UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 0-15596
SITI-SITES.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1940923
(State of incorporation) (I.R.S. Employer Identification No.)
594 Broadway, Suite 1001, New York, New York 10012
(Address of principal executive offices) (Zip Code)
(212) 925-1181
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES |X| NO |_|
As of October 20, 2000, the registrant had outstanding approximately 15,000,000
shares of its Common Stock, par value $.001 per share.
The following documents are incorporated herein by reference:
(1) Quarterly Report to security holders on Form 10-Q for the quarter ended
June 30, 2000, (the "Form 10-Q for 6/30/00");
(2) Annual Report to security holders on Form 10-K for the year ended March
31, 1999, as amended by Amendment No. 1 on Form 10-K/A (collectively, the
"Form 10-K for 1999");
(3) Annual Report to security holders on Form 10-K for the year ended March
31, 2000, (the "Form 10-K for 2000");
(4) Quarterly Report to security holders on Form 10-Q for the quarter ended
December 31, 1999, (the "Form 10-Q for 12/31/99");
(5) Definitive Proxy Statement on Schedule 14A relating to the Company's
Annual Meeting on December 14, 1999 (the "Proxy Statement as of
12/14/99");
Such documents are referred to in this Quarterly Report on Form 10-Q in several
places.
<PAGE>
SITI-SITES.COM, INC.
FORM 10-Q
SEPTEMBER 30, 2000
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Consolidated Balance Sheets............................................. 1
Consolidated Statements of Loss and Comprehensive Loss.................. 2
Consolidated Statements of Cash Flows................................... 3
Notes to Condensed Consolidated Financial Statements.................... 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 13
PART II. OTHER INFORMATION............................................. 16
Item 1. Legal Proceedings .............................................. 16
Item 2. Changes in Securities........................................... 17
Item 6. Exhibits and Reports on Form 8-K................................ 17
<PAGE>
PART I. FINANCIAL INFORMATION
SITI-Sites.com, Inc.
Consolidated Balance Sheets
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, 2000 March 31,
(Unaudited) 2000
---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,094 $ 750
Marketable securities 506 490
Receivables and other assets 44 60
-------- --------
Total current assets 1,644 1,300
-------- --------
Property and Equipment, net of accumulated depreciation 109 109
-------- --------
Intangibles:
Goodwill 289 236
Less: Accumulated amortization (109) (67)
-------- --------
Intangibles, net 180 169
-------- --------
Total assets $ 1,933 $ 1,578
======== ========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable and accrued liabilities $ 109 $ 137
Accrued legal fees -- 70
-------- --------
Total current liabilities 109 207
-------- --------
Total liabilities 109 207
-------- --------
Commitments and contingencies
Stockholders' Equity:
Preferred stock $.001 par value, 5,000 shares authorized and
none issued and outstanding -- --
Common stock, $.001 par value, 35,000 shares authorized and 15,057 and
9,812 issued and outstanding, respectively 15 10
Paid-in capital 77,320 75,938
Accumulated deficit (75,187) (74,270)
-------- --------
2,148 1,678
Treasury stock, 112 shares and 62 shares at cost, respectively (330) (311)
Accumulated Other Comprehensive Income 6 4
-------- --------
Total stockholders' equity 1,824 1,371
-------- --------
Total liabilities and stockholders' equity $ 1,933 $ 1,578
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
SITI-Sites.com, Inc.
Consolidated Statements of Loss and Comprehensive Loss
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
2000 1999 2000 1999
------------------------------------------------ -------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ --
-------- ------- -------- -------
Operating costs and expenses:
Cost of sales -- -- 14 --
Selling, general and administrative 461 374 949 534
-------- ------- -------- -------
Total operating costs and expenses 461 374 963 534
-------- ------- -------- -------
Operating loss (461) (374) (963) (534)
-------- ------- -------- -------
Other income, net 24 8 46 18
-------- ------- -------- -------
Loss from continuing operations (437) (366) (917) (516)
Income from discontinued operations -- 35 -- 60
-------- ------- -------- -------
Net loss (437) (331) (917) (456)
Other comprehensive gain (loss), net of tax (6) -- 2 --
-------- ------- -------- -------
Comprehensive loss $ (443) $ (331) $ (915) $ (456)
======== ======= ======== =======
Basic and diluted loss per common share:
Loss from continuing operations $ (.029) $ (.045) $ (.071) $ (.063)
Income from discontinued operations .000 .004 .000 .007
-------- ------- -------- -------
Net loss per common share $ (.029) $ (.041) $ (.071) $ (.056)
======== ======= ======== =======
Weighted average number of Common Shares used in
basic and diluted calculation 14,881 8,141 12,846 8,141
======== ======= ======== =======
</TABLE>
Interim results are not indicative of the results expected for a full year.
See accompanying notes to consolidated financial statements.
