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 March 31, 1997
[ ] 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 May 12, 1997, 1,352,424 shares of the issuer's common stock were
outstanding.
This report contains 21 pages.
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(2)
Computer Marketplace, Inc. and Subsidiaries
Form 10-QSB
Index
Page
PART I. Financial Information: No.
Condensed Consolidated Balance Sheet as of March 31, 1997........ 3
Condensed Consolidated Statements of Operations for the three
and nine month periods ended March 31, 1997 and 1996......... 4
Condensed Consolidated Statements of Cash Flows for the three
and nine month periods ended March 31, 1997 and 1996......... 5-6
Notes to Condensed Consolidated Financial Statements............. 7-11
Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................12-19
PART II. Other Information:
Exhibits and Reports on Form 8-K................................. 20
Signature........................................................ 21
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(3)
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Computer Marketplace, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 1997
(Unaudited)
<S> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 621,048
Accounts receivable, less allowance for
doubtful accounts of $157,149 3,280,617
Inventory, net (note 2) 1,826,446
Notes receivable - related parties 250,000
Other current assets 172,474
-----------
Total current assets 6,150,585
Property held for sale, net (note 3) 2,146,713
Property and equipment, net (note 3) 700,453
Other assets 85,495
-----------
Total assets $ 9,083,246
===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable (note 4) $ 1,489,191
Accounts payable 2,421,369
Accrued payroll and payroll related liabilities 128,737
Current portion of long-term debt 50,432
Other current liabilities 448,784
-----------
Total current liabilities 4,538,513
Long-term debt 1,494,929
Other liabilities 44,265
Minority interest in net assets of subsidiary (note 5) 143,367
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, 1,352,424 shares issued and outstanding 135
Capital in excess of par value 8,406,741
Accumulated deficit (5,056,944)
Deferred compensation (note 5) (487,760)
-----------
Total stockholders' equity 2,862,172
-----------
Total liabilities and stockholders' equity $ 9,083,246
===========
See notes to condensed consolidated financial statements.
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(4)
Computer Marketplace, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended Nine months ended
March 31, March 31,
1997 1996 1997 1996
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues -
Product sales, rental,
service and other $ 5,689,355 $ 9,238,465 $ 19,557,647 $ 23,737,114
Cost and expenses:
Cost of revenues -
product sales, rental,
service and other 5,065,512 7,837,161 17,201,269 20,002,889
Selling, general and
administrative 1,547,059 1,289,163 4,505,810 3,943,243
---------- ---------- ---------- ----------
6,612,571 9,126,324 21,707,079 23,946,132
---------- ---------- ---------- ----------
Operating loss (923,216) 112,141 (2,149,432) (209,018)
---------- ---------- ---------- ----------
Other income (expense):
Interest expense (94,927) (96,666) (301,033) (277,655)
Interest income 3,819 10,546 4,053 43,166
Miscellaneous income 9,762 0 29,136 0
---------- ---------- ---------- ----------
(81,346) (86,120) (267,844) (234,489)
---------- ---------- ---------- ----------
Loss before income taxes
and minority interest (1,004,562) 26,021 (2,417,276) (443,507)
Provision for income taxes - - - -
---------- ---------- ---------- ----------
Income (loss) before
minority interest (1,004,562) 26,021 (2,417,276) (443,507)
Minority interest (2,020) - (21,120) -
---------- ---------- ---------- ----------
Net income (loss) $(1,006,582) $ 26,021 $(2,438,396) $ (443,507)
========== ========== ========== ==========
Net loss per share $ (0.74) $ 0.02 $ (1.80) $ (0.33)
========== ========== ========== ==========
Weighted average common
shares outstanding 1,352,424 1,352,424 1,352,424 1,352,424
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
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(5)
Computer Marketplace, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
March 31
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,438,396) $(443,507)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 250,701 217,473
Provisions for losses on accounts receivable 48,685 (49,234)
Provisions for losses on inventory 307,881 94,905
Other valuation provisions - (2,653)
Loss on sale/disposal of equipment 61,292 1,278
Net write-off of other assets 23,600 -
Minority interest in subsidiary 143,367 -
Changes in assets and liabilities:
Accounts receivable (283,562) (789,311)
Inventory 1,111,021 31,199
Other current assets 222,274 (86,457)
Accounts payable 326,751 (107,808)
Accrued payroll and payroll related
liabilities (166,456) (170,329)
Other current liabilities 183,389 331,991
