TYPE: S-3
SEQUENCE: 1
DESCRIPTION: INFORMATION ARCHITECTS CORPORATION
As filed with the Securities and Exchange Commission on August , 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INFORMATION ARCHITECTS CORPORATION
(Exact name of Registrant as specified in its charter)
NORTH CAROLINA 7372 87-0399301
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation organization) Classification Code Number) Identification
Number)
4064 Colony Road
Charlotte, North Carolina 28211
(704) 365-2324
(Address, including zip code and telephone number,
including area code, of Registrant's
principal executive offices)
----------------------
J. Dain Dulaney
INFORMATION ARCHITECTS CORPORATION
4064 Colony Road
Charlotte, North Carolina 28211
(704) 365-2324
(Name, address, including zip code and telephone number, including area code,
of agent for service)
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COPY TO:
Jeffrey S. Hay
McGUIRE, WOODS, BATTLE & BOOTHE LLP
100 North Tryon Street
Suite 2900
Charlotte, North Carolina 28202
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Each Class of Maximum Maximum Amount of
Securities to be Amount to be Offering Price Aggregate Registration
Registered Registered(2) Per Share (1) Offering Price Fee
Common Stock of 3,500,000 $2.265625 $7,929,687.50 $2,220.00
Information
Architects
Corporation (par
value $.001 per
share)
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(1) Estimated solely for the purpose of computing the registration fee,
based on the average of the high and low sales prices of the
Registrant's Common Stock, par value $.001 per share (the "Common
Stock"), as reported on the Nasdaq National Market on August 27, 1999
in accordance with Rule 457 under the Securities Act of 1933.
(2) The shares of common stock which may be offered pursuant to this
Registration Statement include shares issued or issuable upon
conversion of $5,000,000 in aggregate principal amount of the
Registrant's 6% Convertible Debentures (the "Debentures") and upon
exercise of warrants to purchase up to 287,843 shares of Common Stock
(the "Warrants"). The number of shares of Common Stock included in
this Registration Statement is based on approximately 150% of the sum
of (i) the number of shares subject to the Warrants plus (ii) the
estimated number of shares of Common Stock issuable in connection with
the conversion of the Debentures (based on an assumed conversion price
of $ ). Pursuant to Rule 416 under the Securities Act of 1933, the
number of shares of common stock registered hereby is subject to
adjustment to prevent dilution resulting from stock splits, stock
dividends or similar transactions.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
SUBJECT TO COMPLETION, DATED AUGUST , 1999
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
3,500,000 Shares
Information Architects Corporation
--------------------
Common Stock
($0.001 par value)
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This prospectus relates to the public offering of shares of our common
stock by the selling stockholder. These shares may be issued to the selling
stockholder on conversion of our debentures or exercise of our warrants owned
by the selling stockholder. We will not receive any of the proceeds from the
sale of the shares. We will pay all expenses of registration incurred in
connection with this offering, but the selling stockholder will pay all of its
selling commissions, brokerage fees and related expenses.
The selling stockholder has advised us that it will sell the shares
from time to time in the open market, on the Nasdaq Stock Market, in privately
negotiated transactions or a combination of these methods, at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices, or otherwise as described under "Plan of
Distribution."
Our common stock is traded on the Nasdaq National Market (Nasdaq
Symbol: IARC). On August , 1999, the closing price of the common stock was
$ per share.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 2.
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
upon the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
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The date of this prospectus is August , 1999.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information that we file at the
Securities and Exchange Commission's public reference room at 450 Fifth Street
N.W., Washington, D.C. 20549 or at its regional public reference rooms in New
York, New York and Chicago, Illinois. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the operations and
locations of the public reference rooms. Our Securities and Exchange Commission
filings are also available to the public from commercial document retrieval
services and at the Internet World Wide Web site maintained by the Securities
and Exchange Commission at "http://www.sec.gov."
This prospectus is a part of a registration statement we filed with
the Securities and Exchange Commission. As allowed by the rules of the
Securities and Exchange Commission, this prospectus does not contain all of the
information that can be found in the registration statement or in the exhibits
to the registration statement. You should read the registration statement and
its exhibits for a complete understanding of all of the information included in
the registration statement.
