UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-14731
COMPUTER MARKETPLACE, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 35-0558415
--------------------------------- ---------------------------------
(State of or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1490 Railroad Street
Corona, California 91720
------------------------
(Address of Principal Executive Offices) (Zip Code)
(909) 735-2102
--------------
(Issuer's telephone number, including area code)
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 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 February 12, 1997, 8,114,542 shares of the issuer's common stock were
outstanding.
This report contains 19 pages.
<PAGE>
(2)
Computer Marketplace, Inc. and Subsidiaries
Form 10-QSB
Index
Page
PART I. Financial Information: No.
Condensed Consolidated Balance Sheet as of December 31, 1996..... 3
Condensed Consolidated Statements of Operations for the three
and six month periods ended December 31, 1996 and 1995....... 4
Condensed Consolidated Statements of Cash Flows for the three
and six month periods ended December 31, 1996 and 1995....... 5-6
Notes to Condensed Consolidated Financial Statements............. 7-10
Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................11-17
PART II. Other Information:
Exhibits and Reports on Form 8-K................................. 18
Signature........................................................ 19
<PAGE>
<TABLE>
<CAPTION>
(3)
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Computer Marketplace, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
December 31, 1996
(Unaudited)
<S> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 397,710
Cash held in escrow (note 5) 930,000
Accounts receivable, less allowance for
doubtful accounts of $156,589 3,682,951
Inventory, net (note 2) 2,447,029
Notes receivable - related parties 276,745
Other current assets 164,466
-----------
Total current assets 7,898,901
Property held for sale, net (note 3) 2,158,518
Property and equipment, net (note 3) 785,750
Other assets 53,541
-----------
Total assets $ 10,896,710
===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable (note 4) $ 2,363,840
Accounts payable 2,358,416
Accrued payroll and payroll related liabilities 283,522
Current portion of long-term debt 53,999
Other current liabilities 318,056
-----------
Total current liabilities 5,377,833
Long-term debt 1,509,701
Other liabilities 44,792
Minority interest in net assets of subsidiary (note 5) 141,356
Commitments and contingencies (note 5)
Stockholders' equity:
Preferred stock - $.0001 par value, 1,000,000 shares
authorized, no shares issued and outstanding
Common stock - $.0001 par value, 50,000,000 shares
authorized, 8,114,542 shares issued and outstanding 811
Capital in excess of par value 8,406,065
Accumulated deficit (4,050,362)
Deferred compensation (note 5) (533,486)
-----------
Total stockholders' equity 3,823,028
-----------
Total liabilities and stockholders' equity $ 10,896,710
===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(4)
Computer Marketplace, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended Six months ended
December 31, December 31,
1996 1995 1996 1995
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues -
Product sales, rental,
service and other $ 6,688,413 $ 7,965,946 $ 13,868,292 $ 14,498,649
Cost and expenses:
Cost of revenues -
product sales, rental,
service and other 5,876,096 6,597,441 12,135,757 12,225,728
Selling, general and
administrative 1,698,921 1,369,840 2,958,751 2,594,079
---------- ---------- ---------- ----------
7,575,017 7,967,281 15,094,058 14,819,807
---------- ---------- ---------- ----------
Operating loss (886,604) (1,335) (1,226,216) (321,158)
---------- ---------- ---------- ----------
Other income (expense):
Interest expense (90,596) (104,803) (206,106) (180,989)
Interest income - 1,220 234 2,015
Miscellaneous income 9,883 29,617 19,374 30,604
---------- ---------- ---------- ----------
(80,713) (73,966) (186,498) (148,370)
---------- ---------- ---------- ----------
Loss before income taxes
and minority interest (967,317) (75,301) (1,412,714) (469,528)
Provision for income taxes - - - -
---------- ---------- ---------- ----------
Loss before minority
interest (967,317) (75,301) (1,412,714) (469,528)
Minority interest (19,100) - (19,100) -
---------- ---------- ---------- ----------
Net loss $ (986,417) $ (75,301) $(1,431,814) $ (469,528)
========== ========== ========== ==========
Net loss per share $ (0.12) $ (0.01) $ (0.18) $ (0.06)
========== ========== ========== ==========
Weighted average common
shares outstanding 8,114,542 8,114,542 8,114,542 8,114,542
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(5)
Computer Marketplace, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
December 31
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,431,814) $ (469,528)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 138,303 137,698
Provisions for losses on accounts receivable 48,125 (10,306)
Provisions for losses on inventory 60,000 44,905
Other valuation provisions - (1,196)
Loss on sale of equipment - 1,278
Minority interest in subsidiary 141,356 -
Changes in assets and liabilities:
Accounts receivable (685,336) 53,325