Other liabilities 42,968 0
---------- ---------
Net cash used in operating activities (166,485) (972,453)
---------- ---------
Cash flows from investing activities:
Decrease in notes receivable -
related parties 45,744 8,855
Purchase of property and equipment (18,986) (359,601)
Proceeds from sale of equipment - 10,775
Increase in other assets (54,099) (43,084)
---------- ---------
Net cash used in investing activities (27,341) (383,055)
---------- ---------
Cash flows from financing activities:
Net (decrease) increase in notes payable (685,650) 1,192,568
Proceeds from long-term debt - 21,255
Net proceeds from issuance of stock 950,000 -
Payments on long-term debt (44,397) (43,920)
---------- ---------
Net cash provided by financing activities 219,953 1,169,903
---------- ---------
(continued)
</TABLE>
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(6)
Computer Marketplace, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)
Nine months ended
March 31,
1997 1996
---------- -----------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents $ 26,127 $ (185,605)
Cash and cash equivalents, beginning of period 594,921 747,665
---------- ----------
Cash and cash equivalents, end of period $ 621,048 $ 562,060
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 301,033 $ 259,663
========== ==========
<FN>
Supplemental disclosures of non-cash operating activities:
During the nine months ended March 31, 1997 $135,194 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 nine months ended March 31, 1996, $274,235 of accounts payable was
reclassified to other liabilities to reflect the negotiated payment terms.
See notes to condensed consolidated financial statements.
</FN>
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(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 March 31, 1997, the consolidated results
of its operations for the three and nine month periods ending March 31, 1997
and 1996 and its cash flows for the nine month periods ending March 31, 1997
and 1996. 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 March 31, 1997 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 nine month periods ended March 31, 1997
condensed consolidated financial statements have been reclassified to conform
to the current presentation.
2.INVENTORY
---------
Computer Medical
Products Products Total
---------- ---------- ----------
Inventory $ 1,221,685 $ 438,146 $ 1,659,831
Inventory on short-term rental 695,712 - 695,712
---------- ---------- ----------
1,917,397 438,146 2,355,543
Less inventory valuation allowance 529,097 - 529,097
---------- ---------- ----------
Inventory, net $ 1,388,300 $ 438,146 $ 1,826,446
========== ========== ==========
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 $127,391 and $ 94,905 for the nine month periods
ending March 31, 1997 and 1996, respectively.
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(8)
3.PROPERTY AND EQUIPMENT
----------------------
Property and equipment at March 31, 1997, consists of the following:
Land $ 53,750
Buildings and property improvements 251,118
Machinery and equipment 745,161
Furniture and fixtures 143,549
Automobiles and trucks 142,644
----------
1,336,222
Less accumulated depreciation 635,769
----------
Property and equipment, net $ 700,453
==========
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 March 31, 1997 was $25,459 and $152,252,
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 March 31, 1997,
borrowings under the Credit Facility and additional amounts available for
borrowing under the Credit Facility were $1,489,191 and $69,855,
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
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(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. In accordance with the terms of the consulting agreement, the
Company issued options to Victoria Holdings (the "Victoria Holdings Options")
exercisable to purchase 1,000,000 shares of Common Stock at an exercise price
of $1.00 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 1,000,000 shares of the
Company's Common Stock during a four (4) year period commencing on January 1,
1997 at an exercise price of $1.00 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 242,500 options
previously issued in June 1996 for 722,500 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"). Six (6)
Class D Warrants are exercisable for one (1) share of the Company's Common
Stock commencing March 31, 1997 at an exercise price of $2.50 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
<PAGE>
(10)
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 May 12, 1997, the
Company's Common Stock had a closing price of $1.25. 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 provided 90 days to comply
with either of such requirements in order to continue the listing of its
Common Stock on Nasdaq. Failure to comply would have resulted in delisting
the Company's shares of Common Stock. On March 21, 1997, the Company was
informed by Nasdaq that the Company complied with the Minimum Bid Requirement.
