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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
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.)
111 Lake Avenue, Suite 7, Tuckahoe, New York 10707
(Address of principal executive offices) (Zip Code)
(212) 925-1181
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES |X| NO |_|
As of January 31, 2003, the registrant had outstanding 23,418,178 shares of its
Common Stock, par value $.001 per share.
The following documents are incorporated herein by reference:
(1) Annual Report to security holders on Form 10-K for the year ended
March 31, 2002 (the "Form 10-K for 2002");
(2) Annual Report to security holders on Form 10-K for the year ended
March 31, 2001 (the "Form 10-K for 2001");
(3) Annual Report to security holders on Form 10-K for the year ended
March 31, 2000 (the "Form 10-K for 2000");
(4) 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");
(5) Quarterly Report to security holders on Form 10-Q for the quarter
ended December 31, 2001 ("September 30, 2001 10-Q")
SITI-SITES.COM, INC.
FORM 10-Q
DECEMBER 31, 2002
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Information
Statement of Net Assets in Liquidation at December 31, 2002
(Unaudited) and March 31, 2002 ........................................ 1
Statement of Changes in Net Assets in Liquidation (Unaudited)
for the Three and Nine Months Ended December 31, 2002 ................. 2
Statement of Operations and Comprehensive Loss (Going Concern
Basis) (Unaudited) for the Three and Nine Months Ended
December 31, 2001 ..................................................... 3
Statement of Cash Flows (Going Concern Basis) (Unaudited)
for the Nine Months Ended December 31, 2001 ........................... 4
Notes to Condensed Financial Statements (Unaudited) ................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Status of Liquidation ................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk .... 12
Item 4. Controls and Procedures ....................................... 13
PART II. OTHER INFORMATION ............................................ 13
Item 1. Legal Proceedings ............................................. 13
Item 5. Other Information ............................................. 13
Item 6. Exhibits and Reports on Form 8-K .............................. 14
PART I. FINANCIAL INFORMATION
SITI-Sites.com, Inc.
Statement of Net Assets in Liquidation
(Amounts in thousands)
December 31,
2002 March 31,
(Unaudited) 2002
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $51 $39
Receivables and other assets -- 4
--- ---
Total current assets 51 43
--- ---
Total assets $51 $43
=== ===
Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 8 $32
--- ---
Total current liabilities 8 32
--- ---
Total liabilities $ 8 $32
=== ===
Net Assets in Liquidation $43 $11
=== ===
See accompanying notes to consolidated financial statements.
1
SITI-Sites.com, Inc.
Statement of Changes in Net Assets in Liquidation
Three and Nine Months Ended December 31, 2002
Three Months Nine Months
Ended December Ended December
31, 2002 31, 2002
(Amounts in thousands) (Unaudited) (Unaudited)
Net assets in liquidation at beginning of period $ 26 $ 11
Additions to net assets in liquidation:
Contribution of management's services and rent 46 138
Refund of charges 10 14
Issuance of common stock 30 75
Reductions to net assets in liquidation:
Operating expenses and accrual of estimated costs (69) (195)
----------------------
Net assets in liquidation at December 31, 2002 $ 43 $ 43
======================
See accompanying notes to consolidated financial statements.
2
SITI-Sites.com, Inc.
