UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2004
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.)
47 Beech Road, Englewood, New Jersey 07631
(Address of principal executive offices) (Zip Code)
111 Lake Avenue, Suite #7, Tuckahoe, New York 10707
(Address of Chief Financial Officer) (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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting Common Stock (par value $0.001 per
share) held by non-affiliates as of June 11, 2004 was approximately $252,770
based on the last price at which the Common Stock was sold on June 11, 2004 of
$.03 as reported by the National Quotation Bureau. 24,778,178 shares of Common
Stock were outstanding as of June 11, 2004.
The following documents are incorporated herein by reference:
(1) Quarterly Report to security holders on Form 10-Q for the quarter
ended December, 2003 (the "Form 10-Q for 12/31/03");
(2) Annual Report to security holders on Form 10-K for the year ended
March 31, 2003 (the "Form 10-K for 2003");
(3) Annual Report to security holders on Form 10-K for the year ended
March 31, 2002 (the "Form 10-K for 2002");
Such documents are referred to in Parts I, II, III and IV of this Annual Report
on Form 10-K in several places.
The registrant is now an inactive entity and its report on Form 10-K for the
year ended March 31, 2004 is unaudited. (See Item 1. Business)
ANNUAL REPORT ON FORM 10-K
MARCH 31, 2003
PART I PAGE
----
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 6
ITEM 3. LEGAL PROCEEDINGS 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 6
SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK 6
AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA 8
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND STATUS OF LIQUIDATION 9
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
13
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT 13
ITEM 11. EXECUTIVE COMPENSATION 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K 19
Forward-Looking Statements
This Annual Report on Form 10-K contains forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, including,
but not limited to statements related to pending discussions, 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 set
forth in "Risk Factors." 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 (the "SEC"), particularly the Quarterly
Reports on Form 10-Q and any Current Reports on Form 8-K.
PART I
ITEM 1. BUSINESS
Introduction
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 their 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.
Asset 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
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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 continues to seek 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. Several such transactions
have been discussed in 2002 - 2004, but none of them have gone to completion.
The format the Company now plans to use is to form a subsidiary, "reverse merge"
a suitable candidate into such subsidiary and then distribute the Company's
shares retained therein (ranging from 15% to 5%, depending on the business
involved) to all of the Company's shareholders under a full S-1 Registration
Statement filed with the SEC. The candidates so far have not had the capital
base, or lacked other factors justifying this type of transaction. But the
format enables the Company to handle several such transactions if their business
merit justifies "going public" in this manner.
In October and November, 2003 Lawrence M. Powers, Chairman/CEO made two
loans to the Company for a total of $22,000, maturing October 30, 2004, at 6%
interest per annum, payable with principal at maturity. The funding was to
finance ongoing activity of the Company.
In January-February, 2004, the major investors in the Company agreed to
provide an additional $63,000 in equity funds, consisting of $41,000 in cash,
and the cancellation and conversion to common stock of the Chairman/CEO's recent
loans of $22,000. The total financing was applied to the purchase of 1,260,000
shares of common stock at $.05 per share by these major investors. This stock
purchase transaction did not complete until June, 2004.
The financing is to cover ongoing corporate expenses, including major
litigation filed by the Company in November, 2003 against former attorneys and
executives to recover proceeds from its former cell-phone patents. See
"Litigation".
Other 2002-2004 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 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, 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, 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.
Depressed stock market conditions for smaller companies "going public" in 2002 -
2003 increased the difficulties in arranging any such transactions.
2
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 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.
The recent $63,000 equity financing in January-February, 2004, described
above, was negotiated when the common stock of the Company had been trading ( at
nominal volume) for several months at $.07 per share, but as of February 6, 2004
the common stock was trading at $.05 per share, and that price was used to
complete the financing, resulting in the 1,260,000 new shares being issued. The
shares being sold to major 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. As earlier stated, such factors generally result in
substantial discounts in purchase value.
The several other business risks to the purchasers described in all
earlier financings above, are also continuing. Those risks are increased by the
ongoing cash costs of the patent recovery litigation, which will continue for a
substantial period and require more major investor financing. The future risks
to all shareholders further include a "one-third contingent fee agreement",
based solely on results achieved, with Special Litigation Counsel, Green, Schaaf
& Jacobson for handling the litigation through trial and appeal. This
arrangement, while currently advantageous to the Company, will necessarily
reduce any net proceeds to the Company from the litigation. See "Litigation".
The Company's Chairman/CEO Powers, who is also General Counsel to the
Company, has been active in the lengthy investigation leading to suit. He will
continue to spend substantial time working closely with litigation counsel as
this matter continues, without charging any current cash fees for his own time
and commitment. At the conclusion of the matter, he will review the results
achieved with the Company's other major investors and the board of directors,
and make reasonable charges for his legal services.
Audited Financial Statements. As a result of the asset liquidation and
reasons discussed below, the Company's management has determined that it is an
"inactive entity" under SEC accounting rules (See also "Form 10-K for 2003, Item
1. Business - Inactive Entity"), and is not therefore required to file audited
financial statements. This step conserves working capital. The Company meets all
of the criteria as set forth below except as noted:
(a) Gross receipts from all sources for the fiscal years ended March 31,
2004 and 2003 were not in excess of $100,000;
(b) For fiscal 2003 and 2004, the registrant has not purchased or sold any
of its own stock, granted options therefore, or levied assessments upon
outstanding stock; (1)
(c) Expenditures for all purposes for the fiscal years ended March 31,
2004 and 2003 were not in excess of $100,000; (2)
(d) No material change in the business has occurred during the 2003 and
2004 fiscal years, including any bankruptcy, reorganization, readjustment or
succession or any material acquisition or disposition of plants, mines, mining
equipment, mine rights or leases; and
3
(e) No exchange upon which the shares are listed, or governmental
authority having jurisdiction, requires the furnishing to it or the publication
of audited financial statements.
(1) During the last two fiscal years, the Company had no source of funding
to cover its expenses which were almost entirely audit and stock transfer
expenses. Chairman/CEO Powers, who may be deemed to beneficially own
approximately 48% of the Company's outstanding stock, and other existing
investors provided funding to the Company. All of the shares issued are legended
and none of the investors, has any intention of selling the stock publicly in
the foreseeable future. (See also "Form 10-K for 2003, Item 1. Business -
Inactive Entity")
(2) For fiscal 2003, operating expenses of approximately $260,000 included
approximately $185,000 of contributed services and rent. The Company recorded
such $185,000 as a contribution of capital because there was no cash outlay for
such expenses. For fiscal 2004, operating expenses of approximately $216,000
included approximately $155,000 of contributed services and rent which were
recorded as contributions of capital because there was no cash outlay for such
expenses.
Audited financial statements are planned to be resumed when events or
transactions justify the expense. The Company expects to continue filing
unaudited quarterly and annual financial statements with the SEC.