On April 3, 1997 the Staff of Nasdaq advised the Company that the Company's
shares of Common Stock failed to meet the Capital Market Value Requirement and
the Minimum Bid Requirement. In order to continue the listing of its Common
Stock on Nasdaq, the Company was provided 90 days to meet the Capital Market
Value Requirement or the Minimum Bid Requirement. Following the Reverse Stock
Split, the Company's shares were trading at $1.25 and therefore the Company
believes that it meets such requirements. Although the Company believes it is
in compliance with the Minimum Bid Requirement, it should be noted that,
Nasdaq filed in early March 1997, with the SEC, proposed rule changes to the
maintenance standards required by Nasdaq. Upon SEC approval the Company would
have six (6) months to meet the new maintenance standards. Under the proposed
new standards for continued inclusion on The SmallCap Market the Company will
have to have net tangible assets of $2,000,000 or net income of $500,000 in
two of the last three years or a market capitalization of at least
$35,000,000. If the proposed rule changes are approved by the SEC and adopted
by Nasdaq, it is unlikely that the Company would be able to comply with such
new standards.
In March 1997, the Company's Board of Directors approved a 1-for-6 reverse
stock split (the "Reverse Stock Split") with respect to its shares of Common
Stock, such approval to be contingent upon the approval of a majority of the
Company's shareholders. The Company conducted its annual meeting of
shareholders on April 4, 1997 (the "Annual Meeting") where, among other
things, the Company's shareholders voted to approve the Reverse Stock Split.
All per share references contained herein reflect the consummation of the
Reverse Stock Split. At the Annual Meeting the Company's shareholders also
voted (i) to elect five (5) directors to the Board of the Company for a one
(1) year term, including; L. Wayne Kiley, Nancy Kiley, Rick C. Garian, J.R.
Achten and Thomas E. Evans, Jr. and (ii) to ratify the appointment of Moore
Stephens, P.C. as the Company's independent certified public accountant.
In light of the fact that the Company has been unable to operate profitably
since the fiscal year ended June 1994, the Company believes that substantial
measures need to be taken to address the Company's financial difficulties.
The Board of Directors, after having considered numerous alternatives, has
concluded that the Company must significantly reduce its expenses in order to
reduce the Company's net losses. Therefore, the Company has embarked upon a
cost cutting plan by reducing its workforce, closing unprofitable locations
and discontinuing under-performing product lines. Specifically, the Company
(i) closed its branch offices in Livonia, Michigan, Traverse City, Michigan
and Mariposa, California (ii) reduced the number of employees from a high of
ninety-six (96) in September 1995 to twenty-two (22) full-time and six (6)
part-time as of April 15, 1997 and (iii) intends to lease or sell its
underutilized headquarters facility in Corona, California. In the event that
the Company determines that these measures are insufficient to achieve
profitability, the Company may pursue divesting the Company's computer
business and/or acquiring an alternative business.
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(11)
6.SUBSEQUENT EVENT
----------------
On April 25, 1997, the Company entered into an agreement to sell the net
amount of its inventory on short-term rental. The Company does not expect to
incur any losses in connection with the sale of its inventory on short-term
rental.
<PAGE>
(12)
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 MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
- ---------------------------------------------------------------------
Total revenues for the quarter ended March 31, 1997, were $5,689,355 compared to
$9,238,465 for the quarter ended March 31, 1996. This represents a decrease of
$3,549,110 or 38%.
