-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PHYP2gLYXr285o0KTM0Nz5pjrfgPnznRFTD1epZLCHYt9s/w/56dz2XXvrO+g0h8 b1zo28OtoFygRo5s87NoHQ== 0001044885-02-000006.txt : 20020413 0001044885-02-000006.hdr.sgml : 20020413 ACCESSION NUMBER: 0001044885-02-000006 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20020115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UPSIDE DEVELOPMENT INC CENTRAL INDEX KEY: 0001020367 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 391765590 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26325 FILM NUMBER: 2509879 BUSINESS ADDRESS: STREET 1: 141 N. MAIN STREET STREET 2: SUITE 207 CITY: WEST BEND STATE: WI ZIP: 53095 BUSINESS PHONE: 262-334-4500 MAIL ADDRESS: STREET 1: 141 N. MAIN STREET STREET 2: SUITE 207 CITY: WEST BEND STATE: WI ZIP: 53095 FORMER COMPANY: FORMER CONFORMED NAME: ALOTTAFUN INC DATE OF NAME CHANGE: 19990520 10QSB/A 1 form10qsb-a.txt AMENDMENT TO FORM 10-QSB U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 AMENDMENT NO.1 TO FORM 10-QSB [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2001 ------------------ [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from __________ to __________ Commission File Number 0-26325 UPSIDE DEVELOPMENT, INC. ------------------------ (Exact Name of Small Business Issuer as Specified in Its Charter) DELAWARE 39-1765590 -------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 141 N. Main Street, Suite 207, West Bend, Wisconsin 53095 --------------------------------------------------------- (Address of Principal Executive Offices) (262) 334-4500 ------------- (Issuer's Telephone Number) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such a shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- --- The number of shares outstanding of the Issuer's Common Stock, $.01 Par Value, as of September 30, 2001 was 42,970,537. Transitional Small Business Disclosure Format: Yes __ No X --- UPSIDE DEVELOPMENT, INC. Index Page Part I - Financial Information ---- Item 1. Financial Statements Balance Sheet - September 30, 2001......................................... 1 Statements of Operations - Three and nine months ended September 30, 2001 and 2000.... 2 Statements of Changes in Stockholders' Deficit - Nine months and ended September 30, 2001................... 3 Statements of Cash Flows - Nine months ended September 30, 2001 and 2000.............. 4 Notes to Financial Statements................................ 5 - 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 7 - 10 Part II - Other Information Item 1. Legal Proceedings............................................. 10 Item 2. Change in Securities and Use of Proceeds...................... 11 Item 3. Defaults Upon Senior Securities............................... 11 Signatures............................................................ 12 Upside Development, Inc. Balance Sheet September 30, 2001 (unaudited)
Assets Current assets: Cash $ 29,456 --------------------- Property and equipment, net of accumulated depreciation 14,386 --------------------- Other assets: Deposit on acquisition 100,000 Advances to Stockholder 7,500 Other 5,000 --------------------- Total other assets 112,500 --------------------- $ 156,342 ===================== Liabilities and Stockholders' Deficit Current liabilities: Bank overdrafts 15,865 Notes payable, net of discounts 513,444 Accounts payable 453,989 Accrued expenses 396,276 --------------------- Total current liabilities 1,379,574 --------------------- Stockholders' deficit: Preferred stock; par value of $.0001; 5,000,000 shares authorized; 5,000,000 shares issued and outstanding. 500 Common stock; par value of $.01 per share; 200,000,000 shares authorized; 42,970,537 shares issued and outstanding. 429,705 Additional paid-in capital 7,265,413 Accumulated deficit (8,918,850) --------------------- Total stockholders' deficit (1,223,232) --------------------- $ 156,342 =====================
The accompanying notes are an integral part of the financial statements. 1
Upside Development, Inc. Statements of Operations (unaudited) Three Months Ended September 30, Nine Months Ended September 30, -------------------------------------- -------------------------------------- 2001 2000 2001 2000 -------------------------------------- -------------------------------------- Sales, net of allowance and discounts $ (133) $ 92,031 $ 66,310 $ 92,441 Cost of sales - 49,428 26,659 52,369 -------------------------------------- -------------------------------------- Gross profit (133) 42,603 39,651 40,072 -------------------------------------- -------------------------------------- Operating expenses: Selling 11,786 13,958 33,898 35,800 General and administrative 193,101 628,648 1,458,932 1,129,741 Depreciation and amortization 4,972 8,660 36,469 25,980 -------------------------------------- -------------------------------------- 209,859 651,266 1,529,299 1,191,521 -------------------------------------- -------------------------------------- Loss from operations (209,992) (608,663) (1,489,648) (1,151,449) -------------------------------------- -------------------------------------- Other income (expenses): Loss on acquisition deposits (135,864) - (135,864) - Net realized gain on sale of securities trading - - - 5,344 Interest expense (44,499) (12,455) (246,898) (35,774) Other income 4,434 - 4,434 -------------------------------------- -------------------------------------- Total other expenses (175,929) (12,455) (378,328) (30,430) -------------------------------------- -------------------------------------- Net loss before extraordinary gain (385,921) (621,118) (1,867,976) (1,181,879) Extraordinary gain on forgiveness of debt - - 8,910 64,316 -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- Net loss $ (385,921) $ (621,118) $ (1,859,066) $ (1,117,563) ====================================== ====================================== Loss per common share: Loss before extraordinary gain (0.01) (0.05) (0.06) (0.10) Extraordinary gain - - - - -------------------------------------- -------------------------------------- Net loss per common share $ (0.01) $ (0.05) $ (0.06) $ (0.10) ====================================== ====================================== -------------------------------------- -------------------------------------- Weighted average shares outstanding 41,523,798 12,932,163 29,787,173 11,499,248 ====================================== ======================================
The accompanying notes are an integral part of the financial statements. 2 Upside Development, Inc. Statements of Changes in Stockholders' Deficit (unaudited)
Preferred Stock Common Stock ------------------- ------------------ Shares $.0001 Par Shares $.01 Par Issued Value Issued Value --------- -------- -------- -------- Balance, December 31, 2000 2,000,000 $ 200 16,360,437 163,604 Issuance of common stock for cash - - 2,087,000 20,870 Issuance of common stock for offering costs - - 2,482,000 24,820 Issuance of common stock for services - - 11,703,750 117,037 Issuance of preferred stock for services 4,000,000 400 - - Cancellation of preferred stock (1,000,000) (100) - - Issuance of common stock to settle debt - - 8,301,850 83,018 Common stock and warrants issued in connection with debt - - 2,035,500 20,356 Issuance of stock options for services - - - - Amortization of prepaid consulting services - - - - Write off of stock subscription receivable - - - - Net loss for the nine months ended September 30, 2001 - - - - --------- -------- -------- -------- Balance, September 30, 2001 5,000,000 $ 500 42,970,537 429,705 ========= ======== ======== ========
Additional Prepaid Stock Paid-in Accumulated Consulting Subscription Capital Deficit Services Receivable Total --------- ---------- ----------- --------- --------- $ 6,270,387 $(7,059,784) $ (50,375) $(123,500) $(799,468) 81,755 - - - 102,625 (24,820) - - - - 684,280 - - - 801,317 - - - - 400 - - - - (100) 259,847 - - - 342,865 87,464 - - - 107,820 30,000 - - - 30,000 - - 50,375 - 50,375 (123,500) - - 123,500 - - (1,859,066) - - (1,859,066) --------- ---------- ----------- -------- --------- $ 7,265,413 $(8,918,850) $ - $ - $(1,223,232) ========= ========== =========== ======== =========
The accompanying notes are an integral part of the financial statements. 3 Upside Development, Inc. Statements of Cash Flows (unaudited)
Nine Months Ended September 30, ------------------------------- 2001 2000 ------------------------------- Operating activities Net loss $ (1,859,066) $ (1,117,563) ------------------------------- Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 36,469 25,980 Amortization of discount on notes payable 193,754 - Amortization of prepaid consulting services 50,375 - Common stock and options issued for services and other expenses 831,717 542,662 Cancellation of preferred stock (100) - Loss on acquisition deposits 135,864 - (Increase) decrease in: Accounts receivable 13,594 (85,321) Inventory 593 (593) Other assets (5,000) (575) Increase (decrease) in: - Accounts payable 145,842 658 Accrued expenses 213,968 38,836 ------------------------------- Total adjustments 1,617,076 521,647 ------------------------------- Net cash used by operating activities (241,990) (595,916) ------------------------------- Investing activities Deposit on acquisitions (235,864) - Advances to stockholders (7,500) - Acquisition of equipment and intangible assets - (82,759) ------------------------------- Net cash used by investing activities (243,364) (82,759) ------------------------------- Financing activities Increase in bank overdraft 6,654 9,675 Proceeds from notes payable 435,000 15,000 Payments on notes payable (30,000) - Proceeds from common stock and related paid-in capital 102,625 676,897 Net proceeds/payments on credit line (27,613) ------------------------------- Net cash provided by financing activities 514,279 673,959 ------------------------------- Net increase in cash 28,925 (4,716) Cash at beginning of period 531 5,310 ------------------------------- Cash at end of period $ 29,456 $ 594 =============================== Supplemental disclosures of cash flow information and noncash financing activities Cash paid during the period for interest $ - $ 7,566
