U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2001
--------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission File Number 0-26325
UPSIDE DEVELOPMENT, INC.
-----------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 39-1765590
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
141 N. Main Street, Suite 207, West Bend, Wisconsin 53095
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(Address of Principal Executive Offices)
(262) 334-4500
---------------
(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 a
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 No X
---- -----
The number of shares outstanding of the Issuer's Common Stock, $.01 Par
Value, as of March 31, 2001 was 22,104,687.
Transitional Small Business Disclosure Format:
Yes No X
---- -----
UPSIDE DEVELOPMENT, INC.
(f/k/a ALOTTAFUN!, INC.)
Index
Page
Part I - Financial Information ----
Item 1. Financial Statements
Balance Sheet -
March 31, 2001................................................. 1
Statements of Operations -
Three months ended March 31, 2001 and 2000..................... 2
Statements of Changes in Stockholders' Deficit -
Three months ended March 31, 2001.............................. 3
Statements of Cash Flows -
Three months ended March 31, 2001 and 2000..................... 4
Notes to Financial Statements....................................5 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................7 - 9
Part II - Other Information
Item 1. Legal Proceedings................................................. 9
Signatures................................................................ 10
i
Upside Development, Inc.
(f/k/a Alottafun!, Inc.)
Balance Sheet
March 31, 2001
(unaudited)
Assets
Current assets:
Cash $ 4,032
Accounts receivable 10,278
---------------------
14,310
---------------------
Property and equipment, net of accumulated depreciation 16,723
---------------------
Deposit on acquisitions 158,108
Other assets 23,076
---------------------
181,184
---------------------
$ 212,217
=====================
Liabilities and Stockholders' Deficit
Current liabilities:
Bank overdrafts 5,040
Notes payable, net of discounts 368,503
Accounts payable 285,919
Accrued expenses 251,513
---------------------
Total current liabilities 910,975
---------------------
Stockholders' deficit:
Preferred stock; par value of $.0001; 5,000,000 shares
authorized; 2,000,000 shares issued and outstanding. 200
Common stock; par value of $.01 per share; 50,000,000 shares
authorized; 22,104,687 shares issued and outstanding. 221,047
Additional paid-in capital 6,591,454
Accumulated deficit (7,367,809)
---------------------
(555,108)
Stock subscription receivable (123,500)
Prepaid assets consulting (20,150)
---------------------
Total stockholders' deficit (698,758)
---------------------
$ 212,217
=====================
The accompanying notes are an integral part of the financial statements.
1
Upside Development, Inc.
(f/k/a Alottafun!, Inc.)
Statements of Operations
(unaudited)
Three Months Ended March 31,
------------------------------------------
2001 2000
------------------------------------------
Sales, net of allowance and discounts $ 33,083 $ (44)
Cost of sales 1,739 3,535
------------------------------------------
Gross profit 31,344 (3,579)
------------------------------------------
Operating expenses:
Selling 17,974 13,192
General and administrative 262,897 221,989
Depreciation and amortization 11,055 8,660
------------------------------------------
291,926 243,841
------------------------------------------
Loss from operations (260,582) (247,420)
------------------------------------------
Other expenses:
Net realized gain on
sale of securities, trading - 5,344
Interest expense (58,677) (11,220)
------------------------------------------
Total other expenses (58,677) (5,876)
------------------------------------------
Net loss before extraordinary gain (319,259) (253,296)
Extraordinary gain on forgiveness of debt 11,234 62,024
------------------------------------------
------------------------------------------
Net loss $ (308,025) $ (191,272)
==========================================
Loss per common share:
Loss before extraordinary gain (0.02) (0.03)
Extraordinary gain - 0.01
------------------------------------------
Net loss per common share $ (0.02) $ (0.02)
==========================================
------------------------------------------
Weighted average shares outstanding 19,850,845 10,040,642
==========================================
The accompanying notes are an integral part of the financial statements.
2
Upside Development, Inc.
(f/k/a Alottafun!, Inc.)