Inventory 773,825 (171,221)
Other current assets 230,282 90,203
Accounts payable 308,679 (576,474)
Accrued payroll and payroll related
liabilities (11,671) (105,954)
Other current liabilities 52,661 128,844
Other liabilities (1,387) (48,464)
---------- -----------
Net cash used in operating activities (376,977) (926,890)
---------- -----------
Cash flows from investing activities:
Decrease in notes receivable -
related parties 18,999 5,326
Purchase of property and equipment (9,909) (300,009)
Proceeds from sale of equipment - 10,775
Decrease (increase) in other assets 7,735 (38,253)
---------- ----------
Net cash provided by (used in)
investing activities 16,825 (322,161)
---------- ----------
Cash flows from financing activities:
Net increase in notes payable 188,999 1,087,746
Proceeds from long-term debt - 21,255
Net proceeds from issuance of stock 930,000 -
Payments on long-term debt (26,058) (30,188)
---------- ----------
Net cash provided by financing activities 1,092,941 1,078,813
---------- ----------
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(6)
Computer Marketplace, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)
Six months ended
December 31,
1996 1995
---------- -----------
<S> <C> <C>
Decrease in cash and cash equivalents $ 732,789 $ (170,238)
Cash and cash equivalents, beginning of period 594,921 747,665
---------- ----------
Cash and cash equivalents, end of period $ 1,327,710 $ 577,427
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 206,105 $ 180,989
========== ==========
<FN>
Supplemental disclosures of non-cash operating activities:
During the six months ended December 31, 1996 $90,312 of other liabilities
were reclassified to accounts payable, and fixed assets with a net book value
of $93,511 were reclassified to inventory.
During the six months ended December 31, 1995, $274,235 of accounts payable
was reclassified to other liabilities to reflect the negotiated payment terms.
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
(7)
Computer Marketplace, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.BASIS OF PRESENTATION
---------------------
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the
consolidated financial position of Computer Marketplace, Inc. and
subsidiaries (the "Company") as of December 31, 1996, the consolidated
results of its operations for the three and six month periods ending December
31, 1996 and 1995 and its cash flows for the six month periods ending
December 31, 1996 and 1995. Although the Company believes that the
disclosures in these financial statements are adequate to make the
information presented not misleading, certain information and footnote
information normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. Results of operations for the period ended December 31, 1996 are
not necessarily indicative of results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
June 30, 1996.
Certain amounts in the three and six month periods ended December 31, 1996
condensed consolidated financial statements have been reclassified to conform
to the current presentation.
2.INVENTORY
---------
Computer Medical
Products Products Total
---------- ---------- ----------
Inventory $ 1,484,059 $ 466,077 $ 1,950,136
Inventory on short-term rental 778,109 - 778,109
---------- ---------- ----------
2,262,168 466,077 2,728,245
Less inventory valuation allowance 281,216 - 281,216
---------- ---------- ----------
Inventory, net $ 1,980,952 $ 466,077 $ 2,447,029
========== ========== ==========
Inventory on short-term rental consists of new and previously owned computer-
related equipment which is typically rented to customers for a few months to
fulfill their temporary computing needs. The Company, based on the
satisfactory economics of the transaction, will allocate existing inventory to
the transaction if the product is available in-house, or purchase the
equipment to meet the customer's needs. At the expiration of the rental
period, upon the return of the equipment to the Company, the equipment is re-
marketed for sale along with similar equipment in the Company's inventory.
The Company charges operations for an estimate of the inventory's valuation
decrease while it is on temporary rental. Net increases to the inventory
valuation allowance were $60,000 for each of the six month periods ending
December 31, 1996 and 1995, respectively.
<PAGE>
(8)
3.PROPERTY AND EQUIPMENT
----------------------
Property and equipment at December 31, 1996, consists of the following:
Land $ 53,750
Buildings and property improvements 254,490
Machinery and equipment 793,598
Furniture and fixtures 147,503
Automobiles and trucks 167,507
Long-term rental equipment 16,513
----------
1,433,361
Less accumulated depreciation 647,611
----------
Property and equipment, net $ 785,750
==========
PROPERTY HELD FOR SALE
----------------------
Property held for sale consists of the fifty percent (50%) Company owned
facility at 205 East Fifth Street in Corona, California and the Company's main
facility located at 1490 Railroad Street in Corona. Accumulated depreciation
associated with the two facilities at December 31, 1996 was $24,506 and
$141,400, respectively. The decision to classify this property as held for
sale was made at June 30, 1996.
