10-Q 1 final331q.txt FIRST QUARTER 10Q 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 March 31, 2001 [ ] 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 Identification No.) of incorporation or organization) 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 May 21, 2001 Common Stock, no par value 5,304,164 Shares 3Dshopping.com Form 10-Q for the quarter ended March 31, 2001 INDEX Part I. FINANCIAL INFORMATION Item 1. Financial Statements 3 Condensed Consolidated Statements of Operations 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 8 Part II. OTHER INFORMATION Item 1. Legal Proceedings 9 Item 2. Changes in Securities and Use of Proceeds 9 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 13 (a) Exhibits 13 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 3Dshopping.com CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See notes to condensed consolidated financial statements 3

See notes to condensed consolidated financial statements 4 3Dshopping.com CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to condensed consolidated financial statements 5 3Dshopping.com NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - March 31, 2001(UNAUDITED) -------------------------------------------------------------------------------- Note 1 UNAUDITED INTERIM FINANCIAL STATEMENTS The unaudited and unreviewed interim financial statements were prepared on the same basis as the audited financial statements, except that certain assets were valued at their estimated liquidation value based upon the sales prices of assets sold subsequent to March 31, 2001and 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 March 31, 2001 and 2000 and the financial position as of March 31, 2001. 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 to 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 March 31, 2001. Note 4 COMMON STOCK During the quarter ended March 31, 2001, the company issued no shares of common stock. 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.

6 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 March 31, 2001 and 2000. 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 March, 31, 2001, we raised total equity capital in the form of cash of $14,399,064 and had an accumulated deficit of $24,629,532, including $8,527,476 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 have now ceased operations. All employees but two have been laid off. 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. 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. In September 2000, we agreed to acquire "electronic content management system" technology (eCMS) from Channelspace Entertainment, Inc. We will issue 833,333 shares of our common stock in consideration of this purchase. We will pay additional consideration in shares on a quarterly basis for six quarters, beginning four months after the closing, based upon gross revenue generated through the eCMS technology, up to a maximum of $12.5 million. The transaction was closed February 21, 2001. In February, 2001, the company was delisted from the American Stock Exchange and is now trading on the Over The Counter Bulletin Board. The company continues to pursue a reverse merger with Galaxy Communications and signed a revised Letter of Intent with Galaxy on April 25, 2001. However, certain conditions of the LOI include the company raising funding on its own, and we cannot guarantee that such funding can be accomplished. If it cannot be accomplished, or another reverse merger cannot be completed, the company will be forced to file for bankruptcy. RESULTS OF OPERATIONS QUARTER ENDED MARCH 31, 2001 COMPARED TO QUARTER ENDED MARCH 31, 2000 Revenues for the quarter ended March 31, 2001 were $63,768 as compared to $174,940 for the quarter ended March 31, 2000, a decrease $111,172. The reduction resulted principally from the cessation of marketing and sales efforts due to the reduction of force incurred during the quarter. Costs and expenses for the quarter ended March 31, 2001 were $2,151,441 as compared to $2,151,548 for the quarter ended March 31, 2000, a decrease of $107. Expenses were substantially the same, but included increased legal fees and consulting expenses related to the eCMS acquisition. 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 $400,000 for the quarter ended March 31, 2001, as compared to $560,000 for the quarter ended March 31, 2000. In addition, a writedown of assets amounting to $1,094,295 was taken in the quarter ended March 31, 2001. 7 The net loss for the quarter ended March 31, 2001 was $3,179,432, or $0.60 per share, as compared to $1852,235, or $0.38 per share, for the quarter ended March 31, 2000. The weighted average number of shares used in computing net loss per share was 5,304,164 for the quarter ended March 31, 2001 as compared to 4,933,441 for the quarter ended March 31, 2000. The increase of 370,723 shares was principally a result of the exercise of options and warrants. Nine Months ended March 31, 2001 as compared to the nine months ended March 31, 2000 Revenues for the nine months ended March 31,2001 were $644,347 as compared to $427,530 for the quarter ended March 31, 2000. The increase of $216,817 resulted largely from the inclusion of catalog revenues. Costs and expenses for the nine months ended March 31, 2001 were $8,924,406 as compared to $5,551,787 for the nine months ended March 31, 2000. The increase relates to increased costs associated with additional staff for sales, production and administration, marketing programs for newly developed sales programs and participation in trade shows, and improvements in Internet service systems and capabilities. Also included in the nine months ended March 31, 2001 was compensation expense of $1,518,338 for the non-cash values ascribed to option grants to employees and consultants under the Black-Scholes option-pricing model recommended by the FASB in its SFAS 123 as compared to $1,320,570 for the nine months ended March 31, 2000. The net loss for the nine months ended March 31, 2001 was $9,094,915 or $1.72 per share of common stock as compared to $4,903,281 or $1.04 per share for the nine months ended March 31, 2000. The weighted average number of shares used in computing net loss per share for 2001 was 5,285,159 as compared to 4,698,281 for 2000. The increase of 586,878 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 March 31, 2001, the Company had cash and cash equivalents of $25,893 and a working capital deficit of $938,957. Our liquidity and capital needs relate primarily to working capital and other general corporate requirements. Since inception, we have not received any significant cash flow from operations. Since inception, we have not received significant cash flow from operations and we have incurred significant net losses. Through the liquidation of assets and the settlement of a Note Receivable, the cash balance at May 20, 2001 is approximately $50,000. The company has ceased operations and has reduced its force to two people. The company continues to pursue a reverse merger with Galaxy Communications and signed a revised Letter of Intent with Galaxy on April 25, 2001. However, certain conditions of the LOI include the company raising funding on its own, and we cannot guarantee that such funding can be accomplished. If it cannot be accomplished, or antoher reverse merger cannot be completed, the company will be forced to file for bankruptcy. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company does not have any financial instruments that are subject to market risk. 8 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On February 15, 2001 we were served by LookSonic, LLC, our 50.1% owned subsidiary, and its principal officers for breach of contract in Los Angeles Superior Court. Relief sought is $5 million on the causes of action. The matter has been referred to our insurance carrier for handling. No amount has been reserved for this litigation. In May, 2001 we were served by Joel Gayner, the former President of 3Dshopping.com, for breach of his employment contract. The matter has been turned over to our attorney for answer. No amount has been reserved for this litigation. In January, a suit was filed by Michael Mellin, a former officer, claiming the note in the amount of $225,000 due to the company was not in default as claimed by us. In May, 2000, a settlement was reached between the parties whereby Mellin would pay to us $112,500 plus attorneys fees. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On July 20, 1999, the Company's 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. The Company 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 offer commenced to March 31, 2001 are $17,355,873. As of March 31, 2001, the Company had used $11,258,435 for working capital and fixed assets. 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. On December 6, 2000, 3Dshopping.com ("Company") sold 1,500 shares of the Company's Series A Convertible Preferred Stock (Series A Stock") and five-year warrants to purchase 150,000 shares of common stock ("Warrants") for an aggregate purchase price of $1,500,000 ($1,000 per share) to an institutional investor ("Purchaser") pursuant to the terms of a securities purchase agreement ("Purchase Agreement"). The purchase agreement provides for the purchase of up to an aggregate of 6,000 shares of the Series A stock and the issuance of Warrants to purchase up to an aggregate of 600,000 shares of common stock. The purchase agreement provides that the Purchaser will purchase an additional 2,500 shares of Series A Stock and 250,000 Warrants after the company obtains shareholder approval for the issuance of common stock issuable upon conversion of the Series A Stock in excess of 19.99% of the company's outstanding shares of common stock and the "capitalization rate" of the Company (market value of the Company's common stock held by non-affiliates) for the five trading days prior to the closing date equals or exceeds $25,000,000. The purchaser will purchase 1,000 of the remaining 2,000 shares of common stock and 100,000 Warrants after the effective date of the registration statement covering the shares issuable upon conversion of the Series A Stock and exercise of the Warrants and the satisfaction of certain additional conditions, and, if the capitalization rate of the company exceeds $35,000,000. The purchaser may, at its option, purchase an additional 1,000 shares of Series A Stock and 100,000 Warrants. All remaining purchases are subject to the Company's compliance with certain general terms and conditions under the Purchase Agreement. 9 During the nine months ended March 31, 2001, the Company made the following sales of unregistered securities:

ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The company held its Annual Meeting of Shareholders on February 16, 2001. The nominees for directors were elected by the following votes: Gourley: For: 4,518,553; Withheld: 19,683 O'Donnell: For: 4,518,328; Withheld: 19,908 Allegretti: For: 4,518,728; Withheld 19,508 Nau: For: 4,517,528; Withheld 20,708 A vote was held on a proposal to change the state of incorporation of the Company from California to Delaware, the effect of which would result in a change of the Company's name from "3Dshopping.com" to "O2 Essential Marketing Technologies, Inc." and an increase in the number of authorized capital stock from 15,000,000 to 120,000,000 shares, consisting of 100,000,000 shares of common stock, $.001 par value per share, and 20,000,000 shares of preferred stock, $.001 par value per share. There was not a quorum to vote on this proposal and the meeting was adjourned to March 19, 2001. There was still no quorum to vote on this proposal on March 19, 2001 and the meeting was adjourned again until April 4. No quorum to vote on this proposal was available at that date. 10 ITEM 5. OTHER INFORMATION During April, 2001, MaryAnn O'Donnell, John Allegretti and Robert Nau resigned as directors. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 Statement re: Computation of Per Share Earnings (b) Reports on Form 8-K 3Dshopping.com did not file any reports on Form 8-K during the period covered by this report. 11 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 Dated: May 21, 2001 By: /s/ Terry Gourley ----------------------------- Terry Gourley CEO and Acting Chief Financial Officer 12 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ---------- ------------------- 11 Statement re: Computation of Per Share Earnings 13

3DSHOPPING COM 10-Q