Statements of Changes in Stockholders' Deficit
(unaudited)
Preferred Stock Common Stock
--------------- ------------------ Additional Prepaid Stock
Shares $.0001 Par Shares $.01 Par Paid-in Accumulated Consulting Subscription
Issued Value Issued Value Capital Deficit Services Receivable Total
-------- --------- -------- -------- ---------- ---------- --------- ----------- ------
Balance, December 31, 2000 2,000,000 $ 200 16,360,437 $163,604 $6,270,387 $(7,059,784) $(50,375) $(123,500) $(799,468)
Issuance of common stock
for offering costs - - 500,000 5,000 (5,000) - - - -
Issuance of common stock
for services - - 2,098,750 20,988 121,912 - - - 142,900
Issuance of common stock
to settle debt - - 2,845,000 28,450 143,722 - - - 172,172
Common stock and warrants issued
in connection with-debt - - 300,500 3,005 60,433 - - - 63,438
Amortization of prepaid
consulting services - - - - - - 30,225 - 30,225
Net loss for the three months
ended March 31, 2001 - - - - - (308,025) - - (308,025)
-------- -------- -------- -------- -------- --------- ----------- ------- ---------
Balance, March 31, 2001 2,000,000 $ 200 22,104,687 $221,047 $6,591,454 $(7,367,809) $(20,150) $(123,500) $(698,758)
======== ======== ======== ======== ======== ========= =========== ======= =========
The accompanying notes are an integral part of the financial statements.
3
Upside Development, Inc.
(f/k/a Alottafun!, Inc.)
Statements of Cash Flows
(unaudited)
Three Months Ended March 31,
------------------------------------
2001 2000
------------------------------------
Operating activities
Net loss $ (308,025) $ (191,272)
------------------------------------
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 11,055 8,660
Loss on marketable securities (5,344)
Amortization of discount on notes payable 55,442 -
Amortization of prepaid consulting services 30,225 -
Common stock issued for services 142,900 -
Purchase of marketable securities - -
(Increase) decrease in:
Accounts receivable 3,316 2,685
Inventory 593 -
Other assets - (321)
Increase (decrease) in: -
Accounts payable (81,721) (113,679)
Accrued expenses 61,994 18,728
------------------------------------
Total adjustments 223,804 (89,271)
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Net cash used by operating activities (84,221) (280,543)
------------------------------------
Investing activities
Deposit on acquisitions (158,108) -
Acquisition of equipment and intangible assets - (68,282)
Proceeds from sale of marketable securities - 5,344
------------------------------------
Net cash used by investing activities (158,108) (62,938)
------------------------------------
Financing activities
Reduction in bank overdraft (4,170) -
Proceeds from issuance of note payable 250,000 -
Proceeds from common stock and related paid-in capital - 560,500
Reduction in note payable - (9,411)
Net proceeds/payments on credit line - -
------------------------------------
Net cash provided by financing activities 245,830 551,089
------------------------------------
Net increase in cash 3,501 207,608
Cash at beginning of period 531 5,310
------------------------------------
Cash at end of period $ 4,032 $ 212,918
====================================
Supplemental disclosures of cash flow information
and noncash financing activities
Cash paid during the period for interest $ 57,430 $ 11,197
====================================
During the three month period ended March 31, 2001, the Company issued 370,000
shares of restricted common stock in satisfaction of notes payable, including
interest, of $33,327.
During the three month period ended March 31, 2001, the Company issued 2,475,000
shares of restricted common stock in satisfaction of debt of $138,845.
During the three month period ended March 31, 2001, the Company issued 500,000
shares of restricted common stock valued at $35,000 for the payment of offering
costs.
During the three month period ended March 31, 2001, the Company issued $250,000
of notes payable. In connection with the notes, the Company issued 300,500
shares of restricted common stock valued at $21,143 and detachable warrants to
purchase 1,312,500 shares of restricted common stock valued at $42,295. These
amounts have been recorded as a discount on the notes and are being amortized
over the life of the note.
During the three month period ended March 31, 2001, the Company issued 2,098,750
shares of restricted common stock for services valued at $142,900.
The accompanying notes are an integral part of the financial statements.
4
UPSIDE DEVELOPMENT, INC.
