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 March 31, 2002
[ ] 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 of (IRS Employer identification no.)
incorporation or organization)
704 Ginesi Drive, Morganville, New Jersey 07751
(Address of principal executive offices)
(732) 617-8600
(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 March 31, 2002.
Title of Each Class Number of Shares Outstanding
Common Stock, $.001 par value per share 180,068,610
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 2002
ASSETS
Current Assets
Cash $ 61,122
Accounts and notes receivable 32,242
Inventories 600,850
Other current assets 41,365
-------------
Total Current Assets 735,579
-------------
Property and equipment, at cost, net 18,218
Inrangible assets, net 171,571
Other Assets 10,667
-------------
TOTAL ASSETS $ 936,035
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 360,247
Accrued expenses and other current liabilities 160,023
Merchandise credits 83,745
Notes and loans payable 682,781
-------------
Total Current Liabilities 1,286,796
-------------
Commitments and Contingencies -
STOCKHOLDERS' EQUITY
Common Stock
Par value, $.001, 200,000,000 shares authorized,
180,068,610 shares issued and outstanding 180,069
Additional paid in capital 2,455,272
Deficit (2,986,102)
-------------
Total Stockholders' Equity (350,761)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 936,035
=============
See notes to consolidated financial statements (unaudited).
2
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
March 31,
2002 2001
----------------------------
Sales $ 111,181 $ 573,239
Cost of sales 137,737 410,021
----------------------------
Gross profit (loss) (26,556) 163,218
Selling, General and Administrative expenses 337,316 443,113
----------------------------
Net Loss $ (363,872) $ (279,895)
============================
Net Loss per share, basic and diluted $ (0.002) $ (0.002)
Weighted average number of
shares, basic and diluted 180,068,610 119,178,610
See notes to consolidated financial statements (unaudited)
3
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended
March 31,
2002 2001
--------------------------
Cash flows from operating activities:
Net loss $ (363,872) $(279,895)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization 10,113 8,724
Changes in operating assets:
Accounts and notes receivable (13,736) (4,914)
Inventories 102,020 (103,671)
Other current assets 45,722 32,812
Changes in operating liabilities:
Accounts payable (34,289) 37,669
Accrued expenses payable 46,584 (10,437)
Merchandise credits - (5,876)
Notes and loans payable (10,000) -
--------------------------
Net cash used in operating activities (217,458) (325,588)
--------------------------
Cash flow from investing activities:
Reduction in (purchase of) fixed assets 44,809 (11,057)
Reduction in other assets 365 -
--------------------------
Net cash used in investing activities 45,174 (11,057)
--------------------------
Cash flow from financing activities:
Issuance of capital stock - 25,000
Proceeds of loans payable 200,000 300,000
--------------------------
Net cash provided by financing activities 200,000 325,000
--------------------------
Increase (decrease) in cash 27,716 (11,645)
Cash, beginning of period 33,406 210,188
--------------------------
Cash, end of period $ 61,122 $ 198,543
==========================
Supplemental disclosure of cash flow information:
Interest paid $ 1,730 $ 2,504
Supplementary Disclosure of Non-Cash Transactions:
In 2001 the Company issued 10,000,000 shares of common stock for the
acquisition of Toontz Toyz, Inc., and the Company impaired assets
totaling $856,938 and reduced additional paid-in-capital for the
related value in excess of par value of the shares issued.
See notes to consolidated financial statements (unaudited).
4
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
stereoscape.com, inc. (the "Company") is a holding company and through its
American Buyers Club International, Inc. ("ABC") subsidiary sells high quality
home entertainment equipment to customer obtained through advertising in trade
magazines and via the Internet. The Company's Marx Toys, Inc. ("Marx")
subsidiary sells collectible action figures and play sets primarily through the
Internet and via telemarketing. The Company's Toontz Toys, Inc. subsidiary is
involved in the development of intellectual properties, which they will license
to manufacturers for the production of various products covered by the
intellectual properties.
The unaudited consolidated financial statements included herein have been
prepared by the Company in accordance with the same accounting principles
followed in the presentation of the Company's annual financial statements for
the year ended December 31, 2001 pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments that are of a normal and recurring nature and are necessary to
fairly present the financial position, results of operations, and cash flows of
the Company have been made on a consistent basis. This report should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB Annual Report for the year ended December 31, 2001.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary companies. All material inters company balances
are eliminated.
