U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No.:0-23819
COLE COMPUTER CORPORATION
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(Name of Small Business Issuer in its Charter)
NEVADA 76-0547762
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
11711 South Portland
Oklahoma City, Oklahoma 73170
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(Address of Principal Executive Offices)
Issuer's Telephone Number: (405) 692-5351
N/A
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(Former Name or Former Address, if changed since last Report)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes____ No ___
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practicable date:
March 31, 2000
Common - 10,692,772 shares
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
Transitional Small Business Issuer Format Yes X No
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Consolidated Financial Statements of the Company required
to be filed with this 10-QSB Quarterly Report were prepared by management and
commence on the following page, together with related Notes. In the opinion
of management, the Consolidated Financial Statements fairly present the
financial condition of the Company.
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COLE COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEET
As of March 31, 2000
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash $ 95,972
Accounts receivable 108,098
Theft loss receivable 105,530
Inventory 557,377
Income tax refunds receivable 7,588
Other current assets 6,032
Total Current Assets 880,597
EQUIPMENT, less accumulated depreciation of $89,582
237,069
Construction in progress 34,852
Deferred contract costs 236,645
TOTAL ASSETS $ 1,389,163
CURRENT LIABILITIES
Notes payable $ 100,000
Current portion of installment notes payable 16,556
Demand note payable to stockholder 37,851
Accounts payable 587,672
Accrued expenses 184,703
Total Current Liabilities 926,782
LONG-TERM DEBT, net of current portion 72,619
Total Liabilities 999,401
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 25,000,000
shares authorized, 10,692,772 shares
issued and outstanding 10,693
Paid in capital 1,544,760
Retained earnings (Deficit) (1,165,691)
Total Stockholders' Equity (Deficit) 389,762
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,389,163
</TABLE>
<TABLE>
COLE COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2000 and 1999
<CAPTION>.
2000 1999
<S> <C> <C>
REVENUES $2,468,343 $2,562,892
COST OF SALES
Materials 1,938,061 2,151,609
Labor 42,182 87,058
Other 62,595 51,834
Total Cost of Sales 2,042,838 2,290,501
GROSS MARGIN 425,505 272,391
Selling expenses 421,342 165,359
General and administrative 293,625 131,073
NET (LOSS) FROM OPERATIONS (289,462) (24,041)
Interest income 29
Interest (expense) ( 12,514) ( 715)
NET (LOSS) BEFORE TAXES (301,976) (24,727)
INCOME TAX (Benefit)
NET (LOSS) $ (301,976) $ (24,727)
Income (loss) per common share $ ( .030) $ ( .002)
Weighted average shares outstanding 10,150,135 9,975,900
</TABLE>
<TABLE>
COLE COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Three Months Ended March 31, 2000 and 1999
<CAPTION>
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(301,976) $( 24,726)
Adjustments to reconcile net income to net
cash provided by operating activities:
Stock issued in 1999 for 2000 services 1,500
Depreciation 12,741 5,219
Change in cash from:
Accounts receivable ( 5,252) ( 40,863)
Inventory (179,933) (228,679)
Income tax refunds receivable 3,000
Accounts payable ( 4,514) 111,879
Accrued expenses ( 4,692) ( 38,656)
NET CASH FROM OPERATING ACTIVITIES (479,126) (215,826)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment ( 78,326) ( 2,701)
CASH FLOWS FROM FINANCING ACTIVITIES
Stock issued for cash 492,558 50,000
Proceeds from new installment notes payable 68,283
Advances by (repayments to) founding stockholder ( 7,714) 2,982
Payments on notes payable ( 34,852)
Principal payments on installment loans ( 19,642) ( 2,287)
NET CASH FROM FINANCING ACTIVITIES 498,633 50,695
NET CHANGE IN CASH ( 58,819) (167,832)
CASH ON HAND - beginning of year 154,791 226,418
- end of year $ 95,972 $ 58,586
SUPPLEMENTAL DISCLOSURES
Interest paid $ 12,514 $ 715
Income taxes paid 0 0
</TABLE>
COLE COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim financial statements of Cole Computer
Corporation have been prepared in accordance with generally accepted
accounting principles and the rules of the Securities and Exchange Commission
("SEC"), and should be read in conjunction with the audited financial
statements and notes thereto contained in the Company's 10-KSB Annual Report
for the year ended December 31, 1999. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the
interim periods presented have been reflected herein. The results of
operations for interim are not necessarily indicative of the results to be
expected for the full year. Notes to the financial statements which would
substantially duplicate the disclosure contained in the 1999 audited financial
statements, as reported in the 1999 10-KSB, have been omitted.