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this prospectus, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference becomes part of this prospectus, and information that
we file later with the Securities and Exchange Commission will automatically
update and supercede this information. We incorporate by reference the
documents listed below that we have previously filed with the Securities and
Exchange Commission:
1. Annual Report on Form 10-K for the fiscal year ended December
31, 1998;
2. Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1999;
3. Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 12, 1999;
4. Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 8, 1999;
5. Quarterly report on Form 10-Q for the quarterly period ended
June 30, 1999; and
6. Amendment No. 7 to our General Form for Registration of
Securities on Form 10 filed with the Securities and Exchange
Commission on July 1, 1999.
We also incorporate by reference in this prospectus additional
documents that we may file with the Securities and Exchange Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the date of this prospectus. These include periodic reports, such as annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K.
You may obtain the documents incorporated by reference as described
above. You may also request a copy of these filings, at no cost, from us by
writing or telephoning us at:
Information Architects Corporation
4064 Colony Road
Charlotte, North Carolina 28211
(704) 365-2324
RISK FACTORS
In evaluating our business, prospective investors should carefully
consider the following risks in addition to the other information in this
prospectus or in the documents referred to in this prospectus. Any of the
following risks could materially adversely impact our business, operating
results and financial condition and result in a complete loss of your
investment.
The statements made in this prospectus, including the information
incorporated by reference, that are not historical facts, contain
"forward-looking information" within the meaning of the Private Securities
Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934, both as amended, which
can be identified by the use of forward-looking terminology such as "may",
"will", "anticipates", "expects", "projects", "estimates", "believes" or
"continue", the negative thereof, other variations or comparable terminology.
Important factors, including certain risks and uncertainties with respect to
such forward-looking statements that could cause actual results to differ
materially from those reflected in such forward looking statements include, but
are not limited to, the risk factors discussed below.
IF NEW STRATEGIES TO REPLACE REVENUE FROM OUR YEAR 2000 BUSINESS ARE
UNSUCCESSFUL, OUR REVENUES WILL DECLINE.
If we are unable to complete our announced acquisitions or develop
other sources of revenues or funding, we will be required to reduce our
expenses commensurate with the lower revenues and seek other acquisitions or
business combinations to replace the revenues generated by our Year 2000
business. We currently derive more than ninety-five percent (95%) of our
revenues from our Year 2000 business. We anticipate that our revenues from the
Year 2000 business to decline by 50 percent or more after December 31, 1999. In
order for us to sustain growth and viability after December 31, 1999, we have
acquired the Metaphoria software and entered into agreements to acquire Data
Systems and Tumble Interactive Media. The successful implementation of the
acquisitions of Data Systems, Tumble, Metaphoria software and other possible
acquisitions are dependent on a number of factors, including management's
ability to assimilate the operations, personnel, and technology of the acquired
companies and provide sufficient capital either from internally generated
revenues or external sources to properly fund the integration and future growth
of the combined entities. We may not be successful in the integration of these
entities.
2
THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE IF OUR QUARTERLY RESULTS ARE
BELOW EXPECTATIONS.
We have experienced quarterly fluctuations in revenues and operating
results, including a drop in revenues from the third to the fourth quarter of
1998, and believe similar fluctuations may occur in the future. The price of
our common stock may decline in future quarters if our revenues or operating
results are below expectations. Quarterly revenue and operating results
fluctuations may occur and have occurred due to a number of factors including:
* disruption in customer relationships, such as those caused by the
major restructuring of the sales and marketing departments during the
third and early fourth quarters of 1998;
* market shifts, such as the reduction of revenue and profit resulting
from our receiving more of our business from lower priced services
that validate Year 2000 compliance for mainframe computer software
rather than from our higher priced services relating to detection and
correction of the Year 2000 problem in mainframe computer software;
* the timing of revenues and costs related to new product and service
introductions; and
* the timing of closing for any acquisitions and associated costs.
OUR RECENT AND PLANNED ACQUISITIONS WILL REDUCE THE PERCENTAGE OWNERSHIP
INTEREST OF EXISTING STOCKHOLDERS.
