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, 1999
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
Commission file number 0-25037
stereoscape.com, inc.
(Name of small business issuer in its charter)
Nevada 06-1469654
(State or other jurisdiction
of incorporation or organization) (IRS Employer 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, 1999 were $4,112,334.
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 3, 2000 is $4,829,668.50.
(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 3,345,727 (as of March 3,2000)
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 .
<PAGE>
PART I
Item 1.Business
Description of Business
stereoscape.com, inc. ("SSCP" or the "Company") was incorporated
on June 8, 1988 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 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 of the products
listed above, at several different price points, with a greater product
depth at higher price levels than most of its 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 remainder 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 employees are paid a base salary
plus a commission on gross sales.
2
<PAGE>
New Products and Expansion.
The Company is continuously evaluating new products to expand
its product line. The Company 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 6 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. The facility is leased at a basic
rent of $3,048 per month or $36,576 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.
1999 1998
Common Shares Common Shares
Period High Low High Low
--------------------------------------------------------
January 1 - March 31 1.9688 1.0000 2.2500 0.7500
April 1 - June 30 2.1562 0.5312 1.0313 0.2500
July 1 - September 30 1.1250 0.3438 0.3750 0.2500
October 1 - December 31 1.3750 0.3750 1.0313 0.1250
As of March 3, 2000, there were 31 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, 1999 Compared to Year Ended December 31, 1998
Net sales for the year ended December 31,1999 increased 30.1%
to $4,112,334 from $3,161,116 for the year ended December 31, 1998. The
increase was the result of significant sales staff and infrastructure
changes.
Gross profit for the year ended December 31, 1999 increased
26.7% to $822,694 from $649,295 for the year ended December 31, 1998.
As a percentage of net sales, gross profit decreased to 20.0% in the
1999 period compared to 20.5% in the 1998 period. The decrease was
primarily the result of increased sales of lower margin products,
promotional pricing to generate sales increase, and introductory
pricing of new product lines.
Selling, general and administrative expenses for year ended
December 31, 1999 increased 24.9% to $1,061,827 from $850,390 for the
year ended December 31, 1998. 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 being put in place to enable the
Company to handle a substantial increase in volume in the year 2000 and
thereafter which management believes will result from new sales
techniques including a fully integrated E-commerce website to be
activated early in the year 2000.
Net losses for the year ended December 31, 1999 increased to a
loss of ($239,133) compared to a loss of ($201,095) for the year ended
December 31, 1998. This increase was due to increased in operating
costs to sustain anticipated growth.
Liquidity and Capital Resources
At December 31, 1999 and December 31, 1998 the Company had
a deficit equity of ($556,276) and ($436,517), 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.
Subsequent to the year end the Company raised $60,000 in a
private placement in exchange for 120,000 shares of its common stock.
Under the Agreement other than piggy-back registration rights, the
Company is not required to register the shares.
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.
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.
5
<PAGE>
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 Assessment
The Company began assessing the possible impact of the Year
2000 ("Y2K") issues on its business operations in 1999. The issue arose
because of information technology ("IT") which utilized a two digit
date field. Y2K introduced the potential for errors and miscalculations
related to IT and non-IT systems which were not designed to accommodate
a date of year 2000 and beyond. As of March 9, 2000, the Company had
encountered no significant Y2K related problems.
The Company successfully implemented a program to assess,
mitigate and remediate the potential impact of the Year 2000 problem
throughout the Company. The cost of remediation efforts were
immaterial, and as such the Year 2000 problem did not have a material
effect on the financial position of the Company, nor the results of its
operations.
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.
6
<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 Accountant 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 new certifying accountants, Weinbaum &
Yalamanchi ("WY"). ESC's report on Alliance's financial statements for
the fiscal year ended December 31, 1997, 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 and requested ESC to confirm this, a copy of which was
filed as an attachment to Form 8K.
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, Weinbaum & Yalamanchi
Certified Public Accountants ("WY") and retained its prior certifying
accountants, Ehrenkrantz, Sterling & Co., LLC Certified Public
Accountants and Consultants ("ESC"). WY did not complete their audit
nor did they 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.
