-----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, G393Ir8gmLsKLBbzIsl+QWGB+Se1FqUfXAwtBji8Fw9l4nC+NG07tpDdXK2Iguvr BioEMbD96HhUCNWDUY7eHQ== 0001005477-01-501976.txt : 20020410 0001005477-01-501976.hdr.sgml : 20020410 ACCESSION NUMBER: 0001005477-01-501976 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 1934 Act SEC FILE NUMBER: 000-15596 FILM NUMBER: 1789055 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 CELLULAR COMMUNICATIONS CORP DATE OF NAME CHANGE: 19870715 FORMER COMPANY: FORMER CONFORMED NAME: SPECTRUM CELLULAR CORP DATE OF NAME CHANGE: 19890925 FORMER COMPANY: FORMER CONFORMED NAME: SPECTRUM INFORMATION TECHNOLOGIES INC DATE OF NAME CHANGE: 19920703 10-Q 1 d01-35219.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 September 30, 2001 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 October 31, 2001, the registrant had outstanding approximately 15,500,000 shares of its Common Stock, par value $.001 per share. The following documents are incorporated herein by reference: (1) 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"); (2) Annual Report to security holders on Form 10-K for the year ended March 31, 2000, (the "Form 10-K for 2000"); (3) Annual Report to security holders on Form 10-K for the year ended March 31, 2001, (the "Form 10-K for 2001"); (4) 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 SEPTEMBER 30, 2001 INDEX PART I. FINANCIAL INFORMATION Page No. -------- Balance Sheets......................................................... 1 Statements of Operations and Comprehensive Loss........................ 2 Statements of Cash Flows............................................... 3 Notes to Condensed Financial Statements................................ 4 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................. 11 PART II. OTHER INFORMATION............................................. 14 Item 1. Legal Proceedings ............................................. 14 Item 2. Changes in Securities ......................................... 15 Item 6. Exhibits and Reports on Form 8-K............................... 15 PART I. FINANCIAL INFORMATION SITI-Sites.com, Inc. Balance Sheets (Amounts in thousands)
September 30, 2001 March 31, (Unaudited) 2001 - ------------------------------------------------------------------------------------------------ Assets Current assets: Cash and cash equivalents $ 211 $ 326 Marketable securities -- 624 Receivables and other assets 22 25 ------------- ------------- Total current assets 233 975 ------------- ------------- Property and Equipment: Equipment, net of accumulated depreciation 102 121 Artist Promotion System 157 -- ------------- ------------- Property and Equipment, net 259 121 ------------- ------------- Intangibles: Goodwill -- 289 Less: Accumulated amortization -- (289) ------------- ------------- Intangibles, net -- -- ------------- ------------- Total assets $ 492 $ 1,096 ============= ============= Liabilities and Stockholders' Equity: Current Liabilities Accounts payable and accrued liabilities $ 59 $ 114 Net liabilities of discontinued operation -- 79 ------------- ------------- Total current liabilities 59 193 ------------- ------------- Total liabilities 59 193 ------------- ------------- Commitments and contingencies Stockholders' Equity: Preferred stock $.001 par value, 5,000 shares authorized, respectively, and none issued and outstanding -- -- Common stock, $.001 par value, 35,000 shares authorized, respectively, and 15,517 issued and outstanding, respectively 16 16 Paid-in capital 77,636 77,486 Accumulated deficit (76,889) (76,272) ------------- ------------- 763 1,230 Treasury stock, 112 shares at cost (330) (330) Accumulated Other Comprehensive Income -- 3 ------------- ------------- Total stockholders' equity 433 903 ------------- ------------- Total liabilities and stockholders' equity $ 492 $ 1,096 ============= =============
See accompanying notes to condensed financial statements 1 Statements of Operations and Comprehensive Loss
(Amounts in thousands, except per share amounts) Three months ended Six months ended (Unaudited) September 30, September 30, 2001 2000 2001 2000 - ------------------------------------------------ -------- -------- -------- -------- Revenues $ 1 $ -- $ 1 $ -- -------- -------- -------- -------- Operating costs and expenses: Selling, general and administrative 207 379 592 810 -------- -------- -------- -------- Total operating costs and expenses 207 379 592 810 -------- -------- -------- -------- Operating loss (206) (379) (591) (810) -------- -------- -------- -------- Other income, net 9 24 18 46 -------- -------- -------- -------- Loss from continuing operations (197) (355) (573) (764) Loss from discontinued operations -- (82) (44) (153) -------- -------- -------- -------- Net loss (197) (437) (617) (917) Other comprehensive gain (loss), net of tax -- (6) (3) 2 -------- -------- -------- -------- Comprehensive loss $ (197) $ (443) $ (620) $ (915) ======== ======== ======== ======== Basic and diluted loss per common share: Loss from continuing operations $ (.013) $ (.024) $ (.037) $ (.059) Loss from discontinued operations .000 (.006) (.003) (.012) -------- -------- -------- -------- Net loss per common share $ (.013) $ (.030) $ (.040) $ (.071) ======== ======== ======== ======== Weighted average number of Common Shares used in basic and diluted calculation 15,517 14,881 15,517 12,846 ======== ======== ======== ========
Interim results are not indicative of the results expected for a full year. See accompanying notes to condensed financial statements. 2 Statements of Cash Flows