We will issue common stock to complete each of our recent and planned
acquisitions. These issuances of common stock will result in the reduction of
each stockholder's percentage ownership interest in us and could result in a
decrease in the market price of our common stock. For example, under the terms
of the merger agreement with Data Systems, the total number of shares of our
common stock issued in the merger is subject to adjustment based on the average
ten day closing price per share for the 10 trading days before the merger. If
the average ten-day closing price is between $6.00 per share and $16.00 per
share, we will issue a total of 1,611,047 shares in the merger. If the average
ten-day closing price is below $6.00 per share, we will issue a greater number
of shares equal to 9,666,282 divided by the average closing price.
OUR DEBENTURE FINANCING WILL REDUCE THE PERCENTAGE OWNERSHIP INTEREST OF
EXISTING STOCKHOLDERS AND MAY CAUSE A REDUCTION IN THE SHARE PRICE.
In July 1999, we raised $5 million by issuing debentures, which are
convertible into shares of our common stock. If the debenture holder converts
the debentures into shares of common stock, we will be required to issue no
less than 1,855,287 shares of common stock. If the trading price of the common
stock is low when the conversion price of the debentures is determined, we
would be required to issue a higher number of shares of common stock, which
could cause a further reduction in each stockholders percentage ownership of
us. The initial conversion price of the debentures is set at a premium to the
closing price on the day before the debenture was issued. The conversion price
can be periodically adjusted downward when eighty five percent of the trading
price of our common stock for any five trading days in a twenty trading day
period is less than the initial conversion price. In addition, if the debenture
holder
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converts our debentures and sells the common stock, this could result in an
imbalance of supply and demand for our common stock and a decrease in the
market price of our common stock. The further our stock price declines, the
further the periodic adjustment of the conversion price will fall and the
greater the number of shares we will have to issue upon conversion.
OUR DEBENTURE FINANCING MAY CAUSE OTHER SIGNIFICANT CORPORATE ACTIONS BY US.
We could be required to issue up to 19.999% of our outstanding common
stock (3,878,000 shares based on 19,393,809 shares outstanding on July 30,
1999) upon conversion of our outstanding debentures and exercise of the related
warrants without stockholder approval. We have agreed that if our stock price
drops to a level where we are required to issue more than 19.999% of our common
stock, we will seek shareholder approval to issue more than 19.999% of our
outstanding common stock. If we are unable to obtain shareholder approval for
issuance of the additional shares, we are required to remove ourselves from the
NASDAQ stock market, and to issue the number of shares required upon conversion
of the debenture.
OUR DEBENTURE FINANCING LIMITS OUR ABILITY TO ENTER FUTURE TRANSACTIONS AND THE
DEBENTURE HOLDERS CAN REQUIRE US TO REDEEM THE DEBENTURES AT A PREMIUM IF
CERTAIN EVENTS HAPPEN.
The debentures and related agreements contain significant covenants.
These covenants may limit our ability to enter into future transactions,
including financing transactions and transactions involving a change in control
or acquisition of us. The debenture holder can require us to redeem the
debentures, at a redemption price of 122% of the outstanding principal amount,
if at any time, we challenge, dispute or deny the right of the holder to
convert the debentures into shares of common stock or otherwise dishonor or
reject any conversion notice.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT COULD REDUCE EXISTING
STOCKHOLDERS' PERCENTAGE OWNERSHIP INTEREST AND LIMIT OUR OPERATING
FLEXIBILITY.
If we decide to expand more rapidly than currently anticipated or we
do not meet our revenue projections, we may need to raise additional capital.
In anticipation of these possible future financing needs, we have entered into
a letter with the debenture holder to potentially establish a $5,000,000 equity
line. This potential financing or any other additional financing using our
common or preferred stock will result in the reduction of each stockholder's
percentage ownership interest in us and may result in a decrease in the market
price of our common stock. Any additional debt financing likely will involve
restrictive covenants, which may limit our operating flexibility. If financing
is not available on acceptable terms, we may be unable to develop or enhance
our products, take advantage of future opportunities, respond to competitive
pressures, meet unanticipated requirements, or continue to operate at our
current levels.
