<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
Commission File Number: 0-22325
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INFORMATION ARCHITECTS CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 87-0399301
-------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4064 Colony Road, Charlotte, NC 28211
------------------------------- -----
(Address of principal executive offices) (Zip Code)
704-365-2324
------------
(Registrants telephone number, including are 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 and Exchange Act of 1934
during the proceeding 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.
[X] Yes [ ] No
As of June 30, 2000 there were 30,246,923 shares of Information Architects
Corporation common stock, $0.001 par value, outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets
as of June 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations (Unaudited) for the
Three and Six Months ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (Unaudited)
for the Six Months ended June 30, 2000 and 1999 5
Notes to Unaudited Consolidated Financial Statements 6 - 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview 8
Results of Operations for the Three and Six Months ended June
30, 2000, Compared with the Three and Six Months ended June
30, 1999 9
Financial Condition and Liquidity 9 - 10
PART II. OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS 10 - 11
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 11
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 11
Signatures 12
Financial Data Schedule 13
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
INFORMATION ARCHITECTS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 15,561,546 $ 7,398,252
Accounts receivable, net 1,086,142 2,521,781
Earned and unbilled revenue 139,177 63,229
Prepaid expenses 353,508 226,607
Loan receivable, officers 139,408 14,624
Other receivables 25,096 148,010
------------ ------------
TOTAL CURRENT ASSETS 17,304,877 10,372,503
PROPERTY AND EQUIPMENT, NET 2,489,810 2,970,123
SOFTWARE COSTS, NET 1,007,546 1,169,167
TRADEMARKS, NET 77,730 82,021
DEFERRED TAX ASSET 1,800,000 1,800,000
OTHER ASSETS 16,094 317,189
------------ ------------
$ 22,696,057 $ 16,711,003
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 628,383 $ 1,961,385
Accrued payroll and commissions -- 39,116
Other current liabilities 556,979 927,131
Unearned revenue 182,917 71,906
Current portion of capital lease obligation 135,495 202,431
Note payable 25,000 175,000
------------ ------------
TOTAL CURRENT LIABILITIES 1,528,774 3,376,969
CONVERTIBLE DEBENTURE PAYABLE -- 1,939,760
CAPITAL LEASE OBLIGATION 25,712 151,774
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 1,000,000 shares
authorized; 165,714 and 0 shares issued
and outstanding respectively 166 --
Common stock, $.001 par value, 50,000,000 shares
authorized; 30,246,923 and 27,495,515 shares issued
and outstanding respectively 30,247 27,496
Additional paid-in capital 65,610,314 48,547,900
Deficit (44,432,080) (37,276,045)
Accumulated other comprehensive loss (67,076) (56,851)
------------ ------------
21,141,571 11,242,500
------------ ------------
$ 22,696,057 $ 16,711,003
============ ============
</TABLE>
3
<PAGE> 4
INFORMATION ARCHITECTS CORPORATION
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C> <C> <C>
REVENUE:
Product license $ 155,395 $ -- $ 158,733 $ --
Services 1,175,569 -- 1,692,337 --
------------ ------------ ------------ ------------
Total revenue 1,330,964 -- 1,851,070 --
COST OF REVENUE 1,048,673 -- 1,218,405 --
------------ ------------ ------------ ------------
GROSS PROFIT 282,291 -- 632,665 --
OPERATING EXPENSES
Sales and marketing 2,123,997 1,129,744 3,039,567 1,129,744
Research and development 619,785 837,354 1,175,499 837,354
General and administrative 1,309,449 1,053,503 3,080,453 2,539,417
Depreciation and amortization 334,741 277,880 668,909 516,690
------------ ------------ ------------ ------------
4,387,972 3,298,481 7,964,428 5,023,205
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (4,105,681) (3,298,481) (7,331,763) (5,023,205)
OTHER INCOME (EXPENSE)
Interest income 138,276 3,875 235,835 14,103
