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, 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 of (IRS Employer identification no.)
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 March 31, 2001.
Title of Each Class Number of Shares Outstanding
Common Stock, $.001 par value per share 120,828,610
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, 2001
ASSETS
Current Assets:
Cash $ 198,543
Accounts and notes receivable 28,276
Inventories 380,819
Other current assets 29,887
-----------
Total Current Assets 637,525
Property and Equipment - Net 954,366
Other assets 25,303
-----------
TOTAL ASSETS $ 1,617,194
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Accounts payable $ 260,022
Merchandise credits 94,345
Notes and loans payable 145,752
Accrued expenses and other current liabilities 269,456
-----------
Total Current Liabilities $ 769,575
Long Term Debt 300,000
-----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock
Par value $.001 - 200,000,000 shares authorized,
120,828,610 shares issued and outstanding 120,829
Additional paid in capital 2,135,700
Deficit (1,708,910)
-----------
Total Stockholders' Equity 547,619
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,617,194
===========
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
March 31
2001 2000
---------------------------------
Sales $ 573,239 $ 859,605
Cost of sales 410,021 672,482
---------------------------------
Gross profit (loss) 163,218 187,123
Selling, General and Administrative 443,113 301,739
---------------------------------
Net (Loss) $ (279,895) $ (114,616)
=================================
LOSS PER COMMON SHARE
BASIC AND DILUTED
Net Earnings (loss) $ (0.002) $ (0.002)
Weighted average number of
shares used in computation 119,178,610 47,573,169
See notes to the consolidated financial statements (unaudited).
3
stereoscape.com, inc. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended
March 31,
2001 2000
-----------------------------
Cash flows from operating activities:
Net (loss) $ (279,895) $ (114,616)
Adjustments to reconcile net loss to net
cash used in operations:
Depreciation and amortization 8,724 946
Changes in operating assets:
Accounts and notes receivable (4,914) (11,720)
Inventories (103,671) 4,941
Other current assets 32,812 31,492
Changes in operating liabilities:
Accounts payable 37,669 20,923
Merchandise credits (5,876) -
Notes and loans payable - -
Accrued expenses and other
current liabilities (10,437) 19,919
-----------------------------
Net cash used in operating activities (325,588) (48,115)
Cash flow from investing activities:
Purchase of fixed assets (11,057) -
-----------------------------
Net cash used in investing activities (11,057) -
-----------------------------
Cash flow from financing activities:
Issuance of capital stock 25,000 50,000
Proceeds from (repayment of) loan payable 300,000 -
-----------------------------
Net cash provided by financing activities 325,000 50,000
Increase (decrease) in cash (11,645) 1,885
Cash , beginning of period 210,188 3,557
-----------------------------
Cash, end of period $198,543 $ 5,442
============================
Supplemental disclosure of cash flow information:
Interest paid $2,504 -
Income taxes paid - -
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.
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 did not own the name at the date of the closing the Company has halted
the shares issued, and has instituted a lawsuit to recover the stock 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 thyrough 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.
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.
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 $16,312 in 2001 and $27,174 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 first 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.
5
stereoscape.com, inc. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amount of financial instruments that are
recognized at historical cost amounts.
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 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 (SFAS 131),
in 1998. The Company's chief operating decision maker is the Chief Executive
Officer. There is currently only one operating segment in the Company, therefore
there is no segment information to report.
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 the year ended December 31, 2000 or 1999.
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 noncompensatory 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.
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
excess purchase price over the net assets acquired was approximately $847,000.
NOTE 3 - FIXED ASSETS, at cost
Fixed assets consists of the following at March 31, 2001:
Furniture and fixtures $ 52,195
Molds 942,162
Leasehold improvements 5,974
-----------
1,000,331
-----------
Less-accumulated depreciation ( 45,965)
-----------
$954,366
===========
NOTE 4 - COMMITMENTS
The Company and a subsidiary lease office facilities in Freehold, New
Jersey and warehouse facilities in Sebring, Ohio requiring minimum annual rent
of approximately $78,576. The leases expire between April 2004 and April 2006.