Revenues from computer product sales and rentals for the quarter ended March 31,
1997 totaled $4,815,850, a $2,506,882 or 34% decrease compared to $7,322,732 for
the quarter ended March 31, 1996. 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 fourth quarter.
Medical product sales and rentals contributed $873,505 in revenues for the
quarter ended March 31, 1997, compared to $1,915,733 for the quarter ended March
31, 1996. The current quarter's result represents a $1,042,228 or 54% decrease
in revenues over the same period in 1996. Revenues in the current quarter were
negatively impacted by delays in closing certain large transactions, however
management anticipates that these transactions, when completed, will have a
positive impact on future revenues. 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 fiscal year.
Previously owned medical equipment is gaining 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 March 31, 1997 and 1996
were $5,065,512 or 89% of revenues and $7,837,161 or 85% 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 the Company's 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.
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(13)
Cost of revenues for computer products were $4,492,901 or 93% of revenues and
$6,269,619 or 86% of revenues for the quarters ended March 31, 1997 and 1996,
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 $572,611 or 66% of revenues and
$1,567,542 or 82% of revenues for the quarters ended March 31, 1997 and 1996,
respectively.
Total selling, general and administrative ("SG&A") expenses for the quarter
ended March 31, 1997 and 1996 were $1,547,059 or 27% of revenues and $1,289,163
or 14% of revenues, respectively. The aggregate increase in SG&A expenses from
the prior period was $257,896 or 20%. The increase in SG&A expenses was
negatively impacted by the increase in Medical Marketplace, Inc. personnel
expense, the change in computer sales representative compensation plans
mentioned above, write-offs of certain assets relating to the closing of the
Livonia, Michigan branch office and increased reserves against accounts
receivable and inventory. These increases were partially offset by personnel
cutbacks.
SG&A expenses attributed to computer products were $1,283,329 or 27% of revenues
and $1,162,493 or 16% of revenues for the quarters ended March 31, 1997 and
1996, 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
write-offs of certain assets relating to the closing of the Livonia, Michigan
branch office and increased reserves against accounts receivable and inventory.
SG&A expense attributed to medical products were $263,730 or 30% of revenues and
$126,670 or 7% of revenues for the quarters ended March 31, 1997 and 1996,
respectively. The increase in SG&A expenses as a percentage of revenues is due
primarily to the increase in personnel expense.
Total operating income (loss) was $(923,216) and $112,141 for the quarters ended
March 31, 1997 and 1996, respectively. This $1,035,357 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 $960,380 and $109,381 for the quarters
ended March 31, 1997 and 1996, respectively.
Operating income for medical products was $37,164 and $221,522 for the quarters
ended March 31, 1997 and 1996, respectively.
Interest expense for the quarter ended March 31, 1997, was $94,927 compared to
$96,666 for the quarter ended March 31, 1996. 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 income (loss) was $(1,006,582) or $(0.74) per
share for the quarter ended March 31, 1997, versus $26,021 or $0.02 per share
for the quarter ended March 31, 1996. The net loss was a result of the business
conditions described herein.
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(14)
NINE MONTHS ENDED MARCH 31,1997 COMPARED TO NINE MONTHS ENDED MARCH 31,1996
- ---------------------------------------------------------------------------
Total revenues for the nine months ended March 31, 1997, were $19,557,647
compared to $23,737,114 for the nine months ended March 31, 1996. This
represents a decrease of $4,179,467 or 18%.
Revenues from computer product sales and rentals for the nine months ended March
31, 1997 totaled $13,954,875, a $7,170,285 or 34% decrease compared to
$21,125,160 for the nine months ended March 31, 1996. 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 next fiscal year.
Medical product sales and rentals contributed $5,602,772 in revenues for the
nine months ended March 31, 1997, compared to $2,611,954 for the nine months
ended March 31, 1996. The current nine month's result represents a $2,990,818
or 115% increase in revenues over the same period in 1996. 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 fiscal year.