Management Background - 2004
Lawrence M. Powers, Investor and Chairman/CEO of the Company, is a
businessman and securities lawyer who helped build several large public
companies as a lawyer, director and financial adviser, and later as a
chairman/chief executive officer. Most recently, he founded and built Spartech
Corporation (NYSE), now a $1 billion plastics manufacturing group assembled from
many small businesses, starting as Chairman of a previously bankrupt shell
corporation (1978) with few assets, which he reorganized with other investors,
becoming CEO in 1984. Raising some $200 million during his tenure, he, together
with the management team he assembled, built one of the largest plastic
processing companies in the U.S. by 1992 (12 plants). Spartech has now become a
world leader (47 plants) since his retirement. He remained on the board until
1995. The core management team he previously assembled at Spartech Corporation
has remained in place, building it to its present value. Mr. Powers was educated
at Yale Law School, and senior executive programs at Harvard Business School
(between 1980-1998) and most recently, in its Information Technology management
program. His specialty has, for decades, been developing strategies and
financing, combined with acquisitions and strategic partnerships. He and his
family have invested over $2.8 million in SITI equity.
Toni Ann Tantillo was elected a Director of the Company in May, 2004. Ms.
Tantillo is a Certified Public Accountant in New York, and has been effectively
handling accounting, regulatory filings and other business matters for the
Company for the past eight years. She has been its Chief Financial Officer since
1999; is also its Vice-President, Secretary and Treasurer; and she worked as an
independent consultant to SITI after its change of control in December, 1998.
She was also the Controller of SITI from 1995 to December, 1998 under its prior
management. Ms. Tantillo age 37 has conducted her own private accounting
practice since 1998. Her client base and experience includes an international
public relations firm, an importer/exporter of steel, a publication firm and
many small businesses.
Employees
As of June 14, 2004, the Company had 1 employee in operations and general
administration (Ms. Tantillo). SITI executive, Mr. Powers, has been working
without cash compensation since 1998 and expects to do so for at least the year
ended March 31, 2005. Former executives, Mr. Ingenito and Iannitto, received
stock and options for their services during the fiscal year ended March 31,
2002, but no cash compensation. (See "Item 11. - Executive Compensation -
Employment Agreements.") The Company has recorded an administrative expense and
a capital contribution of $125,000 to account for the value of services provided
by executive management (Mr. Powers) of the Company during the year
4
ended March 31, 2004, as in prior fiscal years. None of the Company's employees
were represented by any collective bargaining unit, 1998-2004. The Company
believes that its relations with its past and present employees are good.
Risk Factors
The Company's plan is the continued cessation of its past business
activities, to pursue its patent litigation and to seek reverse mergers to
acquire stock in other companies (followed by spin-off of the shares to SITI
shareholders), that perceive value in thereby becoming a publicly traded
corporation.
Risk factors may affect the Company's opportunities to merge with or sell
to other operating businesses. In addition to the other information in this
Annual Report on Form10-K, and the risk factors listed in the Forms10-K for 2002
and 2003, new and different risk factors can be anticipated within any operating
business which the Company acquires, or becomes part of, through merger or sale.
It is not possible to identify these new and different risk factors until such
transactions are negotiated and completed, because the operating businesses will
be in different areas from the Internet music business described in prior
Forms10-K. Reference is made to Risk Factors in the Company's Form 10-K for
2002, incorporated herein by reference.
Future Mergers or Sales Will Cause Dilution or Adversely Affect Results
As part of the Company's business strategy, the Company is seeking by
merger or sale to acquire other operating businesses which perceive value in
becoming a publicly traded corporation. The Company has no current agreements or
commitments with respect to any merger or acquisition transactions and there can
be no assurance that the Company will enter into any such agreements or
commitments. In the event of such future transactions, the Company could (i)
issue equity securities that would dilute current stockholders' percentage
ownership in the Company or otherwise impact upon it, very substantially because
the owners of the operating business will require full control of the Company or
its subsidiary used in the transaction; (ii) could directly or in the spin-off
subsidiary incur substantial debt; or (iii) assume contingent liabilities. Such
actions could cause the Company's operating results or the price of the
Company's common stock to decline. In addition, the Company or subsidiary may
not be able to successfully integrate any businesses, products, technologies or
personnel that may thus be acquired or be part of the subsidiary in the future.
The only certainty in any such transaction is that the shareholders of the
Company will own only a minor portion of the operating business thus acquired,
new management will operate such business and it will be an entirely different
operation from that described in prior Forms10-K filed by SITI.
The Company May Need to Obtain Additional Financing
Management believes that current cash and cash equivalents will not be
sufficient to meet the Company's anticipated cash needs for working capital and
capital expenditures for the nine months ended December 31, 2004. If shareholder
Powers remains satisfied with the search for mergers or sales transactions
described above, and now in process, he presently intends to invest the amounts
necessary to continue such efforts in fiscal 2005.
Market Listing; Volatility of Stock Price
The Company's common stock has been traded on the OTC Bulletin Board and
there are approximately 3.5 million shares in the "public float" for trading
purposes. The market for the Company's common stock has been relatively illiquid
and subject to wide fluctuations. There can be no assurance that an active
public market for the common stock will develop or be sustained particularly
with the Company's future direction by merger or sale, with an as yet unknown
operating business, remaining uncertain. Further, the market price of the
Company's common stock may be highly volatile based on quarterly variations in
operating results, acquisitions by the Company, investment or other losses,
announcements of technological innovations or new products by the Company or its
competitors, or other events or factors.
5
ITEM 2. PROPERTIES
During the fiscal year 2004, the Company's management has operated the
Company's administrative business out of their personal offices, and finds the
present arrangements sufficient. As a result of the use of personal offices, the
Company recorded a charge of $30,000 as rental expense and increased paid in
capital by that amount for the fiscal year ended March 31, 2004.
ITEM 3. LEGAL PROCEEDINGS
The Company filed a civil suit in the United States District Court for the
Southern District of New York on November 12, 2003, recently withdrawn and
re-filed in New York State Supreme Court in New York County, Commercial
Division. The Company's Complaint alleges that its patent attorneys and
departing patent licensing executives, in late 1998 and thereafter, purchased
its valuable patents on cell-phone technology for $24,000 by concealing their
nature and value. The defendants have realized at least $10 million in gross
proceeds therefrom, to date.
The Company's claims arise from a period when it was previously named
Spectrum Information Technologies, Inc. The claims all stem from the alleged
breach of fiduciary duties by the defendants. The claims have been under
investigation by the Company under counsel's supervision, for the past year. The
Company is seeking damages in excess of $10 million, and a court-ordered trust
on future proceeds from its former patents.
This is complex litigation, expected to be contested vigorously by several
defense firms and to continue for several years. No assurance can be given as to
the ultimate outcome thereof. Martin M. Green, Esq. and his firm of Green,
Schaaf & Jacobson, P.C. based in Clayton, Missouri, have been retained as the
Company's Special Counsel, for the litigation and ultimate trial of this matter.