(f/k/a ALOTTAFUN!, INC.)
Notes to Financial Statements
Note 1 - Basis of presentation
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (which are of a normal and recurring nature) necessary
for a fair presentation of the financial statements. The results of operations
for the three month periods ended March 31, 2001 and 2000 are not necessarily
indicative of the results to be expected for the full year.
The unaudited financial statements and notes are presented as permitted by Form
10-QSB. Accordingly, certain information and note disclosures that are normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been omitted. The
accompanying financial statements and notes should be read in conjunction with
the audited financial statements and notes for the Company for the fiscal year
ended December 31, 2000. The results of operations for the three-month period
ended March 31, 2001 are not necessarily indicative of those to be expected for
the entire year.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company has sustained
substantial losses since inception that total approximately $7,400,000 and has
used cash in operations of approximately $84,000 and $281,000 for the three
month periods ended March 31, 2001 and 2000, respectively. The Company has a
negative working capital of approximately $897,000 at March 31, 2001 and has
negative tangible net worth of approximately $699,000 at March 31, 2001. In
addition, the Company is currently in default on approximately $82,000 of notes
payable. Additionally, the Company has not had significant revenues over the
past two years. These issues indicate that the Company may be unable to continue
as a going concern. Realization of the Company's assets is dependent upon the
Company's ability to raise additional capital, as well as generate revenues
sufficient to result in future profitable operations. The accompanying financial
statements do not include any adjustments that might be necessary should the
Company be unable to continue as a going concern.
Note 2 - Per share calculations
Per share data was computed by dividing net loss by the weighted average number
of shares outstanding during the three and month periods ended March 31, 2001
and 2000. The weighted average shares outstanding for the three month period
ended March 31, 2001 was 19,850,845 as compared to 10,040,642 for the three
months ended March 31, 2000.
Note 3 - Equity Transactions
Please refer to Audited Financial Statements consisting of the Company's balance
sheet as of December 31, 2000, and related statements of operations, changes in
stockholders' equity, and cash flows ended December 31, 2000, as audited by
Pender, Newkirk & Company, Certified Public Accountant.
During the three month period ended March 31, 2001, the Company issued 370,000
shares of restricted common stock in satisfaction of notes payable, including
interest, of $33,327.
During the three month period ended March 31, 2001, the Company issued 2,475,000
shares of restricted common stock in satisfaction of debt of $138,845.
During the three month period ended March 31, 2001, the Company issued 500,000
shares of restricted common stock valued at $35,000 for the payment of offering
costs.
During the three month period ended March 31, 2001, the Company issued $250,000
of notes payable. In connection with the notes, the Company issued 300,500
shares of restricted common stock valued at $21,143 and detachable warrants to
purchase 1,312,500 shares of restricted common stock valued at $42,295. These
amounts have been recorded as a discount on the notes and are being amortized
over the life of the note.
During the three month period ended March 31, 2001, the Company issued 2,098,750
shares of restricted common stock for services valued at $142,900.
5
UPSIDE DEVELOPMENT, INC.
(f/k/a ALOTTAFUN!, INC.)
Notes to Financial Statements (continued)
Note 4 - Deposits on Acquisitions
During the three month period ended March 31, 2001, the Company signed letters
of intent to acquire three tire recycling companies and a logistics company.
To-date the Company has made deposits of $158,108 on these acquisitions.
6
UPSIDE DEVELOPMENT, INC.
(f/k/a ALOTTAFUN, INC.)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained in this Report on Form 10-QSB, that are not purely
historical, are forward-looking information and statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These include statements regarding the Company's
expectations, intentions, or strategies regarding future matters. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof. It is important to note that the
Company's actual results could differ materially from those projected in such
forward-looking statements contained in this Form 10-QSB. The forward-looking
statements contained here-in are based on current expectations that involve
numerous risks and uncertainties. Assumptions relating to the foregoing involve
judgments regarding, among other things, the Company's ability to secure
financing or investment for capital expenditures, future economic and
competitive market conditions, and future business decisions. All these matters
are difficult or impossible to predict accurately and many of which may be
beyond the control of the Company. Although the Company believes that the
assumptions underlying its forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this form 10-QSB will prove to be
accurate.