Statement of Operations and Comprehensive Loss (Going Concern Basis)
Three and Nine Months Ended December 31, 2001
(Amounts in thousands, except per share amounts)
Three Nine
Months Months
Ended Ended
December 31, December
2001 31, 2001
(Unaudited) (Unaudited)
- --------------------------------------------------------------------------------
Revenues $ -- $ --
-------- --------
Operating costs and expenses:
Selling, general and administrative 139 343
-------- --------
Total operating costs and expenses 139 343
-------- --------
Operating loss (139) (343)
-------- --------
Other expense
Loss on sale of equipment (74) (74)
Impairment provision on assets (157) (157)
Other income 1 19
-------- --------
Other expense, net (230) (212)
-------- --------
Loss from continuing operations (369) (555)
Loss from discontinued operations (173) (604)
-------- --------
Net loss (542) (1,159)
Other comprehensive loss, net of tax -- (3)
-------- --------
Comprehensive loss $ (542) $ (1,162)
======== ========
Basic and diluted loss per common share:
Loss from continuing operations $ (.02) $ (.03)
Loss from discontinued operations (.01) (.04)
-------- --------
Net loss per common share $ (.03) $ (.07)
======== ========
Weighted average number of Common Shares
used in basic and diluted calculation 16,055 15,697
======== ========
Interim results are not indicative of the results expected for a full year.
See accompanying notes to condensed financial statements.
3
SITI-Sites.com, Inc
Statement of Cash Flows (Going Concern Basis)
Nine Months Ended December 31, 2001
(Amounts in thousands)
Nine Months Ended
December 31, 2001
(Unaudited)
- ---------------------------------------------------------------------------------------
Cash flow from operating activities:
Net loss $(1,159)
Adjustments to reconcile net loss to net cash (used in) provided by
continuing activities:
Gain on sale of marketable securities (5)
Depreciation and amortization 8
Loss on sale of assets 74
Impairment provision on assets 157
Contribution of services by management 65
Compensation and consulting fees via stock and options 8
Loss on discontinued operations 604
(Increase) decrease in:
Prepaid expenses 12
Receivables 6
Increase (decrease) in:
Accounts payable (5)
Accrued liabilities (90)
-------
Net cash used in continuing operations (325)
Net cash used in discontinued operations (510)
- ---------------------------------------------------------------------------------------
Net cash used in operating activities (835)
- ---------------------------------------------------------------------------------------
Cash flows from investing activities:
Capitalization of Artist Promotion System (157)
Proceeds from sale of marketable securities 626
Proceeds from sale of assets 24
Purchase of property and equipment (2)
- ---------------------------------------------------------------------------------------
Net cash provided by investing activities 491
- ---------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from the issuance of common stock 110
- ---------------------------------------------------------------------------------------
Net cash provided by financing activities 110
- ---------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (234)
Cash and cash equivalents, beginning of year 326
- ---------------------------------------------------------------------------------------
Total cash and cash equivalents, end of quarter (including cash
amounts in net liabilities of discontinued operations) $ 92
=======
See accompanying notes to consolidated financial statements.
4
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) MANAGEMENT'S PLAN FOR LIQUIDATION
Siti-Sites.com, Inc., a Delaware corporation (referred to as "SITI" or the
"Company") previously operated as an Internet media company with three websites
for the marketing of news and services. The Company's websites related entirely
to the music industry. SITI incurred losses continuously since its inception in
1999. Following conclusion of the second fiscal quarter ended September 30,
2001, management who were its primary investors (investing approximately $4.1
million 1998-2002), intended to continue operations by investing approximately
$600,000 in further equity capital in the Company. But on November 13, 2001 they
determined that such limited funding would not accomplish a meaningful result
for the investors or the Company and terminated discussions of such financing
plan. The Company commenced procedures to prepare to liquidate its assets
effective January 1, 2002.
Liquidation. The Company's only substantial liability, consisting of the
remaining nine months on its lease for office premises at 594 Broadway in New
York City, was amicably settled, and terminated as of December 31, 2001.
Concurrently office furniture and unnecessary computers were sold, and all
employees were terminated in November, 2001. A team of two software consultants
were paid in December, 2001 and January, 2002, to complete the Company's Artist
Promotion System. Attempts were to be made to license portions thereof, working
with a marketing consultant. However, complications in completing the software
resulted in management terminating these consulting relationships, with a view
to restarting them, if possible, when specific marketing or sale opportunities
present themselves. The Company shut down all of its websites effective February
1, 2002.