4.NOTES PAYABLE
-------------
In September 1995, the Company entered into a new revolving credit facility
agreement ("Credit Facility") with a financing company. This Credit Facility
allows the Company to borrow up to $2,500,000 and bears interest at a rate of
2.25% above the lender's "reference rate" (as defined). The borrowing
capacity under the Credit Facility is dependent upon "eligible" (as defined)
accounts receivable and inventory, and fluctuates daily. At December 31,
1996, borrowings under the Credit Facility and additional amounts available
for borrowing under the Credit Facility were $2,363,840 and $26,562,
respectively. The Credit Facility is collateralized by substantially all of
the Company's assets, except for real property. The Credit Facility expires
on September 30, 1997, but is automatically renewed for an additional one (1)
year term unless either party provides written notice to the other party of
the desire to cancel the Credit Facility.
5.COMMITMENTS AND CONTINGENCIES
-----------------------------
In October 1996, the Company amended its employment agreement with L. Wayne
Kiley, the Company's Chairman of the Board, President and Chief Executive
Officer. Pursuant to such amendment, (i) the employment agreement's
expiration date of October 16, 1997 was extended to October 16, 1999, (ii) Mr.
Kiley was granted the right to purchase a number of shares of Common Stock for
a period of four (4) years, at a price equal to seventy five percent (75%) of
the closing bid price of the Company's shares of Common Stock on the date of
grant equal to 2.5%, 3% and 3.5% of the shares outstanding, should the Company
report annual earnings before the payment of interest and taxes of $635,000,
$875,000 and $1,000,000, respectively, (iii) Mr. Kiley will be paid a cash
bonus equal to 5% of any profit realized by the Company from the sale of
assets outside the ordinary course of business, and (iv) an insurance policy
covering the life of Mr. Kiley whereby Mr. Kiley's estate will be paid
$2,000,000 in exchange for the redemption of the shares of the Company's
<PAGE>
(9)
capital stock beneficially owned by Mr. Kiley. The employment agreement
contains other customary terms and conditions including termination for cause,
non-competition and confidentiality provisions.
In December 1996 the Company entered into a one (1) year consulting agreement
with Victoria Holdings, Inc. an affiliate of Biltmore Securities, Inc.
("Victoria Holdings" and "Biltmore," respectively). Pursuant to the
consulting agreement, Victoria Holdings agreed to act as a consultant to the
Company in connection with, among other things, corporate finance and
evaluations of possible business partners and will seek to find business
partners suitable for the Company. In addition, Victoria Holdings has agreed
to assist the Company in the structuring, negotiating and financing of such
transactions. The consulting agreement provides for the issuance to Victoria
Holdings of options (the "Victoria Holdings Options") exercisable to purchase
6,000,000 shares of Common Stock at an exercise price of $.167 per share and
for the additional issuance to Victoria Holdings of 1,000,000 shares (the
"Victoria Fee Shares") of Common Stock upon consummation by the Company of (i)
an acquisition of a company (or companies) introduced to the Company by
Victoria Holdings with net assets of at least $2,500,000 or (ii) a divestiture
of the Company's assets, or the sale of a controlling interest in the
Company's capital stock, to a purchaser introduced to the Company by Victoria
Holdings resulting in net proceeds to the Company in excess of $2,000,000.
In December 1996, the Company issued to certain employees, officers and
directors options to purchase an aggregate of 6,000,000 shares of the
Company's Common Stock during a four (4) year period commencing on January 1,
1997 at an exercise price of $.167 per share (the "Management Options"). In
exchange for the issuance of certain of the Management Options, certain option
holders surrendered for cancellation an aggregate of 1,455,000 options
previously issued in June 1996 for 4,335,000 of the Management Options.
