UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ___________________________
Commission File Number:0-26093
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SITE2SHOP.COM,INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0382813
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2001 West Sample Road, Suite 101, Pompano Beach, Florida 33064
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(954) 969-1010
(Registrant's telephone number, including area code)
Not applicable
(Former name former address and former fiscal year,if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of April 30, 2000, the registrant had a total of 12,514,702 common shares
outstanding.
SITE2SHOP.COM, INC.
Index to Form 10-QSB
March 31, 2000
PART I. FINANCIAL INFORMATION
Page
--------
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Balance Sheets at December 31, 1999 and March 31, 2000 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2000 .................................. 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 .................................. 5
Notes to Condensed Consolidated Financial Statements ........... 6 - 7
Item 2. Management's Discussion and Analysis Operations or Plan
of Operations ......................................... 8 -10
PART II. OTHER INFORMATION
Item 2. Changes in Securities .................................... 11
Item 5. Other Matters ............................................ 11
Item 6. Exhibits and Reports on Form 8-K ......................... 11
2
SITE2SHOP.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1999 2000
------------ ----------
(Audited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents ......................................... $ 450,157 $ 352,141
Accounts receivable, net of allowance for doubtful accounts
of $0 and $49,275 .............................................. 1,589,438 1,419,719
Inventory ......................................................... 22,030 20,765
Prepaid and other current assets .................................. 62,755 51,306
------------ ------------
Total current assets ................................ 2,124,380 1,843,931
Equipment and leasehold improvements, net ........................... 935,959 910,843
Other assets ........................................................ 113,553 135,045
------------ ------------
Total assets ....................................... $ 3,173,892 $ 2,889,819
============ ============
Liabilities and stockholders' deficit
Current liabilities:
Bank overdraft .................................................... $ 207,198 $ 241,103
Accounts payable and accrued expenses ............................. 729,922 457,398
Deferred income taxes payable ..................................... 1,089,000 920,000
Capital lease obligations-current portion ......................... 23,498 18,589
Capital lease obligations- related party- current portion ......... 167,182 --
Deferred revenue .................................................. 2,403,241 2,962,674
------------ ------------
Total current liabilities .......................... 4,620,041 4,599,764
Stockholders' deficit:
Common stock, $.001 par value:
Authorized 150,000,000 shares;
issued and outstanding, 12,479,702 and 12,514,702 shares
respectively ................................................... 12,480 12,515
Additional paid-in capital ........................................ 1,515,488 1,583,852
Deferred compensation ............................................. (107,639) (141,965)
Accumulated deficit ............................................... (2,866,478) (3,164,347)
------------ ------------
Total stockholders' deficit ........................ (1,446,149) (1,709,945)
------------ ------------
Total liabilities and stockholders' deficit ........ $ 3,173,892 $ 2,889,819
============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
SITE2SHOP.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
-------------------------------
1999 2000
---------- ----------
Revenues ............................ $ 2,171,586 $ 1,983,735
Cost of revenues .................... 398,678 612,207
------------ ------------
Gross margin ........................ 1,772,908 1,371,528
Selling expenses .................... 469,557 668,578
General and administrative expenses . 678,556 1,169,818
------------ ------------
1,148,113 1,838,396
------------ ------------
Operating income (loss) ............. 624,795 (466,868)
Income taxes (benefit) .............. 233,000 (169,000)
------------ ------------
Net income (loss) ................... $ 391,795 $ (297,868)
============ ============
Net income (loss) per share- basic .. $ 0.03 $ (0.02)
============ ============
Net income (loss) per share- diluted $ 0.03 $ (0.02)
============ ============
Weighted average number of shares-basic 11,483,649 12,508,850
============ ============
Weighted average number of shares
outstanding- diluted ............. 11,496,451 12,508,850
============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
SITE2SHOP.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended March 31,
----------------------------
1999 2000
---------- ----------
Operating activities
Net income (loss) ............................ $ 391,795 $(297,868)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization .................................. 40,512 75,553
Provision for deferred income taxes (benefit) .................. 233,000 (169,000)
Amortization of deferred compensation .......................... -- 34,073
Provision for bad debts ........................................ -- 49,275
Changes in operating assets and liabilities:
Accounts receivable ........................................... (378,222) 120,444
Inventory ..................................................... -- 1,265
