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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Amendment Number Two
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported):
March 10, 2000
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Socrates Technologies Corporation
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(Exact name of registrant as specified in its charter)
Delaware 0-26614 54-1707718
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
8500 Leesburg Pike, Suite 406, Vienna, VA 22183
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
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(703) 288-6500
Former name or former address, if changed since last report:
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8133 Leesburg Pike, Suite 760, Vienna, Virginia 22182
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<PAGE>
Socrates Technologies Corporation
INFORMATION TO BE INCLUDED IN THE REPORT
Item 1. Changes in Control of Registrant.
None.
Item 2. Acquisition or Disposition of Assets.
Item 3. Bankruptcy or Receivership.
None.
Item 4. Changes in Registrant's Certifying Accountant.
None.
Item 5. Other Events.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) The historical financial statements required by Item 7(a) of the
Form 8-K are set forth below. The opinion of the independent auditors is also
set forth below. Effective March 1, 2000, the Company purchased certain tangible
and intangible assets and assumed certain liabilities of Object Application
Systems, Inc. ("Seller"). The transaction was accounted for as an asset
purchase.
(b) Previously filed.
(c) The Registrant intends to file the exhibits referenced below with
an amendment to this Report, which amendment will be filed on or before June
2, 2000.
Exhibits:
2. Asset Acquisition Agreement, effective March 1, 2000,between
Socrates Solutions Corporation (SSC) and Object Application
Systems, Inc.;(1)
10.1 Employment Agreement, dated March 1, 2000, between Mitchell
Jerine and SSC; (1)
10.2 Employment Agreement, dated March, 1, 2000, between Allen
Jerinsky and SSC; (1)
99.1 Press Release, dated March 16, 2000, re: Asset Acquisition
Agreement between SSC and Object Application Systems, Inc. (1)
(1) To be filed by amendment
Item 8. Change in Fiscal Year.
None.
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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 hereunto duly authorized.
Date: March 25, 2000
/s/ Paul W. Richter
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Paul W. Richter, General Counsel,
Secretary, Vice President-Corporate
Development and Director of Human
Resources
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OBJECT APPLICATION SYSTEMS, INC.
Financial Statements and Report of Independent
Certified Public Accountants
December 31, 1999 and 1998
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<PAGE>
Object Application Systems, Inc.
Contents
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Report of Independent Certified Public Accountants 3
Financial Statements
Balance Sheets 4
Statements of Operations 5
Statements of Cash Flows 6
Notes to Financial Statements 7-11
2
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Report of Independent Certified Public Accountants
Board of Directors
Object Applications Systems, Inc.
We have audited the accompanying balance sheets of Object Applications Systems,
Inc. (the Company) as of December 31, 1999 and 1998, and the related statements
of operations and retained earnings (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on those financial
statements based on our audits.
We conducted our audits 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 financial statement presentation.
We believe that our audits provide 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 Object Application Systems,
Inc., as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
As described in Note G effective March 1, 2000, substantially all of the assets
of the Company were acquired by a subsidiary of Socrates Technologies
Corporation, a publicly-held company headquartered in Vienna, Virginia
Vienna, Virginia
May 23, 2000
3
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<TABLE>
Object Application Systems, Inc.
Balance Sheets
<CAPTION>
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December 31, 1999 1998
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<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 498 $ 63,729
Accounts receivable, net 202,437 411,872
Prepaid expenses and other assets 2,342 -
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Total Current Assets 205,277 475,601
Property and Equipment, net of accumulated depreciation of $127,056
and $99,174 as of 1999 and 1998, respectively 80,011 45,355
Loans to Stockholders 361,095 185,369
Deposits 16,295 15,350
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$ 662,678 $ 721,675
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Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Line of credit $ 143,566 $ 152,048
Current portion of capital lease obligations 16,350 3,598
Accounts payable and accrued expenses 237,904 120,514
Accrued payroll liabilities 99,288 59,522
Deferred revenue 27,000 314,320
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Total Current Liabilities 524,108 650,002
Long-term Note Payable 5,405 30,000
Capital Lease Obligations, less current portion 54,544 24,540
Note Payable to Officer 23,000 31,000
Stockholders' Equity (Deficit)
Common stock, $.01 Par Value, 100,000 shares issued and outstanding 1,000 1,000
Retained Earnings (Deficit) 54,621 (14,867)
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$ 55,620 $ (13,867)
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$ 662,678 $ 721,675
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</TABLE>
The accompanying notes are an integral part of this statement.
