U.S. Securities and Exchange Commission
Washington, D.C.
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number:0-26093
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Site2shop.com, Inc.
(Name of Small Business Issuer in its charter)
NEVADA 88-0382813
(State) (I.R.S. Employer Identification No.)
2001 West Sample Road, Suite 101, Pompano Beach, Florida 33064
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number (954) 969-1010
Securities registered under Section 12(b) of the Act:
Name of Each Exchange on Which
Title of Each Class Each Class is to be Registered
None
Securities registered pursuant to 12(g) of the Act:
Common Stock $.001 Par Value
(Title of Class)
Check whether issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for the year ended December 31, 1999 were $10,015,377.
The aggregate market value of all the voting stock held by non-affiliates
outstanding at March 23, 2000 was $11,746,000. The amount was computed by
reference to the average bid and asked prices of the Common Stock as of March
17, 2000.
As of March 17, 2000, 12,514,702 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
Transitional Small Business Disclosure format (check one): Yes [ ] No [X]
<PAGE>
Site2shop.com, Inc.
For the Year Ended December 31, 1999
Form 10-KSB Annual Report
Table of Contents
Page
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Part I
Item 1 Business 3
Item 2 Properties 9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 10
Part II
Item 5 Market for Common Equity and Related Stockholder Matters 10
Item 6 Management's Discussion and Analysis or Plan of Operations
Item 7 Financial Statements 10
Item 8 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 14
Part III
Item 9 Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 15
Item 10 Executive Compensation 15
Item 11 Security Ownership of Certain Beneficial Owners and
Management 19
Item 12 Certain Relationships and Related Transactions 20
Item 13 Exhibits and Reports on Form 8-K 20
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PART I
ITEM 1. BUSINESS
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OVERVIEW
Site2shop.com, Inc. (the "Company", "Site2shop.com") is engaged in the
marketing, production and distribution of television programs. The Company
produces both educational half-hour television programs through its wholly owned
subsidiary, Tricom Pictures and Productions, Inc. ("Tricom") and half-hour
shop-at-home programming through the Site2shop.com TV program. All programs are
distributed to national audiences through a combination of any or all of the
following: ABC affiliates, NBC affiliates, CBS affiliates, FOX affiliates, UPN
affiliates and WB affiliates (collectively "network affiliates"), independent
television stations and targeted cable networks.
BACKGROUND
The Company was incorporated in Nevada on August 1, 1990 under the name
Woodie III, Inc., to engage in the activity of general business, investments,
research and development, manufacturing and real estate development. In August
1996, Woodie III, Inc. changed its corporate name to Tee-Rifik
Corp.("Tee-Rifik"). From inception through May 1998, the Company had been
seeking investors in order to finance and commence revenue producing activities.
On June 24, 1998, Tee-Rifik entered into an Agreement and Plan of Reorganization
(the "Agreement") with Shop TV and Television, Inc., a Florida corporation
("Site2shop"), whereby Site2shop and Tee-Rifik merged. Through the terms of the
Agreement, Tee-Rifik acquired all the outstanding common stock of Site2shop. The
existing stockholders of Tee-Rifik retained their 116,400 (post reverse split-
see below) shares and the stockholders of Site2shop received (post reverse
split) shares at a ratio of 1,250 to 1 for a total of 1,250,000 shares. Due to
the majority ownership of the Company after the transaction by the Site2shop
stockholders and Tee-Rifik's lack of substantial assets, liabilities or
marketable products, the transaction was treated as a reverse acquisition of
Tee-Rifik by Site2shop using the pooling method for accounting purposes. As part
of the Agreement, Tee-Rifik changed its corporate name to Shop T.V., Inc., and
its principal business became retailing and television broadcasting.
On February 5, 1999, Shop T.V., Inc. changed its name to Site2shop.com,
Inc. to reflect its focus on the Internet.
On February 23, 1999, Site2shop.com also completed a one for ten (1:10)
reverse split of its issued and outstanding shares of common stock, whereby a
stockholder owning 10 shares of common stock prior to the reverse split, would
own 1 share of common stock after the reverse split. Unless otherwise indicated
herein, the information in this filing relating to the common stock has been
restated to reflect such split. The trading symbol was also changed from SHTV to
its current EBUY.
On March 8, 1999, the Company completed its acquisition of Tricom, a
privately held corporation, incorporated in Florida in November 1991. Under the
terms of the acquisition agreement, the stockholders of Tricom received Company
shares at a ratio of 100,000 to 1 for a total of 10 million shares. Three
executive officers and five stockholders of the Company owned 85% and 15%
respectively, of Tricom's common stock since inception. As a result of the
Tricom acquisition, the three executive officers' percentage of common stock
ownership of the Company, collectively, increased from 71.01% to 83.07%. The
other five stockholders' percentage of common stock ownership of the Company,
collectively, increased from 5.61% to 13.7%.
Site2shop.com, Inc., a holding company and parent of its two wholly owned
subsidiaries, Tricom and Site2shop TV, Inc. ("Site2shop"). Tricom engages in
educational television programming whereby companies appearing on Tricom's shows
pay Tricom a fee. The purpose of such shows is to educate the viewing audience
of the products and services of such companies and enhance brand awareness.
There is no direct attempt nor is it the purpose to sell any products or
services. Additionally, Tricom is a television production company and aside from
producing Site2shop's shop-at-home television programs and its own television
programs does not have any other significant customers or revenues, individually
or in aggregate. Site2shop engages in shop-at-home television programming
whereby Participants appearing on Site2shop's program pay it a fee. Site2shop
retains a de minimis shipping and handling fee for all sales of product which
result from the airing of the show, the remainder of the proceeds are remitted
to the Participant. Site2shop also features Participant product on Site2shop's
websites, for which selling price is determined by Site2shop and cost and
payment terms to the Participant are contained in the overall contract between
the parties based on negotiation. Site2shop also operates a retail store and
Participants are solicited outside the parameters of the overall contract, at
the discretion of Site2shop, to have their products offered for sale on a
consignment basis, predicated on negotiation as to cost and terms. Site2shop has
attempted, with virtually no significant success to-date to offer Participant
products for sale at other websites.
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The Company's executive offices are located at 2001 West Sample Road, Suite
101, Pompano Beach, Florida, 33064; Telephone (954) 969-1010.
THE INDUSTRY AND MARKET
The direct response transactional television programming industry was
developed in the United States after the Federal Communications Commission
rescinded its limitations on advertising minutes per hour in 1984, thereby
permitting 30-minute blocks of television advertising. The deregulation of the
cable television industry and the resulting proliferation of cable channels
increased the available media time and led to the growth of the United States
direct response transactional programming and the direct response educational
programming industries. Producers of these types of programming combined direct
response marketing and retailing principles within a television talk show-type
format and purchased media time from cable channels to air their programming.
After an initial growth period, the industry consolidated through the end of the
1980s. At the same time, increased attention from the Federal Trade Commission
and federal and state consumer protection agencies led to greater regulation of
the industry. By the early 1990s, direct response transactional television
programming and home shopping cable channels had become a more accepted forum
for obtaining information about products and services and making purchases from
home. As the industry matured, the variety of products marketed through direct
response transactional television programming steadily increased. Today,
offerings as diverse as car care products and weight loss programs are marketed
in this manner.
According to a survey conducted by the National Infomercial Marketing
Association ("NIMA") conducted in 1995, the latest year for which data is
available, approximately 10,000 infomercials are aired per week in the United
States for a total of 5,000 hours per week. NIMA estimates that direct marketing
sales by television totaled $94.1 billion in 1998. The rate of growth averaged
10.2% per year for the period of 1993-1998. The Company believes that the market
is highly fragmented and ripe for consolidation. Accordingly, it is focused on
increasing its level of operations in order to promote growth and market share.
PRODUCTS AND SERVICES
OVERVIEW
The Company's products and services are rendered principally by its two
wholly owned subsidiaries (i) Site2shop and (ii) Tricom.
SITE2SHOP - SHOP-AT-HOME TELEVISION PROGRAMMING
Site2shop's principal business is the marketing, production and
distribution of thirty (30) minute infomercials in a shop-at-home format.
Site2shop markets its vendors' products through (i) a half-hour shop-at-home
program called "Site2shop.com TV," (ii) on its Internet website at
www.site2shop.com, and (iii) at its retail store located in Pompano Beach,
Florida. Site2shop.com TV is aired nationally through a combination of any or
all of the following: network affiliates, independent television stations and
targeted cable networks. The program features unique products as well as items
generally available. Typically, sales personnel of Site2shop search through
various media sources, including newspapers, internet and magazines, for
products to potentially feature on site2shop.com TV. The
manufacturers/distributors are contacted and asked to provide samples of their
products for evaluation of inclusion on the show by a focus group. The criteria
utilized by the focus group are primarily based on function, form and salability
and the products being featured on future shows as to compatibility. If the
product coincides with the criteria, the manufacturer/distributor is contacted
and presented with the opportunity of show participation via a segment on the
show of approximate duration of 1 - 3 minutes. If the manufacturer/distributor
("Participant") is amenable, the parties enter into a contract whereby Site2shop
will feature the product and/or Company logo in a targeted national publication,
whose readership is most apt to purchase the product, in conjunction with the
promotion of the particular show. Additionally, Site2shop, by utilizing Tricom's
production facilities and resources, produces the segment, inclusive of field
production, graphics, music, program editing, set design and on-camera talent,
for the Participant for inclusion on the show for airing through the
aforementioned TV media and provides the Participant with a copy tape of the
segment. In consideration of such services, the Participant pays a one-time,
flat rate fixed "Product Insertion Fee", predetermined by Site2shop, typically
due within thirty days of signing the contract. The fee is based on Site2shop
management's experience and best estimate of the cost to render the contractual
services plus an element of profit.
While typically only ten products are featured on each half-hour segment of
the program, viewers have the opportunity to view Site2shop's entire catalog,
currently featuring more than 500 products, many of which also are available at
the retail store located in the Pompano Beach Mall and through the Company's
Internet web sites.
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The products offered by Site2Shop include but are not limited to jewelry,
housewares, apparel, electronics, collectibles, toys, educational products, and
sporting equipment. Unlike some retailers, which focus essentially on national
brands, a majority of the products offered by Site2shop comprise a combination
of national brands as well as private brand or non-branded products.
Site2shop purchases the merchandise offered by it on both a consignment
basis (for products sold in the retail facility) and on a terms basis for
products sold through fulfillment and on the internet (at wholesale and retail
prices as negotiated in the aforementioned contract). Site2shop maintains
minimum inventory levels.
The Site2shop.com TV program is a pre-recorded retail sales program that is
aired by cable television systems and television broadcast stations throughout
the country on a prepaid, two weeks in advance, airtime basis by the Company.
Site2shop.com TV is available in half-hour shows only, which enables network and
cable affiliates to air the programs in available time slots. Some of the major
television broadcasting outlets used by the Site2Shop to air its shows are:
Station Market Affiliation
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KJWY Salt Lake City, Utah NBC
Time Warner Los Angeles, California CABLE
WNPA Pittsburgh, Pennsylvania UPN
TNN National CABLE
WCIV Charleston, South Carolina ABC
WGTW Philadelphia, Pennsylvania INDEPENDENT
WJYS Chicago, Illinois INDEPENDENT
WVVH New York, New York INDEPENDENT
Site2shop does not guarantee a Participant airing of the program on any
particular television station but does provide the Participant with an airing
schedule, one month prior to actual airing, indicating station, market,
affiliation and scheduled date and time of airing.
Site2shop's retail sales and programming are intended to create a friendly
sales environment, which promotes sales and customer loyalty through offering
unique products, coupled with product information and entertainment. During a
typical program, an announcer introduces each product to the co-hosts. The hosts
of the show then describe the merchandise, sometimes with the assistance of a
guest representing the Participant and sometimes with ordinary users of the
product, and convey information relating to the product such as price, features,
uses, and assembly requirements. The price (as set by the Participant and
contained in the contract), item number, and toll-free number for ordering are
continuously aired during each product description. Viewers purchase merchandise
by MasterCard, Visa, Discover or American Express credit cards by calling a
toll-free telephone number continuously aired during the program. Site2Shop
contracts with Alert Communications, Inc., a national call center, which
provides order fulfillment for Site2shop on a fee for service basis based on the
volume of calls which it handles. Once received, orders are electronically
transmitted to the Participant, who ships the product directly to the viewer.
