================================================================================
U.S. 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 September 30, 2003
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 0-25037
Marx Toys and Entertainment Corp.
(formerly stereoscape.com, inc.)
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 06-1469654
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
50 First Avenue
Atlantic Highlands, New Jersey 07716
----------------------------------------
(Address of Principal Executive Offices)
(732) 870-1424
---------------------------
(Issuer's telephone number)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ].
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: 47,653,000 shares of common
stock, $0.001 par value, as of November 28, 2003.
================================================================================
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Marx Toys and Entertainment Corp. and
subsidiaries (collectively, the "Company"), included herein were prepared,
without audit, pursuant to rules and regulations of the Securities and Exchange
Commission. Because certain information and notes normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America were condensed or omitted pursuant to such rules
and regulations, these financial statements should be read in conjunction with
the financial statements and notes thereto included in the audited financial
statements of the Company as included in the Company's Form 10-KSB for the year
ended December 31, 2002.
2
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
CONSOLIDATED BALANCE SHEET
September 30, December 31,
2003 2002
----------- -----------
ASSETS (unaudited)
Current Assets
Cash $ 85,393 $ 894
Inventory 276,194 330,393
----------- -----------
Total Current Assets 361,587 331,287
Security deposit 8,778 --
----------- -----------
Total Assets $ 370,365 $ 331,287
=========== ===========
LIABILITIES AND CAPITAL
Current Liabilities
Accounts payable and accrued expenses $ 737,502 $ 632,416
Liabilities of discontinued business segment 183,914 183,914
Merchandise credits 80,939 80,939
Payable to officer 12,500 --
Loans payable shareholder 147,000 --
Notes and loans payable 726,978 690,000
----------- -----------
Total Current Liabilities 1,888,833 1,587,269
Stockholders' Equity (Deficit)
Common stock, 200,000,000 shares authorized at $.001
par value; issued and outstanding 47,653,000 and 15,242,432
at September 30, 2003 and December 31, 2002 47,653 15,242
Additional paid-in capital 6,693,177 2,720,438
Common stock to be issued 3,000 --
Accumulated deficit (8,262,298) (3,991,662)
----------- -----------
Stockholders' Equity (Deficit) (1,518,468) (1,255,982)
----------- -----------
Total Liabilities and Capital $ 370,365 $ 331,287
=========== ===========
See Notes to Financial Statements
3
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Sales revenues $ 22,566 $ 46,118 $ 85,972 $ 199,771
Cost of sales 16,156 166,865 61,081 384,692
------------ ------------ ------------ ------------
Gross profit (loss) 6,410 (120,747) 24,891 (184,921)
General and administrative
expenses 315,387 225,641 661,727 649,266
Common stock issued for
services 1,666,900 -- 2,276,900 --
Stock options issued for
services 680,000 -- 1,332,000 --
Impairment of long-lived assets -- 159,559 -- 159,559
Interest expense 8,300 -- 24,900 --
------------ ------------ ------------ ------------
2,670,587 385,200 4,295,527 808,825
------------ ------------ ------------ ------------
Net loss $ (2,664,177) $ (505,947) $ (4,270,636) $ (993,746)
============ ============ ============ ============
Net (loss) per common
share basic and diluted $ (0.06) $ (0.04) $ (0.09) $ (0.08)
============ ============ ============ ============
Weighted average shares
outstanding 47,653,000 12,569,791 47,653,000 12,195,050
============ ============ ============ ============
See Notes to Financial Statements.
4
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
--------------------------
2003 2002
----------- -----------
(unaudited) (unaudited)
Operating Activities
- --------------------
Net loss from continuing operations $(4,270,636) $ (993,746)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization -- 16,247
Common stock issued for services 2,276,900 --
Stock option issued for services 1,332,000 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable -- (48,680)
(Increase) decrease in inventory 54,199 347,241
(Increase) decrease in other current assets -- 70,288
(Increase) decrease in impairment of long-lived assets -- 175,000
(Increase) decrease in other assets (8,778) 5,947
Increase (decrease) in accounts payable and accrued expenses 117,586 78,683
Increase (decrease) in accrued expenses and other current liabilities -- 84,099
Increase (decrease) in merchandise credits -- (2,806)
Increase (decrease) in notes and loans payable -- 190,000
----------- -----------
Net cash used by operating activities (498,729) (77,727)
Investing Activities
- --------------------
Disposal of fixed assets -- 44,809
----------- -----------
Net cash used by investing activities -- 44,809
Financing Activities
- --------------------
Issuance of capital stock 399,250 --
Increase in note payable 36,978 --
Shareholder loan payable 147,000 --
----------- -----------
Net cash provided by financing activities 583,228 --
----------- -----------
Increase (decrease) in cash 84,499 (32,918)
Cash at beginning of period 894 33,406
----------- -----------
Cash at end of period $ 85,393 $ 488
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during year for:
Interest $ -- $ --
=========== ===========
Income taxes (benefits) $ -- $ --
=========== ===========
See Notes to Financial Statements.