Interest expense (38,784) (306,242) (104,820) (378,608)
Acquisition costs -- (132,104) -- (297,987)
Other 7,000 -- 44,713 --
------------ ------------ ------------ ------------
106,492 (434,471) 175,728 (662,492)
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (3,999,189) (3,732,952) (7,156,035) (5,685,697)
Discontinued Operations:
Loss from operations of discontinued business -- (117,483) -- (1,317,360)
------------ ------------ ------------ ------------
NET LOSS $ (3,999,189) $ (3,850,435) $ (7,156,035) $ (7,003,057)
============ ============ ============ ============
Basic:
Loss per share from continuing operations $ (0.14) $ (0.21) $ (0.25) $ (0.33)
Loss per share from discontinued operations $ -- $ (0.01) $ -- $ (0.07)
------------ ------------ ------------ ------------
Net loss per share $ (0.14) $ (0.22) $ (0.25) $ (0.40)
============ ============ ============ ============
Diluted:
Loss per share from continuing operations $ (0.14) $ (0.21) $ (0.25) $ (0.33)
Loss per share from discontinued operations $ -- $ (0.01) $ -- $ (0.07)
------------ ------------ ------------ ------------
Net loss per share $ (0.14) $ (0.22) $ (0.25) $ (0.40)
============ ============ ============ ============
Weighted average common shares outstanding:
Basic 29,300,636 17,779,561 28,808,761 17,657,554
============ ============ ============ ============
Diluted 29,300,636 17,779,561 28,808,761 17,657,554
============ ============ ============ ============
</TABLE>
4
<PAGE> 5
INFORMATION ARCHITECTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (7,156,035) $(7,003,057)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock based compensation -- 55,990
Allowance for doubtful accounts (50,000) 200,000
Depreciation and amortization 668,909 1,294,724
Gain on sale of fixed assets (8,388) --
Decrease (increase) in assets:
Accounts receivable 1,485,639 1,697,439
Earned and unbilled revenue (75,948) (1,647,553)
Prepaid expenses and other current assets (126,901) (213,431)
(Decrease) increase in liabilities:
Accounts payable (1,333,002) 1,216,386
Accrued payroll and commissions (39,116) 354,395
Other current liabilities (259,010) 687,944
Unearned revenue 37,011 143,812
------------ -----------
Total adjustments 299,194 3,789,706
------------ -----------
Net cash used in operating activities (6,856,841) (3,213,351)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (56,505) (802,660)
Additions of computer software (8,212) (1,170,751)
Decrease (increase) in other assets 63,041 (496,358)
Decrease in other receivables 122,914 320,750
------------ -----------
Net cash provided by (used in) investing activities 121,238 (2,149,019)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock 16,020,674 133,344
Stock issuance costs (745,399) --
Advances to officers (124,784) --
Loans from stockholders -- 789,853
Repayment of stockholders' loans -- (1,339,448)
Proceeds from loans -- 4,000,000
Repayment of loans (150,000) --
Repayment of capital lease obligations (101,594) (80,692)
------------ -----------
Net cash provided by financing activities 14,898,897 3,503,057
------------ -----------
NET INCREASE (DECREASE) IN CASH 8,163,294 (1,859,313)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 7,398,252 2,962,570
------------ -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 15,561,546 $ 1,103,257
============ ===========
SUPPLEMENTAL DISCLOSURES
INTEREST PAID $ 30,318 $ 264,470
============ ===========
UNREALIZED CURRENCY (LOSSES) GAINS $ (10,225) $ 123,460
============ ===========
</TABLE>
During the second quarter of 2000, we issued 1,000,000 shares of common stock in
payment of $1,939,760 of principle and $48,494 of accrued interest on a note
payable.
During the second quarter of 2000, we sold furniture, which was held under a
capital lease, for $91,404. This amount was credited directly against the lease
obligation.
During the first quarter of 2000, we acquired software valued at $74,000 as
partial consideration for an outstanding accounts receivable balance.
During the second quarter of 1999, we issued 1,442,000 shares of common stock in
payment of $3,000,000 in principle and $51,000 in accrued interest on a
debenture note.