Site2shop bills the viewer but remits to the Participant the sales proceeds less
a shipping and handling charge until such time as the Participant has recouped
the entire Product Insertion Fee. Generally, any item purchased from
Site2shop.com TV may be returned within 30 days for a full refund of the
purchase price, excluding the original shipping and handling charges. Site2shop
does not guarantee the sale of any product featured on its show nor does it
guarantee any minimum sales quantity to any Participant.
The Participant's product is also offered for sale on Site2shop's websites.
The orders are processed in a similar manner as show sales, however, Site2shop
purchases the product from the Participant at a negotiated cost and terms as
contained in the aforementioned contract. The Participant is paid in accordance
with the contract terms by Site2shop. Site2shop retains the sales proceeds.
Additionally, Participant's products are offered for sale at the Site2shop
retail store as a means of increasing sales opportunities for Participants. The
retail manager contacts Participants regarding the opportunity to offer their
product for sale on a consignment basis based on a negotiated purchase price and
terms. As the salability of the product on a retail store basis is unknown,
consignment offers Site2shop a means of risk reduction against non-salability of
the product, as Site2shop owes the Participant the negotiated cost in accordance
with terms only if the product is sold. The Participant is paid in accordance
with the oral arrangement negotiated with the retail manager. At the expiration
of the consignment period, the Participant can have the unsold product returned
or extend the consignment period. Site2shop generally offers only products
featured on its shows, its websites and at its retail store, however, products
of non-Participants have been offered through these venues. Similarly,
Participants may sell their products through any distribution channel they so
choose and are not precluded contractually from doing so.
TRICOM-EDUCATIONAL TELEVISION PROGRAMMING
Tricom's principal business is the marketing, production and distribution
of thirty (30) minute educational programs. These programs are distributed
through a combination of any or all of the following: network affiliates,
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independent television stations and targeted cable networks. Topics for the
programs, include but are not limited to parenting, health, cooking, and home
improvement, are presented in a news magazine-style format with all segments
having a strand of commonality about the topic. Companies, appearing on 3-5
segments of the program, apprise the viewer of their products or services in
conjunction with the topic featured on the program, however, there is no direct
attempt by the companies to sell their products or services.
Tricom researchers contact various national consumer oriented companies
whose business and activities address topics of specific interest to targeted
audiences (e.g. children's health issues to an audience of parents with children
in ages ranging from infancy to pre-teen). The researchers request data from
these companies for review and compatibility with future planned episodes of
Tricom programs. If the data and subject matter are compatible, the researcher
will contact the company regarding appearing on a segment of 3 - 5 minutes in
duration in a future episode. If amenable, Tricom and the company enter into a
contractual arrangement whereby Tricom will feature the company's logo and/or
product on two full-page advertisements in a targeted national publication in
conjunction with the promotion of the television program series and related
episodes. Additionally, Tricom will produce the segment, including field
production, graphics, editing, set design and on camera talent, and broadcast
the program a minimum of twenty times in local and national markets so as to
reach a potential of 60 million households around the country, although, the
actual number of viewers may be substantially less. The stations selected for
broadcasting are based upon Designated Market Areas and the television
viewership (defined by the number of households potentially able to view
programming if all television sets were on simultaneously for the area) of such
areas as ranked and calculated by the National Association of Television Program
Executives Listing Guide and SRDS (formerly known as Standard Rating and Data
Service). The company is given a copy of its segment tape and also granted a
license to use such tape for any lawful business purpose.
In consideration of such services, the company agrees to pay Tricom within
thirty days of signing the contract a one time, flat rate fixed "Scheduling Fee"
(predetermined by Tricom) which is based on Tricom management's experience,
knowledge and best estimate of the cost to render such services and an element
of profit. Additionally, Tricom owns complete licensing rights to the segment
tape which it may use for any lawful business purpose and also maintains
editorial control over all programming and collateral material.
Tricom also maintains the production facilities for the Company. These
facilities include three complete editing facilities, three camera crews, an
in-house studio with working sets and complete animation and graphic
capabilities. Tricom is currently offering these facilities on fee for service
basis in the local market in order to maximize utilization and expand potential
revenue venues.
SALES AND MARKETING
TELEVSION PROGRAMMING
Site2shop's salespersons seek out products for possible feature on one or
several targeted programs. Currently, manufacturers/distributors wishing to have
their merchandise marketed by Site2shop execute a contract with Site2shop.
Typically, a contract provides that in consideration for an one-time payment
(the "Product Insertion Fee"), Site2shop will include the
manufacturer's/distributor's product in one 1-3 minute segment, promote the
airing of the show, and agrees to air the program to a potential household reach
of 50 million homes throughout the United States, although actual viewership may
be substantially less. The program airs a minimum of twenty times, generally in
twenty different Designated Market Areas (DMA). A program may air more than once
in a DMA but usually on the same television station in the DMA, so that the
programs potential household reach is 50 million on a first run basis. The
stations selected for broadcast can be any combination of any or all network
affiliates, independent cable and cable networks and independent affiliates. The
shows generally air over a three month span of time so that a minimum potential
household reach of 50 million is attained. As part of the contract, the
Participant receives a copy of his tape segment, as part of the Product
Insertion Fee, for which he is granted a license to use the tape for any lawful
business purpose.
Additionally, Site2shop may include the product on its Internet e-commerce
websites or its commercial retail store located in a mall in Pompano Beach,
Florida. Internet purchases by Site2shop from the Participant are on negotiated
terms as to cost and payment term and contained in the contract. All sales
proceeds from internet sales belong to Site2shop. Commercial retail store sales
are made on a consignment basis with cost and payment terms determined on a
negotiated basis outside the contractual arrangement.
If or when sales of the product directly from the airing of the show (by a
viewer dialing an 800 number appearing on the show) exceed the Product Insertion
Fee paid by the Participant, Site2shop and the Participant share in the
resulting profit generated from future sales on an equal basis. For purposes of
the contract, "profit" is defined as the difference between the retail sales
price paid by the viewer less a de minimis shipping and handling fee retained by
Site2shop and the cost of the product.
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Tricom's sales force focuses on companies wishing to have their products
and services featured in a 3 - 5 minute segment of a half-hour educational
television program of which all segments relate to a topic and are structured to
inform and educate the viewing audience. There is no direct attempt to sell
products or services on the show. Criteria for companies selected for appearance
on the show, primarily relate to name recognition and financial strength.
Site2shop and Tricom generally do not compete for participants/companies for
each other's show or for market share. The shows are promoted in a similar
manner as shop-at-home television programming except the potential household
reach is 60 million homes compared to 50 million homes, although, actual
viewership may be substantially less. Accordingly these shows may appear on the
same television stations and other television stations as shop-at-home
television programming. The fee, ("Scheduling Fee") charged companies appearing
on these shows are higher than shop-at-home television programming because of
the segment length and potential household reach differences. Companies also
receive a copy of their completed segment.
Contracts at various stages of fulfillment are in place for approximately
350 national vendors. Television programming revenues for the year ended
December 31, 1999 were $9,715,000. Fulfillment and retail revenues for the year
ended December 31, 1999 were $52,000 and $73,000 respectively; .5% and .7%
respectively of total revenues for 1999.
Internet
On February 9, 1999, the Company entered into a contract to list product
for sale on the bid4it(TM), an Internet auction site, operated by CyberQuest,
Inc. ("CyberQuest"). The Company establishes a minimum bid which it will accept
for each product listed for sale on the site and the quantity available for
sale. All products listed have a 30-day money back guarantee from date of
delivery. Those purchasers orders that equal or exceed the minimum bid are
forwarded to the Company for fulfillment and contain all pertinent information
necessary to ship the order and file applicable sales and use taxes. The Company
provides CyberQuest with proof of shipment which provides the basis of payment
by CyberQuest to the Company. The Company is paid by automatic deposit into a
Company designated account. The payment to be received is based on the unit
selling price, applicable sales taxes and freight less a sliding scale fee
charged by CyberQuest based on the sales value of the transaction. The contract
may be terminated by either party by written notice. The product is purchased on
a negotiated basis as to purchase price and payment terms from
manufacturers/distributors whose products are featured on its half-hour
shop-at-home programming. All profits from this auction site belong to the
Company. To date, the Company has not listed any products for sale on this
auction site due to the complexity of the auction listing process including the
manpower and effort necessary to add products to the site and the limited
consumer traffic on the website and has no immediate plans to do so.
In April 1999, the Company entered into an agreement with Yahoo!,
Inc.("Yahoo") under its Yahoo! Delivers program whereby Yahoo! sent e-mails to
Yahoo users who specifically requested to be notified of special promotions.
Approximately, 12,000 users were contacted during the month of April advising
them of the Company's new portal site through Yahoo. In consideration of such
services, the Company paid Yahoo a one-time fee of $10,000. The portal site,
http://st6.yahoo.com/shoptv/, allows Yahoo website visitors to access the
Company's website through the Yahoo website in lieu of requiring the subscriber
to know the Company's website address, was opened on April 15, 1999 using the
Yahoo! Store concept. This concept allows businesses the ability to design
websites, utilizing state-of-the-art tracking tools while affording easy access
(through Yahoo!) to e-commerce to millions of internet users to the Company's
website, www.site2shop.com. All profits generated from sales through this portal
site are retained by the Company. In consideration of such services, the Company
pays Yahoo a $300 all-inclusive rental fee, on a month-to-month basis,
terminable at will, in writing, by either party. To date there have been 400,000
web pages viewed (the aggregate number of pages of the Company's websites viewed
by the number of total visitors to the websites through the Yahoo portal) by the
visitors to the portal site, as determined by Yahoo's proprietary software,
however, the Company does not readily account for internet sales by source of
origin, i.e. directly to the Company's website as opposed to through the Yahoo
portal.
On November 9, 1999, the Company entered into a contract to list product
for sale on auctions.com, an Internet auction site, operated by auctions.com,
L.L.C. ("auctions.com"). The Company establishes a minimum bid which it will
accept for each product listed for sale on the site and the quantity available
for sale. All products listed have a 30-day money back guarantee from date of
delivery. Those bids that equal or exceed the minimum bid are forwarded to the
Company for fulfillment and contain all pertinent information necessary to ship
the order and file applicable sales and use taxes. The Company provides
auctions.com with proof of shipment which serves as the basis for payment, by
check, by auctions.com to the Company. The payment to be received is based on
the unit selling price, applicable sales taxes and freight less a two and
one-half percent fee charged by auctions.com based on the sales value of the
transaction. The contract is for one year and renews automatically on its
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anniversary date unless either party provides 30 days written notice prior to
the expiration date of the then current term. The product is purchased on a
negotiated basis as to purchase price and payment terms from
manufacturers/distributors whose products are featured on its half-hour
shop-at-home programming. All profits from this auction site belong to the
Company. To date, the Company has listed a limited number of products for sale
on this auction site and is in the process of augmenting its infrastructure so
as to be able to list additional products for sale on this site. There were no
revenues from this site in 1999.
Although the Company is constantly seeking additional opportunities to
market its Participants products, it currently does not anticipate using others'
internet sites as its primary sales venue anytime in the near future, due to the
complexity of the auction listing process including the devotion of personnel
and resources to list products on such sites, but is working toward availing
itself of such opportunity. For the year ended December 31, 1999, the Company
has generated $134,000 of internet auction sales.
SIGNIFICANT CUSTOMERS
During 1998, no customer accounted for more than 10% of net sales.
MANUFACTURING AND SUPPLIES/PRODUCTION OF PROGRAMS
The Company does not currently manufacturer any products that are featured
on any of their television programs. Furthermore, the Company does not depend on
any one manufacturer to supply products for any television program.
The Company produces all of the television programs through its in-house
production and editing facility. The Company currently owns or leases four
broadcast quality video production cameras, two Media 100 editing systems, one
601 component digital on-line editing facility and many related items critical
in the production and distribution of its television programs.