Prepaid expenses and other current assets .................... (9,655) 1,244
Other assets .................................................. (8,393) (22,759)
Accounts payable and accrued expenses ......................... (137,574) (272,524)
Deferred revenue .............................................. 211,620 559,433
--------- ---------
Net cash provided by operating activities ........................ 343,083 79,136
--------- ---------
Investing activities
Capital expenditures ............................................. (54,532) (38,966)
--------- ---------
Cash used in investing activities ................................ (54,532) (38,966)
--------- ---------
Financing activities
Proceeds from sale of common stock ............................... 223,200 --
Increase (decrease) in bank overdraft ............................ (97,941) 33,905
Note to related parties .......................................... (10,000) --
Repayment of capital lease obligations- related parties .......... -- (167,182)
Repayment of capital lease obligations ........................... (8,599) (4,909)
--------- ---------
Net cash provided by (used in) financing activities .............. 106,660 (138,186)
--------- ---------
Net increase (decrease) in cash and cash equivalents ............. 395,211 (98,016)
Cash and cash equivalents, beginning of period ................... 50,645 450,157
-------- ---------
Cash and cash equivalents, end of period ......................... $ 445,856 $ 352,141
========= =========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest ........................................................ $ 90 $ 539
========= =========
Interest- related party ......................................... $ -- $ 8,095
========= =========
Taxes ........................................................... $ -- $ 1,077
========= =========
Non-cash financing activities:
Common stock issued for acquisition ............................. $ 10,000 $ --
========= =========
Common stock issued for future services ......................... $ -- $ 68,399
========= =========
Reacquisition of common stock ................................... $ 26,875 $ --
========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
SITE2SHOP.COM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2000
1. BASIS OF PRESENTATION AND OPERATIONS
- ----------------------------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-QSB and
Items 303 and 310(b) of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the
three-month period ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000. For further
information, refer to the financial statements and footnotes thereto included in
the Site2Shop.Com, Inc. ("Site2Shop.Com" or the "Company") audited financial
statements for the year ended December 31, 1999.
Prior to July 1, 1998, the Company, a Nevada corporation, was not actively
engaged in revenue generating activities and lacked substantial assets,
liabilities or marketable products and services. On July 1, 1998, the Company
commenced active operations as a marketer of its vendors products through (i) a
half-hour shop-at-home television program, (ii) its internet website and (iii) a
commercial retail store.
On February 9, 1999, the Company entered into an agreement to merge with
Tricom, a privately held Florida corporation engaged in the marketing,
production and distribution of television programming, into a wholly owned
subsidiary. The stockholders of Tricom, three of whom are the Executive Officers
of the Company and owned 71% collectively of the common stock of the Company
(85% of Tricom) and five (remaining) stockholders collectively owned 5.6% of the
common stock of the Company (15% of Tricom). Under the terms of the agreement,
the Tricom stockholders exchanged their shares at a ratio of 100,000 to 1 for a
total of 10 million shares. As a result of the merger, the Executive Officers of
the Company and the remaining five Tricom stockholders collectively owned 83.1%
and 13.7% respectively, of the common stock of the Company. As both companies
were under common control, the combination of the two companies is deemed to be
a purchase and accounted for "as if" a pooling of interests, whereby the
combined assets and liabilities are recorded on an historical basis.
Accordingly, the audited Balance Sheet as of December 31, 1999 represents the
financial condition of the Company as if the merger occurred as of December 31,
1998. The unaudited Statements of Operations for the three month period ended
March 31, 1999 and the unaudited Statement of Cash Flows for the three month
period ended March 31, 1999 reflect the combined operations and cash flows for
the period then ended.
2. SIGNIFICANT EVENTS
- -----------------------
On January 2, 2000, the Company entered into a consulting agreement
("Agreement") with a corporation to provide the Company financial advisory and
marketing services in consideration of receipt by a principal of the corporation
of 25,000 shares of the Company's common stock. The term of the Agreement is the
later of one year from the date of the Agreement or the consummation of a merger
with or acquisition of a candidate introduced by the corporation, but in no
event to exceed two years from the date of the Agreement. The market value of
the shares of common stock at the time of issuance was $55,100.
6
SITE2SHOP.COM, INC.
Notes to Condensed Consolidated Financial Statements-Continued
(Unaudited)
March 31, 2000
2. SIGNIFICANT EVENTS- (Continued)
- -----------------------------------
On January 2, 2000, the Company issued 10,000 shares of its common stock to
a corporation to provide employee counseling services to the employees of the
Company on an as needed basis for a period of one year. The market value of the
shares of common stock at the time of issuance was $13,300.
