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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-14731
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EMARKETPLACE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0558415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
255 WEST JULIAN STREET, SUITE 100
SAN JOSE, CALIFORNIA 95110
(Address of principal executive offices)
(408) 295-6500
(Registrant's telephone number, including area code)
---------------------------
Indicate by check mark whether the registrant: (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 20, 2001, there were 16,465,508 shares of the Registrant's Common
Stock outstanding.
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EMARKETPLACE, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 2000
INDEX
Page
PART I FINANCIAL INFORMATION Number
------
ITEM 1. Financial Statements:
Consolidated Balance Sheet as of December 31, 2000.................. 3
Consolidated Statements of Operations for the three and six
months ended December 31, 2000 and 1999........................... 4
Consolidated Statements of Stockholders' Equity for the six
months ended of December 31, 2000................................. 5
Consolidated Statements of Cash Flows for the six months
ended December 31, 2000 and 1999.................................. 6
Notes to Consolidated Financial Statements.......................... 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 12
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings................................................... 19
ITEM 2. Changes in Securities and Use of Proceeds........................... 20
ITEM 3. Defaults Upon Senior Securities..................................... 20
ITEM 4. Submission of Matters to a Vote of Security Holders................. 20
ITEM 5. Other Information................................................... 20
ITEM 6. Exhibits and Reports on Form 8-K.................................... 20
Signatures.......................................................... 20
2
- --------------------------------------------------------------------------------
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2000
(IN THOUSANDS)
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 277
Accounts Receivable
(Less Allowance for Doubtful Accounts of $1,450) 2,619
Unbilled Receivables 176
Prepaids and Other Current Assets 592
--------
TOTAL CURRENT ASSETS 3,664
--------
PROPERTY AND EQUIPMENT
(Less Accumulated Depreciation of $1,162) 2,013
OTHER ASSETS:
Intangible Assets
(Less Accumulated Amortization of $4,020) 7,970
Investments and Advances 3,295
Other Assets 378
--------
TOTAL OTHER ASSETS 11,643
--------
TOTAL ASSETS $ 17,320
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable $ 3,886
Accrued Benefits 490
Other Accrued Liabilities 471
Notes Payable to Related Party 260
Lines of Credit 1,069
Deferred Revenue 544
Deferred Tax Liability 563
Short-Term Portion of Capital Lease 164
--------
TOTAL CURRENT LIABILITIES 7,447
Long-Term Notes Payable 1,100
Long-Term Portion of Capital Lease 281
--------
TOTAL LONG-TERM LIABILITIES 1,381
--------
TOTAL LIABILITIES 8,828
Minority Interest (480)
STOCKHOLDERS' EQUITY:
Preferred Stock - $0.0001 Par Value, 1,000,000 Shares Authorized,
No Shares Issued and Outstanding --
Common Stock - $0.0001 Par Value, 50,000,000 Shares Authorized,
16,465,508 Shares Issued and Outstanding 2
Treasury Stock, at Cost (22)
Capital in Excess of Par Value 27,804
Shareholder Notes Receivable (3,340)
Deferred Compensation (80)
Accumulated Deficit (15,392)
--------
Total Stockholders' Equity 8,972
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,320
========
See Notes to Consolidated Financial Statements.
3
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
REVENUE $ 7,041 $ 2,703 $ 14,939 $ 5,585
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Cost of Revenue 5,603 2,541 11,838 5,219
Selling, General and Administrative 3,383 1,078 7,814 2,091
Amortization of Goodwill and Other
Acquired Intangibles 495 624 982 1,204
Impairment Loss 1,000 -- 1,000 --
--------- --------- --------- ---------
TOTAL OPERATING COSTS AND EXPENSES 10,481 4,243 21,634 8,514
--------- --------- --------- ---------
LOSS FROM OPERATIONS (3,440) (1,540) (6,695) (2,929)
NON-OPERATING INCOME/(EXPENSES):
Related Party Interest Income 44 -- 104 --
Interest Income 1 24 19 27
Other Income (Expense) (18) -- (1) --
Related Party Interest Expense (5) -- (5) --
Interest Expense (3) (5) (97) (17)
--------- --------- --------- ---------
LOSS BEFORE MINORITY INTEREST (3,421) (1,521) (6,675) (2,919)
--------- --------- --------- ---------
Minority Interest 877 2 2,166 20
--------- --------- --------- ---------
NET LOSS $ (2,544) $ (1,519) $ (4,509) $ (2,899)
========= ========= ========= =========
NET LOSS PER SHARE:
Basic and Diluted $ (.15) $ (0.11) $ (0.27) $ (0.22)
========= ========= ========= =========
Weighted Average Common Shares
Outstanding 16,747 13,475 16,789 13,083
========= ========= ========= =========
See Notes to Consolidated Financial Statements.
