U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x]ANNUAL REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1998
[ ]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 (IRS Employer
of incorporation or organization) identification no.)
3440 Highway 9 South, Freehold, New Jersey 07728
(Address of principal executive offices) (Zip Code)
(732) 462-7767
(Issuer's telephone number)
---------------------------------
Securities registered under section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
_______________________ __________________________________________
_______________________ __________________________________________
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
(Title of class)
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....
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is met contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ( )
State issuer's revenues for its most recent fiscal year: Revenues for the year
ended December 31, 1998 were $3,161,116
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act). Note; If determining whether a person is an
affiliate will involve unreasonable effort and expense, the issuer may calculate
the aggregate market value of the common equity held by non-affiliates on the
basis of reasonable assumptions, if the assumptions are stated.
The aggregate market value of the voting stock held by non-affiliates as of
March 19, 1999 was $1,068,522
(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 REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Title of Each Class Number of Shares Outstanding
Common Stock, $.001 par value per share 2,751,893 (as of March 19, 1999)
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).
Transitional Small Business Disclosure Format (Check one): Yes ; No X .
<PAGE>
PART I
Item 1.Business
Description of Business
stereoscape.com, inc. ("SSCP" or the "Company") was incorporated
on June 8, 1998 as a corporate shell developed to generate capital
resources which were to be used to acquire or participate in a business
or business entity. The Company began as a Development Stage Company,
and on April 17, 1997 acquired 100% of the outstanding shares of
American Buyers Club International, Inc., ("ABC") in a business
combination accounted for as a purchase. ABC became a wholly owned
subsidiary of the Company through the exchange of 732,000 shares of the
Company's common stock for all of the outstanding shares of ABC.
ABC sells its products via the internet and through print media
advertising, and in addition through its subsidiary, Alpha Sound and
Vision, Inc., ("Alpha") which operates a retail store in Freehold, New
Jersey. References herein the "SSCP" or "the Company" unless otherwise
indicated include stereoscape.com, ABC, and Alpha.
Products.
Although ABC and Alpha sell through different media, the
majority of the products which they sell are identical. The Company
sells products such as amplifiers, receivers, televisions, speakers, CD
players, DVD players, satellite systems, home automation, and cassette
players.
The Company offers a broad range of name brands for each of the
products listed above, at several different price points, with a
greater product depth at higher price levels than most of the Company's
competitors. The products are manufactured by companies such as: JVC,
Panasonic, Sony, Yamaha, Denon, Krix, Klipsch, Hitachi, Aiwa, Apature,
Rotel, NHT, Wharfedale, Thornberg, and Kenwood.
ABC Business - ABC derives revenues from two
principal activities: the sale of home theater systems, individual
components, speakers and cables to customers on a call in basis and via
the internet.
ABC generates more than half of its revenues via leads
developed through the internet, and the balance through print
advertising. All orders are paid for by check or credit card at the
time of shipment.
Alpha Business - Alpha sells the same products as ABC through
its retail store in Freehold, New Jersey.
Alpha and ABC's sales force includes employees who are paid a
base salary plus a commission on gross sales.
2
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New Products and Expansion.
The Company is continuously evaluating new products to expand
its product line. SSCP is currently reviewing plasma televisions, high
definition televisions, and enhanced digital audio and video products
as potential sales items.
Product Line Exclusivity License & Trademark Agreements.
The Company does not have exclusive licenses or trademark
agreements with any of its suppliers.
Government Regulations.
The costs and effects of compliance with governmental
regulations are not material to the Company's operation.
Research & Development.
The Company depends on the manufacturers of the products it
sells for the research and development of new products or enhanced
products.
Cost and Effects of Compliance with Environmental Laws. The
costs and effects of compliance with environmental laws are not
material to the Company's operation.
Current Employees. The Company currently employs 10 persons
of whom 7 are full time. None of the Company's employees are members of
unions.