COMPETITION
Due to the fact that the scope of the business has moved into many
industries, television, home shopping, production, Internet commerce and retail,
there are many companies that actively compete with the Company. There are very
few companies that compete directly with the core business of the Company. The
majority of these companies can be found in the shop-at-home television industry
and would include, Home Shopping Network (HSN), QVC, ValueVision and Shop at
Home. Of the aforementioned companies, most have substantially greater
financial, technical and other resources and have established reputations for
their success in their ability to sell products through a shop-at-home format.
The Company does not know of any direct competitor that currently charges a
"product insertion fee" whereby a participant on the show pays a monetary fee to
have their product exclusively featured in 3-5 minute segment a on a taped show
that airs a minimum of 20 times to a national audience through any combination
of network affiliates, independent cable stations, cable networks or independent
television stations, that has a potential household reach of 50 million and/or
offers the vendors a share of the profits based on the success of the program.
Competitors in the shop-at-home television programming business generally
purchase products featured on their shows on a consignment basis with unsold
products returned to the respective vendors. Participants are not charged a fee
to have their products offered for sale on the show. The products are generally
offered for sale for a shorter duration of time.
Tricom does have a number of competitors, primarily located in the South
Florida area, that market and produce very similar programs. These include among
others, Five Star Productions, Global Solutions Network, Millenium Productions
and ITV.
GOVERNMENT REGULATION
Although the Company's programming is not subject to specific government
regulation, the Company is dependent on the television broadcast stations and
cable television systems to air its programs. A substantial portion of a
broadcaster's business is subject to various statutes, rules, regulations and
orders relating to communications and generally administered by the Federal
Communications Commission (FCC). The communications industry, including the
operation of broadcast television stations, cable television systems, satellite
distribution systems and, in some respects, cable stations which produce their
own programming is subject to substantial federal regulation, particularly
pursuant to the Communications Act of 1934, as amended, the Telecommunications
Act of 1996 and the rules and regulations promulgated by the FCC. Cable
television systems are also subject to regulation at the state and local level.
Regulations which have an adverse affect on broadcasters with whom the Company
contracts to air its programs, could have a material adverse impact upon the
Company and the Company's ability to purchase airtime.
8
<PAGE>
The Company collects and remits sales tax in the state in which it has a
physical presence. Certain states in which the Company's only activity is direct
marketing and e-commerce have attempted to require such merchants, such as the
Company, to collect and remit sales tax on sales to customers residing in such
states. A 1995 United States Supreme Court decision held that only Congress can
legislate such a change. Thus far, Congress has taken no action to that effect.
The Company is prepared to collect sales tax for other states, if laws are
passed requiring such collection. The Company does not believe that a change in
the tax laws requiring the collection of sales tax will have a material adverse
effect on the Company's financial condition or results of operations.
To date, the Company has not incurred any costs or unusual expenses as a
result of government regulations imposed upon it. Nor has any current
governmental regulation materially impacted the operations of the Company or the
manner in which it conducts business.
LICENSES, PATENTS AND TRADEMARKS
A trademark application has been submitted and applied for under the name
of site2shop.com. for use as the Company's logo in all facets of its business.
The television program titles used by all subsidiaries of the Company are
covered by public use. The Company also owns the Internet domain names
site2bid.com, site2buy.com, site2sell.com and site2auction.com.
EMPLOYEES
The Company currently has 140 employees, all full-time. The Company
believes that employees suitable for its needs are available in its current and
expected areas of activity. None of the Company's employees are represented by a
labor union and the Company is not aware of any activities seeking such
organization. The Company considers its relationships with its employees to be
good.
ITEM 2. DESCRIPTION OF PROPERTY
- ---------------------------------
The Company currently leases approximately 15,797 square feet of office,
marketing and production space at 2001 West Sample Road, Pompano Beach, Florida,
which also serves as its corporate headquarters. The current aggregate monthly
rental amount is $12,677. Additionally, the Company is required to pay its
pro-rata share of the common operating costs of the building. The lease on this
property commenced on June 1, 1994 and continues through May 2001, with one
additional three-year renewal option at the Company's discretion. If the Company
elects to renew its lease, prior to expiration, the annual rent will be adjusted
by four percent per year. The Company currently leases approximately 8,430
square feet of office space at 680 South Military Trail, Deerfield Beach,
Florida which serves as a sales and marketing office and warehouse. The current
monthly rental is $4,840 and additionally, the Company is required to pay its
pro-rata share of real estate taxes and common operating costs of the building.
The lease calls for annual increases of four percent over the next five years.
The lease commenced on July 1, 1999 and expires on June 30, 2004 and contains
one-five year renewal option at market rates at the time of renewal.
The Company leases a 5,720 square foot (third) marketing office at 1225
Broken Sound Parkway, Boca Raton, Florida. The current monthly rental is $3,813
and additionally, the Company is required to pay its pro-rata share of real
estate taxes and common operating costs of the building. The lease calls for
annual increases of four percent over the next two years. The lease commenced on
September 1, 1999 and expires on August 31, 2002 and contains one-three year
renewal option at market rates at the time of renewal.
The Company leases approximately 2,376 square feet of retail space at the
Pompano Square Mall, Pompano Beach, Florida, which houses its retail facility.
The current minimum monthly rental amount is $1,679, inclusive of sales tax.
Additionally, the Company is required to pay incremental rent based on a
percentage of sales in excess of an annual sales volume at the mall and it's
pro-rata share of the common operating costs of the mall; both as defined by the
lease. The lease on this property commenced on February 15, 1998 and continues
through March 2001.
Additionally, the Company rents 500 square feet of warehouse space on a
month-to-month basis at a monthly rental amount of $731.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is involved in legal proceedings arising in the ordinary course
of business. The Company is not involved in any legal proceedings that it
believes will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or its operations.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
In light of the fact that three shareholders, who are also executive
officers and Board members of the Company, beneficially own approximately 76% of
the shares of common stock outstanding of the Company, there has not been an
Annual Meeting Of Shareholders nor any Special Meeting of Shareholders during
the year ended December 31, 1999 and through date of this report.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED MATTERS
- ----------------------------------------------------
The Company's shares of Common Stock are traded over-the-counter and quoted
on the OTC Electronic Bulletin Board under the symbol "EBUY". From inception of
listing on the OTC Electronic Bulletin Board (July 20, 1998) through February
23, 1999, the Company's shares of Common Stock traded under the symbol "SHTV".
The reported high and low bid prices for the Common Stock are shown below for
the period from inception of trading in July 1998 through March 17, 2000. The
quotations reflect inter-dealer prices and do not include retail mark-ups,
mark-downs or commissions. The prices do not necessarily reflect actual
transactions. On February 23, 1999, the Company implemented a reverse one for
ten (1:10) common stock split to shareholders of record as of February 22, 1999.
The prices listed below have not been restated to give retroactive effect to the
inception date of trading for such split.
<TABLE>
<CAPTION>
Period High Low
- ------------------------------------------------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
July 20, 1998 (inception) to September 30, 1998 $6.50 $1.625
Quarter Ended December 31, 1998 $3.9375 $ .10
Quarter Ended March 31, 1999 $4.125 $ .17
Quarter Ended June 30, 1999 $3.8725 $1.00
Quarter Ended September 30, 1999 $1.6875 $ .8125
Quarter Ended December 31, 1999 $2.00 $ .625
January 1, 2000 to March 17, 2000 $2.00 $6.00
</TABLE>
On December 31, 1999, there were 55 shareholders of record of the Company's
Common Stock.
The transfer agent for the Company's Common Stock is Florida Atlantic Stock
Transfer, Inc., 7130 Nob Hill Road, Tamarac, Florida, 33321.
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain future earnings, if any, to finance the expansion of
its business and does not anticipate that any cash dividends will be paid in the
foreseeable future. The future dividend policy will depend upon the Company's
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION and ANALYSIS or PLAN OF OPERATIONS
- -------------------------------------------------------------------
Statements included in this "Management's Discussion and Analysis or Plan
of Operation" section, in other sections of this Report, in prior and future
filings by the Company with the Securities and Exchange Commission, in the
Company's prior and future press releases and in oral statements made with the
approval of an authorized executive which are not historical or current facts
are "forward looking statements" made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 and are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. There are important risk factors that in
some cases have affected and in the future could affect the Company's actual
results and could cause the Company's actual financial and operating performance
to differ materially from that expressed in any forward looking statement. The
following discussion and analysis should be read in conjunction with the
Financial Statements and Notes appearing elsewhere in this Report.
OVERVIEW
As the operating entities comprising the Company have been under common
control since their respective inceptions, the following discussion will address
the results of operations on a year-to-year basis and liquidity as if the
10
<PAGE>
entities had merged as of January 1, 1998. The results of operations for the
year ended December 31, 1998 include the operations for the entire year of
Tricom and the period of June 24, 1998, the commencement of revenue producing
operations, through December 31, 1998 of Site2shop.
The Company's recognizes television programming revenues using the
percentage-of-completion method, whereby revenues are recognized relative to the
proportionate progress on such contracts as measured by the ratio which costs
incurred on each contract bear to total anticipated costs for each contract.
Accordingly, the Company's revenues are principally affected by two factors:
1. Its ability to execute contracts with Participants:
2. Its ability to complete segments and air programs in an efficient and
expeditious manner.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues increased by $2,685,000 from $7,330,000 in 1998 to $10,015,000 in
1999. Educational television programming revenues decreased by $3,091,000 from
1998 while shop-at-home television program revenues increased by $5,518,000.
Additionally, internet auction and retail store sales from products appearing on
shop-at-home television programs increased by $134,000 and $31,000, respectively
during 1999.
Cost of revenues increased from $1,661,000 in 1998 to $2,676,000 in 1999,
an increase of $1,015,000. The gross margin percentage decreased from 77% in
1998 to 73% in 1999. The increase in costs was primarily attributable to the
increase in revenues. The major elements of increase in production costs were
airtime ($279,000), talent ($149,000) and production personnel wages and
benefits ($87,000). Additional elements of increase were the cost of sales of
internet auction ($159,000), fulfillment ($94,000) and retail store ($55,000).
The decrease in gross margin was primarily attributable to the negative margins
associated with the internet auction, fulfillment and retail store.
Selling expenses increased by $1,207,000 from $1,701,000 in 1998 to
$2,908,000 in 1999 as result of an increase in salary and wages of $930,000
caused by the opening of two marketing offices engaged in marketing shop-at-home
television programming in the latter half of 1999 and the change in contract mix
as evidenced by the underlying contracts executed in 1999 of both shop-at-home
television programming (400) and educational television programming (100) as
opposed to 150 (shop-at-home television programming)and 80 (educational
television programming) in 1998.
General and administrative expenses increased from $3,248,000 in 1998 to
$4,081,000 in 1999, an increase of $833,000. The increase was primarily a result
of an increase of administrative salaries ($401,000) in order to upgrade and
enhance its infra-structure as the Company looks to expand its internet
presence, an increase in space and communications expenses ($96,000) solely
attributable to the opening of the two new marketing offices in the latter half
of 1999 and to an increase in officers' compensation ($172,000) as a result of
the increase in profitability in 1999 and the added new responsibilities
associated with the merger with Tricom.
Depreciation and amortization expenses increased from $103,000 in 1998 to
$167,000 in 1999. The increase was attributable to an increase in capital
expenditure in 1999 of $797,000 during 1999.
Interest income increased in 1999 to $39,000 from $3,000 primarily from the
investing of $1,000,000 raised from the sale of the Company's shares of common
stock to private investors pursuant to Rule 504 of Regulation D of the
Securities Act of 1933 in April 1999 in short term money market funds.
Interest expense decreased from 1998 ($10,000) to 1999 ($9,000).
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth and cash requirements primarily from
operations and the raising of capital through the sale of shares of its common
stock under exemption from registration in accordance with Regulation D of the
Securities Act of 1933. The Company does not currently have any credit
facilities from any third party financial institutions or private lenders other
than its existing capital lease obligations to Trans Leasing resulting from the
financing of production equipment purchased in 1997 which expires in the year
2000.
