U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x]QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 2001
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
Commission file number
0-25037
stereoscape.com, inc.
(Name of small business issuer in its charter)
Nevada 06-1469654
(State or other jurisdiction (IRS Employer identification no.)
of incorporation or organization)
3440 Highway 9 South, Freehold, New Jersey 07728
(Address of principal executive offices)
(732) 462-7767
(Issuer's telephone number)
---------------------------------
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.........
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes .......No ....... N/A
APPLICABLE ONLY TO CORPORATE ISSUERS
Number of shares outstanding of each of the issuer's classes of common
equity as of September 30, 2001.
Title of Each Class Number of Shares Outstanding
Common Stock, $.001 par value per share 168,818,610
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2001
ASSETS
Current Assets:
Cash $ 151,868
Accounts and notes receivable 42,821
Inventories 814,186
Other current assets 119,720
------------
Total Current Assets 1,128,595
Property and Equipment - Net 939,351
Other assets 203,348
------------
TOTAL ASSETS $ 2,271,294
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Accounts payable $ 358,292
Merchandise credits 91,494
Notes and loans payable 492,781
Accrued expenses and other current liabilities 165,818
------------
Total Current Liabilities $ 1,108,385
------------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock
Par value $.001 - 200,000,000 shares authorized,
178,802,115 shares issued and outstanding 178,802
Additional paid in capital 3,337,476
Deficit (2,353,369)
------------
Total Stockholders' Equity 1,162,909
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,271,294
============
See notes to the consolidated financial statements (unaudited).
2
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended For the Nine Months Ended
September 30 September 30
2001 2000 2001 2000
-------------------------------------------------
Sales $ 218,681 $ 441,702 $ 1,074,655 $ 1,743,639
Cost of sales 186,481 434,494 702,469 1,472,911
-------------------------------------------------
Gross profit 32,200 7,208 372,186 270,728
Selling, General and
Administrative 468,889 114,999 1,296,540 586,087
-------------------------------------------------
Net (Loss) $ (436,689) $ (107,791) $ (924,354) $ (315,359)
=================================================
Net Loss per share,
basic and diluted $ (0.003) $ (0.001) $ (0.007) $ (0.005)
Weighted average number of
shares, basic and diluted 153,195,567 82,872,585 132,016,742 63,103,875
See notes to the consolidated financial statements (unaudited).
3
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended
September 30,
2001 2000
-----------------------------
Cash flows from operating activities:
Net loss $ (924,354) $ (315,359)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization 27,407 2,839
Changes in operating assets:
Accounts and notes receivable (19,459) (73,409)
Inventories (537,038) 103,867
Other current assets (57,021) 42,256
Changes in operating liabilities:
Accounts payable 135,939 (315,711)
Merchandise credits (8,727) (179,212)
Accrued expenses and other
current liabilities (114,075) 57,358
-----------------------------
Net cash used in operating activities (1,497,328) (677,371)
Cash flow from investing activities:
Acquisition of intellectual properties (175,000) (250,000)
Purchase of fixed assets (12,170) -
-----------------------------
Net cash used in investing activities (187,170) (250,000)
-----------------------------
Cash flow from financing activities:
Issuance of capital stock 1,284,749 1,354,065
Increase in other assets (5,600) -
Decrease in loans payable (27,971)
Proceeds from note and loans payable 375,000 9,500
-----------------------------
Net cash provided by financing activities 1,626,178 1,363,565
-----------------------------
Increase (decrease) in cash (58,320) 436,194
Cash , beginning of period 210,188 3,557
Cash, end of period $ 151,868 $ 439,751
=============================
Supplemental disclosure of cash flow information:
Interest paid $7,024 $7,557
See notes to the consolidated financial statements (unaudited).
4
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
stereoscape.com, inc. (the "Company") was established in 1988 under the
name Alliance Health Enterprises, Inc. In April 1997 the Company's Board of
Directors approved a change in the Company's name from Alliance Technologies,
Inc. at which time the Company acquired American Buyers Club International, Inc.