Item 2. Description of Property
SSCP leases a 4,064 square foot facility at 3440 Highway 9 South,
Freehold, New Jersey 07728, of which approximately 1,000 square feet
serves as retail space. This facility serves as SSCP's headquarters as
well as a its warehouse facility. This facility is leased at a basic
rent of $2,709 per month or $32,512 annually. The lease has a five year
term, which began in 1999, with rent escalation of $1.00 per square
foot at the end of each of the first four years.
Item 3. Legal Proceedings
The Company has no material legal proceedings by or against
the Company, or any of its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
None
3
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Shares are traded on the Electronic
Bulletin Board under the symbol SSCP. The following table sets forth
the range of high and low bid quotations for the common stock for the
period indicated, as reported on the Electronic Bulletin Board.
The quotations are inter-dealer prices in the over-the-counter
market without retail mark-ups, markdowns or commissions, and may not
represent actual transactions.
1998 1997
Common Shares Common Shares
Period High Low High Low
------------------------------------------------
January 1 - March 31 2.2500 0.7500 N/A N/A
April 1 - June 30 1.0313 0.2500 N/A N/A
July 1 - September 30 0.3750 0.2500 N/A N/A
October 1 - December 31 1.0313 0.1250 N/A N/A
As of March 19, 1999, there were 32 holders of record of the
Company's common stock.
The Company has not paid a cash dividend on its common stock
since its inception. The Company expects that for the foreseeable
future, any earnings will be retained for use in the business or other
corporate purposes, and it is not expected that cash or share dividends
will be paid. However, there are no restrictions on the payment of
dividends, either by contract or regulation.
4
<PAGE>
Item 6. 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 Registration Statement.
Results of operations for stereoscape.com, inc. and subsidiary
are being presented on a consolidated basis.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales for the year ended December 31,1998 increased 47.1%
to $3,161,116 from $2,148,308 for the year ended December 31, 1997. The
increase was the result of significant sales staff and infrastructure
changes since the acquisition of ABC.
Gross profit for the year ended December 31, 1998 increased
31.8% to $649,295 from $492,699 for the year ended December 31, 1997.
As a percentage of net sales, gross profit decreased to 20.5% in the
1998 period compared to 22.9% in the 1997 period. The decrease was
primarily the result of increased sales of lower margin products.
Selling, general and administrative expenses for year ended
December 31, 1998 increased 43.5% to $850,390 from $592,423 for the
year ended December 31, 1997. The increase in selling, general and
administrative expenses consisted primarily of added administrative
staff, computerization of accounting functions, and installation of
internal control systems which are in the process of being put in place
to enable the Company to grow.
Net losses for the year ended December 31, 1998 decreased to a
loss of ($201,095) compared to a loss of ($300,847) for the year ended
December 31, 1997. This decrease was due to the non-recurrance of the
charge for the impairment of assets in 1997 ($201,123) off-set by the
increase in operating costs to sustain anticipated growth.
Liquidity and Capital Resources
At December 31, 1998 and December 31, 1997 the Company had a
negative working capital of ($448,799) and ($313,278), respectively.
The Company has historically financed its business through
cash flow from operations and borrowings from executives, which may be
utilized from time to time.
The Company expects to require additional capital and at the
present time has no definitive plans but is exploring various
opportunities. There can be no assurance of the ability of the Company
to raise such capital. The Company has no agreements or commitments
with any person or entity to raise such capital. The Company has a
negative working capital of approximately ($450,000) at December 31,
1998 which raises substantial doubt about the Company's ability to
continue as a going concern. The Company believes that upon obtaining
proceeds from additional financing the substantial doubt about the
Company's ability to continue as a going concern will be eliminated.
5
<PAGE>
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. To this
end, the Company plans to pursue both debt and equity financing from
both private institutions and the public markets to finance
acquisitions as required. No assurance can be given that sufficient
capital will be available when needed.