Previously owned medical equipment is gaining 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 nine months ended March 31, 1997 and
1996 were $17,201,269 or 88% of revenues and $20,002,889 or 84% of revenues,
respectively. The higher cost of revenues percentage in the current nine months
is reflective of the reduced operating leverage resulting from lower product
sales and the Company's focus on liquidating older inventory which has a lower
profit margin. 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 the Company's 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 will have on the consolidated percentage.
Cost of revenues for computer products were $12,629,457 or 91% of revenues and
$17,913,905 or 85% of revenues for the nine months ended March 31, 1997 and
1996, respectively. The higher cost of revenues percentage in the current nine
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 $4,571,812 or 82% of revenues and
$2,088,984 or 80% of revenues for the nine months ended March 31, 1997 and 1996,
respectively.
<PAGE>
(15)
Total selling, general and administrative ("SG&A") expenses for the nine months
ended March 31, 1997 and 1996 were $4,505,810 or 23% of revenues and $3,943,243
or 17% of revenues, respectively. The aggregate increase in SG&A expenses from
the prior period was $562,567 or 14%. The increase in SG&A expenses was
negatively impacted by the increase in Medical Marketplace, Inc. personnel
expense, the change in computer sales representative compensation plans
mentioned above, write-offs of certain assets relating to the closing of the
Livonia, Michigan branch office, increased reserves against accounts receivable
and inventory, as well as charges relating to the December 1996 Private
Placement. These increases were partially offset by personnel cutbacks during
the current nine months.
SG&A expenses attributed to computer products were $3,892,064 or 28% of revenues
and $3,607,918 or 17% of revenues for the nine months ended March 31, 1997 and
1996, respectively. The increase in SG&A expenses as a percentage of revenues
is due primarily to the sales volume decrease previously mentioned, write-offs
of certain assets relating to the closing of the Livonia, Michigan branch
office, increased reserves against accounts receivable and inventory, as well as
charges relating to the December 1996 Private Placement.
SG&A expense attributed to medical products were $613,746 or 11% of revenues and
$335,325 or 13% of revenues for the nine months ended March 31, 1997 and 1996,
respectively.
Total operating loss was $2,149,432 and $209,018 for the nine months ended March
31, 1997 and 1996, respectively. This $1,940,414 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 nine months, and lower
margin sales associated with the Company's inventory reduction program.
Operating loss for computer products was $2,566,646 and $396,663 for the nine
months ended March 31, 1997 and 1996, respectively.
Operating income for medical products was $417,214 and $187,645 for the nine
months ended March 31, 1997 and 1996, respectively.
Interest expense for the nine months ended March 31, 1997, was $301,033 compared
to $277,655 for the nine months ended March 31, 1996. 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 $2,438,396 or $1.80 per share for the
nine months ended March 31, 1997, versus $443,507 or $0.33 per share for the
nine months ended March 31, 1996. 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.
<PAGE>
(16)
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 March 31, 1997 and 1996 was $1,612,072 and
$3,424,823, respectively.
During the nine months ended March 31, 1997, 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 $1,111,000 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. 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.