("ABC"). In April, 1997 ABC formed Alpha Sound and Vision, Inc. as a wholly
owned subsidiary. In December 1998 the Company's Board of Directors approved a
change in the Company's name to stereoscape.com, inc. The Board of Directors has
approved a change in the Company's name to The Marx Toy Group, Inc. This change
requires approval by the shareholders of the Company.
On August 23, 2000 the Company entered into a stock purchase agreement with
the principals of epiggybank.com, inc. ("epiggybank"), a financial and
educational web sight for children. The terms of the agreement included the
transfer, to the Company, of the "epiggybank" name, trademarks and intellectual
properties, and other assets being used in the seller's business. Since the
sellers have been unable to deliver a valid trademark for "epiggybank" the
Company is in the process of rescinding the transaction, and to that end has
halted the shares issued in the transaction.
Effective October 1, 2000 the Company acquired Marx Toys, Inc. ("Marx").
"Marx" is located in North Miami, Florida and sells collectible action figures
and play sets primarily through retail stores, the internet and via
telemarketing.
"ABC" is located in Freehold, New Jersey and sells high quality home
entertainment equipment. Substantially all business is obtained through
advertising in trade magazines and via the Internet.
On July 16, 2001 the Company acquired all of the issued and outstanding
stock of Toontz Toyz, Inc. ("Toontz"), a New Jersey corporation. "Toontz" is
involved with the development of intellectual properties, which they will
license to our companies for use in the production of numerous products.
FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary companies. All material inter company balances
are eliminated.
INVENTORIES
Inventories are stated at the lower of cost or market as determined by the
first-in, first-out method.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization is computed utilizing the straight-line
method over the estimated useful lives of the related assets, which range
between three and fifteen years.
5
ADVERTISING COSTS
The Company expenses production costs of print, radio and television
advertisements as of the first date the advertisements take place. All other
advertising costs are expensed as incurred. Advertising expenses included in
selling, administrative and general expenses were $48,204 in the nine months
ended September 30, 2001 and $18,734 in the same period in 2000.
EARNINGS PER COMMON SHARE
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS 128), which supersedes
Accounting Principles Board Opinion No. 15. Under SFAS 128 earnings per common
share is computed by dividing net income (loss) available to common shareholders
by the weighted-average number of common shares outstanding during the period.
On October 4, 2000 the Company effected a 15 for 1 stock split. All calculations
and share amounts have been adjusted to reflect the split value. Diluted
earnings per share do not reflect the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or converted
into common shares or resulted in the issuance of common shares as the impact of
such would be antidilutive, given the net losses incurred.
REVENUE RECOGNITION AND FINANCIAL STATEMENTS
Net sales are recognized at the time merchandise is released or shipped to
customer.
In December 1999, the Securities and Exchange Commissions ("SEC") issued
SEC Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarized certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 is effective for the Company in the third quarter of fiscal year 2001.
The Company is reviewing the requirements of SAB 101 and currently believes that
its revenue recognition policy is consistent with the guidance of SAB 101.
6
stereoscape.com, inc. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from these estimates.
WARRANTY
A subsidiary of the Company sells its products with the manufacturer's
factory or Alpha's company warranty. In addition, the Company offers extended
warranties, at an additional cost. The extended warranties are underwritten by a
third party, for which the Company pays a fixed fee.
NEW ACCOUNTING PRONOUNCEMENTS
Effective in 1998, the Company adopted Statement of Financial Accounting
Standards No.130, Reporting Comprehensive Income ("SFAS No. 130"). The Company
has no items of comprehensive income.
The Company adopted Statement Financial Accounting Standard No.131,"
Disclosures about Segments of an Enterprise and Related Information" . The
Company's implementation of this standard does not have any effect on the
financial statements.
LONG-LIVED ASSETS
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," long-lived
assets to be held and used by the Company are reviewed to determine whether an
event or change in circumstances indicates that the carrying amount of the asset
may not be recoverable. For long-lived assets to be held and used, the Company
bases its evaluation on such impairment indicators as the nature of the assets,
the future economic benefit of the assets, any historical or future
profitability measurements, as well as other external market conditions or
factors that may be present. If such impairment indicators are present or other
factors exist that indicate that the carrying amount of the asset may not be
recoverable, the Company determines whether an impairment has occurred through
the use of an undiscounted cash flows analysis of assets at the lowest level for
which identifiable cash flows exist. If impairment has occurred, the Company
recognizes a loss for the difference between the carrying amount and the
estimated value of the asset. The fair value of the asset is measured using
discounted cash flow analysis or other valuation techniques. No impairment
expense was recognized in either of the nine-month periods, ended September 30,
2001 or 2000.
