SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 23, 1999
Spectrum Information Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-15596 75-1940923
(State or other jurisdiction (Commission IRS Employer
of incorporation or organization) File Number) Identification No.)
594 Broadway, Suite 1001, New York, NY 10012
(Address of principal executive offices)
Registrant's telephone number, including area code (212) 965-0013
P.O. Box 1006, New York, NY 10268-1006
(Former name or former address, if changed since last report)
<PAGE>
Item 2 - Acquisition or Disposition of Assets
Description of Transaction
As described in more detail in a Current Report on Form 8-K filed on July
1, 1999, on June 23, 1999 Spectrum Information Technologies, Inc., doing
business as Siti-Sites.com ("Spectrum" or the "Company"), consummated its
acquisition of Tropia, Inc. ("Tropia"), which operates an MP3 music site that
promotes and distributes the music of independent artists through its website
located at www.tropia.com. The acquisition was accomplished by merging SITI- II,
Inc. ("SITI-II"), a wholly-owned subsidiary of the Company, with and into
Tropia.
Tropia was acquired for an aggregate of 316,666 shares of the Company's
common stock, half of which were delivered at closing, and half of which are in
escrow to be delivered one year after the closing, if certain goals are
achieved. The Company agreed to provide $100,000 of capital to Tropia initially
(which was provided out of funds on hand) and approximately $800,000 of
additional capital during the twelve months following the closing. If certain
goals are not achieved, any unused portion of all cash advances or contributions
made by the Company to Tropia is to be returned and the shares held in escrow
will be returned to the Company. Tropia was partially owned (55%) by Red Hat
Productions, Inc. ("Red Hat"), an award-winning independent film production
company which is owned by Barclay Powers ("B. Powers"), Co-President of Tropia
and a large shareholder of the Company, and Jonathan Blank ("J. Blank"), the
Chief Executive Officer and Co-President of Tropia. Lawrence M. Powers ("L.
Powers"), the Chairman/CEO and a large shareholder of the Company, has been a
financial participant and one-third owner of Red Hat Productions, Inc. since
1997. However, L. Powers and B. Powers (his son) have waived their rights to
participate in the proceeds otherwise receivable by Red Hat from the
acquisition. As a result of this waiver, the proceeds paid to Red Hat were
reduced proportionately and all such shares were distributed by Red Hat solely
to J. Blank. The Company will reserve 183,334 shares of its common stock (which
equals the number of additional shares that would otherwise have been issued but
for the waiver) for issuance in the future (in the form of stock and/or options
to acquire stock) for existing and new management personnel of Tropia.
2
<PAGE>
Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
(b) PRO FORMA FINANCIAL INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
Dated: September 5, 1999
SPECTRUM INFORMATION TECHNOLOGIES, INC.
By /s/ Lawrence M. Powers
Lawrence M. Powers
President, Chief Executive Officer and
Chairman of the Board of Directors
TROPIA, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Certified Public Accountants 4
Balance Sheet as of June 22, 1999 5
Financial Statements for the Period Ended June 22, 1999
Statements of Operations and Comprehensive Loss 6
Statements of Cash Flows 7
Notes to Financial Statements 8-10
3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Tropia, Inc.
New York, New York
We have audited the accompanying balance sheet of Tropia, Inc. as of June 22,
1999 and the related statements of operations and comprehensive loss and cash
flows for the period from January 26, 1999 (inception) to June 22, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 presentation of the financial
statements. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tropia, Inc. at June 22, 1999
and the results of its operations and its cash flows for the period ended June
22, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the company
will continue as a going concern. As described in Note 8, the Company was
acquired and merged into another company on June 23, 1999. The financial
statements do not include any adjustments resulting from that merger.
/s/ Edward Isaacs & Company LLP
Edward Isaacs & Company LLP
New York, New York
September 2, 1999
4
<PAGE>
TROPIA, INC.
BALANCE SHEET
JUNE 22, 1999
(Amounts in thousands)
Assets
Property and Equipment, net of accumulated depreciation $ 1
Total assets $ 1
===================
Current Liabilities
Accounts payable and other accrued liabilities $ 6
-------------------
Commitments -
Deficiency in stockholders' equity:
Common stock, $.001 par value, 1,500 shares authorized, 100 issued
and outstanding -
Paid-in capital 16
Accumulated deficit (21)
-------------------
Total deficiency in stockholders' equity (5)
-------------------
Total liabilities and deficiency in stockholders' equity $ 1
===================
See accompanying notes to financial statements.
5
<PAGE>
TROPIA, INC.