2
<PAGE>
Consolidated Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
Six months ended September 30, 2000 1999
-----------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (917) $ (456)
Adjustments to reconcile net loss to net cash (used in) provided by
continuing activities:
Gain on settlement (19)
Depreciation and amortization 58 29
Contribution of services by management 125 50
Compensation and consulting fees via stock 58 2
Contribution of rent by management -- 25
(Income) loss on discontinued operations -- (60)
(Increase) decrease in:
Prepaid expenses 7 (48)
Receivables 9 (39)
Increase (decrease) in:
Accounts payable (114) 40
Accrued liabilities 16 118
-----------------------
Net cash used in continuing operations (777) (339)
Net cash used in discontinued operations -- (8)
-----------------------------------------------------------------------------------------------
Net cash used in operating activities (777) (347)
-----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Recovery of investment in Minutemeals.com -- 23
Proceeds from sale of marketable securities 833 --
Purchase of marketable securities (846) --
Purchase of property and equipment (16) (50)
-----------------------------------------------------------------------------------------------
Net cash used in investing activities (29) (27)
-----------------------------------------------------------------------------------------------
Cash flow from financing activities:
Proceeds from the issuance of common stock 1,150 --
Proceeds from the exercise of stock options and warrants -- 12
-----------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,150 12
-----------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 344 (362)
Cash and cash equivalents, beginning of period 750 1,007
-----------------------------------------------------------------------------------------------
Total cash and cash equivalents, end of period (including cash
amounts in net liabilities of discontinued operations) $ 1,094 $ 645
=======================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS
SITI-Sites.com, Inc., a Delaware corporation, (the "Company") operates as
an Internet media company seeking to establish websites for the marketing of
products and services. The Company's four current websites and an affiliated
website relate entirely to the music industry. The Company intends to develop
these websites further by entering into strategic partnerships and affiliations.
As part of this strategy, in June, 1999 the Company acquired Tropia, which
promotes and markets the music of selected independent artists on its website
www.Tropia.com. The Company next acquired three music-related websites,
www.HungryBands.com (an e-commerce website and business promoting and selling
music by independent artists), www.NewMediaMusic.com (an e-news/magazine
business), and www.NewYorkExpo.com (a music and Internet conference business),
all in January, 2000. In addition, the Company made a $500,000 investment in a
custom music CD compilation and promotion company, Volatile Media, Inc., which
does business as EZCD.com. The investment was written off as of March 31, 2000.
SITI-Sites.com, Inc. was incorporated in Delaware in 1984 under former
management and control persons. As a result of a change of control of the
Company in December, 1998, the Company's senior management and Board of
Directors were replaced. The new senior management and Board of Directors
changed the strategic direction of the Company from being a developer of
patented communication technologies, to that of an Internet media company. All
prior business operations of the Company were discontinued. The Company changed
its corporate name to SITI-Sites.com, Inc. from Spectrum Information
Technologies, Inc., after its Annual Meeting of Stockholders on December 14,
1999.
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of operations for the periods shown and include
the accounts and results of the Company's wholly-owned subsidiaries. All
significant intercompany accounts have been eliminated in consolidation. The
results of operations for such periods are not necessarily indicative of the
results expected for the full fiscal year or for any future period.
These financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended March 31, 2000.
(b) MANAGEMENT'S PLAN
The Company's management believes that sufficient cash resources exist
both internally and from additional capital infusions from external sources that
the anticipated cash needs for working capital and capital expenditures will be
sufficiently met over the next fiscal year.
The Company's business strategy in the music field is to build a database
marketing operation, which renders an array of specialized services to musical
artists and their fans, at modest fees on a continuing basis. A major investor
and member of senior management of the Company (Robert Ingenito) is highly
experienced in database marketing techniques he developed and practiced
successfully in several private and publicly owned businesses. This plan has
been underway since January, 2000.
The Company considers its thousands of musical artists and their fans, a
beginning group of prospects for sale of SITI's services. These musical artists
are mostly emerging rock/pop groups, i.e. independent and not affiliated with
major record companies, in many genres and locales, each comprising several
artists and some fan following.
4
<PAGE>
The Company's software team has been revising and expanding its websites
to handle the various publications, and artist and fan services which will be
offered to its potential database. Revenue sources are expected to include
e-mail distribution of band communications to their fans, touring locations,
clubs and play dates, new record releases, promotion of bands at their own
websites, and hyperlinks to the various websites and stores where their music is
sold.
SITI has added a new streaming radio player to the existing embedded radio
on its Tropia website, now in late stages of software development, which plays
its emerging artists' music along with other content, in multiple streams by
genre preference. These Internet streaming radio channels are expected to become
bases for sale of promotional services for emerging artists, and advertising
across multiple listener preference communities. Another radio player with
streaming video is in development, but so far, has reached a software impass.