The leases require the Company to pay various operating expenditures of the
facilities and contain provisions for rent escalations.
NOTE 5 - INCOME TAXES
The Company has available net operating loss carry forwards of
approximately $1,460,000 for federal and state income taxes expiring between
2003 and 2119 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.
During the years ended December 31, 2000 and 1999, the increase in the
valuation allowance was $240,140 and $82,510, respectively. These charges
reflect increases in the valuation allowance related to the deferred tax asset.
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 6 - SUBSEQUENT EVENTS
In April 2001 the Company entered into an agreement with an investor to
provide up to $10,000,000 of financing under an equity line of credit. In
exchange for any draw downs by the Company, the investor will receive warrants
to purchase shares of common stock. The Company has no obligation to take down
any of the funds should it choose not to exercise its option.
In May 2001 the Company instituted a lawsuit against the principals of
"epiggybank" to recover all shares previously issued to them. This was as a
result of their failure to transfer the name and trademark to epiggybank, as
stipulated in the acquisition agreement.
6
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 subsidiary are being
presented on a consolidated basis.
Quarter Ended March 31 30, 2001 Compared to Quarter Ended March 31, 2000
Net sales for the quarter ended March 31, 2001 decreased 33.3% to $575,783
from $859,605 for the quarter ended March 31, 2000. The decrease was the result
of the elimination of lower margin sales and markdown of old inventory. In
addition, sales decreased due to a slowdown in the economy, which effected the
sale of high priced, discretionary items.
Gross profit (loss) for the quarter ended March 31, 2001 decreased 12.7% to
$163,218 from $187,128 for the quarter ended March 31, 2000. As a percentage of
net sales, gross profit increased to 28.5% in the 2001 period compared to 21.8%
in the 2000 period. The increase was primarily the result of reduction in sales
of lower margin items.
Selling, general and administrative expenses for quarter ended March 31,
2001 increased 46.9% to $443,113 from $301,739 for the quarter ended March 31,
2000. The increase in selling, general and administrative expenses was the
result of additional overhead from "Marx", which totaled approximately $234,000
for the quarter ended March 31, 2001. There was a reduction in expenses, to run
the home theatre company, primarily as result of substantial downsizing of the
sales, office and warehouse personnel.
Net losses for the quarter ended March 31, 2001 increased to a loss of
($279,895) compared to a loss of ($114,616) for the quarter ended March 31,
2000. This was due to a decrease in sales and the start up expenses for "Marx".
Liquidity and Capital Resources
At March 31, 2001 the Company had stockholders' equity of $572,618,
whereas, at March 31, 200 they had an equity deficit of ($720,887).
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 four efforts; (1) acquisition of other companies in the toy and home
theatre related industries, (2) expansion of toy sales to major national and
regional retailers, (3) expand home theatre sales to go beyond the consumer and
reach out to industrial markets and business to business relationships, (4)
pursuing promotional deals for the sale of vintage Marx products on a large
scale basis (5) obtaining new customers in the existing markets developing new
markets via current marketing channels and the internet, (6) with the
availability of over 1,600 molds Marx can reintroduce many of the old toys
products or licensing them out to other companies to produce and sell, and
(7)controlling and containing operating and administrative costs.
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.
7
Part II - OTHER INFORMATION
Item 6. Exhibit and reports on Form 8-K
(a) Exhibits
None
(b) Reports filed on Form 8K
None
8
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 21, 2001
-------------------
Mario Bassani
President (Principal Executive Officer)
Chairman of the Board
By: /s/ Steve Wise May 21, 2001
--------------
Steve Wise
Director
By: /s/ Gary B. Hyman May 21, 2001
-----------------
Gary B. Hyman
Chief Financial Officer
Director