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company has a net loss of ($363,872) at March
31, 2002 and a working capital deficiency of approximately ($551,000) at March
31, 2002. which raises substantial doubt about the Company's ability to continue
as a going concern.
Income taxes for the interim period are based on the estimated effective
tax rate expected to be applicable for the full fiscal year. The Company has
recorded a full valuation allowance related to the deferred tax asset at March
31, 2002.
NOTE 2 -PER SHARE DATA
The per share data has been calculated using the weighted average number of
Common Shares outstanding during each period presented on both a basic and
diluted basis in accordance with SFAS 128. Outstanding options and warrants have
been excluded from the computation due to their antidilutive effect.
5
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3 - Property and equipment
Property and equipment are carried at cost, less accumulated depreciation
and amortization computed on a straight-line basis over the lesser of the
estimated useful lives of the assets (generally three to fifteen years.
Property and equipment consists of the following at March 31, 2002:
Furniture & equipment $ 57,541
Leasehold improvements (Note below)
----------------
Total cost 57,541
Less accumulated depreciation (39,323)
----------------
$ 18,218
================
NOTE:Subsequent to the balance sheet date the Company abandoned the leasehold
in Freehold, NJ and is attempting to sub-lease the premises. It is uncetain
if any of the cost of leasehold improvements will be recovered and,
accordingly, the Company has reserved the entire value of the leasehold
improvements at March 31, 2002
NOTE 4 - INVENTORIES
Inventories consist of the following at March 31, 2002:
Stereo equipment $67,069
Toys & collectables 533,781
------------
TOTAL $600,850
============
NOTE 5 - INTANGIBLE ASSETS
Trademarks, domain names, copyrights and other intangible assets are
recorded at cost less accumulated amortization of $8,429 over their estimated
useful lives. Intangible assets are reviewed for impairment whenever events or
circumstances indicate impairment might exist or at least annually. The Company
assesses the recoverability of its assets by comparing projected undiscounted
cash flows associated with those assets against their respective carry amounts.
Impairment, if any, is based upon the excess carrying amount over the fair value
of those assets.
6
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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. These notes were not paid nor
renewed when they matured and they are currently in default. The notes were
non-interest bearing. In consideration of the loan the Company 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 terminates in April
2003.
Marx Toys, Inc. had a $100,000 revolving line of credit that expired in
January 2002, with a financial institution, with interest of prime plus 1% per
annum (5.75% as of March 31, 2002). The balance owed on the line of credit at
March 31, 2002 was $69,362, plus accrued interest, default penalties and other
charges that have not yet been determined. A shareholder guarantees the
liability.
In January, 2002 the Company entered into a financing agreement for
$300,000. The agreement consists of a promissory note in the amount of $200,000,
which is due January 2, 2003. Interest only is payable on a monthly basis, at
the rate of 12% per annum. In exchange for the remaining $100,000 the Company
has agreed to issue 10,000,000 shares of stock.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LEASES
The Company and a subsidiary lease office facilities in Morganville, New
Jersey and warehouse facilities in Sebring, Ohio requiring minimum annual rent
of approximately $78,576. The leases expire April 2004 and April 2006, and
require the Company to pay various operating expenditures of the facilities and
contain provisions for rent escalations. Rent expense totaled $39,633 and
$35,581 for 2001 and 2000, respectively. The New Jersey facility contains an
option to renew and is guaranteed by a former Officer of the Company.
7
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
LITIGATION
In February 2002, the Company was named as a defendant in a complaint filed
by a third party. The complaint indicates substantially all of the assets
acquired in the acquisition of Marx Toys, Inc. were encumbered as collateral for
an obligation due to the third party owed by the former owner of Marx Toys, Inc.
In connection with the compliant, the third party sought to recover possession
of these assets. At December 31, 2001 the Company impaired these assets, and
reduced their carrying value to $-0-. Subsequent to March 31, 2002 the third
party plaintiff prevailed in the action described above and obtained a judgment
against the former owner of Marx. The Company has commenced litigation against
the former owner of Marx.