For the year ended December 31, 1998, cash used by operations totaled
$119,000. The principal uses of cash were a reduction in deferred revenues of
$1,220,000 as a result of an emphasis in the fourth quarter of 1998 to produce
and air shows in conjunction with the holiday season. Additionally, deferred
income taxes increased by $734,000 primarily as a result of the decrease in
deferred revenues. Accounts receivable decreased by $294,000 primarily as a
result of increased collection efforts during 1998. In December 1998, the
Company issued 150,000 non-statutory options to purchase 150,000 common shares
11
<PAGE>
of the Company to three executive officers and controlling shareholders of the
Company at an exercise price less than fair market value as defined by the
Company's Stock Option Plan. The options vested immediately and expire in
December 2003. The difference between the fair market value at the time of grant
and the exercise price for the 150,000 options result in a source of cash of
$66,000. Cash used in investing activities totaled $131,0000, $63,000 associated
with leasehold improvements for the retail store opened in the third quarter of
1998 and $52,000 associated with leasehold improvements, office furniture and
equipment associated with the shop-at-home television programming operation
introduced in the third quarter of 1998. Cash provided by financing activities
totaled $204,000 for 1998. The principal source was from the sale of 25,000
shares of its Common Stock ($250,000) pursuant to a private offering under Rule
506 of Regulation D of the Securities Act of 1933 as amended, in July 1998. The
proceeds were primarily used for working capital. Additionally, the Company had
a bank overdraft of $89,000 at December 31, 1998 caused by an excess of cash
needs over and above cash balances and anticipated cash collections. The bank
overdraft, which occurs infrequently, results from a variation between those
estimates (of receipts) and actual results. The Company has an informal
arrangement with a financial institution to allocate the Company's financial
resources in multiple cash accounts in order to minimize bank overdrafts. The
Company has not been charged interest on overdrafts but has paid a fee of $30
for each overdraft check honored by the bank. The Company also made capital
lease obligation payments, in connection with production equipment purchased in
1997, totaling $48,000. During the fourth quarter of 1998, Tricom loaned a
company, Legal Street Enterprises, Inc., ("Legal Street"), a total of $87,000
which was subsequently increased to $97,000 in January 1999. The President and
Vice President of Site2shop.com, who are controlling shareholders of
Site2shop.com, own 67% collectively of Legal Street. In February 1999, Legal
Street gave an unsecured Note to Site2shop.com requiring interest payments, at
the rate of 8% per annum on the unpaid principal to commence on August 1, 1999
and for 59 consecutive months thereafter. A balloon payment of the principal
amount is due with the 60th month's interest payment. Legal Street prepaid the
interest for the period of February 1999 through December 1999 ($7,200) in
September 1999, however, after review of Legal Street's financial condition by
the Company's management, the Company has opted to fully provide for potential
loss of the full value of the Note as of December 31, 1999. The net cash
decrease for the year was $46,000 financed from existing cash balances.
At December 31, 1999, the Company had a working capital deficiency of
$2,496,000 and stockholders' deficit of $1,231,000. Additionally, the Company
had signed contracts totaling $1,094,000 for which performance had yet to
commence and payment had yet to be received. The Company does not consider these
contracts to be part of accounts receivable or working capital. Operating
activities for the period utilized cash of $44,000 primarily from an increase in
accounts receivable of $955,000 offset by an increase in accounts payable and
accrued expenses of $434,000, net income for the year of $185,000 and an
increase in deferred income taxes of $165,000. The increase in accounts
receivable is directly related to the increase in contract volume. Additionally,
deferred income taxes increased as a result of the profitability of the Company.
Cash used in investing activities totaled $521,000 reflecting capital
expenditures for the period, $148,000 relating to the purchase of computer
hardware and software, so as to be Year 2000 compliant. Additionally, the
Company purchased $276,000 of production, transportation and office equipment
financed by a company owned by two executive officers of the Company. The terms
of the debt require monthly payments of $21,910 (inclusive of principal,
interest, at 13.55% per annum, and sales tax) commencing on September 1, 1999
and for eleven months thereafter. The Company has the option to prepay the
purchase of the equipment at its fair market value deemed to be 10% of the cost
of the equipment ($27,000). The Company exercised its option at the inception of
the lease. Cash provided from financing activities totaled $973,000 primarily
from the sale of Company shares of common stock to private investors pursuant to
an offering under Rule 504 of Regulation D of the Securities Act of 1933 as
amended, and an increase of a bank overdraft of $118,000. On April 6, 1999, the
Company completed the private offering by selling an aggregate of 1,000,800
shares of its common stock and raised $1 million. The proceeds have been
invested in cash equivalents, however the Company plans to use the remaining
proceeds ($418,000 as of December 31, 1999) (i) to expand and enhance its
current internet presence with the intent of increasing distribution
opportunities of the products and services of Participants featured on its
television programming and (ii) to open a new marketing office in New York City.
None of the proceeds are subject to binding agreements and accordingly, the
Company will have broad discretion in the application of such proceeds.
To date, the Company has financed its activities primarily through
operations and through the sale of its shares of its common stock to private
investors under exemption from registration of such securities provided by the
Securities Act of 1933. In February 1999, the Securities and Exchange Commission
revised Rule 504 of Regulation D to effectively limit the circumstances where
general solicitation is permitted and "freely tradable" securities may be issued
in reliance on the Rule to transactions:
(1) registered under state law requiring public filing and
delivery of a disclosure statement to investors before sale,
or
12
<PAGE>
(2) exempted under state law permitting general solicitation and
advertising so long as the sales are made to accredited
investors.
Since most transactions under Rule 504 are private ones, they will continue
to be permissible under exemption, but general solicitation and advertising will
not be permitted and the securities will be "restricted". In light of this
revision, the Company's ability to raise funds through the sale of "unrestricted
/ freely tradable" shares of its common stock to private investors may be
severely impaired. Accordingly, there can be no assurances that the Company will
be successful in obtaining additional financing in connection with any financing
possibility, on terms acceptable to the Company, or at all.
The Company believes that the cash and cash equivalents generated from its
current level of operations to be sufficient to meet its working capital
requirements over the balance of the next year. The Company continues to seek
opportunities for growth either through the opening of new offices, enhancing or
increasing production capacity, acquisitions, additional distribution channels
of its television programming of Participants' products and services and any and
all combinations thereof, and in connection therewith, may have to seek to raise
cash in the form of equity, bank debt or other debt financing.
STRATEGY
The Company's goal is to be recognized as a national leader in direct
response marketing by implementing an aggressive growth strategy. The key
elements of the Company's strategy to achieve this objective are:
* Increase the Number of Customers Participating in the Company's Programs.
The Company is constantly searching for additional Participants seeking a cost
effective means of marketing and advertising their products and services which
potentially represent additional opportunities of selling their products through
venues currently not being utilized (i.e., television, internet and retail
store), thereby increasing their revenues. As part of the process, the Company
searches for new entrepreneurial companies offering products for sale that
currently are not widely distributed, appear to have potential consumer appeal
and have a retail price point which is conducive for high unit volume. The
Company believes that there are numerous companies with such a profile whose
means of product distribution venues could be increased with the marketing and
distribution products and services offered by the Company. The Company believes
that one way of affecting such a strategy is to open new offices whereby each
office will focus on a singular theme of show, e.g. home improvement, sports
products, cooking, so as to develop a collective expertise which will enable the
Company to market itself as both specialists and generalists and thereby expand
its reach to potential new customers as well as re-marketing former prospective
participants. The Company opened two offices; Boca Raton and Deerfield Beach,
Florida, respectively during the third quarter of 1999 and plans to open an
office in New York City during the first quarter of 2000.
* Expand the Number of Distribution Opportunities. The Company currently
offers its customers' products for sale on its television programs, website and
retail store. As e-commerce has proliferated in a relatively short period of
time, the number of websites offering products for sale has commensurately
increased. The Company believes that during the next three years, those
companies which operate websites which are well capitalized, maintain
technological excellence and are retail/auction oriented will ultimately prevail
in a consolidation of the marketplace, thereby reducing the number of websites
and companies which operate them. The Company believes that such a consolidation
will ultimately lead to a lower transaction cost thereby making websites
available to the Company and its customers which were formerly cost prohibitive.
These cost effective websites could provide the Company with potential
additional revenue opportunities based upon the numerous products, services and
content currently featured on its programs. The Company is continuously
monitoring other auction websites for traffic and sales so as to identify those
websites which offer an effective manner and additional means of distributing
content, products and services of Participants featured on the Company's
shop-at-home television programming. Additionally, the Company is constantly
seeking to upgrade its existing websites so as to offer a greater number of
products featured on its shop-at-home television programming and to maintain its
websites so that products available for sale on the website coincide with
products currently appearing on the show. The Company has earmarked $300,000
from the proceeds of the sale of its common stock (completed in April 1999)
toward expanding and enhancing its internet presence.
* Maintain Industry Leadership in Direct Response Transactional Television and
Educational and Entertainment Television. The Company seeks to maintain and
utilize state-of-the-art production equipment in order to produce television
programming reflecting technical excellence. Additionally, the Company seeks to
hire highly trained production, support and artistically creative personnel. The
Company believes that by maintaining a high level of technological excellence
and well trained personnel, it can foster an increase in its customer base
through providing high quality programming which promotes increased revenue
potential for its direct response customers and heightens public awareness of
issues pertinent to its educational programming customers.
13
<PAGE>
The Company's ability to grow is dependent upon its ability to identify
suitable candidates for its services, as to which there is no assurance.
YEAR 2000 ISSUES
The Company continues to address the impact of the Year 2000 issue upon its
business. The Year 2000 issue is the result of computer hardware and software
programs designed to use two digits rather than four digits to define the
applicable year.
To date, neither the Company nor any third party with which the Company has
material relationships, has suffered any significant adverse consequences
resulting from the transition to the Year 2000. However, it is possible that
entities including the Company and third parties which the Company has material
relationships may suffer adverse Year 2000 consequences over the near term. In
order to minimize potential adverse effects, the Company has designated
personnel and consultants to identify, test and implement solutions to Year 2000
problems, if and when they arise.
SEASONALITY
The Company believes that contract volume tends to increase during the
second and third quarters and revenue generating activities tend to increase
during the third and fourth quarters of the year due to Participants desire to
have their products promoted during the holiday season.
NEW ACCOUNTING PRONOUNCEMENTS
There have been no accounting announcements promulgated during 1999 which
would have affected the presentation of the Company's financial statements as of
December 31, 1999 and for the year then ended nor any disclosures contained
therein.
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
PAGE NO.
---------
Independent Auditors' Report ................................. F- 1
Consolidated Balance Sheets as of December 31, 1998 and 1999 . F- 2
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1999 ................................ F- 3
Consolidated Statements of Stockholders' Deficit for the Years
Ended December 31, 1998 and 1999 .......................... F- 4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1999 ................................ F- 5
Notes to Consolidated Financial Statements ................... F- 7
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Site2shop.com, Inc.
Pompano Beach, Florida
We have audited the accompanying consolidated balance sheets of
Site2shop.com, Inc. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' deficit and cash
flows for the years ended December 31, 1999 and 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Site2shop.com,
Inc. and subsidiaries as of December 31, 1999 and 1998 and the results of its
operations and its cash flows for the years ended December 31, 1999 and 1998, in
conformity with generally accepted accounting principles.
