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 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 then commenced procedures to prepare to liquidate its assets.
In management's opinion, the Company is presently an inactive entity, as described under Regulation 210.3-11 of the SEC accounting regulations, authorizing unaudited financial statements in reports pursuant to the Securities Exchange Act of 1934. The Company has therefore elected to file this Annual Report on Form 10-K for the year ended March 31, 2003 with unaudited financial statements. Further explanation of the underlying facts and such Regulation is set forth below. See Inactive Entity.
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.
In connection with the liquidation, the Company adopted the liquidation basis of accounting effective January 1, 2002, whereby assets are valued at their estimated realizable cash value and liabilities are stated at their estimated settlement amounts. Uncertainties as to the precise net value of the Company's assets (other than cash) and the ultimate amount of its liabilities make it impracticable to predict the aggregate net value. Claims, liabilities and future expenses for operations (including salaries, payroll taxes, professional fees and miscellaneous office expense), although declining in the aggregate, will continue to be incurred.
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 in Fiscal 2003 (unaudited). 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, 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.
Inactive Entity. As a result of the asset liquidation (and concurrent satisfaction of all liabilities), the Company's sole activity for the past eighteen months has been to search for merger or sale possibilities, where value is perceived in its being a publicly traded corporate shell with 5,400 stockholders. Much of management's time (entirely by Chairman/CEO-controlling shareholder, Lawrence M. Powers) has been spent, and several investigations and negotiations have occurred, but none have come to fruition. The Company has continued to file all required reports under the Securities Exchange Act of 1934, and the auditing and accounting expenses relating thereto have been its primary operating costs (with transfer agent costs second), with no revenues to support such expenses. Management has concluded that the Company is an inactive entity, as defined in SEC accounting rules. A detailed analysis follows:
SEC Accounting Regulation 210.3-11 was designed to deal with ongoing auditing expenses of defined "inactive entities", in light of necessary disclosure requirements for publicly-traded companies. Such Regulation contains five separate prerequisites to treatment as an inactive entity. In substance, they are accounting/regulatory tests for determining whether there is sufficient business or securities-related activity to justify requiring audited financial statements. Facts relating to the Company, as to each such Requirement (referred to as "R (a) through (e)" ) follow:
1. Gross receipts from all sources in the fiscal year ended March 31, 2003 were less than $100,000, R(a). Actual receipts were $92,000 (see, Financial Statements).
2. Expenditures for all purposes for the fiscal year ended March 31, 2003 were also less than $100,000, R(c). Actual expenditures were $75,000 in fiscal 2003. (The accrued operating expenses in liquidation recorded for fiscal 2003 were $ 260,000. However, they included a valuation of $185,000 of unpaid management services, contributed to capital (in amounts similar to prior years), plus unpaid office rent also recorded as a contribution to capital. Neither such item required any cash outlay, or any issuance of stock by the Company, for such contribution of capital.)
The underlying reasons for accounting tests R(a) and (c) are self-evident--An auditing requirement should not deal with trifling matters of receipts or expenditures, with a stated threshold of $100,000 for determining their respective lack of materiality.
3. There was no unpaid debt, and therefore no need for the Company to undertake any reorganization, readjustment, succession, or bankruptcy, and there has been no material acquisition or disposition of plants, asset rights or leases since the prior fiscal year, R(d).
The underlying purpose of test R(d), is that in reorganizations or bankruptcy, the details of public shareholder's residual rights can easily be lost in the pressure of creditors asserting their senior rights over assets, and auditing can protect shareholders. But from 1998 through 2003, the Company's operations were financed entirely by equity purchases, or contributions to capital of services by management. When assets were liquidated, the Company only had minor obligations, and no debt had been incurred that was not paid in full during the Company's asset liquidation (completed in the prior fiscal year ended March 31, 2002). Again, the underlying reason for the "no reorganization/disposition" test R(d), to continue protection of shareholders, by audit of even inconsequential assets and expenditures, does not exist.
4. No exchange upon which the Company's shares of common stock are listed, or governmental authority having jurisdiction, presently requires the furnishing to it or the publication of audited financial statements, R(e). The Company is not subject to any such listing agreement or governmental authority (such as a state agency or other federal regulatory agency, except the SEC).
The underlying purpose of test R(e) is that relaxing SEC auditing rules should not interfere with the protective listing and auditing requirements of established stock exchanges. But the Company is not presently bound by any stock exchange auditing rule, and this test R(e) does not apply. If an auditing requirement is imposed in the future by the National Quotation Bureau for the Bulletin Board market, where the Company is reported, the Company presently plans to continue filing and publishing, unaudited quarterly and annual SEC reports, and take appropriate steps to leave the Bulletin Board and seek quotation of its shares by broker-dealers in the "Pink Sheets" service. The Company intends to continue to comply with all SEC accounting and other requirements, except for audit of its financial statements.
5. Most of the "no sales/purchase of own stock" test in R(b) is met in fiscal 2003: The Company has not purchased any of its own stock, has not granted options therefor, nor levied any assessments upon outstanding stock. Neither has the Company sold any stock or other securities to the public since March 31, 2002 (nor has it sold any to the public in the past seven fiscal years), R(b). The Company, operating in liquidation since December, 2001, has no plans to do so. It could only undertake any such activity (the only corporate activity being sought is a potential merger or sale transaction which might create value for shareholders), after full compliance with the registration and reporting requirements, including resumption of audited financial statements, of the federal securities laws.
However, the accounting test in R(b) does raise a minor issue as to classification as an "inactive entity". The Company has been supported by $60,000 in private stock purchases in fiscal 2003 from its principal shareholder and executive, who may be deemed to own 48% of its outstanding shares, beneficially with a family member (Chairman/CEO Lawrence M. Powers, who has also been contributing his management efforts to capital since 1998). He purchased such shares (described above in Other Financing in Fiscal 2003 (Unaudited)), subject to "controlling person" and other restrictions on his (or family members) future transfer or sale. One other shareholder invested $15,000 in fiscal 2003 on a restricted basis similar to Mr. Powers, but for the foreseeable future, Mr. Powers is the sole source of capital to the Company. These two private stock purchasers were fully informed of the Company's financial condition, and the continuing risks of its liquidated operations.
The reason for the "no sales" test of R(b) is to prevent uninformed public investors from being misled by sales or resales of stock or options, without audited financial statements apprising them of the financial substance of their investment. The accounting test of R(b) should not be strictly applied to the Company, because its only two investors in fiscal 2003 were a management/control person and a long-standing, sophisticated investor, with both receiving "legended shares" restricted as to any future sale, and fully informed of the Company's condition. Neither of such two private investors, required the protection of an audit then or now. In light of the Company clearly meeting the other four accounting tests of SEC Regulation 210.3-11 for an "inactive entity", and the other facts indicating no current business operations of any kind and no material obligations, in management's judgement, it should be deemed to be an inactive entity.