During the first quarter of 1999, we acquired computer software for $750,000 of
our common stock.
During the first quarter of 1999, a former officer paid an amount owed to us
with 66,667 shares of common stock (valued at $400,000) and real estate, held
for sale (valued at $400,000).
5
<PAGE> 6
INFORMATION ARCHITECTS CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1 The interim unaudited financial statements as of June 30, 2000 and 1999 and
for the three and six month periods then ended, reflect all adjustments
that, in the opinion of management, are necessary for a fair statement of
the results for the interim periods presented. All adjustments were of a
normal recurring nature. Certain items in the 1999 financial statements
have been reclassified to conform to the 2000 classification.
2 No tax benefit was recorded for the three and six-month periods ended
June 30, 2000 and 1999, due to uncertainty of realization.
3 We have adopted Financial Accounting Standards Board ("FASB") Statement No.
128, "Earnings per Share". Basic earnings per common share is computed by
dividing the net earnings (loss) by the weighted average number of shares
of common stock outstanding during the period. Diluted earnings per share
gives effect to stock options and warrants which are considered to be
dilutive common stock equivalents. Treasury shares have been excluded from
the weighted average number of shares.
4 We have adopted Financial Accounting Standards Board ("FASB") Statement No.
130, "Reporting Comprehensive Income". This statement requires reporting of
change in owners' equity that does not result directly from transactions
with owners. An analysis of these changes follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
6/30/00 6/30/99 6/30/00 6/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Loss $(3,999,189) $(3,850,435) $(7,156,035) $(7,003,057)
Foreign Currency Translation
Adjustment - Net (8,777) 69,069 (10,225) 123,460
------------ ----------- ----------- -----------
Total $(4,007,966) $(3,781,366) $(7,166,260) $(6,879,597)
------------ ----------- ----------- -----------
</TABLE>
5 In the fourth quarter of 1999 we decided to discontinue our software
reengineering services, specializing in the correction of existing
mainframe computer software systems to manage the Year 2000 and thereafter.
The manner of disposal was discontinuing the operation and taking
write-offs for all unamortized intangible assets. Included in the loss on
disposal is an estimate of $150,000 to cover expenses that may by incurred
during the phase out period. At June 30, 2000, assets and liabilities
attributable to the Year 2000 segment included accounts receivable
($78,000) accounts payable ($350,000) and accrued expenses ($13,000). The
results of operations of our software reengineering services for the three
and six month periods ended June 30, 2000 and 1999 have been shown as
discontinued operations.
6
<PAGE> 7
INFORMATION ARCHITECTS CORPORATION
DISCONTINUED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
<S> <C> <C> <C> <C>
Revenues $ -- $ 4,996,612 $ -- $ 10,706,327
------------------- ------------ ------------------- ------------
Expenses:
Payroll and related costs -- 3,883,928 -- 9,486,383
Rent and occupancy -- 250,976 -- 405,448
Advertising and promotion -- 82,393 -- 226,109
Depreciation and amortization -- 344,820 -- 703,034
Bad Debt Expense -- 200,000 -- 200,000
Other operating expenses -- 234,855 -- 857,537
------------------- ------------ ------------------- ------------
-- 4,996,972 -- 11,878,511
------------------- ------------ ------------------- ------------
Loss from operations -- (360) -- (1,172,184)
Other Income (Expenses)
Interest Expense -- (76,560) -- (94,652)
Interest Income -- 3,577 -- 13,018
Other -- (44,140) -- (63,542)
------------------- ------------ ------------------- ------------
-- (117,123) -- (145,176)
------------------- ------------ ------------------- ------------
Net Loss $ -- $ (117,483) $ -- $ (1,317,360)
=================== ============ =================== ============
Net Loss per common share
Basic $ -- $ (0.01) $ -- $ (0.07)
=================== ============ =================== ============
Diluted $ -- $ (0.01) $ -- $ (0.07)
=================== ============ =================== ============
Weighted average common shares outstanding
Basic 29,300,636 17,779,561 28,808,761 17,657,554
=================== ============ =================== ============
Diluted 29,300,636 17,779,561 28,808,761 17,657,554
=================== ============ =================== ============
</TABLE>
7
<PAGE> 8
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements made in this Form 10-Q 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" "seeks",
"could", "should", 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 our ability to manage growth and
acquisitions of technology or people, diversification of our business, the
effect of economic and business conditions, including risks inherent in
international operations, the ability to attract and retain technical personnel
and other risks detailed from time to time in our SEC reports. We assume no
obligation to update the information in this Form 10-Q.