The implementation of the Company's business plan will occur, in part,
through its www.NewMediaMusic.com newsletter, a free e-magazine in operation
this past year, which contains current new media music news (i.e. digital music
coverage, discussions and interviews on key industry problems) and is seen by
thousands of industry professionals, artists and fans regularly. Large groups of
artists are being offered free subscriptions to this newsletter, to encourage
their future participation in promotional services, analysis of industry issues,
and merchandising services to be made available to them, through the Company's
band and fan registry. The software underlying the NewMediaMusic newsletter is
being revised for the addition of targeted, personalized information in each
viewer's interest area, and the newsletter services and archives are expected to
become additional revenue sources to SITI through service charges and
advertising revenues. This e-magazine will provide increasingly focused
information, and linkages for the Company's database of artists, fans and
affiliated websites in the music field.
The initial source for these emerging artists are the Company's
www.Tropia.com and www.HungryBands.com music websites which play and sell CDs
and MP3 downloads. Additional groups of artists and fans are expected to be
added to SITI's music websites, or solely to its artist communication database,
from other established music websites or artist services websites.
Further implementation of SITI's strategy is occurring through its
ownership of www.NewYorkExpo.com and its related Internet music exposition held
for the past two years in New York City. Scores of Internet music sites take
booths at these expos, join in the panels of experts, interact with each other
and with SITI's marketing development team, and provide current information to
thousands of emerging artists and fans. Some 6,000 people attended the March,
2000 Expo, and the 2001 Expo is being held at Madison Square Garden in response
to increased industry interest and participation now in discussion. These expos
place the Company at the fulcrum of providers of music services, equipment and
new technology, along with emerging digital music industry problems. The expo
relationships are considered a year-round source of prospects for content, and
strategic affiliation with the Company's core business of artist and fan
services.
No assurances can be given that the Company will successfully complete the
above-described content or database negotiations, or its ongoing software
development, or achieve the revenues sought from the described business plan.
(c) DISCONTINUED OPERATIONS
As a result of the December 11, 1998 Change of Control Transaction
described in Note 1, the Company discontinued its prior operations. In
accordance with Accounting Principles Board ("APB") Statement #30, "Reporting
the Effects of the Disposal of a Segment of a Business," the prior years'
financial statements have been restated to reflect such discontinuation. All
assets and liabilities of the discontinued segment have been reflected as net
liabilities of discontinued operations. There were no net liabilities as of
March 31, 2000 and September 30, 2000.
5
<PAGE>
Operating results from discontinued operations are as follows:
For the three months ended, September 30, 2000 1999
---- ----
(Amounts in thousands)
----------------------
Revenues $ -- $ --
--------------------
Operating costs and expenses:
Selling, general and administrative expenses -- --
--------------------
Total operating costs and expenses -- --
--------------------
Operating Income (Loss) -- --
--------------------
Other income and (expenses) -- 35
--------------------
Income from discontinued operations $ -- $ 35
====================
For the nine months ended, September 30, 2000 1999
---- ----
(Amounts in thousands)
----------------------
Revenues $ -- $ --
--------------------
Operating costs and expenses:
Selling, general and administrative expenses -- 8
--------------------
Total operating costs and expenses -- 8
--------------------
Operating Income (Loss) -- (8)
--------------------
Other income and (expenses) -- 68
--------------------
Income from discontinued operations $ -- $ 60
====================
Sales of product from discontinued operations were recognized upon
shipment to the customer. Deferred revenue on licensing agreements was
recognized when earned based on each individual agreement.
(d) USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(e) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
and results of operations of the Company's Tropia division (which was merged
with and into the parent on June 20, 2000) and the Company's HungryBands.com,
NewMediaMusic.com and NewYorkExpo.com divisions. All significant intercompany
accounts and transactions have been eliminated in consolidation.
(f) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include the Company's cash balances and
short-term investments that mature in 90 days or less from the original date of
maturity. Cash and cash equivalents are carried at cost plus accrued interest,
which approximates market. The Company deposits its cash with financial
institutions and, at times, such balances exceed Federal insurance limits.
6
<PAGE>
(g) MARKETABLE SECURITIES
The Company does not intend to hold its investments to maturity, and
classifies these securities as available-for-sale and carries them at fair
value. Unrealized holding gains and losses (determined by specific
identification) on investments classified as available-for-sale, are carried as
a separate component of stockholders' equity.
(h) REVENUE RECOGNITION
Revenues through ticket sales by the NewYorkExpo division are recognized
when earned and any monies received therefrom is deferred until the date of the
trade show. Revenues from CD sales are recognized upon shipment to the customer.
(i) LOSS PER COMMON SHARE
Loss per share for the six months and quarters ended September 30, 2000
and September 30, 1999 were based on the weighted average number of common
shares and common stock equivalents (convertible preferred shares, stock options
and warrants), if applicable, assumed to be outstanding during the year. The
weighted average number of shares used in the computation of loss per share for
the six months ended September 30, 2000 and 1999 are approximately 12,846,000
and 8,141,000, respectively. For the quarters ended September 30, 2000 and 1999
the weighted average number of shares used in the computation of loss per common
share are approximately 14,881,000 and 8,141,000, respectively.