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 internet and home theater related industries, (2) increasing sales
via the internet through an E-Commerce Web Site, (3) obtaining new
customers in the existing markets developing new markets via current
marketing channels and the internet, and (4) controlling and containing
operating and administrative costs.
Year 2000 Readiness
This disclosure is a year 2000 ("Year 2000") Readiness
Disclosure within the meaning of the Year 2000 Information and
Readiness Disclosure Act of 1988 to the extent that the disclosure
relates to the Year 2000 processing of the Company.
The Company has implemented a program to assess, mitigate and
remediate the potential impact of the Year 2000 problem throughout the
Company. A Year 2000 problem will occur where date-sensitive software
uses two digit date fields, sorting the Year 2000 ("00") before the
year 1999 ("99"). The Year 2000 problem can arise in hardware,
software, or any other equipment or process that uses embedded software
or other technology. The failure of such systems to properly recognize
dates after December 31, 1999 could result in data corruption and
processing errors.
Management has reviewed the possible effects of the Year 2000
problem in so far as it relates to the Company; and has determined that
the Company is currently utilizing Year 2000 compatible equipment and
software. The Year 2000 problem is not expected to have a material
adverse effect on the operations of the Company.
In addition, the Company has implemented a program to
determine the Year 2000 compliance status of its material vendors,
suppliers, service providers and customers, and based on currently
available information does not anticipate any material impact to the
Company based on the failure of such third parties to be Year 2000
compliant. However, the process of evaluating the Year 2000 compliance
status of material third parties is continually ongoing and, therefore,
no guaranty or warranty can be made as to such third parties' future
compliance status and its potential effect on the Company. The Company
believes there exists a sufficient number of suppliers of raw material
for its business so that if any supplier is unable to deliver raw
materials due to Year 2000 problems, alternate sources will be
available and that any supply interruption will not be material to the
Company's operations. There can be no assurances, however, that the
Company would be able to obtain all of its supply requirements from
such alternate sources in a timely way or on terms comparable with that
of its current suppliers.
6
<PAGE>
The information set forth in the preceding three paragraphs
constitutes a "Year 2000 Readiness Disclosure" pursuant to the Year
2000 Information and Readiness Disclosure Act. (P.L. 105-271, signed
into law October 19, 1998).
The preceding Year 2000 discussion contains various
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 and the Section 27A Securities Act of
1933. These forward-looking statements represent the Company's beliefs
or expectations regarding future events. When used in the Year 2000
discussion, the words "believes," "expects," "estimates" and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements include, without limitation the Company's
belief that its internal systems are Year 2000 compliant. All
forward-looking statements involve a number of risks and uncertainties
that could cause the actual results to differ materially from the
projected results. Factors that may cause these differences include,
but are not limited to, the availability of qualified personnel and
other information technology resources; the ability to identify and
remediate all date-sensitive lines of computer code or to replace
embedded computer chips in affected systems or equipment; and the
actions of governmental agencies or other third parties with respect to
Year 2000 problems.
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
<PAGE>
Item 7. Financial Statements
Response submitted as a separate section of this report
commencing on page F-1.
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
Effective January 11, 1999, stereoscape.com, inc. (the
"Company") dismissed its prior certifying accountants, Ehrenkrantz,
Sterling & Co., LLC Certified Public Accountants and Consultants
("ESC") and retained as its new certifying accountants, Weinbaum &
Yalamanchi ("WY"). ESC's report on Alliance's financial statements for
the fiscal year ended December 31, 1997, which was the only fiscal year
during which ESC was the certifying accountant for the Company,
contained no adverse opinions or disclaimer of opinions, and was not
qualified as to audit scope or accounting principles. The report was
however qualified as to uncertainties. The decision to change
accountants was approved by the Audit Committee and the Board of
Directors of the Company. As required by applicable rules of the
Securities and Exchange Commission, the Company notified ESC that
during the two most recent fiscal years and the interim period from
December 31, 1997 through January 11, 1999 the Company was unaware of
any disputes between the Company and ESC as to matters of accounting
principles or practices, financial statement disclosure, or audit scope
of procedure, which disagreements, if not resolved to the satisfaction
of ESC, would have caused it to make a reference to the subject matter
of the disagreements in connection with its reports.