During the nine month period ended September 30, 2001, the Company issued 5,676,850 shares of restricted common stock in satisfaction of notes payable of $170,543, including interest, of $24,992. During the nine month period ended September 30, 2001, the Company converted $51,009 of accounts payable into notes payable. During the nine month period ended September 30, 2001, the Company issued 2,625,000 shares of restricted common stock in satisfaction of debt of $147,330. During the nine month period ended September 30, 2001, the Company issued 2,482,000 shares of restricted common stock for the payment of offering costs. During the nine month period ended September 30, 2001, the Company issued $435,000 of notes payable. In connection with the notes, the Company issued 2,035,500 shares of restricted common stock valued at $65,525 and detachable warrants to purchase 1,312,500 shares of restricted common stock valued at $42,295. These amounts have been recorded as a discount on the notes and are being amortized over the life of the note. During the nine month period ended September 30, 2001, the Company issued 11,703,750 shares of restricted common stock for services valued at $801,317. During the nine month period ended September 30, 2001, the Company deemed the subscription receivable in the amount of $123,500 uncollectable. The balance was written off against additional paid-in capital in the accompanying financial statements. During the nine month period ended September 30, 2001, the Company issued 4,000,000 shares of preferred stock for services valued at $400. During the nine month period ended September 30, 2001, the Company cancelled 1,000,000 shares of preferred stock valued at $100. The accompanying notes are an integral part of the financial statements. 4 UPSIDE DEVELOPMENT, INC. Notes to Financial Statements Note 1 - Basis of presentation In the opinion of the Company, the accompanying unaudited financial statements contain all adjustments (which are of a normal and recurring nature) necessary for a fair presentation of the financial statements. The results of operations for the three and nine month periods ended September 30, 2001 and 2000 are not necessarily indicative of the results to be expected for the full year. The unaudited financial statements and notes are presented as permitted by Form 10-QSB. Accordingly, certain information and note disclosures that are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted. The accompanying financial statements and notes should be read in conjunction with the audited financial statements and notes for the Company for the fiscal year ended December 31, 2000. The operating results for the nine months ended September 30, 2001 are not necessarily indicative of those to be expected for the year ended December 31, 2001. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. However, the Company has sustained substantial losses since inception that total approximately $8,919,000 and has used cash in operations of approximately $242,000 and $596,000 for the nine month periods ended September 30, 2001 and 2000, respectively. The Company has a negative working capital of approximately $1,350,000 at September 30, 2001 and has negative net worth of approximately $1,223,000 at September 30, 2001. In addition, the Company is currently in default on approximately $432,000 of notes payable. Additionally, the Company has not had significant revenues over the past two years. These issues indicate that the Company may be unable to continue as a going concern. Realization of the Company's assets is dependent upon the Company's ability to raise additional capital, as well as generate revenues sufficient to result in future profitable operations. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Note 2 - Per share calculations Per share data was computed by dividing net loss by the weighted average number of shares outstanding during the three and nine month periods ended September 30, 2001 and 2000. The weighted average shares outstanding for the three month period ended September 30, 2001 was 41,523,798 as compared to 12,932,163 for the three month period ended September 30, 2000. The weighted average shares outstanding for the nine month period ended September 30, 2001 was 29,787,173 as compared to 11,499,248 for the nine month period ended September 30, 2000. Note 3 - Equity Transactions Please refer to Audited Financial Statements consisting of the Company's balance sheet as of December 31, 2000, and related statements of operations, changes in stockholders' equity, and cash flows ended December 31, 2000, as audited by Pender, Newkirk & Company, Certified Public Accountant. During the nine month period ended September 30, 2001, the Company issued 5,676,850 shares of restricted common stock in satisfaction of notes payable of $170,543, including interest of $24,992. During the nine month period ended September 30, 2001, the Company issued 2,625,000 shares of restricted common stock in satisfaction of debt of $147,330. During the nine month period ended September 30, 2001, the Company issued 2,482,000 shares of restricted common stock valued at $134,100 for the payment of offering costs. During the nine month