The Company has concluded that, under these circumstances, the purpose and intentions of the cited Accounting Regulation for inactive entities are met, and as an accounting regulation (unlike a statute) which is subject to professional judgement as to varying factual situations, the SEC Regulation 210.3-11 must be applied and interpreted in a reasonable and appropriate manner. The absence of any material business activity makes any auditing effort futile, and a waste of very limited Company resources. The Company plans to file and publish quarterly and annual reports, but without audited statements, until the Company has found an appropriate transaction benefiting shareholders, which justifies incurring a continuing auditing expense for prior and future periods. In management's opinion, the liquidated Company has been diligently trying to create "value" for shareholders, and should be permitted to continue without this prohibitive auditing expense.
Management Background - 2003
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 (44 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 is Chief Financial Officer, Vice President, Secretary and Treasurer for the Company. She has served as the Company's Chief Financial Officer since December 1999. Prior to her election, she worked as an independent consultant to SITI after the change of control in December 1998. She was the Controller of SITI from 1995 to December 1998, when such change of control occurred. Ms. Tantillo, a Certified Public Accountant, was educated at Iona College in New Rochelle, New York.
Employees
As of May 15, 2003, 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 will continue to do so for at least the year ended March 31, 2004. Former executives, Mr. Ingenito and Iannitto, received stock and options for their services during the fiscal year ended March 31, 2002. (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 ended March 31, 2003, as in prior fiscal years. None of the Company's employees were represented by any collective bargaining unit, 1998-2003. The Company believes that its relations with its past and present employees are good.
Risk Factors
The Company's plan is to continue to conclude its past business activities and to seek a merger or sale to acquire other operating businesses which perceive value in becoming a publicly traded corporation.
Risk factors may affect the Company's liquidation of the current business assets and affect opportunities to merge 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 2001 and 2002, 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 will (i) issue equity securities that would dilute current stockholders' percentage ownership in the Company very substantially because the owners of the operating business will require full control of the Company or subsidiary used in the transaction; (ii) probably will 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 may not be able to
successfully integrate any businesses, products, technologies or personnel that may thus be acquired 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, 2003. 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 2004.
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.
ITEM 2.
ITEM 2. PROPERTIES
During the fiscal year 2003, 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 $60,000 as rental expense and increased paid in capital by that amount for the fiscal year ended March 31, 2003.
ITEM 3.
ITEM 3. 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. Management believes this suit is without substance, and is not being pursued by the claimant. 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 further believes that this lawsuit should not have a material adverse effect on the net assets in liquidation. As of June 20, 2003, the claimant has not pursued its claim by filing it in Court and purchasing an "index number," or replied to the Company's counterclaim.
Defaults by EZCD.com as to its investment representations, and its content and technology sharing agreement with the Company could result in litigation or other legal complications, and attendant costs and efforts by the Company's management to resolve such matters. EZCD.com filed for bankruptcy liquidation in August, 2000 and the Company is making creditor claims in such proceeding which have been partially accepted by the trustee therein, and will result in a nominal distribution. There is little likelihood of any material recovery.
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 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
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. The stock is currently being traded on the NASD OTC Bulletin Board under the symbol SITN.OB. There are currently 9 registered market makers for the Common Stock.
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 2003 and 2002 are set forth below. The National Quotation Bureau provided this information which may not reflect actual transactions.
HIGH AND LOW BID PRICES
2003 2002 Low High Low High First Quarter (6/02) $0.03 $0.22 First Quarter (6/01) $0.07 $0.12 Second Quarter (9/02) 0.03 0.10 Second Quarter (9/01) 0.06 0.11 Third Quarter (12/02) 0.02 0.04 Third Quarter (12/01) 0.01 0.06 Fourth Quarter (3/03) 0.03 0.04 Fourth Quarter (3/02) 0.01 0.04
On May 16, 2003, the last reported bid and ask prices of the Common Stock were $.025 and $.035, respectively.
As of May 16, 2003 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, 2003, 2002 and 2001 and the Company has no current plans to pay 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 2001 fiscal year see the Form 10-K for 2001, "Part II. Item 2. Changes in 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 ending prior to January 1, 2003 see "Item 1. Business".
All of the shares of Common Stock issued by the Company during the 2001, 2002 and 2003 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.
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 year For the ended three months March 31, ended March 2003 31, 2002 - -------------------------------------------------------------------------------- (Amounts in thousands, except per share amounts)
Net assets in liquidation at beginning of period 11 64 Reduction to net assets in liquidation: Operating expenses and accrual of estimated costs (260) (110) Addition to net assets in liquidation:
Issuance of common stock 75 3
Refund of charges 17 -- Contribution of management's services and rent 185 46 Insurance recovery from World Trade Center attack -- 8 Net assets in liquidation at end of period 28 11
CONTINUING AND DISCONTINUED OPERATIONS (GOING CONCERN BASIS)
-------------------------------- Nine months ended December 31, 2001 (Last For the Year period of Ended full March 31, 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.
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.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).
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, 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.
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 periods indicated. During fiscal 2001 and 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.
- ------------------------------------------------------------------------- Continuing Operations: Nine Fiscal months Year ended ended December March 31, 31, 2001 2001 - ------------------------------------------------------------------------- (Amounts in thousands) Revenues $ 0 $ 0 -----------------------------
Operating costs and expenses: Cost of sales -- -- Impairment of goodwill -- 134 Selling, general and administrative 343 668 ----------------------------- Total operating costs and expenses 343 802 -----------------------------
Operating loss $(343) $(802) =============================
CONSOLIDATED REVENUES FROM CONTINUING OPERATIONS
During the nine months ended December 31, 2001 and fiscal year ended March 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.
Year ended March 31, 2001 - For a full discussion of activity related to the fiscal year ended March 31, 2001, see the Forms 10-K for 2002 and 2001. All such activities for this fiscal year have ceased.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary objective is to conserve its cash while it is seeking merger or sale possibilities. 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, 2003, the Company's total assets were approximately $41,000, represented primarily by cash. 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 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 years ended March 31, 2002 and 2001, see the Forms 10-K for 2002 and 2001, respectively. Below is a table representing operating results from the discontinued operations.
