-----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, MxLVKnjn4JkqIPyXiFzFodGZicJNSzPG+1CrkPC93lHIuAOE6fRP/W9SVSFA9Qcp wwinQYTRHLDKaO/bdx34ug== 0001005477-01-000737.txt : 20010209 0001005477-01-000737.hdr.sgml : 20010209 ACCESSION NUMBER: 0001005477-01-000737 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SITI-SITES COM INC CENTRAL INDEX KEY: 0000812551 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 751940923 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15596 FILM NUMBER: 1528206 BUSINESS ADDRESS: STREET 1: 594 BROADWAY STREET 2: SUITE 1001 CITY: NEW YORK STATE: NY ZIP: 10012 BUSINESS PHONE: 2129650013 MAIL ADDRESS: STREET 1: P O BOX 1006 CITY: NEW YORK STATE: NY ZIP: 10268-1800 FORMER COMPANY: FORMER CONFORMED NAME: SPECTRUM INFORMATION TECHNOLOGIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SPECTRUM CELLULAR CORP DATE OF NAME CHANGE: 19890925 FORMER COMPANY: FORMER CONFORMED NAME: SPECTRUM CELLULAR COMMUNICATIONS CORP DATE OF NAME CHANGE: 19870715 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2000 OR |_| 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 0-15596 SITI-SITES.COM, INC. (Exact name of registrant as specified in its charter) Delaware 75-1940923 (State of incorporation) (I.R.S. Employer Identification No.) 594 Broadway, Suite 1001, New York, New York 10012 (Address of principal executive offices) (Zip Code) (212) 925-1181 (Registrant's telephone number, including area code) 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 by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES |X| NO |_| As of January 16, 2001, the registrant had outstanding approximately 15,000,000 shares of its Common Stock, par value $.001 per share. The following documents are incorporated herein by reference: (1) Quarterly Reports to security holders on Form 10-Q for the quarters ended September 30, 2000, (the "Form 10-Q for 9/30/00") and June 30, 2000, (the "Form 10-Q for 6/30/00"), respectively; (2) Annual Report to security holders on Form 10-K for the year ended March 31, 1999, as amended by Amendment No. 1 on Form 10-K/A (collectively, the "Form 10-K for 1999"); (3) Annual Report to security holders on Form 10-K for the year ended March 31, 2000, (the "Form 10-K for 2000"); (4) Quarterly Report to security holders on Form 10-Q for the quarter ended December 31, 1999, (the "Form 10-Q for 12/31/99"); (5) Definitive Proxy Statement on Schedule 14A relating to the Company's Annual Meeting on December 14, 1999 (the "Proxy Statement as of 12/14/99"); Such documents are referred to in this Quarterly Report on Form 10-Q in several places. SITI-SITES.COM, INC. FORM 10-Q DECEMBER 31, 2000 INDEX PART I. FINANCIAL INFORMATION Page No. -------- Consolidated Balance Sheets ............................................ 1 Consolidated Statements of Loss and Comprehensive Loss ................. 2 Consolidated Statements of Cash Flows .................................. 3 Notes to Condensed Consolidated Financial Statements ................... 4 Management's Discussion and Analysis of Financial Condition and Results of Operations .............................................. 13 PART II. OTHER INFORMATION ............................................ 16 Item 1. Legal Proceedings .............................................. 16 Item 2. Changes in Securities .......................................... 17 Item 6. Exhibits and Reports on Form 8-K ............................... 17 PART I. FINANCIAL INFORMATION SITI-Sites.com, Inc. Consolidated Balance Sheets (Amounts in thousands)
December 31, 2000 March 31, (Unaudited) 2000 - ------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 352 $ 750 Marketable securities 914 490 Receivables and other assets 34 60 ----------- ----------- Total current assets 1,300 1,300 ----------- ----------- Property and Equipment, net of accumulated depreciation 122 109 ----------- ----------- Intangibles: Goodwill 289 236 Less: Accumulated amortization (132) (67) ----------- ----------- Intangibles, net 157 169 ----------- ----------- Total assets $ 1,579 $ 1,578 =========== =========== Liabilities and Stockholders' Equity: Current Liabilities: Accounts payable and accrued liabilities $ 93 $ 137 Deferred income 19 -- Accrued legal fees -- 70 ----------- ----------- Total current liabilities 112 207 ----------- ----------- Total liabilities 112 207 ----------- ----------- Commitments and contingencies Stockholders' Equity: Preferred stock $.001 par value, 5,000 shares authorized and none issued and outstanding -- -- Common stock, $.001 par value, 35,000 shares authorized and 15,057 and 9,812 issued and outstanding, respectively 15 10 Paid-in capital 77,395 75,938 Accumulated deficit (75,631) (74,270) ----------- ----------- 1,779 1,678 Treasury stock, 112 shares and 62 shares at cost, respectively (330) (311) Accumulated Other Comprehensive Income 18 4 ----------- ----------- Total stockholders' equity 1,467 1,371 ----------- ----------- Total liabilities and stockholders' equity $ 1,579 $ 1,578 =========== =========== See accompanying notes to consolidated financial statements.
