UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment 1
Items 10, 11, 12, 13
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
Commission File Number 0-15596
SPECTRUM INFORMATION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1940923
(State of incorporation) (IRS Employer Identification No.)
P.O. Box 1006, New York, New York 10268
(Address of principal executive offices) (Zip Code)
(914) 251-1800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 ____
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES _X_ NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting common stock (par value $0.001 per
share) held by non-affiliates as of June 28,1999 was approximately $4,959,605
based on the average of the closing bid and ask prices of the common stock on
June 28, 1999 of $1.45 as reported by the National Quotation Bureau.
8,062,768 shares of common stock were outstanding as of June 28, 1999.
Documents Incorporated by Reference: Items 1 and 5 of the Registrant's Annual
Report on Form 10-K for the year ended March 31, 1999, filed with the Commission
on July 14, 1999.
This Amendment 1 on Form 10-K/A to the Registrant's Annual Report on Form
10-K for the year ended March 31, 1999 is submitted to reflect the amendment of
Items 10, 11, 12 and 13 in their entirety. No other Items of the Registrant's
Annual Report on Form 10-K are amended.
RECENT DEVELOPMENTS
On July 26, 1999, the Company entered into a private-placement agreement to
raise $1,250,000 in equity capital through a private placement with Lawrence M.
Powers, the Chairman of the Board, the Chief Executive Officer and a major
shareholder of the Company. Under the terms of the agreement, the Company will
receive $1,250,000, in exchange for 1,000,000 shares of its common stock, and an
option to purchase an additional 500,000 shares at $2.50 per share, exercisable
for five years. The terms of the agreement are subject to stockholder review and
approval at the Company's next annual stockholders' meeting anticipated for
September of 1999. The closing of the private placement transaction is also
subject to stockholder approval of an increase in the number of authorized
shares of the Company's common stock at such meeting. See "Item 13. Certain
Relationships and Related Transactions."
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
As described in "Item 1. Business - Change of Control" of the Company's
Annual Report on Form 10-K, filed with the Securities and Exchange Commission
(the "SEC") on July 14, 1999, on December 11, 1998, the Company entered into a
Stock Purchase Agreement with Powers & Co., the principal of which is Lawrence
M. Powers. Pursuant to this Stock Purchase Agreement, Lawrence M. Powers,
through Powers & Co., purchased 3,000,000 shares of the Company's common stock
(which totaled approximately 54.9% of the outstanding aggregate shares of voting
stock of the Company at the time) and an option to acquire an additional
1,800,000 shares of the Company's common stock at an exercise price of $0.15 per
share, for an aggregate purchase price of $600,000. In connection with this
change of control transaction, the Company's senior management and Board of
Directors were replaced. Its new senior management and Board changed the
direction and nature of the Company's business and discontinued its prior
business. The Company is now doing business as Siti-Sites.com and is seeking to
establish several websites for the marketing of products and services over the
Internet.
The Directors and executive officers of the Company, and their ages and
positions, are as follows
Name Age Position(s) with the Company
Lawrence M. Powers 67 Chief Executive Officer and Chairman of the Board.
Jon M. Gerber 45 Director, Vice President, Treasurer and Secretary
Robert Ingenito 56 Director
Mr. Powers, 67, 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
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has become an $800 million plastics manufacturing group operating 40
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,
and is still a major securities holder of Spartech. 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. Gerber, 45, has served as a Director of the Company and as Vice
President, Treasurer and Secretary since the change of control transaction
in December, 1998. Since 1994, he has conducted his own investment
management business in New York. He is currently affiliated with First
Allied Securities, Inc.; from 1996 to 1997 he was a branch manager with
Robert Thomas Securities, Inc.; and from 1994 to 1996 he was affiliated
with Paine Webber, Inc. From 1987 to 1994, Mr. Gerber was a Management
Consultant to many fortune 500 companies in the US (including Ford, General
Motors, Shell, Bethlehem Steel and United Technologies), and major
financial institutions and corporations in the UK (including Barclays Bank,
Norwich Union Life Assurance, Lombard North Central Finance and Rover
Automobiles). Mr. Gerber's consulting practice focused on Strategic
Development, Organizational Control, Management of Change, and Supervisory
Skill Development. Prior to consulting, Mr. Gerber was a manufacturing and
electronic engineer for several major technology companies. Mr. Gerber has
a B.S. degree in chemistry from the University of Missouri and an MBA in
finance from the University of Wisconsin. He is also the second cousin of
Mr. Powers.
Mr. Ingenito, 56, has served as a Director of the Company since the change
of control transaction in December, 1998. Mr. Ingenito was a as founder
and, since 1989, has served as Chief Executive Officer of Access
Communications and Access Direct, two established data service companies
($32 million in sales). 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. Prior to that, he was the President and a principal of Axciom
Corporation (NYSE) when it went public in 1992. Axciom has become a $750
million database management firm.