On December 31, 1996 the Company concluded a private placement of 500,000
Units (the "December 1996 Private Placement") which were placed by Biltmore
Securities, Inc., a broker-dealer and a member of the National Association of
Securities Dealers ("Biltmore"), on a firm commitment basis. Each Unit was
offered at a price of $2.00 per Unit, and consisted of one (1) share of Common
Stock of Medical Marketplace, Inc., a subsidiary of the Company, and eighteen
(18) Class D Redeemable Common Stock Warrants (the "Class D Warrants"). The
Class D Warrants are exercisable for one (1) share of the Company's Common
Stock commencing March 31, 1997 at an exercise price of $.417 per share for a
one (1) year period. The Company intends to use the proceeds from the
December 1996 Private Placement to expand the business of Medical Marketplace,
repay advances made by the Company to Medical Marketplace, and for working
capital purposes. Prior to the December 1996 Private Placement, Medical
Marketplace issued options to certain key employees to purchase an aggregate
of 1,000,000 shares of Medical Marketplace Common Stock at $.80 per share.
The Company, its officers, directors and employees and holders of 5% or more
of the outstanding shares of Common Stock have agreed not to sell, pledge,
transfer or hypothecate any shares of Common Stock of the Company or any
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock of the Company for a period of eighteen (18) months from December
31, 1996 without Biltmore's prior consent.
<PAGE>
(10)
The Company's Common Stock is traded on The Nasdaq SmallCap Market ("Nasdaq").
Under the rules of Nasdaq in order to qualify for continued quotation of
securities on Nasdaq, the Company, among other things, must have either (i)
$2,000,000 in assets, $1,000,000 in stockholder equity and a minimum bid price
of $1.00 per share (the "Minimum Bid Requirement") or alternatively (ii)
$2,000,000 in total capital and surplus, and $1,000,000 in market value of
public float (the "Capital/Market Value Requirement"). On February 12, 1997,
the Company's Common Stock had a closing price of $.156. On January 21, 1997,
the Staff of Nasdaq advised the Company that the Company failed to satisfy the
Capital/Market Value Requirement and the Minimum Bid Requirement with respect
to its shares of Common Stock. The Company was then provided 90 days to
comply with either of such requirements in order to continue the listing of
its Common Stock on Nasdaq. Failure to do so would result in delisting the
Company's shares of Common Stock. The Company's Board of Directors approved a
1-for-6 reverse stock split with respect to its shares of Common Stock,
subject to shareholder approval (the "Reverse Stock Split"). It is
anticipated that the Company's shareholders will be requested to approve the
Reverse Stock Split at the Company's Annual Meeting currently scheduled for
the end of March 1997. The Board of Directors believes that a Reverse Stock
Split will, among other things, enable the Company to meet the Minimum Bid
Requirement. Furthermore, a relatively low stock price may affect not only
the liquidity of the Company's Common Stock, but also its ability to raise
additional capital through the sale of equity securities. Thus, the Company
believes that the anticipated increase in trading price will be attractive to
the financial community, the investing public, and to users of the Company's
products.
<PAGE>
(11)
PART I. FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
- ---------------------
The following information should be read in conjunction with the condensed
consolidated financial statements and the notes thereto included in this
Quarterly Report and in the audited Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Form 10-KSB for the fiscal year ended
June 30, 1996.
QUARTER ENDED DECEMBER 31, 1996 COMPARED TO QUARTER ENDED DECEMBER 31, 1995
- ---------------------------------------------------------------------------
Total revenues for the quarter ended December 31, 1996, were $6,688,413 compared
to $7,965,946 for the quarter ended December 31, 1995. This represents a
decrease of $1,277,533 or 16%.
Revenues from computer product sales and rentals for the quarter ended December
31, 1996 totaled $4,340,284, a $2,990,890 or 41% decrease compared to $7,331,174
for the quarter ended December 31, 1995. The sales decrease is reflective of a
general industry sales decrease which results in part from price reductions in
new computer hardware which negatively impacts selling prices and sales of used
computer hardware. The Company anticipates the lower computer products sales
trend to continue into the third quarter.
Medical product sales and rentals contributed $2,348,129 in revenues for the
quarter ended December 31, 1996, compared to $634,772 for the quarter ended
December 31, 1995. The current quarter's result represents a $1,713,357 or 270%
increase in revenues over the same period in 1995. Continuing investments by
Medical Marketplace, Inc. in experienced sales representatives and technical
staff, as well as a growing recognition within the industry as an established
reseller of previously owned and upgraded magnetic resonance imaging, computed
tomograph scanner and ultrasound equipment have positively impacted the sales of
this subsidiary. Continued growth and sustained profitability for this
subsidiary are expected into the next quarter.