The Company has retained Gary Cooper, Esq. and Cooper & McCann, LLP. as its New
York Counsel.
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.
Defaults by EZCD.com as to its investment representations, and its content
and technology sharing agreement with the Company in 2000 have been resolved in
the EZCD.com bankruptcy liquidation, and the Company in May 2004, recovered
approximately $30,000. There is no further recovery expected.
From time to time since 1998, the Company had been a party to other legal
disputes incidental and not material to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The common stock of the Company, par value $0.001 per share (the "Common
Stock"), was traded in the NASDAQ System from 1987 through April, 1995. NASDAQ
delisted the Company from the National Market System because the Company failed
to meet certain net tangible asset and bid and ask price criteria in April, 1995
as it went into reorganization. After 1997 the Common Stock was traded on the
NASD OTC Bulletin Board, until June 2003. The stock
6
is currently being traded in The Pink Sheets under the symbol SITN.PK. There are
currently 7 registered market makers for the Common Stock. If the Company
engages in any reverse-merger transaction it anticipates that the resulting
subsidiary spin-off to shareholders will be, at the least, a Bulletin Board
stock in terms of size and listing requirements.
In March, 1997, the Company's Reorganization Plan became effective, which
included a 75:1 reverse stock split. On that day, the Company's reorganized
common stock became eligible for trading under the symbol "SITI", which symbol
was modified by NASDAQ to "SITN.OB" in January, 2000. The range of high and low
closing bid prices for the Common Stock for the fiscal years 2004 and 2003 are
set forth below. The National Quotation Bureau provided this information which
may not reflect actual transactions.
HIGH AND LOW BID PRICES
2004 2003
Low High Low High
First Quarter (6/03) $0.03 $0.03 First Quarter (6/02) $0.03 $0.22
Second Quarter (9/03) 0.00 0.05 Second Quarter (9/02) 0.03 0.10
Third Quarter (12/03) 0.03 0.07 Third Quarter (12/02) 0.02 0.04
Fourth Quarter (3/04) 0.03 0.08 Fourth Quarter (3/03) 0.03 0.04
On June 11, 2004, the last reported bid and ask prices of the Common Stock
were $.03 and $.04, respectively.
As of June 11, 2004 there were approximately 5,400 holders of record of
the Company's Common Stock (which amounts do not include the number of
shareholders whose shares are held of record by brokerage houses but include
each brokerage house as one shareholder).
The Company has paid no dividends for the fiscal years ended March 31,
2004, 2003 and 2002 and the Company has no current plans to pay cash dividends
in the foreseeable future. The Company plans to retain earnings, if any, to
finance the Company's operations. Payment of cash dividends, if any, in the
future will be determined by the Company's Board of Directors in light of future
earnings, capital requirements, financial condition and other relevant
considerations.
Recent Sales of Unregistered Securities
For a discussion of sales of unregistered securities by the Company during
the 2002 fiscal year see the Form 10-K for 2002, "Part II. Item 2. Changes in
Securities."
For a discussion of sales of unregistered securities by the Company during
the 2003 fiscal year see the Form 10-K for 2003, "Part II. Item 2. Changes in
Securities."
In February, 2004, the major investors in the Company agreed to provide an
additional $63,000 in equity funds, consisting of $41,000 in cash, and the
cancellation and conversion to common stock of the Chairman/CEO's recent loans
of $22,000. The total financing was applied to the purchase of 1,260,000 shares
of common stock at $.05 per share by these major investors.
In May 2004, Ms. Tantillo, in connection with her services as a Director,
Ms. Tantillo agreed to purchase 100,000 shares of SITI common stock at $.03 per
share, its current trading price, payable over ten months.
7
All of the shares of Common Stock issued by the Company during the 2002,
2003 and 2004 fiscal years as described above, 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, and 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. SELECTED FINANCIAL DATA
The following selected financial data of the Company as of and for the
periods indicated below are derived from the financial statements of the
Company. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included as Item 7, the financial statements and related footnotes
included as Item 8 in the Form 10-K and the footnotes accompanying the tables.
Effective January 1, 2002, the Company adopted the liquidation basis of
accounting and as a result the selected financial data from fiscal 2002 only
reflects operating activity through December 31, 2001.
STATEMENT OF CHANGES IN NET ASSETS DATA (LIQUIDATION BASIS OF ACCOUNTING)
----------------------------
For the three
For the year For the year months
ended ended ended
March 31, March 31, March 31,
2004 2003 2002
- -------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except per share amounts)
Net assets in liquidation at beginning of period 28 11 64
Reduction to net assets in liquidation:
Operating expenses and accrual of estimated costs (217) (260) (110)
Addition to net assets in liquidation:
Issuance of common stock 63 75 3
Refund of charges -- 17 --
Contribution of management's services and rent 155 185 46
Insurance recovery from World Trade
Center attack -- -- 8
Net assets in liquidation at end of period 29 28 11
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CONTINUING AND DISCONTINUED OPERATIONS
(GOING CONCERN BASIS)
--------------------------------
Nine months
ended For the Year
December 31, 2001 Ended
(Last period of March 31,
full operations) 2001
- --------------------------------------------------------------------------------
(Amounts in thousands, except per share amounts)
Summary of Operations:
Total revenues of continuing operations 0 0
Loss from continuing operations (555) (721)
Loss from continuing operations per
common share (0.03) (0.05)
Net income (loss) from continuing and
discontinued operations (1,159) (2,002)
Net income (loss) per share from
continuing and discontinued operations (0.07) (0.14)
Weighted average common
Shares outstanding 15,697 14,024
Summary of Financial Position:
Total assets 99 1,090
Long-term debt -- --
Stockholders' equity 64 903
Dividends per share None None
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND STATUS
OF LIQUIDATION
Organization
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 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.PK".
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).
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
9
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, 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 depressed stock market
conditions for "going public" increased 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 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.
In January-February, 2004, the major investors in the Company agreed to
provide an additional $63,000 in equity funds, consisting of $41,000 in cash,
and the cancellation and conversion to common stock of the Chairman/CEO's recent
loans of $22,000. The total financing was applied to the purchase of 1,260,000
shares of common stock at $.05 per share by these major investors. This stock
purchase transaction did not complete until June, 2004.
SUMMARY OF OPERATIONS: CONTINUING AND DISCONTINUED
The following discussion relates to the Company's continuing operations
prior to the decision to liquidate.
CONTINUING OPERATIONS
The following table sets forth certain financial data for continuing
operations for the fiscal 2002. During fiscal 2002, the Company discontinued its
New York Expo, HungryBands and New Media Music business segments. In accordance
with Accounting Principles Board, ("APB") Statement #30, "Reporting the Effects
of the Disposal of a Segment of a Business," the prior fiscal years' financial
statements have been restated to reflect the discontinued operations. All assets
and liabilities of the discontinued segment have been reflected as net
liabilities of discontinued operations.