(Amounts in thousands) Six months ended September 30, 2001 2000 (Unaudited) (Unaudited) - ---------------------------------------------------------------------------------------------------- Cash flow from operating activities: Net loss $ (617) $ (917) Adjustments to reconcile net loss to net cash (used in) provided by continuing activities: Gain on settlement -- (19) Gain on sale of marketable securities (5) -- Depreciation and amortization 21 58 Contribution of services by management 150 100 Compensation and consulting fees via stock -- 42 Loss on discontinued operations 44 153 (Increase) decrease in: Prepaid expenses -- 12 Receivables 3 4 Increase (decrease) in: Accounts payable (5) (77) Accrued liabilities (50) 9 ---------------------------- Net cash used in continuing operations (459) (635) Net cash used in discontinued operations (123) (114) - ---------------------------------------------------------------------------------------------------- Net cash used in operating activities (582) (749) - ---------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capitalization of Artist Promotion System (157) -- Proceeds from sale of marketable securities 626 833 Purchase of marketable securities -- (846) Purchase of property and equipment (2) (16) - ---------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 467 (29) - ---------------------------------------------------------------------------------------------------- Cash flow from financing activities: Proceeds from the issuance of common stock -- 1,150 - ---------------------------------------------------------------------------------------------------- Net cash provided by financing activities -- 1,150 - ---------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (115) 372 Cash and cash equivalents, beginning of year 326 714 - ---------------------------------------------------------------------------------------------------- Total cash and cash equivalents, end of quarter (including cash amounts in net liabilities of discontinued operations) $ 211 $ 1,086 ============================
See accompanying notes to condensed financial statements. 3 NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BUSINESS - MANAGEMENT'S PLAN FOR LIQUIDATION Siti-Sites.com, Inc., a Delaware corporation, and its various divisions (referred to collectively as "SITI" or the "Company") have been operating as an Internet media company with three websites for the marketing of news and services. The Company's websites relate entirely to the music industry. SITI has lost money continuously since its inception in 1999. Following conclusion of the second fiscal quarter ended September 30, 2001, management who are its primary investors, intended to continue operations by investing approximately $600,000 in further equity capital in the Company. But on November 13, 2001 they determined that such limited funding would not accomplish a meaningful result for the investors or the Company, and terminated discussions of such financing plan. The Company will now be liquidated in an orderly manner, promptly reducing operating expenses, which have been running at approximately $100,000 per month in the current fiscal year, and taking other steps to wind-down and liquidate its assets. The Company has not incurred any funded debt, and has minimal payables, thereby expecting to conclude operations and satisfy its obligations in a brief period of time. Management's decision was based primarily upon its inability to complete the necessary software and marketing plans for the Company's projects, within a six month period, which was all that could be funded by the interim capital under discussion. However, current depressed economic conditions for Internet and many other businesses, and lack of future funding sources, played a part in the decision to liquidate operations promptly. The foregoing controls the following discussion of events during the second fiscal quarter ended September 30, 2001. (b) RECENT HISTORY The Company had intended to develop these websites further by entering into strategic partnerships and affiliations. As part of this strategy, in June, 1999 the Company acquired Tropia, Inc. which promotes and markets the music of selected independent artists on its website www.Tropia.com. On June 20, 2000, Tropia, Inc. was merged into SITI-Sites.com, Inc. 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. As a result of the loss associated with 2001 Expo and the inability to produce significant revenue, the Company wrote off approximately $113,000 of goodwill and discontinued its New York Expo division effective March 31, 2001. (See Notes 1(b) and 3.) In fiscal 2000, the Company had made a $500,000 investment in a custom music CD compilation and promotion company, Volatile Media, Inc., which did business as EZCD.com, now in bankruptcy liquidation. The investment was written off at March 31, 2000. The authorized shares have been increased to 35,000,000 common shares and 5,000,000 preferred shares as described in the Proxy Statement as of 12/14/99. 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. The accompanying unaudited condensed 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. 