UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2000
[_] 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 1-15161
3Dshopping.com
(Exact name of registrant as specified in its charter)
California 95-4594029
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
308 Washington Boulevard
Marina del Rey, California 90292
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 301-6733
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.
CLASS OUTSTANDING at November 17, 2000
Common Stock, no par value 5,304,164 Shares
<PAGE>
3Dshopping.com
Form 10-Q for the quarter ended September 30, 2000
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Balance Sheets 6
Condensed Consolidated Statements of Cash Flows 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
(a) Exhibits 12
(b) Reports on Form 8-K 12
2
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
We have reviewed the condensed consolidated balance sheet of 3Dshopping.com and
its subsidiaries as of September 30, 2000, and the related condensed
consolidated statements of operations, and the condensed consolidated statements
of cash flows for the quarter ended September 30, 2000. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope that an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the aforementioned financial statements for them to be in conformity
with generally accepted accounting principles.
/s/Friedman, Minsk, Cole & Fastovsky
------------------------------------
Friedman, Minsk, Cole & Fastovsky
Los Angeles, California
November 13, 2000
3
<PAGE>
Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Commissioners:
We consent to the inclusion of our report dated November 13, 2000 on our review
of interim financial information of 3Dshopping.com for the quarter ended
September 30, 2000 in 3Dshopping.com's quarterly report on Form 10Q for the
quarter then ended.
/s/ Friedman, Minsk, Cole & Fastovsky
-------------------------------------
Friedman, Minsk, Cole & Fastovsky
Los Angeles, California
November 20, 2000
4
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3Dshopping.com
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30,
----------------------------
2000 1999
----------- ----------
Revenues $ 413,504 $ 35,666
----------- -----------
Costs and expenses:
Sales and marketing 816,586 188,101
Production and development 895,920 259,508
General and administrative 1,654,313 927,127
----------- -----------
Total costs and expenses 3,366,819 1,374,736
----------- -----------
Loss from operations (2,953,315) (1,339,070)
Interest expense (2,753) (108,999)
Interest income 57,121 75,693
----------- -----------
Net loss $(2,898,347) $(1,372,376)
=========== ===========
Net loss per share $ (0.55) $ (0.31)
=========== ===========
Weighted average number of
shares used in computing
net loss per share 5,251,323 4,367,836
See notes to condensed consolidated financial statements
5
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3Dshopping.com
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
2000 2000
------------- --------
ASSETS (UNAUDITED)
Current Assets:
Cash and cash equivalents $1,879,233 $3,927,953
Accounts receivable, net of allowances
of $40,183 and $20,500 63,113 189,222
Related party receivables 105,729 100,510
Other receivables, net of allowances
of $10,000 and $0 322,914 325,829
Contracts in process 58,304 101,596
Prepaid offering costs 90,000
Prepaid expenses 116,117 80,104
---------- ----------
Total current assets 2,635,410 4,725,214
Restricted cash 408,770 442,000
Property and equipment, net of accumulated
depreciation of $278,104 and $234,764 675,902 481,991
Patents, net of accumulated amortization
of $1,500 and $1,208 22,653 22,945
Goodwill, net of accumulated amortization
of $99,890 and $83,240 342,739 116,539
Deposits 50,328 51,728
---------- ----------
Total assets $4,135,802 $5,840,417
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 558,494 $ 100,816
Accrued payroll and taxes 33,746 191,530
Accrued expenses 259,024 236,202
Customer deposits 48,450 182,617
Current maturities of capitalized lease obligations 24,272 18,431
--------- ----------
Total current liabilities 923,986 729,596
Noncurrent portion of capital lease obligations 7,099 9,357
Minority interest in consolidated subsidiary 2,251 -
Shareholders' equity
Preferred stock, no par value: 5,000,000 shares
authorized; no shares issued and outstanding
Common stock, no par value: 10,000,000 shares
authorized; issued and outstanding: 5,304,164
and 5,129,448 respectively 21,646,002 20,646,653
Accumulated deficit (18,443,536)(15,545,189)
---------- ----------
Total shareholders' equity 3,202,466 5,101,464
---------- ----------
Total liabilities and shareholders' equity $ 4,135,802 $ 5,840,417
========== ==========
See notes to condensed consolidated financial statements
6
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3Dshopping.com
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Three Months Ended September 30,
--------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net cash used in operating activities (2,057,388) (1,858,712)
Cash flows from investing activities:
Acquisition of property and equipment (223,843) (86,186)
------------- -----------
Net cash used in investing activities (223,843) (86,186)
Cash flows from financing activities:
Proceeds from issuance of common stock - 13,200,000
Costs of issuance of common stock - (1,266,352)
Proceeds from exercise of options 237,824 -
Proceeds from issuance of debt - 100,000
Payment of loan from proceeds of stock offering - (849,723)
Repurchase of warrants - (400,000)
Other (5,313) 6,807
------------- -----------
Net cash used in financing activities 232,511 10,790,732
------------- ----------
Net change in cash and cash equivalents (2,048,720) 8,845,834
Cash and cash equivalents at beginning of period 3,927,953 116,918
------------- ----------
Cash and cash equivalents at end of period 1,879,233 8,962,752
============= ==========
Cash paid during period for:
Interest $ 2,753 $ 8,224
Income taxes 800 -
Supplemental schedule of non-cash investing and
financing activities:
The Company acquired a controlling interest in
LookSonic, LLC effective September 26, 2000.