4
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
(Unaudited)
====================================================================================================================================
Preferred Stock Common Stock Capital in Shareholder Deferred
----------------------- ------------------------ Treasury Excess of Notes Com-
Shares Amount Shares Amount Stock Par Value Receivable pensation
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE - JUNE 30, 2000 -- -- 16,784 $ 2 $ 0 $ 27,798 $ (3,340) $ (239)
Issuance of Common Stock
For Option Exercises -- -- 6 -- -- 6 -- --
Amortization of Deferred
Comp -- -- -- -- -- -- -- 159
Issuance of Common Stock
For Director Fees -- -- 24 -- -- -- -- --
Purchase of Treasury Stock,
At Cost -- -- (349) -- (22) -- -- --
Net Loss -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE - DECEMBER 31, 2000 -- -- 16,465 $ 2 $ (22) $ 27,804 $ (3,340) $ (80)
========== ========== ========== ========== ========== ========== ========== ==========
Total
Accum- Stock-
ulated holders'
Deficit Equity
-------- ---------
BALANCE - JUNE 30, 2000 $(10,883) $ 13,338
Issuance of Common Stock
For Option Exercises -- 6
Amortization of Deferred
Comp -- 159
Issuance of Common Stock
For Director Fees -- --
Purchase of Treasury Stock,
At Cost -- (22)
Net Loss (4,509) (4,509)
-------- ---------
BALANCE - DECEMBER 31, 2000 $(15,392) $ 8,972
======== =========
See Notes to Consolidated Financial Statements.
5
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Six Months Ended
December 31,
----------------------
2000 1999
--------- ---------
OPERATING ACTIVITIES:
Net Loss $ (4,509) $ (2,899)
Adjustments to Reconcile Net Loss to Net Cash Provided
(Used) by Operating Activities:
Consulting Services Paid for by Issuance of Common Stock -- 197
Amortization of Deferred Compensation 159 248
Bad Debt 250 --
Impairment Loss 1,000 --
Minority Interest (2,166) (20)
Depreciation 291 12
Amortization 982 1,204
Interest Accrued on Stockholder Notes -- 16
Changes in Assets and Liabilities:
Accounts Receivable 1,397 (5)
Prepaids and Other Assets 16 (80)
Deferred Revenue 79 --
Deferred Taxes (47) --
Accounts Payable 1,257 274
Accrued Liabilities (123) 109
Other Liabilities (38) --
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES (1,452) (944)
--------- ---------
INVESTING ACTIVITIES:
Purchase of Fixed Assets (258) (19)
Procurement of Note Receivable -- (500)
Cash Paid for Acquisition, Net of Cash Received -- (16)
Repayment of Note from Related Parties 800 --
Related Party Investments and Advances (45) --
--------- ---------
Net Cash Provided (Used) by Investing Activities 497 (535)
--------- ---------
FINANCING ACTIVITIES:
Proceeds From Issuance of Common Stock in Private Placement -- 3,021
Proceeds From Issuance of Common Stock for Warrant Exercises -- 680
Proceeds From Repayment of Stockholder Notes Receivable -- 70
Proceeds From Issuance of Notes Payable -- 1,000
Proceeds From Issuance of Subsidiary Stock -- 860
Payment of Acquired Entities' Debt -- (862)
Repayment of Loans Assumed in Acquisitions -- (12)
Principal Payment on Long-Term Capital Leases (13) --
Proceeds From Exercises of Options 6 --
Payments on Notes to Related Parties (39) --
Net Borrowings on Lines of Credit 506 --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 460 4,757
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (495) 3,278
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIODS 772 1,256
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIODS $ 277 $ 4,534
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
AND INVESTING ACTIVITIES:
Purchase of Treasury Stock in exchange for
notes payable to shareholders $ 22 $ --
========= =========
See Notes to Consolidated Financial Statements.
6
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) ORGANIZATION AND BUSINESS
eMarketplace, Inc., (the "Company" or "eMarketplace") is a Delaware holding
company that acquires and develops Internet businesses that provide content,
commerce and online services to demographically-targeted audiences. E-Taxi, a
wholly owned subsidiary acquired in April 1999, was incorporated in the state of
Delaware on April 14, 1998, to develop a vertical Internet portal for the small
office, home office ("SOHO") market.
The acquisition of E-Taxi by the Company signified the adoption by the Company
of a new corporate strategy to develop, operate and acquire Internet businesses.
Additionally, in April 1999, immediately prior to the Company's acquisition of
E-Taxi, E-Taxi acquired TechStore, L.L.C. ("TechStore"), an online retailer of
computer hardware and software, in a business combination accounted for as a
purchase. The results of operations include the results of TechStore from the
date of acquisition.
In November 1999, the Company and its newly formed subsidiary, TopTeam, Inc.
("TopTeam"), closed on the acquisition of six Internet consulting companies -
Full Moon Interactive Group, Inc., Orrell Communications, Inc., Devries Data
Systems, Inc., Muccino Design Group, Inc., Image Network, Inc., and OnCourse
Network, Inc. (collectively, the "Interactive Architect Firms"). As a result of
the acquisitions, i) TopTeam owned all of the outstanding capital stock of the
Internet Architect Firms; and ii) eMarketplace owned approximately 44.9% of the
total TopTeam shares outstanding. On February 23, 2000, Top Team changed its
name to Full Moon Interactive, Inc. ("Full Moon"). Hereinafter, Top Team and its
subsidiaries will be referred to as Full Moon.
(2) NATURE OF OPERATIONS
FULL MOON is an Internet consulting firm, which provides e-business solutions to
its customers desiring to initiate or enhance their presence on the Internet.