period ended September 30, 2001, the Company issued $435,000 of notes payable. In connection with the notes, the Company issued 2,035,500 shares of restricted common stock valued at $65,525 and detachable warrants to purchase 1,312,500 shares of restricted common stock valued at $42,295. These amounts have been recorded as a discount on the notes and are being amortized over the life of the note. 5 UPSIDE DEVELOPMENT, INC. Notes to Financial Statements (continued) During the nine month period ended September 30, 2001, the Company issued 11,703,750 shares of restricted common stock for services valued at $801,317. During the nine month period ended September 30, 2001, the Company deemed the subscription receivable in the amount of $123,500 uncollectable. The balance was written off against additional paid-in capital in the accompanying financial statements. During the nine month period ended September 30, 2001, the Company issued 4,000,000 shares of preferred stock for services valued at $400. During the nine month period ended September 30, 2001, David Bezalel resigned as the Company's Director and Chief Operating Officer. Mr. Bezalel returned to the Company options to purchase 2,500,000 shares of the Company's Common Stock at an exercise price of $.15 per share. In exchange, Mr. Bezalel was issued an option to purchase 1,000,000 shares of the Company's Common Stock which the Company expects to be exercised within one year at a price of -0-. The Company valued the options at $30,000. In addition, the 1,000,000 shares of preferred stock issued to Mr. Bezalel were cancelled during the nine month period ended September 30, 2001. During the nine month period ended September 30, 2001, the Company issued 2,087,000 shares of restricted common stock for cash of $102,625. During the nine month period ended September 30,2001, the Company entered into a Preferred Stockholder's Agreement dated August 1, 2001 and a Consulting Agreement dated June 1, 2001 with Khashayer Santi Mehdi Pashakan that were terminated on August 30, 2001. Accordingly, the Company has issued stop transfer instructions on the shares issued pursuant to these agreements. Note 4 - Deposits on Acquisitions During the nine month period ended September 30, 2001, the Company signed letters of intent to acquire three tire recycling companies and a logistics company. To-date the Company has made deposits of $235,864 on these acquisitions. During the three-month period ended September 30, 2001, letters of intent for two of these tire recycling companies and the logistics company were terminated and accordingly $135,864 of deposits were written off. 6 UPSIDE DEVELOPMENT, INC. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this Report on Form 10-QSB, that are not purely historical, are forward-looking information and statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These include statements regarding the Company's expectations, intentions, or strategies regarding future matters. All forward-looking statements included in this document are based on information available to the Company on the date hereof. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements contained in this Form 10-QSB. The forward-looking statements contained here-in are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments regarding, among other things, the Company's ability to secure financing or investment for capital expenditures, future economic and competitive market conditions, and future business decisions. All these matters are difficult or impossible to predict accurately and many of which may be beyond the control of the Company. Although the Company believes that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this form 10-QSB will prove to be accurate. GENERAL We were founded in August 1993. Until we generated significant revenues in 1996, we were a development stage enterprise. During the development stage period, we devoted the majority of our efforts to development of a viable product line, testing of product concepts, developing channels of distribution, financing and marketing. These activities were funded by investments from stockholders and borrowings from unrelated third parties. We have not, through the present time, been in a position to generate sufficient revenues during our limited operating history to fund on-going operating expenses or product development activities. As a result, we resorted to raising capital through equity fundings and from borrowings. In June of 1998, we acquired inventory, equipment, and goodwill of the Mother Hubbard's Creations toy line. We renamed the Mother Hubbard's Creations toy line Hearthside Treasures. In May 1999, Alottafun! joint ventured with E-Commerce Fulfillment, LLC. which contracted with M.W Kasch, an independent U.S. toy distributor, to launch an e-commerce Internet portal called TOYPOP.COM. The Joint venture was owned 33.3% by E-Commerce Fulfillment and 67.7% by Alottafun!, Inc. E-Commerce Fulfillment (ECF) was a wholly owned by Jeffrey C. Kasch, President of M.W. Kasch Company. On February 28, 2000, the M. W. Kasch and us agreed to terminate our relationship