In conjunction with the acquisition, assets and
liabilities were assumed as follows:
Fair value of assets acquired $ 13,408 $ -
Liabilities assumed 8,896 -
Value of stock options issued in connection with
acquisition 245,110 -
Stock and options issued as compensation and for
services 516,415 288,205
</TABLE>
See notes to condensed consolidated financial statements
7
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3Dshopping.com
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - SEPTEMBER 30, 2000
(UNAUDITED)
-------------------------------------------------------------------------
Note 1 UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements were prepared on the same basis as
the audited financial statements and reflect all adjustments (consisting solely
of normal recurring items) which are, in the opinion of management, necessary to
present a fair statement of results of operations of the Company for the
quarters ended September 30, 2000 and 1999 and the financial position as of
September 30, 2000.
References to "Company" are to 3Dshopping.com and its subsidiaries. These
statements should be read in conjunction with the financial statements and the
related footnotes to these statements contained in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2000.
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Certain prior year amounts have been reclassified to conform with current year
presentation. The effects of the changes are not material.
Note 3 RELATED PARTY TRANSACTIONS
There were no new loans issued to officers during quarter ended September 30,
2000.
Note 4 COMMON STOCK
During the quarter ended September 30, 2000, the Company issued 164,716 shares
of common stock upon exercises of outstanding options and warrants at prices
ranging from $1.25 to $1.50 per share between July 14, 2000 and August 30, 2000.
The Company also issued 10,000 shares of common stock with a value of $6.50 per
share in exchange for financial and advisory business services on September 27,
2000.
Note 5 LOSS PER SHARE
The loss per common share is determined by dividing the net loss for each period
by the weighted average number of common shares outstanding during each period.
Three months ended September 30,
2000 1999
---- ----
Common stock outstanding
Beginning of period 5,129,448 3,685,746
Issued during period:
In connection with the public
stock offering - 1,100,000
In connection with services
provided to Company 10,000 -
In connection with warrant
exercises 127,616 -
In connection with stock
option exercises 37,000 -
----------- ----------
End of period 5,304,164 4,785,446
========= =========
Weighted average 5,251,323 4,367,836
8
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information that
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition for the quarters ended
September 30, 2000 and 1999. The following discussion should be read in
conjunction with the financial statements and related notes appearing elsewhere
in this report.
Overview
Since beginning operations in August 1996, we have devoted
substantially all of our resources to designing, implementing and introducing
our marketing and display system, the 3Dshopping System(TM). From inception
through September 30, 2000, we raised total equity capital in the form of cash
of $14,399,064 and had an accumulated deficit of $18,443,536, including
$7,535,553 in non-cash charges for common stock issued as compensation. While
still developing our technology, we began to receive revenues from sales of
services in April 1998. Notwithstanding these revenues, we operated at a loss
from inception to date and we are continuing to operate at a loss as our
expenditures for marketing, product development and general and administrative
costs exceed our gross revenues. We expect the operating losses to continue and
to increase over at least the next six months as we incur increasing levels of
expense to market our services, implement our new business plan, support growth
and integrate our acquisitions.