OPERATING RESULTS FROM DISCONTINUED OPERATIONS
Nine months ended Year ended December March 31, 31, 2001 2001 ---------------------------- Revenues 0 80 ----------------------------
Operating costs and expenses
Cost of sales 44 133 Selling, general & administrative 560 1,228 ---------------------------- Total operating costs and expenses 604 1,361 ----------------------------
Operating income (loss) (604) (1,281)
Other income and (expenses) 0 0
---------------------------- Income(loss) from discontinued operations (604) (1,281) ============================
For a full discussion of operating results from discontinued operations see the Forms 10-K for 2002 and 2001.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company had no short-term investments as of March 31, 2003 and 2002.
ITEM 8.
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.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Registrant has notified its auditors, McGladrey & Pullen, LLP 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.
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 71 Chairman of the Board, Chief Executive Officer
Barclay V. Powers 40 Director
Robert Ingenito 60 Director
Toni Ann Tantillo 36 Chief Financial Officer, Vice President, Secretary and Treasurer
Business Experience of Directors and Executive Officers
Lawrence M. Powers, 71, 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 44 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.
Barclay V. Powers, 40, 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.
Robert Ingenito, 60, has served as a Director of the Company since the change of control transaction in December, 1998. Mr. Ingenito was a founder and, since 1989, served as Chief Executive Officer of Access Communications and Access Direct, two established data service companies. Access Direct produces high volume, highly segmented mail correlated to its clients segmented databases; Access Communications produces critical documents from on-line transmissions from its clients and was sold in 1999. Prior to that, he was the President and a principal of Axciom Corporation (NYSE) when it went public in 1982. Axciom has become an $800 million database management firm, and purchased Access Communications in 1999.
Toni Ann Tantillo, 36, has served as the Company's Chief Financial Officer, Vice President, Secretary and Treasurer since December 1999. Prior to her election, she worked as an independent consultant to SITI after the change of control in December 1998. From 1995 to December, 1998, Ms. Tantillo was the Asst. Controller and Controller of SITI. Ms. Tantillo, a Certified Public Accountant was educated at Iona College in New Rochelle, New York.
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 2001 fiscal year, all Reporting Persons timely complied with all applicable Section 16(a) filing requirements.
ITEM 11.
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 2003, 2002 and 2001, who served as Chief Executive Officer and four individuals who were among the highest paid employees for the fiscal year ended March 31, 2001. 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).
(1) Amounts include Mr. Powers', Mr. Ingenito's and Mr. Iannitto's contribution of services charged against earnings. During fiscal 2001, Messrs. Ingenito and Iannitto received stock compensation valued at approximately $22,000 and $15,000, respectively. 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 and 2001.
(2) Represents the dollar value associated with a stock bonus granted based upon performance for the 2001 fiscal year.
(3) Mr. Zuckerman became a consultant in May, 2001 and his salary and bonus arrangements were terminated.
(4) Effective with the liquidation, these executive officers were terminated and received no compensation for fiscal 2003. Mr. Ingenito remains as an uncompensated 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, 2001.
Option Exercises and Year-End Values
There were no options exercised by the Named Executive Officers during the 2003 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, except for the agreements described below:
In connection with the ongoing services of Messrs. Ingenito and Iannitto, they agreed that the Company would not pay them cash compensation for the fiscal years ended March 31, 2001 and 2002, but would grant options and granted shares as follows:
Fiscal 2001 Fiscal 2002 ----------- -----------
Robert Ingenito 300,000 shares Options to purchase 300,000 shares at $.50 per share, exercisable for five years (until 6/30/2006)
John Iannitto 200,000 shares Options to purchase 200,000 shares at $.50 per share, exercisable for five years (until 6/30/2006)
However, as a result of their withdrawal as executives and their stock purchase on November 28, 2001, all options granted, or to be granted for the 2002 fiscal year, were cancelled. Mr. Powers does not expect to receive any cash compensation, stock or options for his services for such two fiscal years, or for fiscal 2003 and 2004.
At present, the Company does not have a Compensation Committee.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of May 9, 2003, 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 11,136,666(1) 47.6% 47 Beech Road Englewood, NJ 07631
Robert Ingenito (former officer) 3,466,667(2)(4) 14.8% 80 Ruland Road Melville, NY 11747-6200
Barclay V. Powers 4,818,333 20.6% 665 Walther Way Los Angeles, CA 90049
John Iannitto (former officer) 1,900,000(3)(4)(5) 8.1% D/B/A RSI Marketing 171 Madison Avenue New York, NY 10016
Toni Ann Tantillo 55,834 * 115 Whitman Road Yonkers, NY 10710
Theodore Mazola (former officer) 300,000 1.3% 36 Fieldway Avenue Staten Island, NY 10308
Current Directors and 14,659,167(6) 62.6% 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 1,566,667 shares held by John DiNozzi.
(3) Consists solely of shares. All options were cancelled pursuant to the November 28, 2001 offer to key investors.
(4) Does not include options payable under their employment arrangements for fiscal 2002. (See "Item 11. - Executive Compensation - Employment Agreements.")
(5) 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.
(6) Consists solely of shares.
PART IV
ITEM 14.
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)
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)
99 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, 2003.