5
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
Note 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
------------
Marx Toys and Entertainment Corp. (formerly stereoscape.com, inc.)
("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 to Alliance Technologies, Inc.
In December 1998 the Company's Board of Directors approved a change in
the Company's name to stereoscape.com, inc., and on March 11, 2003 the
Company's Board of Directors approved a change in the Company's name to
Marx Toys and Entertainment Corp.
In April 1997 the Company acquired American Buyers Club International,
Inc. ("ABC"). A company engaged in the sale of high end home theater
equipment via mail order and over the internet. In April 1997 ABC
formed Alpha Sound and Vision, Inc. (Alpha") as a wholly owned
subsidiary and retail division. In March of 2002 the Company determined
that the operations of ABC and Alpha should be discontinued so that the
direction of the Company could be changed to concentrate on the
activities of its Marx Toys, Inc. subsidiary.
Effective October 1, 2000 the Company acquired Marx Toys, Inc. ("Marx
"). "Marx" is located in Sebring, Ohio and sells collectible action
figures and play sets primarily through the Internet and via
telemarketing.
On July 16, 2001, the Company acquired all of the issued and
outstanding shares of Toontz Toys Inc. ("Toontz"). Toontz is involved
in the development of intellectual properties, which the Company
intends to license to third parties for the manufacturer of various
products and video presentations. The Company as part of a lawsuit
negotiation (Note 4) may include returning the above shares as part of
the settlement.
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, 2002. 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.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary companies. All material
intercompany balances are eliminated.
6
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
Note 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company has a net loss of $4,270,636
for the nine months ended September 30, 2003 and a working capital
deficiency of $1,527,246 at September 30, 2003 that 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 any
deferred tax assets at September 30, 2003.
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the accounting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION AND FINANCIAL STATEMENTS
--------------------------------------------
Net sales are recognized at the time merchandise is shipped to
customers.
The Securities and Exchange Commissions (SEC) issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements",
which provides guidance related to revenue recognition. The Company has
adopted SAB 101 and it has not had a material impact on the Company's
consolidated financial position or results of operations, nor did it
result in the company reporting a change in accounting principles from
its application.
ADVERTISING COSTS
-----------------
The Company expenses all advertising costs as incurred.
INVENTORIES
-----------
Inventories are stated at the lower of cost or market as determined by
the first-in, first-out method, and consist of collectable action
figures held for distribution.
7
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
Note 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
EARNINGS PER COMMON SHARE
-------------------------
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 14, 2002 the
Company affected a 1 for 15 reverse stock split. All calculations and
share amounts have been adjusted to reflect the post-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.
Note 2- NOTES AND LOANS PAYABLE
In April 2001 the Company received cash, 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 260,000 shares of their common
stock at an exercise price of $.60 per share. The right to exercise the
option terminated in April 2003. As of September 30, 2003, the notes
have not been repaid and the lenders did not exercise their options to
acquire the common stock.
In January 2002 the Company borrowed $200,000 under a promissory note
bearing 12% interest and maturing in January 2003. At September 30,
2003, unpaid accrued interest amounted to $42,000 and is included in
accrued expenses.
In June 2002 the Company entered into an operating agreement with
Michael Marx, LLC to sell toys. In November 2002 the agreement was
rescinded. In connection with the rescinded agreement, the Company owes
the current LLC member $115,000 which becomes payable on May 15, 2003
with interest at 8%. At September 30, 2003 unpaid and accrued interest
amounted to approximately $8,000 and is included in accrued expenses.
On May 8, 2003 the Company amended its agreement with Michael Marx LLC
whereby (1) the November 2002 agreement is extended for 90 days; (2)
all of the toy business for the Company will be conducted through
Michael Marx LLC until May 15, 2008; and (3) Michael Marx LLC will be
paid 10 % of the gross sales during the term of this agreement.
Additionally, Michael Shalit received options to purchase 10,000,000
shares of the Company's common stock for $0.05 per share for consulting
services.
8
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
Note 3- COMMON STOCK
During the quarter ended September 30, 2003 the Company received
proceeds of $250,000 from the exercise of a stock option for 6,800,000
shares of $0.001 par value of common stock.