4
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<TABLE>
Object Application Systems, Inc.
Statements of Operations and Retained Earnings
<CAPTION>
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Years ended December 31, 1999 1998
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<S> <C> <C>
Sales
Software Licenses $ 776,974 912,215
Services 992,162 630,521
Products 179,323 167,832
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1,948,459 1,710,568
Cost of Sales 1,111,019 800,352
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Gross Profit 837,440 910,216
Selling Expenses
Selling, General, and Administrative 191,416 613,981
Depreciation 27,882 22,130
Research and Development Expense 519,589 259,051
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738,887 895,162
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Income from Operations 98,553 15,054
Other Income (Expense)
Other Income 21,700 17,023
Interest income (expense), net (35,631) (28,539)
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Income before income taxes 84,622 3,582
Provision for Income Taxes (15,134) (5,180)
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Net Income (Loss) $ 69,488 $ (1,642)
Retained Earnings (Deficit), beginning of period (14,867) (13,225)
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Retained Earnings (Deficit), end of period $ 54,621 $ (14,867)
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</TABLE>
The accompanying notes are an integral part of this statement.
5
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<TABLE>
Object Application Systems, Inc.
Statements of Cash Flows
<CAPTION>
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Years ended December 31, 1999 1998
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<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net income/(loss) $ 69,487 $ (1,642)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation Expense 27,882 22,130
Changes in assets and liabilities:
(Increase)/Decrease in accounts receivable 209,435 (282,736)
Increase in prepaid expenses and other assets (3,286) (15,200)
Increase in accounts payable and
accrued expenses 117,390 57,090
Increase in accrued payroll and related liabilities 39,766 59,303
Increase/(Decrease) in deferred revenue (287,320) 271,320
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Net Cash provided by Operating Activities 173,354 110,265
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Cash Flows from Investing Activities
Purchase of property and equipment (16,184) (4,695)
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Net Cash Used in Investing Activities (16,184) (4,695)
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Cash Flows from Financing Activities
Net (repayments) borrowings on line of credit (8,482) (33,233)
Increase in loan receivable from Stockholders (175,726) (92,861)
Increase in loans to officers (8,000) -
Capital Lease Obligation payments (3,598) (2,020)
Repayment on note payable (24,595) 30,000
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Net Cash Used in Financing Activities (220,401) (98,114)
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Net Increase (Decrease) in Cash and Cash Equivalents (63,231) 7,456
Cash and Cash Equivalents, beginning of year 63,729 56,273
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Cash and Cash Equivalents, end of year $ 498 $ 63,729
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</TABLE>
The accompanying notes are an integral part of this statement.
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Object Application Systems, Inc.
Notes to Financial Statements
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December 31, 1999 and 1998
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NOTE A--ORGANIZATION AND BUSINESS
Nature of Operations
Object Application Systems, Inc. (formerly BCI Holdings, Ltd) was
incorporated in the state of New York in September 1987. The company changed
its name to Object Application Systems, Inc. (OAS) in 1996. Principal
operations are based in New York and sales are to customers in the United
States.
OAS developes and markets EBA software products and services to companies in
specific target industries. The Company has developed an underlying
application architecture that is known as the OA/System. The OA/System is
the backbone of OAS' product family. With the OA/System as a base, OAS has
created products that deliver sophisticated software technology like
object-oriented programming, a sophisticated RDBMS-based data model, and
Internet enablement.
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NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The company licenses software under non-cancelable license agreements and
provides services including training, consulting and maintenance, consisting
of product support services and periodic updates. License fee revenues are
generally recognized when a non-cancelable license agreement has been
signed, the product has been shipped, there are no uncertainties surrounding
product acceptance, the fees are fixed and determinable, and collection is
considered probable. For customer license agreements which meet these
recognition criteria, the portion of the fees related to the software
license are generally recognized in the current period, while the portion of
the fees related to services is recognized as the services are performed.
When the Company enters into a license agreement with a customer requiring
significant customization of the software products, the Company recognizes
revenue related to the license agreement using contract accounting. Revenues
from fixed-price contracts, post-contract support services, installation and
maintenance agreements are recognized ratably over the appropriate period.
Payments received in advance of when revenue is recognized are recorded as
deferred revenue.
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Object Application Systems, Inc.