GENERAL
We were founded in August 1993. Until we generated significant revenues in 1996,
we were a development stage enterprise. During the development stage period, we
devoted the majority of our efforts to development of a viable product line,
testing of product concepts, developing channels of distribution, financing and
marketing. These activities were funded by investments from stockholders and
borrowings from unrelated third parties.
We have not, through the present time, been in a position to generate sufficient
revenues during our limited operating history to fund on-going operating
expenses or product development activities. As a result, we resorted to raising
capital through equity fundings and from borrowings. In June of 1998, we
acquired inventory, equipment, and goodwill of the Mother Hubbard's Creations
toy line. We renamed the Mother Hubbard's Creations toy line Hearthside
Treasures.
In May 1999, Alottafun! joint ventured with E-Commerce Fulfillment, LLC. which
contracted with M.W Kasch, an independent U.S. toy distributor, to launch an
e-commerce Internet portal called TOYPOP.COM. The Joint venture was owned 33.3%
by E-Commerce Fulfillment and 67.7% by Alottafun!, Inc. E-Commerce Fulfillment
(ECF) was a wholly owned by Jeffrey C. Kasch, President of M.W. Kasch Company.
On February 28, 2000, the M. W. Kasch and us agreed to terminate our
relationship and thereupon, M.W. Kasch Co. gave notice that effective March 28,
2000 our agreement with them was terminated.
We announced our business-to-business Internet strategy on February 22, 2000.
Our e-commerce site was originally launched on September 21, 1999. The Web-site
e-commerce development program cost about $235,144 during 1999. In comparison
with other retailers of toys, our expenditures were relatively small. Marketing
expenditures included limited newspapers, radio, magazine, and internet
advertisements. Our expected marketing program was not funded for the 1999
holiday selling season. Our lack of marketing resources has had a negative
impact on our sales and our ability to meet our sales projections. Our
Toypop.com site was processing orders through February 10, 2000 when it was
closed.
Our operating results may hinder our ability to raise additional capital to fund
our operations going forward. To date, we have funded our Web-site e-commerce
development with working capital provided by the sales of our securities and
borrowings. However, there is no assurance that these working capital reserves
will be sufficient to complete, launch, and market our e-commerce site.
Furthermore, there is no assurance that we will be able to raise additional
funds through securities sales and borrowings in the future.
We have sustained significant operating losses since inception resulting in an
accumulated deficit of approximately $7,400,000 at March 31, 2001.
7
Because of the need for capital and the diminishing prospects for obtaining new
monies, we have reduced our focus on the toy industry and concentrated our
efforts on the scrap tire market. In an effort to develop a viable business
model to realize value for our shareholders we were presented with "roll-up"
opportunities with the scrap tire industry. This strategy utilizes proprietary
experience that we developed in our business-to-business Internet initiatives.
We have identified a strategy to focus all our future resources to develop a
business model that focuses on the acquisition of smaller privately owned
regional operations in the scrap tire recycling industry.
In January 2001, we signed letters of intent to acquire three tire recycling
companies and a logistics company, allowing us to expand our technology
expertise into a fast growth industry. We are currently seeking capital in order
to complete these acquisitions, however, there is no assurance that we will be
successful in securing this funding to secure these potential acquisitions.
We will continue to incur losses until we are able to complete acquisition
within the tire recycling industry that will increase sales to a sufficient
level to offset ongoing operating and administrative costs.
RESULTS OF OPERATIONS
Three months ended March 31, 2001 compared to three months ended March 31, 2000
Total revenue for the three months ended March 31, 2001 was $33,083 compared to
$(44) for the same period of 2000, which represents an increase of $33,127. This
increase was primarily the result of higher sales relating to our logistic
product supply business. We focused our efforts primarily on expanding into the
warehousing logistic industry and decreased our focus on toy sales.
Gross profit was $31,344 and $(3,579), respectively, for the three month period
ended March 31, 2001, as compared to the prior period ended March 31, 2000, an
increase of $34,923. This increase is primarily attributable to the sale of
$25,500 of confectionary products assumed by us at little or no cost.