4 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, 2001. (c) DISCONTINUED OPERATIONS As a result of the losses associated with the April 21-22, 2001 Music and Internet Expo, the Company discontinued these operations resulting in a loss of approximately $44,000 and $153,000, respectively, for the six months ended September 30, 2001 and 2000. In accordance with Accounting Principles Board, ("APB") Statement #30, "Reporting the Effects of the Disposal of a Segment of a Business," the prior period's financial statements have been restated to reflect such discontinuation. All assets and liabilities of the discontinued segment have been reflected as net assets or liabilities of discontinued operations. There were no net assets or liabilities of the discontinued operations for the six months ended September 30, 2001. The following table reflects the net assets for the six months ended September 30, 2000: For the six months ended, September 30, 2000 ------------------------ (Amounts in thousands) Cash 7 Receivable 4 Prepaid expenses and other 5 Deferred Income (7) ------------------------ Total 9 ======================== Operating results from discontinued operations are as follows: For the six months ended, September 30, 2001 2000 ----------------------- (Amounts in thousands) Revenues $ -- $ -- ----------------------- Operating costs and expenses: Cost of Sales 44 14 Selling, general and administrative expenses -- 139 ----------------------- Total operating costs and expenses 44 153 ----------------------- Operating Loss (44) (153) Other income and (expenses) - -- ----------------------- Income (loss) from discontinued operations $ (44) $ (153) ======================= (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) 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 maturity. Cash and cash equivalents are carried at cost plus accrued interest, which approximates market. (f) 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 5 investments classified as available-for-sale, are carried as a separate component of stockholders' equity. (g) REVENUE RECOGNITION Revenues from CD sales are recognized upon shipment to the customer. (h) LOSS PER COMMON SHARE Loss per share for the three and six months ended September 30, 2001 and 2000 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 quarters ended September 30, 2001 and 2000 are 15,517,000 and 14,881,000, respectively. For the six months ended September 30, 2001 and 2000, the weighted average number of shares used in the computation of loss per share were 15,517,000 and 12,846,000, 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. (i) PROPERTY AND EQUIPMENT Property and Equipment is recorded at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets of 3 to 7 years. The Artist Promotion System (see Note 1 (l)) is not yet in service and, accordingly, depreciation has not yet commenced. (j) INTANGIBLES 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 goodwill is decreased by the estimated shortfall of cash flows. In the last quarter of fiscal 2001, the Company determined its goodwill was impaired based on continuing negative cash flows over the remaining amortization period and wrote off approximately $134,000. (k) COMPREHENSIVE LOSS Comprehensive loss is comprised of net loss 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, comprehensive loss is comprised of unrealized holding gains or losses 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 six months ended September 30, 2001 that were associated with the testing stage were capitalized in the amount of approximately $157,000 as provided for in Issue 00-2. The expenses associated with operating the website were expensed. Web site development costs incurred through September 30, 2000 were expensed and the Company has elected to not capitalize any previously eligible costs. 6 (m) TERRORIST ATTACK OF SEPTEMBER 11, 2001 Due to the Company's proximity to the terrorist attack on September 11, 2001 on the World Trade Center in New York City, the office was closed for one week. All costs related to this attack have been paid or accrued and have been included in operating costs and expenses for the six months ended September 30, 2001. The Company might be filing an insurance claim and the amount of the expense recovery has not yet been determined. 2. STATEMENT OF CASH FLOWS Six months ended September 30, ----------------------- 2001 2000 ----------------------- (Amounts in thousands) Supplemental disclosures of cash flow information: Cash paid during the year for interest $ -- $ -- Cash paid during the year for income taxes $ 1 $ 1 Non-cash transactions: Contribution of salaries by management $ 150 $ 126 HungryBands $ -- $ 53 Gain on settlement $ -- (19) Compensation and consulting fees via stock $ -- $ 58 3. GOODWILL As a result of management's review of the carrying amount of goodwill, on March 31, 2001, the Company wrote off $134,000 of goodwill as a result of the losses associated with the 2001 Expo, the discontinuation of the New York Expo business segment, and the estimated future undiscounted cash flows associated with the remaining entities. Of the $134,000, approximately $21,000 relates to the NewYork Expo and the remaining $113,000 relates to the other divisions acquired as described above. 4. LICENSING AGREEMENTS Throughout the current and prior fiscal years, 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 six months ended September 30, 2001 and 2000, respectively. 5. SEGMENT INFORMATION The Company has divided its operations into 3 reportable segments: Tropia/HungryBands, NewMediaMusic and Corporate. 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. 7 Following is a tabulation of business segment information for the six months ended September 30, 2001 and 2000.