Notes to Financial Statements--Continued
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December 31, 1999 and 1998
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The Company has adopted Statement of Position (SOP) 97-2, "Software Revenue
Recognition." The SOP requires that software revenue be recognized only when
persuasive evidence of an arrangement exists, delivery has occurred, the
vendor's fee is fixed or determinable and collectibility is probable. The
Company recognizes revenue from sales to customers or resellers when the
products are shipped (transfer of title occurs) and no significant
obligation remains of the Company. Revenue billed or collected in advance
for future product shipments or services is deferred and recorded as income
in the period in which the products are shipped or services are provided.
Generally, the Company has insignificant obligations remaining under the
agreement after delivering the software.
Research and Development
Research and development costs are expensed as incurred. Product development
costs after technological feasibility is reached are also expensed due to
the immateriality of the cost incurred during the short period of time
required to release the product for general sale.
Income Taxes
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." Deferred taxes arise from temporary differences,
primarily attributable to differences between the Company's cash-basis tax
returns and accrual-basis book accounting. The Company elected to change its
tax status to a subchapter S- Corporation in 1999. Therefore no deferred tax
provision has been recorded in the results of operations in 1999. Deferred
income taxes associated with temporary differences and net operating losses
in prior years resulted in a deferred tax asset which the company fully
reserved for via a valuation allowance. Income tax provisions included in
the accompanying financial statements represent payments for state income
taxes.
8
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Object Application Systems, Inc.
Notes to Financial Statements--Continued
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December 31, 1999 and 1998
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NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Depreciation
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. The
estimated lives used in determining depreciation are--
Office and other equipment 3-7 years
Furniture and fixtures 7 years
For financial reporting purposes, the straight-line method of depreciation
is followed for all assets. Accelerated methods are used for tax purposes.
Cash and Cash Equivalents
The Company considers all highly liquid securities purchased with a maturity
of three months or less to be cash equivalents.
Using Estimates in Preparing Financial Statements
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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
9
<PAGE>
Object Application Systems, Inc.
Notes to Financial Statements--Continued
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December 31, 1999 and 1998
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NOTE C--ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Accounts receivable $ 297,158 $ 782,375
Allowance for doubtful accounts (94,721) (370,503)
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$ 202,437 $ 411,872
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</TABLE>
NOTE D--LOANS TO STOCKHOLDERS
The Company has periodically advanced funds to officers and stockholders on
a non-interest bearing basis which are due on demand. Such loans were not
sold in the acquisition of assets described in Note G.
NOTE E--LINE OF CREDIT
The Company has lines of credit with two banks, providing for borrowings up
to $158,000. The lines of credit are terminable at the option of the
lenders. Advances on the lines of credit bear interest at variable spreads
over the bank's prime rate. The lines of credit are collateralized by
substantially all the Company's assets, and are subject to certain
restrictive covenants. As of December 31, 1999 and 1998, the Company had
$143,566 and $152,048 outstanding on the lines of credit.
10
<PAGE>
NOTE F--LEASE COMMITMENTS
Operating Leases
The Company is committed under leases for office space which expire through
2002. Rent expense under such leases amounted to $90,720 and $46,000 for the
years ended December 31, 1999 and 1998, respectively. Minimum lease payments
due in future years under these leases are as follows for the years ended
December 31:
2000 $ 92,388
2001 92,388
2002 92,388
2003 90,199
2004 90,000
2005 45,000
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$502,363
Capital Leases
The Company is committed under leases accounted for as capital leases with
minimum lease payments as follows:
Year ended December 31:
2000 $26,467
2001 26,467
2002 26,467
2003 17,125
2004 1,167
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$97,694
Less amounts representing interest (26,800)
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Present value of net minimum
lease payments $70,894
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The net book value of assets held under capitalized leases was approximately
$55,000 and $20,000 for the years ended December 31, 1999 and 1998,
respectively.
NOTE G--SUBSEQUENT EVENT
Effective March 1, 2000, substantially all of the assets of the Company were
acquired by a subsidiary of Socrates Technologies Corporation, a
publicly-held company headquartered in Vienna, Virginia for total
consideration of approximately $4.7 million, consisting of common stock,
cash and a note payable.
NOTE H--SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid the following amounts for income taxes and interest:
1999 1998
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Income taxes $15,134 $ 5,180
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Interest $27,682 $28,366
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During the years ended December 31, 1999 and 1998, the Company entered into
capital leases which originated lease obligations totaling $46,354 and
$30,158, respectively.
11