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, 2003 By /s/ Toni Ann Tantillo --------------------------------------------- Toni Ann Tantillo (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, 2003 By /s/ Lawrence M. Powers --------------------------------------------- Lawrence M. Powers (Chief Executive Officer and Chairman of the Board of Directors)
Dated: June 30, 2003 By /s/ Robert Ingenito --------------------------------------------- Robert Ingenito (Director)
Dated: June 30, 2003 By /s/ Barclay V. Powers --------------------------------------------- Barclay V. Powers (Director)
CERTIFICATION
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Lawrence M. Powers, certify that:
1) I have reviewed this Annual Report on Form 10-K of SITI-Sites.com, Inc. (the "Registrant")
2) Based on my knowledge, this annual 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 annual report;
3) Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 annual 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: June 30, 2003 By /s/ Lawrence M. Powers ---------------------- Lawrence M. Powers Chief Executive Officer and Chairman of the Board of Directors
CERTIFICATION
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Toni Ann Tantillo, certify that:
1) I have reviewed this Annual Report on Form 10-K of SITI-Sites.com, Inc. (the "Registrant")
2) Based on my knowledge, this annual 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 annual report;
3) Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 annual 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: June 30, 2003
By /s/ Toni Ann Tantillo --------------------- Toni Ann Tantillo Chief Financial Officer, Vice President, Secretary and Treasurer
SITI-Sites.com, Inc. and Subsidiary Index to Consolidated Financial Statements
Unaudited Financial Statements for the Fiscal Year Ended March 31, 2003:
Statement of Net Assets in Liquidation as of March 31, 2003 (Unaudited)
Statement of Changes in Net Assets in Liquidation for the Twelve Months Ended March 31, 2003 (Unaudited)
Notes to Consolidated Financial Statements for the Twelve Months Ended March 31, 2003 (Unaudited) -
Audited Financial Statements for the Fiscal Years Ended March 31, 2002 and March 31, 2001:
Report of Independent Certified Public Accountants
Statement of Assets in Liquidation as of March 31, 2002
Statement of Changes in Net Assets in Liquidation for the Three Months Ended March 31, 2002
Consolidated Statements of Operations and Comprehensive Loss For the Nine Months Ended December 31, 2001 and Year Ended March 31, 2001(Going Concern Basis)
Consolidated Statements of Stockholders' Equity For the Nine Months Ended December 31, 2001 and Year Ended March 31, 2001 (Going Concern Basis)
Consolidated Statements of Cash Flows For the Nine Months Ended December 31, 2001 and Year Ended March 31, 2001 (Going Concern Basis)
Notes to Consolidated Financial Statements for the Fiscal Years Ended March 31, 2002 and 2001 -
SITI-Sites.com, Inc. Statement of Net Assets in Liquidation March 31, 2003 (Amounts in thousands) (Unaudited) - ---------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 36 Receivables and other assets 5 -------- Total current assets --------
-------- Property and Equipment, net -- --------
Total assets $ 41 ========
Liabilities: Current Liabilities Accounts payable and accrued liabilities $ 13 -------- Total current liabilities 13 --------
Total liabilities 13 ========
Net Assets in Liquidation $ 28 ========
See accompanying notes to consolidated financial statements.
SITI-Sites.com, Inc. Statement of Changes in Net Assets in Liquidation Twelve Months Ended March 31, 2003 (Amounts in thousands) (Unaudited) -----------
Net assets in liquidation at beginning of period $ 11 Reductions to net assets in liquidation: Operating expenses and accrual of estimated costs (260) Increases to net assets in liquidation: Refund of charges 17 Issuance of common stock 75 Contribution of management's services and rent 185 -------- Net assets in liquidation at end of period $ 28 ========
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED 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 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 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.
As a result of the liquidation and reasons discussed below, the Company's management has determined that it is an inactive entity (See "Item 1. Business - Inactive Entity"). The Company meets all of the criteria as set forth below except as noted:
(a) Gross receipts from all sources for the fiscal year ended March 31, 2003 are not in excess of $100,000;
(b) 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 year ended March 31, 2003 are not in excess of $100,000; (2)
(d) No material change in the business has occurred during the fiscal year, 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 fiscal year, the Company had no source of funding to cover its expenses which were almost entirely audit and stock transfer expenses, and Chairman/CEO Powers, who may be deemed to beneficially own approximately 48% of the Company's outstanding stock, and another investor provided funding to the Company. All of the shares issued are legended and neither investor, has any intention of selling the stock publicly in the foreseeable future. (See "Item 1. Business - Inactive Entity")
(2) Operating expenses of approximately $260,000 include 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.
(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) 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.
Additional information as follows:
The following table summarizes information about stock options outstanding and exercisable at March 31, 2003:
(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.
The following table summarizes information about non-employee and consultant stock options outstanding and exercisable at March 31, 2003:
(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.
Additional information as follows:
The following table summarizes information about severance stock options outstanding and exercisable at March 31, 2003:
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. However, as a result of the contribution of rent, a charge was recorded to rent and paid in capital of approximately $60,000.
4. 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. As of March 31, 2003, the claimant has not pursued its claim by docketing it in Court or replying to the Company's counterclaim.
Defaults by EZCD.com as to its investment representations, and its content and technology sharing agreement with the Company could result in litigation or other legal complications, and attendant costs and efforts by the Company's management to resolve such matters. EZCD.com filed for bankruptcy liquidation in August, 2000 and the Company is making creditor claims in such proceeding which have been partially accepted by the trustee therein, and will result in a nominal distribution. There is little likelihood of any material recovery.
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.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of March 31, 2003, accounts payable and accrued liabilities were comprised of the following:
----------- (Amounts in thousands)
Accrued professional fees $ 11 Accounts payable 2 --------- $ 13 =========
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors Siti-Sites.com,Inc. Yonkers, New York
We have audited the consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows of Siti-Sites.com, Inc. and subsidiary for the year ended March 31, 2001, and the statements of operations and comprehensive loss, stockholders' equity and cash flows for the period from April 1, 2001 to December 31, 2001. In addition, we have audited the accompanying statement of net assets in liquidation as of March 31, 2002, and the related statement of changes in net assets in liquidation for the period from January 1, 2002 to March 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1a to the financial statements, the stockholders of the Company approved a plan of liquidation and commenced liquidation shortly thereafter. As a result, the Company has changed its basis of accounting for periods subsequent to December 31, 2001 from the going concern basis to a liquidation basis.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of Siti-Sites.com, Inc. and its subsidiary's operations and its cash flows for the year ended March 31, 2001 and for the period from April 1, 2001 to December 31, 2001, its net assets in liquidation as of March 31, 2002, and the changes in its net assets in liquidation for the period from January 1, 2002 to March 31, 2002 in conformity with accounting principles generally accepted in the United States of America applied on the basis described in the preceding paragraph.
/s/ McGladrey & Pullen, LLP McGladrey & Pullen, LLP White Plains, New York May 21, 2002
SITI-Sites.com, Inc. Statement of Net Assets in Liquidation (Amounts in thousands) March 31, 2002 - -------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 39 Receivables and other assets 4 -------- Total current assets 43 --------
-------- Property and Equipment, net -- -------- Total assets $ 43 ========
Liabilities: Current Liabilities Accounts payable and accrued liabilities $ 32 -------- Total current liabilities 32 --------
Total liabilities 32 --------
Net Assets in Liquidation $ 11 ========
See accompanying notes to consolidated financial statements
SITI-Sites.com, Inc. Statement of Changes in Net Assets in Liquidation Three Months Ended March 31, 2002 (Amounts in thousands)
Net assets in liquidation at January 1, 2002 $ 64 Reductions to net assets in liquidation: Operating expenses and accrual of estimated costs (110) Increases to net assets in liquidation: Issuance of common stock 3 Contribution of management's services and rent 46 Insurance recovery from World Trade Center attack 8 --------- Net assets in liquidation at March 31, 2002 $ 11 =========
See accompanying notes to consolidated financial statements.