Effective January 11, 1999, the Company engaged WY as its
principal accountants. During the most recent fiscal year end and the
subsequent interim periods to the date hereof, the Company did not
consult WY regarding any of the matters or events set forth in item 304
(a) (2) and (i) and (ii) of Regulation S-B.
Effective April 20, 1999, stereoscape.com, inc. (the
"Company") dismissed its certifying accountants, WY and retained its
prior certifying accountants, ESC. WY did not issue a report on
stereoscape's financial statements. The decision to change accountants
was approved by the Audit Committee and the Board of Directors of the
Company. As required by applicable rules of the Securities and Exchange
Commission, the Company notified WY that during the two most recent
fiscal years and the interim period from December 31, 1998 through
April 20, 1999 the Company was unaware of any disputes between the
Company and WY as to matters of accounting principles or practices,
financial statement disclosure, or audit scope or procedure, which
disagreements, if not resolved to the satisfaction of WY, would have
caused it to make a reference to the subject matter of the
disagreements in connection with its reports.
8
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
The following are directors and officers of the Company:
Name Age Title
Scott G. Halperin 37 Chairman of the Board of Directors
Steven Wise 39 President and Director
Bernard F. Lillis, Jr. 55 Chief Financial Officer and Director
Scott G. Halperin has been a director of the Company since April 17,
1997. Since August 1994 Mr. Halperin has been Chief Executive Officer
of Saratoga Brands Inc. a company traded on the NASDAQ Small Cap Market
System, and engaged in a non-competitive business. On July 1, 1997 he
was elected Chairman of the Board of Directors of Saratoga. Since July
1993 to the present, Mr. Halperin has been President and Chief
Executive Officer of Agama, Inc., a private company that pursues
mergers and acquisitions.
Steven Wise has been President and a director of the Company since
April 17, 1997. He entered the electronics industry in 1984 working for
various retail establishments. In 1988, he joined Sixth Avenue
Electronics as Vice President of the mail order division. Mr. Wise
developed the mail order division and drove sales from $150,000 in 1988
to $7.8 million in 1994. In 1994 he became a principal in a newly
formed electronics retail and mail order outlet, and in 1997 he entered
into an agreement with SSCP.
Bernard F. Lillis, Jr., has been Chief Financial Officer and a director
of the Company since April 17, 1997. Additionally, he serves as Chief
Financial Officer, Chief Operating Office, and a director of Saratoga
Brands Inc. Prior to joining Saratoga he served for fourteen years as
Chief Financial Officer of one of the largest suppliers of construction
aggregate in the New York Metropolitan Area. Prior thereto he was Vice
President Finance & Administration of a Princeton (NJ) management
consulting firm for seven years. Mr. Lillis also served as Deputy City
Manager-Finance of Rochester, New York, and began his career with
Deloitte & Touche (previously Haskins & Sells), Certified Public
Accountants. He is a Certified Public Accountant, a recipient of the
New York State Society of CPA's Award for Outstanding Scholastic
Achievement in Accounting, and a member of the New York, New Jersey and
Pennsylvania Societies of CPA's, and the Institute of Management
Accountants.
9
<PAGE>
Item 10. Executive Compensation
The following table sets forth the compensation that the Company paid
during its last three fiscal years to its President and the Vice
President of the Company's principle subsidiary. No other officer had
compensation in excess of $100,000.