OVERVIEW
Our patented SmartCode(R) (formerly known as Metaphoria) framework
provides infrastructure for conveying both content and functionality by way of
the Internet. We provide dynamic content aggregation and syndication allowing
bi-directional transactions without requiring proprietary static repositories.
We believe our Internet-based solutions provide a bridge to protect business'
existing investment in legacy and PC-based information and still capitalize on
the Internet revolution. Our software architecture is designed to provide
customers with a low maintenance framework for the Internet. These
Internet-based solutions should enable our customers in making timely decisions,
transacting business, disseminating information and collaborating among
co-workers, customers, suppliers and partners by transforming electronic
information, regardless of platform or application, into real-time transactions.
The SmartCode Framework is a patented, JAVA-based and open Internet
technology that seeks to address the market need for the convergence of multiple
data management strategies, including content management, knowledge management,
document management and data warehousing. Without moving the original data,
SmartCode provides personalized access to the information that is independent
from the software application. The "digital content" from multiple sources may
be delivered in a real-time Internet browser presentation, providing interaction
and update capability, as well.
Our Internet business model revenue is derived from software product
license fees, annual maintenance fees, and professional and training services
fees. Our revenue recognition policy for the software product is in accordance
with the AICPA's Statement of Position (SOP) 97-2, which generally states that
revenue related to components of software sales and implementations should be
attributed to each component based on the fair values of each component. Revenue
for software licenses is generally recognized upon customer's receipt of the
software with no significant obligations related to the installation of the
software. Maintenance fees are recognized ratably over the contract period.
Professional and training services are recognized as the services are performed.
We have been pleased with the response for our SmartCode suite of
products. However, the launching of our Internet offering is still in its early
stages. We anticipate continuing favorable responses, but our potential must be
evaluated from the perspective of a start-up Internet opportunity in its early
stages of development. Some of these risks include, but are not limited to, the
impact of start-up and acquisition costs, the volatility of the emerging
Internet marketplace, the ability to gain an edge on our competition, proper
visibility and government regulation in the Internet sector. Other risks that we
face include, but are not limited to, the ability to effectively penetrate the
e-commerce marketplace, hire and retain quality personnel, successfully
implement our marketing strategies, and develop ongoing technologies ahead of
our competitors. There are no assurances that we will succeed in addressing any
or all of these risks.
8
<PAGE> 9
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED
WITH COMPARABLE PERIODS ENDED JUNE 30, 1999
In 1999, we discontinued our previous Y2K remediation business, as
discussed in our 1999 Annual Report on Form 10-K, and began our current Internet
aggregation and syndication business. Because of this, there was no Y2K
remediation business in the first and second quarters of 2000 and no revenue
related to the Internet business in the first and second quarters of 1999. The
expenses of the second quarter 1999 represent both Internet business expenses
and overhead expenses necessary to maintain a corporate structure. The only
expenses shown for the first quarter 1999 are the overhead expenses necessary to
maintain a corporate structure. Therefore, it is not a direct comparison between
2000 and 1999 income statements.
Revenue for the three and six month periods ended June 30, 2000 is 100%
from our new Internet product and service offerings. There were no equivalent
sales of our Internet offering for the three and six-month periods ended June
30, 1999.