For the three months ended March 31, 2001, total selling expenses were $17,974
as compared to $13,192 for the same period of the previous year, an increase of
$4,782 or 36%. This increase is the result of higher marketing expenses relating
to our logistic supply business. Total general and administrative expense for
the three months ended March 31, 2001, was $262,897 as compared to $221,989 for
the same period of the previous year, an increase of $40,908, or 18%. This
increase is primarily due to legal and consulting expenses paid during the three
month period ended March 31, 2001.
We had a net loss of $308,025 for the period ended March 31, 2001 as compared to
a loss of $191,272 for the same prior year period. This increase in the
operating loss over that of the preceding year period primarily reflects higher
selling, general and administrative expenses despite lower depreciation and
amortization expenses. General and administrative costs included accounting,
legal and consulting expenses of approximately $173,000 in the three month
period ended March 31, 2001.
The loss and loss per share were $308,025 and $0.02 per share respectively, for
the three months ended March 31, 2001 as compared to a loss and loss per share
of $191,272 and $0.02 respectively, for the same period in 2000. This loss
represents a 61% increase over the loss experienced in the year ago quarter. The
weighted average shares outstanding for the quarter ended March 31, 2001 was
19,850,845 as compared to 10,040,642 for the preceding year quarter ended March
31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has largely funded its operations and its product
development activities with funds provided by issuing securities and from
borrowings. During the three months ended March 31, 2001, the Company received
$250,000 in the form of notes payable and convertible debt.
8
Net cash used in operating activities for the three months ended March 31, 2001
was $84,221 compared to net cash used of $280,543 for the three months ended
March 31, 2000. This decrease in cash used by operating activities is primarily
due to increases in accounts payable and accrued expenses.
Cash used in investing activities for the three months ended March 31, 2001 and
2000 was $158,108 and $62,938, respectively. This increase reflects deposits
made pursuant to letters of intent signed with three tire recycling companies
and a logistics company.
Cash provided by financing activities for the three months ended March 31, 2001
was $245,830 as compared to cash provided by financing activities of $551,089
for the three months ended March 31, 2000. During the recent period, the Company
issued notes payable that generated proceeds of $250,000 to provide working
capital and to support our expenditures. In the year ago period, we issued
common stock with an aggregate value of $560,500.
As of March 31, 2001, the Company had a net working capital deficit of $896,665.
The Company is not presently profitable and continues to fund itself from the
proceeds of securities placements, notes payable, and convertible debt.
We do not presently have sufficient cash to operate for more than the next 90
days. We will need capital to development our scrap tire recycling business. We
will need this capital to provide for our anticipated working capital needs over
the next twelve months. We are presently seeking $500,000 in equity to allow us
to sustain ourselves.
We cannot provide any assurance that we will be successful in raising such
capital as such undertakings are difficult to complete. We are optimistic that
we will be successful in obtaining future financing.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
None
Item 2. Change in Securities and Use of Proceeds.
-----------------------------------------
During the three month period ended March 31, 2001, the Company issued 370,000
shares of restricted common stock in satisfaction of notes payable, including
interest, of $33,327.
During the three month period ended March 31, 2001, the Company issued 2,475,000
shares of restricted common stock in satisfaction of debt of $138,845.
During the three month period ended March 31, 2001, the Company issued 500,000
shares of restricted common stock valued at $35,000 for the payment of offering
costs.
During the three month period ended March 31, 2001, the Company issued $250,000
of notes payable. In connection with the notes, the Company issued 300,500
shares of restricted common stock valued at $21,143 and detachable warrants to
purchase 1,312,500 shares of restricted common stock valued at $42,295. These
amounts have been recorded as a discount on the notes and are being amortized
over the life of the note.
During the three month period ended March 31, 2001, the Company issued 2,098,750
shares of restricted common stock for services valued at $142,900.
9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant had
duly caused the report to be signed on its behalf by the undersigned thereunto
duly authorized.
Alottafun!, Inc.
Dated 6/11/2001
/s/ Michael Porter
------------------------------------
Michael Porter, President
10