During the quarter ended September 30, 2003 the Company issued
10,380,000 common shares for services valued at $1,666,900.
On May 8, 2003 as part of an amended loan and management agreement,
Michael Shalit was granted an option to purchase 10,000,000 shares of
the Company's common stock for $0.05 per share with no expiration date,
for consulting services. Additionally, in the event of any major
dilution, the Company agreed to issue additional options to Mr. Shalit
so that he would retain the same percentage ownership interest granted
under the stock option provision. These options were valued at $652,000
using the Black-Scholes option pricing method and were charged to
expense.
On August 29, 2003 the Company granted an option to purchase 6,800,000
$0.001 par value common shares at $0.20 per share for services rendered
valued at $612,000. Subsequently on September 18, 2003 the option was
changed to a flat $250,000 to purchase the 6,800,000 common shares or
approximately $0.04 per share which resulted in an additional expense
for services of $68,000.
Note 4- COMMITMENTS AND CONTINGENCIES
LEASES
------
A subsidiary leases a warehouse facility in Sebring, Ohio requiring
minimum annual rent of approximately $42,000. The lease expires in
April 2005.
The Company entered into a 5 year lease agreement on October 1, 2003
for showroom space in New York requiring annual rent of approximately
$30,000
LIENS
-----
In April and November 2001 the Internal Revenue Service filed liens
against the Company's property for unpaid payroll taxes of
approximately $53,000. The Internal Revenue Service is currently
requesting that the Company liquidate its inventory to pay those unpaid
taxes.
9
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
Note 4- COMMITMENTS AND CONTINGENCIES (continued)
LITIGATION
----------
In February 2002, the Company was named as a defendant in a complaint
filed by American Plastic EquipmcoverAitsilost.asset complaint alleged
that substantially all of the assets acquired in the acquisition of
Marx Toys, Inc. were encumbered as collateral for an obligation due to
American owed by the former owner of Marx Toys, Inc. In the complaint,
American asserted that they had filed a security interest against
certain assets of Marx Toys, Inc. including plastic toy molds and
non-toy molds stored in two facilities in Mahoning County, Ohio. The
security interest is in the sum of $675,000 and was recorded prior to
the Company's acquistion of Marx Toys. The Complaint was pending in the
Mahoning County Court of Common Pleas. A magistrate and Judge ruled
against the Company and the assets were seized. At December 31, 2001
the company provided for the impairment of these assets. The Company
plans to seek recovery of these assets through a settlement, and the
Company intends to seek to recover its lost assets from the former
owner of Marx through all legal means necessary.
Three actions are pending against the Company in Florida State Court,
in Miami-Dade County Florida. Jay Horowitz v. Stereoscape.com, Inc. and
Marx Toys, Inc., Case No. 02-05 611 CC27. This action asserts various
causes of action, including money lent ($35,000) and breach of contract
($38,220) American Plastic Equipment, Inc. v. Stereoscape.com, Inc. and
Marx Toys, Inc., Case No. 02-04859 CC 05. This action asserts various
causes of action, including breach of contract ($5,076), unjust
enrichment ($5,076), conversion ($482), and breach of oral agreement
($798). Steven L. Horowitz v. Stereoscape.com, Inc., 00001-29822 CA 11.
This action asserts a claim for moneys owed under a promissory note in
the amount of $50,000. The defendants have answered these complaints,
asserting various affirmative defenses. To date, no discovery has been
taken in the cases and the defendants' liability is as yet not
determinable. However, the Company is currently in negotiations to
settle this lawsuit.
The Company is currently in negotiations to settle a lawsuit regarding
its default under an employment agreement. As part of the acquisition
of Toontz Toys, Inc. the Company entered into an employment agreement.
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, the
individual shall 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. As of September 30, 2003,
amounts due under the employment agreement have not been paid, but have
been accrued in the financial statements.
10
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
Note 5- LICENSING AGREEMENT
In April 2003 the Company entered into a three year licensing agreement
to market certain toy related products. This agreement was terminated
July 31, 2003 for non-performance by the Company resulting in a $75,000
charge to license fee expense. A new agreement replacing the April 2003
agreement became effective October 1, 2003 for a five year licensing
agreement with an option for five additional years.
Minimum royalty payments to be paid, to continue the agreement to the
following year, over the term of the contract are as follows:
First Year $ 125,000
Second Year 300,000
Third Year 1,000,000
Fourth Year 1,000,000
Fifth Year 1,000,000
----------------
$ 3,425,000
================
Additionally, a total of $200,000 in non-refundable license fees is
payable over the 150 day period from the date of the agreement plus a
$200,000 advance royalty payment is due no later than April 1, 2004.
