SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
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.)
P.O. Box 1006, New York, NY 10268-1006
(Address of principal executive offices)
Registrant's telephone number, including area code (914) 251-1800
(Former name or former address, if changed since last report)
Item 2 - Acquisition or Disposition of Assets
(a) Description of Transaction
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., a
wholly-owned subsidiary of the Company ("SITI-II"), with and into tropia
pursuant to a Merger and Business Development Agreement (the "Agreement") dated
as of June 23, 1999, a copy of which is attached as Exhibit 10.1 hereto, among
the Company, SITI-II, tropia, Red Hat Productions, Inc. ("Red Hat"), and Ari
Blank ("A. Blank") and Arjun Nayyar ("Nayyar"), and a Certificate of Merger, a
copy of which is attached as Exhibit 3.1 hereto, which was filed with the
Delaware Secretary of State on June 24, 1999.
Tropia is geared towards the college market. Currently, the tropia
catalogue includes over 60 artists and several independent record labels, with
new ones being added rapidly as they are evaluated by the tropia staff (in order
to create the most entertaining experience for users, tropia does not accept all
submissions).
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
independent music artists. 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.
Tropia was acquired for an aggregate of 316,850 shares of the Company's
common stock, half of which were delivered at closing, and half of which are in
escrow to be delivered after one year, if certain goals are achieved. The
Company has agreed to provide $100,000 of capital to tropia initially (which
will be provided out of funds on hand) and approximately $800,000 of additional
capital during the next twelve months. Tropia was partially owned (55%) by Red
Hat, an award-winning independent film production company which is owned by
Barclay Powers ("B. Powers"), a large shareholder of the Company, and Jonathan
Blank ("J. Blank" and, together with A. Blank and Nayyar, the "Individuals"),
the Chief Executive Officer 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. Tropia
was also owned (45%) by A. Blank and Nayyar, the designers of the website who
are now employees of tropia.
The fully functioning website, and related business arrangements with
artists and marketing agents, has been under development since February 1999 and
was valued at 500,000 shares of the Company's common stock. 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
183,150 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.
The Agreement provides that if after one year the second half of the shares
of the Company's stock are not delivered to J. Blank, A. Blank and Nayyar
because goals were not achieved, and the Company decides to discontinue tropia's
business, the Company will return all of the stock of tropia to the Individuals
in return for the unused portion of all cash advances or contributions made by
the Company to tropia. The Agreement also provides that the Individuals will
have the right, under certain circumstances, to share in the net proceeds from
the exploitation by tropia outside its normal course business (such as by sale
or license to third parties) of rights in their inventions developed for tropia,
and that they will be granted customary "piggy-back" registration rights.
The description of the Agreement in this Current Report on Form 8-K is
qualified in its entirety by reference to the attached copy of the Agreement.
This Current Report on Form 8-K contains statements that are "forward looking",
including those concerning tropia's business direction. There can be no
assurance that management can implement successfully their Internet marketing
strategy, and there are many risks, including the ability to attract artists and
managerial/technical staff, future capital needs for promotion and expansion of
the tropia business, and competition with other web site developers in the same
segment of the Internet music market.
Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
In accordance with paragraph (4) of Item 7, not later than September
7, 1999, the Registrant will file financial statements in accordance with Item 7
on an amendment to this Current Report on Form 8-K.
(c) Exhibits.
Exhibit No. Description
3.1 Form of Certificate of Merger of SITI-II, Inc. and Tropia,
Inc.
10.1 Merger and Business Development Agreement dated June 23,
1999, by and among Spectrum Information Technologies, Inc.,
SITI-II, Inc., Tropia, Inc., Red Hat Productions, Inc., Ari
Blank and Arjun Nayyar
99.1 Press release dated June 24, 1999
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: June 30, 1999
SPECTRUM INFORMATION TECHNOLOGIES, INC.
By /s/ Lawrence M. Powers
Lawrence M. Powers
President, Chief Executive Officer and
Chairman of the Board of Directors