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION
In March 2000, FASB issued FASB Interpretation No. 44 (FIN 44), "Accounting
for Certain Transactions Involving Stock Compensation--an Interpretation of APB
Opinion No. 25." FIN 44 clarifies the following: the definition of an employee
for purposes of applying APB opinion No. 25; the criteria for determining
whether a plan qualifies as a non-compensatory plan; the accounting consequence
of various modifications to the terms of the previously fixed stock options or
awards; and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain conclusions
in FIN 44 covers specific events that occurred after either December 15, 1998 or
January 12, 2000. Management does not expect the application of FIN 44 to have a
material impact on the Company's financial position or results of operations.
7
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Financial Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). Under the asset and liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the
enactment date.
CONCENTRATION OF CREDIT RISK
The Company maintains its cash with various financial institutions. The
Company performs periodic evaluations of the relative credit standing of these
institutions.
NOTE 2 - ACQUISITIONS
Effective October 1, 2000, the Company acquired Marx Toys, Inc., which was
accounted for as a purchase whereby Marx became a wholly-owned subsidiary of the
Company. Marx sells collectible action figures and play sets, primarily through
the internet and telemarketing. In connection with the accounting, the Company
issued 16,500,000 shares of common stock valued at $.0469 per share.
The operation and financial position of Marx were accounted for in the
consolidated financial statements of the Company beginning October 1, 2000. The
molds, which had an appraised value in excess of $10,000,000, were valued at
$847,000 based upon the value of the 16,500,000 shares issued.
Effective July 16, 2001, the Company acquired Toontz Toyz, Inc., which was
accounted for as a purchase, whereby Toontz became a wholly-owned subsidiary of
the Company. In connection with the accounting, the Company issued 10,000,000
restricted shares of common stock, valued at $.01 per share.
The operation and financial position of Toontz were accounted for in the
consolidated financial statements of the Company beginning July 16, 2001.
NOTE 3 - INVENTORIES
Inventories consist of the following at September 30, 2001:
Finished goods $701,526
Raw materials 112,660
--------
$814,186
8
NOTE 4 - FIXED ASSETS, at cost
Fixed assets consist of the following at September 30, 2001:
Furniture and fixtures $ 53,308
Molds 942,162
Leasehold improvements 5,974
-------
1,001,444
Less-accumulated depreciation ( 62,093)
----------
$939,351
NOTE 5 - OTHER ASSETS
Other assets consist of the following at September 30, 2001:
Intellectual properties, net of accumulated amortization $554,333
Investments 9,380
Security deposits 8,273
Other 112
-----------
$572,098
NOTE 6 - NOTES AND LOANS PAYABLE
In April 2001 the Company received loans, totaling $375,000, for which
promissory notes, due in April 2002, were issued. The notes are non-interest
bearing. In consideration of the loan the Company has granted the payees options
to purchase 3,900,000 shares of their common stock at an exercise price of $.04
per share. The right to exercise the option shall terminate in April 2003.
At the Balance Sheet date, Marx Toys, Inc. had a $100,000 revolving line of
credit, with a financial institution, with interest paid monthly, based upon the
prime interest rate. The outstanding balance on this line of credit, at
Septe0ber 30, 2001, was $79,362.
There are miscellaneous loans payable, totaling $38,419, as of September
30, 2001.
NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following at
September 30, 2001:
Accrued professional fees $33,557
Customer credits 20,134
Payroll taxes 98,209
Accrued interest payable 7,877
Other accrued expenses 6,041
----------
$165,818
9
NOTE 8 - COMMITMENTS
The Company and a subsidiary lease office facilities in Freehold, New
Jersey and No. Miami, Florida, and warehouse facilities in Sebring, Ohio
requiring minimum annual rent of approximately $107,400. The leases expire
between May 2002 and April 2006. The leases require the Company to pay various
operating expenditures of the facilities and contain provisions for rent
escalations. Rent expense totaled $65,387 and $31,100 for the nine months ended
September 30, 2001 and 2000, respectively.