4
WE FACE POTENTIAL LIABILITY AS A RESULT OF PENDING SHAREHOLDER SUITS.
Between May 14, 1999 and July 13, 1999, we, and current and former
officers and directors were named as defendants in four purported class action
lawsuits. The suits are filed in the United States District Court for the
Western District of North Carolina. The legal costs incurred by us in defending
ourselves and our officers and directors against this litigation, whether or
not we prevail, could materially impact the operating results in the quarters
in which those expenses are incurred. Further, in the event that the plaintiffs
prevail, we also could be required to pay damages that would materially impact
the operating results in the quarter and year in which the damages are paid and
could materially impact our financial condition. Also, this litigation may be
protracted and may result in a diversion of our management and other resources.
The suits purport to be brought on behalf of a class of persons that purchased
our common stock between November 14, 1997 and April 1, 1999 and allege
violations of the federal securities laws. The suits allege that the defendants
made material omissions and misrepresentations in public filings, press
releases and other public statements during the purported class period. The
suits seek class action status and an unspecified amount of damages, including
compensatory damages, interest, attorney's and expert's fees and reasonable
costs and expenses.
IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR
BUSINESS COULD SUFFER.
Our success is dependent upon our ability to use our proprietary
technology to create revenue-producing opportunities. If we are not able to
adequately protect our proprietary technology, we will be required to seek
revenue from sources other than our current proprietary technology. We
currently protect our proprietary rights through a combination of patent,
copyright, trademark, trade secret law, confidentiality agreements and
contractual provision. Provisions of our client agreements, including
provisions protecting against unauthorized use, copying, transfer and
disclosure, may be unenforceable against unauthorized use, copying, transfer
and disclosure, under the laws of some jurisdictions. We are also required to
negotiate limits on these provisions from time to time. We may not be able to
adequately deter misappropriation of proprietary information or to detect
unauthorized use and take appropriate steps to enforce our intellectual
property rights.
IF OUR INTELLECTUAL PROPERTY RIGHTS ARE CHALLENGED, WE MAY FACE POTENTIAL
LIABILITY.
In recent years, litigation involving patents and other intellectual
property rights has increased. Patents exist which cover solutions to the Year
2000 problem. We believe that we are either not using these patented solutions
or have utilized the solutions prior to the patent filing date. Regardless, we
may be a party to litigation in the future to protect our intellectual property
or for allegedly infringing other intellectual property rights. Such litigation
may force us to do one or more of the following:
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* cease selling or using products or services that incorporate the
challenged intellectual property, such as our Year 2000 compliance
methodology;
* obtain from the holder of the infringed intellectual property a
license to sell or use the relevant technology, which license may not
be available on reasonable pricing or business terms;
* redesign our affected products or services at additional cost to us.
WE MAY SUFFER LOSSES ARISING OUT OF POTENTIAL LIABILITY TO CUSTOMERS FROM OUR
YEAR 2000 BUSINESS.
There is increasing litigation arising out of failures or potential
failures in computer systems as a result of the Year 2000 problem. In the event
we become a party to any such litigation, the cost of defending the litigation
or an adverse outcome could result in payment of extraordinary expenses that
will affect our operational results. To date, we are not a party to any
litigation arising out of a Year 2000 failure. We have attempted to limit our
liability for Year 2000 claims through provisions in our contracts with
customers, limiting our damages, generally providing no warranties on our
services through the Year 2000, and disclaiming all other warranties. These
contractual protections may not be enforceable in all instances, and may not
otherwise protect us from the costs involved in defending a Year 2000 claim.
FAILURE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE COULD ADVERSELY AFFECT OUR
ABILITY TO GENERATE REVENUE.
Rapid technological change characterizes the markets for internet
professional services and Year 2000 services. Our future success will depend on
our ability to improve existing services and products, offer new services,
enhance recently acquired products and develop, acquire and market new products
and services. Our failure to adequately and timely respond to changing
technology could result in us not remaining competitive in the marketplace.
WE DO NOT PLAN TO PAY CASH DIVIDENDS ON OUR STOCK.
Since our inception, we have not paid, and do not intend to pay, any
cash dividends on our common stock in the foreseeable future. As a result, an
investor in the common stock would only receive a return on the investment if
the market price of the common stock increases.