The Company was notified by letter on December 8, 2003 that it is in
default of the licensing agreement and that it intends to terminate the
agreement on December 18, 2003.
The Company is currently negotiating a delay in the termination of the
agreement.
Note 6- AZTOR AGREEMENT
On July 30. 2003 the Company agreed to acquire 100% of the outstanding
stock of Aztor Corp. a privately held software company.
The agreement was not completed and the Company does not intend to
complete the transaction.
11
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
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 Audited
Consolidated Financial Statements and related notes, which are
contained elsewhere in this report.
Results of operations for Marx Toys and Entertainment Corp. and
subsidiaries are being presented on a consolidated basis.
Quarter Ended September 30, 2003 compared to Quarter ended September
--------------------------------------------------------------------
30, 2002
--------
Net sales for the quarter ended September 30, 2003 decreased 51.1% to
$22,566 from $46,118 for the quarter ended September 30, 2002. The
decrease was the result of reduction in consumer spending caused by a
restructuring of the product line.
Gross profit for the quarter ended September 30, 2003 increased to
$6,410 from a negative ($120,747) for the quarter ended September 30,
2002. As a percentage of net sales, gross profit increased to 28.4% in
the second quarter of 2003 compared to a negative gross profit in the
prior year's same period. The increase in gross profit was in part the
result of lower distribution costs and the higher selling prices for
current products.
Selling, general and administrative expenses for quarter ended
September 30, 2003 increased 1,080% to $2,262,287 from $225,641 for the
quarter ended September 30, 2002. The increase in selling, general and
administrative expense was the result of increased consulting fees.
Net loss from operations for the quarter ended September 30, 2003
increased to $2,664,177 compared to a net loss of $505,947 for the
quarter ended September 30, 2002. The increase in net loss was due
mainly to the increased consulting fees described above.
12
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
Item 2. Management's Discussion and Analysis or Plan of Operation (continued)
Nine months ended September 30, 2003 compared to nine months ended
------------------------------------------------------------------
September 30, 2002
------------------
Net sales for the nine months ended September 30, 2003 decreased 57.0%
to $85,972 from $199,771 for the nine months ended September 30, 2002.
The decrease was the result of a restructuring of the product line.
Gross profit for the nine months ended September 30, 2003 increased to
$24,891 from a negative ($184,921) for the nine months ended September
30, 2002. As a percentage of net sales, gross profit increased to 29.0%
in the nine months of 2003 compared to a negative in the prior years
same period. The increase in gross profit was in part the result of
lower distribution costs and the higher selling prices of current
products.
Selling, general and administrative expenses for the nine months ended
September 30, 2003 increased to $4,270,627 from $649,266 for the nine
months ended September 30, 2002. The increase in selling, general and
administrative expense was the result of increased consulting fees.
Net loss from continuing operations for the nine months ended September
30, 2003 increased to $4,270,636 compared to a net loss of $993,746 for
the nine months ended September 30, 2002. The increase in net losses
was due in part to the increased consulting fees described above.
The Company expects to require additional capital and at the present
time has no definitive plans but it 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
to raise such capital.
Liquidity and Capital Resources
-------------------------------
At September 30, 2003 the Company had an equity deficiency of
$1,518,468, which represents a decrease of $262,486 in the net equity
of ($1,255,982) at December 31, 2002.
The Company has historically financed its business through cash flow
from operations the issuance of common stock for services and
borrowings from executives and third parties, any of which may be
utilized from time to time.
13
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
Item 2. Management's Discussion and Analysis or Plan of Operation (continued)
Anticipated Future Growth
-------------------------
Management believes that the future growth of the Company will be the
result of restructuring of its core businesses. In this effort the
Company intends to consider these efforts; (1) expand the toy sales to
major national and regional retailers, (2) pursue promotional deals for
the sale of vintage Marx products on a large scale, (3) expand the toy
line to include products licensed and sold under the Marx name.
Forward Looking Statements
--------------------------
Management's Discussion and Analysis of Financial Condition and Results
of Operations contain information regarding management's planned
growth, financing and prospective business 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
purchased products at competitive prices; and inadequate or
unsatisfactory financing sources.
Item 3. Controls and Procedures
Evaluation of disclosure controls and procedures
------------------------------------------------
The Company's principal executive officer and its principal financial
officer, based on their evaluation of the Company's disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14(c)) as of date
within 90 days prior to the filing of this Quarterly Report on Form
10-QSB, have concluded that the Company's disclosure controls and
procedures are adequate and effective for the purposes set forth in the
definition in Exchange Act rules.