Total operating expenses for the three months ended June 30, 2000 were
$1,090,000 more than the same period for 1999. This increase is due primarily to
an increase in Sales and Marketing expenses of $994,000. The Sales and Marketing
expense increase is comprised mainly of an increase in advertising expenses of
$990,000. An increase in payroll of $186,000 and an increase in professional
fees of $82,000 account for the majority of the increase in General and
Administrative expense. Depreciation and amortization for our office furniture
and equipment and SmartCode software contributed another $57,000 to the
variance.
Total operating expenses for the six months ended June 30, 2000 were
$2,941,000 more than the same period for 1999. This increase is primarily due to
an increase in Sales and Marketing expenses of $1,910,000 and Research and
Development expenses of $338,000. Depreciation and amortization contributed
another $152,000 to the variance.
Interest income for the three month period ended June 30, 2000 was
$134,000 more than the same period for 1999 due to the increased cash balance
during the second quarter of 2000. Acquisition costs decreased $132,000 for the
three months ended June 30, 2000 compared to the same period for 1999. No
acquisition expense was incurred during the second quarter 2000. Interest
expense for the three months ended June 30, 2000 was $267,000 less than the same
period for 1999, due to the migration from debt based financing to equity based
financing.
Interest income for the six month period ended June 30, 2000 was
$222,000 more than the same period for 1999 due to the increased cash balance
during the first and second quarters of 2000. Acquisition costs decreased
$298,000 for the six months ended June 30, 2000 compared to the same period for
1999. No acquisition expense was incurred during the first and second quarters
of 2000. Interest expense for the six months ended June 30, 2000 was $274,000
less than the same period for 1999, due to the migration from debt based
financing to equity based financing.
There was no loss from discontinued operations for the three and six
month periods ended June 30, 2000 as compared to losses of $117,000 and
$1,317,000 from discontinued operations for the three and six month periods
ended June 30, 1999, respectively.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 2000, we had working capital of $15,776,000 as compared to
working capital of $2,548,000 at June 30, 1999, an increase of $13,228,000 or
519%. We had cash and cash equivalents of $15,562,000 at June 30, 2000 compared
to cash and cash equivalents of $1,103,000 at June 30, 1999, an increase of
$14,459,000 or 1,311%. As a result of the expenses associated with our new
Internet offering, we are, and expect to continue, operating at a loss for the
remainder of 2000.
During the second quarter 2000, we finalized the removal of debt from
the July 1999 financing from our balance sheet. This transaction did not have
any cash impact.
9
<PAGE> 10
The sources of cash for the first and second quarters of 2000 were
primarily from collecting receivables, operating sales, the exercise of
outstanding stock options and warrants and the private placement of preferred
shares of stock. In order to continue to grow and compete in the rapidly
developing Internet marketplace, we expect a significant increase in our
operating expenses, especially in our Sales and Marketing expenses, as well as
our research and development expenses. We may obtain additional financing during
the year to fund our growth in operations and an increased marketing campaign as
outlined above. However, there is no assurance that if we pursue it, we will be
able to raise additional financing on acceptable terms or at all. We believe
that the combination of present cash balances, future operating cash flows and
cash provided by the exercise of options and warrants as well as any additional
financing to be obtained will be adequate to fund our growth and provide
adequate liquidity for the near-term foreseeable future.
PART II. OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
June 9, 2000 Financing
Pursuant to a June 9, 2000 agreement between ourselves and various
investors, we issued 165,714 shares of Series A Preferred Stock, par value $.001
per share ("Series A Stock") in a private placement to the various investors at
a price of $70 per share, resulting in total cash proceeds in the amount of
$11,599,980 ("Proceeds"). The Series A Stock is convertible into shares of our
common stock, par value $.001 ("Common Stock"), after August 11, 2000 at a
conversion ratio of ten shares of Common Stock for every share of Series A
Stock. The Series A Stock also contains a provision requiring us to issue
additional shares of Series A Preferred Stock, if on December 7, 2000 the five
day average of the closing price of the Common Stock is below $7.00 per share
with a floor of $5.00 per share. The proceeds from the sale of the Series A
Stock will be used for internal working capital purposes.