Previously owned medical equipment is just beginning to gain acceptance in the
health care community as a cost effective alternative to new equipment. The
Company believes that its field representative program, financial strength and
support structure will provide Medical Marketplace, Inc. a distinct advantage
over many of the subsidiary's competitors.
Total aggregate cost of revenues for the quarter ended December 31, 1996 and
1995 were $5,876,096 or 88% of revenues and $6,597,441 or 83% of revenues,
respectively. Cost of revenue percentages are expected to remain relatively
stable during the next fiscal year with small decreases anticipated. Factors
which will favorably reduce the cost of revenues percentage include; a Company
focus toward higher margin transactions through a focus on our end user customer
base, a change in computer sales representative compensation plans which
includes a substantially higher base salary and less of a commission component
than prior periods and the positive effect that higher margin medical equipment
sales has on the consolidated percentage.
<PAGE>
(12)
Cost of revenues for computer products were $3,811,292 or 88% of revenues and
$6,090,293 or 83% of revenues for the quarters ended December 31, 1996 and 1995,
respectively. The higher cost of revenues percentage in the current quarter is
reflective of the reduced operating leverage resulting from lower computer
product sales and a focus on liquidating older inventory which has a lower
profit margin.
Costs of revenues for medical products were $2,064,804 or 88% of revenues and
$507,148 or 80% of revenues for the quarters ended December 31, 1996 and 1995,
respectively.
Total selling, general and administrative ("SG&A") expenses for the quarter
ended December 31, 1996 and 1995 were $1,698,921 or 25% of revenues and
$1,369,840 or 17% of revenues, respectively. The aggregate increase in SG&A
expenses from the prior period was $329,081 or 24%. The increase in SG&A
expenses was negatively impacted by the increase in Medical Marketplace, Inc.
personnel expense and the change in computer sales representative compensation
plans mentioned above, as well as charges relating to the December 1996 Private
Placement. These increases were partially offset by personnel cutbacks during
the prior year.
SG&A expenses attributed to computer products were $1,507,658 or 35% of revenues
and $1,264,305 or 17% of revenues for the quarters ended December 31, 1996 and
1995, respectively. The increase in SG&A expenses as a percentage of revenues
is due primarily to the sales volume decrease previously mentioned, as well as
charges relating to the December 1996 Private Placement.
SG&A expense attributed to medical products were $191,263 or 8% of revenues and
$105,535 or 17% of revenues for the quarters ended December 31, 1996 and 1995,
respectively.
Total operating loss was $886,604 and $1,335 for the quarters ended December 31,
1996 and 1995, respectively. This $885,269 unfavorable change was due to a
combination of factors including: a decline in computer product revenues, the
delayed impact of additional cost reductions during the quarter, and lower
margin sales associated with the Company's inventory reduction program.
Operating loss for computer products was $978,666 and $23,424 for the quarters
ended December 31, 1996 and 1995, respectively.
Operating income for medical products was $92,062 and $22,089 for the quarters
ended December 31, 1996 and 1995, respectively.
Interest expense for the year ended December 31, 1996, was $90,596 compared to
$104,803 for the year ended December 31, 1995. Management anticipates that
interest expense will remain stable during the current fiscal year over similar
periods in the prior year, with small decreases possible.
The Company's consolidated net loss was $967,317 or $0.12 per share for the
quarter ended December 31, 1996, versus $75,301 or $0.0l per share for the
quarter ended December 31, 1995. The net loss was a result of the business
conditions described herein.
<PAGE>
(13)
SIX MONTHS ENDED DECEMBER 31,1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,1995
- -------------------------------------------------------------------------------
Total revenues for the six months ended December 31, 1996, were $13,868,292
compared to $14,498,649 for the six months ended December 31, 1995. This
represents a decrease of $630,357 or 4%.
Revenues from computer product sales and rentals for the six months ended
December 31, 1996 totaled $9,139,025, a $4,663,403 or 34% decrease compared to
$13,802,428 for the six months ended December 31, 1995. The sales decrease is
reflective of a general industry sales decrease which results in part from price
reductions in new computer hardware which negatively impacts selling prices and
sales of used computer hardware. The Company anticipates the lower computer
products sales trend to continue into the second six months .
Medical product sales and rentals contributed $4,729,267 in revenues for the six
months ended December 31, 1996, compared to $696,221 for the six months ended
December 31, 1995. The current six month's result represents a $4,033,046 or
579% increase in revenues over the same period in 1995. Continuing investments
by Medical Marketplace, Inc. in experienced sales representatives and technical
staff, as well as a growing recognition within the industry as an established
reseller of previously owned and upgraded magnetic resonance imaging, computed
tomograph scanner and ultrasound equipment have positively impacted the sales of
this subsidiary. Continued growth and sustained profitability for this
subsidiary are expected into the next six months.