<PAGE>
(17)
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 1,000,000 shares of
Common Stock at an exercise price of $1.00 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 1,000,000 shares of the Company's
Common Stock during a four (4) year period commencing on January 1, 1997 at an
exercise price of $1.00 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 242,500 options previously issued
in June 1996 for 722,500 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"). Six (6)
Class D Warrants are currently exercisable for one (1) share of the Company's
Common Stock commencing March 31, 1997 at an exercise price of $2.50 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
<PAGE>
(18)
public float (the "Capital Market Value Requirement"). On May 12, 1997, the
Company's Common Stock had a closing price of $1.25. 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 provided 90 days to comply with
either of such requirements in order to continue the listing of its Common Stock
on Nasdaq. Failure to comply would have resulted in delisting the Company's
shares of Common Stock. On March 21, 1997, the Company was informed by Nasdaq
that the Company complied with the Minimum Bid Requirement. On April 3, 1997
the Staff of Nasdaq advised the Company that the Company's shares of Common
Stock failed to meet the Capital Market Value Requirement and the Minimum Bid
Requirement. In order to continue the listing of its Common Stock on Nasdaq,
the Company was provided 90 days to meet the Capital Market Value Requirement or
the Minimum Bid Requirement. Following the Reverse Stock Split, the Company's
shares were trading at $1.25 and therefore the Company believes that it meets
such requirements. Although the Company believes it is in compliance with the
Minimum Bid Requirement, it should be noted that, Nasdaq filed in early March
1997, with the SEC, proposed rule changes to the maintenance standards required
by Nasdaq. Upon SEC approval the Company would have six (6) months to meet the
new maintenance standards. Under the proposed new standards for continued
inclusion on The SmallCap Market the Company will have to have net tangible
assets of $2,000,000 or net income of $500,000 in two of the last three years or
a market capitalization of at least $35,000,000. If the proposed rule changes
are approved by the SEC and adopted by Nasdaq, it is unlikely that the Company
would be able to comply with such new standards.
In March 1997, the Company's Board of Directors approved a 1-for-6 reverse stock
split (the "Reverse Stock Split") with respect to its shares of Common Stock,
such approval to be contingent upon the approval of a majority of the Company's
shareholders. The Company conducted its annual meeting of shareholders on April
4, 1997 (the "Annual Meeting") where, among other things, the Company's
shareholders voted to approve the Reverse Stock Split. All per share references
contained herein reflect the consummation of the Reverse Stock Split. At the
Annual Meeting the Company's shareholders also voted (i) to elect five (5)
directors to the Board of the Company for a one (1) year term, including; L.
Wayne Kiley, Nancy Kiley, Rick C. Garian, J.R. Achten and Thomas E. Evans, Jr.
and (ii) to ratify the appointment of Moore Stephens, P.C. as the Company's
independent certified public accountant.
In light of the fact that the Company has been unable to operate profitably
since the fiscal year ended June 1994, the Company believes that substantial
measures need to be taken to address the Company's financial difficulties. The
Board of Directors, after having considered numerous alternatives, has
concluded that the Company must significantly reduce its expenses in order to
reduce the Company's net losses. Therefore, the Company has embarked upon a
cost cutting plan by reducing its workforce, closing unprofitable locations and
discontinuing under-performing product lines. Specifically, the Company (i)
closed its branch offices in Livonia, Michigan, Traverse City, Michigan and
Mariposa, California (ii) reduced the number of employees from a high of ninety-
six (96) in September 1995 to twenty-two (22) full-time and six (6) part-time as
of April 15, 1997 and (iii) intends to lease or sell its underutilized
headquarters facility in Corona, California. In the event that the Company
determines that these measures are insufficient to achieve profitability, the
Company may pursue divesting the Company's computer business and/or acquiring an
alternative business.
<PAGE>
(19)
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>
(20)
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
March 31, 1997
<PAGE>
(21)
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: May 12, 1997 By: /s/ Carmella A. Hume
------------------------------
Carmella A. Hume
Controller
Signing on behalf of the registrant
and as principal financial and
accounting officer.
<PAGE>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 621,048
<SECURITIES> 0
<RECEIVABLES> 3,280,617
<ALLOWANCES> 157,149
<INVENTORY> 1,826,446
<CURRENT-ASSETS> 6,150,585
<PP&E> 700,453
<DEPRECIATION> 635,769
<TOTAL-ASSETS> 9,083,246
<CURRENT-LIABILITIES> 4,538,513
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0
0
<COMMON> 135
<OTHER-SE> 2,862,037
<TOTAL-LIABILITY-AND-EQUITY> 9,083,246
<SALES> 19,557,647
<TOTAL-REVENUES> 19,557,647
<CGS> 17,201,269
<TOTAL-COSTS> 17,201,269
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> (2,417,276)
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