Certain former employees and directors purchased excess furniture and
equipment from the Company for a total of approximately $19,000. The balance of
the furniture was sold to an unrelated third party for approximately $5,000.
Financing. The Company required a small financing to complete its employee
terminations, asset liquidation and provide for ongoing corporate expenses.
Major investors in the Company provided $110,000 in equity funds, purchasing
4,400,000 shares of common stock at $.025 per share, in a private offering as of
December 7, 2001 in varying amounts parallel to their respective option
holdings. Each purchasing investor was further required to surrender all of his
outstanding options to purchase common stock of the Company, acquired in making
each previous investment. These consisted of options for a total of 4,400,000
shares, previously exercisable at prices ranging from $.15 to $2.50 per share,
and expiring between 2003 and 2006. All of such options are now cancelled and
terminated, reducing all outstanding stock options by over 90%. This surrender
and cancellation was intended to make future merger, sale or other business
possibilities for the Company easier to achieve. The Company has options,
previously held by employees in 1998 (before current major investors purchased
control), which still remain outstanding, for the purchase of 415,577 shares,
exercisable at prices ranging from $.35 to $2.15 per share, expiring between
2004 and 2006. There were 20,118,178 shares of common stock outstanding as of
June 30, 2002 as a result of the financing described above.
The Company's stock was trading at $.03 per share with nominal volume,
during the seven-day offer/closing period in December, 2001. The shares sold to
major investors were not registered under the Securities Act of 1933, were
purchased for investment and are not readily marketable, which factors generally
result in discounts in purchase value. There was also substantial business risk
to the purchasers because the Company has no continuing operations and was being
liquidated.
The Company has been seeking merger or sale possibilities with operating
businesses who perceive value in a merger with the Company as a publicly traded
corporate shell with approximately 5,400 shareholders.
Other Financing. The Company Chairman/CEO Lawrence M. Powers and another
investor, in order to finance ongoing corporate expenses, purchased an
additional 1,800,000 shares of common stock of the Company (1,200,000 and
600,000 shares, respectively) as of July 26, 2002, at $.025 per share. (This was
the same price paid by six shareholder investors in December, 2001, to finance
ongoing corporate expenses at that time.) The Company's stock was trading at
$.05 per share during the week ending July 26, 2002 with nominal volume. The
shares recently sold to these two existing investors were not registered under
the Securities Act of 1933, were purchased for investment requiring "legended"
certificates and are not readily marketable because of such legending and the
nominal trading
5
volume in SITI stock, which factors generally result in substantial discounts in
purchase value. There are also several other business risks to the purchasers,
because the Company has no ongoing operations, is in liquidation, and is seeking
merger or sale possibilities with operating businesses, to make use of the
Company's publicly traded status with approximately 5,400 shareholders. But
current depressed stock market conditions for "going public" increase the
difficulties in arranging any such transactions.
The Company Chairman/CEO Lawrence M. Powers, in order to finance ongoing
corporate expenses, purchased an additional 1,500,000 shares of common stock of
the Company as of October 23, 2002, at $.02 per share. The Company's stock was
trading at $.02 per share for most of the three weeks preceding October 23, 2002
with nominal volume. The shares recently sold to Mr. Powers were not registered
under the Securities Act of 1933, were purchased for investment requiring
"legended" certificates and are not readily marketable because of such legending
and the nominal trading volume in SITI stock, which factors generally result in
substantial discounts in purchase value. The several other business risks to the
purchaser described above are continuing. As a result of this stock purchase
transaction completed October 28, 2002, the Company's outstanding common stock
increased as of such date from 21,918,178 shares to 23,418,178 shares.
(b) CHANGE TO LIQUIDATION BASIS OF ACCOUNTING
During the quarter ended December 31, 2001, the Company decided to
liquidate its operations and adopted the liquidation basis of accounting
effective January 1, 2002. Under the liquidation basis of accounting, assets are
stated at their estimated net realizable values and liabilities are stated at
their estimated settlement amounts, which estimates will be periodically
reviewed and adjusted. Since the Company is in liquidation without continuing
operations, the need to present quarterly Statements of Operations and
Comprehensive Loss as well as a Statement of Cash Flows, is eliminated. However,
the prior year's financial statements for the comparable quarter are presented,
since the Company did not adopt this method of accounting until January 1, 2002.