Its services include, among others, strategic market consulting and research,
web site design, brand management, ancillary promotional sales, media buying and
management, online marketing and software engineering and technical program
management. Full Moon's primary market is the Western United States. The company
has offices in Los Angeles, the Silicon Valley and Lubbock, Texas.
TECHSTORE, TOGETHER WITH OFFICE EXPRESS, INC. ("OFFICE EXPRESS") are global
Internet retailers featuring over 75,000 consumer technology and related
products for the home and office. Its products include computer hardware,
software, electronics, other consumer technology products and office equipment
and supplies. TechStore's and Office Express's headquarters are in Novato,
California.
E-TAXI was incorporated in April 1998 to develop a vertical Internet portal for
the small office, home office ("SOHO") market. As part of this strategy, E-Taxi
7
acquired TechStore in April, 1999, immediately prior to the reverse acquisition
of Computer Marketplace, Inc. by E-Taxi. Plans to create a SOHO portal by E-Taxi
have been postponed as a result of the Company's focus on developing Full Moon.
E-Taxi currently has no other revenues or expenses other than those of
TechStore, its wholly owned subsidiary.
STARSONLINE, INC. ("STARSONLINE") was formed in February 2000 and initially
capitalized with $250,000 to develop and launch an Internet based entertainment
company. StarsOnline expects to build a celebrity portal that enables Internet
users to access the official sites of well-known personalities in television,
film, music, fashion, publishing, sports and art. StarsOnline is currently in
the start-up stage and has no revenues and primarily only start-up related
expenses.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of eMarketplace, Inc. are set forth in the
Company's Form 10-KSB for the year ended June 30, 2000 as filed with the
Securities and Exchange Commission.
INDEPENDENT REVIEW - The accompanying financial statements have not been
reviewed by an independent accountant. The Company anticipates filing reviewed
financial statements and, as such, the financial statements are subject to
change based upon the results of that review.
BASIS OF REPORTING - The Consolidated Balance Sheet as of December 31, 2000, the
Consolidated Statements of Operations for the Three and Six Months ended
December 31, 2000 and 1999, the Consolidated Statement of Stockholders' Equity
for the Six Months Ended December 31, 2000 and the Consolidated Statements of
Cash Flows for the Six Months Ended December 31, 2000 and 1999 have been
prepared by the Company without audit. The accompanying unaudited financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, such statements include all
adjustments (consisting only of normal recurring items) which are considered
necessary in order to make the interim financial statements not misleading. It
is suggested that these financial statements be read in conjunction with the
financial statements and notes contained in the Company's Form 10-KSB for the
year ended June 30, 2000.
RECLASSIFICATION - Certain prior year amounts have been reclassified to conform
to current year financial statement presentation.
IMPAIRMENT - Long-lived assets of the Company are reviewed at least annually as
to whether their carrying value has become impaired pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.". SFAS No. 121
requires long-lived assets, if impaired, to be remeasured at fair value,
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. Management also reevaluates the periods of
amortization of long-lived assets to determine whether events and circumstances
warrant revised estimates of useful lives.
8
NET LOSS PER SHARE OF COMMON STOCK - Common stock issued in the reverse
acquisition is treated as outstanding for all periods presented on the basis of
the weighted average shares of common stock outstanding. Potential common shares
arising from the effect of dilutive stock options and warrants using the
treasury stock method are included if dilutive. For fiscal years 2001 and 2000,
the per share results were computed without consideration for contingently
issuable shares underlying stock options and warrants as the effect on the per
share results would be anti-dilutive.
SEGMENTS - Effective July 1, 1998, the Company adopted the provisions of SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
The Company identifies its operating segments as components of an enterprise for
which discrete financial information is available that is evaluated by the chief
operating decision maker or decision making group to make decisions how to
allocate resources and assess performance. For the six months ended December 31,
2000, the Company effectively has two business segments, its interactive
architects business and its online retailing business, for purposes of SFAS No.
131.
(4) GOING CONCERN
As of December 31, 2000, the Company had recurring losses and difficulty meeting
its financial obligations as they became due. Cash used in operations for the
six months ended December 31, 2000 was $1.4 million.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. In view of these
matters, the continuation of the Company as a going concern is dependent upon
continued operations of the Company, which in turn is dependent upon the
Company's ability to meet its financing requirements, the success of its future
operations and the reduction of its costs. Management is in the process of
seeking additional debt and equity financing and has implemented cost
reductions. The Company is also in the process of analyzing potential equity
investments. Management believes that actions presently being taken to revise
the Company's operating and financial requirements provide the opportunity for
the Company to continue as a going concern. There can be no assurance that
management will be successful in the implementation of its plans. The financial
statements do not include any adjustments in the event the Company is unable to
continue as a going concern.
(5) RELATED PARTY LOANS
On February 29, 2000, the Company received a promissory note from Gateway
Advisors, Inc. ("Gateway") (a company owned and controlled by Robert M. Wallace,
the Company's Chairman of the Board) in the amount of $800,000, and bearing
interest at 11% per annum. The principal amount and accrued interest were due
and payable on April 1, 2000. The note was paid in full on August 29, 2000.