Previously owned medical equipment is just beginning to gain acceptance in the
health care community as a cost effective alternative to new equipment. The
Company believes that its field representative program, financial strength and
support structure will provide Medical Marketplace, Inc. a distinct advantage
over many of the subsidiary's competitors.
Total aggregate cost of revenues for the six months ended December 31, 1996 and
1995 were $12,135,757 or 88% of revenues and $12,225,728 or 84% of revenues,
respectively. Cost of revenue percentages are expected to remain relatively
stable during the next fiscal year with small decreases anticipated. Factors
which will favorably reduce the cost of revenues percentage include; a Company
focus toward higher margin transactions through a focus on our end user customer
base, a change in computer sales representative compensation plans which
includes a substantially higher base salary and less of a commission component
than prior periods and the positive effect that higher margin medical equipment
sales has on the consolidated percentage.
Cost of revenues for computer products were $8,136,556 or 89% of revenues and
$11,704,286 or 85% of revenues for the six months ended December 31, 1996 and
1995, respectively. The higher cost of revenues percentage in the current six
months is reflective of the reduced operating leverage resulting from lower
computer product sales and the Company's focus on liquidating older inventory
which has a lower profit margin.
Costs of revenues for medical products were $3,999,201 or 85% of revenues and
$521,442 or 75% of revenues for the six months ended December 31, 1996 and 1995,
respectively.
<PAGE>
(14)
Total selling, general and administrative ("SG&A") expenses for the six months
ended December 31, 1996 and 1995 were $2,958,751 or 21% of revenues and
$2,594,079 or 18% of revenues, respectively. The aggregate increase in SG&A
expenses from the prior period was $364,672 or 14%. The increase in SG&A
expenses was negatively impacted by the increase in Medical Marketplace, Inc.
personnel expense and the change in computer sales representative compensation
plans mentioned above, as well as charges relating to the December 1996 Private
Placement. These increases were partially offset by personnel cutbacks during
the prior year and during the current six months.
SG&A expenses attributed to computer products were $2,608,702 or 29% of revenues
and $2,385,424 or 17% of revenues for the six months ended December 31, 1996 and
1995, respectively. The increase in SG&A expenses as a percentage of revenues
is due primarily to the sales volume decrease previously mentioned, as well as
charges relating to the December 1996 Private Placement.
SG&A expense attributed to medical products were $350,049 or 7% of revenues and
$208,655 or 30% of revenues for the six months ended December 31, 1996 and 1995,
respectively.
Total operating loss was $1,226,216 and $321,158 for the six months ended
December 31, 1996 and 1995, respectively. This $905,058 unfavorable change was
due to a combination of factors including: a decline in computer product
revenues, the delayed impact of additional cost reductions during the six
months, and lower margin sales associated with the Company's inventory reduction
program.
Operating loss for computer products was $1,606,233 and $287,282 for the six
months ended December 31, 1996 and 1995, respectively.
Operating income (loss) for medical products was $380,017 and $(33,876) for the
six months ended December 31, 1996 and 1995, respectively.
Interest expense for the six months ended December 31, 1996, was $206,106
compared to $180,989 for the six months ended December 31, 1995. Management
anticipates that interest expense will remain stable during the current fiscal
year over similar periods in the prior year, with small decreases possible.
The Company's consolidated net loss was $1,431,814 or $0.18 per share for the
six months ended December 31, 1996, versus $469,528 or $0.06 per share for the
six months ended December 31, 1995. The net loss was a result of the business
conditions described herein.
VARIABILITY OF PERIODIC RESULTS AND SEASONALITY
- ------------------------------------------------
Results from any one period cannot be used to predict the results for other
fiscal periods. Revenues fluctuate from period to period; however, management
does not see any seasonality or predictability to these fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has historically financed its growth and cash needs primarily
through borrowings and cash generated from operations. The funds received
through the initial public offering in June 1993, in the amount of approximately
$6.6 million, enabled the Company to eliminate most of its long-term debt at
that time. Working capital at December 31, 1996 and 1995 was $2,521,068 and
$3,434,078, respectively.