Common stock equivalents were not included in the computation of weighted
average shares outstanding for all periods presented because such inclusion
would be anti-dilutive.
(j) PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment are recorded at cost. Depreciation is recorded
using the straight-line method over the estimated useful lives of the assets of
3 to 7 years.
Goodwill is recorded based upon the excess of the purchase price over the
fair market value of assets purchased and is amortized over a three year period.
(k) COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and all changes to
stockholders' equity, except those resulting from investments by owners (changes
in paid in capital) and distributions to owners (dividends). For all periods
presented, other comprehensive income is comprised of unrealized holding gains
on marketable securities.
(l) WEBSITE EXPENSES
In March 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued consensuses on an emerging accounting issue entitled
"Accounting for Web Site Development Costs" (Issue 00-2). These consensuses
addressed costs incurred in the planning stage, the application and
infrastructure development stage, graphics development stage, the content
development stage, and the operating stage. The consensuses call for
capitalization or expense treatment of various costs depending on certain
criteria. The consensuses are applicable for costs incurred for fiscal quarters
beginning after June 30, 2000 and allows a company to adopt the consensuses as
a cumulative effect of a change in accounting principles.
The web site development costs incurred during the quarter ended September
30, 2000 were associated with the operating stage and were expensed as provided
for in Issue 00-2. Web site development costs incurred through June 30, 2000
were expensed and the company has elected to not capitalize any previously
eligible costs and treat this adjustment as a cumulative change in accounting
principles.
7
<PAGE>
2. STATEMENT OF CASH FLOWS
Six months ended
September 30,
----------------------
2000 1999
----------------------
(Amounts in thousands)
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ -- $ --
Cash paid during the year for income taxes $ 1 $ --
Non-cash transactions:
Contribution of salaries by management $ 125 $ 50
Contribution of rent by management $ -- $ 25
HungryBands $ 53 $ --
Acquisition of Tropia, Inc. $ -- $307
Gain on settlement $ (19) $ --
Compensation and consulting fees via stock $ 58 $ 2
3. GOODWILL
On June 23, 1999, the Company acquired Tropia, which operates an MP3 music
site that promotes and distributes the music of independent artists through its
website located at www.Tropia.com. Pursuant to the acquisition agreement, the
Company initially provided $100,000 of capital to Tropia and agreed to provide
approximately $800,000 of additional capital during the 12 months following the
acquisition. Through February 2000, the Company contributed approximately
$400,000 to Tropia operations. The acquisition was effected by merging Siti-II,
Inc., a Delaware corporation and a wholly-owned subsidiary of SITI, with and
into Tropia.
The acquisition was accounted for as a purchase for financial statement
purposes and, accordingly, Tropia's results are included in the consolidated
financial statements since the date of acquisition. Tropia was acquired for an
aggregate of 316,666 shares of the Company's common stock (valued at $306,786),
with 158,333 shares delivered at closing, and 158,333 shares were in escrow to
be delivered one year after the closing (if certain performance goals were
achieved), to Jonathan Blank, Tropia's former CEO, Arjun Nayyar, Tropia's former
Technical Director, and Ari Blank, Tropia's former Design Director. Such
individuals have since waived any rights to the escrowed 158,333 shares, and
have returned 50,000 of the shares delivered to them at the 1999 closing. (See
Note 7)
In accordance with Accounting Principles Board ("APB") No. 16, the
aggregate purchase price of $306,786 was allocated to the assets and liabilities
of Tropia, based upon their fair market values. The purchase price and goodwill
was later reduced by approximately $153,000, representing the dollar value of
the escrowed shares not delivered. (See the Form 10-K for 2000).
On January 3, 2000, SITI acquired all of the assets and certain
liabilities relating to three music-related websites (i) HungryBands.com
(www.HungryBands.com), an e-commerce website and business promoting and selling
music by independent artists, (ii) NewMediaMusic.com (www.NewMediaMusic.com), an
e-news/magazine business devoted to new Internet music, news releases by artists
and record labels, interviews and other information useful to fans and artists,
and (iii) NewYorkExpo.com (www.NewYorkExpo.com), a music and Internet conference
business. The acquired assets consisted primarily of intangible assets.
HungryBands.com was acquired for 150,000 shares of SITI common stock,
payable in three installments through June, 2000 to its founder and owner Ted
Mazola, as certain operating goals are achieved. HungryBands.com represented
that it had over 1,000 bands signed-up or linked into its website. As of
September 30, 2000, all of said shares have been issued to Mr. Mazola.
