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 June 30, 2000
Or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________________
Commission File Number:0-26093
SITE2SHOP.COM, INC.
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(Exact name of registrant as specified in its charter)
Nevada 88-0382813
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2001 West Sample Road, Suite 101, Pompano Beach, Florida 33064
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(Address of principal executive offices) (Zip Code)
(954) 969-1010
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(Registrant's telephone number, including area code)
Not applicable
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(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 July 31,2000,the registrant had a total of 12,514,702 common shares
outstanding.
SITE2SHOP.COM, INC.
Index to Form 10-QSB
June 30, 2000
Page
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Balance Sheets at December 31, 1999 and June 30, 2000 3
Condensed Consolidated Statements of Operations for the three months
and six months ended June 30, 2000 4
Condensed Consolidated Statements of Cash Flows for the six months
months ended June 30, 2000 5
Notes to Condensed Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis or Plan of Operations 9 - 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities 12
Item 5. Other Matters 12
Item 6. Exhibits and Reports on Form 8-K 12
2
SITE2SHOP.COM, INC.
Condensed Consolidated Balance Sheets
December 31, June 30,
1999 2000
------------ -----------
(Audited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents..................................... $ 450,157 $ 554,780
Accounts receivable, net of allowance for doubtful accounts
of $0 and $ 80,000.......................................... 1,589,438 886,560
Inventory..................................................... 22,030 5,262
Prepaid and other current assets.............................. 62,755 99,555
------------ ------------
Total current assets........................... 2,124,380 1,546,157
Equipment and leasehold improvements, net...................... 935,959 939,960
Investment..................................................... -- 150,000
Other assets................................................... 113,553 131,502
------------ ------------
Total assets.................................. $ 3,173,892 $ 2,767,619
============ ============
Liabilities and stockholders' deficit
Current liabilities:
Bank overdraft................................................ $ 207,198 $ 9,849
Accounts payable and accrued expenses......................... 729,922 672,401
Deferred income taxes payable................................. 1,089,000 969,000
Capital lease obligations-current portion..................... 23,498 13,527
Capital lease obligations- related party- current portion..... 167,182 --
Deferred revenue.............................................. 2,403,241 2,701,512
------------ ------------
Total current liabilities..................... 4,620,041 4,366,289
Stockholders' deficit:
Common stock, $.001 par value:
Authorized 150,000,000 shares;
issued and outstanding, 12,479,702and 12,514,702 shares,
respectively................................................. 12,480 12,515
Additional paid-in capital.................................... 1,515,488 1,581,665
Deferred compensation......................................... (107,639) (107,866)
Accumulated deficit........................................... (2,866,478) (3,084,984)
Total stockholders' deficit.............................. (1,446,149) (1,598,670)
------------ ------------
Total liabilities and stockholders' deficit.. $ 3,173,892 $ 2,767,619
============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
SITE2SHOP.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six months ended June 30, Three months ended June 30,
---------------------------- -----------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
Revenues................................ $ 4,840,928 $ 4,910,060 $ 2,669,342 $ 2,926,325
Cost of revenues........................ 1,064,682 1,374,271 666,004 762,064
---------- ----------- ---------- -----------
Gross margin............................ 3,776,246 3,535,789 2,003,338 2,164,261
---------- ----------- ---------- -----------
Selling expenses........................ 1,274,409 1,552,911 804,852 884,333
General and administrative expenses..... 1,668,388 2,321,384 989,832 1,151,566
---------- ----------- ---------- -----------
2,942,797 3,874,295 1,794,684 2,035,899
---------- ----------- ---------- -----------
Operating income (loss)................. 833,449 (338,506) 208,654 128,362
Income taxes (benefit).................. 332,000 (120,000) 99,000 49,000
---------- ----------- ---------- -----------
Net income (loss)....................... $ 501,449 $ (218,506) $ 109,654 $ 79,362
========== =========== ========== ===========
Net income (loss) per share- basic....... $ 0.04 $ (0.02) $ 0.01 $ 0.01
========== =========== ========== ===========
Net income (loss) per share- diluted..... $ 0.04 $ (0.02) $ 0.01 $ 0.01
========== =========== ========== ===========
Weighted average number of shares
outstanding- basic.................... 11,957,135 12,511,776 12,425,702 12,514,702
========== =========== ========== ===========
Weighted average number of shares
outstanding- diluted.................. 11,973,131 12,511,776 12,454,649 13,085,721
========== =========== ========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
SITE2SHOP.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended June30,
------------------------------
1999 2000
------------ -----------
Operating activities
Net income (loss)................................................... $ 501,449 $ (218,506)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization..................................... 56,793 167,408
Provision for deferred income taxes (benefit)..................... 332,000 (120,000)
Stock options issued for services................................. 68,750 --
Amortization of deferred compensation............................. -- 68,172
Provision for bad debts........................................... -- 80,000
Changes in operating assets and liabilities:
Accounts receivable.............................................. (593,055) 622,878
Inventory........................................................ (97,591) 16,768
Prepaid expenses and other current assets........................ (13,748) (70,050)
Other assets..................................................... (12,206) (20,478)
Accounts payable and accrued expenses............................ 40,058 (57,521)