In addition to the issuance of the Series A Stock, we issued warrants
(the "Investor Warrants") to the investors to purchase 828,570 shares of Common
Stock at an exercise price of $7.00 per share, provided that such Investor
Warrants may not be exercised before August 11, 2000. The Investor Warrants
contain a provision that allows for the exercise price of the Investor Warrants
to reset to the then current closing price of the Common Stock in the event of
the following:
A. If on December 7, 2000 the five day average of the closing price of
the Common Stock is below $7.00;
B. If on June 7, 2001 the five day average of the closing price of the
Common Stock is below $7.00; or
C. If at any time prior to June 7, 2001, we issue securities with a price
of less than $7.00 per share of Common Stock.
The Investor Warrants also contain a provision that if the average closing price
of the Common Stock, equals or exceeds 200% of the Investor Warrants price for
any ten (10) trading days within a thirty (30) consecutive trading day period,
we may, at our option, redeem the Investor Warrants, at a redemption price of
$.05 for each share of Common Stock underlying the Investor Warrants, except we
may not redeem any Investor Warrants (or portions thereof) prior to August 11,
2000.
Stonegate Securities, Inc. acted as the placement agent for the
transaction and received 16,572 warrants to purchase shares of Series A Stock
("Stonegate Warrants"), as well as six percent (6%) of the Proceeds. The Series
A Stock, Placement Warrants and Stonegate Warrants were issued under the
exemption set forth in Rule 506 of Regulation D of the Securities Act of 1933.
Issuance to Retire Outstanding Convertible Debenture
Pursuant to an April 11, 2000 letter agreement, we agreed that, upon
receiving stockholder approval, we would issue 1,000,000 shares of our common
stock in full satisfaction of all outstanding principal and interest
10
<PAGE> 11
due to King LLC under the July 30, 1999 6% convertible debenture. In addition,
that agreement provided that, upon issuing such shares, the July 30, 1999 6%
convertible debenture would automatically terminate. On May 26, 2000 we received
approval from our stockholders to issue the 1,000,000 shares of common stock to
King LLC and issued the 1,000,000 shares on June 19, 2000. The 1,000,000 shares
were issued under the exemption set forth in Rule 506 of Regulation D of the
Securities Act of 1933.
Issuance in partial Settlement of a Lawsuit
Pursuant to a March 7, 2000 agreement between William A. DeGruchy and
ourselves, on June 14, 2000 we issued Mr. DeGruchy 10,000 shares of our common
stock as partial settlement of a lawsuit. The 10,000 shares were issued under
the exemption set forth in Section 4(2) of the Securities Act of 1933.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 26, 2000, our stockholders (at the annual meeting) approved the
following:
1. Election of Directors.
For Withheld
--- --------
a. Robert F. Gruder 25,293,414 31,297
b. Thomas J. Dudchik 25,293,414 31,297
c. Richard J. Blumberg 25,293,414 31,297
d. James McLaughlin 25,293,414 31,297
2. The issuance of 1,000,000 shares of our common stock to retire the
outstanding principle and interest of the July 30, 1999 6% Convertible
Debenture issued by us.
For Against Broker Non-Votes
--- ------- ----------------
11,248,695 90,696 13,955,401
3. Ratification of the appointment of Holtz Rubenstein & Co., LLP, as our
independent public accountants for the year 2000.
For Against Abstain
--- ------ -------
25,270,201 40,391 14,119
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No.
27 Financial Data Schedule
Reports on Form 8-K
Current report on Form 8-K filed with the Securities and
Exchange Commission on June 9, 2000.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on our behalf by
the undersigned thereunto duly authorized.
INFORMATION ARCHITECTS CORPORATION
----------------------------------
(Registrant)
Date: August 14, 2000 /s/Robert F. Gruder
--------------- Robert F. Gruder,
Chief Executive Officer
Date: August 14, 2000 /s/J. Wayne Thomas
--------------- J. Wayne Thomas,
Chief Financial Officer
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