STATEMENT OF LOSS
FOR THE PERIOD FROM JANUARY 26, 1999 (INCEPTION) TO JUNE 22, 1999
(Amounts in thousands, except weighted average
number of shares and per share amounts)
- - --------------------------------------------------------------------------------
Revenues $ -
-------------------
Operating costs and expenses:
Selling, general and administrative expenses 21
-------------------
Total operating costs and expenses 21
-------------------
Net loss transferred to accumulated deficit $ (21)
Other comprehensive loss, net of tax -
-------------------
Comprehensive loss $ (21)
===================
Basic and diluted loss per common share:
Net loss $ (210)
Net loss per common share $ (210)
===================
Weighted average number of Common Shares used in basic and
diluted calculation 100
===================
See accompanying notes to financial statements.
6
<PAGE>
TROPIA, INC.
STATEMENT OF CASH FLOW
FOR THE PERIOD FROM JANUARY 26, 1999 (INCEPTION) TO JUNE 22, 1999
(Amounts in thousands)
Cash flow from operating activities:
Net loss $ (21)
Adjustments to reconcile net income (loss) to
net cash provided (used) by continuing activities:
Increase in accrued expenses 5
- - --------------------------------------------------------------------------------
Net cash used by operating activities (16)
- - --------------------------------------------------------------------------------
Cash flows from financing activities:
Capital contribution 16
- - --------------------------------------------------------------------------------
Net cash provided by financing activities 16
- - --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 0
Cash and cash equivalents, beginning of year 0
- - --------------------------------------------------------------------------------
Total cash and cash equivalents, end of year $ 0
=============
See accompanying notes to financial statements.
7
<PAGE>
TROPIA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 26, 1999 (INCEPTION) TO JUNE 22, 1999
Note 1 - THE COMPANY AND BASIS OF PRESENTATION
Tropia, Inc. ("Tropia") is a Delaware corporation, which promotes,
distributes and markets the music of independent artists on its MP3 music
website www.tropia.com. Tropia was started as a joint venture on January 26,
1999 and was incorporated in Delaware on May 26, 1999.
Tropia is geared towards the college market. The Tropia website, which went
online in May 1999, uses the Internet and data compression technologies, such as
the MP3 (MPEG1, Layer 3) format, to create a compelling experience for consumers
to conveniently access an expanding music catalogue, and a valuable distribution
and promotional platform for music artists. The website will showcase the music
of independent artists and artists signed by independent record labels.
Consumers are able to search the website by artist, by song title and by genre,
and can sample and download complete songs, free of charge, in MP3 format. The
website also embodies a 24-hour RealAudio radio station with multiple free radio
streams, classified by genre, to enable consumers to sample music. CDs and other
merchandise (such as posters, t-shirts, hats and stickers) of featured artists
are also being offered through the website. Prior to going online, the
operations of Tropia consisted largely of developing the website and the
infrastructure necessary to attract artists and download music on the Internet.
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 and include all activity since inception. The
results of operations for such periods are not necessarily indicative of the
results expected for the full fiscal year or for any future period.
The financial statements of Tropia have been prepared on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
Note 2 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is recorded using
the straight line method over the estimated useful lives of the assets of five
years.
8
<PAGE>
Note 3 - LOSS PER COMMON SHARE
Loss per share for the period from January 26, 1999 (inception) to June 22,
1999 was calculated as follows:
(Amounts in thousands, except weighted average
number of shares and per share amounts)
June 22,
1999
Basic Diluted
-------------------
Net Loss ($21) ($21)
===================
Weighted average number of common shares outstanding
during the year 100 100
Common share equivalents - -
Weighted average number of common shares and common
share equivalents used in calculation of earnings per
common share 100 100
===================
Loss per common share ($210) ($210)
===================
Tropia had no common stock equivalents for the period ended June 22, 1999.
Note 4 - STATEMENTS OF CASH FLOWS
June 22, 1999
(amounts in
thousands)
-------------------
Non-cash transactions:
Accrual for equipment purchased $ 1
Note 5 - COMPREHENSIVE LOSS
Tropia adopted Statement of Financial Accounting Standard ("SFAS") No. 130,
"Reporting Comprehensive Income" which requires that all components of
comprehensive income and total comprehensive income be reported on one of the
following: a statement of income and comprehensive income, a statement of
comprehensive income or a statement of stockholders' equity. Comprehensive
income is comprised of net income and all changes to stockholders' equity,
except those resulting from investments by owners (changes in paid in capital)
and distributions to owners (dividends). For the period presented, Tropia did
not realize any comprehensive income or loss.
NOTE 6 - COMMITMENTS
CO-LOCATION FACILITY. Tropia leases space for computer equipment and
connection to the Internet under a noncancellable six month lease, which expires
in October 1999. The expense for the period from January 26, 1999 (inception) to
June 22, 1999 was approximately $4,000.
9
<PAGE>
Note 7 - Other Significant Accounting Policies
Cash and Cash Equivalents. At June 22, 1999, Tropia maintained no cash
accounts.