NOTE 2. COMMON STOCK ISSUANCE
During the 3 months ended March 31, 2000, 328,372 shares were sold
for $492,558 in cash and 250,000 shares were issued in payment of a $250,000
loan.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation.
- ------------------
Cole's objective is to maximize the stockholders' value by executing
a strategy that focuses on the priority of growth, profitability, customer
satisfaction and service. The following discussion highlights the Company's
performance in context to these priorities, and it should be read in
conjunction with the financial statements (including related notes)
accompanying this Report.
Cole has created a revenue stream of over $8,700,000 with only
eleven stores, three of which commenced operations the latter part of 1999.
Cole has an established client base with steadily increasing revenue in its
retail markets. Gross margin has increased 50% from 1998. Emphasis by
management in 2000 will be to further increase margins in all areas of the
business. Total revenues of 1999 were $8,737.770, 5.2% higher than 1998.
Management implemented programs which produced dramatic improvements
in cost controls and contribution margins. The Company, however, had to make
extensive investments in the areas of personnel, administration,
administrative support and infrastructure to handle the significant growth
that comes about by the Company's award of a General Services Administration's
Federal Supply Contract five year contract, which has an additional five year
renewable option.
The framework for building GSA sales within the Federal Government
as well as expanding GSA contract sales to state and local governments, is now
in place. The hiring of a network of Independent GSA Sales Agents has begun.
This force will be seasoned government sales veterans, who will operate as
Independent Sales Agents on a commission only basis and will call on familiar
customers with whom they have dealt the past.
The Company is placing heavy emphasis on increased sales in its
retail distribution market of Computer Master stores. The Company has also
established a minimum annual revenue quota for 2000 of $1,000,000 per store,
with a sales mix target of 60% coming from retail customers and the balance of
40% coming from government, education and wholesale customers. These are only
estimates and would represent a substantial increase in revenues.
This revenue will be complimented by revenue through our
Headquarters' Sales Operations, specifically the Government Sales and
Education Division, which will operate with a network of Independent Sales
Agents calling on government customers at the federal, state and local levels.
The minimum revenue quota for the Government Sales and Education
Division is $4,000,000 based on current personnel, with an increase of
$250,000 per month for each Independent Sales Agent added to the program.
While starting in the second quarter, the expansion of our Independent Sales
Agent program will not be fully functional until the third quarter of 2000.
This will show a dramatic increase in government sales as Cole expands its
distribution channel via Independent Agents. No assurance can be given that
these results will occur, and various economic factors could have an adverse
effect on these projections.
During 1999, the Company expended considerable advertising dollars
to generate revenue. Management has determined a new agency and advertising
campaign is needed to increase retail store sales. Management is in the
process of setting in place a more cost-effective advertising program. To
this end, management is engaged in negotiating and soliciting advertising
proposals from several agencies.
1999 was a difficult year for the Company to reduce cost of sales.
The Company did not have the leverage to develop better pricing with key
vendors. Management is now working to establish lines of credit large enough
so that a sizable reduction in cost of goods purchased will result in a
reduction of cost of goods sold and increase margins. The Company has been
aggressively working on increasing profit by utilizing vendor rebates, as well
as vendor buying opportunities to increase leverage and Cole's return on
inventory investments.
It is the goal of the Company during 2000 to turn over inventory at
a minimum of 24 times a year, with the target for 2000 of 48 times; this is an
aggressive estimate. Coupled with costs controls, established detailed
expense account procedures, new credit card policies, travel policies, a new
President, new CPA and new Corporate Officer to manage the Government Sales
and Education Division, this should help the Company to increase revenue,
profitability and growth.
During 2000, Cole is expanding its Internet business and will
launch several unique Internet revenue generating operations that will
compliment Cole's existing business. Management has also increased emphasis
on productivity and expects productivity of employees to dramatically
increase.
The Company is continuing to build on its strengths and expand
retail outlets during 2000 on both the East and West coasts. This will be
commenced in the third quarter. The awarding of the five year GSA Federal
Supply Schedule is key to this growth expansion. It took an incredible
investment of time, personnel and money to negotiate this contract during
1999. The Company is now in a position to take advantage of this five year
contract and its five year renewable option.
Gross margin increase and percentage of net sales increase during
1999 as compared to 1998 was primarily the result of a shift in revenue mix
and inventory controls, the establishment of better forecasting of demands,
reduced inventory carrying levels, related costs and the cost of financial
exposure resulting from obsolescent and excess inventory levels. These
procedures are on-going by management.