The valuation of assets at their net realizable value and liabilities at
their anticipated settlement amounts necessarily requires many estimates and
assumptions. In addition, there are substantial risks and uncertainties
associated with carrying out the liquidation of the Corporation's existing
operations. The valuations presented in the accompanying Statement of Net Assets
in Liquidation represent estimates, based on present facts and circumstances, of
the net realizable values of assets and costs associated with carrying out the
dissolution and liquidation plan based on the assumptions set forth below. The
actual values and costs are expected to differ from the amounts shown herein and
could be greater or lesser than the amounts recorded. Accordingly, it is not
possible to predict the aggregate amount that will ultimately be distributable
to shareholders and no assurance can be given that the amount to be received in
liquidation will equal or exceed the net assets in liquidation per share in the
accompanying Statement of Net assets in Liquidation or the price or prices at
which the Common Stock has generally traded or is expected to trade in the
future. The cautionary statements regarding estimates of net assets in
liquidation set forth in the Forward-Looking Statements portion of this report
are incorporated herein by reference.
(c) INTERIM INFORMATION
The financial statements included herein have been prepared by the Company
without audit; however, in the opinion of management of the Company, the
accompanying financial statements reflect all adjustments necessary for a fair
presentation of the results of operations for the periods shown.
(d) DISCONTINUED OPERATIONS
In the year ended March 31, 2001, the Company discontinued the operations
of the New York Expo due to the continuing losses associated with the April
21-22, 2001 Music and Internet Expo, resulting in a loss of approximately
$44,000 for the nine months ended December 31, 2001.
In November, 2001, as a result of the Company's inability to complete the
necessary software and marketing plans, the Company discontinued the remaining
operations of Hungry Bands and New Media Music. The divisions had losses of
approximately $201,000 and $359,000, respectively, for the nine months ended
December 31, 2001. In accordance with Accounting Principles Board, ("APB")
Statement #30, "Reporting the Effects of the Disposal of a Segment of a
Business," the prior periods' financial statements have been restated to reflect
such discontinuation. All assets and liabilities of the discontinued segments
have been reflected as net assets or liabilities of discontinued operations. Net
liabilities of the discontinued operations as of December 31, 2001 consisted of
accrued expenses for New Media Music of approximately $16,000.
6
Operating results from discontinued operations were as follows:
New York Expo:
Nine
months
ended
December
Amounts in thousands 31, 2001
--------
Revenues $ --
-----
Operating costs and expenses:
Cost of Sales 44
Selling, general and administrative expenses --
-----
Total operating costs and expenses 44
-----
Operating Loss (44)
Other income and (expenses) --
-----
Loss from discontinued operations $ (44)
=====
Hungry Bands
For the nine months ended, December 31, 2001
(Amounts in
thousands)
----------
Revenues $ --
-----
Operating costs and expenses:
Cost of Sales --
Selling, general and administrative expenses 201
-----
Total operating costs and expenses 201
-----
Operating Loss (201)
Other income and (expenses) --
-----
Loss from discontinued operations $(201)
=====
New Media Music
For the nine months ended, December 31, 2001
(Amounts in
thousands)
----------
Revenues $ --
-----
Operating costs and expenses:
Cost of Sales --
Selling, general and administrative expenses 359
-----
Total operating costs and expenses 359
-----
Operating Loss (359)
Other income and (expenses) --
-----
Loss from discontinued operations $(359)
=====
(e) USE OF ESTIMATES
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, 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.
7
(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.
(g) REVENUE RECOGNITION
Revenues from CD sales were recognized upon shipment to the customer.