1 SITI-Sites.com, Inc. Consolidated Statements of Loss and Comprehensive Loss (Amounts in thousands, except per share amounts)
Three months ended Nine months ended (Unaudited) December 31, December 31, 2000 1999 2000 1999 - --------------------------------------------- -------- -------- -------- -------- Revenues $ -- $ -- $ -- $ -- -------- -------- -------- -------- Operating costs and expenses: Cost of sales 1 -- 15 -- Selling, general and administrative 451 487 1,400 1,021 -------- -------- -------- -------- Total operating costs and expenses 452 487 1,415 1,021 -------- -------- -------- -------- Operating loss (452) (487) (1,415) (1,021) -------- -------- -------- -------- Other income, net 8 12 54 30 -------- -------- -------- -------- Loss from continuing operations (444) (475) (1,361) (991) Income from discontinued operations -- 6 -- 66 -------- -------- -------- -------- Net loss (444) (469) (1,361) (925) Other comprehensive gain, net of tax 12 -- 14 -- -------- -------- -------- -------- Comprehensive loss $ (432) $ (469) $ (1,347) $ (925) ======== ======== ======== ======== Basic and diluted loss per common share: Loss from continuing operations $ (.029) $ (.056) $ (.100) $ (.120) Income from discontinued operations .000 .001 .000 .008 -------- -------- -------- -------- Net loss per common share $ (.029) $ (.055) $ (.100) $ (.112) ======== ======== ======== ======== Weighted average number of Common Shares used in basic and diluted calculation 15,057 8,486 13,586 8,256 ======== ======== ======== ========
Interim results are not indicative of the results expected for a full year. See accompanying notes to consolidated financial statements. 2 Consolidated Statements of Cash Flows (Amounts in thousands)
Nine months ended December 31, 2000 1999 - --------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) Cash flow from operating activities: Net loss $(1,361) $ (925) Adjustments to reconcile net loss to net cash (used in) provided by continuing activities: Gain on litigation settlement (19) -- Gain on sale of marketable securities (14) -- Depreciation and amortization 90 53 Contribution of services by management 200 88 Compensation and consulting fees via stock 58 2 Contribution of rent by management -- 25 Net liabilities of discontinued operations -- (68) (Increase) decrease in: Prepaid expenses 17 (38) Receivables 9 (12) Increase (decrease) in: Deferred income 19 -- Accounts payable and accrued liabilities (114) 232 - --------------------------------------------------------------------------------------------- Net cash used in operating activities (1,115) (643) - --------------------------------------------------------------------------------------------- Cash flows from investing activities: Investment in Volatile Media -- (500) Recovery of investment in Minutemeals.com -- 23 Proceeds from sale of marketable securities 950 -- Purchase of marketable securities (1,345) -- Purchase of property and equipment (38) (67) - --------------------------------------------------------------------------------------------- Net cash used in investing activities (433) (544) - --------------------------------------------------------------------------------------------- Cash flow from financing activities: Proceeds from the issuance of common stock 1,150 1,750 Proceeds from the exercise of stock options and warrants -- 12 - --------------------------------------------------------------------------------------------- Net cash provided by financing activities 1,150 1,762 - --------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (398) 575 Cash and cash equivalents, beginning of period 750 1,007 - --------------------------------------------------------------------------------------------- Total cash and cash equivalents, end of period (including cash amounts in net liabilities of discontinued operations) $ 352 $ 1,582 =====================
See accompanying notes to consolidated financial statements. 3 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BUSINESS SITI-Sites.com, Inc., a Delaware corporation, (the "Company") operates as an Internet media company operating websites for the marketing of products and services. The Company's four current websites and an affiliated website relate entirely to the music industry. The Company intends to develop these websites further by entering into strategic partnerships and affiliations. As part of this strategy, in June, 1999 the Company acquired Tropia, which promotes and markets the music of selected independent artists on its website www.Tropia.com. The Company next acquired three music-related websites, www.HungryBands.com (an e-commerce website and business promoting and selling music by independent artists), www.NewMediaMusic.com (an e-news/magazine business), and www.NewYorkExpo.com (a music and Internet conference business), all in January, 2000. In addition, the Company made a $500,000 investment in a custom music CD compilation and promotion company, Volatile Media, Inc., which does business as EZCD.com. The investment was written off as of March 31, 2000. SITI-Sites.com, Inc. was incorporated in Delaware in 1984 under former management and control persons. As a result of a change of control of the Company in December, 1998, the Company's senior management and Board of Directors were replaced. The new senior management and Board of Directors changed the strategic direction of the Company from being a developer of patented communication technologies, to that of an Internet media company. All prior business operations of the Company were discontinued. The Company changed its corporate name to SITI-Sites.com, Inc. from Spectrum Information Technologies, Inc., after its Annual Meeting of Stockholders on December 14, 1999. The accompanying unaudited condensed consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of operations for the periods shown and include the accounts and results of the Company's wholly-owned subsidiaries. All significant intercompany accounts have been eliminated in consolidation. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended March 31, 2000. (b) MANAGEMENT'S PLAN The Company's management believes that sufficient cash resources exist both internally and from additional capital infusions from external sources that the anticipated cash needs for working capital and capital expenditures will be sufficiently met over the next fiscal year. The Company's business strategy in the music field is to build a database marketing operation, which renders an array of specialized services to musical artists and their fans, and music business on the Internet, at modest fees on a continuing basis. A major investor and member of senior management of the Company (Robert Ingenito) is highly experienced in database marketing techniques he developed and practiced successfully in several private and publicly owned businesses. This plan has been underway since January, 2000, and several products are launching during the next few months. The Company considers its thousands of musical artists and their fans, a beginning group of prospects for sale of SITI's services. These musical artists are mostly emerging rock/pop groups, i.e. independent and not affiliated with major record companies, in many genres and locales, each comprising several artists and some fan following. The Company's www.newmediamusic.com newsletter has become recognized in the industry as an important source of news and analytics daily. The Company's software team has been revising and expanding its websites to handle the various publications, and artist and fan services which will be offered to its potential database. Revenue sources are 4 expected to include charges for e-mail distribution of band communications to their fans, touring locations, clubs and play dates, new record releases, promotion of bands at their own websites, and hyperlinks to the various websites and stores where their music is sold. SITI has added a new streaming radio player to the existing embedded radio on its Tropia website, which plays its emerging artists' music along with other content, in multiple streams by genre preference. These Internet streaming radio channels are expected to become bases for sale of promotional services for emerging artists, and advertising across multiple listener preference communities. The implementation of the Company's business plan will occur, in part, through its www.NewMediaMusic.com newsletter, a free e-magazine in operation this past year, which contains current new media music news (i.e. digital music coverage, discussions and interviews on key industry problems) and is seen by thousands of industry professionals, artists and fans regularly. Large groups of artists are being offered free subscriptions to this newsletter, to encourage their future participation in promotional services, analysis of industry issues, and merchandising services to be made available to them, through the Company's band and fan registry. The software underlying the NewMediaMusic newsletter is being revised for the addition of targeted, personalized information in each viewer's interest area, and the newsletter services and archives are expected to become additional revenue sources to SITI through service charges and advertising revenues. This e-magazine will provide increasingly focused information, and linkages for the Company's database of artists, fans and affiliated websites in the music field. The initial source for these emerging artists are the Company's www.Tropia.com and www.HungryBands.com music websites which play and sell CDs and MP3 downloads. Additional groups of artists and fans are expected to be added to SITI's music websites, or solely to its artist communication database, from other established music websites or artist services websites. Further implementation of SITI's strategy is occurring through its ownership of www.NewYorkExpo.com and its related Internet music exposition held for the past two years in New York City. Scores of Internet music sites take booths at these expos, join in the panels of experts, interact with each other and with SITI's marketing development team, and provide current information to thousands of emerging artists and fans. Some 6,000 people attended the March, 2000 Expo, and the 2001 Expo is being held at Madison Square Garden in response to increased industry interest and participation now in discussion. These expos place the Company at the fulcrum of providers of music services, equipment and new technology, along with emerging digital music industry problems. The expo relationships are considered a year-round source of prospects for content, and strategic affiliation with the Company's core business of artist and fan services. No assurances can be given that the Company will successfully complete the above-described content or database negotiations, or its ongoing software development, or achieve the revenues sought from the described business plan. (c) DISCONTINUED OPERATIONS As a result of the December 11, 1998 Change of Control Transaction described in Note 1, the Company discontinued its prior operations. In accordance with Accounting Principles Board ("APB") Statement #30, "Reporting the Effects of the Disposal of a Segment of a Business," the prior years' financial statements have been restated to reflect such discontinuation. All assets and liabilities of the discontinued segment have been reflected as net liabilities of discontinued operations. There were no net liabilities as of March 31, 2000 and December 31, 2000. 5 Operating results from discontinued operations are as follows:
For the three months ended, December 31, 2000 1999 ---- ---- (Amounts in thousands) Revenues $ -- $ -- ------------------------- Operating costs and expenses: Selling, general and administrative expenses -- -- ------------------------- Total operating costs and expenses -- -- ------------------------- Operating Income (Loss) -- -- ------------------------- Other income and (expenses) -- 6 ------------------------- Income from discontinued operations $ -- $ 6 =========================
For the nine months ended, December 31, 2000 1999 ---- ---- (Amounts in thousands) Revenues $ -- $ -- ------------------------- Operating costs and expenses: ------------------------- Selling, general and administrative expenses -- 8 ------------------------- Total operating costs and expenses -- 8 ------------------------- Operating Income (Loss) -- (8) ------------------------- Other income and (expenses) 74 ------------------------- Income from discontinued operations $ -- $ 66 =========================