F - 1
<PAGE>
<TABLE>
SITE2SHOP.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
-------------------
1998 1999
---------- -----------
ASSETS
Current Assets:
<S> <C> <C>
Cash ........................................................ $ 41,802 $ 450,157
Accounts receivable, net of allowance for doubtful accounts
of $429,118 at December 31, 1998 and $0 at December 31, 1999 634,052 1,589,438
Inventory ................................................... -- 22,030
Prepaid expenses and other current assets ................... 136,423 62,755
----------- -----------
Total Current Assets ............................... 812,277 2,124,380
Equipment and leasehold improvements, net ...................... 306,178 935,959
Advances to related party ...................................... 87,000 --
Other assets ................................................... 30,995 113,553
----------- -----------
TOTAL ASSETS .................................... $ 1,236,450 $ 3,173,892
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank overdraft .............................................. $ 89,098 $ 207,198
Accounts payable and accrued expenses ....................... 295,427 729,922
Deferred income taxes payable ............................... 924,000 1,089,000
Capital lease obligations- current portion .................. 29,134 23,498
Capital lease obligations- related party .................... -- 167,182
Deferred revenue ............................................ 2,640,378 2,403,241
----------- -----------
Total Current Liabilities .......................... 3,978,037 4,620,041
Capital lease obligations ...................................... 20,465 --
Stockholders' Deficit:
Common stock- $.001 par value, 150,000,000 shares authorized;
11,391,400 and 12,479,702 issued and outstanding at
December 31, 1998 and 1999 respectively ................... 11,391 12,480
Additional paid-in capital .................................. 305,233 1,515,488
Deferred compensation ....................................... -- (107,639)
Accumulated deficit ......................................... (3,078,676) (2,866,478)
----------- -----------
Total Stockholders' Deficit ........................ (2,762,052) (1,230,871)
----------- -----------
Total Liabilities and Stockholders' Deficit ................ $ 1,236,450 $ 3,173,892
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F - 2
<PAGE>
SITE2SHOP.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
---------------------------
1998 1999
------------ ------------
Revenues ............................ $ 7,330,221 $ 10,015,377
Cost of Revenues .................... 1,661,275 2,675,670
------------ ------------
Gross Margin ..................... 5,668,946 7,339,707
Selling Expenses .................... 1,701,252 2,908,292
General and Administrative Expenses . 3,247,782 4,081,092
------------ ------------
4,949,034 6,989,384
------------ ------------
Operating Income .................... 719,912 350,323
Income Taxes ........................ 734,000 165,000
------------ ------------
Net Income (Loss) ................... $ (14,088) $ 185,323
============ ============
Net Income per Common Share-Basic ... $ (0.01) $ 0.02
============ ============
Net Income per Common Share-Diluted . $ (0.01) $ 0.02
============ ============
Weighted Average Number of Common
Shares- Basic .................... 10,782,085 12,220,156
============ ============
Weighted Average Number of Common
Shares- Diluted .................. 10,782,085 12,273,628
============ ============
See Notes to Consolidated Financial Statements
F - 3
<PAGE>
SITE2SHOP.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional Total
Number of Paid-In Deferred Accumulated Stockholders'
Shares Amount Capital Compensation Deficit Deficit
----------- --------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ........... 10,000,000 $ 10,000 $ (9,000) $ -- $ (3,064,588) $ (3,063,588)
Common stock issued for acquisition .. 1,366,400 1,366 (1,366) -- -- --
Sale of common stock ................. 25,000 25 249,975 -- -- 250,000
Stock options issued for services .... -- -- 65,624 -- -- 65,624
Net loss for year ended
December 31, 1998 .................. -- -- -- -- (14,088) (14,088)
----------- -------- ----------- ---------- ------------ ------------
Balance, December 31, 1998 ........... 11,391,400 11,391 305,233 -- (3,078,676) (2,762,052)
Reacquisition of common stock ........ (12,500) (12) (26,863) -- (26,875) --
Stock options issued for services .... -- -- 68,750 -- -- 68,750
Sale of common stock ................. 1,000,802 1,001 998,999 -- -- 1,000,000
Common stock issued for services ..... 100,000 10 169,369 (169,469) -- --
Amortization for year ended
December 31, 1999 .................. -- -- -- 61,830 -- 61,830
Net income for the year ended
December 31, 1999 .................. -- -- -- -- 185,323 185,323
----------- -------- ----------- ---------- ------------ ------------
Balance, December 31, 1999 ........... 12,479,702 $ 12,480 $ 1,515,488 $ 117,639 $ (2,866,478) $ (1,230,871)
=========== ======== =========== ========== ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F - 4
<PAGE>
SITE2SHOP.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1999
----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) ....................... $ (14,088) $ 185,323
Adjustments to reconcile net income (loss)
to net cash used in operations:
Depreciation and amortization ........ 103,329 168,216
Stock options issued for services .... 65,624 68,750
Deferred income taxes ................ 734,000 165,000
Provision for uncollectible note
receivable- related party ........... -- --
Amortization of deferred compensation -- 61,830
Changes in operating assets and
liabilities:
Accounts receivable .................. 293,908 (955,386)
Inventory ............................ -- (22,030)
Prepaid expenses and other current
assets .............................. (136,423) 56,256
Other assets ......................... 2,361 (66,356)
Accounts payable and accrued expenses 52,723 434,496
Deferred revenue ..................... (1,220,313) (237,137)
------------ ----------
Total Adjustments .................. (104,791) (229,361)
------------ ----------
NET CASH USED IN OPERATIONS ............. (118,879) (44,038)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................. (131,164) (521,066)
------------ ----------
NET CASH USED IN INVESTING ACTIVITIES ... (131,164) (521,066)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock ... 250,000 1,000,000
Bank overdraft ....................... 89,098 118,100
Repayment of capital lease obligations (48,156) (26,101)
Repayment of capital lease obligations-
related party ....................... -- (108,540)
Note receivable- related party ........ (87,000) (10,000)
------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 203,942 973,459
------------ ----------
NET CASH INCREASE (DECREASE) ............. (46,101) 408,355
CASH- beginning of year .................. 87,903 41,802
------------ ----------
CASH- end of year ........................ $ 41,802 $ 450,157
============ ==========
</TABLE>
See Notes to Consolidated Financial Statements
F - 5
<PAGE>
SITE2SHOP.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS- continued
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1999
----------- -------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
<S> <C> <C>
Interest .......................... $ 9,815 $ 22,702
============ ==========
Interest- related party ........... $ -- $ 6,584
============ ==========
Taxes ............................. $ -- $ 1,531
============ ==========
Non cash investing and financing
activities:
Capitalized equipment leases ......... $ -- $ 275,722
============ ==========
Common stock issued for future
services ............................ $ -- $ 169,469
============ ==========
Reacquisition of common stock ........ $ -- $ 26,875
============ ==========
Stock options issued for services .... $ 65,624 $ 68,750
============ ==========
Write-off of note receivable-
related party ....................... $ -- $ 97,000
============ ==========
</TABLE>
See Notes to Consolidated Financial Statements
F - 6
<PAGE>
SITE2SHOP.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENED DECEMBER 31, 1998 AND 1999
1. BUSINESS
- -------------
On June 24, 1998, Site2shop.com, Inc., (formerly Tee-Rifik Corp.) (the
"Company"), a Nevada corporation, acquired 100% of the issued and outstanding
shares of Shop TV and Television, Inc. ("Shop"), a privately held Florida
corporation. The existing stockholders of the Company retained their 116,400
shares and the stockholders of Shop received shares of the Company at a ratio of
1,250 to 1 for a total of 1,250,000 shares. Due to the majority ownership of the
Company after the transaction by the former Shop stockholders (91.5%) and the
Company's lack of substantial assets, liabilities, or marketable products and/or
services, the transaction is considered to be a reverse acquisition, whereby
Shop is deemed to be the accounting acquirer and to be both the predecessor
entity and continuing entity. Accordingly, the combination of the two companies
is recorded as a recapitalization of Shop, whereby the combined assets and
liabilities are recorded on an historical basis. As neither the Company nor Shop
were actively engaged in revenue producing activities prior to this transaction
the Company's operations have only been included since June 24, 1998.
On February 9, 1999, the Company entered into an agreement to merge (the
"Merger Agreement") with Tricom Pictures and Productions, Inc. ("Tricom"), a
privately held Florida corporation, engaged in the marketing, production and
distribution of television programming, into a wholly-owned subsidiary. The
stockholders of Tricom; three of whom are Executive Officers of the Company and
owned 71.0% collectively of the common stock of the Company (85% of Tricom) and
five (remaining) stockholders collectively owned 5.6% of the Company (15% of
Tricom). Under the terms of the Merger Agreement, the Tricom stockholders
exchanged their shares at a ratio of 100,000 to 1 for a total of 10 million
shares. As a result of the merger, the former Tricom stockholders owned 96.8% of
the shares of Common Stock of the Company and the transaction is considered to
be a reverse acquisition whereby Tricom is considered to be the accounting
acquirer. As both companies were under common control, the combination of the
two companies is deemed to be a purchase and accounted for as an "as if" a
pooling of interests, whereby the combined assets and liabilities are recorded
on an historical basis. Accordingly, the audited balance sheets as of December
31, 1998 and 1999 represent the combined balance sheet of the Company and
Tricom. The audited Statements of Operations and Cash Flows for the year ended
December 31, 1998 and 1999 represent the combined operations of the Company and
Tricom for the respective years then ended. The Statement of Stockholders'
Deficit for the year ended December 31, 1998 gives effect to the issuance of 10
million shares by the Company in conjunction with the acquisition of Tricom as
of December 31, 1997.
The Company's business is to market its vendors' products through (i) a
half-hour shop-at-home program, and (ii) its internet websites, (iii) a
commercial retail store. Additionally the Company produces broadcast quality
educational, entertaining and informative television programs that are
distributed nationally via cable channels, network affiliates and independent
stations nationwide. The Company, through a resolution of the Board of
Directors, changed its name as of February 9, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------
A. Principles of Consolidation - The consolidated financial statements include
the accounts of Site2shop.com, Inc. and its wholly-owned subsidiaries,
Site2shop TV,Inc. (formerly Shop TV and Television, Inc.) and Tricom
Pictures and Productions, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.
B. Inventory - Inventory is recorded at the lower of cost or market using the
first-in first-out method. Additionally, the Company has $24,000 of
inventory on consignment at its retail store.
C. Equipment and Leasehold Improvements - Equipment is carried at cost.
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the various assets. Leasehold
improvements are amortized over the lesser of their estimated useful lives
or the lease term.
D. Revenue - A portion of revenue represents revenues from contracts to
produce television programs using the "percentage-of-completion-method"
recognizing revenue relative to the proportionate progress on such
contracts as measured by the ratio which costs incurred by the Company to
date bear to total anticipated costs on each program.
F - 7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- continued
- ----------------------------------------------------------
Deferred revenue represents amounts which have been billed and not yet
earned in accordance with this method. Deferred revenue was $2,403,241 and
$2,640,378 at December 31, 1999 and 1998 respectively. The Company had
additional signed contracts totaling $1,094,000 and $1,517,000 at December
31, 1999 and 1998, respectively, for which performance had yet to commence.
E. Fair Value of Financial Instruments - The carrying amounts reported in the
balance sheet for cash, receivables, and accounts payable approximate their
fair market value based on the short-term maturity of these instruments.
F. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
G. Income Taxes - Income taxes are accounted for under Statement of Financial
Accounting Standards No.109, "Accounting for Income Taxes," which is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax
returns.
H. Net Income (Loss) per share - The Company has adopted Statement of
Financial Accounting Standard No. 128, "Earnings per Share" specifying the
computation, presentation, and disclosure requirements of earnings per
share information. Basic earnings per share has been calculated based upon
the weighted average number of common shares outstanding. Stock options
have been excluded as common stock equivalents in the diluted earnings per
share in the event they are either antidilutive, or their effect is not
material. On February 23, 1999, the Company affected a 1 for 10 reverse
stock split. The financial statements have been restated to give
retroactive recognition to the reverse stock split.
I. Stock Based Compensation - The Company accounts for stock transactions in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." In accordance with the Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation", the Company
has adopted the pro forma disclosure requirements of Statement No. 123.
J. Impairment of Long-lived Assets - The Company reviews long-lived assets for
impairment whenever circumstances and situations change such that there is
an indication that the carrying amounts may not be recovered. At December
31, 1999, the Company believes that there has been no impairment of its
long-lived assets.
K. Concentration of Risk - Credit losses, if any, have been provided for in
the financial statements and are based on management's expectations. The
Company's accounts receivable are subject to potential concentrations of
credit risk. The Company does not believe that it is subject to any unusual
or significant risks, in the normal course of business.
L. New Accounting Pronouncements - There have been no accounting announcements
promulgated during 1999 which would have affected the presentation of the
Company's financial statements as of December 31, 1999 and for the year
then ended nor any disclosures contained therein.