SITI-Sites.com, Inc. Statements of Operations and Comprehensive Loss (Going Concern Basis) For the Nine Months Ended December 31, 2001 and the Year Ended March 31, 2001 (Amounts in thousands, except per share amounts)
Nine Months Year Ended Ended December 31, March 31, 2001 2001 - ------------------------------------------------------------------------------- Revenues $ -- $ -- -------- -------- Operating costs and expenses: Impairment of goodwill -- 134 Selling, general and administrative expenses 343 668 -------- -------- Total operating costs and expenses 343 802 -------- -------- Operating loss (343) (802) -------- -------- Other income (expense): Interest income -- 32 Gain on litigation settlement -- 19 Gain on sale of marketable securities -- 28 Impairment provision on assets (157) -- Loss on disposal of equipment (74) -- Other income 19 2 -------- -------- Total other income (expense), net (212) 81 -------- -------- Loss from continuing operations (555) (721) -------- -------- Discontinued operations: Loss from discontinued operations - all divisions (604) (1,281) -------- -------- Loss from discontinued operations (604) (1,281) -------- -------- Net loss $ (1,159) $ (2,002) Other Comprehensive Loss, net (3) (1) -------- -------- Comprehensive loss $ (1,162) $ (2,003) ======== ======== Basic and diluted loss per common share: Loss from continuing operations $ (.03) $ (.05) Loss from discontinued operations (.04) (.09) -------- -------- Net loss per common share $ (.07) $ (.14) ======== ======== Weighted Average Number of Common Shares used in basic and diluted calculation (see note 1 (i) to financial statements) 15,697 14,024 ======== ========
See accompanying notes to consolidated financial statements.
SITI-Sites.com, Inc. and Subsidiary Consolidated Statements of Stockholders' Equity (Going Concern Basis) (Amounts in thousands)
See accompanying notes to consolidated financial statements.
SITI-Sites.com, Inc. and Subsidiary Consolidated Statements of Cash Flows (Going Concern Basis) Nine Months Ended December 31, 2001 and the Year Ended March 31, 2001 (Amounts in thousands)
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED MARCH 31, 2002 AND 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) MANAGEMENT'S PLAN FOR LIQUIDATION
For a complete description of management's plan for liquidation, see "Notes to the Consolidated Financial Statements for the Twelve Months Ended March 31, 2003 - Note 1. (a)".
(b) CHANGE TO LIQUIDATION BASIS OF ACCOUNTING
During the quarter ended December 31, 2001, the Corporation 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.
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) 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 and $356,000, respectively, for the nine months ended December 31, 2001 and the fiscal year ended March 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 the Hungry Bands and New Media Music. The divisions had losses of approximately $201,000 and $349,000 for Hungry Bands and $359,000, and $576,000 for New Media Music, respectively, for the nine months ended December 31, 2001 and the twelve months ended March 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. The following table reflects the net liabilities as of March 31, 2002 and 2001:
New York Expo
As of March 31, 2002 2001 ---------------------- (Amounts in thousands) Cash - 33 Customer deposits - 28 Accrued expenses - (140) ---------------------- Total - (79) ======================
Hungry Bands
For the periods ended, March 31, 2002 2001 ---------------------- (Amounts in thousands) Cash - 4 Accrued expenses - (4) ---------------------- Total - (0) ======================
New Media Music
For the periods ended, March 31, 2002 2001 ---------------------- (Amounts in thousands) Cash - 2 Accounts payable - (3) Accrued expenses - (26) ---------------------- Total - (27) ======================
Operating results from discontinued operations are as follows:
New York Expo:
Nine Twelve months months ended ended December March 31, 31, 2001 2001 ---------------------- Revenues $ - $ 78 ----------------------
Operating costs and expenses: Cost of Sales 44 133 Selling, general and administrative expenses - 301 ---------------------- Total operating costs and expenses 44 434 ---------------------- Operating Loss (44) (356) Other income and (expenses) - - ---------------------- Income (loss) from discontinued operations $ (44) $ (356) ======================
Hungry Bands
Nine Twelve months months ended ended December March 31, 31, 2001 2001 ---------------------- Revenues $ -- $ 1 ----------------------
Operating costs and expenses: Cost of Sales - - Selling, general and administrative expenses 201 350 ---------------------- Total operating costs and expenses 201 350 ---------------------- Operating Loss (201) (350) Other income and (expenses) - - ---------------------- Loss from discontinued operations $ (201) $ (349) ======================
New Media Music
Nine Twelve months months ended ended December March 31, 31, 2001 2001 ---------------------- Revenues $ - $ 1 ----------------------
Operating costs and expenses: Cost of Sales - - Selling, general and administrative expenses 359 577 ---------------------- Total operating costs and expenses 359 577 ---------------------- Operating Loss (359) (577) Other income and (expenses) - - ---------------------- Loss from discontinued operations $ (359) $ (576) ======================
(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.
(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) MARKETABLE SECURITIES
The Company does not intend to hold its investments to maturity, and classifies these securities as available-for-sale and carries them at fair value. Unrealized holding gains and losses (determined by specific identification) on investments classified as available-for-sale, are carried as a separate component of stockholders' equity.
(h) REVENUE RECOGNITION
Revenues from CD sales were recognized upon shipment to the customer.
(i) LOSS PER COMMON SHARE
Loss per share for the nine months ended December 31, 2001 and the twelve months ended March 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 nine months ended December 31, 2001 and the fiscal year ended March 31, 2001 are approximately 15,697,000, and 14,024,000, respectively.
Common stock equivalents were not included in the computation of weighted average shares outstanding for all periods presented because such inclusion would be anti-dilutive.
(j) PROPERTY AND EQUIPMENT
Property and Equipment is recorded at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets of 3 to 7 years. During the quarter ended December 31, 2001, the Company considered the value of The Artist Promotion System impaired and sold its fixed assets as a result of management's liquidation plan, and as a result, recorded charges of approximately $157,000 and $74,000, respectively.
(k) INTANGIBLES
The carrying amount of goodwill is reviewed if facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying amount of goodwill is decreased by the estimated shortfall of cash flows. In the last quarter of fiscal 2001, the Company determined its goodwill was impaired based on continuing negative cash flows over the remaining amortization period and wrote-off approximately $134,000.
(l) 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.
(m) 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 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 (See Note 1(j)). The expenses associated with operating the website were expensed. Web site development costs incurred through March 31, 2001 were expensed and the Company had elected to not capitalize any previously eligible costs.