(6) INTANGIBLE ASSETS
The Company recognized a $1.0 million impairment loss on goodwill related to
TechStore, which is included in the Company's online retailers segment, for the
six months ended December 31, 2000 as described below.
Internet companies overall have continued to experience substantial declines in
market value. In accordance with SFAS 121 (Note 3), whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable, the company reviews such assets for impairment by comparing the
assets' undiscounted cash flows to the carrying value of the assets. If an
impairment exists, the assets are marked to fair market value, with the goodwill
written off entirely before long-lived assets and identifiable intangible assets
are marked down.
The undiscounted cash flows of TechStore failed to support the recoverability of
the assets of TechStore, including the carrying value of goodwill. Accordingly,
the assets of the company were marked to fair market value using the average
market value of similar Internet companies based on a multiple of revenues.
Using this methodology, it is management's opinion that the value of TechStore
decreased by approximately $1.0 million in the quarter ended December 31, 2000,
resulting in $1.0 million reduction in goodwill with an offsetting charge to
impairment loss. Although, the discounted cash flow method failed to support
recoverability of the assets in prior quarters, the fair value of the assets
were above the carrying value using this same methodology.
9
(7) DEBT
RELATED PARTY LOANS - On December 20, 2000 eMarketplace purchased 349,000 shares
of Treasury Stock at $0.0625 per share payable in the form of promissory notes
to the Shareholders, aggregating approximately $22,000. Interest on the notes
accrues at 8% and is due and payable, along with the entire unpaid principal
balance, on the earlier of i) a sale of capital stock of eMarketplace that
results in net proceeds of not less than $3 million to eMarketplace, and ii) a
sale or transfer of 50% of the capital stock of Full Moon that results in gross
proceeds of $3 million, including repayment of loans, to eMarketplace (the
"Maturity Date"). All accrued and unpaid interest shall be due and payable on
the Maturity Date; provided, however, in the event the Maturity Date does not
occur on or before December 20, 2003, the note shall be extinguished.
LINE OF CREDIT - At December 31, 2000, Full Moon had $ 900,000 outstanding under
a line of credit with Grand Pacific Financing Corp, a California corporation.
The line of credit calls for borrowings of up to $1,500,000 and is subject to
borrowing restrictions based on the accounts receivable borrowing base. This
base shall not exceed the lesser of (1) 70% of eligible accounts with balances
less than 30 days from the invoice date plus 35% of eligible accounts with
balances over 30 days but less than 60 days from invoice date plus 15% of
eligible accounts with balances over 60 days from invoice date; or $1,500,000.
The line of credit is due upon the earlier of (1) February 11, 2001; (2) upon
the successful initial public offering of its equity securities; (3) upon
liquidation, dissolution, merger or consolidation or commencement of proceedings
thereof; (4) upon equity or debt financing in excess of $5,000,000. The line of
credit bears interest at prime (9.5% at December 31) plus 1.00%. As additional
consideration for the loan, Full Moon granted Grand Pacific warrants to purchase
33,000 shares of common stock of Full Moon at $0.01 per share. This line is
secured by all of the assets of Full Moon. Negotiations are currently underway
regarding the extension of this line of credit.
(8) PENDING ACQUISITION
In November 2000, a Letter of Intent was executed between Full Moon and Fusion
Networks, a leading provider of Internet software and applications, in which
Full Moon may be acquired by Fusion Networks. Closing of the acquisition is
subject to completion of due diligence, as well as the negotiation and execution
of definitive documents and certain other conditions. There can be no assurance
that a definitive agreement will be entered into or that the transactions
contemplated thereby will be consummated. (See Note 12.)
(9) TERMINATED ACQUISITION
On August 24, 2000, the merger agreement by and among BayWeb, Inc.,
eMarketplace, Full Moon, M. Mitchell Stevko, and C. Jett Winter, dated as of
June 26, 2000, was terminated in accordance with its terms as a result of
material adverse changes in BayWeb's financial condition and operating results.
10
(10) RELATED PARTY TRANSACTIONS
On December 20, 2000 eMarketplace purchased 349,000 shares of Treasury Stock at
$0.0625 per share payable in the form of promissory notes to the Shareholders,
aggregating approximately $22,000. The terms of the notes are further explained
in Note 7: Related Party Loans.
(11) SEGMENT DISCLOSURES
The following table presents operating results by segment for the six-month
period ended December 31, 2000:
INTERACTIVE ONLINE
ARCHITECTS RETAILERS CORPORATE TOTAL
(a) (b)
----------- ----------- ----------- -----------
REVENUE $ 7,687 $ 7,247 $ 5 $ 14,939
----------- ----------- ----------- -----------
Cost of Revenue 5,141 6,697 -- 11,838
Selling, General and
Administrative 6,212 585 1,017 7,814
Amortization of Goodwill and
Other Acquired Intangibles (c) -- -- 982 982
Impairment Loss -- -- 1,000 1,000
----------- ----------- ----------- -----------
TOTAL OPERATING COSTS AND
EXPENSES 11,353 7,282 2,999 21,634
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (3,666) (35) (2,994) (6,695)
Related Party Interest Income -- -- 104 104
Interest Income 1 1 17 19
Other Income (Expense) 6 -- (7) (1)
Related Party Interest Income (60) -- 55 (5)
Interest Expense (90) (7) -- (97)
----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (3,809) (41) (2,825) (6,675)
Minority Interest -- -- 2,166 2,166
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (3,809) $ (41) $ (659) $ (4,509)
=========== =========== =========== ===========
Capital expenditures for Full Moon, Online Retailers, and Corporate were
$214,000, $44,000, and $0, respectively. Total assets for Full Moon, Online
Retailers, and Corporate were $10 million, $4 million and $3.3 million,
respectively.