- --------------------------------------------------------------------------------
Nine months ended
Continuing Operations: December 31, 2001
- --------------------------------------------------------------------------------
(Amounts in thousands)
Revenues $ 0
-----
Operating costs and expenses:
Cost of sales --
Impairment of goodwill --
Selling, general and administrative 343
-----
Total operating costs and expenses 343
-----
Operating loss $(343)
=====
10
CONSOLIDATED REVENUES FROM CONTINUING OPERATIONS
During the nine months ended December 31, 2001, SITI's revenues were
nominal.
OPERATING COSTS AND EXPENSES FROM CONTINUING OPERATIONS
Nine months ended December 31, 2001 (the last period in which the Company had
operations). - During the nine months ended December 31, 2001, operating costs
and expenses totaled approximately $343,000, of which $151,000 was personnel and
related expenses. Rent totaled approximately $46,000 for the nine months ended
December 31, 2001. Accounting expenses for the nine months ended December 31,
2001 amounted to $26,000 and there were no legal fees for the same period as a
result of a decline in general corporate matters. The remaining operating costs
of approximately $120,000 represented general costs to maintain the Company's
office and fund its ongoing operations for the nine months ended December 31,
2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary objective is to conserve its cash while pursuing the
patent litigation and seeking merger or sale possibilities. As of March 31,
2004, the Company's net assets totaled approximately $29,000. As of March 31,
2003, the Company had net assets of approximately $28,000. 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 March 31, 2004 and 2003, the Company's total assets were
approximately $34,000 and $41,000, respectively, represented primarily by cash.
During the fiscal year ended March 31, 2004, the Company incurred approximately
$216,000 in operating expenses consisting primarily of management's contribution
of their services and rent of approximately $155,000. Legal fees totaled
approximately $13,000 for the twelve months ended March 31, 2004. Such fees are
the direct result of the patent litigation. Stock transfer agent fees totaled
approximately $24,000 for the twelve months ended March 31, 2004. Salary and
related expenses to one employee for the fiscal year ended March 31, 2004 were
approximately $14,000. The remaining $10,000 in operating expenses paid during
the fiscal year ended March 31, 2004 related primarily to general office
expenses.
During the fiscal year ended March 31, 2003, the Company incurred
approximately $260,000 in operating expenses consisting primarily of
management's contribution of their services and rent of approximately $185,000.
Accounting fees totaled approximately $28,000 for the twelve months ended March
31, 2003. Stock transfer agent fees totaled approximately $24,000 for the twelve
months ended March 31, 2003. Salary and related expenses to one employee for the
twelve months ended March 31, 2003 were approximately $15,000. The remaining
$8,000 in operating expenses paid during the fiscal year ended March 31, 2003
related primarily to general office expenses. As of March 31, 2003, the
Company's liabilities were approximately $13,000 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 financial statements for the fiscal periods ending prior to and
including 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
11
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 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.
INFLATION
The Company does not believe that the relatively moderate rates of
inflation in recent years have had a significant effect on its net revenue and
profitability.
SUMMARY OF DISCONTINUED OPERATIONS
As a result of the losses incurred relating to the April 21-22, 2001 Expo,
the Company discontinued the operations associated with the segment. For a full
discussion of the Company's discontinued operations for the fiscal year ended
March 31, 2002, see the Form 10-K for 2002. Below is a table representing
operating results from the discontinued operations.
OPERATING RESULTS FROM DISCONTINUED OPERATIONS
Nine months ended
December 31, 2001
-----------------
Revenues 0
----
Operating costs and expenses
Cost of sales 44
Selling, general & administrative 560
----
Total operating costs and expenses 604
----
Operating income (loss) (604)
Other income and (expenses) 0
----
Income(loss) from discontinued operations (604)
====
12
For a full discussion of operating results from discontinued operations
see the Form 10-K for 2002.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company had no short-term investments as of March 31, 2004 and 2003.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information called for by this item is set forth in the Company's
consolidated financial statements and supplementary data contained in this
report, and can be found at the pages listed in the following index on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant notified its auditors, McGladrey & Pullen, LLP in 2003 that
it was planning to change its status to an Inactive Registrant which would no
longer require their services as auditors (subject to further review by
management of applicable regulations, discussed herein at page 3 "Inactive
Entity", while the Form 10-K was being prepared).
On June 25, 2003, the Registrant formerly notified McGladrey & Pullen, LLP
that it was terminating McGladrey & Pullen, LLP as auditors for the Company.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers of the Company
The following table sets forth information with respect to the directors
and executive officers of the Company:
Name Age Position with the Company
Lawrence M. Powers 72 Chairman of the Board,
Chief Executive Officer
Barclay V. Powers 41 Director
Toni Ann Tantillo 37 Director, Chief Financial Officer,
Vice President, Secretary and Treasurer
Business Experience of Directors and Executive Officers
Lawrence M. Powers, 72, has served as the Company's Chairman of the Board
and Chief Executive Officer since the change of control transaction in December,
1998. Mr. Powers has been a private investor since 1992. Beginning in 1978 and
continuing to his retirement in 1992, he built Spartech Corporation (NYSE), from
a previously bankrupt corporation with few assets, into what has become a $1
billion plastics manufacturing group operating 47 plants. Raising some $200
million during his tenure, he and Spartech's key managers built one of the
largest plastic processing companies in the U.S. by 1992 (12 plants at the
time). The management team he assembled has continued successfully. He remained
on the board of Spartech until 1995. Mr. Powers, a securities lawyer in New York
from 1957 through 1981, was educated at Yale Law School and senior executive
programs at Harvard Business School. Mr. Powers is the father of Barclay V.
Powers, a Director of the Company.
13
Barclay V. Powers, 41, has served as a Director of the Company since 1999.
He is a graduate of Columbia University, and was an executive associate for five
years to the Chairman/CEO of Spartech, specializing in marketing projects,
acquisitions and joint ventures. Since 1992 he has been an independent film
producer, making and marketing documentaries and a feature film, all aimed at
the college youth market. Barclay Powers is the son of Lawrence M. Powers,
Chairman and CEO of the Company.
Toni Ann Tantillo was elected a Director of the Company in May 2004. Ms.
Tantillo is a Certified Public Accountant in New York, and has been effectively
handling accounting, regulatory filings and other business matters for the
Company for the past eight years. She has been its Chief Financial Officer since
1999; is also its Vice-President, Secretary and Treasurer; and she worked as an
independent consultant to SITI after its change of control in December, 1998.
She was also the controller of SITI from 1995 to December, 1998 under its prior
management. Ms. Tantillo, age 37 has conducted her own private accounting
practice since 1998. Her client base and experience includes an international
public relations firm, an importer/exporter of steel, a publication firm and
many small businesses.