F - 8
<PAGE>
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
- -----------------------------------------
Equipment and Leasehold Improvements are as follows:
<TABLE>
<CAPTION>
December 31,
Estimated -------------------
Useful Lives 1998 1999
------------ ---------- ------------
<S> <C> <C> <C> <C>
Furniture and Fixtures ............. 7 - 10 Years $ 69,173 $ 222,221
Computer Equipment ................. 5 - 7 Years 118,772 154,546
Office Equipment ................... 5 - 7 Years 120,120 191,674
Leasehold Improvements ............. 2 - 5 Years 30,784 238,840
Leasehold Improvements- Retail Store 4 Years 37,505 39,467
Retail Store Equipment ............. 5 Years 7,515 7,515
Retail Store Signs ................. 4 Years 4,200 4,200
Vehicles ........................... 3 Years 9,130 68,166
Production Equipment ............... 7 Years 196,182 463,539
------- ---------
593,381 1,390,168
Less: Accumulated depreciation and
amortization ................ 287,203 454,209
------- ---------
$ 306,178 $ 935,959
======== =========
</TABLE>
4. RELATED PARTY TRANSACTIONS
- -------------------------------
At December 31, 1998, the Company had advanced $87,000 to a related party
which is 67% owned by two of the Executive Officers of the Company; and who own
67% of the Company. The advances were payable on demand. In January 1999, the
Company lent an additional $10,000 at which time the related party gave the
Company a Note for $ 97,000 with interest accruing at the rate of 8% per annum.
Payment of interest commences on August 1, 1999 and for 59 consecutive months
thereafter and the principal to be paid in full with the last monthly interest
payment. Although the Company received $7,200 of interest income from the
related party for the year ended December 31, 1999, the Company, based on the
review of the financial condition of the related party, believes that collection
of the note is doubtful and has fully provided for such loss. Additionally, the
Company rendered television production services during 1999 totaling $24,000
which has been paid in full by the related party.
In September 1999, the Company entered into a capital master lease to
purchase $275,722 of production, transportation and office equipment with a
related party which is 100% owned by two of the Executive Officers of the
Company and who own 67% of the Company. Under the terms of the lease, the
Company is required to make 12 monthly payments of $21,910 (inclusive of
interest at 13.5% per annum and sales tax) and may purchase the equipment at any
time during the term of the lease for 10% of the original cost of the equipment.
The Company exercised the option at the inception of the lease. The Company paid
$6,584 of interest to the related party for the year ended December 31, 1999.
5. COMMON STOCK
- -----------------
In July 1998, the Company completed a private placement of 25,000 shares of
its common stock for $250,000. In February 1999, the Company reacquired 12,500
of these shares. The market value at the time was $26,875.
During the period of January 15, 1999 through April 6, 1999, the Company
issued 1,000,802 shares of common stock to 29 investors for gross proceeds of
one million dollars in connection with an offering pursuant to Rule 504 of the
Securities Act of 1933 as amended.
During the period of April 6, 1999 through August 10, 1999, the Company
issued 100,000 shares of its common stock, in aggregate, to two attorneys and
two consultants for services to be rendered over a period ranging from one to
four years from the respective dates of issuance. The aggregate market value of
the shares issued based on the respective dates of issuance was $169,000 and the
unamortized portion of the grant as of December 31, 1999 was $117,000.
6. INCOME TAXES
- -----------------
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes ("SFAS No.109"). SFAS
No.109 requires the recognition of deferred tax assets and liabilities for both
F - 9
<PAGE>
6. INCOME TAXES- continued
- ----------------------------
the expected impact of differences between the financial statements and tax
basis of assets and liabilities, and for the expected future tax benefit to be
derived from tax loss and tax credit carryforwards. SFAS No. 109 additionally
requires the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets.
The provision for income taxes differs from the amount computed applying
the statutory federal income tax rate to income before income taxes as follows:
Year Ended December 31,
-----------------------
1998 1999
--------- --------
Statutory federal income tax rate ........ 34.0% 34.0%
State taxes, net of federal tax benefit .. 3.6 3.6
Other .................................... 64.4 9.5
----- -----
102.0 47.1
===== =====
Year Ended December 31,
------------------------
1998 1999
----------- -------------
Income taxes computed at statutory rate .. $ 245,000 $ 132,000
Effect of permanent differences .......... 489,000 33,000
-------- --------
Provision for income taxes-deferred ...... $ 734,000 $ 165,000
======== ========
Deferred income taxes are the result of temporary differences between the
carrying amounts of assets and liabilities relating to contracts to produce
television programs where the percentage of completion method is utilized for
financial reporting purposes and the "completed contract" method where revenues
and expenses are recognized upon completion of the television programs is used
for income tax reporting. The following table sets forth the component of
deferred tax liabilities:
December 31,
------------------------------
1998 1999
------------ --------------
Deferred revenue ......................... $ 1,885,000 $ 2,226,000
Production costs in progress ............. (1,026,000) (1,207,000)
Other..................................... 65,000 70,000
------------ ------------
Total ................................. $ 924,000 $ 1,089,000
============ ============
As of December 31, 1999 the Company has net operating losses of
approximately $1,000,000 that are available to reduce future taxable income
though the year 2014.
7. CAPITAL LEASE OBLIGATIONS
- ------------------------------
The Company leases equipment under non cancelable lease arrangements which
expire at various times during the year 2000. Principal payments under these
capitalized lease obligations over their remaining terms are as follows:
2000 ............................... $ 25,112
Less: amounts representing interest. 1,614
-------
Capital lease obligations-current .. $ 23,498
=======
8. COMMITMENTS
- ----------------
A. Operating Leases - The Company leases its offices, retail store, and
warehouse under non-cancellable operating leases. All leases have options
to renew ranging from a month-to-month basis up to five years. Rent expense
for the years ended December 31, 1999, and 1998 was $253,639, and $182,511.
F - 10
<PAGE>
8. COMMITMENTS- continued
- ---------------------------
The leases expire through August 2004. Minimum rental commitments are as
follows:
Minimum
Year Rental
---- -------
2000 $ 290,960
2001 $ 181,417
2002 $ 92,065
2003 $ 62,846
2004 $ 32,034
B. Employment Agreements - the Company has employment agreements with three
key executive officers. The agreements continue for approximately two years
ending between June and August of 2001 requiring minimum annual aggregate
salaries of $900,000 and provide for severance payments under certain
circumstances. The agreements provide the officers with certain additional
rights after a change of control (as defined) of the Company occurs. As of
December 31, 1999, if all of the officers under contract were to be
terminated without good cause (as defined) under these contracts, the
Company's liability would be approximately $1,700,000. Additionally,
certain officers received signing bonuses as part of these agreements and
all officers are entitled to monthly bonuses at the discretion of the
Company's Compensation Committee of which these three key executive
officers are members thereof.
C. Contingencies - the Company is a defendant in various lawsuits and claims
which in the aggregate seek general and punitive damages approximating
$88,000; these matters arise out of the normal course of business. The
Company intends to vigorously defend itself in these actions, and in any
event, does not believe these actions singularly or combined would have a
material adverse effect on the Company's financial statements or business
operations.
9. ACQUISITIONS
- -----------------
The acquisition of Tricom is a reorganization of Companies under common
control, which has been accounted for as an "As If" pooling of interests with
Tricom deemed to be the accounting acquirer. Accordingly, the consolidated
financial statements have been restated for all periods prior to the acquisition
to include the accounts and operations of Tricom.
Net revenues and net loss for the individual entities are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998: Site2shop.com Tricom Combined
------------- ------------- -----------
<S> <C> <C> <C>
Net revenues ...................... $ 1,198,241 $ 6,131,980 $ 7,330,221
Net income (loss) before
extraodinary item ................ $ (1,224,531) $ 1,210,443 $ (14,088)
Net income (loss) ................. $ (1,224,531) $ 1,210,443 $ (14,088)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1999: Site2shop.com Tricom Combined
------------- ------------- -----------
<S> <C> <C> <C>
Net revenues ...................... $ 5,420,639 $ 4,594,738 $ 10,015,377
Net income (loss) before
extraordinary loss ............... $ 735,625 $ (549,942) $ 185,323
Net income (loss) ................. $ 735,265 $ (549,942) $ 185,323
</TABLE>
10. STOCK OPTIONS
- ------------------
The Company adopted a Stock Option Plan (the "Plan") in September 1998. The
Plan is administered by a committee ("Committee") appointed by the Board of
Directors and provides that the Committee has sole discretion to grant options
and to establish terms and conditions of each option, subject to the provisions
of the Plan. If options granted are "incentive stock options," the exercise
price of the options may not be less than 100% of the fair market value of the
Company's stock on the date of the grant (110% of the fair market value if the
grant is to an employee who owns more than 10% of the outstanding common stock).
Non-statutory options may be granted under the Plan at an exercise price of not
less than 55% of fair market value of the common stock on the date of the grant.
The maximum grant term is ten years. The Plan is designed for officers,
directors, and other key employees and is authorized to grant up to 3,000,000
F - 11
<PAGE>
10. STOCK OPTIONS- continued
- -----------------------------
shares of common stock. On December 22, 1998, the Company issued options to
purchase 150,000 shares of its common stock to three Executive Officers. The
options vested upon issuance and were issued at an exercise price of less than
fair market value on the date of grant. The compensation expense recorded on the
date of grant was $65,624. In April 1999, the Company issued options to purchase
50,000 shares of its common stock to nine employees. The options vest upon 24
months of completion of continuous service from the date of grant and were
issued at an exercise price of less than fair market value on the date of grant.
The compensation expense recorded on the date of grant totaled $68,750. All
other option grants since inception of the Plan were at fair market value as of
the date of the grant. As of December 31, 1999, 2,378,010 options have been
granted at prices ranging from $0.8125 to $35.60 per share and no options have
been exercised. There have been 9,790 options forfeited since inception of the
Plan as a result of employee terminations.
For disclosure purposes the fair value of each stock option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for stock options granted during
the year ended December 31, 1999: annual dividends of $0.00, expected volatility
of 270%, risk-free interest rate of 6.13 % and expected life of 4 years for all
grants. The weighted-average fair values of the stock options granted during the
year ended December 31, 1998 was $1.31. The assumptions used for stock options
granted during the year ended December 31, 1998: annual dividends of $0.00,
expected volatility of 50%, risk-free interest rate of 6.0 % and expected life
of 5 years for all grants. The weighted-average fair values of the stock options
granted during the year ended December 31, 1998 was $2.20.
If the Company recognized compensation cost for the employee stock option
plan in accordance with SFAS No. 123, the Company's pro forma net loss and loss
per share would have been $1,099,862 and $0.09 in 1999 and $1,432,677 and $0.13
in 1998 respectively.
The following table summarizes the changes in options outstanding and the
related price ranges for shares of the Company's common stock:
<TABLE>
<CAPTION>
Number of Price per Share Number of Shares
Shares Range Exercisable
------------- --------------------- ----------------
<S> <C>
Outstanding, January 1, 1998 . --
Granted ...................... 156,375 $1.00 - $35.60 154,585
Exercised .................... --
Canceled ..................... (470) $35.60 --
----------- -------
Outstanding, December 31, 1998 155,905 $1.00 - $35.60 154,585
Granted ...................... 2,221,635 $0.8125 - $2.375 800,000
Exercised .................... --
Canceled ..................... (9,320) $0.8125 - $35.60 --
----------- -------
Outstanding, December 31, 1999 2,368,220 $0.8125 - $35.60 954,585
=========== =======
</TABLE>
On February 23, 1999, the Company affected a 1 for 10 reverse stock split.
All options granted and related exercise prices have been restated to give
retroactive recognition to the reverse stock split.
11. SUBSEQUENT EVENTS
- ----------------------
On January 2, 2000, the Company entered into a consulting agreement
("Agreement") with a corporation to provide the Company financial advisory and
marketing services in consideration of receipt by a principal of the corporation
of 25,000 shares of the Company's common stock. The term of the Agreement is the
later of one year from the date of the Agreement or the consummation of a merger
or acquisition with a candidate introduced by the corporation, but in no event
to exceed two years from the date of the Agreement.