Subsequent to the filing of the 8-K dismissing WY, on June 15,
1999, W&Y issued a letter in which they objected to certain disclosures
in the original 8-K filing and enumerating various reasons they felt
that stereoscape.com, inc. ("The Company") is unauditable. We would
like to point out that W & Y did not inform the Company that they
considered it unauditbale until subsequent to their termination as
auditors, and subsequent to the filing of the Form 8-K in question.
7
<PAGE>
Effective April 20, 1999, the Company again engaged ESC as its
principle accountants. During the most recent fiscal year end and the
subsequent interim periods to the date hereof, the Company did not
consult ESC regarding any of the matters or events set forth in item
304 (a) (2) and (i) and (ii) of Regulation S-B, except those matters
involving prior audits by ESC.
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 38 Chairman of the Board of Directors
Steven Wise 40 President and Director
Bernard F. Lillis, Jr. 56 Chief Financial Officer and Director
David Bannon 41 Director and Vice President
Scott G. Halperin has been Chairman of the Board of Directors of the
Company since April 17, 1997. Since August 1994 Mr. Halperin has been
Chief Executive Officer of The Classica Group, 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 The Classica Group.
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 employment agreement with Alpha.
Bernard F. Lillis, Jr., has been Chief Financial Officer and a director
of the Company since April 17, 1997. Since 1996 Mr. Lillis has been
Chief Financial Officer of The Classica Group, 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 to the Board of Directors of
The Classica Group, as well as appointed Chief Operating Officer. Mr.
Lillis 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.
David Bannon, has been Vice President of Alpha since April 17, 1997 and
a director since February, 2000. He entered the electronics industry in
1981 working for various retail establishments. In 1994 he became a
principal in a newly formed electronics retail and mail order outlet,
and in 1997 he entered into an employment agreement with Alpha.
8
<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 1999 $103,720 $6,527 *
1998 $100,100 -
1997 $91,077 -
David Bannon, Vice President 1999 $103,729 $2,272 *
of Alpha Sound & Vision, Inc 1998 $100,100 -
1997 $91,077 -
* Represents the cost of health insurance borne by the Company.
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 Out-
of Beneficial Owner Shares Owned standing Shares Owned
Steven Wise 678,500 (a) 18.7%
Scott G. Halperin 1,033,714 (b) 28.5%
David Bannon 678,500 (c) 18.7%
Bernard F. Lillis, Jr. 276,715 (d) 7.9%
Kagel Family Trust 380,000 11.4%
All directors and executive officers
as a group (4 persons) 2,667,429 61.4%
(a) Includes options to purchase 175,000 restricted shares at $0.418 per share,
and 100,000 shares at $0.418.
(b) Includes options to purchase 175,000 restricted shares at $0.418 per
share, and 100,000 shares at $0.418.
(c) Includes options to purchase 175,000 restricted shares at $0.418 per share,
and 100,000 shares at $0.418.
(d) Includes options to purchase 75,000 restricted shares at $0.418 per share,
and 100,000 shares at $0.418.
9
<PAGE>
Item 12. Certain Relationships and related Transactions
None
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.
10
<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 April 10, 2000
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 April 10, 2000
Steven Wise
President (Principal Executive Officer)
Director
By: /s/ Bernard F. Lillis, Jr. April 10, 2000
Bernard F. Lillis, Jr.
Chief Financial Officer (Principal Accounting Officer)
Director
By: /s/ Scott G. Halperin April 10, 2000
Scott G. Halperin
Chairman of the Board of Directors
By: /s/ David Bannon April 10, 2000
David Bannon
Director
11
<PAGE>
stereoscape.com, inc. and Subsidiary
Index
Financial Statements
Included in Part II
Report of Independent Certified Public Accountants
Consolidated Balance Sheet at December 31, 1999
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Deficiency
for the Years Ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
<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
Freehold, New Jersey
We have audited the accompanying consolidated balance sheet of
stereoscape.com, inc. and subsidiary as of December 31, 1999, and the related
consolidated statements of operations, changes in stockholders' deficiency and
cash flows for the years ended December 31, 1999 and 1998. 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, 1999, and the results of
its operations and cash flows for the years ended December 31, 1999 and 1998 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
March 24, 2000
F-2
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Current Assets:
Cash $ 3,557
Charge card receivables 10,965
Inventories 253,179
Other current assets 42,256
---------
Total Current Assets 309,957
---------
Property and Equipment - Net 11,573
---------
TOTAL ASSETS $ 321,530
=========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses $ 511,909
Customer deposits and other advances 365,897
---------
Total Current Liabilities 877,806
---------
Commitments and Contingencies -
STOCKHOLDERS' DEFICIENCY
Common Stock
Par value $.001 - 10,000,000 shares authorized,
2,981,327 shares issued and outstanding 2,981
Additional paid in capital 191,394
Deficit (750,651)
---------
Total Stockholders' Deficency (556,276)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 321,530
=========
The accompanying notes to the consolidated financial
statements are an integral part hereof.