Deferred revenue................................................. 239,585 148,271
----------- ----------
Net cash provided by operating activities........................... 522,035 616,942
----------- ----------
Investing activities
Capital expenditures................................................ (135,663) (135,630)
Increase in note receivable- related party.......................... (10,000) --
----------- ----------
Cash used in investing activities................................... (145,663) (135,630)
----------- ----------
Financing activities
Proceeds from sale of common stock................................... 1,000,000 --
Common stock registration fees....................................... -- (2,187)
Cash acquired in merger.............................................. 8,843 --
Decrease in bank overdraft........................................... (97,941) (197,349)
Repayment of capital lease obligations- related parties.............. -- (167,182)
Repayment of capital lease obligations............................... (16,725) (9,971)
----------- ----------
Net cash provided by (used in) financing activities.................. 894,177 (376,689)
----------- ----------
Net increase (decrease) in cash and cash equivalents................. 1,270,549 104,623
Cash and cash equivalents, beginning of period....................... 41,802 450,157
----------- ----------
Cash and cash equivalents, end of period............................. $ 1,312,351 $ 554,780
=========== ==========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest.......................................................... $ 2,779 $ 925
=========== ==========
Interest- related party........................................... $ -- $ 8,095
=========== ==========
Taxes............................................................. $ 1,531 $ 1,077
=========== ==========
5
SITE2SHOP.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS-Continued
(UNAUDITED)
Six months ended June30,
------------------------------
1999 2000
------------ -----------
Non-cash investing activities:
Investment in common stock of customer in consideration of
infomercial production fee...................................... $ -- $ 150,000
=========== ==========
Non-cash financing activities:
Common stock issued for acquisition............................... $ 10,000 $ --
=========== ==========
Common stock issued for future services........................... $ 243,844 $ 68,399
=========== ==========
Reacquisition of common stock..................................... $ 26,875 $ --
=========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
SITE2SHOP.COM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 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 and six month period ended June 30, 2000, respectively, 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 websites 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 and six
month period ended June 30, 1999 respectively, and the unaudited Statement of
Cash Flows for the six month period ended June 30, 1999 reflect the combined
operations and cash flows for the period then ended.
2. SIGNIFICANT EVENTS
On May 2, 2000, the Company entered into an agreement ("Agreement") with
a corporation to produce and edit a 30 minute television infomercial which
describes and promotes the benefits to be derived from use of the corporation's
product, a dietary supplement for Irritable Bowel Syndrome and offer the product
for sale to the general public. The fee per the Agreement is $400,000 in cash
payable at specified times and $150,000 of the corporation's common stock
payable within 15 days of execution of the Agreement. Additionally, the Company
is to receive royalties from product
7
SITE2SHOP.COM, INC.
Notes to Condensed Consolidated Financial Statements-Continued
(Unaudited)
June 30, 2000
2. SIGNIFICANT EVENTS- (Continued)
sales, as defined , resulting from the infomercial and other media efforts over
a period of two years. On May 9, 2000 the Company received 1,000, 000 shares of
the corporation's common stock, the market value of which approximated $150,000
and is recorded as an Investment on the Company's balance sheet as of June 30,
2000. As the number of shares acquired by the Company represents less than 10%
of the shares of common stock outstanding of the corporation, the Company
accounts for such investment under the cost method of accounting. To date, the
Company has received $250,000 in cash payments in accordance with the terms of
the Agreement and has recognized $225,000 in contract revenue.
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 ("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. As of June 30, 2000, no options granted
under the Plan had been exercised.
8
SITE2SHOP.COM, INC.
PART I. ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
June 30, 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 the marketing, production and distribution of
television programs. The Company produces educational half-hour television
programs and infomercials through its wholly owned subsidiary, Tricom, and
half-hour shop-at-home television programming and 30- 120 second direct response
commercials through the Site2Shop.com TV program of its Site2Shop TV, Inc.
("Site2Shop") subsidiary. All programming is 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 and direct response commercials 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
COMPARISION OF THE SIX MONTHS ENDED JUNE 30, 2000 TO THE SIX MONTHS ENDED
JUNE 30, 1999.
Net Revenues in 2000 were $4,910,000, an increase of $68,000 or 1.4% over
the same period in 1999. The increase is attributable to the increase in
Site2Shop's revenues of $574,000 for the period primarily as a result of a
greater commitment of effort, manpower and resources to the production of
Site2Shop's television programming offset by a decrease of $535,000 in Tricom's
television programming revenue over 1999. Due to the competitive pricing
pressures of the marketplace, the Company made a strategic decision in the
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 $29,000 of revenues in 2000 is
primarily a result of independent production projects ($23,000). At June 30,
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
$2,019,000 ($1,534,000 at Site2Shop and $485,000 at Tricom) as compared to
$972,000 at June 30, 2000 ($514,000 at Site2Shop and $458,000 at Tricom). The
increase in backlog is attributable to an increase in the number of contracts
that were executed during current quarter (232 in 2000 and 100 in 1999), offset
by the decrease in the insertion fee associated with educational television
programming contracts.