Compliance with Section 16 of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who beneficially own more than 10%
of the Company's common stock (collectively, "Reporting Persons"), to file
reports of ownership and changes in ownership with the SEC. Reporting Persons
are required by SEC regulations to furnish the Company with copies of all such
reports. To the Company's knowledge, based on a review of such reports to the
Company and certain representations of the Reporting Persons, the Company
believes that during the 2004 fiscal year, all Reporting Persons timely complied
with all applicable Section 16(a) filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following table sets forth the total annual compensation paid, or
accrued by the Company for services in all capacities for Mr. Lawrence M. Powers
in fiscal 2004, 2003 and 2002, who served as Chief Executive Officer and four
individuals who were among the highest paid employees for the fiscal year ended
March 31, 2002. The table also includes two individuals who were among the
highest paid employees for the 2000 fiscal year but were not executive officers
at the end of such fiscal year (collectively, the "Named Executive Officers").
The Company had one executive officer serving as such at the end of fiscal 2001
whose aggregate compensation exceeded $100,000. Note that Messrs. Powers,
Ingenito and Iannitto were not paid any cash compensation in fiscal 2003, 2002
and 2001 and the amounts shown were waived and merely accrued by the Company
(See Note 1 to table).
14
Summary Compensation Table
Long-Term Compensation Payouts
Annual Compensation
Grants & Awards
Other Restricted Shares
Name and Annual Stock Underlying LTIP All other
Principal Position Year Salary Bonus Comp. Awards Options Payouts Comp
- ------------------ ---- ------ ----- ----- ------ ------- ------- ----
Lawrence M. Powers 2004 125,000(1) -0- -0- -0- -0- -0- -0-
Chairman and Chief 2003 125,000(1) -0- -0- -0- -0- -0- -0-
Executive Officer 2002 125,000(1) -0- -0- -0- -0- -0- -0-
Robert Ingenito(3) 2004 -0- -0- -0- -0- -0- -0- -0-
Former Director 2003 -0- -0- -0- -0- -0- -0- -0-
2002 67,333(1) -0- -0- -0- -0- -0- -0-
John Iannitto(3) 2004 -0- -0- -0- -0- -0- -0- -0-
Former Vice-President 2003 -0- -0- -0- -0- -0- -0- -0-
2002 49,750(1) -0- -0- -0- -0- -0- -0-
Toni Ann Tantillo(3) 2004 12,000 -0- -0- -0- -0- -0- -0-
Director, 2003 13,000 -0- -0- -0- -0- -0- -0-
Chief Financial Officer 2002 65,325 -0- -0- -0- -0- -0- -0-
Vice-President,
Secretary and Treasurer
Theodore Mazola(3) 2004 -0- -0- -0- -0- -0- -0- -0-
Former Vice-President, 2003 -0- -0- -0- -0- -0- -0- -0-
Technical Director 2002 60,729 -0- -0- -0- -0- -0- -0-
Steven Zuckerman(3) 2004 -0- -0- -0- -0- -0- -0- -0-
Former Vice-President, 2003 -0- -0- -0- -0- -0- -0- -0-
Technical Director 2002 5,000(2) -0- -0- -0- -0- -0- -0-
(1) Amounts include Mr. Powers', Mr. Ingenito's and Mr. Iannitto's contribution
of services charged against earnings. During fiscal 2002, Messrs. Ingenito and
Iannitto received stock options for their services and approximately $9,000 and
$6,000, respectively, was charged to compensation for these options. However,
Mr. Powers did not receive any compensation for his services during fiscal 2002,
2003 and 2004.
(2) Mr. Zuckerman became a consultant in May, 2001 and his salary and bonus
arrangements were terminated.
15
(3) Effective with the liquidation, these executive officers were terminated and
received no compensation for fiscal 2003. Mr. Ingenito remained as an
uncompensated director during fiscal 2004 and, effective May 5, 2004, resigned
as a director of the Company. At such time, Ms. Tantillo was appointed as a
Director.
Option Grants in Last Year
During fiscal 2002 options were granted to Mr. Ingenito and Mr. Iannitto
pursuant to their Employment Agreement. However, pursuant to the November 28,
2001 offer to key investors, these options were cancelled. There were no options
granted during the fiscal years ended March 31, 2003 and March 31, 2004.
Option Exercises and Year-End Values
There were no options exercised by the Named Executive Officers during the
2004 fiscal year. Any options held by such individuals were purchased in
connection with stock purchase agreements. (See "Item 5. Market for the
Registrant's Common Equity and Related Stockholder Matters.")
Compensation of Directors
At present, the Board does not award compensation to its directors.
Employment Agreements
At present the Company does not maintain employment agreements or other
arrangements with its executive officers. Mr. Powers continues to work without
compensation and expects to continue in such a manner in fiscal 2005.
For a full discussion on former employment agreements, refer to the Form
10-K for fiscal 2003.
At present, the Company does not have a Compensation Committee.
16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of June 11, 2004, as to the
beneficial ownership of the Company's common stock (including shares which may
be acquired within sixty days pursuant to stock options) by (1) each person or
group of affiliated persons known by the Company to own beneficially more than
5% of the outstanding shares of the Company's common stock, (2) the Named
Executive Officers, (3) each of the Company's directors, and (4) all directors
and executive officers of the Company as a group. Unless otherwise noted, the
Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned.
Shares of Common Stock Beneficially Owned
Name of Owner Number Percent of Class
- --------------------------------------------------------------------------------
Lawrence M. Powers 11,736,666(1) 47.4%
47 Beech Road
Englewood, NJ 07631
Robert Ingenito (former director) 3,826,667(2) 15.4%
80 Ruland Road
Melville, NY 11747-6200
Barclay V. Powers 4,818,333 19.4%
665 Walther Way
Los Angeles, CA 90049
John Iannitto (former officer) 1,900,000(3)(4) 8.4%
D/B/A RSI Marketing
171 Madison Avenue
New York, NY 10016
Toni Ann Tantillo 155,834 *
115 Whitman Road
Yonkers, NY 10710
Theodore Mazola (former officer) 300,000 1.3%
36 Fieldway Avenue
Staten Island, NY 10308
Current Directors and 11,892,500(5) 48.0%
Executive Officers as a
Group(3 persons):
- ----------
* Less than 1%
(1) Consists solely of shares. All options were cancelled pursuant to the
November 28, 2001 offer to key investors. Shares and options held by Mr.
Lawrence Powers also include 4,818,333 shares held by his son, Barclay V.
Powers, as to which Lawrence Powers disclaims voting or investment power
therein.
(2) Consists solely of shares. All options were cancelled pursuant to the
November 28, 2001 offer to key investors. Shares held by Mr. Ingenito also
include 1,746,667 shares held by John DiNozzi.
17
(3) Consists solely of shares. All options were cancelled pursuant to the
November 28, 2001 offer to key investors.