We believe that our historical operating results are not indicative of
future performance for the following reasons, among others:
o The receipt of the proceeds of our public offering of units
on July 23, 1999 and their use to fund our anticipated
growth has materially changed expense levels in all major
categories. They are also expected to support substantial
increases in revenues from operations in the next fiscal
year;
o The acquisition of DBLA in April 1999 has enhanced and
diversified the scope of our business to include the catalog
production business;
o We have recently emerged from the development stage and
anticipate substantial increases in the number and size of
customer orders and revenues from operations; and
o We intend to implement our new business model very rapidly
and leverage our strategic alliances with Yahoo!, Inc.
ClickAction, Inc., Goodspeed Communications PLC and AGA
Catalog Marketing & Design.
Although we expect substantial growth in both revenues and expenses, we
anticipate that, in the near term, increases in expenses will occur more rapidly
than corresponding increases in revenues. Also, while we are committed, at least
in the short term, to substantial increases in expenses, we cannot guarantee
that revenues will increase correspondingly. We expect to follow a strategy of
establishing market share by making expenditures for marketing and the
development of our infrastructure, exceeding estimated revenues for at least the
next six months, resulting in operating losses.
The catalog business, which we acquired through the acquisition of DBLA
effective April 1, 1999, is more traditional than our core Internet business and
it had been fully operational for several years before we acquired it. If our
business development plans are successful, we expect that revenues from our new
business model will increase more rapidly than catalog sales. Because our
catalog clients may also be good prospects for other services, we may also
develop business involving all aspects of our business for a single client.
Future income from the catalog business will contribute to earnings and profits
at the corporate level.
In July 1999, we completed a public offering of 1,100,000 units, each
consisting of one share of common stock and one warrant to purchase one share of
common stock. As a result of the offering, we received net proceeds after
deducting underwriting discounts and offering expenses of $11,933,648. We used
$200,595 of this amount to repay principal and interest on outstanding
indebtedness.
9
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In September 2000, we acquired a 50.1% interest in LookSonic, LLC. In
consideration of that equity position, we issued options to purchase 150,000
shares of our common stock, with one-third of this option vesting on the closing
date and the remaining portion vesting when certain revenue targets are
achieved.
Results of Operations
Quarter ended September 30, 2000 compared to quarter ended September 30, 1999
Revenues for the quarter ended September 30, 2000 were $413,504 as
compared to $35,666 for the quarter ended September 30, 1999, an increase of
$377,838. The improvement resulted principally from the inclusion of catalog
revenues of approximately $136,650, web site design service revenues of $272,200
and other revenues of $4,654 for the quarter ended September 30, 2000 compared
to catalog revenues of $15,442, web site design service revenues of $15,500 and
other revenues of $4,724 for the quarter ended September 30, 1999.
Costs and expenses for the quarter ended September 30, 2000 were
$3,366,819 as compared to $1,374,736 for the quarter ended September 30,1999, an
increase of $1,992,083. Expenses were substantially higher due to the addition
of sales, marketing, creative, production and administrative personnel to
provide value-added services and to handle the increasing volume of activity,
including proposals and demonstration projects. The increase in costs also was
attributable to costs associated with newly developed sales programs and
participation in trade shows, and improvements in Internet service systems and
capabilities. In addition, included in costs and expenses were non-cash charges
computed under the Black-Scholes option-pricing model for stock options granted
to employees and consultants amounting to $451,415 for the quarter ended
September 30, 2000, as compared to $288,205 for the quarter ended September
30,1999.
The net loss for the quarter ended September 30, 2000 was $2,898,347,
or $0.55 per share, as compared to $1,372,376, or $0.31 per share, for the
quarter ended September 30,1999. The weighted average number of shares used in
computing net loss per share was 5,251,323 for the quarter ended September 30,
2000 as compared to 4,367,836 for the quarter ended September 30,1999. The
increase of 883,487 shares was principally a result of the exercise of options
and warrants.
Liquidity and Capital Resources
From inception through June 30, 1999, we funded our operations
primarily through the sale of common stock and, to a lesser extent, by issuing
notes and other borrowings. We also issued common stock and options in exchange
for services during that period. As a result of the proceeds from the unit
offering on July 23, 1999, all liabilities for borrowed money as of June 30,
1999 were paid and our working capital deficit was eliminated. As of September
30, 2000, we had cash and cash equivalents of $1,879,233 and working capital of
$1,711,424.
