities.
The following is a schedule of our total contractual cash obligations, which is comprised of
operating leases, debt, vendor financing and capital leases (including interest), as of December
31, 2008 (in millions):