8
<PAGE>
In accordance with Accounting Principles Board ("APB") No. 16, the
aggregate purchase price of $79,688 was allocated to the assets and liabilities
of HungryBands.com, based upon their fair market values as follows:
Other assets $ 700
Software 240
-------
Net assets acquired 940
Goodwill 78,748
-------
Aggregate Purchase Price $79,688
=======
SITI acquired NewMediaMusic.com from Mr. Mazola and Steve Zuckerman, and
NewYorkExpo.com from New York Music Expo, Inc., a New Jersey corporation which
was wholly-owned by Mr. Zuckerman, for a total of 60,000 shares (approximately
$31,875) of SITI common stock. In addition, Mr. Zuckerman was granted a 15%
interest for three years in the operating profits of NewYorkExpo.com's music and
Internet conference business, after completing the March, 2000 Expo (in which he
retained a 75% interest). Messrs. Mazola and Zuckerman recently joined SITI as
Vice-President/Technology and Vice-President/NewMedia Development, respectively.
In accordance with Accounting Principles Board ("APB") No. 16, the
aggregate purchase price of $31,875 was allocated to the assets and liabilities
of NewMediaMusic.com and New York Expo.com, based upon their fair market values
as follows:
Cash $ 30,416
Receivables 15,175
Other assets 15,750
Deferred Income (71,300)
Due to S. Zuckerman (10,041)
--------
Net liabilities acquired (20,000)
Goodwill 51,875
--------
Aggregate Purchase Price $ 31,875
========
The proforma results of operations for the acquisitions, had the
acquisitions occurred at the beginning of fiscal year 2000, are not significant,
and accordingly, have not been provided.
4. LICENSING AGREEMENTS
Throughout the current fiscal year, the Company has entered into certain
royalty agreements with artists whereby, the Company is obligated to reimburse
the artists $5.00 per sale of an artist's CD. Such sales have been nominal for
the quarters and six months ended September 30, 2000 and 1999, respectively.
5. SEGMENT INFORMATION
The Company has divided its operations into 4 reportable segments: CD
Sales - Tropia/HungryBands, NewMediaMusic News, NewMediaMusic Band Directory and
NewYorkExpo.
The reporting segments follow the same accounting policies used for the
Company's consolidated financial statements as described in the summary of
significant accounting policies. Management evaluates a segment's performance
based upon profit or loss from operations before income taxes. Intersegment
sales or transfers are recorded based on prevailing market prices. The Company
determines its reporting segments based upon their varying product lines.
9
<PAGE>
Following is a tabulation of business segment information for the current
fiscal year. No prior year data is available, because SITI acquired these
segments during the fourth quarter of the prior fiscal year.
<TABLE>
<CAPTION>
CD Sales- New New
Tropia/ Media MediaMusic
Hungry Music Band New York Inter-
Bands News Directory Expo Corporate Segment Total
----- ---- --------- ---- --------- ------- -----
Six months
ended
September 30,
2000 (Amounts in thousands)
----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales
Operating loss (275) (140) (95) (153) (300) (963)
Interest Income 11 11
Other Income 35 35
Net loss (275) (140) (95) (153) (254) (917)
Assets 1,933 1,933
Depreciation and
amortization 3 3 3 3 46 58
</TABLE>
6. OTHER AGREEMENTS
On April 9, 2000, SITI entered into a Business Development Agreement with
Mediaviewer.com to develop an improved radio player whereby the costs to develop
such player are funded by SITI. These costs were payable in installments based
upon certain prescribed performance objectives. As of September 30, 2000, the
Company recorded $25,000 in research and development expenses associated with
this contract. The final installment, however, of $8,333 has not been paid,
pending solution of certain software problems in the project.
On June 8, 2000, principal investors, directors and executives, Lawrence
M. Powers, Robert Ingenito and John Iannitto, agreed with the Company to invest
an additional $1,000,000 for common stock and options, on the following basis:
(a) Mr. Powers would invest $500,000 for 2,000,000 shares of
common stock, together with options, to purchase an additional
1,000,000 shares for $.50 per share, exercisable for five
years.
(b) Messrs. Ingenito and Iannitto would each invest $250,000 for
1,000,000 shares of common stock, respectively, together with
options, respectively, to purchase an additional 500,000 for
shares for $.50 per share, exercisable for five years.
Messrs. Powers, Ingenito and Iannitto immediately divided their respective
investments further among family members and business associates, consisting of
Barclay V. Powers, John DiNozzi and Mr. Iannitto's son (a minor) in varying
amounts by gift or by assignment.
On June 13, 2000, the Company entered into a stock purchase agreement with
Colvil Investments, LLC, ("Colvil") whereby Colvil agreed to invest $100,000 for
400,000 shares of the Company's common stock, together with options, to purchase
an additional 200,000 shares for $.50 per share, exercisable for five years.
On June 16, 2000, the Company entered into a stock purchase agreement with
Steven Gross whereby Mr. Gross agreed to invest $50,000 for 200,000 shares of
the Company's common stock, together with options, to purchase an additional
100,000 shares for $.50 per share, exercisable for five years.