Other Annual
Name and Title Year Salary Compensation
Steven Wise, President 1998 $100,100 -
1997 $91,077 -
1996 - -
David Bannon, Vice President 1998 $100,100 -
of Alpha Sound & Vision, Inc 1997 $91,077 -
1996 - -
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares
of Common Stock owned by (i) each person (including any "group," as
that term is defined in Section 13(d) (3) of the Securities Exchange
Act of 1934, as amended) known by the Company to be the beneficial
owner of more than 5% of the outstanding shares of Common Stock, (ii)
each director of the Company and (iii) all directors and executive
officers of the Company as a group. Each individual has an address c/o
the Company, 522 Highway 9 North, Suite 144, Manalapan, New Jersey
07726.
Name and address Number of Percentage of
of Beneficial Owner Shares Owned Outstanding Shares
Owned
Steven Wise 366,000 13.3%
Scott G. Halperin 758,714 27.6%
David Bannon 366,000 13.3%
Bernard F. Lillis, Jr. 101,705 3.7%
Kagel Family Trust 330,000 12.0%
All directors and executive officers
as a group (3 persons) 1,226,419 44.5%
Item 12. Certain Relationships and related Transactions
On April 17, 1997 Steven Wise was elected to the board of directors of
the Company. Mr. Wise was one of the principal shareholders of American
Buyers Club International, Inc., which was acquired by the Company
effective January 1, 1997.
10
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) (1) and (2) The response to this portion of Item
13 is submitted as a separate report commencing on Page F-1.
(a) (3)
Exhibit No. Description of Exhibit Note
3.1 Certificate of Incorporation, as amended 1
3.2 By-laws, as amended 1
10.1 1998 Incentive and Non-Qualified Stock Option Plan 1
10.2 Acquisition Agreement of American Buyers Club Int'l, Inc. 1
10.3 Employment Agreement for Steve Wise 1
10.4 Employment Agreement for David Bannon 1
21 Subsidiaries of the Registrant 1
Note 1: Filed with the Company's Form 10SB filed on November 6, 1998,
and incorporated by reference herein.
(b) Reports on Form 8-K.
Form 8-K was filed on January 11, 1999 to report a change in the
Company's Certifying Accountants. See Item 8 above for a complete
description of the filing.
Form 8-K was filed on June 7, 1999 to report a change in the Company's
Certifying Accountants. See Item 8 above for a complete description
of the filing.
11
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
stereoscape.com, inc.
By: /s/ Steven Wise June 8, 1999
Steven Wise
President (Principal Executive Officer)
Director
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated
By: /s/ Steven Wise June 8, 1999
Steven Wise
President (Principal Executive Officer)
Director
By: /s/ Bernard F. Lillis, Jr. June 8, 1999
--------------------------
Bernard F. Lillis, Jr.
Chief Financial Officer (Principal Accounting Officer)
Director
By: /s/ Scott G. Halperin June 8, 1999
---------------------
Scott G. Halperin
Chairman of the Board of Directors
12
<PAGE>
stereoscape.com, inc. and Subsidiaries
(Formerly Alliance Technologies, Inc.)
Index
Financial Statements
Included in Part II
Report of Independent Certified Public Accountants
Consolidated Balance Sheet at December 31, 1998
Consolidated Statements of Operations for the Years Ended December 31, 1998
and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998
and 1997
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements
F-1
<PAGE>
(Ehrenkrantz Sterling & Co. LLC letterhead)
Certified Public Accountants and Consultants
6 Regent Street, Livingston, New Jersey 07039
(973)994-7777 Fax: (973)994-3444
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
stereoscape.com, inc. and subsidiary
(Formerly Alliance Technologies, Inc.)
Freehold, New Jersey
We have audited the accompanying consolidated balance sheet of
stereoscape.com, inc. (formerly Alliance Technologies, Inc.) and subsidiary as
of December 31, 1998, and the related consolidated statements of operations,
stockholders' deficiency and cash flows for the years ended December 31, 1998
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of stereoscape.com,
inc. and subsidiary as of December 31, 1998, and the results of its operations
and cash flows for the years ended December 31, 1998 and 1997 in conformity with
generally accepted accounting principles.