(h) LOSS PER COMMON SHARE
Loss per share for the three and nine months ended December 31, 2001 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 three and
nine months ended December 31, 2001 were approximately 16,055,000 and
15,697,000, respectively.
Common stock equivalents were not included in the computation of weighted
average shares outstanding for all periods presented because such inclusion
would be anti-dilutive.
(i) COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and all changes to
stockholders' equity, except those resulting from investments by owners (changes
in paid in capital) and distributions to owners (dividends). For all periods
presented, comprehensive loss is comprised of unrealized holding gains or losses
on marketable securities.
(j) 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 three and nine months
ended December 31, 2001 that were associated with the testing stage were
capitalized and subsequently expensed as a result of management's liquidation
plan in the amount of approximately $157,000. The expenses associated with
operating the website were expensed.
(k) SIGNIFICANT ESTIMATES
The Company has adjusted all assets to their expected net realizable value
on a liquidation basis based on management's best estimate. In addition, all
liabilities expected to be incurred with respect to the discontinued operations
have been accrued by management based on its estimates.
(l) TERRORIST ATTACK OF SEPTEMBER 11, 2001
Due to the Company's proximity to the terrorist attack on September 11,
2001 on the World Trade Center in New York City, the office was closed for one
week. All costs related to this attack were paid or accrued and were included in
operating costs and expenses for the nine months ended December 31, 2001. The
Company filed an insurance claim and the amount of the expense recovery was
approximately $8,000.
8
2. 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. In December, 2002 the
Company was sued for $3,750 in Civil Court, New York City by MetTel, a former
supplier of Internet access service. The suit was brought one year after the
Company terminated the service in November, 2001, returned the "router"
connecting the system and paid all outstanding bills into December, 2001.
Although the outcome of any legal proceedings cannot be predicted with
certainty, based on current knowledge of the applicable law and facts taking
into consideration the opinion of the Company's general counsel that the
allegations lack merit and substance, and that the Company should prevail in
this litigation, management believes that this lawsuit should not have a
material adverse effect on the net assets in liquidation.
From time to time in previous years, the Company had been a party to other
legal actions and proceedings incidental to its business. As of the date of this
report, however, the Company knows of no other pending or threatened legal
actions that could have a material impact on the net assets in liquidation.
3. STATEMENTS OF CASH FLOWS
------------
Nine months
ended
December 31,
2001
------------
(Amounts in
thousands)
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 8
Non-cash transactions:
Contribution of salaries by management $ 65
Compensation and consulting fees via stock and
options $ 8
Non-cash transactions (discontinued operations):
Contribution of salaries by management $131
Compensation and consulting fees via stock and
options $ 10
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities were comprised of the following:
December 31, March 31,
2002 2002
---------------------------
(Amounts in thousands)
Accrued audit and tax fees $ 7 $25
Accounts payable and accrued
Expenses 1 7
--- ---
$ 8 $32
=== ===
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND STATUS
OF LIQUIDATION
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, 2002. 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 has been seeking merger or sale possibilities with operating
businesses who perceive value in a merger with the Company as a publicly traded
corporate shell. The Company was an Internet media company with three websites
for the marketing of news and services. The Company's websites related entirely
to the music industry. The Company intended to develop these websites further by
entering into strategic partnerships and affiliations. As part of this strategy,
in June, 1999 the Company acquired Tropia, which promoted and marketed the music
of selected independent artists on its website www.Tropia.com. The Company next
acquired three music-related websites, HungryBands.com (an e-commerce website
and business promoting and selling music by independent artists),
NewMediaMusic.com (an e-news/magazine business), and NewYorkExpo.com (a music
and Internet conference business), all in January, 2000. As of December 31,
2001, the Company discontinued the operations of its New Media Music and
HungryBands divisions because they were not viable businesses. As of March 31,
2001, the Company discontinued the operations of the New York Expo as a result
of increased losses associated with the production of the Expo. In addition,
during fiscal 2000, the Company made and wrote-off a $500,000 investment in a
music CD custom compilation and promotion company, Volatile Media, Inc., which
did business as EZCD.com, now in bankruptcy liquidation. Such investment was
written off at March 31, 2000 because of uncertainties in EZCD's financing plans
and ability to continue operations.