Sales of product from discontinued operations were recognized upon shipment to the customer. Deferred revenue on licensing agreements was recognized when earned based on each individual agreement. (d) USE OF ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. (e) PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts and results of operations of the Company's Tropia division (which was merged with and into the parent on June 20, 2000) and the Company's HungryBands.com, NewMediaMusic.com and NewYorkExpo.com divisions. All significant intercompany accounts and transactions have been eliminated in consolidation. (f) CASH AND CASH EQUIVALENTS Cash and cash equivalents include the Company's cash balances and short-term investments that mature in 90 days or less from the original date of purchase. Cash and cash equivalents are carried at cost plus accrued interest, which approximates market. The Company deposits its cash with financial institutions and, at times, such balances exceed Federal insurance limits. 6 (g) MARKETABLE SECURITIES The Company does not intend to hold its investments to maturity, and classifies these securities as available-for-sale and carries them at fair value. Unrealized holding gains and losses (determined by specific identification) on investments classified as available-for-sale, are carried as a separate component of stockholders' equity. (h) REVENUE RECOGNITION Revenues through ticket sales by the NewYorkExpo division are recognized when earned and any monies received therefrom is deferred until the date of the trade show. Revenues from CD sales are recognized upon shipment to the customer. (i) LOSS PER COMMON SHARE Loss per share for the nine months and quarters ended December 31, 2000 and December 31, 1999 were based on the weighted average number of common shares and common stock equivalents (convertible preferred shares, stock options and warrants), if applicable, assumed to be outstanding during the year. The weighted average number of shares used in the computation of loss per share for the nine months ended December 31, 2000 and 1999 are approximately 13,586,000 and 8,256,000, respectively. For the quarters ended December 31, 2000 and 1999 the weighted average number of shares used in the computation of loss per common share are approximately 15,057,000 and 8,486,000, respectively. Common stock equivalents were not included in the computation of weighted average shares outstanding for all periods presented because such inclusion would be anti-dilutive. (j) PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS Property and equipment are recorded at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets of 3 to 7 years. Goodwill is recorded based upon the excess of the purchase price over the fair market value of assets purchased and is amortized over a three year period. The carrying amount of goodwill is reviewed if facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying amount of the goodwill is reduced by the estimated short fall of cash flows. (k) COMPREHENSIVE INCOME Comprehensive income is comprised of net income and all changes to stockholders' equity, except those resulting from investments by owners (changes in paid in capital) and distributions to owners (dividends). For all periods presented, other comprehensive income is comprised of unrealized holding gains on marketable securities. (l) WEBSITE EXPENSES In March 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board issued consensuses on an emerging accounting issue entitled "Accounting for Web Site Development Costs" (Issue 00-2). These consensuses addressed costs incurred in the planning stage, the application and infrastructure development stage, graphics development stage, the content development stage, and the operating stage. The consensuses call for capitalization or expense treatment of various costs depending on certain criteria. The consensuses are applicable for costs incurred for fiscal quarters beginning after June 30, 2000 and allows a company to adopt the consensuses as a cumulative effect of a change in accounting principles. The web site development costs incurred during the quarter ended December 31, 2000 were associated with the operating stage and were expensed as provided for in Issue 00-2. Web site development costs incurred through June 30, 2000 were expensed and the Company has elected to not capitalize any previously eligible costs and treat 7 this adjustment as a cumulative change in accounting principles. 2. STATEMENT OF CASH FLOWS Nine months ended December 31, ----------------------- 2000 1999 ----------------------- (Amounts in thousands) Supplemental disclosures of cash flow information: Cash paid during the year for interest $ -- $ -- Cash paid during the year for income taxes $ 10 $ -- Non-cash transactions: Contribution of salaries by management $ 200 $ 88 Contribution of rent by management $ -- $ 25 HungryBands $ 53 $ -- Acquisition of Tropia, Inc. $ -- $ 159 Gain on settlement $ (19) $ -- Compensation and consulting fees via stock $ 58 $ 2 3. GOODWILL On June 23, 1999, the Company acquired Tropia, which operates an MP3 music site that promotes and distributes the music of independent artists through its website located at www.Tropia.com. Pursuant to the acquisition agreement, the Company initially provided $100,000 of capital to Tropia and agreed to provide approximately $800,000 of additional capital during the 12 months following the acquisition. Through February 2000, the Company contributed approximately $400,000 to Tropia operations. The acquisition was effected by merging Siti-II, Inc., a Delaware corporation and a wholly-owned subsidiary of SITI, with and into Tropia. The acquisition was accounted for as a purchase for financial statement purposes and, accordingly, Tropia's results are included in the consolidated financial statements since the date of acquisition. Tropia was acquired for an aggregate of 316,666 shares of the Company's common stock (valued at $306,786), with 158,333 shares delivered at closing, and 158,333 shares were in escrow to be delivered one year after the closing (if certain performance goals were achieved), to Jonathan Blank, Tropia's former CEO, Arjun Nayyar, Tropia's former Technical Director, and