<PAGE>
(15)
During the six months ended December 31, 1996, the Company used the June 30,
1996 available cash and cash equivalents of approximately $595,000, the
availability of borrowing under the Company's revolving Credit Facility, vendor
extended credit and approximately $774,000 of reductions in the Company's
inventory levels in order to fund the operations of the Company.
Management has continued to emphasize an inventory reduction program
encompassing both the stored inventory, as well as the inventory on short-term
rental contracts. The effects of this program are clearly reflected in this
quarter. Management believes this disciplined strategic reduction will enhance
the Company's operating effectiveness, provide additional liquidity, and reduce
the exposure to negative inventory valuation adjustments caused by changing
market conditions. Certain temporary increases in inventory amounts are due to
selected purchases made by the Company which are intended to be sold quickly.
Additional inventory increases are expected relating to Medical Marketplace,
Inc.'s growth.
In addition, management intends to investigate alternative financing options to
be utilized for our foreign customers in order to enhance the opportunities for
the Company's medical equipment subsidiary's growth. The Company has delayed
implementation of these financing options as the medical equipment subsidiary
has been focused on domestic sales. Longer-term cash requirements, other than
for normal operating expenses, are anticipated for acquisition candidates. In
addition, the Company has listed for sale two properties located in Corona,
California. Management intends to use the additional funding and proceeds from
the building sales in order to pay down related long-term debt and borrowings on
the revolving credit facility in addition to significantly growing the business
of our medical equipment subsidiary.
COMMITMENTS AND CONTINGENCIES
- -----------------------------
In October 1996, the Company amended its employment agreement with L. Wayne
Kiley, the Company's Chairman of the Board, President and Chief Executive
Officer. Pursuant to such amendment, (i) the employment agreement's expiration
date of October 16, 1997 was extended to October 16, 1999, (ii) Mr. Kiley was
granted the right to purchase a number of shares of Common Stock for a period of
four (4) years, at a price equal to seventy five percent (75%) of the closing
bid price of the Company's shares of Common Stock on the date of grant equal to
2.5%, 3% and 3.5% of the shares outstanding, should the Company report annual
earnings before the payment of interest and taxes of $635,000, $875,000 and
$1,000,000, respectively, (iii) Mr. Kiley will be paid a cash bonus equal to 5%
of any profit realized by the Company from the sale of assets outside the
ordinary course of business, and (iv) an insurance policy covering the life of
Mr. Kiley whereby Mr. Kiley's estate will be paid $2,000,000 in exchange for the
redemption of the shares of the Company's capital stock beneficially owned by
Mr. Kiley. The employment agreement contains other customary terms and
conditions including termination for cause, non-competition and confidentiality
provisions.
In December 1996 the Company entered into a one (1) year consulting agreement
with Victoria Holdings, Inc. an affiliate of Biltmore Securities, Inc.
("Victoria Holdings" and "Biltmore," respectively). Pursuant to the consulting
agreement, Victoria Holdings agreed to act as a consultant to the Company in
connection with, among other things, corporate finance and evaluations of
possible business partners and will seek to find business partners suitable for
the Company. In addition, Victoria Holdings has agreed to assist the Company in
the structuring, negotiating and financing of such transactions. The consulting
agreement provides for the issuance to Victoria Holdings of options (the
"Victoria Holdings Options") exercisable to purchase 6,000,000 shares of Common
<PAGE>
(16)
Stock at an exercise price of $.167 per share and for the additional issuance to
Victoria Holdings of 1,000,000 shares (the "Victoria Fee Shares") of Common
Stock upon consummation by the Company of (i) an acquisition of a company (or
companies) introduced to the Company by Victoria Holdings with net assets of at
least $2,500,000 or (ii) a divestiture of the Company's assets, or the sale of a
controlling interest in the Company's capital stock, to a purchaser introduced
to the Company by Victoria Holdings resulting in net proceeds to the Company in
excess of $2,000,000.
In December 1996, the Company issued to certain employees, officers and
directors options to purchase an aggregate of 6,000,000 shares of the Company's
Common Stock during a four (4) year period commencing on January 1, 1997 at an
exercise price of $.167 per share (the "Management Options"). In exchange for
the issuance of certain of the Management Options, certain option holders
surrendered for cancellation an aggregate of 1,455,000 options previously issued
in June 1996 for 4,335,000 of the Management Options.