Changes in internal controls
----------------------------
Therewere no significant changes in the Company's internal controls or
in other factors that could significantly affect the Company's internal
controls subsequent to the date of their evaluation.
14
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
PART II OTHER INFORMATION
Item 1. Legal proceedings
In February 2002, the Company was named as a defendant in a complaint
filed by American Plastic Equipmrecovereitsalost ass complaint alleged
that substantially all of the assets acquired in the acquisition of
Marx Toys, Inc. were encumbered as collateral for an obligation due to
American owed by the former owner of Marx Toys, Inc. In the complaint,
American asserted that they had filed a security interest against
certain assets of Marx Toys, Inc. including plastic toy molds and
non-toy molds stored in two facilities in Mahoning County, Ohio. The
security interest is in the sum of $675,000 and was recorded prior to
the Company's acquisition of Marx Toys. The Complaint was pending in
the Mahoning County Court of Common Pleas. A magistrate and Judge ruled
against the Company and the assets were seized. At December 31, 2001
the Company provided for the impairment of these assets. The Company
plans to seek recovery of these assets through a settlement, and the
Company intends to seek to recover its lost assets from the former
owner of Marx through all legal means necessary.
Three actions are pending against the Company in Florida State Court,
in Miami-Dade County Florida. Jay Horowitz v. Stereoscape.com, Inc. and
Marx Toys, Inc., Case No. 02-05 611 CC27. This action asserts various
causes of action, including money lent ($35,000) and breach of contract
($38,220) American Plastic Equipment, Inc. v. Stereoscape.com, Inc. and
Marx Toys, Inc., Case No. 02-04859 CC 05. This action asserts various
causes of action, including breach of contract ($5,076), unjust
enrichment ($5,076), conversion ($482), and breach of oral agreement
($798). Steven L. Horowitz v. Stereoscape.com, Inc., 00001-29822 CA 11.
This action asserts a claim for moneys owed under a promissory note in
the amount of $50,000. The defendants have answered these complaints,
asserting various affirmative defenses. To date, no discovery has been
taken in the cases and the defendants' liability is as yet not
determinable. However, the Company is currently in negotiations to
settle this lawsuit.
The Company is currently in negotiations to settle a lawsuit regarding
its default under an employment agreement. As part of the acquisition
of Toontz Toys, Inc. the Company entered into an employment agreement.
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, the
individual shall 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. As of September 30, 2003,
amounts due under the employment agreement have not been paid, but have
been accrued in the financial statements.
15
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended September 30, 2003 the Company received
proceeds of $250,000 from the exercise of a stock option for 6,800,000
shares of $0.001 par value of common stock.
During the quarter ended September 30, 2003 the Company issued
10,380,000 common shares for services valued at $1,666,900.
On May 8, 2003 as part of an amended loan and management agreement,
Michael Shalit was granted an option to purchase 10,000,000 shares of
the Company's common stock for $0.05 per share with no expiration date,
for consulting services. Additionally, in the event of any major
dilution, the Company agreed to issue additional options to Mr. Shalit
so that he would retain the same percentage ownership interest granted
under the stock option provision. These options were valued at $652,000
using the Black-Scholes option pricing method and were charged to
expense.
On August 29, 2003 the Company granted an option to purchase 6,800,000
$0.001 par value common shares at $0.20 per share for services rendered
valued at $612,000. Subsequently on September 18, 2003 the option was
changed to a flat $250,000 to purchase the 6,800,000 common shares or
approximately $0.04 per share which resulted in an additional expense
for services of $68,000.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
The Company entered into an employment agreement on December 1, 2002
with Robert LoMonaco. The agreement provides for payment in common,
restricted stock if the Company was unable to meet its payment
obligations. As a result, the Company owes Robert LoMonaco 3 million
shares of stock for the months of December 2002 through March 2003
On September 11, 2003 Robert LoMonaco became CEO and Board member upon
resignation of Steven Wise
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Agreement with United Internet Technologies.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14
of the Exchange Act)
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002(18 U.S.C. 1350)
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during the fiscal quarter
ended September 30, 2003.
None.
16
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 by the
undersigned, thereunto duly authorized.
MARX TOYS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
(Formerly stereoscape.com inc.)
Date: December 19, 2003 /s/ ROBERT LOMONACO
------------------------------
Robert LoMonaco
Chief Executive Officer
17