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) 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 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 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 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 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 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 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 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 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 (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: 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 - - ------------------------------------------------------------------------------------------------ ------------------ 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. 11 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 ------------- ------------- ----------------- --------------- 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) ============= ============== See accompanying notes to unaudited pro forma condensed combined financial statements. 12 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 ------------ -------- ------------ ------------ 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 =========== ======== ============ ============ See accompanying notes to unaudited pro forma condensed combined financial statements. 13 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 ----------- ----------- ----------- ------------ 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 ============ ============ Interim results are not indicative of the results expected for a full year. See accompanying notes to unaudited condensed combined financial statements. 14 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