F-3
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
December 31,
1999 1998
------------------------------
Sales $4,112,334 $3,161,116
Cost of sales 3,289,640 2,511,821
------------------------------
Gross profit 822,694 649,295
Selling, General and Administrative 1,061,827 850,390
------------------------------
Net Loss $ (239,133) $ (201,095)
==============================
BASIC LOSS PER COMMON SHARES
Net Loss $ (0.08) $ (0.08)
Weighted average number of
shares used in computation 2,817,868 2,490,306
The accompanying notes to the consolidated financial
statements are an integral part hereof.
F-4
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Issued and
Authorized Outstanding Additional
Common Common Amount Paid-in Deficit Total
Stock Stock Capital
--------------------------------------------------------------
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 at
December 31, 1998 10,000,000 2,686,893 2,687 72,313 (511,517) (436,517)
Issuance of
common stock 294,434 294 119,081 119,375
Net Loss (239,134) (239,134)
--------------------------------------------------------------
Balance at
December 31, 1999 10,000,000 2,981,327 $2,981 $191,394 $ (750,651)$ (556,276)
==============================================================
The accompanying notes to the consolidated financial
statements are an integral part hereof.
F-5
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------------------------
Cash flows from operating activities:
Net loss $ (239,133) $ (201,095)
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation and amortization 3,783 3,169
(Increase) decrease in operating assets:
Charge card receivables 6,956 35,545
Inventories (49,792) (108,305)
Other current assets (3,508) 3,752
Increase (decrease) in operating liabilities:
Accounts payable and accued expenses 244,278 87,935
Customer deposits and advances (35,819) 137,280
---------------------------
Net cash used in operating activities (73,235) (41,719)
---------------------------
Cash flow from investing activities:
Purchase of fixed assets (3,074) (456)
---------------------------
Net cash used in investing activities (3,074) (456)
---------------------------
Cash flow from financing activities:
Issuance of capital stock 84,375 62,861
Repayment of loan payable (8,117) (41,985)
---------------------------
Net cash provided by financing activities 76,258 20,876
---------------------------
Decrease in cash (51) (21,299)
Cash at beginning of year 3,608 24,907
---------------------------
Cash at end of year $ 3,557 $ 3,608
===========================
Supplemental disclosure of cash flow information:
Interest paid $ 1,385 $ 5,242
Income Taxes paid - -
Supplementary Disclosure of Non-Cash Transactions:
Shares issued to unrelated parties for
services rendered 35,000 14,000
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
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. 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.
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.
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.
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 $120,891 in 1999 and $111,753
in 1998.
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.
F-7
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amount of financial instruments that are
recognized at historical cost amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts 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 or Alpha's
company warranty. In addition, the Company offers extended warranties, at an
additional cost. The extended warranties are underwritten by a third party for
which the Company pays a fixed fee.
NEW ACCOUNTING PRONOUNCEMENTS
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.
RECLASSIFICATION OF FINANCIAL STATEMENTS
The financial statements for the year ended December 31, 1998 have been
reclassified to conform with the current presentation. The reclassification does
not change the net loss for the period previously reported.