Future minimum commitments under operating lease arrangements are due as
follows:
Years Ending December 31, Amount
---------------------------------------------------------------------
2001 $ 84,900
2002 100,268
2003 55,581
2004 42,000
------------------
$ 282,749
==================
NOTE 9 - INCOME Taxes
The Company has available net operating loss carry forwards of
approximately $2,374,000 for federal and state income taxes expiring between
2003 and 2121 to offset future taxable income.
A deferred tax asset results from the benefit of utilizing net operating
loss carry forwards in future years. A valuation allowance has been provided for
the entire benefit.
The Company will continue to assess the recoverability of its deferred
income tax asset and adjustments may be necessary based on the evidence
available at that time. The difference between the expected rate of tax and the
actual tax expense relates entirely to state tax expense and the valuation
allowance.
NOTE 10 - SEGMENT INFORMATION
The Company adopted Statement Financial Accounting Standard No. 131
"Disclosures about Segments of an Enterprise and Related Information (SFAS 131)"
in 2000.
The accounting policies and detail of operations of the operating segments
are the same as those described in the summary of significant accounting
policies. There are no material inter-segment sales or transfers. All revenues
are generated within the United States and all revenue producing assets are
located therein. Management evaluates a segment's performance based upon profit
or loss from operations before income taxes.
Sales
Home Theatre $838,271
Toy Products 236,384
Intellectual Properties Development 0
----------
Total Sales $1,074,655
==========
Operating loss
Home Theatre $(353,664)
Toy Products (442,883)
Intellectual Properties Development ( 12,122)
----------
(808,669)
Corporate other expenses 115,685
----------
Loss before income taxes $(924,354)
===========
Assets
Home Theatre $211,048
Toy Products 1,608,873
Intellectual Properties Development 641,838
Parent Company 178,285
----------
Total assets $2,640,044
==========
Depreciation and amortization expense
Home Theatre $ 5,434
Toy Products 20,723
Intellectual Properties Development 1,250
---------
Total depreciation and amortization $27,407
=========
10
Item 2. Management's Discussion and Analysis or Plan of Operation
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Consolidated Unaudited
Financial Statements and related notes which are contained in Item 1 herein.
Results of operations for stereoscape.com, inc. and subsidiaries are being
presented on a consolidated basis.
Three Months Ended September 30, 2001 Compared to Three Months Ended
September 30, 2000
Net sales for the three months ended September 30, 2001 decreased 50.5% to
$218,681 from $441,702 for the three months ended September 30, 2000. The
decrease was the result of managements decision to reduce the present emphasis
on the audio and home entertainment segment of our business due to cautionary
buying trend in high end, discretionary items, caused by a slowdown in the
economy. The company felt that the emergence of Marx as an operating company
required both financial and management resources to be allocated more heavily in
that area to help in the growth of Marx for the coming year. In addition, the
company is placing needed attention to its new acquisition, Toontz. Management
feels that Toontz has great potential in the animated entertainment world and
could deliver substantial revenues from licensing, home video and games, toys
and trading card sales.
Gross profit for the three months ended September 30, 2001 increased 346.7%
to $32,200 from $7,208 for the three months ended September 30, 2000. As a
percentage of net sales, gross profit increased to 14.7% in the 2001 period
compared to 1.6% in the 2000 period. The increase was the direct result of the
sales of higher margin toy products.
Selling, general and administrative expenses for the three months ended
September 30, 2001 increased 308.0% to $469,200 from $114,999 for the three
months ended September 30, 2000. The increase in selling, general and
administrative expenses was the result of additional overhead as a result of the
increased emphasis in the future growth of "Marx" and "Toontz". The Company
succeeded in reducing expenses in the audio division, primarily as a result of
downsizing of office and warehouse personnel.
Net losses for the three months ended September 30, 2001 increased 305.4%
to ($437,000) from ($107,791) for the three months ended September 30, 2000.