On March 16, 2000, the Company, at its option, prepaid the entire unpaid
balance ($109,500) of the capital master lease payable to a related party which
is 100% owned by two Executive Officers of the Company and who own 67% of the
Company. The lease covered production, transportation and office equipment and
was payable in monthly installments of $21,910 (inclusive of interest at 13.5%
per annum and sales tax); the last payment due in August 2000. No gain or loss
was recorded upon payment.
3. SUBSEQUENT EVENT
- --------------------
On April 3, 2000, the Company's Board of Directors, subject to approval by
shareholders at the annual meeting increased the number of shares of common
stock available for option under the 1998 Employee Stock Option Plan from
3,000,000 million shares to 5,000,000 shares. In addition, the Company
registered the 5,000,000 shares of common stock with United States Securities
and Exchange Commission on May 1, 2000.
7
SITE2SHOP.COM, INC.
PART I. ITEM 2- MANAGEMENT'S DISCUSSION OR PLAN OF OPERATIONS
March 31, 2000
(UNAUDITED)
The following discussion of the results of the operations and financial
condition of Site2Shop.Com, Inc. ("Site2Shop.Com" and the "Company") should be
read in conjunction with Site2Shop.Com's Unaudited Condensed Consolidated
Financial Statements and Notes thereto included elsewhere in this report and the
Company's Audited Consolidated Financial Statements and Notes thereto for the
year ended December 31, 1999.
Overview
The Company is engaged in engaged in the marketing, production and
distribution of television programs. The Company produces both educational
half-hour television programs through its wholly owned subsidiary, Tricom and
half-hour shop-at-home television programming through the Site2Shop.com TV
program of its Site2Shop TV, Inc. ("Site2Shop") subsidiary. All programs are
distributed to national audiences through a combination of any and all of the
following: ABC affiliates, NBC affiliates, CBS affiliates, FOX affiliates, UPN
affiliates and WB affiliates (collectively "network affiliates"), independent
television stations and targeted cable networks. Products and services featured
on the Site2Shop.com TV program are also sold through the Company's websites,
other e-commerce websites and the Company's retail store at the Pompano Square
Mall, Pompano Beach, Florida.
Part of the Company's strategy is to grow through the opening of new offices
domestically and the expansion of the number of distribution opportunities for
the participants on the Company's television programs. The Company's continued
growth may place a strain on the Company's management, operational, financial
and other resources. The Company's expansion and growth plans will depend on its
ability to identify appropriate targets and markets and obtain the necessary
financing to bring these plans to fruition. Further, the success of the
Company's efforts will depend on its ability to identify these opportunities,
attract highly qualified personnel, reduce redundancy and manage geographically
dispersed operations. There can be no assurances that the Company will be
successful in its plans of operational expansion nor the management of such
growth.
Results of Operations
COMPARISON of the THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS ENDED
MARCH 31, 1999.
Net Revenues in 2000 were $1,984,000, a decrease of $188,000 or 8.6% over
the same period in 1999. The decrease is attributable to the decrease in Tricom
revenues of $436,000 for the period primarily as a result of a greater
commitment of effort, manpower and resources to the production of Site2Shop's
television programming resulting in an increase of $229,000 in Site2Shop's
television programming revenue over 1999. Due to the competitive pricing
pressures of the marketplace, the Company made a strategic decision in the
8
latter part of 1999 whereby the length of each segment of an educational
television program would be reduced by approximately 40% and the insertion fee
charged clients was reduced commensurately on all new contracts during the
fourth quarter of 1999. Although the time to produce such segments was reduced,
the commitment of manpower to shop-at-home television programming and the
reduction in fee outweighed the beneficial effects of the reduction in time of
the production process. The remaining increase of $19,000 of revenues in 2000 is
primarily a result of product sales featured on Site2Shop's television
programming and websites. At March 31, 2000, the Company's backlog (signed
contracts for which the Company has not performed any services and customer
payment has yet to be received) totaled $1,076,000 ($845,000 at Site2Shop and
$231,000 at Tricom) as compared to $1,823,000 at March 31, 1999 ($1,399,000 at
Site2Shop and $424,000). The reduction in backlog is attributable to production
efficiencies whereby production commenced in the current quarter on more
contracts that were executed during current quarter, offset by the decrease in
the insertion fee associated with educational television programming contracts.