and thereupon, M.W. Kasch Co. gave notice that effective March 28, 2000 our agreement with them was terminated. We announced our business-to-business Internet strategy on February 22, 2000. Our e-commerce site was originally launched on September 21, 1999. The Web-site e-commerce development program cost approximately $235,000 during 1999. In comparison with other retailers of toys, our expenditures were relatively small. Marketing expenditures included limited newspapers, radio, magazine, and internet advertisements. Our expected marketing program was not funded for the 1999 holiday selling season. Our lack of marketing resources has had a negative impact on our sales and our ability to meet our sales projections. Our Toypop.com site was processing orders through February 10, 2000 when it was closed. We announced our business-to-business internet strategy on February 22, 2000. In May, 2000, we launched MRABA.COM; a B2B site devoted to the toy, candy and related children products industry. In August of 2001, we shut down our MRABA.COM site. As a process of developing the MRABA.com site, we developed a sophisticated software system called e-Logic. The e-Logic system is a web-based application developed for companies to provide integrated, real-time information for all aspects of a companies back office operations, including everything from order 7 UPSIDE DEVELOPMENT, INC. entry and processing through inventory tracking and cost accounting. We have transferred ownership of the E-logic system to Overit Multimedia, in consideration for various free and heavily discounted software services. Our operating results may hinder our ability to raise additional capital to fund our operations going forward. To date, we have funded our Web-site e-commerce development with working capital provided by the sales of our securities and borrowings. However, there is no assurance that these working capital reserves will be sufficient to complete, launch, and market our e-commerce site. Furthermore, there is no assurance that we will be able to raise additional funds through securities sales and borrowings in the future. We have sustained significant operating losses since inception resulting in an accumulated deficit of approximately $8,919,000 at September 30, 2001. Because of the need for capital and the diminishing prospects for obtaining new monies, we have reduced our focus on the toy industry and concentrated our efforts on the scrap tire market. In an effort to develop a viable business model to realize value for our shareholders we were presented with "roll-up" opportunities with the scrap tire industry. This strategy utilizes proprietary experience that we developed in our business-to-business Internet initiatives. We have identified a strategy to focus all our future resources to develop a business model that focuses on the acquisition of smaller privately owned regional operations in the scrap tire recycling industry. In January 2001, we signed letters of intent to acquire three tire recycling companies and a logistics company, allowing us to expand our technology expertise into a fast growth industry. During the three-month period ended September 30, 2001, letters of intent for two of these tire recycling companies and the logistics company were terminated and accordingly $135,864 of deposits were written off. We are currently focusing our efforts on completing the acquisition of one remaining tire recycling company which we have advanced $100,000 as a deposit. There is no assurance that we will be successful in securing the funding to complete this potential acquisition. We will continue to incur losses until we are able to complete acquisition within the tire recycling industry that will increase sales to a sufficient level to offset ongoing operating and administrative costs. RESULTS OF OPERATIONS Three months ended September 30, 2001 compared to three months ended September 30, 2000 Total revenue for the three months ended September 30, 2001 was $(133) compared to $92,031 for the same period of 2000, which represents a decrease of $92,164. We focused our efforts primarily on completing a tire recycling acquisition and securing financing which is the primary reason for our decrease in revenues from the period ended September 30, 2001 as compared to the prior year period. Gross profit was $(133) and $42,603, respectively, for the three month period ended September 30, 2001, as compared to the prior period ended September 30, 2000, a decrease of $42,736. This decrease is primarily attributable the lack of revenues during the three month period ended September 30, 2001. For the three months ended September 30, 2001, total selling expenses were $11,786 as compared to $13,958 for the same period of the previous year, a decrease of $2,172. This decrease is the result of lower marketing expenses relating to our logistic supply business as we focus more on entering the tire recycling business. Total general and administrative expense for the three months ended September 30, 2001, was $193,101 as compared to $628,648 for the same period of the previous year, a decrease of $435,547. This