On December 31, 1996 the Company concluded a private placement of 500,000 Units
(the "December 1996 Private Placement") which were placed by Biltmore
Securities, Inc., a broker-dealer and a member of the National Association of
Securities Dealers ("Biltmore"), on a firm commitment basis. Each Unit was
offered at a price of $2.00 per Unit, and consisted of one (1) share of Common
Stock of Medical Marketplace, Inc., a subsidiary of the Company, and eighteen
(18) Class D Redeemable Common Stock Warrants (the "Class D Warrants"). The
Class D Warrants are exercisable for one (1) share of the Company's Common Stock
commencing March 31, 1997 at an exercise price of $.417 per share for a one (1)
year period. The Company intends to use the proceeds from the December 1996
Private Placement to expand the business of Medical Marketplace, repay advances
made by the Company to Medical Marketplace, and for working capital purposes.
Prior to the December 1996 Private Placement, Medical Marketplace issued options
to certain key employees to purchase an aggregate of 1,000,000 shares of Medical
Marketplace Common Stock at $.80 per share.
The Company, its officers, directors and employees and holders of 5% or more of
the outstanding shares of Common Stock have agreed not to sell, pledge, transfer
or hypothecate any shares of Common Stock of the Company or any securities
convertible into, or exercisable or exchangeable for, shares of Common Stock of
the Company for a period of eighteen (18) months from December 31, 1996 without
Biltmore's prior consent.
The Company's Common Stock is traded on The Nasdaq SmallCap Market ("Nasdaq").
Under the rules of Nasdaq in order to qualify for continued quotation of
securities on Nasdaq, the Company, among other things, must have either (i)
$2,000,000 in assets, $1,000,000 in stockholder equity and a minimum bid price
of $1.00 per share (the "Minimum Bid Requirement") or alternatively (ii)
$2,000,000 in total capital and surplus, and $1,000,000 in market value of
public float (the "Capital/Market Value Requirement"). On February 12, 1997,
the Company's Common Stock had a closing price of $.156. On January 21, 1997,
the Staff of Nasdaq advised the Company that the Company failed to satisfy the
Capital/Market Value Requirement and the Minimum Bid Requirement with respect to
its shares of Common Stock. The Company was then provided 90 days to comply
with either of such requirements in order to continue the listing of its Common
Stock on Nasdaq. Failure to do so would result in delisting the Company's
shares of Common Stock. The Company's Board of Directors approved a 1-for-6
reverse stock split with respect to its shares of Common Stock, subject to
shareholder approval (the "Reverse Stock Split"). It is anticipated that the
<PAGE>
(17)
Company's shareholders will be requested to approve the Reverse Stock Split at
the Company's Annual Meeting currently scheduled for the end of March 1997. The
Board of Directors believes that a Reverse Stock Split will, among other things,
enable the Company to meet the Minimum Bid Requirement. Furthermore, a
relatively low stock price may affect not only the liquidity of the Company's
Common Stock, but also its ability to raise additional capital through the sale
of equity securities. Thus, the Company believes that the anticipated increase
in trading price will be attractive to the financial community, the investing
public, and to users of the Company's products.
The Company cautions readers that there can be no assurance that actual results
or business conditions will not differ materially from those projected or
suggested in such forward-looking statements as a result of various factors.
Such forward-looking statements are intended to come within the "safe harbor"
provision of the Private Securities Litigation Reform Act of 1995.
<PAGE>
(18)
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule - Electronic Format Only
(b) No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
<PAGE>
(19)
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMPUTER MARKETPLACE, INC.
Date: February 19, 1997 By: /s/ Carmella A. Hume
------------------------------
Carmella A. Hume
Controller
Signing on behalf of the registrant
and as principal financial and
accounting officer.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,327,710
<SECURITIES> 0
<RECEIVABLES> 3,682,951
<ALLOWANCES> 156,589
<INVENTORY> 2,447,029
<CURRENT-ASSETS> 7,898,901
<PP&E> 785,750
<DEPRECIATION> 647,611
<TOTAL-ASSETS> 10,896,710
<CURRENT-LIABILITIES> 5,377,833
<BONDS> 1,509,701
0
0
<COMMON> 811
<OTHER-SE> 3,822,217
<TOTAL-LIABILITY-AND-EQUITY> 10,896,710
<SALES> 13,868,292
<TOTAL-REVENUES> 13,868,292
<CGS> 12,135,757
<TOTAL-COSTS> 12,135,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206,106
<INCOME-PRETAX> (1,431,814)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,431,814)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,431,814)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> 0
</TABLE>