VOLATILITY IN OUR STOCK PRICE MAY ADVERSELY AFFECT OUR BUSINESS.
Fluctuations in the market price of our stock may adversely affect our
ability to complete any planned acquisitions, our access to capital and
financing and our ability to attract and retain qualified personnel.
Historically, our common stock price and trading volume have fluctuated widely,
with a 52-week range as of August 10, 1999 of $14.00 to $1.625. We expect these
fluctuations to continue in the future for a number of reasons, including the
following:
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* our success or failure in meeting market expectations of our
quarterly or annual revenues, net income or earnings per share;
* our or competitor's announcements regarding new services and
products or technological innovations;
* stock prices for many technology companies fluctuate widely for
reasons, including perceived potential value, that may be unrelated to
operating results; and
* announcements of unusual events, such as acquisitions.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY RISKS IN OUR INTERNATIONAL
OPERATIONS.
Our international sales, primarily in France, England and the rest of
Europe, attributed approximately 18% of our total consolidated revenues for the
year ended December 31, 1998. We anticipate that international business may
account for a similar percentage of our revenues in 1999. The risks inherent in
international markets that may adversely affect our potential revenues and
costs include:
* unexpected changes in regulatory requirements;
* difficulties in staffing and managing foreign operations;
* potentially adverse tax consequences;
* potentially adverse differences in language, business customs,
practices and norms;
* differences in accounting practices;
* problems in collecting accounts receivable;
* fluctuations in currency exchange rates; and
* seasonal reductions in business activity during the summer months in
Europe.
MR. GRUDER EXERCISES SIGNIFICANT CONTROL OVER US.
Mr. Gruder, our Chief Executive Officer and Chairman of the Board, is
presently the beneficial owner of approximately 35% of our outstanding common
stock. Although Mr. Gruder's percentage ownership of our outstanding common
stock will be reduced as a result of planned acquisitions and financing, Mr.
Gruder will continue to be in a position to influence the election of directors
and generally to direct our affairs, including significant corporate actions
such as acquisitions, the sale or purchase of assets and the issuance and sale
of our securities.
7
INTENSE COMPETITION FOR YEAR 2000 SERVICES MAY ADVERSELY AFFECT OUR REVENUES
AND PROFITS.
Our Year 2000 services face intense competition from two different
sources: (i) correction performed in-house and (ii) software that corrects Year
2000 errors and validates Year 2000 compliance and other services offered by
direct competitors. Many of our competitors are better established, have
existing relationships with customers and have far greater resources than us.
As a result of this competition, our revenues or our profits on such revenues
for Year 2000 services could decrease, resulting in a negative effect on our
common stock price.
OUR BUSINESS PROSPECTS MAY BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO ATTRACT
AND RETAIN QUALIFIED PROFESSIONALS.
If we are not successful in attracting, assimilating, transitioning or
retaining qualified technological personnel in the future, then we may not
remain competitive. We believe that there is a shortage of, and significant
competition for, professionals with the advanced technological skills necessary
to perform the services offered by our new internet services. We also intend to
transfer current employees from our Year 2000 business to our new internet
business. The transition will require training in new technology and new skills
sets applicable to internet technology. Once trained, such individuals will be
in higher demand because of their new skill set. Additionally, not all of our
current personnel will be able to acquire the skills necessary to transition to
our new business.
DELAY OR LACK OF SUCCESS IN DEVELOPING AND MARKETING OUR NEW PRODUCTS AND
SERVICES COULD ADVERSELY AFFECT THE BUSINESS.
We recently acquired and plan to develop new software products
designed to facilitate communication and commerce over the internet. This
software is in a development stage and will require continued expenditures of
resources to complete the development effort. These products will involve a new
approach to the conduct of online business and, as a result, intensive
marketing and sales efforts may be necessary to educate prospective customers
regarding the uses and benefits of our products. Delays or lack of success in
developing and releasing enhanced or new products or in market acceptance of
the new technology could adversely affect our revenues.
INTENSE COMPETITION FOR INTERNET PRODUCTS AND SERVICE |