decrease is primarily due to the reduction of office expenses during the three month period ended September 30, 2001. During the three-month period ended September 30, 2001, letters of intent for two tire recycling companies and the logistics company were terminated and accordingly $135,864 of deposits were written off. 8 UPSIDE DEVELOPMENT, INC. Interest expense was $44,499 for the three month period ended September 30, 2001, as compared to $12,455 for the prior period ended September 30, 2000, an increase of $32,044. This increase is primarily attributable our increase in notes payable during the three month period ended September 30, 2001. We had a net loss of $385,921 for the period ended September 30, 2001 as compared to a loss of $621,118 for the same prior year period. This decrease in the operating loss over that of the preceding year period is the result of lower general and administrative expenses. The loss and loss per share were $385,921 and $0.01 per share respectively, for the three months ended September 30, 2001 as compared to a loss and loss per share of $621,118 and $0.05 respectively, for the same period in 2000. This loss represents a 38% decrease over the loss experienced in the year ago quarter. The weighted average shares outstanding for the quarter ended September 30, 2001 was 41,523,798 as compared to 12,932,163 for the preceding year quarter ended September 30, 2000. Nine months ended September 30, 2001 compared to nine months ended September 30, 2000 Total revenue for the nine months ended September 30, 2001 was $66,310 compared to $92,441 for the same period of 2000, which represents a decrease of $26,131. This decrease was primarily the result of lower sales relating to our logistic product supply business and the sale of crumb rubber. Revenue for the nine months ended September 30, 2000 represented toy sales. Gross profit was $39,651 and $40,072, respectively, for the nine month period ended September 30, 2001, as compared to the prior period ended September 30, 2000, a decrease of $421. For the nine months ended September 30, 2001, total selling expenses were $33,898 as compared to $35,800 for the same period of the previous year, a decrease of $1,902. Total general and administrative expense for the nine months ended September 30, 2001, was $1,458,932 as compared to $1,129,741 for the same period of the previous year, an increase of $329,191. This increase is primarily due to legal and consulting expenses paid during the nine month period ended September 30, 2001. During the nine-month period ended September 30, 2001, letters of intent for two tire recycling companies and the logistics company were terminated and accordingly $135,864 of deposits were written off. Interest expense was $246,898 and $35,774, respectively, for the nine month period ended September 30, 2001, as compared to the prior period ended September 30, 2000, an increase of $211,124. This increase is primarily attributable our increase in notes payable during the nine month period ended September 30, 2001. We had a net loss of $1,859,066 for the period ended September 30, 2001 as compared to a loss of $1,117,563 for the same prior year period. This increase in the operating loss of $741,503 over that of the preceding year period primarily reflects higher general and administrative expenses and interest expense associated with notes payable during the current nine month period. The loss and loss per share were $1,859,066 and $0.06 per share respectively, for the nine months ended September 30, 2001 as compared to a loss and loss per share of $1,117,563 and $0.10 respectively, for the same period in 2000. This loss represents a 66% increase over the loss experienced in the year ago period. The weighted average shares outstanding for the nine months ended September 30, 2001 was 29,787,173 as compared to 11,499,248 for the preceding year period ended September 30, 2000. 9 UPSIDE DEVELOPMENT, INC. LIQUIDITY AND CAPITAL RESOURCES To date, the Company has largely funded its operations and its product development activities with funds provided by issuing securities and from borrowings. During the nine months ended September 30, 2001, the Company issued $486,000 in the form of notes payable and convertible debt. This includes $435,000 of notes payable issued for cash and $51,000 of accounts payable converted to notes payable. Net cash used in operating activities for the nine months ended September 30, 2001 was $241,990 compared to net cash used of $595,916 for the nine months ended September 30, 2000. This decrease in cash used by operating activities is primarily due to increases in accounts payable and accrued expenses as well as the issuance of common stock for payment of legal and consulting fees. Cash used in investing activities for the nine months ended September 30, 2001 and 2000 was $243,364 and $82,759, respectively. This increase reflects deposits made pursuant to letters of intent signed with one tire recycling company. Deposits of $135,864 were written off during the three month period ended September 30, 2001 pursuant to terminated letters of intent. Cash