Certain conditions indicate that the Company may be unable to continue as a
going concern. As discussed in Note 3 to the financial statements, the Company
has suffered losses from operations and has a working capital deficiency. These
conditions raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. Management's plans with regard to
this matter are discussed in Note 3.
/s/ Ehrenkrantz Sterling & Co., LLC
Certified Public Accountants
Livingston, New Jersey
May 6, 1999
F-2
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
(FORMERLY ALLIANCE TECHNOLOGIES, INC.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Current Assets:
Cash $ 3,608
Charge card receivables 17,921
Inventories 203,387
Other current assets 3,748
----------
Total Current Assets 228,664
Property and Equipment - Net 12,282
----------
TOTAL ASSETS $ 240,946
==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses $ 246,207
Customer deposits and other advances 401,716
Loans payable - Related Party 8,117
Payroll and sales tax payable 21,423
----------
Total Current Liabilities 677,463
Commitments and Contingencies -
STOCKHOLDERS' DEFICIENCY
Common Stock
Par value $.001 - 10,000,000 shares authorized,
2,686,893 shares issued and outstanding 2,687
Additional paid in capital 72,313
Deficit (511,517)
----------
Total Stockholders' Deficency (436,517)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 240,946
==========
The accompanying notes to the consolidated financial statements
are an integral part hereof.
F-3
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
(FORMERLY ALLIANCE TECHNOLOGIES, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
December 31,
1998 1997
-----------------------------
Sales $ 3,161,116 $ 2,148,308
Cost of sales 2,511,821 1,655,609
-----------------------------
Gross profit 649,295 492,699
Selling, General and Administrative 850,390 592,423
Impairment of Asset - 201,123
-----------------------------
Net Loss $ (201,095) $ (300,847)
=============================
LOSS PER COMMON SHARE
BASIC AND DILUTED
Net Loss $ (0.08) $ (0.12)
Weighted average number of
shares used in computation 2,490,306 2,439,462
The accompanying notes to the consolidated financial statements
are an integral part hereof.
F-4
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
(FORMERLY ALLIANCE TECHNOLOGIES, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Issued and
Authorized Outstanding Additional
Common Common Amount Paid-in Deficit Total
Stock Stock Capital
-------------------------------------------------------------
Balance at
December 31, 1996 10,000,000 300,000 $ 300 $ 9,700 $ (9,575) $ 425
Issuance of
common stock 2,139,462 2,139 2,139
Net Loss (300,847) (300,847)
-------------------------------------------------------------
Balance at
December 31, 1997 10,000,000 2,439,462 2,439 9,700 (310,422) (298,283)
Issuance of
common stock 247,431 248 62,613 62,861
Net Loss (201,095) (201,095)
-------------------------------------------------------------
Balance
December 31, 1998 10,000,000 2,686,893 $ 2,687 $ 72,313 $(511,517)$(436,517)
=============================================================
The accompanying notes to the consolidated financial statements
are an integral part hereof.
F-5
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
(FORMERLY ALLIANCE TECHNOLOGIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
--------------------------------
Cash flows from operating activities:
Net loss $ (201,095) $ (300,847)
Adjustments to reconcile net loss to net
cash used in operations:
Depreciation and amortization 3,169 5,872
Impairment of Asset - 201,123
(Increase) decrease in operating assets:
Charge card receivables 35,545 (53,466)
Inventories (108,305) (95,082)
Other current assets 3,752 (7,375)
Increase (decrease) in operating liabilities:
Accounts payable 86,612 (41,925)
Customer deposits and advances 137,280 264,436
Payroll and sales taxes payable 11,526 9,897
Accrued expenses (10,203) 10,600
--------------------------------
Net cash used in operating activities (41,719) (6,767)
--------------------------------
Cash flow from investing activities:
Purchase of fixed assets (456) (20,567)
--------------------------------
Net cash used in investing activities (456) (20,567)
--------------------------------
Cash flow from financing activities:
Issuance of capital stock 62,861 2,139
Proceeds from (repayment of) loan payable (41,985) 50,102
--------------------------------
Net cash provided by financing activities 20,876 52,241
--------------------------------
(Decrease) increase in cash (21,299) 24,907
Cash at beginning of period 24,907 -
--------------------------------
Cash at end of period $ 3,608 $ 24,907
================================
Supplemental disclosure of cash flow information:
Interest paid $ 5,242 $ 6,144
Income Taxes paid - 600
Supplementary Disclosure of Non-Cash Transactions:
Goodwill impairment charged to operations - 201,123
Shares issued for acquisition of American
Buyers Club International, Inc. - 732
Shares issued to two directors for
services rendered - 886
Shares issued to unrelated parties for
services rendered 14,000 521
Shares issued in payment of debt 30,600 -
The accompanying notes to the consolidated financial statements
are an integral part hereof.