10
<PAGE>
On June 12, 2000, the Company entered into employment arrangements with
Messrs. Ingenito and Iannitto. In connection with their ongoing services,
Messrs. Ingenito and Iannitto, have agreed that the Company will not pay them
cash compensation for the fiscal years ended March 31, 2001 and 2002, but will
grant stock and options as follows:
Fiscal 2001 Fiscal 2002
----------- -----------
Robert Ingenito 300,000 shares Options to purchase 300,000 shares at
$.50 per share, exercisable for five years
(until 6/30/2006)
John Iannitto 200,000 shares Options to purchase 200,000 shares at
$.50 per share, exercisable for five years
(until 6/30/2006)
Mr. Powers does not expect to receive any cash compensation, stock or options
for his services for such two fiscal years.
7. LITIGATION
As of the date of this report the Company knows of no pending or
threatened legal actions against the Company that would have a material impact
on the operations or financial condition of the Company. On May 1, 2000, the
former officers of Tropia (Jonathan Blank, Ari Blank and Arjun Nayyer) entered
into a settlement agreement with the Company in connection with various claims
and their activities since their resignations during the third quarter of the
current fiscal year. As a result of the agreement, all claims have been settled
and they have returned an additional 50,000 shares to the Company resulting in
an increase in treasury stock and a corresponding gain on litigation settlement
of approximately $18,750. In addition, the former officers have waived any and
all of their rights to the 158,333 escrowed shares related to the original
acquisition of Tropia.
Continuing defaults by EZCD.com as to its investment representations, and
its content and technology sharing agreement with the Company could result in
litigation or other legal complications, and attendant costs and efforts by the
Company's management to resolve such matters. EZCD.com filed for bankruptcy
liquidation in August, 2000 and the company is making claims in such proceeding.
From time to time in previous years, the Company had been a party to other
legal actions and proceedings incidental to its business. As of the date of this
report the Company knows of no pending or threatened legal actions that could
have a material impact on the operations or financial condition of the Company.
8. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 30, 2000 March 31, 2000
------------------ --------------
(Amounts in thousands)
Computer Equipment and Furniture $ 129 $ 115
Computer Software 6 4
Accumulated Depreciation (26) (10)
----- -----
Property and Equipment, net $ 109 $ 109
===== =====
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9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities were comprised of the following:
September 30, March 31,
2000 2000
----------------------------
(Amounts in thousands)
Accrued audit and tax fees $ 28 $ 54
Deferred rent 7 7
Deferred revenue 7 --
Accrued expenses and
Accounts payable 67 76
---- ----
$109 $137
==== ====
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,
INCLUDING, BUT NOT LIMITED TO STATEMENTS RELATED TO BUSINESS OBJECTIVES AND
STRATEGY OF THE COMPANY. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT
EXPECTATIONS, ESTIMATES AND PROJECTIONS ABOUT THE COMPANY'S INDUSTRY,
MANAGEMENT'S BELIEFS AND CERTAIN ASSUMPTIONS MADE BY THE COMPANY'S MANAGEMENT.
WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS,"
"ESTIMATES," VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED, FORECASTED, OR CONTEMPLATED BY ANY SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO
DIFFER MATERIALLY INCLUDE, AMONG OTHERS, THOSE RISK FACTORS SET FORTH IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 2000. GIVEN
THESE UNCERTAINTIES, INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY
SUCH FORWARD-LOOKING STATEMENTS. UNLESS REQUIRED BY LAW, THE COMPANY UNDERTAKES
NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A
RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. HOWEVER, READERS SHOULD
CAREFULLY REVIEW THE RISK FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS THE
COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION,
PARTICULARLY THE ANNUAL REPORTS ON FORM 10-K, OTHER QUARTERLY REPORTS ON FORM
10-Q AND ANY CURRENT REPORTS ON FORM 8-K.
OVERVIEW
SITI-Sites.com, Inc., a Delaware corporation, and its subsidiary, Tropia,
Inc. ("Tropia"), a Delaware corporation (hereafter referred to collectively as
"SITI" or the "Company") is an Internet media company seeking to establish
websites for the marketing of products and services. The Company's four current
websites and an affiliated website relate entirely to the music industry, and
primarily to independent artists not affiliated with major record companies. The
Company intends to develop these websites further by entering into strategic
partnerships and affiliations. As part of this strategy, in June, 1999 the
Company acquired Tropia, which promotes and markets the music of selected
independent artists on its website www.Tropia.com. The Company next acquired
three music-related businesses, www.HungryBands.com (an e-commerce website and
business promoting and selling music by independent artists),
www.NewMediaMusic.com (an e-news/magazine business), and www.NewYorkExpo.com (a
music and Internet conference business), all in January, 2000. The terms of
these January, 2000 acquisitions are further described in the Form 10-K for
2000.
The Company is still in the early stages of developing its music sites and
business, and its revenues are negligible. (See Notes 1 (a) and (b) to the
Consolidated Financial Statements).
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RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated.