Use of Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, 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.
Website Expenses. Expenses incurred to develop and maintain websites are
expensed as incurred.
Note 8 - Subsequent Event
On June 23, 1999, Tropia, Inc. was acquired by Spectrum Information
Technologies, Inc. ("Spectrum") for an aggregate of 316,666 shares of Spectrum's
common stock (valued at $306,786), half of which were delivered at closing, and
half of which are in escrow to be delivered one year after the closing, if
certain goals are achieved. The acquisition was effected by merging Siti-II,
Inc., a wholly owned subsidiary of Spectrum, with and into Tropia.
10
<PAGE>
(B) PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Combined Financial Statements for the year
ended March 31, 1999 and the three months ended June 30, 1999 are set forth
below:
<TABLE>
<CAPTION>
SPECTRUM INFORMATION TECHNOLOGIES, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET- UNAUDITED
MARCH 31, 1999
(in thousands, except per share amounts)
Spectrum Tropia Pro Forma Pro Forma
Adjustments Combined
- - ------------------------------------------------------------------------------------------------ ------------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,007 $ - $ - $ 1,007
------------- ------------- ---------------- -----------------
Total current assets 1,007 - - 1,007
------------- ------------- ---------------- -----------------
Property and equipment, net of accumulated
depreciation 1(a) 1
Investment in Minutemeals.com 23 - - 23
Intangibles:
Goodwill - - 312(a) 312
Less: Accumulated amortization - - (104)(b) (104)
Intangibles, net - - 208 208
------------- ------------- ----------------- -----------------
Total assets $ 1,030 $ - $ 209 $ 1,239
============= ============= ================= =================
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable and other accrued
liabilities $ 24 $ - $ 6(a) $ 30
Accrued legal fees 51 - - 51
Net liabilities of discontinued operations 68 - - 68
Total current liabilities 143 - 6 149
------------- ------------- ----------------- ------------------
Total liabilities 143 - 6 149
Commitments
Stockholders' Equity - - - -
Common stock, $.001 par value, 10,000
shares authorized and 7,904 issued and
outstanding 8 - - 8
Paid-in-capital 73,752 4 307(a) 74,063
Accumulated Deficit (72,562) (4) (104)(b) (72,670)
------------- ------------- ---------------- ------------------
1,198 - 203 1,401
Treasury Stock (311) - - (311)
Accumulated Comprehensive Loss - - - -
Total Stockholders' Equity 887 - 203 1,090
------------- ------------- ----------------- ------------------
Total liabilities and stockholders' equity $ 1,030 $ - $ 209 $ 1,239
============= ============= ================= ==================
See accompanying notes to unaudited pro forma condensed combined financial statements.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SPECTRUM INFORMATION TECHNOLOGIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS - UNAUDITED
FOR THE YEAR ENDED MARCH 31, 1999
(Amounts in thousands, except per share amounts)
Pro Forma Pro Forma
Spectrum Tropia Adjustments Combined
------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ - $ - $ - $ -
Operating Costs and Expenses:
Selling, general and administrative expenses 414 4 104(b) 522
Total operating costs and expenses 414 4 104 522
------------- ------------- ----------------- --------------
Operating loss (414) (4) (104) (522)
Other Income (Expense):
Loss on investment in Minutemeals.com (82) - - (82)
Interest Income 12 - - 12
12
12
Other Income (expense) net (70) - - (70)
------------- ------------- ----------------- --------------
Loss from continuing operations $ (484) $ (4) $ (104) $ (592)
============= ==============
Basic and diluted loss per share $ (.151) $ (.191)
============= ==============
Weighted average number of shares used in
computation (3,200) (3,200)
============= ==============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
12
<PAGE>
<TABLE>
<CAPTION>
SPECTRUM INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED UNAUDITED COMBINED BALANCE SHEET
JUNE 30, 1999
(Amounts in thousands, except per share amounts)
Pro
Pro Forma Forma
Spectrum Tropia Adjustments Combined
------------ -------- ------------ ------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,045 $ - $ - $ 1,045
Prepaid expenses - 1 - 1
----------- --------- ----------- ------------
Total current assets 1,045 1 - 1,046
----------- --------- ----------- ------------
Property and Equipment, net of accumulated
depreciation - 1 - 1
Investment in subsidiary 307 - 307)(a,c) -
Intercompany receivable 11 - (11)(c)
Intangibles:
Goodwill - - 312(a) 312
Less: Accumulated amortization - - (130)(b) (130)
----------- --------- ------------ ------------
Intangibles, net - - 182 182
----------- --------- ------------ ------------
Total assets $ 1,363 $ 2 $ (136) $ 1,229
=========== ========= ============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and other accrued liabilities $ 17 $ - $ - $ 7
Accrued audit and tax 65 - - 65
Accrued legal fees 79 - - 79
Net liabilities of discontinued operations 70 - - 70