(4) Consists solely of shares held by RSI Marketing, a sole proprietorship owned
by John Iannitto. All options were cancelled pursuant to the November 28, 2001
offer to key investors.
(5) Consists solely of shares.
18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
1. Consolidated Financial Statements:
The consolidated financial statements filed as a part of this
report are listed in the "Index to Consolidated Financial
Statements" at Item 8.
2. Consolidated Financial Statement Schedules:
The consolidated financial statement schedule filed as part of
this report is listed in the "Index to Consolidated Financial
Statements " at Item 8.
Schedules other than that listed on the accompanying Index to
Consolidated Financial Statements are omitted for the reason that
they are either not required, not applicable, or the required
information is included in the consolidated financial statements
or notes thereto.
3. Exhibits
2.1 Acquisition Agreement Between the Company and Tropia, Inc. (4)
3.1 Certificate of Incorporation of SITI-Sites.com, Inc. as amended. (3)
3.2 Amended and Restated Bylaws of SITI-Sites.com, Inc., as amended (3)
3.3 Restated Certificate of Incorporation of the Company (3)
3.4 Restated Bylaws of the Company. (3)
10.1 Investment and Business Development Agreement Among the Company,
Minutemeals.com, Inc., Joseph Langhan and Donald Moore, dated March
19, 1999 (5)
10.2 Stock Purchase Agreement Between the Company and Powers & Co. dated
December 11, 1998 (5)
10.3 Stock Purchase Agreement Between the Company and Robert Ingenito
dated December 12, 1998 (5)
10.4 Stock Purchase Agreement Between the Company and Steven Gross dated
December 12, 1998 (5)
10.5 Option Agreement Entered Into Between the Company and Maurice W.
Schonfeld (5)
10.6 Termination Agreement Dated as of May 28, 1999 Among the Company,
Minutemeals.com, Inc., Joseph Langhan, and Donald Moore (5)
10.7 Stock Purchase Agreement dated July 26, 1999 (Powers) (3)
10.8 Content and Technology Sharing Agreement dated December 23, 1999,
between the Company and Volatile Media, Inc. (6)
10.9 Stock Purchase Agreement dated December 23, 1999 (Powers and
Ingenito) (2)
10.10 Option Agreement dated December 23, 1999 Entered Into Between the
Company and Lawrence M. Powers (2)
10.11 Option Agreement dated December 23, 1999 Entered Into Between the
Company and Robert Ingenito (2)
10.12 Subscription Agreement dated February 8, 2000 Between the Company
and Volatile Media, Inc. (6)
10.13 SITI-Sites.com, Inc. 1999 Stock Option Plan (6)
10.14 Purchase Agreement dated January 3, 2000, between the Company and
Theodore Mazola (7)
10.15 Purchase Agreement-2 dated January 3, 2000, among the Company and
Theodore Mazola and Steven Zuckerman(7)
10.16 Letter Agreement dated January 3, 2000, executed by New York Music
Expo, Inc. in favor of the Company(7)
19
10.17 Settlement Agreement Dated May 1, 2000 Among the Company and
Jonathan Blank, Ari Blank and Arjun Nayyer (2)
10.18 Stock Purchase Agreement dated June 8, 2000 (Powers, Ingenito and
Iannitto) (2)
10.19 Employment Arrangements Agreement dated June 12, 2000 Entered Into
Between the Company and Messrs. Robert Ingenito and John Iannitto
(2)
10.20 Stock Option Agreement Dated June 8, 2000, Entered Into Between the
Company and Lawrence Powers (2)
10.21 Stock Option Agreement Dated June 8, 2000, Entered Into Between the
Company and Robert Ingenito (2)
10.22 Stock Option Agreement Dated June 8, 2000, Entered Into Between the
Company and John Iannitto (2)
10.23 Stock Purchase Agreement dated June 13, 2000 (Colvil Investments,
LLC purchase) (2)
10.24 Stock Option Agreement Dated June 13, 2000, Entered Into Between the
Company and Colvil Investments, LLC (2)
10.25 Stock Purchase Agreement dated June 16, 2000 (Steven Gross purchase)
(2)
10.26 Stock Option Agreement Dated June 16, 2000, Entered Into Between the
Company and Steven Gross (2)
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002
Notes:
(1) Filed Herewith.
(2) Previously Filed as an Exhibit to the Company's Annual Report on
Form 10-K for the Fiscal Year ended March 31, 2000, and incorporated
herein by reference
(3) Previously Filed as an Exhibit to the Company's Definitive Proxy
Statement Effective December 14, 1999, and incorporated herein by
reference.
(4) Previously Filed as an Exhibit to the Company's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1999, and incorporated
herein by reference.
(5) Previously Filed as an Exhibit to the Company's Annual Report on
Form 10-K for the Fiscal Year ended March 31, 1999, and incorporated
herein by reference.
(6) Previously Filed as an Exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1999.
(7) Previously Filed as an Exhibit to the Company's Current Report on
Form 8-K dated January 18, 2000.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the three months ended
March 31, 2004.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SITI-SITES.COM, INC.
Dated: June 30, 2004 By /s/ Toni Ann Tantillo
-----------------------------------------
Toni Ann Tantillo
(Director, Chief Financial Officer, Vice
President, Secretary and Treasurer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Dated: June 30, 2004 By /s/ Lawrence M. Powers
------------------------------------------
Lawrence M. Powers
(Chief Executive Officer and
Chairman of the Board of Directors)
Dated: June 30, 2004 By /s/ Barclay V. Powers
------------------------------------------
Barclay V. Powers
(Director)
21
SITI-Sites.com, Inc. and Subsidiary
Index to Consolidated Financial Statements
Unaudited Financial Statements for the Fiscal Years Ended March 31, 2004 and
March 31, 2003:
Statement of Net Assets in Liquidation as of March 31, 2004
and March 31, 2003 (Unaudited) F-2
Statement of Changes in Net Assets in Liquidation for the
Twelve Months Ended March 31, 2004 and March 31, 2003 (Unaudited) F-3
Notes to Consolidated Financial Statements for the Twelve Months
Ended March 31, 2004 and March 31, 2004 (Unaudited) F-4 - F-10
F-1
SITI-Sites.com, Inc.
Statement of Net Assets in Liquidation March 31, 2004 March 31, 2003
(Amounts in thousands) (Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 34 $ 36
Receivables and other assets -- 5
------------------------------
Total current assets 34 41
------------------------------
------------------------------
Property and Equipment, net -- --
------------------------------
Total assets $ 34 $ 41
==============================
Liabilities:
Current Liabilities
Accounts payable and accrued liabilities $ 5 $ 13
------------------------------
Total current liabilities 5 13
------------------------------
Total liabilities 5 13
==============================
Net Assets in Liquidation $ 29 $ 28
==============================
See accompanying notes to consolidated financial statements
F-2
Twelve Twelve
Months Ended Months Ended
SITI-Sites.com, Inc. March 31, March 31,
Statement of Changes in Net Assets in Liquidation 2004 2003
(Amounts in thousands) (Unaudited) (Unaudited)
-----------------------------
Net assets in liquidation at beginning of period $ 28 $ 11
Reductions to net assets in liquidation:
Operating expenses and accrual of estimated costs (217) (260)
Increases to net assets in liquidation:
Refund of charges -- 17
Issuance of common stock 63 75
Contribution of management's services and rent 155 185
-----------------------
Net assets in liquidation at end of period $ 29 $ 28
=======================
See accompanying notes to consolidated financial statements.