Our liquidity and capital needs relate primarily to working capital and
other general corporate requirements. Since inception, we have not received
significant cash flow from operations and we have incurred significant net
losses. Accordingly, our net cash available has declined to approximately
$506,000 at November 17, 2000. Further, management's current projections
indicate that we will continue to generate operating losses for the foreseeable
future. Accordingly, we need to raise capital in order to continue our
operations as they currently exist. We are finalizing negotiations to raise
additional equity capital and are confident that we will be successful. However,
if we are unable to obtain such financing, our operations will be materially
impaired.
Forward-Looking Statements
Information in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Form 10-Q about the
Company's goals, plans and expectations regarding future business operations
constitutes forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Factors that could adversely affect these forward-looking statements include,
customer demand for services, competitive factors, technological developments,
and the Company's ability to deliver its services and the Company's ability to
execute its plans successfully. Any forward-looking statements should be
considered in light of these factors.
10
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not have any financial instruments that are subject to
market risk.
Part II - Other Information
Item 1. Legal Proceedings
As of November 10, 2000, we are not a party to any litigation.
Item 2. Changes in Securities and Use of Proceeds
On July 20, 1999, our Registration Statement on Form S-1 (File No.
333-74795) registering the offer and sale of 1,000,000 units, each consisting of
one share of common stock and one warrant to purchase one share of common stock,
and the underlying common stock and warrants, was declared effective by the
Securities and Exchange Commission. We commenced the offering of units under
that Registration Statement, and under an additional Registration Statement on
Form S-1 (File No. 333-83295) filed under Rule 462(b) to register an additional
100,000 units and underlying securities, on July 21, 1999. The managing
underwriter for the offering was Paulson Investment Company, Inc. All 1,100,000
units offered were sold in the offering for an aggregate price of $13,200,000.
Total expenditures from the date the offering commenced to September 30, 2000
are $9,537,134. As of September 30, 2000, the Company had used $3,890,790 for
working capital and purchase of fixed assets. The remainder of the net proceeds,
$2,210,343, has been invested in short-term, investment grade, interest-bearing
securities. Except as described above, none of these payments were made to
directors, officers or owners of 10% or more of 3Dshopping.com's outstanding
common stock.
During the three months ended September 30, 2000, the Company made the
following sales of unregistered securities:
<TABLE>
<CAPTION>
Consideration
Received and
Description of If Option, Warrant
Underwriting or Other Exemption or Convertible
Discounts to Market from Security, Terms of
Price Afforded to Registration Exercise or
Date of Sale Title of Security Number Sold Purchasers Claimed Conversion
------------ ------------------- ----------- ---------------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
7/10/00-9/26/00 Options to purchase 99,900 options granted - no 4(2) exercisable for ten
shares of common consideration received years from date of
stock by Company until grant at exercise prices
exercise ranging from $6.375
to $10.25 per share
7/14/00-8/30/00 Common Stock 164,716 $237,824 cash 4(2) N/A
consideration received
by the Company upon
exercise of employee
and non-employee
stock options
9/27/00 Common Stock 10,000 Financial and advisory 4(2) N/A
business services
rendered
9/29/00 Options to purchase 75,000 Options granted - no 4(2) exercisable until
shares of common consideration received 11/30/01 at an
stock by Company until exercise price of $10
exercise per share
</TABLE>
11
<PAGE>
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
During the quarter ended September 30, 2000, Lawrence Weisdorn resigned
as Chairman of the Board of Directors, and Joel McIntyre resigned as a director.
Terry Gourley, Joel P. Gayner and John A. Allegretti were elected to serve as
members of the board of directors until the next annual meeting of shareholders
and until their successors are elected and qualified.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
3Dshopping.com did not file any reports on Form 8-K during the
period covered by this report.
12
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Signature
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.
3DSHOPPING.COM
/s/ Howard A. Cohn
Dated: November 20, 2000 By__________________________
Howard A. Cohn
Senior Vice President
and Chief Financial Officer
(Principal financial officer)
13
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Exhibit Index
Exhibit
Number Description
--------- -------------
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
14