(n) TERRORIST ATTACK OF SEPTEMBER 11, 2001
Due to the Company's proximity to the terrorist attack on September 11, 2001 on the World Trade Center in New York City, the office was closed for one week. All costs related to this attack have been paid or accrued and have been included in operating costs and expenses for the nine months ended December 31, 2001. The Company filed an insurance claim and the amount of the expense recovery was approximately $8,360.
(o) 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.
2. INVESTMENT IN MARKETABLE SECURITIES
As of March 31, 2001 the Company's equity reflects accumulated other comprehensive income of approximately $3,000 which represents the recognition of unrealized holding gains for the Company's investments determined to be available for sale, previously carried at the lower of cost or market. During the fiscal year ended March 31, 2001, the Company realized approximately $28,000 in gains associated with the sale of marketable securities. There were no realized gains for the fiscal year ended March 31, 2000.
As of March 31, 2002, there were no marketable securities. As of March 31, 2001 marketable securities were comprised of investments in government securities which consisted primarily of Federal Home Loan Bank Discount Notes. The aggregate cost, fair value and unrealized holding gains for those Notes held at March 31, 2001 are as follows:
Aggregate Gross Unrealized Cost Basis Fair Value Holding Gain - ------------------------------------------------------------------------------ March 31, 2001: (Amounts in thousands) Government securities, maturing Between 1 and 3 years $621 $624 $3 ============================================
3. STOCKHOLDERS' EQUITY
(a) CLASS A CONVERTIBLE PREFERRED STOCK
Shares of Class A Convertible Preferred Stock were convertible to common stock on a one-to-one basis upon the request of the holder and were automatically converted on March 31, 1999. Until March 31, 1999, holders of such shares had a liquidation preference in bankruptcy and had the same voting rights as
the common stockholders. During the fiscal year ended March 31, 1999 all shares previously not converted (approximately 813,000), were converted from preferred stock to common stock.
(b) STOCK AND OPTION ISSUANCES
The Company has issued common stock and options under the provisions of:
(i) 1996 INCENTIVE DEFERRAL PLAN
During fiscal 1999, the Company reacquired 57,341 shares of treasury stock collateralizing the officer and employee loans with a fair value of approximately $7,000 resulting in a bad debt expense of $73,000.
(ii) 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.
Additional information as follows:
Shares Weighted Subject Average to Exercise Options Price ------------------ Outstanding at March 31, 2001 at $1.69-$2.15 per share 41,500 $2.13 Granted, exercised and extinguished -- $ -- ------------------ Outstanding at March 31, 2002 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, 2002:
Weighted Average Weighted Outstanding and Remaining Average Range of Exercise Exercisable at Contractual Exercise Prices March 31, 2002 Life (Years) Price -------------------------------------------------------------------- $1.69 to $2.15 41,500 5.39 $2.13
(iii) 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 2002 and 2001.
Shares Weighted Subject Average to Exercise Options Price ------------------ Outstanding at March 31, 2001 at $0.875-$2.15 per share 40,000 $1.19 Granted, exercised and extinguished -- $ -- ------------------ Outstanding at March 31, 2002 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, 2002:
Weighted Average Weighted Outstanding and Remaining Average Range of Exercise Exercisable at Contractual Exercise Prices March 31, 2002 Life (Years) Price --------------------------------------------------------------------
$0.875 to $2.15 40,000 6.15 $1.19
(iv) 1999 STOCK OPTION PLAN
As of December 14, 1999, the Company's shareholders approved new option plans and a stock incentive plan, for employees, consultants and non-employee directors all described in the Proxy Statement as of 12/14/99. In fiscal 2002, 500,000 options were issued pursuant to certain employment agreements. However, pursuant to the November 28, 2001 offer to key investors, these options were cancelled. No options or shares were issued from such plans during fiscal 2001.
Shares Weighted Subject Average to Exercise Options Price ------------------ Outstanding at March 31, 2001 at $0.50 per share 0 $0.00 Granted at $0.50 per share 500,000 $0.50 Cancelled at $0.50 per share (500,000) $0.50 ------------------ Outstanding at March 31, 2002 at $0.50 per share 0 $0.00 ==================
(v) 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.
Additional information as follows:
Weighted Shares Average Subject Exercise to Price Options ------------------- Outstanding at March 31, 2001 at $0.35 per share $0.35 300,000 Granted, exercised and extinguished $0.00 0 ------------------- Outstanding at March 31, 2002 at $0.35 per share $0.35 300,000 ===================
The following table summarizes information about severance stock options outstanding and exercisable at March 31, 2002:
Weighted Average Weighted Outstanding and Remaining Average Range of Exercise Exercisable at Contractual Exercise Prices March 31, 2002 Life (Years) Price -------------------------------------------------------------------- $0.35 per share 300,000 1.70 $0.35
(vii) PRO FORMA EFFECT OF SHARES AND OPTIONS GRANTED TO EMPLOYEES
The Company applies the Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for their stock option plans. Under APB Opinion 25, no compensation cost is recognized if the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant.
SFAS No. 123 of the Financial Accounting Standards Board, "Accounting for Stock-Based Compensation", which is effective for transactions entered into after December 15, 1995, requires the Company to provide pro forma information regarding net income and earnings per share as if compensation cost for the Company's stock option plans and stock-based compensation had been determined in accordance with the fair value method prescribed by SFAS No. 123. There were no stock options granted to employees during the fiscal year ended March 31, 2001. However, there were 1,005,000 shares issued as compensation during the fiscal year ended March 31, 2001. There were 500,000 stock options granted during the fiscal year ended March 31, 2002.
The Company estimates the fair value of each stock option at the grant date by using the Black Scholes option-pricing model with the following weighted-average assumptions used for grants in 2002 and 2001: no dividends paid; expected volatility of 241.1% and 304.3%, respectively; weighted-average risk free interest rate of 5.43% and 5.01%, respectively; and expected lives of 1-10 years.
Under the accounting provisions of SFAS No. 123, the Company's net loss and loss per share would have been increased to the pro forma amounts indicated below:
Nine months ended Year ended March 31, December 31, 2001 2001
(In thousands, except per share data) ----------------------------------------- Net Loss: As reported $(1,159) $(2,002) Pro forma $(1,165) $(2,004)
Basic and diluted loss per share: As reported $ (0.07) $ (0.14) Pro forma $ (0.07) $(0.143)
4. CONCENTRATIONS OF CREDIT RISK, FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments. The Company currently invests most of its excess cash investments in discounted notes with financial institutions. At times, such investments were in excess of the FDIC insurance limit.
The carrying amount of these investments approximates the fair value due to their short-term maturity.
5. COMMITMENTS AND CONTINGENCIES
The Company's headquarters occupied some 2,500 square feet of office space in an office building located at Broadway and Houston Street in New York, New York until December 31, 2001, when the lease was amicably terminated.