Compliance with Section 16 of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Companys'
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 1999 fiscal year, all Reporting Persons timely complied with all
applicable Section 16(a) filing requirements except as set forth below. Richard
duFosse filed one late report covering his acquisition of an option. Mikhail
Drabkin filed one late report covering his acquisition of an option. Barclay
Powers filed two late reports covering his acquisition and exercise of an
option. Lawrence Powers filed one late report covering his gifts of stock and an
option, and his exercise of his remaining option. See "Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters - Recent Sales of
Unregistered Securities" of the Company's Annual Report on Form 10-K, filed with
the SEC on July 14, 1999.
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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 the two individuals
who served as Chief Executive Officer during the Company's 1999 fiscal year (Mr.
Amoruso for approximately nine months and Mr. Powers for approximately three
months), and two individuals who were among the highest paid employees for the
1999 fiscal year but were not executive officers at the end of such fiscal year
(collectively, the "Named Executive Officers"). The Company had no executive
officers serving as such at the end of its 1999 fiscal year whose aggregate
compensation exceeded $100,000.
Summary Compensation Table
Long-Term Compensation
Payouts
Annual Compensation Grants & Awards
Shares
Other Restricted Underly-
Name and Annual Stock ing All other
Principal Position Year Salary Bonus Comp. Awards Options LTIP Payouts Comp.
- ------------------ ---- ------ ----- ------ ---------- -------- ------------ ---------
Lawrence M. Powers 1999 18,250(1) -0- -0- -0- -0- -0- -0-
Chairman and Chief
Executive Officer
Donald J. Amoruso 1999 387,193 -0- 5,916(3) -0- 44,914 -0- 14,974(4)
Former Chairman, Chief 1998 295,000 -0- -0- -0- 25,000 -0- 19,965(4)
Executive Officer and 1997 295,000 132,686(2) 681,558(3) -0- -0- -0- 19,965(4)
President (7)
Mikhail Drabkin 1999 239,297 -0- 400(3) -0- 47,638 -0- -0-
Chief Technical 1998 195,000 -0- -0- -0- 22,719 -0- -0-
Officer (7) 1997 195,000 72,500(4) 46,080(3) -0- -0- -0- -0-
Richard duFosse 1999 233,754 -0- 400(3) -0- 59,281 -0- -0-
Vice President, 1998 167,083 -0- -0- -0- 22,719 -0- -0-
Engineering (7) 1997 142,083 50,000(6) 46,080(3) -0- -0- -0- -0-
(1) This amount represents Mr. Powers' contribution of services charged against
earnings. No compensation was paid by the Company to Mr. Powers with
respect to these services.
(2) This amount was awarded pursuant to a Plan of Reorganization (the "Plan")
approved by the Bankruptcy Court, as part of a success fee for effecting a
confirmed plan of reorganization. This Plan of reorganization is described
in greater detail at Note 1(b) to the Consolidated Financial Statements,
filed with the SEC on July 14, 1999 as part of the Company's Annual Report
on Form 10-K.
(3) Pursuant to the Plan, as part of a success fee for effecting a confirmed
plan of reorganization and as incentive compensation, 242,002 shares were
set aside to be awarded to officers, employees and non-executive directors
responsible for consummation of the Plan. Pursuant to the Plan, Mr.
Amoruso, Mr. Drabkin and Mr. duFosse were awarded shares of common stock
totaling 113,593, 7,680 and 7,680, respectively. The shares were
distributed pursuant to the Company's 1996 Incentive Deferral Plan, which
provided for distribution in three equal installments in August 1997,
February 1998 and August 1998. These shares were recorded at their fair
value. Actual value of the awards are determined on the date of
distribution for each installment in August 1997, February 1998 and August
1998.
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(4) Represents premiums paid under a variable life insurance policy paid by the
Company pursuant to Mr. Amoruso's employment agreement, which terminated
upon Mr. Amoruso's resignation.
(5) Represents the final installment of starting bonus and performance bonus
paid pursuant to Mr. Drabkin's then-current employment contract.
(6) Represents performance bonus paid pursuant to then-current employment
agreement.
(7) Mr. Amoruso, Mr. Drabkin and Mr. duFosse resigned as of December 11, 1998
in connection with the change of control transaction.
Option Grants in Last Year
The following table sets forth certain information concerning the grant of
stock options to each of the Named Executive Officers during the Company's 1999
fiscal year. This table does not include options purchased by Lawrence M. Powers
through Powers & Co. in December, 1998 in connection with the change of control
transaction.