Three months ended September 30,
------------------------------------
2000 % 1999 %
------------------------------------
Continuing Operations: (Amounts in thousands)
Revenues 0 -- 0 --
Operating costs and expenses:
Selling, general and administrative 461 -- 374 --
----- -----
Total operating costs and expenses 461 -- 374 --
----- -----
Operating income (loss) $(461) -- $(374) --
===== =====
Six months ended September 30,
------------------------------------
2000 % 1999 %
------------------------------------
Continuing Operations: (Amounts in thousands)
Revenues 0 -- 0 --
Operating costs and expenses:
Cost of sales 14 -- 0 --
Selling, general and administrative 949 -- 534 --
----- -----
Total operating costs and expenses 963 -- 534 --
----- -----
Operating income (loss) $(963) -- $(534) --
===== =====
CONSOLIDATED REVENUES
For the three and six months ended September 30, 2000, the Company's
revenues were nominal. During the prior fiscal year, the Company began to
implement its new Internet business strategy, and there were no revenues from
continuing operations.
OPERATING COSTS AND EXPENSES
Operating costs and expenses increased $87,000 and $429,000 for the three
and six months ended September 30, 2000 as compared to the same periods in the
prior fiscal year primarily due to increased selling, general and administrative
expenses of approximately $87,000 and $415,000, respectively.
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The increase in selling, general and administrative expenses of $87,000 or
23% and $415,000 or 78%, respectively, for the quarter and six months ended
September 30, 2000 as compared to the quarter and six months ended September 30,
1999 is primarily due to an increase in personnel and related expenses as well
as outside services. Personnel and related increased approximately $133,000 or
129% and $297,000 or 218%, respectively, for the three and six months ended
September 30, 2000 as compared to the same periods in the prior fiscal year as a
result of the hiring of officers and staff to assist in the development of SITI.
To further assist in the Company's development, independent contractors were
retained for the quarter and six months ended September 30, 2000 resulting in
increased expenses of approximately $40,000 or 133% and $87,000 or 185%,
respectively, as compared to the prior fiscal year. There was no such staff
during the earlier fiscal periods. For the quarter and six months ended
September 30, 2000, co-location fees increased approximately $18,000 or 100% and
$24,000 or 100%, respectively, as compared to the same periods in the prior
fiscal year as a result of the Company's increased activity associated with its
websites. Also, the Company wrote off certain licensing agreements during the
quarter ended June 30, 2000 that were entered into in the prior fiscal year.
These agreements were determined to no longer be of value, and the Company
recorded a charge of approximately $28,000. As a result of the Company's
acquisitions during the prior fiscal year as well as the outfitting of offices,
the Company recorded increased depreciation and amortization of approximately
$4,000 or 15% and $28,000 or 97%, respectively, for the three and six months
ended September 30, 2000 as compared to the three and six months ended September
30, 1999. These increases were partially offset by a decrease of approximately
$131,000 or 96% and $105,000 or 64%, respectively, in legal fees for the three
and six months ended September 30, 2000 as compared to the three and six months
ended September 30, 1999. This decrease is a direct result of a decline in
corporate organizational matters. Accounting expenses decreased approximately
$13,000 or 46% and $35,000 or 44%, respectively, for the quarter and six months
ended September 30, 2000 as compared to the quarter and six months ended
September 30, 1999. This decrease is directly related to the retaining of a new
independent accounting firm. The remaining increase in selling, general and
administrative expenses of approximately $36,000 and $91,000, respectively, for
the quarter and six months ended September 30, 2000 as compared to the quarter
and six months ended September 30, 1999 is attributable to the increased staff,
as well as office space, of the Company, as it pursues its business plan.
During the quarter and six months ended September 30, 1999, operating
costs and expenses were primarily composed of compensation to employees and
legal and accounting fees incurred while the Company went through its transition
resulting from the December 11, 1998 Change of Control Transaction. See
"Operating Loss" below. In accordance with Accounting Principles Board, ("APB")
Statement #30, "Reporting the Effects of the Disposal of a Segment of a
Business," the prior years' financial statements have been restated to reflect
such discontinuation. All assets and liabilities of the discontinued segment
have been reflected as net liabilities of discontinued operations.
OPERATING LOSS
The Company experienced an operating loss of approximately $461,000 and
$963,000, respectively, for the three and six months ended September 30, 2000 as
compared to an operating loss of approximately $374,000 and $534,000,
respectively, for the three and six months ended September 30, 1999. This
increased loss is directly related to increased operating costs and expenses for
the current fiscal quarter and six months ended September 30, 2000 as compared
to the same periods in the prior fiscal year.
OTHER INCOME AND EXPENSE
Other income for the three months ended September 30, 2000 totaled
approximately $24,000 as compared to $8,000 in the prior fiscal year. This
increase is primarily due to a gain on the sale of marketable securities of
approximately $14,000. For the six months ended September 30, 2000, other income
totaled approximately $46,000 as compared to $18,000 for the six months ended
September 30, 1999. This increase of $28,000 is primarily due to the settlement
agreement between the Company and the former officers of Tropia as well as the
gain recognized upon the sale of marketable securities.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000 the Company has working capital of $1,535,000
attributable to the infusion of cash from the June 2000 stock purchase
agreements.
