(a)
On
August 7, 2006, the Audit Committee concluded that the Company’s previously
issued financial statements for the periods commencing with the fiscal
year
ended March 31, 1998 should no longer be relied upon because of incorrect
accounting for
stock-based compensation expense described
below.
As
previously reported on Form 12b-25 filed with the Securities and Exchange
Commission ("SEC") on June 30, 2006, and as further reported on Form 8-K
filed
with the SEC on July 17, 2006, the Chief Executive Officer of the Company,
Phillip G. Norton, received a letter dated June 20, 2006 from a Company
stockholder raising concerns regarding certain options issued to the Company's
four senior officers in 2004 (the “2004 Options”). The Chief Executive Officer
forwarded the June 20, 2006 letter to the Chairman of the Company's Audit
Committee. The Audit Committee commenced a review and assessment of the
matters
raised in the June 20, 2006 letter and engaged independent legal counsel
and
outside accounting advisors to assist in this effort. The Audit Committee’s
review and assessment is ongoing.
The
Audit
Committee's review and assessment included, among other things, review
of a
large volume of Company documents, emails, and other electronic documents;
interviews of the Company's senior management, certain other Company employees
whom the Audit Committee believed may have relevant information, the Company's
outside securities counsel, and the members of the Company's Compensation
Committee; and, with the assistance of its outside accounting advisors,
analysis
of applicable accounting rules and regulations. The Audit Committee's review
and
assessment initially focused on the matters raised in the June 20, 2006
letter
regarding the 2004 Options and subsequently was expanded to cover all options
granted to the Company's four senior officers, and then was expanded again
to
cover all options granted by the Company since its initial public offering
in
1996.
Based
on
its review and assessment, the Audit Committee preliminarily has concluded
that
the actual measurement dates for certain stock options granted by the Company
in
the fiscal years ended March 31, 1998 through March 31, 2005 differ from
the
recorded measurement dates. As a result, non-cash stock-based compensation
expense should have been recorded with respect to these stock option grants,
and
the amount of such expense is expected to be material. The Audit Committee
has
further determined that certain stock option grants that were not in accordance
with the Company’s stock-based compensation plans should have been accounted for
using variable plan accounting for the duration of the options. Under variable
plan accounting, stock-based compensation expense is recognized based on
the
difference between the market price of the stock as of the end of each
fiscal
quarter and the exercise price of the option. Accordingly, the Company
will
restate its previously issued financial statements for the fiscal years
ended
March 31, 2004 and 2005, as well as previously reported interim financial
information, to reflect additional non-cash charges for stock-based compensation
expense in certain reported periods commencing with the fiscal year ended
March
31, 1998. In addition, the Company's financial statements as of and for
the
fiscal year ended March 31, 2006, to be included in the Company's annual
report
on Form 10-K for the fiscal year ended March 31, 2006, will include non-cash
charges for stock-based compensation expense.
The
Audit
Committee has not determined the final amounts of additional stock-based
compensation expense to be recorded in prior periods or the impact in
any future
periods. However, based on the review and assessment performed to date,
the
aggregate amount of stock-based compensation expense to be recorded from
April
1, 1997 to March 31, 2006 is presently estimated to be approximately
$3 million,
which represents approximately 2% of the Company’s cumulative earnings before
taxes over the nine-year period. This estimate is preliminary, unaudited,
and subject to change. There can be no assurance that the final amount
of the
restatement will not differ materially from this estimate. The stock-based
compensation expense in certain years may be greater than the aggregate
net
impact over the entire period, and in other years may result in negative
stock-based compensation expense, depending on the market price of the
Company’s
common stock. In periods where negative stock-based compensation expense
is
recorded, the restatement will have the effect of increasing reported
amounts of
earnings before income taxes, net earnings, net earnings per share and
retained
earnings, and decreasing paid in capital. The cumulative stock-based
compensation expenses incurred as a result of the restatement will have
the
effect of decreasing reported amounts of earnings before income taxes,
net
earnings, net earnings per share and retained earnings, and increasing
paid in
capital. The Company presently believes that the restatement related
to
stock-based compensation expense will not affect its revenues, cash flows,
or
cash balances.
In addition, as previously reported on its Form 8-K filed
on June 28, 2006, the Company’s financial statements for fiscal years ended
March 31, 2005 and 2004 will be restated in connection with the presentation
of
dealer floor plan financing arrangements.
The
Audit
Committee also has concluded that the Company’s internal controls, system of
reporting, and documentation with respect to options were inadequate during
the
affected periods and will recommend specific measures designed to remedy
such
inadequacies.
The
Company has not yet determined the tax consequences that may result from
these
matters or whether tax consequences will give rise to monetary liabilities
which
may have to be satisfied in any future period. The Company also expects
that
expenses arising from the investigation, the restatement and related activities,
which will be recorded in the periods incurred, will be
significant.
For
the above-stated reasons, the Company's prior financial statements and
the
related reports from the Company's independent registered public
accountants, earnings statements and press releases, and similar communications
issued by the Company, relating to periods commencing with the fiscal year
ended
March 31, 1998 should no longer be relied upon.
The
Audit
Committee has discussed the matters disclosed in this Item 4.02(a) with
the
Company’s independent registered public accounting firm.
The
Company intends to file its restated financial statements and its annual
report
for the year ended March 31, 2006 as soon as practicable. As previously
announced, the Company received a Staff Determination letter from Nasdaq
on July
18, 2006 indicating that the Company's securities are subject to delisting
because the Company has not yet filed its Form 10-K for the fiscal year
ended
March 31, 2006 and is therefore not in compliance with the continued listing
standard in Nasdaq Marketplace Rule 4310(c)(14). The Company has requested
a
hearing before a Nasdaq Listing Qualifications Panel ("Panel") to review
the
Staff Determination. At the hearing, which is scheduled for September 7,
2006,
the Company will ask the Panel for additional time to remedy the late filing
and
to restate its financial statements. There can be no assurance that the
Panel
will grant the additional time or that the Company will maintain its Nasdaq
listing.
Item
9.01 Financial Statements and
Exhibits
(a)
Not
applicable.
(b)
Not
applicable.
(c)
Exhibits
99.1
Press Release dated August 11, 2006 issued by ePlus inc.
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 hereunto
duly authorized.