Total rent expense for the nine months ended December 31, 2001 and the year ended March 31, 2001 was approximately $47,000 and $18,000, respectively.
6. INCOME TAXES
Deferred income taxes are provided for temporary differences between amounts reported for financial statement and income tax purposes. Deferred tax assets consist of:
Nine months ended Year ended December 31, March 31, 2001 2001 - ------------------------------------------------------------------------------- (Amounts in thousands) Tax benefit of net operating loss carryforwards including current year loss $ 1,868 $ 1,483 Valuation allowance (1,868) (1,483) - ------------------------------------------------------------------------------- $ -- $ -- ============================
The Company's expectation of continued operating losses for the foreseeable future makes realization of the benefit of any of the deferred tax assets unlikely at this time. Therefore, at December 31, 2001, the Company recorded a deferred tax asset with a valuation allowance of equal value. The change in the valuation allowance for the nine months ended December 31, 2001 was approximately $385,000. The change in the valuation allowance for the year ended March 31, 2001, was approximately $624,000.
Due to the change in control of ownership in December 1998, the Company's net operating loss carryforwards from prior years up to the date of the change of control were terminated. The Company has the following net operating loss carryforwards expiring in the years noted: fiscal 2020 - $358,000; fiscal 2021 - $1,295,000; fiscal 2022 - $ 2,061,000; and fiscal 2023 - $963,000.
The differences between the statutory Federal income tax rate of 34% and the income taxes reported in the statements of operations are as follows:
Nine months ended Year ended December 31, March 31, 2001 2001 --------------------------- (Amounts in thousands)
Net loss $ (1,159) $ (2,002) ===========================
Statutory rate $ (394) $ (681) State and local tax - net of federal tax benefit (69) (119) Loss from which no tax benefit was provided 463 800 ---------------------------
Total Tax Provision $ -- $ -- ===========================
7. LITIGATION
As of the date of this report the Company knows of no pending or threatened legal actions against the Company that would have a material impact on the operations or financial condition of the Company.
On May 1, 2000, the former officers of Tropia (Jonathan Blank, Ari Blank and Arjun Nayyer) entered into a settlement agreement with the Company in connection with various claims and their activities since their resignations during the third quarter of fiscal 2000. As a result of the agreement, all claims have been settled and they have returned an additional 50,000 shares to the Company resulting in an increase in treasury stock and a corresponding gain on litigation settlement of approximately $19,000. In addition, the former officers have waived any and all of their rights to the 158,333 escrowed shares related to the original acquisition of Tropia.
Defaults by EZCD.com as to its investment representations, and its content and technology sharing agreement with the Company could result in litigation or other legal complications, and attendant costs and efforts by the Company's management to resolve such matters. EZCD.com filed for bankruptcy liquidation in August, 2000 and the Company is making creditor claims in such proceeding which have been rejected by the trustee therein and will require a trial. There is little likelihood of any material recovery.
From time to time in previous years, the Company had been a party to other legal actions and proceedings incidental to its business. As of the date of this report, however, the Company knows of no other pending or threatened legal actions that could have a material impact on the operations or financial condition of the Company.
8. STATEMENTS OF CASH FLOWS
--------------------------- Nine months ended Year ended December 31, March 31, 2001 2001 --------------------------- (Amounts in thousands) Supplemental disclosures of cash flow information: Cash paid during the year for income taxes $ 8 $ 10
Non-cash transactions: Compensation to consultants and employees via stock and options $ 8 $ 6 Contribution by management (rent and compensation) $ 65 $ 53 Gain on litigation $ -- $ (19) HungryBands.com, NewMediaMusic.com and NewYorkExpo.com acquisitions $ -- $ 53 Discontinued Operations Non-cash transactions: Depreciation $ 16 $ 30 Compensation to employees via stock $ 10 $ 77 Contribution of services and rent $ 131 $ 215
9. SEGMENT INFORMATION
As a result of the discontinuing of its operations, there are no reportable business segments.
10. GOODWILL
In June, 1999, the Company acquired Tropia, which operated an MP3 music site that promoted and distributed the music of independent artists through its website located at www.Tropia.com. The acquisition was accounted for as a purchase for financial statement purposes and, accordingly, Tropia's results are included in the consolidated financial statements since the date of acquisition. Tropia was acquired for an aggregate of 316,666 shares of the Company's common stock (valued at $306,786), with 158,333 shares delivered at closing, and 158,333 shares held in escrow to be delivered one year after the closing (if certain performance goals were achieved), to Jonathan Blank, Tropia's former CEO, Arjun Nayyar, Tropia's former
Technical Director, and Ari Blank, Tropia's former Design Director. Such individuals have since waived any rights to the escrowed 158,333 shares, and have returned 50,000 of the shares delivered to them at the 1999 closing.
In accordance with Accounting Principles Board ("APB") No. 16, the adjusted aggregate purchase price of $153,393 was allocated to the assets and liabilities of Tropia, based upon their estimated fair values as follows:
Computer software $ 748 Accrued expenses (6,075) --------- Net liabilities acquired (5,327) Goodwill 158,720 --------- Aggregate Purchase Price $ 153,393 =========
In January 2000, SITI acquired all of the assets and certain liabilities relating to three music-related websites (i) HungryBands.com (www.HungryBands.com), an e-commerce website and business promoting and selling music by independent artists, (ii) NewMediaMusic.com (www.NewMediaMusic.com), an e-news/magazine business devoted to new Internet music, news releases by artists and record labels, interviews and other information useful to fans and artists, and (iii) NewYorkExpo.com (www.NewYorkExpo.com), a music and Internet conference business. The acquired assets consisted primarily of intangible assets.
HungryBands.com was acquired for 150,000 shares of SITI common stock. In accordance with Accounting Principles Board ("APB") No. 16, the aggregate purchase price of $79,688 was allocated to the assets and liabilities of HungryBands.com, based upon their estimated fair values as follows:
Other assets $ 700 Software 240 ------- Net assets acquired 940 Goodwill 78,748 ------- Aggregate Purchase Price $79,688 =======
SITI acquired NewMediaMusic.com from Mr. Mazola and Steve Zuckerman, and NewYorkExpo.com from New York Music Expo, Inc., a New Jersey corporation which is wholly-owned by Mr. Zuckerman, for a total of 60,000 shares (approximately $31,875) of SITI common stock. In addition, Mr. Zuckerman was granted a 15% interest for three years in the operating profits of NewYorkExpo.com's music and Internet conference business, after completing the March, 2000 Expo (in which he retained a 75% interest). In accordance with Accounting Principles Board ("APB") No. 16, the aggregate purchase price of $31,875 was allocated to the assets and liabilities of NewMediaMusic.com and New York Expo.com, based upon their estimated fair values as follows:
Cash $ 30,416 Receivables 15,175 Other assets 15,750 Customer deposits (71,300) Due to S. Zuckerman (10,041) -------- Net liabilities acquired (20,000) Goodwill 51,875 -------- Aggregate Purchase Price $ 31,875 ========
The proforma results of operations for the acquisitions, had the acquisitions occurred at the beginning of fiscal year 2000, are not significant, and accordingly, have not been provided.