(a) Online Retailers include Tech Store and Office Express.
(b) Corporate includes all non-operating entities and StarsOnline, which
year-to-date had zero revenues and approximately $190,000 of expenses, primarily
start-up costs.
(c) Of the total amortization of intangibles, $278,000 is attributable to the
Interactive Architect Firms and $704,000 is attributable to Tech Store.
(12) SUBSEQUENT EVENTS
On February 21, 2001 a definitive agreement ("the agreement") was signed between
Full Moon and Fusion Networks ("Fusion") whereby Fusion will acquire Full Moon
(see Note 8). Pursuant to the terms of the agreement, Fusion will issue to the
shareholders of Full Moon 74,000 shares of Fusion Series A Preferred Stock in
exchange for all of the outstanding shares of common stock of Full Moon. The
Series A Preferred Stock may be converted, upon approval of such conversion by
the shareholders of Fusion, into an aggregate of 7,400,000 shares of Fusion
common stock. Closing of this transaction is subject to approval by the
shareholders of Full Moon and the receipt by Fusion of funding of not less than
$4 million, of which $2.35 million will be utilized to retire certain
indebtedness and preferred stock of Full Moon.
11
- --------------------------------------------------------------------------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
FORWARD LOOKING STATEMENTS
Statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this document as well as statements
made in press releases and oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf
that are not statements of historical or current fact constitute "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other unknown factors that could cause the actual
results of the Company to be materially different from the historical results or
from any future results expressed or implied by such forward-looking statements.
In addition to statements which explicitly describe such risks and
uncertainties, readers are urged to consider statements labeled with the terms
"believes", "belief", "expects", "intends", "anticipates" or "plans" to be
uncertain forward-looking statements. The forward looking statements contained
herein are also subject generally to other risks and uncertainties that are
described from time to time in the Company's reports and registration statements
filed with the Securities and Exchange Commission.
INDEPENDENT REVIEW
The accompanying financial statements have not been reviewed by an independent
accountant. The Company anticipates filing reviewed financial statements and, as
such, the financial statements are subject to change based upon the results of
that review.
OVERVIEW
eMarketplace, Inc. (the "Company or eMarketplace") consists of
eMarketplace, Inc. and its wholly owned or controlled subsidiaries: Full Moon
Interactive, Inc. ("Full Moon or FMI"), E-Taxi,Inc. ("E-Taxi"), TechStore, Inc.
("TechStore"), OfficeExpress, Inc. ("OfficeExpress") and StarsOnline, Inc.
("StarsOnline").
FULL MOON is an Internet consulting firm which provides e-business
solutions to its customers desiring to initiate or enhance their presence on the
Internet. Its services include, among others, strategic market consulting and
research, web site design, brand management, ancillary promotional sales, media
buying and management, online marketing and software engineering and technical
program management. The firm also provides creative and design services
primarily related to establishing and fostering corporate image development. FMI
is a professional services firm which derives its revenues from the delivery of
services under project engagements that vary in amount depending on the type and
duration of service being provided.
TECHSTORE, TOGETHER WITH OFFICE EXPRESS are global Internet retailers
featuring over 75,000 consumer technology and related products for the home and
office. With over 100,000 customers world wide, together the companies offer an
12
online "superstore" at www.techstore.com and www.officeexpress.com that provides
one-stop shopping for domestic and international customers, 24 hours a day,
seven days a week. The superstore features computer hardware, software,
electronics, other consumer technology products and office equipment and
supplies.
E-TAXI was incorporated in April 1998 to develop a vertical Internet
portal for the small office, home office ("SOHO") market. As part of this
strategy, E-Taxi acquired TechStore in April 1999, immediately prior to the
reverse acquisition of Computer Marketplace, Inc. by E-Taxi. Plans to create a
SOHO portal by E-Taxi have been postponed as a result of the Company's focus on
developing Full Moon. E-Taxi currently has no other operations, revenues or
expenses.
STARSONLINE was formed in February 2000 and initially capitalized with
$250,000 to develop and launch an Internet based entertainment company.
StarsOnline expects to build a celebrity portal that enables Internet users to
access the official sites of well-known personalities in television, film,
music, fashion, publishing, sports and art. Many of these official sites will be
designed, developed and managed by StarsOnline in partnership with popular
celebrities. Additionally this full service vertical portal is expected to
provide celebrity-driven content, products and services in an entertaining and
interactive environment. StarsOnline believes it will be able, therefore, to
aggregate and monetize the affinity audiences of these famous personalities.