Tropia/ New Hungry Media Inter- ------ ----- ------ Bands Music Corporate Segment Total ----- ----- --------- ------- ----- Six months ended September 30, 2000 (Amounts in thousands) - ---------------- Sales 1 1 Operating loss (185) (201) (205) (591) Interest Income 5 5 Other Income 13 13 Loss from discontinued operations (44) (44) Net loss (185) (201) (231) (617) Assets 157 335 492 Depreciation and amortization 7 7 7 21 Tropia/ New Hungry Media Inter- ------ ----- ------ Bands Music Corporate Segment Total ----- ----- --------- ------- ----- Six months ended September 30, 2000 (Amounts in thousands) - ---------------- Sales Operating loss (275) (235) (300) (810) Interest Income 11 11 Other Income 35 35 Loss from discontinued operations (153) (153) Net loss (275) (235) (407) (917) Assets 1,933 1,933 Depreciation and amortization 3 6 44 53
6. 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 fiscal 2000. 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 8 corresponding gain on litigation settlement of approximately $19,000. 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. 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, however, the Company knows of no other pending or threatened legal actions that could have a material impact on the operations or financial condition of the Company. 7. PROPERTY AND EQUIPMENT Property and Equipment consisted of the following:
September 30, 2001 March 31, 2001 ----------------------------------------------------- (Amounts in thousands) Artist Promotion System $ 157 $ -- Computer Equipment and Furniture 161 159 Computer Software 7 7 Accumulated Depreciation (66) (45) ------- ------- Equipment, net $ 259 $ 121 ======= =======
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities were comprised of the following: September 30, March 31, 2001 2001 --------------------------------- (Amounts in thousands) Accrued audit and tax fees $ 18 $ 60 Deferred rent 4 8 Accrued expenses and Accounts payable 37 46 ------ ------ $ 59 $ 114 ====== ====== 9. SUBSEQUENT EVENT - PLAN FOR LIQUIDATION SITI has lost money continuously since its inception in 1999. Following conclusion of the second fiscal quarter ended September 30, 2000, management who are its primary investors, intended to continue operations by investing approximately $600,000 in further equity capital in the Company. But on November 13, 2001 they determined that such limited funding would not accomplish a meaningful result for the investors or the Company, and terminated discussions of such financing plan. The Company will now be liquidated in an orderly manner, promptly reducing operating expenses, which have been running at approximately $100,000 per month in the current fiscal year, and taking other steps to wind-down and liquidate its assets. The Company has not incurred any funded debt, and has minimal payables, thereby expecting to conclude operations and satisfy its obligations in a brief period of time. Management's decision was based primarily upon its inability to complete the necessary software and marketing plans for the Company's projects, within a six month period, which was all that could be funded by the interim capital under discussion. However, current depressed economic conditions for Internet and many other businesses, and lack of future funding sources, played a part in the decision to liquidate operations promptly. 9 The foregoing controls the following discussion of events during the second fiscal quarter ended September 30, 2001. 10 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, 2001. 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 various divisions, (referred to collectively as "SITI" or the "Company") operate as an Internet media company with three websites for the marketing of news and services. The Company's current websites relate entirely to the music industry. The Company had intended to develop these websites further by entering into strategic partnerships and affiliations. As part of this strategy, in June, 1999 the Company acquired Tropia, Inc. which promotes and markets the music of selected independent artists on its website www.Tropia.com. On June 20, 2000, Tropia, Inc. was merged into SITI-Sites.com, Inc. 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. As a result of the loss associated with 2001 Expo and the inability to produce significant revenue, the Company wrote off approximately $113,000 of goodwill and discontinued its New York Expo division effective March 31, 2001. (See Notes 1(b) and 3.) In fiscal 2000, the Company had made a $500,000 investment in a custom music CD compilation and promotion company, Volatile Media, Inc., which did business as EZCD.com, now in bankruptcy liquidation. The investment was written off at March 31, 2000. RESULTS OF OPERATIONS The following table sets forth certain financial data for the periods indicated. Three months ended September 30, ---------------------- 2001 2000 ---------------------- (Amounts in thousands) Continuing Operations: Revenues 1 0 Operating costs and expenses: Selling, general and administrative 207 379 ---------------------- Total operating costs and expenses 207 379 ---------------------- ---------------------- Operating loss $ (206) $ (379) ====================== 11 Six months ended September 30, ---------------------- 2001 2000 ---------------------- Continuing Operations: (Amounts in thousands) Revenues 1 0 Operating costs and expenses: Selling, general and administrative 592 810 ---------------------- Total operating costs and expenses 592 810 ---------------------- ---------------------- Operating loss $ (591) $ (810) ====================== CONSOLIDATED REVENUES For the three and six months ended September 30, 2001 and 2000, the Company's revenues were nominal. OPERATING COSTS AND EXPENSES Operating costs and expenses decreased $172,000 or 45% and $218,000 or 27%, respectively, for the quarter and six months ended September 30, 2001 as compared to the same periods in the prior fiscal year as a result of a decline in selling, general and administrative expenses. The decrease in selling, general and administrative expenses of approximately $172,000 or 45% and $218,000 or 27%, respectively, for the quarter and six months ended September 30, 2001 as compared to the quarter and six months ended September 30, 2000 is primarily due to a decline in outside services of approximately $77,000 or 113% and $82,000 or 63%, respectively. This decline is directly associated with the capitalization of the website costs associated with the Artist Promotion System. Depreciation and amortization decreased approximately $20,000 or 67% and $33,000 or 61%, respectively. This decrease is the direct result of the write-off of goodwill in March 2001. There was no amortization of goodwill for the current fiscal year. Legal fees decreased approximately $5,000 and $60,000, respectively for the three and six months ended September 30, 2001 as compared to the same periods in the prior fiscal year as a result of the decrease in corporate organizational matters. The Company recorded approximately $25,000 in research and development during the three months ended June 30, 2000 as a result of a Business Development Agreement the Company entered into with Mediaviewer.com. There were no new agreements during the current fiscal year. During the prior fiscal year, the Company wrote off certain licensing agreements 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. There were no such charges during the current fiscal quarter or six months ended September 30, 2001.These decreases were partially offset by an increase of approximately $56,000 or 18% in personnel and related expenses for the six months ended September 30, 2001 as compared to the same period in the prior fiscal year. Personnel and related expenses increased as a result of the hiring of officers and staff. However, for the quarter ended September 30, 2001, personnel and related expenses decreased approximately $39,000 or 23% as compared to the quarter ended September 30, 2000 as a result of the capitalization of the website costs. The remaining decreases of approximately $32,000 and $46,000, respectively, for the quarter and six months ended September 30, 2001 as compared to the quarter and six months ended September 30, 2000 are directly related to the discontinuing of the New York Expo segment which resulted in the decrease in general expenses. OPERATING LOSS The Company experienced an operating loss of approximately $206,000 for the three months ended September 30, 2001 as compared to an operating loss of approximately $379,000 for the three months ended September 30, 2000. This decreased loss is directly related to decreased operating costs and expenses for the current fiscal quarter as compared to the quarter ended September 30, 2000 as a result of the capitalization of the Company's Artist Promotion System. For the six months ended September 30, 2001, the Company experienced an operating loss of $591,000 as compared to an operating loss of $810,000 for the six months ended September 30, 2000. This decreased loss is 12 directly related to decreased operating costs and expenses for the current period as compared to the same period in the prior fiscal year as a result of the capitalization of the Company's Artist Promotion System. OTHER INCOME AND EXPENSE Other income for the three and six months ended September 30, 2001 totaled approximately $9,000 and $18,000, respectively, as compared to $24,000 and $46,000, respectively, in the prior fiscal year. This decrease is primarily due to the settlement agreement between the Company and the former officers of Tropia during the prior fiscal year which resulted in a gain to the Company of approximately $19,000. Furthermore, during the prior fiscal year, the Company recognized a $14,000 gain on the sale of marketable securities. There were no such sales during the current fiscal quarter. DISCONTINUED OPERATIONS During the six months ended September 30, 2001, the Company experienced an additional loss of approximately $44,000 relating to the discontinued operation. These costs are directly related to the production of the April 2001 Expo that the Company was unaware of at March 31, 2001. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2001 the Company had working capital of $174,000. The Company's management believes that current cash resources will not be sufficient to meet the Company's anticipated cash needs for working capital and capital expenditures for the next six months. (See Note 9, describing the Company's plan for liquidation). Net cash used in operating activities for the six months ended September 30, 2001 totaled approximately $582,000 as compared to $749,000 during the six months ended September 30, 2000. The decline in the cash usage is directly associated with the overall decline in operating activities since the discontinuing of the New York Expo division as well as the capitalization of the costs associated with the Artist Promotion System. During the six months ended September 30, 2001, the Company recorded approximately $467,000 in net cash provided by investing activities as a result of the sale of marketable securities and the capitalization of the Artist Promotion System. During the six months ended September 30, 2000, the Company recorded approximately $29,000 in net cash used by investing activities primarily due to the $846,000 purchase of marketable securities offset by the $833,000 proceeds from the sale of securities. Capital expenditures totaled $2,000 and $16,000 for the six months ended September 30, 2001 and 2000, respectively. There were no financing activities during the current fiscal period. However, 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 six months ended September 30, 2000. MANAGEMENT'S PREVIOUS PLAN The Company's business strategy in the music field was to build a database marketing operation, which renders an array of specialized services to musical artists and their fans, 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 major portions of the necessary software have been completed and are in use. Portions of the artists' promotion services software, and the news content sharing software are still being revised. (See Note 9, describing the Company's plan for liquidation). The Company considered 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 software team had been revising and expanding its websites to handle the various publications, and artist and fan services which were to be offered to its potential database. Revenue sources were 13 expected to include 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 had added a new streaming radio player to the existing embedded radio on its Tropia website, which will play its emerging artists' music along with other content, in multiple streams by genre preference. These Internet streaming radio channels were expected to become bases for sale of promotional services for emerging artists, and product advertising across multiple listener preference communities. The implementation of the Company's business plan was occurring, in part, through its www.NewMediaMusic.com newsletter, a free e-magazine in operation this past year and a half. It contains current new media music news (i.e. digital music coverage, analysis and interviews on key industry problems) and is seen by thousands of industry professionals, artists and fans regularly. E-mails from readers and other comments on this newsletter indicate that it is a respected source of news and analysis. Artists are being offered free subscriptions to this newsletter, and to a new weekly artist edition thereof, 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 were expected to become additional revenue sources to SITI through syndication to product marketers, service charges and advertising revenues. This e-magazine in business, artist, fan and special market editions was to 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 were 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 were 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. The Company was attracting a growing supply of music news and information from many sources to enhance its database. Further implementation of SITI's strategy occurred through its ownership of www.NewYorkExpo.com and its related Internet music exposition held for the past two years in New York City. In May 2001, the Company decided to discontinue the New York Expo due to insufficient sponsorship and attendance. Internet music sites took booths at these expos, joined in the panels of experts, interacted with each other and with SITI's marketing development team, and provided current information to emerging artists and fans. The 2001 Expo was held in April 2001 at Madison Square Garden, but resulted in losses because of insufficient sponsorship and attendance. These Expos, however, placed the Company at the fulcrum of providers of music services, equipment and new technology, along with emerging digital music industry problems. Its founder, Steven Zuckerman is no longer an employee. No assurances could be given that the Company would successfully complete the above-described database developments, or its ongoing software development, or achieve the revenues sought from the described business plan. (See Note 9, describing the Company's plan for liquidation). RISK FACTORS See the Company's Annual Report on Form 10-K (filed with the SEC on July 9, 2001), "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 fiscal 2000. 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 14 corresponding gain on litigation settlement of approximately $19,000. 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. 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, however, the Company knows of no other pending or threatened legal actions that could have a material impact on the operations or financial condition of the Company. ITEM 2. CHANGES IN SECURITIES During the quarter ended September 30, 2000, investor Lawrence M. Powers sold 600,000 shares of SITI stock to his son, Barclay V. Powers for $0.125 per share. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits None B. Reports on Form 8-K There were no reports on Form 8-K filed during the six months ended September 30, 2001. 15 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: November 14, 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 16 -----END PRIVACY-ENHANCED MESSAGE-----