Ari Blank, Tropia's former Design Director. Such individuals have since waived any rights to the escrowed 158,333 shares, and have returned 50,000 of the shares delivered to them at the 1999 closing. (See Note 7) In accordance with Accounting Principles Board ("APB") No. 16, the aggregate purchase price of $306,786 was allocated to the assets and liabilities of Tropia, based upon their fair market values. The purchase price and goodwill was later reduced by approximately $153,000, representing the dollar value of the escrowed shares not delivered. (See the Form 10-K for 2000). On January 3, 2000, SITI acquired all of the assets and certain liabilities relating to three music-related websites (i) HungryBands.com (www.HungryBands.com), an e-commerce website and business promoting and selling music by independent artists, (ii) NewMediaMusic.com (www.NewMediaMusic.com), an e-news/magazine business devoted to new Internet music, news releases by artists and record labels, interviews and other information useful to fans and artists, and (iii) NewYorkExpo.com (www.NewYorkExpo.com), a music and Internet conference business. The acquired assets consisted primarily of intangible assets. HungryBands.com was acquired for 150,000 shares of SITI common stock, payable in three installments through June, 2000 to its founder and owner Ted Mazola, as certain operating goals are achieved. HungryBands.com represented that it had over 1,000 bands signed-up or linked into its website. As of September 8 30, 2000, all of said shares have been issued to Mr. Mazola. In accordance with Accounting Principles Board ("APB") No. 16, the aggregate purchase price of $79,688 was allocated to the assets and liabilities of HungryBands.com, based upon their fair market values as follows: Other assets $ 700 Software 240 ------- Net assets acquired 940 Goodwill 78,748 ------- Aggregate Purchase Price $79,688 ======= SITI acquired NewMediaMusic.com from Mr. Mazola and Steve Zuckerman, and NewYorkExpo.com from New York Music Expo, Inc., a New Jersey corporation which was wholly-owned by Mr. Zuckerman, for a total of 60,000 shares (approximately $31,875) of SITI common stock. In addition, Mr. Zuckerman was granted a 15% interest for three years in the operating profits of NewYorkExpo.com's music and Internet conference business, after completing the March, 2000 Expo (in which he retained a 75% interest). Messrs. Mazola and Zuckerman joined SITI as Vice-President/Technology and Vice-President/NewMedia Development, respectively. In accordance with Accounting Principles Board ("APB") No. 16, the aggregate purchase price of $31,875 was allocated to the assets and liabilities of NewMediaMusic.com and New York Expo.com, based upon their fair market values as follows: Cash $ 30,416 Receivables 15,175 Other assets 15,750 Deferred Income (71,300) Due to S. Zuckerman (10,041) -------- Net liabilities acquired (20,000) Goodwill 51,875 -------- Aggregate Purchase Price $ 31,875 ======== The proforma results of operations for the acquisitions, had the acquisitions occurred at the beginning of fiscal year 2000, are not significant, and accordingly, have not been provided. 4. LICENSING AGREEMENTS Throughout the current fiscal year, the Company has entered into certain royalty agreements with artists whereby, the Company is obligated to reimburse the artists $5.00 per sale of an artist's CD. Such sales have been nominal for the quarters and nine months ended December 31, 2000 and 1999, respectively. 5. SEGMENT INFORMATION The Company has divided its operations into 4 reportable segments:, NewMediaMusic News, NewMediaMusic Band Directory, NewYorkExpo and CD Sales - Tropia/HungryBands The reporting segments follow the same accounting policies used for the Company's consolidated financial statements as described in the summary of significant accounting policies. Management evaluates a segment's performance based upon profit or loss from operations before income taxes. Intersegment sales or transfers are recorded based on prevailing market prices. The Company determines its reporting segments based upon their varying product lines. 9 Following is a tabulation of business segment information for the current fiscal year. No prior year data is available, because SITI acquired these segments during the fourth quarter of the prior fiscal year.
New New CD Sales- Media Media Music Tropia/ Music Band New York Hungry Inter- ----- ---- -------- ------ ------ News Directory Expo Bands Corporate Segment Total ---- --------- ---- ----- --------- ------- ----- Nine months ended December 31, 2000 (Amounts in thousands) - -------------- Sales Operating loss (234) (140) (222) (318) (501) (1,415) Interest Income 19 19 Other Income 35 35 Net loss (234) (140) (222) (318) (447) (1,361) Assets 1,579 1,579 Depreciation and amortization 5 5 5 5 70 90
6. OTHER AGREEMENTS On April 9, 2000, SITI entered into a Business Development Agreement with Mediaviewer.com to develop an improved radio player whereby the costs to develop such player are funded by SITI. These costs were payable in installments based upon certain prescribed performance objectives. As of December 31, 2000, the Company recorded $25,000 in research and development expenses associated with this contract. The final installment, however, of $8,333 has not been paid, pending resolution of certain software problems in the project. On June 8, 2000, principal investors, directors and executives, Lawrence M. Powers, Robert Ingenito and John Iannitto, agreed with the Company to invest an additional $1,000,000 for common stock and options, on the following basis: (a) Mr. Powers would invest $500,000 for 2,000,000 shares of common stock, together with options, to purchase an additional 1,000,000 shares for $.50 per share, exercisable for five years. (b) Messrs. Ingenito and Iannitto would each invest $250,000 for 1,000,000 shares of common stock, respectively, together with options, respectively, to purchase an additional 500,000 for shares for $.50 per share, exercisable for five years. Messrs. Powers, Ingenito and Iannitto immediately divided their respective investments further among family members and business associates, consisting of Barclay V. Powers, John DiNozzi and Mr. Iannitto's son (a minor) in varying amounts by gift or by