F-3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED MARCH 31,
2004 and MARCH 31, 2003 (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 their 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.
Asset 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 continues to seek 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. Several such transactions
have been discussed in 2002 - 2004, but none of them have gone to completion.
The format the Company now plans to use is to form a subsidiary, "reverse merge"
a suitable candidate into such subsidiary and then distribute the Company's
shares retained therein (ranging from 15% to 5%, depending on the business
involved) to all of the Company's shareholders under a full S-1 Registration
Statement filed with the SEC. The candidates so far have not had
F-4
the capital base, or lacked other factors justifying this type of transaction.
But the format enables the Company to handle several such transactions if their
business merit justifies "going public" in this manner.
In October and November, 2003 Lawrence M. Powers, Chairman/CEO made two
loans to the Company for a total of $22,000, maturing October 30, 2004, at 6%
interest per annum, payable with principal at maturity. The funding was to
finance ongoing activity of the Company.
In January-February, 2004, the major investors in the Company agreed to
provide an additional $63,000 in equity funds, consisting of $41,000 in cash,
and the cancellation and conversion to common stock of the Chairman/CEO's recent
loans of $22,000. The total financing was applied to the purchase of 1,260,000
shares of common stock at $.05 per share by these major investors. This stock
purchase transaction did not complete until June, 2004.
The financing is to cover ongoing corporate expenses, including major
litigation filed by the Company in November, 2003 against former attorneys and
executives to recover proceeds from its former cell-phone patents. See
"Litigation".
Other 2002-2004 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 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, 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, 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.
Depressed stock market conditions for smaller companies "going public" in 2002 -
2003 increased 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 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.
The recent $63,000 equity financing in January-February, 2004, described
above, was negotiated when the common stock of the Company had been trading ( at
nominal volume) for several months at $.07 per share, but as of February 6, 2004
the common stock was trading at $.05 per share, and that price was used to
complete the financing, resulting in the 1,260,000 new shares being issued. The
shares being sold to major 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. As earlier stated, such factors generally result in
substantial discounts in purchase value.
The several other business risks to the purchasers described in all
earlier financings above, are also continuing. Those risks are increased by the
ongoing cash costs of the patent recovery litigation, which will continue for a
substantial period and require more major investor financing. The future risks
to all shareholders further include a "one-third contingent fee agreement",
based solely on results achieved, with Special Litigation Counsel, Green, Schaaf
& Jacobson for handling the litigation through trial and appeal. This
arrangement, while currently advantageous to the Company, will necessarily
reduce any net proceeds to the Company from the litigation. See "Litigation".
F-5
The Company's Chairman/CEO Powers, who is also General Counsel to the
Company, has been active in the lengthy investigation leading to suit. He will
continue to spend substantial time working closely with litigation counsel as
this matter continues, without charging any current cash fees for his own time
and commitment. At the conclusion of the matter, he will review the results
achieved with the Company's other major investors and the board of directors,
and make reasonable charges for his legal services.
Audited Financial Statements. As a result of the asset liquidation and
reasons discussed below, the Company's management has determined that it is an
"inactive entity" under SEC accounting rules (See also "Form 10-K for 2003, Item
1. Business - Inactive Entity"), and is not therefore required to file audited
financial statements. This step conserves working capital. The Company meets all
of the criteria as set forth below except as noted:
(a) Gross receipts from all sources for the fiscal years ended March
31, 2004 and 2003 were not in excess of $100,000;
(b) For fiscal 2003 and 2004, the registrant has not purchased or
sold any of its own stock, granted options therefore, or levied assessments upon
outstanding stock; (1)
(c) Expenditures for all purposes for the fiscal years ended March
31, 2004 and 2003 were not in excess of $100,000; (2)
(d) No material change in the business has occurred during the 2003
and 2004 fiscal years, including any bankruptcy, reorganization, readjustment or
succession or any material acquisition or disposition of plants, mines, mining
equipment, mine rights or leases; and
(e) No exchange upon which the shares are listed, or governmental
authority having jurisdiction, requires the furnishing to it or the publication
of audited financial statements.
(1) During the last two fiscal years, the Company had no source of funding
to cover its expenses which were almost entirely audit and stock transfer
expenses. Chairman/CEO Powers, who may be deemed to beneficially own
approximately 48% of the Company's outstanding stock, and other existing
investors provided funding to the Company. All of the shares issued are legended
and none of the investors, has any intention of selling the stock publicly in
the foreseeable future. (See also "Form 10-K for 2003, Item 1. Business -
Inactive Entity")
(2) For fiscal 2003, operating expenses of approximately $260,000 included
approximately $185,000 of contributed services and rent. The Company recorded
such $185,000 as a contribution of capital because there was no cash outlay for
such expenses. For fiscal 2004, operating expenses of approximately $216,000
included approximately $155,000 of contributed services and rent which were
recorded as contributions of capital because there was no cash outlay for such
expenses.
Audited financial statements are planned to be resumed when events or
transactions justify the expense. The Company expects to continue filing
unaudited quarterly and annual financial statements with the SEC.
(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.
F-6
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) RECENT HISTORY
The accompanying 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.
(d) 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.
(e) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include the Company's cash balances and
short-term investments that mature in 90 days or less from the original date of
maturity. Cash and cash equivalents are carried at cost plus accrued interest,
which approximates market.
2. STOCKHOLDERS' EQUITY
(a) STOCK AND OPTION ISSUANCES The Company has issued common stock and
options under the provisions of:
(i) 1996 STOCK INCENTIVE PLAN
The 1996 Stock Incentive Plan authorized the issuance of
276,079 shares of Reorganized SITI Common Stock, or options to purchase such
common stock, to employees, officers, and directors of the Company. Pursuant to
this Plan, the three non-executive directors who were in the employ of the
Company on the Effective Date were specifically allocated an aggregate of 34,077
shares to be distributed as follows: 300 shares on the Effective Date, 11,259
during June 1998, 11,259 during November 1998 and 11,259 during June 1999.
During fiscal 1998, 7,400 shares with a fair market value of $9,250 were
distributed to employees and directors of the Company as additional
compensation. Total options, under the plan, granted to employees and officers
of the Company with various vesting periods and performance criteria totaled
209,815, and such Plan is no longer in operation.