On January 2, 2000, the Company issued 10,000 shares of its common stock to
a corporation to provide employee counseling services to the employees of the
Company on as needed basis for a period of one year.
F - 12
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- ----------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------
The following table sets forth the names, positions with the Company and
ages of the executive officers and directors of the Company. Directors will be
elected at the Company's annual meeting of shareholders and serve for one year
or until their successors are elected. Officers are elected by the Board, and
their terms of office are, except as governed by employment contract, at the
discretion of the Board.
YEAR FIRST
NAME AGE POSITION ELECTED
- --------------- ---- ------------------------ ----------
Mark A. Alfieri 31 Chief Executive Officer, 1998
President and Treasurer
Jack A. Levine 41 Vice President, Secretary and 1998
Chairman of the Board of
Directors
Eric J. Warm 31 Chief Operating Officer, Vice 1998
President and Director
Mark Weicher 48 Chief Financial Officer 1999
Mr. Alfieri has served as Chief Executive Officer, President and Treasurer
since July 1998. In July 1994, Mr. Alfieri founded Alfieri Marketing
Corporation, a fully integrated marketing firm and predecessor to Shop TV and
Television, Inc. In 1991, Mr. Alfieri founded Alfieri and Associates, Inc., a
marketing and advertising company and the predecessor of Tricom Pictures &
Productions, Inc.
Mr. Levine has served as Vice President and Chairman of the Board of
Directors since July 1998. Prior to such time, Mr. Levine co-founded Tricom
Pictures and Productions, Inc. with Mr. Alfieri in 1994 and has served as its
Vice President.
Mr. Warm has served as Chief Operating Officer and Director since July
1998. From 1994 through June 1998, Mr. Warm has served as Vice President of
Operations of Tricom Pictures and Productions, Inc. Mr. Warm received a Bachelor
of Science in Business Administration from the University of Florida in 1990.
Mr. Weicher has served as Chief Financial Officer since January 1999. From
1997 through 1998, Mr. Weicher served in a similar capacity at Computer Access
International, Inc., a refurbisher and distributor of trailing technology
hardware and peripherals. Mr. Weicher served as Controller of Complete
Management, Inc., a physician practice-management company, from 1995 through
1996. From 1992 through 1994, Mr. Weicher served as Controller of Ware
Industries, Inc. a manufacturer and distributor of light gauged, roll formed
steel products. Mr. Weicher is a Certified Public Accountant in the State of New
York.
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------
The following table sets forth the cash and other compensation paid by the
Company to its Chief Executive Officer and to each of the executive officers of
the Company who received annual compensation in excess of $100,000 for the years
ended December 31, 1999, 1998 and 1997.
15
<PAGE>
SUMMARY COMPENSATION TABLE
NAME AND OTHER
PRINCIPAL ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION
- -------------- ------- -------- ------------ ------------
Mark Alfieri,
Chief Executive
Officer 1999 $408,019 $228,450 $28,906 (1)
1998 $175,515 $125,000 $ 5,607 (2)
1997 $868,750 $ 0 $ 8,865 (2)
Jack Levine,
Vice President 1999 $408,019 $228,450 $28,906 (1)
1998 $192,495 $125,000 $ 5,846 (2)
1997 $893,750 $ 0 $ 8,865 (2)
Eric Warm
Chief Operating
Officer 1999 $236,486 $129,750 $ 6,000 (2)
1998 $248,865 $ 0 $ 0
1997 $457,137 $ 0 $ 0
- ----------
(1) Represent health and welfare benefits ($6,822) and auto lease payments and
related costs ($22,084).
(2) Represents auto lease payments and related costs.
OPTION HOLDINGS
The following table sets forth information with respect to the grant of
options to purchase shares of common stock during the calendar years ended
December 31, 1998 ("1998") and 1999 ("1999") to each person named in the Summary
Compensation Table.
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIR.
NAME PERIOD GRANTED(#)(1) PERIOD ($/SHARE) DATE
- ---------- ------ -------------- ------------ ----------- ----------
Mark Alfieri 1999 834,300 37.6 $.89375 - $2.375 (2)
1998 61,905 39.6 $1.00 Dec.21,2003
Jack Levine 1999 833,870 37.5 $.89375 - $2.375 (2)
1998 61,905 39.6 $1.00 Dec.21,2003
Eric Warm 1999 104,000 11.3 $.89375 - $2.375 (2)
1998 26,190 16.7 $1.00 Dec.21,2003
- ------------------------
(1) None of the above parties has exercised any of their options as of
December 31, 1999. The 1998 grant vested on December 22, 1998, the date of
Grant. The 1999 grants vest on April 1, 1999, the date of grant and
October 10, 2001, two years from the date of grant. There are no other
conditions of vesting.
(2) The 1999 grants expire on March 31, 2004 and October 9, 2004 respectively.
AGGREGATED FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth certain information concerning unexercised
option held by the named Executive Officers as of December 31, 1999. No stock
options were exercised by the named Executive Officers during the year ended
December 31, 1999. No stock appreciation rights were granted or are outstanding.
Number of Unexercised Options Value of Unexercised in the Money
Held at December 31, 1999 Options at December 31, 1999 (1)
----------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------- ----------- ------------- ----------- -------------
Mark Alfieri 409,905 485,870 $ 61,905 $ 537,494
Jack Levine 409,905 486,300 $ 61,905 $ 537,969
Eric Warm 130,190 147,465 $ 26,190 $ 163,133
(1) Dollar values are calculated based on the difference between the respective
option exercise price and $2.00, the closing price of the Company's Common
Stock on December 31, 1999, as reported by the NASDQ OTC Bulletin Board.
EMPLOYMENT AGREEMENTS
Mark Alfieri, President and CEO. On June 29, 1998, the Company entered into
16
<PAGE>
a three-year employment agreement (the "Agreement") with Mr. Alfieri whereby Mr.
Alfieri will serve as President and a member of the Board of Directors and
received a signing bonus of $125,000. The Agreement called for annual base
compensation of $450,000 in 1998 and $250,000 in 1999 and 2000 with bonuses
based upon the Company earning a minimum net income of $250,000 and bonus
payments ranging from $50,000 to $125,000 predicated on net income ranging from
$250,001 to $500,000 for 1998 and 1999. Bonus payments for 2000 would range from
$50,000 to $125,000 predicated on Company earning net income (after bonus)
ranging from $500,001 to $750,000. Additionally, the Agreement provides for a
monthly auto allowance of $1,200 plus insurance and maintenance. On April 4,
1999, the Company and Mr. Alfieri mutually modified the Agreement, retroactive
to April 1, 1999, as a result of the acquisition of Tricom Pictures and
Productions, Inc. (See Part I Item 1. - Business), whereby the annual
compensation was raised to $325,000 and bonuses are to be paid monthly at the
discretion of the Compensation Committee of which Mr. Alfieri is a member. The
Agreement is automatically renewable for successive one-year terms unless the
parties mutually agree in writing to alter the terms or one or both of the
parties exercises their right, in accordance with the terms of the Agreement, to
terminate the Agreement.
Jack Levine, Vice President. On June 29, 1998, the Company entered into a
three-year employment agreement (the "Agreement") with Mr. Levine whereby Mr.
Levine will serve as Vice President and a member of the Board of Directors and
received a signing bonus of $125,000. The Agreement called for annual base
compensation of $450,000 in 1998 and $250,000 in 1999 and 2000 with bonuses
based upon the Company earning a minimum net income of $250,000 and bonus
payments ranging from $50,000 to $125,000 predicated on net income ranging from
$250,001 to $500,000 for 1998 and 1999. Bonus payments for 2000 would range from
$50,000 to $125,000 predicated on Company earning net income (after bonus)
ranging from $500,001 to $750,000. Additionally, the Agreement provides for a
monthly auto allowance of $1,200 plus insurance and maintenance. On April 4,
1999, the Company and Mr. Levine mutually modified the Agreement, retroactive to
April 1, 1999, as a result of the acquisition of Tricom Pictures and
Productions, Inc. (See Part I Item 1. - Business), whereby the annual
compensation was raised to $325,000 and bonuses are to be paid monthly at the
discretion of the Compensation Committee of which Mr. Levine is a member. The
Agreement is automatically renewable for successive one-year terms unless the
parties mutually agree in writing to alter the terms or one or both of the
parties exercises their right, in accordance with the terms of the Agreement, to
terminate the Agreement.
Eric Warm, Vice President and Chief Operating Officer. On August 1, 1998,
the Company entered into a three-year employment agreement (the "Agreement")
with Mr. Warm whereby Mr. Warm will serve as Chief Operating Officer and a
member of the Board of Directors. The Agreement called for annual base
compensation of $200,000 in 1999 and 2000 respectively, with 1999 bonuses based
upon Company earning a minimum net income of $250,000 and bonus payments ranging
from $25,000 to $62,500 predicated on net income ranging from $250,001 to
$500,000. Bonuses in 2000 are based upon the Company earning a minimum net
income of $500,000 and bonus payments ranging from $25,000 to $62,500 predicated
on net income ranging from $500,001 to $750,000. Additionally, the Agreement
provides for a monthly auto allowance of $500 plus insurance and maintenance. On
April 4, 1999, the Company and Mr. Warm mutually modified the Agreement,
retroactive to April 1, 1999, as a result of the acquisition of Tricom Pictures
and Productions, Inc. (See Part I Item 1 -Business), whereby bonuses are to be
paid monthly at the discretion of the Compensation Committee of which Mr. Warm
is a member. The Agreement is automatically renewable for successive one-year
terms unless the parties mutually agree in writing to alter the terms or one or
both of the parties exercises their right, in accordance with the terms of the
Agreement, to terminate the Agreement.
1998 AMENDED STOCK OPTION PLAN
On September 10, 1998 the Board of Directors adopted the Company's 1998
Stock Option Plan (the "Plan"). On December 1, 1998, the Plan was amended by
Consent of the Board of Directors and Majority Shareholders to increase the
number of shares of common stock which may be purchased by option (the "Plan
Option" as hereinafter defined), from 1,500,000 to 3,000,000.
The Company believes the Plan will foster an increase in proprietary
interest in the Company by its directors, officers, employees and consultants,
and to align more closely their interests with the interests of the Company's
shareholders. The Plan will also aid the Company in attracting and retaining the
services of experienced and highly qualified employees and professionals. The
Board of Directors or a Committee of the Board of Directors (the "Committee"),
of the Company, will administer the Plan which includes, without limitation, the
selection of the person(s) who will be granted Plan Options under the Plan, the
type of Plan Options to be granted, the number of shares subject to each Plan
Option and the Plan Option price.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). In addition, the Plan also allows for the inclusion
17
<PAGE>
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of Common Stock owned
by the eligible person and to receive a new Plan Option to purchase shares of
Common Stock equal in number to the tendered shares. Any Incentive Option
granted under the Plan must provide for an exercise price of not less than 100%
of the fair market value (as defined) of the underlying shares on the date of
such grant, but the exercise price of any Incentive Option granted to an
eligible employee owning 10% of the Company's Common Stock must be at least 110%
of such fair market value as determined on the date of the grant. The term of
each Plan Option and the manner in which it may be exercised is determined by
the Board of Directors or the Committee, provided that no Plan Option may be
exercisable more than 10 years after the date of its grant and in the case of an
Incentive Option granted to an eligible employee owning more than 10% of the
Company's Common Stock, no more than five years after the date of the grant. The
exercise price of Non-Qualified Options shall be determined by the Board of
Directors or the Committee.
The per share purchase price of shares subject to the Plan Options granted
under the Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors, key employees and consultants of the Company and its
subsidiaries will be eligible to receive Non-Qualified Options under the Plan.
Only officers, directors, and employees of the Company who are employed by the
Company or by any subsidiary thereof are eligible to receive Incentive Options.
All Plan Options are non-assignable and non-transferable, except by will or
by the laws of descent and distribution, during the lifetime of the optionee,
and may be exercised only by such optionee. If an optionee's employment is
terminated for any reason (other than death or disability or termination for
cause), or if an optionee is not an employee of the Company but is a member of
the Company's Board of Directors and his service as a Director is terminated for
any reason (other than death or disability), the Plan Option granted to him
shall lapse to the extent unexercised on the earlier of the expiration date or
30 days following the date of his termination. If the optionee dies during the
term of his employment, the Plan Option granted to him shall lapse to the extent
unexercised on the earlier of the expiration date of the Plan Option or the date
one year following the date of the optionee's death. If the optionee is
permanently and totally disabled within the meaning of Section 22(c) (3) of the
Internal Revenue Code of 1986, the Plan Option granted to him lapses to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of such disability.