SITI's history under former management and control persons goes back to
1984 when it was incorporated in Delaware. 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 current 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, and its former stock symbol "SITI" is now "SITN.OB".
In view of the Company's determination to seek other business
opportunities to create shareholder value, the following information relating to
the results of the Company's prior discontinued operations should not be relied
upon as an indication of future performance. All of the Company's operations
prior to January 1, 2002 are discontinued operations and the Company adopted the
liquidation basis of accounting, effective January 1, 2002. (See Status of
Liquidation).
10
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary objective is to conserve its cash while it is
seeking merger or sale possibilities. As of December 31, 2002 the Company had
net assets of approximately $43,000. Chairman/CEO Powers invested $30,000 and
another existing investor invested $15,000 in the Company as of July 26, 2002,
resulting in the issuance of 1,800,000 shares of common stock. As of October 23,
2002, Chairman/CEO Powers invested an additional $30,000 in the Company,
resulting in the issuance of an additional 1,500,000 shares of common stock.
As of December 31, 2002, the Company's total assets were approximately
$51,000, represented primarily by cash. During the nine months ended December
31, 2002, the Company incurred approximately $195,000 in operating expenses
consisting primarily of management's contribution of their services and rent of
approximately $138,000. Accounting fees totaled approximately $19,000 for the
nine months ended December 31, 2002. Stock transfer agent fees totaled
approximately $18,000 for the nine months ended December 31, 2002. Salary and
related expenses to one employee for the nine months ended December 31, 2002
were approximately $12,000. The remaining $8,000 in operating expenses paid
during the nine months ended December 31, 2002 related primarily to general
office expenses. As of December 31, 2002, the Company's liabilities were $2,000
consisting primarily of its obligations for professional fees associated with
its fiscal 2003 accounting needs. Management, primarily the Chairman/CEO,
continues to work without any cash compensation. Management further continues to
use personal offices to continue its plan.
LIQUIDATION BASIS OF ACCOUNTING
The condensed consolidated financial statements for the three and nine
months ended December 31, 2001 were prepared on the going concern basis of
accounting, which contemplates realization of assets and satisfaction of
liabilities in the normal course of business. As a result of Management's Plan
for Liquidation and the imminent nature of the liquidation, the Company adopted
the liquidation basis of accounting effective January 1, 2002. Under the
liquidation basis of accounting, assets are stated at their estimated net
realizable values and liabilities are stated at their estimated settlement
amounts, which estimates will be periodically reviewed and adjusted. Since the
Company is in liquidation without continuing operations, the need to present
quarterly Statements of Operations and Comprehensive Loss as well as a Statement
of Cash Flows is eliminated. However, the prior year's financial statements for
the comparable quarter are presented since the Company did not adopt this method
of accounting until January 1, 2002.
The valuation of assets at their net realizable value and liabilities at
their anticipated settlement amounts necessarily requires many estimates and
assumptions. In addition, there are substantial risks and uncertainties
associated with carrying out the liquidation of the Corporation's existing
operations. The valuations presented in the accompanying Statement of Net Assets
in Liquidation represent estimates, based on present facts and circumstances, of
the net realizable values of assets and costs associated with carrying out the
dissolution and liquidation plan based on the assumptions set forth below. The
actual values and costs are expected to differ from the amounts shown herein and
could be greater or lesser than the amounts recorded. Accordingly, it is not
possible to predict the aggregate amount that will ultimately be distributable
to shareholders and no assurance can be given that the amount to be received in
liquidation will equal or exceed the net assets in liquidation per share in the
accompanying Statement of Net assets in Liquidation or the price or prices at
which the Common Stock has generally traded or is expected to trade in the
future. The cautionary statements regarding estimates of net assets in
liquidation set forth in the Forward-Looking Statements portion of this report
are incorporated herein by reference.