F-8
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 -- CUSTOMER DEPOSITS AND OTHER ADVANCES
At December 31, 1999 and 1998 the Company had $156,335 and $215,116 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, 1999 and 1998 the Company had $209,562 and
$186,600 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
($239,000), a working capital deficiency and a deficiency in assets of
approximately ($556,000) at December 31, 1999 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 - PROPERTY AND EQUIPMENT, at cost
Fixed assets consists of the following at December 31, 1999:
Furniture and fixtures $ 9,410
Hardware and software costs 14,687
-------
24,097
Less-accumulated depreciation (12,524)
-------
$ 11,573
=======
Depreciation and amortization expense was $3,783 and $3,169 for 1999 and
1998, respectively.
F-9
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5 - COMMITMENTS
Prior to April, 1999, 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 current minimum
annual rent of approximately $36,576. The lease requires the Company to pay
various operating expenditures of the facility and contains provisions for rent
escalations. Rent expense totaled $35,581 and $21,400 for 1999 and 1998,
respectively.
Future minimum rentals are due as follows:
Operating
Years Ending December 31, Lease
- ---------------------------------------------------------------------
2000 $ 39,624
2001 43,688
2002 47,752
2003 51,816
2004 13,208
===========
$ 196,088
===========
NOTE 6 - FEDERAL AND STATE INCOME Taxes
The Company has available net operating loss carryforwards of approximately
$700,000 for federal and state income taxes expiring between 2003 and 2119 to
offset future taxable income.
A deferred tax asset results from the benefit of utilizing net operating
loss carryforwards in future years. A valuation allowance has been provided for
the entire benefit.
During the years ended December 31, 1999 and 1998, the increase in the
valuation allowance was $82,510 and $67,987, 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.
F-10
<PAGE>
stereoscape.com, inc. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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
1999, 180,000 options were available for grant under the plan and 1,400,000
shares of common stock were reserved for issuance under the 1998 Incentive and
Nonqualified Stock Option Plan. As of December 31, 1999 the following options
were granted and exercised under this plan.
SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123") was
effective for the Company for fiscal 1998. SFAS No. 123 encourages (but does not
require) compensation expense to be measured based on fair value of the equity
instrument awarded. In accordance with APB No. 25 "Accounting for Stock Issued
to Employees" no compensation cost has been recognized in the Consolidated
Statements of Income for the Company's stock option plans. If compensation cost
for the company's stock option plans had been determined in accordance with the
fair value method prescribed by SFAS No. 123, the company's net loss would have
been $602,241 and $201,095 for 1999 and 1998 respectively. Loss per share
would have been $0.21 and $0.08 for 1999 and 1998 respectively. This pro forma
information may not be representative of the amounts to be expected in future
years as the fair value method of accounting prescribed by SFAS No. 123 has not
been applied to options granted prior to 1996.
Weighted Average
Shares Exercise Price
- --------------------------------------------------------------------------------
Outstanding, beginning of year - N/A
Granted 1,220,000 0.433
Exercised 185,000 0.524
- --------------------------------------------------------------------------------
Outstanding, end of year 1,035,000 0.417
Options exercisable at year-end 1,035,000 0.417
Weighted-average fair value of 0.433
options granted during the year
The fair value of each option granted is estimated on the date of each
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1999: Risk free interest rate 5.5%;
expected life within 5 years; vested immediately; expected volatility of 111%;
dividend yield 0%. The fair values generated by the Black-Scholes model may
not be indicative of the future benefit, if any, that may be received by the
option holder.
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-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,557
<SECURITIES> 0
<RECEIVABLES> 10,965
<ALLOWANCES> 0
<INVENTORY> 253,179
<CURRENT-ASSETS> 309,957
<PP&E> 24,097
<DEPRECIATION> (12,524)
<TOTAL-ASSETS> 321,530
<CURRENT-LIABILITIES> 877,806
<BONDS> 0
0
0
<COMMON> 2,981
<OTHER-SE> (559,257)
<TOTAL-LIABILITY-AND-EQUITY> 321,530
<SALES> 4,112,334
<TOTAL-REVENUES> 4,112,334
<CGS> 3,289,640
<TOTAL-COSTS> 4,350,082
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,385
<INCOME-PRETAX> (239,133)
<INCOME-TAX> 0
<INCOME-CONTINUING> (239,133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (239,133)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