Options Granted in 1999 Fiscal Year
Potential
Realizable Value at
Assumed Annualized
Rates of
Stock Price
Appreciation for
Option Term
% of Total
Options
Granted to Grant
Options Employees in Exercise or Expiration Date
Name Granted(1) Fiscal Year Base Price Date 5% 10% Value
- ------------------ --------- ------------ ----------- ---------- --- ---
Lawrence M. Powers - - - - - - -
Donald J. Amoruso 44,914 11.35% .350 Dec. 11, 2003 4,343 9,597 -
Mikhail Drabkin 47,638 12.04% .350 Dec. 11, 2003 4,607 10,179 -
Richard duFosse 59,281 14.98% .350 Dec. 11, 2003 5,732 12,667 -
(1) All options were granted at or above fair market value.
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Option Exercises and Year-End Values
The following table sets forth certain information concerning options to
purchase the Company's common stock exercised by the Named Executive Officers
during the 1999 fiscal year, and the number and value of unexercised options
held by each of the Named Executive Officers at March 31, 1999.
Aggregated Option Exercises in 1999 Fiscal Year
and Fiscal Year End Option Values
Value of
Number of Unexercised
Unexercised In-the-Money
Options 3/31/99 Options 3/31/99($)(1)
Shares
Acquired
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
Lawrence M. Powers -0- -0- -0- -0- -0- -0-
Donald J. Amoruso -0- -0- 69,914 -0- $51,651 -0-
Mikhail Drabkin 13,064 $28,087.60 47,638 -0- $54,784 -0-
Richard duFosse -0- -0- 59,281 -0- $68,173 -0-
Compensation of Directors
At present, the Board does not award compensation to its directors. Prior
to the change of control transaction in December, 1998, each of the Company's
outside directors was paid $18,000 per year plus $1,000 per meeting attended,
and $500 per diem for any special assignments. The Board of Directors had also
adopted and implemented a plan during fiscal year 1998 pursuant to which the
Company paid one-half of the director's fixed annual compensation in common
stock of the Company. These arrangements were discontinued in December, 1998.
Employment Agreements
At present the Company does not maintain employment agreements or other
arrangements with its executive officers. Prior to the change of control, the
Company had employment agreements with Messrs. Amoruso, Drabkin, and duFosse,
who were employed in the positions noted in the Summary Compensation Table at
annual salaries of $387,193, $239,297 and $233,754, respectively. In addition to
salary, the above-described employment agreements provided for health and
medical insurance, life insurance benefits, certain other benefits and require
indemnification in certain circumstances. These agreements also provided that if
the Company discharges the individual without cause they are entitled to full
compensation and medical benefits for up to one year.
All of these employment agreements were terminated as of December 11, 1998
pursuant to Settlement Agreements executed by Messrs. Amoruso, Drabkin, and
duFosse in connection with the change of control transaction. Pursuant to these
Settlement Agreements, Messrs. Amoruso, Drabkin, and duFosse received cash
payments of $178,235, $52,816 and $48,754, respectively, and options to acquire
44,914, 47,638 and 59,281 shares, respectively, of the Company's common stock at
an exercise price of $0.35 per share, exercisable through December 11, 2003.
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Compensation Committee Interlocks and Insider Participation.
At present, the Company does not have a Compensation Committee. Prior to
the change of control transaction in December, 1998, the Company had a
Compensation Committee composed of two outside board members, Mr. Sheldon A.
Buckler and Mr. George Bugliarello, both of whom resigned as of December 11,
1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of June 28, 1999, 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 3,370,000(1) 41.8%
Powers & Co.
47 Beech Road
Englewood, NJ 07631
Jon M. Gerber 280,000 3.5%
c/o Spectrum Information
Technologies
P.O. Box 1006
New York, NY,10268
Robert Ingenito 800,000(2) 9.6%
80 Ruland Road
Melville, NY 11747-6200
Maurice W. Schonfeld 800,000(2) 9.6%
630 Fifth Avenue
Suite 3163
New York, NY 10111
Barclay Powers 1,685,000 20.9%
665 Walther Way
Los Angeles, CA 90048
Donald J. Amoruso 106,188 1.3%
463 Old Sleepy Hollow Road
Pleasantville, NY 10570
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Shares of Common Stock Beneficially Owned
Name of Owner Number Percent of Class
Mikhail Drabkin 52,581 *
415 East Middlefield Road
Mountain View, CA 94043
Richard duFosse 61,662 *
15 John Edward Drive
Northboro, MA 01532
Current Directors and 4,450,000 53.2%
Executive Officers as a
Group (3 persons):
- ----------------------
[BULLET] Less than 1%
(1) Includes 1,685,000 shares held by his son, Barclay Powers. Lawrence Powers
and Barclay Powers have a verbal understanding that the shares of common
stock held by Barclay Powers may be voted, exercised and disposed of by
either of them.