F-7
Additional information as follows:
Weighted
Shares Average
Subject Exercise
to Options Price
----------------------
Outstanding at March 31, 2002 at $1.69-$2.15 per share 41,500 $ 2.13
Granted, exercised and extinguished -- $ --
----------------------
Outstanding at March 31, 2003 at $1.69-$2.15 per share 41,500 $ 2.13
Granted, exercised and extinguished -- $ --
----------------------
Outstanding at March 31, 2004 at $1.69-$2.15 per share 41,500 $ 2.13
======================
The following table summarizes information about stock options
outstanding and exercisable at March 31, 2003:
Outstanding and Weighted Average Weighted
Exercisable at Remaining Contractual Average Exercise
Range of Exercise Prices March 31, 2004 Life (Years) Price
-----------------------------------------------------------------------------------------
$1.69 to $2.15 41,500 3.38 $2.13
(ii) 1998 CONSULTANT STOCK INCENTIVE PLAN
The 1998 Consultant Stock Incentive Plan authorizes the issuance of
100,000 shares of Reorganized SITI Common Stock, or options to purchase such
Common Stock, to non-employees and consultants of the Company. There were no
options granted during fiscal 2003 and 2004.
Weighted
Shares Average
Subject Exercise
to Options Price
----------------------
Outstanding at March 31, 2002 at $0.875 -$2.15 per share 40,000 $ 1.19
Granted, exercised and extinguished -- $ --
----------------------
Outstanding at March 31, 2003 at $0.875 -$2.15 per share 40,000 $ 1.19
Granted, exercised and extinguished -- $ --
----------------------
Outstanding at March 31, 2004 at $0.875 -$2.15 per share 40,000 $ 1.19
======================
The following table summarizes information about non-employee and
consultant stock options outstanding and exercisable at March 31,
2004:
Outstanding and Weighted Average Weighted
Exercisable at Remaining Contractual Average Exercise
Range of Exercise Prices March 31, 2004 Life (Years) Price
-----------------------------------------------------------------------------------------
$0.875 to $2.15 40,000 4.14 $1.19
(iii) SEVERANCE OPTIONS
In connection with the change of control transaction described in
Note 1(a), the Company's prior management granted options to acquire an
aggregate of 300,000 shares of Reorganized SITI Common Stock as part of a
severance package for employees, officers and/or directors of the Company who
were resigning and executing settlement agreements in connection with the change
of control transaction. This plan was implemented concurrently with the December
11, 1998 stock purchase agreement between the Company and Powers & Co. (a sole
proprietorship owned by Lawrence M. Powers) and the option agreements were
executed on December 11, 1998. These options expired December 11, 2003.
F-8
Additional information as follows:
Weighted
Average Shares
Exercise Subject to
Price Options
-----------------------
Outstanding at March 31, 2002 at $0.35 per share $0.35 300,000
Granted, exercised and extinguished $0.00 0
----------------------
Outstanding at March 31, 2003 at $0.35 per share $0.35 300,000
Granted, exercised and extinguished $0.35 (300,000)
----------------------
Outstanding at March 31, 2004 at $0.35 per share $0.35 0
======================
3. COMMITMENTS AND CONTINGENCIES
Management uses its personal offices to conduct business for the Company.
As a result, no rent has been paid during the fiscal year ended March 31, 2003
and March 31, 2004. However, as a result of the contribution of rent, a charge
was recorded to rent and paid in capital of approximately $60,000 and $30,000,
respectively.
4. LITIGATION
The Company filed a civil suit in the United States District Court for the
Southern District of New York on November 12, 2003, recently withdrawn and
re-filed in New York State Supreme Court in New York County, Commercial
Division. The Company's Complaint alleges that its patent attorneys and
departing patent licensing executives, in late 1998 and thereafter, purchased
its valuable patents on cell-phone technology for $24,000 by concealing their
nature and value. The defendants have realized at least $10 million in gross
proceeds therefrom, to date.
The Company's claims arise from a period when it was previously named
Spectrum Information Technologies, Inc. The claims all stem from the alleged
breach of fiduciary duties by the defendants. The claims have been under
investigation by the Company under counsel's supervision, for the past year. The
Company is seeking damages in excess of $10 million, and a court-ordered trust
on future proceeds from its former patents.
This is complex litigation, expected to be contested vigorously by several
defense firms and to continue for several years. No assurance can be given as to
the ultimate outcome thereof. Martin M. Green, Esq. and his firm of Green,
Schaaf & Jacobson, P.C. based in Clayton, Missouri, have been retained as the
Company's Special Counsel, for the litigation and ultimate trial of this matter.
The Company has retained Gary Cooper, Esq. and Cooper & McCann, LLP. as its New
York Counsel.
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.
Defaults by EZCD.com as to its investment representations, and its content
and technology sharing agreement with the Company in 2000 have been resolved in
the EZCD.com bankruptcy liquidation, and the Company in May 2004, recovered
approximately $30,000. There is no further recovery expected.
From time to time since 1998, the Company had been a party to other legal
disputes incidental and not material to its business.
F-9
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of March 31, 2004 and 2003, accounts payable and accrued liabilities
were comprised of the following:
2004 2003
---- ----
(Amounts in thousands)
Accrued professional fees $ 2 $ 11
Accounts payable 3 2
-------- --------
$ 5 $ 13
======== ========
6 SUBSEQUENT EVENT
In May, 2004, the Company recovered approximately $30,000 as full
settlement of its claim in the EZCD.com bankruptcy liquidation.
Effective May 5, 2004, Robert Ingenito resigned from the Board of
Directors of SITI. He stated that his resignation was due to other commitments,
and that he felt he could not devote the proper amount of time needed for the
activities of SITI. His services to the Company over the past five years were
substantial, and the remaining officers and directors expressed their gratitude
for his commitment and his efforts. The two remaining members of the Board have
elected Toni Ann Tantillo as a Director of the Company. Ms. Tantillo is a
Certified Public Accountant in New York, and has been effectively handling
accounting, regulatory filings and other business matters for the Company for
the past eight years. She has been its Chief Financial Officer since 1999; is
also its Vice-President, Secretary and Treasurer; and she worked as an
independent consultant to SITI after its change of control in December, 1998.
She was also the controller of SITI from 1995 to December, 1998 under its prior
management. Ms. Tantillo age 37 has conducted her own private accounting
practice since 1998. Her client base and experience includes an international
public relations firm, an importer/exporter of steel, a publication firm and
many small businesses.
In connection with her services as a Director, Ms. Tantillo will purchase
100,000 shares of SITI common stock at $.03 per share, its current trading
price, payable over ten months.
CONSOLIDATED AUDITED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED MARCH 31,
2002
For information regarding the Company's final year of audited financial
statements (fiscal 2002), refer to the Form 10-K for 2003 as filed with the SEC
on June 30, 2003. Such document is incorporated herein by reference.
F-10