assignment. On June 13, 2000, the Company entered into a stock purchase agreement with Colvil Investments, LLC, ("Colvil") whereby Colvil agreed to invest $100,000 for 400,000 shares of the Company's common stock, together with options, to purchase an additional 200,000 shares for $.50 per share, exercisable for five years. On June 16, 2000, the Company entered into a stock purchase agreement with Steven Gross whereby Mr. Gross agreed to invest $50,000 for 200,000 shares of the Company's common stock, together with options, to purchase an additional 100,000 shares for $.50 per share, exercisable for five years. In accordance with all of the above agreements, all monies have been received by the Company and have 10 been included in its working capital. On June 12, 2000, the Company entered into employment arrangements with Messrs. Ingenito and Iannitto. In connection with their ongoing services, Messrs. Ingenito and Iannitto, have agreed that the Company will not pay them cash compensation for the fiscal years ended March 31, 2001 and 2002, but will grant stock and options as follows: Fiscal 2001 Fiscal 2002 ----------- ----------- Robert Ingenito 300,000 shares Options to purchase 300,000 shares at $.50 per share, exercisable for five years (until 6/30/2006) John Iannitto 200,000 shares Options to purchase 200,000 shares at $.50 per share, exercisable for five years (until 6/30/2006) Mr. Powers does not expect to receive any cash compensation, stock or options for his services for such two fiscal years. 7. LITIGATION As of the date of this report the Company knows of no pending or threatened legal actions against the Company that would have a material impact on the operations or financial condition of the Company. On May 1, 2000, the former officers of Tropia (Jonathan Blank, Ari Blank and Arjun Nayyer) entered into a settlement agreement with the Company in connection with various claims and their activities since their resignations during the third quarter of the current fiscal year. As a result of the agreement, all claims have been settled and they have returned an additional 50,000 shares to the Company resulting in an increase in treasury stock and a corresponding gain on litigation settlement of approximately $18,750. In addition, the former officers have waived any and all of their rights to the 158,333 escrowed shares related to the original acquisition of Tropia. Continuing defaults by EZCD.com as to its investment representations, and its content and technology sharing agreement with the Company could result in litigation or other legal complications, and attendant costs and efforts by the Company's management to resolve such matters. EZCD.com filed for bankruptcy liquidation in August, 2000 and the Company is making claims in such proceeding. From time to time in previous years, the Company had been a party to other legal actions and proceedings incidental to its business. As of the date of this report the Company knows of no pending or threatened legal actions that could have a material impact on the operations or financial condition of the Company. 8. FIXED ASSETS Property and equipment consisted of the following: December 31, 2000 March 31, 2000 ----------------- -------------- (Amounts in thousands) Computer Equipment and Furniture $ 150 $ 115 Computer Software 7 4 Accumulated Depreciation (35) (10) ----------- ----------- Property and equipment, net $ 122 $ 109 =========== =========== 11 9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities were comprised of the following: December 31, March 31, 2000 2000 -------------------------- (Amounts in thousands) Accrued audit and tax fees $ 26 $ 54 Deferred rent 7 7 Accrued expenses and Accounts payable 60 76 -------- -------- $ 93 $ 137 ======== ======== 10. SUBSEQUENT EVENT In January 2001, SITI issued an aggregate of 210,000 additional shares of its common stock to certain of its employees in consideration of their services to SITI. Pursuant to certain employment arrangements, SITI also issued 250,000 shares of its common stock to those executives with such arrangements. These transactions, totaling 460,000 shares of common stock, raise SITI's issued and outstanding shares to 15,517,178 shares as of January 31, 2001. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, INCLUDING, BUT NOT LIMITED TO STATEMENTS RELATED TO BUSINESS OBJECTIVES AND STRATEGY OF THE COMPANY. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS ABOUT THE COMPANY'S INDUSTRY, MANAGEMENT'S BELIEFS AND CERTAIN ASSUMPTIONS MADE BY THE COMPANY'S MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES," VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED, FORECASTED, OR CONTEMPLATED BY ANY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY INCLUDE, AMONG OTHERS, THOSE RISK FACTORS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 2000. GIVEN THESE UNCERTAINTIES, INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS. UNLESS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. HOWEVER, READERS SHOULD CAREFULLY REVIEW THE RISK FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION, PARTICULARLY THE ANNUAL REPORTS ON FORM 10-K, OTHER QUARTERLY REPORTS ON FORM 10-Q AND ANY CURRENT REPORTS ON FORM 8-K. OVERVIEW SITI-Sites.com, Inc., a Delaware corporation, and its subsidiary, Tropia, Inc. ("Tropia"), a Delaware corporation (hereafter referred to collectively as "SITI" or the "Company") is an Internet media company seeking to establish websites for the marketing of products and services. The Company's four current websites and an affiliated website relate entirely to the music industry, and primarily to independent artists not affiliated with major record companies. The Company intends to develop these websites further by entering into strategic partnerships and affiliations. As part of this strategy, in June, 1999 the Company acquired Tropia, which promotes and markets the music of selected independent artists on its website www.Tropia.com. The Company next acquired three music-related businesses, www.HungryBands.com (an e-commerce website and business promoting and selling music by independent artists), www.NewMediaMusic.com (an e-news/magazine business), and www.NewYorkExpo.com (a music and Internet conference business), all in January, 2000. The terms of these January, 2000 acquisitions are further described in the Form 10-K for 2000. The Company is still in the early stages of developing its music sites and business, and its revenues are negligible. (See Notes 1 (a) and (b) to the Consolidated Financial Statements). 