F-6
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
(FORMERLY ALLIANCE TECHNOLOGIES, INC.)
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 December of 1998 the Company's Board
of Directors approved a change in the Company's name from Alliance Technologies,
Inc. to stereoscape.com, inc., and prior to that, in April 1997 the name was
changed to 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.
The Company 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.
BUSINESS COMBINATION
In April 1997, the Company acquired American Buyers Club International,
Inc. in a business combination accounted for as a purchase. American Buyers Club
International, Inc., which engages in sales of high quality home entertainment
equipment, became a wholly owned subsidiary of the Company through the exchange
of 732,000 shares of the Company's common stock for all of the outstanding stock
of American Buyers Club International, Inc.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All material intercompany balances are
eliminated.
INVENTORIES
Inventories are stated at the lower of cost or market as determined by the
first-in, first-out method. Inventory consisted entirely of finished goods
suitable for sale at December 31, 1998.
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 five years.
GOODWILL - IMPAIRMENT
During 1997, goodwill acquired in the purchase of ABC was deemed impaired.
The carrying value totaling $201,123 arising from the acquisition was written
down to zero. The writeoff of goodwill is included in the statement of
operations as impairment of asset.
The Company's policy is to periodically review the value assigned to
goodwill to determine if it has been either partially or permanently impaired by
conditions which might affect the Company. A review of current results of
operations and consideration for the discounted value of projected operating
cash flows from the acquired company provided measurement of asset impairment
damage.
F-7
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
(FORMERLY ALLIANCE TECHNOLOGIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less when purchased to be cash equivalents.
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 $111,753 in 1998 and $61,708
in 1997.
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.
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.
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 of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
WARRANTY
The Company sells its products with the manufacturer's factory warranties.
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.
F-8
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"). SFAS No. 133 applies to all entities
and to all types of derivatives, and is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The adoption of SFAS No. 133 in not
expected to materially affect the financial position or results of operations of
the Company.
Effective in 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"). The Company,
at this time, has no items of comprehensive income other than net 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.
NOTE 2 -- CUSTOMER DEPOSITS AND OTHER ADVANCES
At December 31, 1998 and 1997 the Company had $215,116 and $205,095 in
customer deposits, respectively, which represent payments made to the Company by
credit card or check for the merchandise that had not been shipped as of that
date. In addition, at December 31, 1998 and 1997 the Company had $186,600 and
$59,341 in customers refunds payable, respectively, which represents an amount
owed to customers for returned merchandise or cancelled orders.
NOTE 3 --GOING CONCERN
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company had a net loss of approximately
($201,000), a working capital deficiency and a deficiency in assets of
approximately ($436,517) at December 31, 1998 which raises substantial doubt
about the Company's ability to continue as a going concern. The Company intends
to raise additional capital through short term or long term borrowings, a
private placement or a public offering. The Company believes that upon obtaining
proceeds from additional financing the substantial doubt about the Company's
ability to continue as a going concern will be eliminated.