(2) Consist of 500,000 shares of common stock and an option to purchase an
additional 300,000 shares of common stock at an exercise price of $0.15 per
share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Tropia
As described in "Item 1. Business - Tropia" of the Company's Annual Report
on Form 10-K, filed with the SEC on July 14, 1999, on June 23, 1999, the Company
consummated its acquisition of Tropia, Inc., a Delaware corporation ("Tropia"),
which operates an MP3 music site that promotes and distributes the music of
independent artists through its website located at www.tropia.com. Tropia, which
is now a wholly-owned subsidiary of the Company, 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 and approximately $800,000 of additional capital
during the next twelve months. The acquisition was effected by merging SITI-II,
Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, with
and into Tropia. Tropia was partially owned (55%) by Red Hat Productions, Inc.,
an award-winning independent film production company which is owned by Barclay
Powers, a large shareholder of the Company, and Jonathan Blank, the current
Chief Executive Officer of Tropia. Lawrence M. 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
Ari Blank and Arjun 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, Lawrence M.
Powers and Barclay Powers (his son) have waived their rights to participate in
the shares otherwise receivable by Red Hat Productions, Inc. from the
acquisition. As a result of this waiver, the shares delivered to Red Hat
Productions, Inc. were reduced proportionately and all such shares were
distributed by Red Hat Productions, Inc. solely to Mr. Blank. The Company will
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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.
On purchasing a control position in the Company in December, 1998 through
Powers & Co., a sole proprietorship owned by Mr. Powers, Mr. Powers promptly
made assignments of portions of his shares and/or option to Jon Gerber, Barclay
Powers and certain other individuals. Mr. Powers assigned 200,000 shares (and an
option to acquire an additional 80,000 shares) to Jon Gerber, and 995,000 shares
(and an option to acquire an additional 690,000 shares) to Barclay Powers. These
gifts are further described in "Item 1. Business - Management
Background/Philosophy - Investors and Administration" and "Item 5. Market for
the Registrant's Common Equity and Related Stockholder Matters - Recent Sales of
Unregistered Securities" of the Company's Annual Report for the year ended March
31, 1999 referred to above.
SUBSEQUENT FINANCING
On July 26, 1999, the Company entered into a private-placement agreement to
raise $1,250,000 in equity capital through a private placement with Lawrence M.
Powers, the Chairman of the Board, the Chief Executive Officer and a major
shareholder of the Company. Under the terms of the agreement, the Company will
receive $1,250,000, in exchange for 1,000,000 shares of its common stock, and an
option to purchase an additional 500,000 shares at $2.50 per share, exercisable
for five years. If and when the option is fully exercised, the Company would
receive an additional $1,250,000. None of the shares or the option will
initially be registered with the SEC for future sale, and will be taken for
investment by Mr. Powers.
The terms of the agreement are subject to stockholder review and approval
at the Company's next annual stockholders' meeting anticipated for September of
1999. The closing of the private placement transaction is also subject to
stockholder approval of an increase in the number of authorized shares of the
Company's common stock at such meeting. The private placement is expected to
close shortly after stockholder approval is obtained.
Upon the closing of this second round of financing, the Company's capital
base will be supplemented by this $1,250,000 equity infusion. The Company
intends to use the proceeds to develop and expand its operations in the MP3
music field through its music website, tropia.com. See "Item 1. Business -
Tropia."
Items 1 and 5 of the Company's Annual Report for the year ended March 31,
1999 referred to above are hereby incorporated by reference.
FORWARD-LOOKING STATEMENTS.
This Amendment 1 on Form 10-K/A to the Registrant's Annual Report on Form
10-K for the year ended March 31, 1999 contains forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
including, but not limited to statements related to the Company's use of the
proceeds from the investment transaction with Lawrence M. Powers. Such
forward-looking statements are based on current expectations, estimates and
projections about the Company's industry, management's beliefs and certain
assumptions made by the Company's management. These statements are not
guarantees of future outcomes.
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Investors are cautioned not to place undue reliance on any such forward-looking
statements. Unless required by law, the Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. However, readers should carefully
review the risk factors set forth in other reports or documents the Company
files from time to time with the Securities and Exchange ("SEC") Commission,
particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form
8-K.
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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.
SPECTRUM INFORMATION TECHNOLOGIES, INC.
Dated: July 28, 1999 By /s/ Jon M. Gerber
---------------------------------------
Jon M. Gerber
(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: July 28, 1999 By /s/ Lawrence M. Powers
---------------------------------------
Lawrence M. Powers
(Chief Executive Officer and
Chairman of the Board of Directors)
Dated: July 28, 1999 By /s/ Robert Ingenito
---------------------------------------
Robert Ingenito
(Director)
Dated: July 28, 1999 By /s/ John M. Gerber
---------------------------------------
Jon M. Gerber
(Executive Vice-President, Secretary,
Treasurer and Director)
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