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Net cash used by operating activities for the six months ended September
30, 2000 totaled approximately $777,000 as compared to $347,000 during the six
months ended September 30, 1999. This increase in cash usage is primarily due to
the payments of operating costs and expenses during the quarter ended September
30, 2000 as compared to the same period in the prior fiscal year.
During the six months ended September 30, 2000, the Company recorded
approximately $29,000 in net cash used by investing activities primarily due to
the purchase, net of sale proceeds, of marketable securities of approximately
$13,000 in 2000. During the six months ended September 30, 1999, the Company had
no activity with respect to its marketable securities. However, in May 1999 the
Company was reimbursed $23,000 in funding as a result of the termination of its
agreement with Minutemeals.com, Inc. In addition, capital expenditures totaled
approximately $16,000 and $50,000, respectively, for the six months ended
September 30, 2000 and 1999 as a result of its outfitting of the New York office
and it funding of its business plan.
As a result of the June 2000 stock purchase agreements, the Company
received $1,150,000 from the issuance of common stock, resulting in total net
cash provided by financing activities of $1,150,000 for the six months ended
September 30, 2000, as compared to $12,000 during the comparable fiscal period
of 1999.
YEAR 2000 IMPLICATIONS
Reflecting the work completed on the Company's year 2000 assessment
program, the Company's computer systems and business processes successfully
handled the date change from December 31, 1999 to January 1, 2000. The Company
is not aware of any significant year 2000 problems encountered internally or
with third parties with which it does business. The Company was not required to
spend material amounts on this matter. Based on operations since January 1,
2000, the Company does not expect any significant impact to its ongoing
operations as a result of the year 2000 issue.
However, although remote, it is possible that the full impact of year 2000
issues has not been fully recognized and no assurances can be given that year
2000 problems will not emerge. To the extent any Year 2000 issues arise, they
could expose the Company to certain risks, such as the nonperformance by third
parties of obligations to the Company.
RISK FACTORS
See the Company's Annual Report on Form 10-K (filed with the SEC on June
28, 2000), "Item 1 - Risk Factors That May Affect the Company's Business, Future
Operating Results and Financial Condition."
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of the date of this report the Company knows of no pending or
threatened legal actions against the Company that would have a material impact
on the operations or financial condition of the Company. On May 1, 2000, the
former officers of Tropia (Jonathan Blank, Ari Blank and Arjun Nayyer) entered
into a settlement agreement with the Company in connection with various claims
and their activities since their resignations during the third quarter of the
current fiscal year. As a result of the agreement, all claims have been settled
and they have returned an additional 50,000 shares to the Company resulting in
an increase in treasury stock and a corresponding gain on litigation settlement
of approximately $18,750. In addition, the former officers have waived any and
all of their rights to the 158,333 escrowed shares related to the original
acquisition of Tropia.
Continuing defaults by EZCD.com as to its investment representations, and
its content and technology sharing agreement with the Company could result in
litigation or other legal complications, and attendant costs and efforts by the
Company's management to resolve such matters.
From time to time in previous years, the Company had been a party to other
legal actions and proceedings incidental to its business. As of the date of this
report the Company knows of no pending or threatened legal actions that could
have a material impact on the operations or financial condition of the Company.
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ITEM 2. CHANGES IN SECURITIES
For a discussion on transactions resulting in changes in securities
through June 30, 2000, see the Form 10-Q for 6/30/00.
In July 2000, the Company issued 260,000 shares to certain of its staff
and contractors as performance bonuses. Such shares of Common Stock were issued
in reliance upon the exemption from registration provided under Section 4(2) of
the Securities Act, on the basis that such transactions did not involve any
public offering. The stockholders who received such shares of the Company had
access to all relevant information regarding the Company necessary to evaluate
the investment; each such stockholder represented that the Common Stock was
being acquired for investment only. There was no general solicitation or
advertising involved, and the Company used reasonable care to ensure that such
stockholders were not underwriters.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Number Title
27 Financial Data Schedule
B. Reports on Form 8-K
On October 6, 2000, the Company filed a Current Report on Form 8-K
announcing at "Item 4 - Change of Registrant's Certifying
Accountant", the merger of Edward Isaacs and Company, LLP with
McGladrey & Pullen, LLP and that the former would no longer be the
Company's certifying accountant.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
Dated: November 6, 2000
SITI-SITES.COM, INC.
By /s/ Lawrence M. Powers
-------------------------------------
Lawrence M. Powers
Chief Executive Officer and
Chairman of the Board of Directors
By /s/ Robert Ingenito
-------------------------------------
Robert Ingenito
President and Vice-Chairman of the
Board of Directors
By /s/ Toni Ann Tantillo
-------------------------------------
Toni Ann Tantillo
Chief Financial Officer,
Vice President, Secretary and
Treasurer
18
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Exhibit 27
19