By providing real value to each of the constituencies (consumers, celebrities,
commerce partners) in the star-driven entertainment marketplace, StarsOnline
expects to position itself to capture multiple revenue streams. StarsOnline
expects to generate revenues from sales of authentic and exclusive celebrity
merchandise and memorabilia, strategic sponsorships, targeted advertising,
affinity audience traffic, content syndication, premium memberships, and special
promotions.
StarsOnline is currently in the start-up stage and has no revenues and
approximately $190,000 of expenses, primarily start up costs.
The Company's Internet businesses have a very limited operating history
on which to base an evaluation of the various business and prospects. The
prospects must be considered in light of the risks, uncertainties, expenses and
difficulties frequently encountered by companies in their early stages of
development, particularly companies with limited access to capital in new and
rapidly evolving markets such as the Internet market. In view of the rapidly
evolving nature of our business and the Company's limited operating history,
management believes that period-to-period comparisons are not necessarily
meaningful and should not be relied upon as indications of future performance.
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Additionally, the dynamics of the demand for Internet consulting
services are changing rapidly. During the six months ended December 31, 2000,
the Company experienced a significant reduction in demand. The weakening
condition or failure of many of the Internet based "dot-com" companies has
caused many clients to rethink or delay implementing their Internet strategy. In
addition, many larger traditional companies have chosen to utilize in-house
resources for the implementation of their Internet initiative in lieu of those
of the Company and its competitors. As a result, the average amount of time
invested by the Company to secure any given project has increased. It is
possible that demand for Internet consulting services, including those offered
by the Company, will remain lower than prior levels for the foreseeable future.
In response to the reduction in demand for the Company's services, the Company
has undertaken a restructuring plan designed to reduce the Company's workforce
and operating expenses, and to "right size" the labor force relative to the
fallen revenue levels. As of January 31, 2001, approximately 108 employees had
been eliminated, either voluntarily or involuntarily, in connection with the
restructuring plan. Management is continuing to restructure its operations and
additional voluntary and involuntary terminations have continued into the third
fiscal quarter. As a result of the restructuring and employee terminations, it
may prove increasingly difficult for the Company to attract and retain its most
qualified employees. The failure to attract and retain qualified creative,
technical, consulting and sales personnel could materially and adversely affect
the Company's financial condition and results of operations.
RESULTS OF OPERATIONS
The company incurred nominal revenue or expenses for the period the company had
control of Full Moon for the quarter ended December 31, 1999, so any comparison
of fiscal 2000 results to fiscal 1999 would not be meaningful and have been
excluded.
NET LOSS
The Company recorded a net loss of approximately $2.5 million for the
quarter ended December 31, 2000 and a net loss of $4.5 million for the six
months ended December 31, 2000, because the revenues generated were not
sufficient to cover cost of revenues and expenses generated. Contributing to the
six month net loss were non-cash expenses of approximately $3 million,
consisting of $1.3 million of depreciation and amortization, a $1 million
impairment loss related to the goodwill associated with the acquisition of
TechStore, $159,000 of amortization related to deferred compensation, a $250,000
increase in the allowance for doubtful accounts and a reserve against advances
to BayWeb of $340,000. Offsetting these items is $2.2 million of minority
interest attributable to the minority shareholders of Full Moon. Excluding these
non-cash items, $2.9 million of the loss was attributable to Full Moon and a
$23,000 loss was attributable to TechStore and Office Express combined. The
balance of approximately $684,000 net loss is attributable to corporate
administration.
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REVENUE
Total revenue for the quarter ended December 31, 2000 was $7.0 million
and for the six months ended December 31, 2000 was $14.9 million. Total revenue
consists of $7.2 million of online retailing revenue by TechStore and Office
Express, and $7.7 million of revenue generated by Full Moon. Total on line
retailing revenues increased $1.2 million, or 44% in the quarter ended December
31, 2000 from $2.7 million for the comparable period in 1999. For the six months
ended December 31, 2000 revenues increased $1.6 million, or 29% from $5.6
million for the six months ended December 31, 1999. The increase was primarily
the result of continued growth of the Internet as a vehicle to purchase
products, a reduction in the number of online competitors, the launch of Office
Express, more sophisticated merchandising and pricing management.
TechStore and Office Express utilize vendor drop-shipments directly to
customers, and therefore do not maintain inventory. Because TechStore and Office
Express assume the risk of ownership in all transactions, revenues are recorded
on a gross rather than net basis.
COST OF REVENUE
Total cost of revenue for the quarter ended December 31, 2000 was $5.6
million or 80% of revenue, and for the six months ended December 31, 2000, cost
of revenue was $11.8 million or 79% of revenue. Cost of revenue includes the
cost of products sold, credit card processing fees and freight costs for product
sales, and time & materials for Internet consulting services.
Online retailing by TechStore and Office Express had cost of revenue of
$3.6 million, or 93% of revenue for the quarter ended December 31, 2000 compared
to $2.5 million or 94% of revenue for the quarter ended December 31, 1999. For
the six months ended December 31, 2000, online retailing had cost of revenue of
$6.7 million or 92% of revenue compared to $5.2 million, or 93% of revenue for
the six months ended December 31, 1999. This modest improvement in the gross
margin was due to improvements in pricing management. The Company expects
margins for this segment to remain low in the near future as it uses competitive
pricing as a means to obtain increased market share.