RISK FACTORS
See the Company's Annual Report on Form 10-K (filed with the SEC on June
28, 2002), "Item 1 - Risk Factors That May Affect the Company's Business, Future
Operating Results and Financial Condition." and "Status of Liquidation" set
forth herein.
STATUS OF LIQUIDATION
The Company Chairman/CEO Lawrence M. Powers and another investor, in order
to finance ongoing corporate expenses, purchased an additional 1,800,000 shares
of common stock of the Company (1,200,000 and 600,000 shares, respectively) as
of July 26, 2002, at $.025 per share. (This was the same price paid by six
shareholder investors in December, 2001, to finance ongoing corporate expenses
at that time.) The Company's stock was trading at $.05 per share during the week
ending July 26, 2002 with nominal volume. The shares recently sold to these two
existing investors were not registered under the Securities Act of 1933, were
purchased for investment requiring "legended" certificates and are not readily
marketable because of such legending and the nominal trading volume in SITI
stock,
11
which factors generally result in substantial discounts in purchase value. There
are also several other business risks to the purchasers, because the Company has
no ongoing operations, is in liquidation, and is seeking merger or sale
possibilities with operating businesses, to make use of the Company's publicly
traded status with approximately 5,400 shareholders. But current depressed stock
market conditions for "going public" increase the difficulties in arranging any
such transactions. As a result of this stock purchase transaction completed
August 5, 2002, the Company's outstanding common stock increased as of such date
from 20,118,178 shares to 21,918,178 shares.
The Company Chairman/CEO Lawrence M. Powers, in order to finance ongoing
corporate expenses, purchased an additional 1,500,000 shares of common stock of
the Company as of October 23, 2002, at $.02 per share. The Company's stock was
trading at $.02 per share for most of the three weeks preceding October 23, 2002
with nominal volume. The shares recently sold to Mr. Powers were not registered
under the Securities Act of 1933, were purchased for investment requiring
"legended" certificates and are not readily marketable because of such legending
and the nominal trading volume in SITI stock, which factors generally result in
substantial discounts in purchase value. The several other business risks to the
purchaser described above are continuing. As a result of this stock purchase
transaction completed October 28, 2002, the Company's outstanding common stock
increased as of such date from 21,918,178 shares to 23,418,178 shares.
RESULTS OF OPERATIONS
Three months ended December 31, 2001.
For the three months ended December 31, 2001, the Company's revenues were
nominal.
Operating expenses in the three months ended December 31, 2001 totaled
approximately $139,000 which primarily included personnel and related expenses
of approximately $42,000 and rent of approximately $33,000. Accounting and
insurance fees for the three months ended December 31, 2001 were approximately
$7,000 and $3,000, respectively. Outside services for the three months ended
December 31, 2001 totaled approximately $23,000. The remaining costs of
approximately $31,000 represented ongoing office expenses while the Company
maintained its New York City facility.
For the three months ended December 31, 2001, the Company experienced
other expenses totalling approximately $230,000. These expenses consisted
primarily of a $157,000 loss associated with the write-down of the Company's
Artist Promotion System as well as a $74,000 loss on the sale of the Company's
assets. These losses were partially offset by $1,000 in interest income for the
nine months ended December 31, 2002. The total losses are a direct result of the
Company's plan of liquidation.
Nine months ended December 31, 2001.
For the nine months ended December 31, 2001, the Company's revenues were
nominal.
Operating expenses in the nine months ended December 31, 2001 totaled
approximately $343,000 which primarily included personnel and related expenses
of approximately $151,000 and outside services of approximately $23,000. Rent
for the nine months ended December 31, 2001 was approximately $46,000.