provided by financing activities for the nine months ended September 30, 2001 was $514,279 as compared to cash provided by financing activities of $673,959 for the nine months ended September 30, 2000. During the recent period, we issued notes payable that generated proceeds of $435,000 to provide working capital and to support our expenditures. In the year ago period, we issued common stock with an aggregate value of $676,897. As of September 30, 2001, the Company had a net working capital deficit of approximately $1,350,000. The Company is not presently profitable and continues to fund itself from the proceeds of securities placements, notes payable, and convertible debt. We do not presently have sufficient cash to operate for more than the next 90 days. We will need capital to development our scrap tire recycling business. We will need this capital to provide for our anticipated working capital needs over the next twelve months. We are presently seeking $500,000 in equity to allow us to sustain ourselves. We cannot provide any assurance that we will be successful in raising such capital as such undertakings are difficult to complete. We are optimistic that we will be successful in obtaining future financing. PART II - OTHER INFORMATION Item 1. Legal Proceedings. ----------------- The Company has potential litigation with Kashayar Santi Mehdi Pashakan. The potential legal action results from Mr. Pashakan failure to comply with the Preferred Stockholder's Agreement entered into by the parties. Upside Development has advised Mr. Pashakan that the agreement has been voided, due to his failure to fulfill the obligations contained in the agreement, and that all shares issued pursuant to the agreement have been canceled. If the matter is not amicably resolved shortly, Upside Development intends to commence a legal action against Mr. Pashakan. 10 UPSIDE DEVELOPMENT, INC. Item 2. Change in Securities and Use of Proceeds. ----------------------------------------- During the nine month period ended September 30, 2001, the Company issued 5,676,850 shares of restricted common stock in satisfaction of notes payable of $170,543, including interest of $24,992. During the nine month period ended September 30, 2001, the Company issued 2,625,000 shares of restricted common stock in satisfaction of debt of $147,330. During the nine month period ended September 30, 2001, the Company issued 2,482,000 shares of restricted common stock valued at $134,100 for the payment of offering costs. During the nine month period ended September 30, 2001, the Company issued $435,000 of notes payable. In connection with the notes, the Company issued 2,035,500 shares of restricted common stock valued at $65,525 and detachable warrants to purchase 1,312,500 shares of restricted common stock valued at $42,295. These amounts have been recorded as a discount on the notes and are being amortized over the life of the note. During the nine month period ended September 30, 2001, the Company issued 11,703,750 shares of restricted common stock for services valued at $801,317. During the nine month period ended September 30, 2001, the Company deemed the subscription receivable in the amount of $123,500 uncollectable. The balance was written off against additional paid-in capital in the accompanying financial statements. During the nine month period ended September 30, 2001, the Company issued 4,000,000 shares of preferred stock for services valued at $400. During the nine month period ended September 30, 2001, David Bezalel resigned as the Company's Director and Chief Operating Officer. Mr. Bezalel returned to the Company options to purchase 2,500,000 shares of the Company's Common Stock at an exercise price of $.15 per share. In exchange, Mr. Bezalel was issued an option to purchase 1,000,000 shares of the Company's Common Stock which the Company expects to be exercised within one year at a price of -0-. The Company valued the options at $30,000. In addition, the 1,000,000 shares of preferred stock issued to Mr. Bezalel were cancelled during the nine month period ended September 30, 2001. During the nine month period ended September 30, 2001, the Company issued 2,087,000 shares of restricted common stock for cash of $102,625. During the nine month period ended September 30,2001, the Company entered into a Preferred Stockholder's Agreement dated August 1, 2001 and a Consulting Agreement dated June 1, 2001 with Khashayer Santi Mehdi Pashakan that were terminated on August 30, 2001. Accordingly, the Company has issued stop transfer instructions on the shares issued pursuant to these agreements. Item 3. Defaults Upon Senior Securities. -------------------------------- The Company is currently in default on approximately $432,000 of notes payable principal and $188,000 in interest in arrears on these notes. 11 UPSIDE DEVELOPMENT, INC. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant had duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. Upside Development, Inc. Dated 1/11/2002 /s/ Michael Porter ----------------------------- Michael Porter, President, Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----