EMPLOYMENT AGREEMENT
As part of the acquisition of Toontz Toyz, Inc. the Company entered into an
employment agreement with Steven Campanella, dated June 1, 2001. The agreement,
which is for a period of three years, commencing June 1, 2001, includes a base
salary of $100,000 per annum. In addition, he is entitled to receive a one time
incentive bonus, during the term of the agreement, in the amount of $125,000, if
and when Toontz Toyz, Inc. achieves $5,000,000 in gross revenues.
NOTE 8- IMPAIRMENT WRITE-DOWN
During the year ended December 31, 2001, the Company's analysis of its
long-lived assets indicated there was an impairment relating to molds acquired
in the acquisition of Marx Toys, Inc.. Accordingly, the Company impaired this
asset by reducing its additional paid in capital in the amount of $856,938, and
writing the carrying value of the molds to $-0-.
NOTE 9- INCOME Taxes
The Company has available net operating loss carry forwards of
approximately $2,986,000 for federal and state income taxes expiring between
2003 and 2021 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.
8
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 10-- SEGMENT REPORTING
Industry segment information at March 31, 2002 is summarized as follows:
Total Operating
Revenues Profit(Loss)
----------- ---------------
Home theatre $ 26,791 $ (153,222)
Toy products 84,390 $ (114,564)
Intellectual properties development - (26,490)
----------- ---------------
Total Segment 111,181 (294,276)
Eliminations and other
corporate income(expenses) - (69,596)
----------- ---------------
Consolidated $ 111,181 (363,872)
=========== ===============
Depreciation
Capital and Amortization Identifiable
Expenditures Expense Assets
------------------------------------------------
Home theatre - $ 1,813 $ 137,911
Toy products - 7,050 631,099
Intellectual properties development - 1,250 68,754
Corporate - - 98,271
-------- --------- -----------
Consolidated - $ 10,113 $ 936,035
======== ========= ===========
Note 11- SUBSEQUENT EVENTS
On April 1, 2002, the Company accepted the resignation of Gary Hyman, the
Company's Chief Financial Officer and a Director. Mr. Hyman noted that his
departure was for personal reasons.
On May 16, 2002, the Company discontinued its Marx Toys Miami office in an
effort to reduce operating costs. As of this date, Marx is operating from the
Company's New Jersey facility.
9
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 March 31, 2002 Compared to Three Months Ended March 31,
2001
Net sales for the three months ended March 31, 2002 decreased 80.6% to
$111,181 from $573,239 for the three months ended March 31, 2001. The decrease
was the result of a management decision to redirect its effort from its home
theater division to its Marx Toys division, for which sales are have not yet
developed.
Gross profit (loss) for the three months March 31, 2002 decreased 116.3% to
a loss of ($26,556) versus a profit of $163,218 for the three months ended March
31, 2001. The decrease was the result of an overall reduction of 80.6% in
revenues and a $50,000 increase in the provision for obsolete inventory.
Selling, general and administrative expenses for the three months ended
March 31, 2002 decreased $337,316 from $410,021 for the three months ended March
31, 2001. The decrease was the result of downsizing due to the reduction in
revenues.
Net losses for the three months ended March 31, 2002 were ($363,872) versus
($279,895) for the three months ended March 31, 2001. This decrease was the
result of a reduction in revenues.
Liquidity and Capital Resources
At March 31, 2002 the Company had an equity deficit of ($350,761), whereas,
at March 31, 2001 the Company had Stockholders' equity of $547,619. This
reduction was due in part to the impairment write-downs taken as of December 31,
2001, as well as operating.
The Company requires immediate additional capital to sustain operations,
and at the present time has no definitive plans but is exploring various
opportunities. There can be no assurance of the ability of the Company to raise
such capital. The Company has no agreements or commitments with any person or
entity to raise such capital.
The Company is currently evaluating alternative avenues to sustain
operations, including the possible sales of its Marx subsidiary. No assurance
can be given that a sale will be consummated or that sufficient capital will be
available to sustain operations.
10
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.
11
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 May 20, 2002
-------------------
Mario Bassani
President
Principal Executive Officer
Principal Accounting Officer
Chairman of the Board
By: /s/ Steve Wise May 20, 2002
--------------
Steve Wise
Director
12