NOTE 4 - FIXED ASSETS, at cost
Fixed assets consists of the following at December 31, 1998:
Furniture and fixtures $ 6,336
Hardware and software costs 14,687
----------
21,023
Less-accumulated depreciation ( 8,741)
-----------
Property and equipment-Net $ 12,282
=========
Depreciation and amortization is computed on a straight-line basis.
Depreciation and amortization expense was $3,169 and $5,872 for 1998 and 1997,
respectively.
F-9
<PAGE>
NOTE 5 - COMMITMENTS
In 1998, the Company leased its facility in Manalapan, New Jersey on a
month to month basis. Commencing April 1999, the Company entered into a lease
for a facility in Freehold, New Jersey requiring minimum annual rent of
approximatelt $32,500. The lease requires the Companny to pay various operating
expenditures of the facility and contains provisions for rent escalations. Rent
expense totaled $21,400 and $17,333 for 1998 and 1997, respectively.
Future minimum rentals are due as follows:
Operating
Years Ending December 31, Lease
--------------------------------------------------------------------
1999 $ 24,384
2000 35,560
2001 39,624
2002 43,688
2003 47,752
2004 12,192
=================
$ 203,200
=================
NOTE 6 - FEDERAL AND STATE INCOME Taxes
The Company has available net operating loss carryforwards of approximately
$300,000 for federal and state income taxes expiring between 2003 and 2118 to
offset future taxable income.
A deferred tax asset results from the benefit of utilizing net operating
loss carryforwards in future years. A valuation allowance has been provided for
the entire benefit.
During the years ended December 31, 1998 and 1997, the increase in the
valuation allowance was $67,987 and $33,906, 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 7 -- STOCK PLANS
The Company's 1998 Incentive and Nonqualified Stock Option Plan provides
for the granting of options to purchase shares of common stock to certain
employees of the Company. Exercise and vesting terms for options granted under
this plan are determined at each grant date. All options when granted will be
granted at not less than fair market value at dates of grant. At the end of
1998, 800,000 options were available for grant under the plan and 800,000 shares
of common stock were reserved for issuance under the 1998 Incentive and
Nonqualified Stock Option Plan. As of December 31, 1998 no options were granted
under this plan.
F-10
<PAGE>
NOTE 8 - CAPITAL TRANSACTIONS
The following occurred in 1998:
1. The Company sold 20,000 shares to an unrelated party under Rule 504.
2. The Company issued 140,002 shares to unrelated parties in payment for
services rendered to the Company. 3. The Company issued 87,429 shares to two
Directors of the Company in payment for loans to the Company.
The following occurred in 1997:
1. The Company issued 732,000 shares of common stock for the acquisition of
ABC, of which, 366,000 shares were issued to an executive officer and Director
of the Company.
2. Two Directors, one of whom is an executive officer of the Company, were
issued 886,079 shares at par value for services rendered.
3. The Company issued 521,383 shares at par value to unrelated parties for
services rendered.
NOTE 9 - RESTATEMENT OF FINANCIAL STATEMENTS
The financial statements for the year ended December 31, 1997 have been
restated to reflect the reclassification of the acquisition of ABC from a
pooling of interests to a purchase transaction.
F-11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This shedule contains summary financial information extracted from Consolidated
Audited Financial Statements contained in Form 10KSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,608
<SECURITIES> 0
<RECEIVABLES> 17,921
<ALLOWANCES> 0
<INVENTORY> 203,387
<CURRENT-ASSETS> 228,664
<PP&E> 21,023
<DEPRECIATION> (8,741)
<TOTAL-ASSETS> 240,946
<CURRENT-LIABILITIES> 677,463
<BONDS> 0
0
0
<COMMON> 2,687
<OTHER-SE> (439,204)
<TOTAL-LIABILITY-AND-EQUITY> 240,946
<SALES> 3,161,116
<TOTAL-REVENUES> 3,161,116
<CGS> 2,511,821
<TOTAL-COSTS> 3,362,211
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (201,095)
<INCOME-TAX> 0
<INCOME-CONTINUING> (201,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (201,095)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