Cost of Revenues increased to $612,000, or 53.6% and increased to 30.9% of
net revenues in 2000 from $399,000 and 18.4% of net revenues in 1999. The
increase in expenses is attributable to an increase in salary and wages
($70,000), television airtime ($37,000) and talent ($42,000) at Tricom in order
to meet the production requirements of Site2Shop. Additionally, expenses at
Site2Shop in 2000 related to the cost products (featured on shop-at-home
television programming) sold on the internet and the Company's retail store
increased by $20,000.
Selling Expenses were $669,000 during 2000, an increase of $199,000 from
1999. Selling expenses in 2000 were 33.7% of net revenues as compared to 21.6%
in 1999. Selling expenses at Site2Shop increased by $194,000 in 2000 as a result
of establishing a sales infrastructure necessary to develop and generate sales
at the two marketing offices opened during the latter half of 1999.
General & Administrative Expenses were $1,170,000 during 2000, an increase
of $491,000 from 1999. These expenses constituted 59% of net revenues in 2000 as
compared to 31.2% in 1999. Site2Shop expenses for 2000 totaled $817,000,
representing an increase of $476,000 over 1999, $162,000 associated with the
fixed operating costs associated with two new marketing offices and $264,000 in
salaries, wages and benefits associated with building and enhancing a management
infrastructure.
Liquidity and Capital Resources
The three months ended March 31, 1999 reflect the consolidated cash flows of
the Company inclusive of the operations and cash flows of Tricom since January
1, 1999 as a result of the merger of the two common controlled entities in
February 1999.
The Company generated $79,000 from operating activities in 2000 as opposed
to $343,000 during the same period in 1999. The decrease in 2000 is attributable
to a net loss of $298,000, a decrease in deferred income taxes payable
($169,000) as a result of the loss and accounts payable and accrued expenses
($273,000) offset by an increase in accounts receivable ($120,000) and deferred
revenue ($559,000). Cash used in operating activities totaled $39,000 in 2000
and $55,000 in 1999 primarily as a result of capital expenditures relating to
the upgrade of computer hardware and software in order to promote operating
efficiency and addressing Year 2000 compliance. Cash used in financing
activities in 2000 totaled $138,000 whereas cash provided in 1999 totaled
$107,000. The Company, at its option, prepaid the entire unpaid balance
($110,000), in addition to the scheduled repayments of $57,000, of the capital
9
master lease payable to a related party which is 100% owned by two Executive
Officers of the Company and who own 67% of the Company.
Although the Company has a working capital deficiency of $2,756,000 and a
Stockholders' Deficit of $1,710,000 at March 31, 2000, the Company believes that
cash and cash equivalents and cash generated from its current level of
operations to be sufficient to meet its working capital requirements over the
balance of the current year. The Company continues to seek opportunities for
growth either through the opening of new offices, enhancing and increasing
production capacity, acquisitions, additional distribution channels of its
shows' participants products and services and any and all combinations thereof,
and in connection therewith, may seek to raise cash in the form of equity, bank
debt or other debt financing, or may seek to issue stock as consideration for
acquisition targets.
Statement Regarding Forward-Looking Statements.
This Quarterly Report includes "forward-looking statements" within the
meaning of Section 27A of the Exchange Act which represent the Company's
expectations or beliefs concerning future events that involve risks and
uncertainties, including but not limited to the demand for the Company's
products and services and the costs associated with such goods and services. All
other statements other than statements of historical fact included in this
Quarterly Report including, without limitation, the statements under
"Management's Discussion or Plan of Operations" and elsewhere in this Quarterly
Report, are forward-looking statements. While the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
10
PART II. OTHER INFORMATION
Item 2. Changes in Securities
- -----------------------------
On January 2, 2000, the Company issued 35,000 shares of its common stock, in
aggregate, to two consultants for services to be rendered over a period ranging
from one to two years from the respective dates of issuance. The aggregate
market value of the issued shares based on the fair market value on the date of
issuance was $68,400.
Item 5. Other Information
- -------------------------
On April 3, 2000, the Company's Board of Directors, subject to approval by
shareholders at the annual meeting, increased the number of shares of common
stock available for option under the 1998 Employee Stock Option Plan from
3,000,000 shares to 5,000,000 shares. In addition, the Company registered the
5,000,000 shares of common stock with United States Securities and Exchange
Commission on May 1, 2000.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
None
11
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the
undersigned, thereunto duly authorized.
Site2Shop.Com, Inc.
- --------------------
(Registrant)
/s/ Mark Alfieri /s/ Mark Weicher
- ----------------- ------------------
Mark Alfieri Mark Weicher
President Chief Financial Officer
Dated: May, 9, 1999
12