The Board of Directors or the Committee may amend, suspend or terminate the
Plan at any time, except that no amendment shall be made which (i) increases the
total number of shares subject to the Plan or changes the minimum purchase price
therefor (except in either case in the event of adjustments due to changes in
the Company's capitalization), (ii) affects outstanding Plan Options or any
exercise right thereunder, (iii) extends the term of any Plan Option beyond ten
years, or (iv) extends the termination date of the Plan. Unless the Plan shall
theretofore have been suspended or terminated by the Board of Directors, the
Plan shall terminate approximately 10 years from the date of the Plan's
adoption. Any such termination of the Plan shall not affect the validity of any
Plan Options previously granted thereunder.
As of December 31, 1999, 2,365,220 Plan Options are outstanding pursuant to
the Plan. The following table summarizes the status of the Options issued and
outstanding:
<TABLE>
<CAPTION>
Number of Securities Exercise Price Expiration
Date of Grant Underlying Options Per Share Date
- ----------------- ---------------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sep. 10, 1998 (1) 6,375 $ 35.625 Sep. 9, 2003
Dec. 22, 1998 (2) 150,000 $ 1.00 Dec. 21, 2003
Forfeitures (3) (470) $ 35.625 Sep. 9, 2003
-----------
Balance at December 31, 1998 155,905
Apr. 1, 1999 (2) 800,000 $ 2.375 Mar. 31, 2004
Apr. 1, 1999 (4) 50,000 $ 1.00 Mar. 31, 2004
Oct. 10, 1999 (4) 247,000 $ 0.8125 Oct. 9, 2004
Oct. 10, 1999 (4) 1,119,635 $ 0.89375 Oct. 9, 2004
Forfeitures (3) (5) (9,320) (5) (5)
-----------
Balance at December 31, 1999 2,363,220 (6) Sep. 9, 2003 - Mar. 31, 2004
==========
</TABLE>
Notes:
(1) Options vest upon grantee's completion of 36 months of employment from
initial hire date. No grantee's options had vested as of the date of
grant.
(2) All options vest upon date of grant.
18
<PAGE>
(3) All options expired as a result of grantee's termination of employment.
(4) All options vest upon completion of 24 months of employment from date of
grant.
(5) 1,320 options expired from the September 10, 1998 grant, 3,000 options
expired from the second April 1, 1999 grant and 5,000 options from the
first October 10, 1999 grant.
(6) As of December 31, 1999, 954,585 options had vested, none of which were
exercised. The remaining 1,408,635 options outstanding as of December
31, 1999 had not vested nor were exercised.
EXECUTIVE BONUS PLAN
In conjunction with the acquisition of Tricom, the Company's Board of
Directors ("Board") formed the Compensation Committee ("Committee") on April 1,
1999 to reward executive officers and other key employees based upon the
performance of the Company and such individuals. Under the Plan, the Committee
may recommend subject to the Board's approval bonuses from time to time. The
Committee is comprised of Messrs. Alfieri, Levine and Warm and Mr. Wayne Gill, a
principal of the law firm Gill & Associates, P.A. who performs legal services on
behalf of the Company. Mr Gill received 5,000 shares of Common Stock of the
Company and $32,000 of fees in connection with legal services rendered on behalf
of the Company. Mr. Gill received no compensation for his services as a member
of Compensation Committee. Messrs. Alfieri, Levine and Warm are also members of
the Board.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The following table sets forth certain information regarding the Company's
Common Stock beneficially owned on February 29, 2000, for (i) each shareholder
known by the Company to be the beneficial owner of five (5%) percent or more of
the Company's outstanding Common Stock, (ii) each of the Company's executive
officers and directors, and (iii) all executive officers as a group. In general,
a person is deemed to be a "beneficial owner" of a security if that person has
or shares the power to vote or direct the voting of such security, or the power
to dispose of or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities to which the person has the
right to acquire beneficial ownership within sixty (60) days. At February 29,
2000, there were 12,514,702 Shares ("Shares") of the Company's Common Stock, par
value $.001 (the "Common Stock") outstanding.
Name and Address of Number of Shares of Common Percentage of
Beneficial Owner (1) Stock Beneficially Owned Beneficial Ownership
- ---------------------- ------------------------- ---------------------
Mark Alfieri 5,052,855 (2) 37.7%
Jack Alan Levine 5,057,300 (3) 37.7%
Eric Warm 1,537,655 (4) 12.0%
Mark Weicher - (5) -.-%
All Executive Officers and
Directors as a Group (4 persons) 11,657,810 79.9%
- --------------------------------------------------
(1) Unless otherwise indicated, the address of each of the listed
beneficial owners identified is 2001 West Sample Road, Pompano Beach,
Florida 33064.
(2) Mr. Alfieri is Chief Executive Officer, Director, President and
Treasurer of the Company. Includes options to purchase 61,905 Shares
at $1.00 per Share through December 21, 2003, 348,000 Shares at $2.375
per Share through March 31, 2004 and 486,300 Shares at $0.89375 per
Share through October 9, 2004. Includes 3,702,500 shares held by
the Alfieri-Eade Family Limited Partnership #1 of which Mr. Alfieri is
the general partner.
(3) Mr. Levine is Chairman of the Board of Directors, Vice President and
Secretary of the Company. Includes options to purchase 61,905 Shares
at $1.00 per Share through December 21, 2003, 348,000 Shares at $2.375
per Share through March 31, 2004 and 485,870 Shares at $0.89375 per
Share through October 9, 2004. Includes 3,702,500 shares held by the
Jack Alan Levine Family Limited Partnership #1 of which Mr. Levine is
the general partner.
(4) Mr. Warm is Chief Operating Officer and a Director of the Company.
Includes options to purchase 26,190 Shares at $1.00 per Share through
December 21, 2003, 104,000 Shares at $2.375 per Share through March
31, 2004 and 147,465 Shares at $0.8975 per Share.
19
<PAGE>
(5) Mr. Weicher is Chief Financial Officer of the Company. Does not include
options to purchase 5,000 Shares at $1.00 per Share through March 31,
2004 and 5,000 Shares at $0.8125 per Share through October 9, 2004.
The initial grant vests upon the completion of 24 months with the
Company (January 24, 2001)and the latter grant vests two years from
date of grant (October 10, 1999). Mr. Weicher's percentage of
beneficial ownership is less than 0.01%.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
On February 10, 1999 the Company announced plans to acquire Tricom in
exchange for 10 million shares of the Company's Common Stock, subject to
receiving a fairness opinion reflecting a valuation of Tricom of not less than
$10 million. The Company's Board of Directors retained the services of an
independent experienced business appraisal firm to make such a determination.
The firm concluded that based on its review and analysis of the transaction and
all relevant factors and data, the fair market value of Tricom approximated
$11.4 million and that the transaction was fair to the shareholders of the
Company from a financial point of view. On March 8, 1999, the Company completed
its acquisition of Tricom based on the previously announced terms. Tricom was
85% owned by three Executive Officers of the Company (Messrs. Alfieri, Levine
and Warm) at the time of acquisition and the remaining five shareholders of
Tricom (Messrs. R. Secreto, D. Campbell, N. Ferber, C. Grossman and G. Grossman)
were existing stockholders of the Company prior to the acquisition. On the date
the Company's shares were issued to the Tricom stockholders (March 8, 1999), the
market value of the stock issued approximated $28,750,000.
As of February 1, 1999, the Company advanced $97,000 to a company, Legal
Street Enterprises, Inc., which is 67% owned by the Executive Officers (Messrs.
Alfieri and Levine, individually; 33.333% each) of the Company. Interest
payments at the rate of 8% per annum commence on August 1, 1999 and for 59
consecutive months thereafter. A balloon payment of the full principal amount is
due with the 60th month payment. Legal Street prepaid the interest for the
period of February 1999 through December 1999 ($7,200) in September 1999,
however, after review of Legal Street's financial condition by the Company's
management, the Company has opted to fully provide for potential loss of the
full value of the Note as of December 31, 1999. Additionally, the Company
rendered television production services during 1999 totaling $24,000 which has
been paid in full.
On September 1, 1999, the Company entered into a master lease agreement to
lease $276,000 of television production, transportation and office equipment
with a corporation owned by two executive officers (Messrs. Alfieri and Levine)
of the Company. The terms of the debt require monthly payments of $21,910
(inclusive of principal, interest, at 13.55% per annum, and sales tax)
commencing on September 1, 1999 and for eleven months thereafter. The Company
has the option to prepay the purchase of the equipment at its fair market value
deemed to be 10% of the cost of the equipment ($27,000). The Company exercised
its option at the inception of the lease.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
- -------------------------------------------
(a) There were no reports on Form 8-K filed by the Registrant during the
period of July 14, 1999, the effective date of the Registration Statement
and December 31, 1999.
(b) Exhibits
Exhibit
Number Description
------- --------------------------------------------
2 * Agreement and Plan of Reorganization *
2.1 * Merger Agreement of February 9, 1999 *
3.1 * Articles of Incorporation *
3.1.2 * Certificate of Amendment of Articles of
Incorporation dated August 16, 1996 *
3.1.3 * Certificate of Amendment of Articles of
Incorporation dated June 25, 1998 *
3.1.4 * Certificate of Amendment of Articles of
Incorporation dated February 9, 1999 *
10.2 * Executive Employment Agreement dated June 29,
1998 between Registrant and Mark Alfieri *
10.3 * Executive Employment Agreement dated June 29,
1998 between Registrant and Jack Levine *
10.4 * Executive Employment Agreement dated
August 18, 1998 between Registrant and
Eric Warm *
10.5 * bid4it tm Seller Agreement *
10.6 * Yahoo! Shopping Insertion Order *
21 * Subsidiaries of Registrant *
20
<PAGE>
99 * Shop T.V., Inc. 1999 Stock Option Plan *
99.1 * Promissory Note of February 1, 1999 between
Registrant and Legal Street Enterprises,
Inc. *
------------------------
* Exhibits have been previously filed with Registrant's Form 10-SB
General Form for Registration and Amendments thereto.
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SITE2SHOP.COM, INC.
(Registrant)
By: /s/ MARK ALFIERI
-----------------
MARK ALFIERI
CHIEF EXECUTIVE OFFICER
March 10, 2000
IN ACCORDANCE WITH THE SECURITEIS EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN
SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES AND ON THE DATES INDICATED.
/s/ MARK ALFIERI Chief Executive Officer and March 20, 2000
- ---------------- Director
MARK ALFIERI
/s/ JACK LEVINE Chairman of the Board and March 20, 2000
- --------------- Secretary
JACK LEVINE
/s/ ERIC WARM Chief Operating Officer and March 20, 2000
- --------------- Director
ERIC WARM
/s/ MARK WEICHER Chief Financial Officer March 20, 2000
- ----------------
MARK WEICHER
21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001066849
<NAME> SITE2SHOP.COM, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 450,157
<SECURITIES> 0
<RECEIVABLES> 1,589,438
<ALLOWANCES> 0
<INVENTORY> 22,030
<CURRENT-ASSETS> 2,124,380
<PP&E> 1,390,168
<DEPRECIATION> (454,209)
<TOTAL-ASSETS> 3,173,892
<CURRENT-LIABILITIES> 4,620,041
<BONDS> 0
0
0
<COMMON> 12,480
<OTHER-SE> (1,243,351)
<TOTAL-LIABILITY-AND-EQUITY> 3,173,892
<SALES> 10,015,377
<TOTAL-REVENUES> 10,015,377
<CGS> 2,675,670
<TOTAL-COSTS> 2,908,292
<OTHER-EXPENSES> 4,051,806
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,286
<INCOME-PRETAX> 350,323
<INCOME-TAX> 165,000
<INCOME-CONTINUING> 185,323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185,323
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