13 RESULTS OF OPERATIONS The following table sets forth certain financial data for the periods indicated. Three months ended December 31, --------------------------------- 2000 % 1999 % --------------------------------- Continuing Operations: (Amounts in thousands) Revenues 0 -- 0 -- Operating costs and expenses: Cost of sales 1 -- -- -- Selling, general and administrative 451 -- 487 -- ------- ------- Total operating costs and expenses 452 -- 487 -- ------- ------- Operating loss $ (452) -- $ (487) -- ======= ======= Nine months ended December 31, --------------------------------- 2000 % 1999 % --------------------------------- Continuing Operations: (Amounts in thousands) Revenues 0 -- 0 -- Operating costs and expenses: Cost of sales 15 -- 0 -- Selling, general and administrative 1,400 -- 1,021 -- ------- ------- Total operating costs and expenses 1,415 -- 1,021 -- ------- ------- Operating loss $(1,415) -- $(1,021) -- ======= ======= CONSOLIDATED REVENUES For the three and nine months ended December 31, 2000, the Company's revenues were nominal. During the prior fiscal year, the Company began to implement its new Internet business strategy, and there were no revenues from continuing operations. OPERATING COSTS AND EXPENSES Operating costs and expenses decreased $35,000 for the three months ended December 31, 2000 as compared to the three months ended December 31, 1999 primarily due to decreased selling, general and administrative expenses of approximately $36,000. During the prior fiscal quarter, the Company held its Annual Meeting of Stockholders which resulted in costs of approximately $200,000 and no such meeting was held during the current fiscal quarter. Legal fees for the three months ended December 31, 2000 decreased approximately $50,000 or 100% as compared to the three months ended December 31, 1999 as a result of a decline in corporate organizational matters. These decreases were offset by an increase in personnel and related expenses of approximately $178,000 or 223% as compared to the quarter ended December 31, 1999 as a result of the hiring of officers and staff to assist in the development of SITI. 14 Operating costs and expenses increased approximately $394,000 or 39% for the nine months ended December 31, 2000 as compared to the nine months ended December 31, 1999 due to an increase in selling, general and administrative expenses of approximately $379,000 or 37% and increased cost of sales of approximately $15,000 or 100%. The increase in selling, general and administrative expenses of $379,000 or 37% for the nine months ended December 31, 2000 as compared to the nine months ended December 31, 1999 is primarily due to an increase in personnel and related expenses as well as outside services. Personnel and related increased approximately $475,000 or 220% for the nine months ended December 31, 2000 as compared to the same period in the prior fiscal year as a result of the hiring of officers and staff to assist in the development of SITI. Also, the Company recorded a charge of approximately $200,000 representing management's contribution of services. To further assist in the Company's development, independent contractors were retained for the nine months ended December 31, 2000 resulting in increased expenses of approximately $88,000 or 101% as compared to the prior fiscal year. There was no such staff during the earlier fiscal periods. For the nine months ended December 31, 2000, co-location fees increased approximately $21,000 or 191% as compared to the same period in the prior fiscal year as a result of the Company's increased activity associated with its websites. Also, the Company wrote off certain licensing agreements during the quarter ended June 30, 2000 that were entered into in the prior fiscal year. These agreements were determined to no longer be of value, and the Company recorded a charge of approximately $28,000. As a result of the Company's acquisitions during the prior fiscal year as well as the outfitting of offices, the Company recorded increased depreciation and amortization of approximately $35,000 or 65% for the nine months ended December 31, 2000 as compared to the nine months ended December 31, 1999. These increases were partially offset by a decrease of approximately $155,000 or 72% in legal fees for the nine months ended December 31, 2000 as compared to the nine months ended December 31, 1999. This decrease is a direct result of a decline in corporate organizational matters. Accounting expenses decreased approximately $43,000 or 42% for the nine months ended December 31, 2000 as compared to the nine months ended December 31, 1999. This decrease is directly related to the retaining of a new independent accounting firm. The remaining decrease in selling, general and administrative expenses of approximately $70,000 for the nine months ended December 31, 2000 as compared to the nine months ended December 31, 1999 is attributable to the Company's shareholder meeting in December 1999. No such meeting was held during the current fiscal year. During the quarter and nine months ended December 31, 1999, operating costs and expenses were primarily composed of compensation to employees and legal and accounting fees incurred while the Company went through its transition resulting from the December 11, 1998 Change of Control Transaction. See "Operating Loss" below. In accordance with Accounting Principles Board, ("APB") Statement #30, "Reporting the Effects of the Disposal of a Segment of a Business," the prior years' financial statements have been restated to reflect such discontinuation. All assets and liabilities of the discontinued segment have been reflected as net liabilities of discontinued operations. OPERATING LOSS The Company experienced an operating loss of approximately $452,000 and $1,415,000, respectively, for the three and nine months ended December 31, 2000 as compared to an operating loss of approximately $487,000 and $1,021,000, respectively, for the three and nine months ended December 31, 1999. This increased loss is directly related to increased operating costs and expenses for the current fiscal quarter and nine months ended December 31, 2000 as compared to the same periods in the prior fiscal year. OTHER INCOME AND EXPENSE Other income for the three months ended December 31, 2000 totaled approximately $8,000 as compared to $12,000 in the prior fiscal year. This decrease is primarily due to a decline in interest income. For the nine months ended December 31, 2000, other income totaled approximately $54,000 as compared to $30,000 for the nine months ended December 31, 1999. This increase of $24,000 is primarily due to the settlement agreement between the Company and the former officers of Tropia as well as the gain recognized upon the sale of marketable securities. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2000 the Company has working capital of $1,188,000 attributable to the infusion of cash from the June 2000 stock purchase agreements. Net cash used by operating activities for the nine months ended December 31, 2000 totaled approximately 15 $1,115,000 as compared to $643,000 during the nine months ended December 31, 1999. This increase in cash usage is primarily due to the payments of operating costs and expenses during the quarter ended December 31, 2000 as compared to the same period in the prior fiscal year. During the nine months ended December 31, 2000, the Company recorded approximately $433,000 in net cash used by investing activities primarily due to the purchase, net of sale proceeds, of marketable securities of approximately $395,000 in 2000. During the nine months ended December 31, 1999, the Company had no activity with respect to its marketable securities. However, in May 1999 the Company was reimbursed $23,000 in funding as a result of the termination of its agreement with Minutemeals.com, Inc. and invested $500,000 in Volatile Media, Inc. which the Company wrote as of March 31, 2000. In addition, capital expenditures totaled approximately $38,000 and $67,000, respectively, for the nine months ended December 31, 2000 and 1999 as a result of its outfitting of the New York office and its funding of its business plan. As a result of the June 2000 stock purchase agreements, the Company received $1,150,000 from the issuance of common stock, resulting in total net cash provided by financing activities of $1,150,000 for the nine months ended December 31, 2000. During the nine months ended December 31, 1999, the Company received $1,750,000 from the issuance of common stock pursuant to stock purchase agreements. (See the Form 10-Q for 12/31/99). RISK FACTORS See the Company's Annual Report on Form 10-K (filed with the SEC on June 28, 2000), "Item 1 - Risk Factors That May Affect the Company's Business, Future Operating Results and Financial Condition." PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As of the date of this report the Company knows of no pending or threatened legal actions against the Company that would have a material impact on the operations or financial condition of the Company. On May 1, 2000, the former officers of Tropia (Jonathan Blank, Ari Blank and Arjun Nayyer) entered into a settlement agreement with the Company in connection with various claims and their activities since their resignations during the third quarter of the current fiscal year. As a result of the agreement, all claims have been settled and they have returned an additional 50,000 shares to the Company resulting in an increase in treasury stock and a corresponding gain on litigation settlement of approximately $18,750. In addition, the former officers have waived any and all of their rights to the 158,333 escrowed shares related to the original acquisition of Tropia. Continuing defaults by EZCD.com as to its investment representations, and its content and technology sharing agreement with the Company could result in litigation or other legal complications, and attendant costs and efforts by the Company's management to resolve such matters. EZCD.com filed for bankruptcy liquidation in August, 2000 and the Company is making claims in such proceeding. From time to time in previous years, the Company had been a party to other legal actions and proceedings incidental to its business. As of the date of this report the Company knows of no pending or threatened legal actions that could have a material impact on the operations or financial condition of the Company. 16 ITEM 2. CHANGES IN SECURITIES For a discussion on transactions resulting in changes in securities through June 30, 2000, see the Form 10-Q for 6/30/00. For a discussion on transactions resulting in changes in securities from July 2000 through September 30, 2000, see the Form 10-Q for 9/30/00. In January 2001, SITI issued an aggregate of 210,000 additional shares of its common stock to certain of its employees in consideration of their services to SITI. Pursuant to certain employment arrangements, SITI also issued 250,000 shares of its common stock to those executives with such arrangements. These transactions, totaling 460,000 shares of common stock, raise SITI's issued and outstanding shares to 15,517,178 shares as of January 31, 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits Number Title 27 Financial Data Schedule B. Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended December 31, 2000. 17 SIGNATURES 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, thereto duly authorized. Dated: February 6, 2001 SITI-SITES.COM, INC. By /s/ Lawrence M. Powers ----------------------------------------------------- Lawrence M. Powers Chief Executive Officer and Chairman of the Board of Directors By /s/ Robert Ingenito ----------------------------------------------------- Robert Ingenito President and Vice-Chairman of the Board of Directors By /s/ Toni Ann Tantillo ----------------------------------------------------- Toni Ann Tantillo Chief Financial Officer, Vice President, Secretary and Treasurer 18 Exhibit 27 19 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SITI-SITES.COM, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAR-31-2001 DEC-31-2000 352 914 15 0 0 1,300 157 35 1,579 112 0 0 0 15 1,452 1,579 0 0 0 1,415 0 0 0 (1,361) 0 (1,361) 0 0 0 (1,361) (.100) (.100)
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