The Company has also dramatically reduced inventory and increased
its returns under manufactures' RMA programs. The Company reduced its
outstanding RMA's to less than half of 1998 levels during 1999, with a target
of having no backlog in RMA's in 2000. Management intends to handle all RMA's
during the same month the returns takes place. This change has allowed the
Company to dramatically reduce carrying of non-saleable inventory, acquire
appropriate credits, replacement parts or other benefits from suppliers in a
timely manner.
Results of Operations.
- ----------------------
The revenues we produced for the first quarter of 2000 dropped 4%
compared to the same period in 1999. Our Store #7 was the principal reason
for this 4% difference. The store had a $280,000 drop in sales due to a
wholesale customer's decrease in business activity. Store #10 and Store #11
made up a significant portion of this drop in revenue by contributing $215,000
more in sales for the first quarter in 2000 when compared to the same period
in 1999. These stores opened in September 1999 and October 1999.
Our gross margin for the first quarter of 2000 was 5% higher than
the first quarter of 1999. This increase in gross margin is primarily due to
better performance in inventory management of RMA merchandise and in price
negotiations with vendors for their products.
Selling expenses increased 155% in the first quarter of 2000
compared to first quarter of 1999. This reflects an increase in labor costs
of $35,000 and an increase in operating expenses of $5,000 for GSA sales
personnel which were hired after the first quarter of 1999. The labor and
operating expenses for Store #10 and Store #11 which began operating in
September 1999 and October 1999, respectively, produced another $24,000 of
this increase in selling expenses. Advertising expense also rose $40,000 in
2000 when compared to the same period in 1999.
General and administrative expenses increased 132% in the first
quarter of 2000 when compared to the same period in 1999. Officers salaries
increased $20,000 and office labor costs increased $15,000. These increases
were for the new President and internal accountant to our staff. Legal
services increased $41,000 due to the private placement of company stock and
other issues. Interest expense increased $11,000 due to LTC note payable.
We experienced a loss of $302,000 in the first quarter of 2000
compared to a loss of $25,000 in the first quarter of 1999. The primary
reasons for this loss were the increases in selling, general and
administrative expenses as mentioned above. This loss is reflected in the
current working capital ($46,000) for 2000 period as compared to $232,000 in
1999.
The sale of our common stock in the first quarter of 2000 via a
private placement of 328,372 shares at $1.50 per share provided $492,558 of
cash. The remaining 171,628 private placement shares will be sold in April
2000 at $1.50 per share providing an additional $257,442. Notes Payable of
$250,000 was converted to 250,000 shares of our common stock. This activity
compares with only $50,000 of our common stock sold for cash in first quarter
of 1999.
Liquidity.
- ----------
The Company had current assets of $95,972 in cash, $108,098 in
Accounts Receivable and $105,530 of inventory. The Company had trade accounts
payable of $587,672, accrued expenses of $184,703, along with current portions
of installments and notes payable of $16,556.
During the 3 months ended March 31, 2000, 328,372 shares were sold
for $492,558 in cash and 250,000 shares were issued in payment of a $250,000
loan.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
Item 2. Changes in Securities.
None; not applicable.
Item 3. Defaults Upon Senior Securities.
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's security holders
during the first quarter of the calendar year covered by this Report.
Item 5. Other Information.
None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(i)
27 Financial Data Schedule
(ii)
Annual Report on Form 10-KSB for the calendar year ended
December 31, 1999, incorporated herein by reference.
(b) Reports on Form 8-K.
None.
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.
COLE COMPUTER CORPORATION
Date: May 15, 2000 By/s/John L. Ruth
------------ --------------------------
John L. Ruth, President and COO
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated:
COLE COMPUTER CORPORATION
Date: May 15, 2000 By/s/John L. Ruth
------------ ----------------------
John L. Ruth, President and COO
Date: May 15, 2000 By/s/Homer O. Cole, III
------------ ----------------------
Homer O. Cole III, Director
and CEO
Date: May 15, 2000 By/s/Cynthia A. Cole
------------ ------------------------------
Cynthia A. Cole, Director
and Secretary/Treasurer
Date: May 15, 2000 By/s/Kam Mar
------------ ------------------------------
Kam Mar, Director
Date: May 15, 2000 By/s/S. F. Hartley, D.P.M.
------------ ------------------------------
S. F. Hartley, D.P.M., Director
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 95972
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<ALLOWANCES> 0
<INVENTORY> 557377
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0
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<CGS> 2042838
<TOTAL-COSTS> 2042838
<OTHER-EXPENSES> 714967
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<INTEREST-EXPENSE> 12514
<INCOME-PRETAX> (301976)
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<INCOME-CONTINUING> (301976)
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<NET-INCOME> (301976)
<EPS-BASIC> (0.03)
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