This was a a direct result of the drop in sales in the audio and home
entertainment segment of our business. The drop in sales was due to a reduced
emphasis in the audio and home entertainment segment of our business and a down
turn in the overall economy, which effected the sales of high priced,
discretionary items. The emphasis placed on the future growth of Marx and Toontz
created additional overhead and costs without offsetting sales and increasing
our operating losses for the quarter.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended
September 30, 2000
Net sales for the nine months ended September 30, 2001 decreased 38.4% to
$1,074,655 from $1,743,639 for the nine months ended September 30, 2000. The
decrease in sales was a direct result of the increased emphasis placed on the
future growth of Marx and Toontz. The results of our increased emphasis on these
two segments of our business will be realized in the following year, 2002.
Gross profit for the nine months ended September 30, 2001 increased 37.5%
to $372,186 from $270,728 for the nine months ended September 30, 2000. As a
percentage of net sales, gross profit increased to 34.6% in the 2001 period
compared to 15.5% in the 2000 period. The increase was the result of the
company's emphasis on the sales of higher margin products in the toy segment of
our business.
Selling, general and administrative expenses for the nine months ended
September 30, 2001 increased 121.3% to $1,296,851 from $586,087 for the nine
months ended September 30, 2000. The increase in selling, general and
administrative expenses was the result of additional overhead from "Marx", which
totaled approximately $632,000 for the nine months ended September 30, 2001. The
Company succeeded in reducing expenses in the audio division, primarily as
result of downsizing of the office and warehouse personnel .
Net losses for the nine months ended September 30, 2001 increased to a loss
of ($924,665) compared to a loss of ($315,359) for the nine months ended
September 30, 2000. This was due to the reduced emphasis on the audio and home
entertainment segment of our business while investing our resources in the
future growth of Marx and Toontz.
11
Liquidity and Capital Resources
At September 30, 2001 the Company had stockholders' equity of $1,531,659,
whereas, at September 30, 2000 the Company had an equity deficit of ($482,430).
The Company has historically financed its business through cash flow from
operations and sale of stock, which may be utilized from time to time.
The Company expects to require additional capital to finance production for
its Toy Company and to acquire inventory for its audio products and home theatre
expansion. The Company has completed a financing package that includes bridge
financing in the form of a promissory note to private investors and a funding
agreement with an investment banking firm to a maximum of $10 million, should
the Company need the funds. The Company has no obligation to take down any of
the funds should it choose not to exercise its option.
While no specific acquisitions are presently under consideration, the
Company is actively seeking acquisitions and anticipates it may require
additional capital in order to fund any acquisitions or substantial growth in
its current business.
Anticipated Future Growth
Management believes that the future growth of the Company will be the
result of focusing on the restructuring of its businesses, thereby increasing
the profitability. In this effort the Company intends to consider these five
efforts (1) expand the toy sales to include major national and regional
retailers, (2) license intellectual properties being developed by "Toontz",(3)
consider a strategic partner for its audio and home theatre sales to go beyond
the consumer and reach out to industrial markets and business to business
relationships, (4) pursue promotional deals for the sale of vintage Marx
products on a large scale, (5) consider acquisitions of other companies in the
toy and home theater related industries.
Forward Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains information regarding management's planned growth, financing
and prospective business acquisitions and opportunities. These statements are
forward looking statements that involve risks and uncertainties. The following
is a list of factors, among others, that could cause actual results to differ
materially from the forward looking statements: business conditions and growth
in the Company's market and industry and in the general economy; competitive
factors including increased competition and price pressures; availability of raw
materials and purchased products at competitive prices; and inadequate or
unsatisfactory financing sources.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf the
undersigned duly authorized
stereoscape.com, inc.
By: /s/ Mario Bassani November 13, 2001
-------------------
Mario Bassani
President (Principal Executive Officer)
Chairman of the Board
By: /s/ Steve Wise November 13, 2001
--------------
Steve Wise
Director
By: /s/ Gary B. Hyman November 13, 2001
-----------------
Gary B. Hyman
Chief Financial Officer
(Principal Accounting Officer)
Director
13