9
Cost of Revenues increased to $1,374,000, or 29.1% and increased to 28.0% of
net revenues in 2000 from $1,065,000 and 22.0% of net revenues in 1999. The
increase in expenses is attributable to an increase in salary and wages
($147,000), television airtime ($96,000) and talent ($34,000) at Tricom in order
to meet the production requirements of Site2Shop.
Selling Expenses were $1,553,000 during 2000, an increase of $279,000 from
1999. Selling expenses in 2000 were 31.6% of net revenues as compared to 26.3%
in 1999. Selling expenses at Site2Shop increased by $303,000 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 in south
Florida and a third marketing office in New York City opened in the second
quarter of 2000.
General & Administrative Expenses were $2,321,000 during 2000, an increase
of $571,000 from 1999. These expenses constituted 47.3% of net revenues in 2000
as compared to 34.5% in 1999. Expenses associated with the fixed operating costs
of the three new aforementioned marketing offices in 2000 increased by $126,000
and salaries, wages and benefits associated with building and enhancing a
management infrastructure increased in 2000 by $263,000. Additionally,
professional fees associated with being a public company increased in 2000 by
$66,000.
COMPARISION OF THE THREE MONTHS ENDED JUNE 30, 2000 TO THE THREE MONTHS ENDED
JUNE 30, 1999.
Net Revenues in 2000 were $2,926,000, an increase of $257,000 or 9.6% over
the same period in 1999. The increase is attributable to the increase in
Site2Shop's revenues of $384,000 for the period primarily as a result of a
greater commitment of effort, manpower and resources to the production of
Site2Shop's television programming offset by a decrease of $103,000 in Tricom's
television programming revenue over 1999.
Cost of Revenues increased to $762,000, or 14.4% and increased to 26.0% of
net revenues in 2000 from $666,000 and 25.0% of net revenues in 1999. The
increase in expenses is attributable to an increase in salary and wages
($76,000), television airtime ($60,000) at Tricom in order to meet the
production requirements of Site2Shop offset by a decrease in the cost of
products(promoted on its television programming) sold at auction websites
operated by third parties.
Selling Expenses were $884,000 during 2000, an increase of $79,000 from
1999. Selling expenses in 2000 and 1999 were 30.2% of net revenues in each
respective period. The increase was primarily as a result of establishing a
sales infrastructure necessary to develop and generate sales at Site2Shop's two
marketing offices opened during the latter half of 1999 in south Florida and a
third marketing office in New York City opened in the second quarter of 2000.
General & Administrative Expenses were $1,152,000 during 2000, an increase
of $162,000 from 1999. These expenses constituted 39.4% of net revenues in 2000
as compared to 37.1% in 1999. Expenses associated with the fixed operating costs
of the three new aforementioned marketing offices increased by $88,000in 2000
and salaries, wages and benefits associated with the ongoing enhancement of the
management infrastructure totaled $39,000.
10
Liquidity and Capital Resources
The six months ended June 30, 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 $617,000 from operating activities in 2000 as opposed
to $522,000 during the same period in 1999. The increase in 2000 is attributable
to an increase in deferred revenue of $148,000 and depreciation and amortization
of $167,000, a decrease in accounts receivable of $623,000 offset by a net loss
of $219,000 and a decrease in accounts payable and accrued expenses of $58,000.
Cash used in investing activities totaled $136,000 in 2000 and $146,000 in 1999
primarily as a result of the Company investing in production equipment in 2000
in order to expand its production capabilities and enhance its operating
efficiency. Cash used in financing activities in 2000 totaled $377,000 whereas
cash provided in 1999 totaled $894,000. The Company, at its option, prepaid
during the first quarter of 2000 the entire unpaid balance ($110,000), in
addition to the scheduled repayments of $57,000, 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. Additionally, the Company reduced its
bank overdraft by $197,000.
Although the Company has a working capital deficiency of $2,820,000 and a
Stockholders' Deficit of $1,599,000 at June 30, 2000, the Company believes that
cash and cash equivalents and cash generated and to be generated from its
current level and future 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 "
Managements Discussion and Analysis 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.
11
PART II. OTHER INFORMATION
Item 2. Changes in Securities
None
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
Exhibit No. Description of Document
- ------------ -----------------------------------------------------------
10 Advertising Production Agreement of April 25, 2000 between
Tricom Pictures and Productions, Inc. and Shaman
Pharmaceuticals, Inc.
No Reports on Form 8-K filed during the quarter for which this report is filed.
12
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: August, 1, 2000
13