TechStore is entirely dependent upon a third party for order
fulfillment. Currently, TechStore utilizes fulfillment services offered by
TechData Corporation, a leading full-line distributor of more than 75,000
technology products worldwide. TechData offers fulfillment services via six
regional distribution centers. TechStore has no long-term contracts or
arrangements with TechData that guarantee the availability, shipping, or quality
of merchandise.
TechStore relies upon one major supplier to ship merchandise directly
to customers. Consequently, TechStore has limited control over the goods
shipped, and at times these shipments have been subject to delays. If the
quality of service provided by the supplier falls below a satisfactory standard,
or if our level of returns exceeds our expectations, this could have a harmful
15
effect on our business. The Company believes that it could establish a similar
relationship with another supplier; however, there can be no assurance that such
supplier could provide the fulfillment, service and pricing currently offered by
the supplier to TechStore.
Office Express is also entirely dependent upon a third party for order
fulfillment. Currently OfficeExpress utilizes fulfillment services offered by
United Stationers Supply Co., the nation's largest wholesale distributor of
office, computer, and facilities management products.
Full Moon's cost of sales was $2.0 million, or 64% of revenue for the
quarter ended December 31, 2000 and $5.1 million, or 67% of revenue for the six
months ended December 31, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Total selling, general and administrative expenses for the quarter
ended December 31, 2000, was $3.4 million or 48% of revenue and $7.8 million or
52% of revenue for the six months ended December 31, 2000. Selling, general and
administrative expenses consist of salaries and other personnel related
expenses, facilities related expenses, legal and other professional fees, bad
debt expense, advertising costs, travel expenses and depreciation. The six
months ended December 31, 2000 included $159,000 in non-cash expenses related to
the amortization of deferred compensation, $1.3 million of depreciation and
amortization, $250,000 of bad debt expense and a $340,000 reserve against funds
advanced to BayWeb in connection with the potential acquisition. The Company
expects to incur approximately $80,000 for one more quarter for the amortization
of the deferred compensation associated with warrants.
TechStore and Office Express had combined SG&A of $325,000 or 8% of
combined revenues for the quarter ended December 31, 2000 and $585,000 or 8% of
revenue for the six months ended December 31, 2000. For the combined companies,
SG&A consists primarily of salaries with additional expenses related to
occupancy, advertising and depreciation.
Full Moon's SG&A was $2.6 million, or 82% of revenue for quarter ended
December 31, 2000 and $6.2 million or 81% of revenue for the six months ended
December 31, 2000. Full Moon's SG&A consists primarily of salaries with
additional expenses related to occupancy, advertising and depreciation. It also
includes non-cash expenses of $590,000 consisting of a $250,000 increase in its
reserve for doubtful accounts and $340,000 representing a reserve against
amounts advanced in connection with the potential BayWeb acquisition.
AMORTIZATION OF GOODWILL AND OTHER ACQUIRED INTANGIBLES
Amortization expenses associated with the acquisition of TechStore and
Full Moon during the quarter ended December 31, 2000, was $495,000 and $982,000
for the six months ended December 31,2000. The intangible assets associated with
16
these acquisitions, consisted of $12.4 million in goodwill, $140,000 in acquired
technology $160,000 in established workforce and $280,000 in trademarks, which
are being amortized over their estimated useful lives of four to ten years.
The Company also recorded a $1 million write-down of goodwill during
the second quarter due to an impairment in the carrying value of TechStore. The
undiscounted cash flows of TechStore failed to support the recoverability of the
assets of TechStore including the carrying value of goodwill (see "Notes to
Consolidated Financial Statements: Intangibles").
In the event that the Company continues to acquire other companies,
amortization of goodwill will continue to have an impact on the Company's
results of operations in the future. Based on acquisitions completed as of
December 31, 2000, and assuming no further impairment of the value of the
Company's subsidiaries resulting in a write-down of goodwill, future
amortization of goodwill and identifiable intangibles will reduce net income
from operations by approximately $1.7 million in fiscal years 2001, 2002, and
2003, $.9 million in fiscal year 2004, and $500,000 in 2005.
INTEREST INCOME AND EXPENSE
Interest income, was $45,000 for the quarter ended December 31, 2000
and for the six months ended December 31, 2000 was $123,000 compared to $24,000
for the quarter ended December 31, 1999 and $27,000 for the six months ended
December 31, 1999. Interest expense was $8,000 for the quarter ended December
31, 2000 and $102,000 for the six months ended December 31, 2000 compared to
$5,000 for the quarter ended December 31, 1999 and $17,000 for the six months
ended December 31, 1999. Interest expense related primarily to interest on loans
to the Company and interest income resulted primarily from interest earned on
notes to related parties.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
The Company incurred a net loss of $1.5 million for the quarter ended December
31, 1999 and a net loss of $2.9 million for the six months ended December 31,
1999 because the revenue generated was not sufficient to cover cost of revenues
and expenses generated. Total revenue for the quarter ended December 31, 1999
was $2.7 million, and for the six months ended December 31, 1999 was $5.6
million which consists almost exclusively of revenue from the sale of computer
hardware and software and consumer electronics by TechStore. Total cost of
revenue for the quarter ended December 31, 1999 was $2.5 million, or 94% of
revenue and for the six months ended December 31, 1999 was $5.2 million or 93%
of revenue, and included cost of product sold, credit card processing fees and
freight costs. Total selling, general and administrative expenses for the
quarter ended December 31, 1999 were $1 million or 40% of revenue and for the
six months ended December 31, 1999 were $2.1 million or 37% of revenue, and
consisted of salaries and other personnel related costs, facilities, legal and
other professional fees, advertising costs and travel expenses.