----------- -------- ----------- ------------
Total current liabilities 231 - - 231
------------ -------- ------------ ------------
Intercompany payable - 11 (11)(c)
Total liabilities 231 11 (11) 231
------------ -------- ------------ ------------
Commitments - - - -
Stockholders' Equity:
Common stock, $.001 par value, 10,000 shares
authorized and 8,301 issued and outstanding 8 - - 8
Paid-in capital 74,117 16 (16)(a,c) 74,117
Accumulated deficit (72,682) (25) 21(a,c) (72,816)
(130)(b)
----------- -------- ------------ ------------
1,443 (9) (125) 1,309
Treasury stock, 62 shares at cost (311) - - (311)
----------- -------- ------------ ------------
Total stockholders' equity 1,132 2 (125) 998
----------- -------- ------------ ------------
Total liabilities and stockholders' equity $ 1,363 $ 2 $ (136) $ 1,229
=========== ======== ============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
13
<PAGE>
<TABLE>
<CAPTION>
SPECTRUM INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENT OF LOSS
THREE MONTHS ENDED JUNE 30, 1999
(Amounts in thousands, except per share amounts)
Pro Forma Pro Forma
Spectrum Tropia Adjustments Combined
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ - $ - $ - $ -
Operating costs and expenses:
Selling, general and administrative expenses 154 21 26(b) 201
----------- ----------- ---------- ------------
Total operating costs and expenses 154 21 26 201
----------- ----------- ---------- ------------
Operating loss (154) (21) (26) (201)
----------- ----------- ---------- ------------
Other income:
Interest income 10 - 10
----------- ----------- ---------- ------------
Total other income 10 - - 10
----------- ----------- ---------- ------------
Loss from continuing operations $ (144) $ (21) $ (26) $ (191)
=========== =========== ========== ============
Basic and diluted loss per common share:
Loss from continuing operations $ (.018) $ (.024)
------------ ------------
Net income (loss) per common share $ (.018) $ (.024)
============ ============
Weighted average number of Common Shares
used in basic and diluted calculation 7,980 7,980
============ ============
</TABLE>
Interim results are not indicative of the results expected for a full year.
See accompanying notes to unaudited condensed combined financial statements.
14
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1 - BASIS OF PRESENTATION
On June 23, 1999, Tropia, Inc. was acquired by Spectrum Information
Technologies, Inc. ("Spectrum") for an aggregate of 316,666 shares of Spectrum's
common stock (valued at $306,786), half of which were delivered at closing, and
half of which are in escrow to be delivered one year after the closing, if
certain goals are achieved. The acquisition was effected by merging Siti-II,
Inc., a wholly-owned subsidiary of Spectrum, with and into Tropia.
In accordance with Accounting Principles Board ("APB") No. 16, the
aggregate purchase price of $306,786 was allocated to the assets and liabilities
of Tropia, based upon their fair market values as follows:
Computer software $ 748
Accrued expenses (6,075)
---------
Net liabilities acquired (5,327)
Goodwill 312,113
---------
Consideration $ 306,786
=========
The pro forma unaudited combined statements of operations for the year
ended March 31, 1999 and the three months ended June 30, 1999 are presented
using Spectrum's continuing operations reflected in the consolidated statements
of operations for the year ended March 31, 1999 (audited) and the three months
ended June 30, 1999 (unaudited) combined with Tropia's unaudited statements of
operations for the period ended March 31, 1999 and the three months ended June
30 ,1999 as if the transaction had taken place on April 1, 1998.
The accompanying pro forma combined statements of operations are not
necessarily indicative of the future results of operations of Tropia Inc. or the
results of continuing operations which would have resulted had Tropia and
Spectrum been combined during the periods presented. In addition, the pro forma
results are not intended to be a projection of future results. The unaudited pro
forma condensed combined financial statements should be read in conjunction with
the historical financial statements and related notes.
Note 2 - PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS AND PRO FORMA
CONDENSED COMBINED BALANCE SHEETS
The accompanying pro forma adjustments reflect adjustments for the
following items:
(a) Recognition of the excess of the purchase price over the net assets
acquired (goodwill) in the amount of $312,113. (See Note 1)
(b) Amortization of goodwill over a three-year period. A one-year amortization
is used for the March 31, 1999 pro formas and a 15-month amortization is
used for the June 30, 1999 pro formas.
(c) Entry for the elimination of intercompany and investment accounts.
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TROPIA, INC.
UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<C>
<S>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-22-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 4
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (4)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> (210)
<EPS-DILUTED> (210)
</TABLE>