Accounting and insurance fees for the nine months ended December 31, 2001 were
approximately $26,000 and $27,000, respectively. The remaining costs of
approximately $70,000 represented ongoing office expenses while the Company
maintained its New York City facility.
Other expense totaled approximately $212,000 for the nine months ended
December 31, 2001 which included approximately $74,000 and $157,000,
respectively, attributable to a loss on the sale of assets and the write-down of
the Company's Artist Promotion System. These expenses were partially offset by
approximately $6,000 attributable to interest income; $5,000 related to a gain
on the sale of marketable securities and $8,000 related to a write-off of a
previously accrued expense.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk disclosures set forth in its fiscal 2002 Annual
Report filed on Form 10-K have not changed significantly.
12
ITEM 4. CONTROLS AND PROCEDURES
(a) The Company's principal executive officer and its principal financial
officer, based on their evaluation of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a -14 (c)) as of a date within 90
days prior to the filing of this Quarterly Report on Form 10-Q, have concluded
that the Company's disclosure controls and procedures are adequate and effective
for the purposes set forth in the definition in Exchange Act rules.
(b) There were no significant changes in the Company's internal controls
or in other factors that could significantly affect the Company's internal
controls subsequent to the date of their evaluation.
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. In December, 2002 the
Company was sued for $3,750 in Civil Court, New York City by MetTel, a former
supplier of Internet access service. The suit was brought one year after the
Company terminated the service in November, 2001, returned the "router"
connecting the system and paid all outstanding bills into December, 2001.
Although the outcome of any legal proceedings cannot be predicted with
certainty, based on current knowledge of the applicable law and facts taking
into consideration the opinion of the Company's general counsel that the
allegations lack merit and substance, and that the Company should prevail in
this litigation, management believes that this lawsuit should not have a
material adverse effect on the net assets in liquidation.
From time to time in previous years, the Company had been a party to other
legal actions and proceedings incidental to its business. As of the date of this
report, however, the Company knows of no other pending or threatened legal
actions that could have a material impact on the net assets in liquidation.
ITEM 5. OTHER INFORMATION
The Company moved its office from Yonkers, New York to Tuckahoe, New York
with no financial implications.
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit 99 Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002
B. Reports on Form 8-K
There were no reports on Form 8-K filed during the nine months ended
December 31, 2002.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
Dated: February 13, 2002
SITI-SITES.COM, INC.
By /s/ Lawrence M. Powers
----------------------------------
Lawrence M. Powers
Chief Executive Officer and
Chairman of the Board of Directors
By /s/ Toni Ann Tantillo
----------------------------------
Toni Ann Tantillo
Chief Financial Officer,
Vice President, Secretary and Treasurer
15
EXHIBIT INDEX
Exhibit 99 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002
EXHIBIT 99
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SITI-Sites.com, Inc. (the
"Company") on Form 10-Q for the period ended December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), We,
Lawrence M. Powers, Chief Executive Officer and Toni Ann Tantillo, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Lawrence M. Powers
----------------------------
Lawrence M. Powers
Chief Executive Officer
/s/ Toni Ann Tantillo
----------------------------
Toni Ann Tantillo
Chief Financial Officer
February 13, 2002
16
CERTIFICATION
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Lawrence M. Powers, certify that:
1) I have reviewed this quarterly report on Form 10-Q of SITI-Sites.com, Inc.
(the "Registrant")
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us by others
within those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 13, 2002
By /s/ Lawrence M. Powers
-------------------------------------
Lawrence M. Powers
Chief Executive Officer and
Chairman of the Board of Directors
17
CERTIFICATION
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Toni Ann Tantillo, certify that:
1) I have reviewed this quarterly report on Form 10-Q of SITI-Sites.com, Inc.
(the "Registrant")
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 13, 2002
By /s/ Toni Ann Tantillo
-------------------------------------
Toni Ann Tantillo
Chief Financial Officer,
Vice President, Secretary and Treasurer
18