17
Amortization expenses associated with the acquisition of TechStore and
the reverse merger between the Company and E-Taxi were $624,000 for the quarter
ended December 31, 1999 and $1.2 million for the six months ended December 31.
Interest income, net of interest expense, was $19,000 for the quarter ended
December 31, 1999 and $10,000 for the six months ended December 31, 1999.
Interest expense related primarily to interest on loans to the Company and
interest income resulted primarily from interest earned on the proceeds from the
private placement completed by the Company in November, 1999.
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
At December 31, 2000 the Company had a cash balance of $277,000 and a
working capital deficit of $3.8 million. The Company's operations generated a
negative cash flow for the quarter ended December 31, 2000, and management
expects a significant use of cash during the upcoming fiscal year as it funds
its operating businesses. The Company will require additional debt or equity
financing during the first half of fiscal year 2001, the amount and timing
depending in large part on our spending program. If additional funds are raised
through the issuance of equity securities, the Company's stockholders may
experience significant dilution. Furthermore, there can be no assurance that
additional financing will be available when needed or that if available, such
financing will include terms favorable to our stockholders or the Company. If
such financing is not available when required or is not available on acceptable
terms, the Company may be unable to pay its debts in a timely manner, to develop
or enhance its operating businesses, take advantage of business opportunities or
respond to competitive pressures, any of which could have a material adverse
effect on its business, financial condition and results of operations. The
Company also could breach payment obligations to third parties or otherwise fail
to satisfy business obligations of the Company.
Absence of Dividends
The Company has never declared or paid, nor does it intend to pay in the
foreseeable future, cash dividends on its Common Stock, but intends instead to
retain any future earnings to finance expansion and operations.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In September 2000, a lawsuit was filed against Full Moon in the
Superior Court, State of Washington, County of Spokane alleging a breach of
contract in connection with a Software Development Agreement, by and between
Byte Dynamics, Inc. and FMIG, dated February 25, 2000. The plaintiffs were
seeking payment of the liquidated sum of $136,147.22; a cancellation fee of
$168,000; and all interest, costs and attorney's fees. A default judgment in the
amount of $304,147, plus fees and costs, has been awarded to the plaintiff.
In November 2000, a lawsuit was filed against Full Moon in Orange
County Superior Court of California alleging a breach of contract in connection
with a Search Fee Agreement, by and between, Pacific Shore Resources, Inc. and
Full Moon, dated May 24, 2000. The plaintiff is seeking the payment of $93,250
in fees, plus interest, costs and attorney fees associated with the recovery of
the monies owed. The Company is currently attempting to settle this matter with
the plaintiff.
In November 2000, a lawsuit was filed against Full Moon in Los Angeles
Superior Court of California alleging a breach of contract, by and between
Gilderman, Johnson & Company, LLP. and Full Moon. The plaintiff was seeking the
payment of $59,913 in fees, plus interest, costs and attorney fees associated
with the recovery of the monies owed. The Company has received a judgment to
settle this matter with the plaintiff.
In January 2001, a lawsuit was filed against Full Moon in Santa Clara,
California Superior Court alleging a breach of contract, by and between
Prinstaff, Inc. and Full Moon. The plaintiff is seeking the payment of $12,500
in fees, plus costs related to the lawsuit. The Company is currently attempting
to settle this matter with the plaintiff.
In January 2001, a lawsuit was filed against Full Moon in Orange County
Superior Court of California alleging a breach of contract by and between Vector
Resources, Inc. and Full Moon. The plaintiff is seeking the payment of $11,344
in fees. The Company is currently attempting to settle this matter with the
plaintiff.
In December 2001, a lawsuit was filed against Full Moon in the Supreme
Court of the State of New York alleging a breach of contract by and between
Double Click and Full Moon. The plaintiff is seeking the payment of $122,434 in
fees. The Company is currently attempting to settle this matter with the
plaintiff.
In January 2001, a lawsuit was filed against Full Moon in the County
Court of the Seventeenth Judicial Circuit in and for Broward County, Florida
alleging a breach of contract by and between The Omni Partners, Inc. and Full
Moon. The plaintiff is seeking the payment of $7,200 in fees. The Company is
currently attempting to settle this matter with the plaintiff.
The Company is not a party to any additional material legal proceedings
nor are any additional material legal proceedings threatened against the
Company; provided, however, the Company and its subsidiaries have received
numerous demands for payment of outstanding accounts payables. Given the
19
Company's current financial condition, the failure to make payments could have a
material adverse effect on the Company's business and its prospects.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EMARKETPLACE, INC.
Date: February 19, 2001 By: /s/ ROBERT M. WALLACE
----------------- -------------------------------------
Robert M. Wallace
Chief Executive Officer and Chairman,
(Chief Accounting Officer)
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