As a result of management's review of the carrying amount of goodwill, on March 31, 2001, the Company wrote-off $134,000 of goodwill as a result of the losses associated with the 2001 Expo, the discontinuation of the New York Expo business segment, and the estimated future undiscounted cash flows associated with the remaining entities. Of the $134,000, approximately $21,000 relates to the NewYork Expo and the remaining $113,000 relates to the other divisions acquired as described above.
11. LICENSING AGREEMENTS
Throughout the prior fiscal years, the Company has entered into certain royalty agreements with artists whereby, the Company is obligated to reimburse the artists $5.00 per sale of an artist's CD. Such sales have been nominal for the nine months ended December 31, 2001 and the twelve months ended March 31, 2001 and 2000 and are part of discontinued operations.
12. OTHER AGREEMENTS
The Company also entered into other agreements with certain companies (TVMV.com and Listen.com) for content and technology sharing. Pursuant to these sharing agreements, SITI is to receive a certain percentage of revenues from the banner advertising. As of December 31, 2001 and March 31, 2001, revenues from such advertising have been nominal and are part of discontinued operations.
On April 9, 2000, SITI entered into a Business Development Agreement with Mediaviewer.com to develop an improved radio player whereby the costs to develop such player are funded by SITI. These costs were not expected to exceed $25,000 payable in installments based upon certain prescribed performance objectives. This agreement has been terminated and is part of discontinued operations.
On May 1, 2000, the former officers of Tropia (Jonathan Blank, Ari Blank and Arjun Nayyer) entered into a settlement agreement with the Company in connection with various claims and their activities since their resignations during the third quarter of the current fiscal year. As a result of the agreement, all claims have been settled and they have returned an additional 50,000 shares to the Company. In addition, the former officers have waived any and all of their rights to the 158,333 escrowed shares related to the original acquisition of Tropia. The 50,000 returned shares are valued at approximately $18,750.
As of June 8, 2000, principal investors, directors and executives, Lawrence M. Powers, Robert Ingenito and John Iannitto, agreed with the Company to invest an additional $1,000,000 for common stock and options, on the following basis:
(a) Mr. Powers would invest $500,000 for 2,000,000 shares of common stock, together with options, to purchase an additional 1,000,000 shares for $.50 per share, exercisable for five years.
(b) Messrs. Ingenito and Iannitto would each invest $250,000 for 1,000,000 shares of common stock, respectively, together with options, respectively, to purchase an additional 500,000 shares for $.50 per share, exercisable for five years.
Messrs. Powers, Ingenito and Iannitto divided their respective investments further among family members and business associates, consisting of Barclay V. Powers, John DiNozzi and Mr. Iannitto's son (a minor) in varying amounts by gift or by assignment.
On June 12, 2000, the Company entered into employment arrangements with Messrs. Ingenito and Iannitto. In connection with their ongoing services, Messrs. Ingenito and Iannitto, have agreed that the Company will not pay them cash compensation for the fiscal years ended March 31, 2001 and 2002, but will grant stock and options as follows:
Fiscal 2001 Fiscal 2002 ----------- -----------
Robert Ingenito 300,000 shares Options to purchase 300,000 shares at $.50 per share, exercisable for five years (until 6/30/2006)
John Iannitto 200,000 shares Options to purchase 200,000 shares at $.50 per share, exercisable for five years (until 6/30/2006)
However, as a result of their withdrawal as executives and their stock purchase on November 28, 2001, all options granted, or to be granted for the 2002 fiscal year, were cancelled. Mr. Powers does not expect to receive any cash compensation, stock or options for his services for such two fiscal years.
On June 13, 2000, the Company entered into a stock purchase agreement with Colvil Investments, LLC, ("Colvil") whereby Colvil agreed to invest $100,000 for 400,000 shares of the Company's common stock, together with options, to purchase an additional 200,000 shares for $.50 per share, exercisable for five years.
On June 16, 2000, the Company entered into a stock purchase agreement with Steven Gross whereby Mr. Gross agreed to invest $50,000 for 200,000 shares of the Company's common stock, together with options, to purchase an additional 100,000 shares for $.50 per share, exercisable for five years.
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of March 31, 2002, accounts payable and accrued liabilities were comprised of the following:
--------- (Amounts in thousands)
Accrued audit and tax fees $ 25 Accrued expenses 7 --------- $ 32
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for the nine months ended December 31, 2001 and the fiscal year ended March 31, 2001.
(In thousands except per share data) Quarter Ended Nine months ended December 31, 2001 Dec. 31 Sept. 30 June 30 - -----------------------------------------------------------------------------
Net sales 0 0 0 Cost of sales 0 0 0 - ----------------------------------------------------------------------------- Gross profit 0 0 0 - ----------------------------------------------------------------------------- Loss from continuing operations (369) (24) (163) Loss from discontinued operations (173) (174) (257) - ----------------------------------------------------------------------------- Net loss (542) (198) (420) Loss per common share: Continuing operations (0.023) (0.002) (0.011) Discontinued operations (0.011) (0.011) (0.017) - ----------------------------------------------------------------------------- Total (0.034) (0.013) (0.027) - -----------------------------------------------------------------------------
Quarter Ended 2001 Mar. 31 Dec. 31 Sept. 30 June 30 - --------------------------------------------------------------------------------
Net sales 0 0 0 0 Cost of sales 0 0 0 0 - -------------------------------------------------------------------------------- Gross profit 0 0 0 0 - -------------------------------------------------------------------------------- Loss from continuing operations (274) (194) (102) (151) Loss from discontinued operations (367) (250) (335) (329) - -------------------------------------------------------------------------------- Net loss (641) (444) (437) (480) Loss per common share: Continuing operations (0.018) (0.013) (0.017) (0.014) Discontinued operations (0.024) (0.017) (0.023) (0.030) - -------------------------------------------------------------------------------- Total (0.042) (0.030) (0.030) (0.044) - --------------------------------------------------------------------------------