<PAGE>
AS FILED WITH SECURITIES EXCHANGE COMMISSION ON June __, 2000.
REGISTRATION NO.333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
SOCRATES TECHNOLOGIES CORPORATION
--------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
-------------------------
Delaware 54-1707718
- ----------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8500 Leesburg Pike, Suite 406
Vienna, Virginia 22183
(703) 288-6500
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(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
Paul W. Richter, General Counsel and Secretary
Socrates Technologies Corporation
8500 Leesburg Pike, Suite 406
Vienna, Virginia 22183
(703) 288-6500
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(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time-to-time, pursuant to Rule 415, after the Registration Statement becomes
effective.
If the only 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 a dividend or
interest reinvestment plan, please check this box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration 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
<PAGE>
434, please check the following box. [ ] __________ .
CALCULATION OF REGISTRATION FEE
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Net Offering
Aggregate Offering Proceeds Net
Title of Number of Price per Offering Proceeds to Selling Registration
Securities Shares Share Proceeds To Company Shareholder Fee (1)
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<S> <C> <C> <C> <C> <C> <C>
Common Stock,
$0.01 par value 8,000,000 $1.00 n/a n/a $8,000,000 $8,000
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457 under the Securities Act of 1933. The maximum aggregate
offering price was computed by multiplying 8,000,000 shares by $1.00, the last
closing bid price of the Common Shares on June 27, 2000, as reported on NASDAQ.
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 REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
=============================================================================
<PAGE>
SUBJECT TO COMPLETION
8,000,000 Shares
of
Socrates Technologies Corporation
Common Stock, $0.01 par value,
offered by certain Selling Shareholders
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE "RISK FACTORS" REFERENCED ON PAGE __ IN DETERMINING
WHETHER TO PURCHASE THE SHARES.
-------------------------
This Prospectus is part of a Registration Statement that we have filed with the
SEC using a "shelf" registration process. This means:
- The selling shareholders may offer and sell the 8,000,000 Shares
covered by this Prospectus from time to time and upon conversion of
debentures and/or warrants issued by the Company to "Accredited
Investors" (as defined in Rule 501(a) of Regulation D under the
Securities Act of 1933, as amended) in private placements offered in
the first six months of year 2000.
- We will provide a Prospectus Supplement each time we issue or sell
any of the shares and each time the selling shareholder sells the
common shares covered by this Prospectus; and
- The Prospectus Supplement will provide specific information about
the terms of the offering and also may add, update, or change
information contained in this Prospectus.
Socrates Technologies Corporation's common shares trade on the NASDAQ National
Market System under the symbol "SOCT."
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE __ OF THIS PROSPECTUS.
-------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE NEW YORK ATTORNEY GENERAL HAS NOT REVIEWED OR APPROVED THIS OFFERING.
June ___, 2000
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TABLE OF CONTENTS
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PAGE
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<S> <C>
WHERE YOU CAN FIND MORE INFORMATION...............................................
THE COMPANY.......................................................................
MANAGEMENT .......................................................................
THE SELLING SHAREHOLDERS..........................................................
FORWARD-LOOKING STATEMENT.........................................................
RISK FACTORS......................................................................
USE OF PROCEEDS...................................................................
PRICE RANGE OF COMMON SHARES......................................................
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................
PLAN OF DISTRIBUTION..............................................................
DESCRIPTION OF COMMON SHARES......................................................
LEGAL MATTERS.....................................................................
EXPERTS...........................................................................
TRANSFER AGENT................................... ................................
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................
</TABLE>
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We have not taken any action to permit a public offering of the common
shares covered hereby outside of the United States or to permit the possession
or distribution of this Prospectus outside of the United States. Persons outside
of the United States who come into possession of this Prospectus must inform
themselves about and observe any restrictions relating to the offering of the
common shares and the distribution of this Prospectus outside of the United
States.
EXPLANATION
This Registration Statement registers Shares for issuance upon the
conversion of debentures and warrants issued by the Company in private
placements to Accredited Investors (as defined in Rule 501(a) of Regulation D
under the Securities Act) in the year 2000.
In this Prospectus, "Socrates," "Company," "we," "us," and "our" refer
to Socrates Technologies Corporation. "SSC" shall mean Socrates Solutions
Corporation, a Virginia corporation and a wholly-owned subsidiary of the
Company. "Technet" shall mean Technet Computer Services, Inc., a Virginia
corporation and a wholly-owned subsidiary of the Company. "STI" shall mean
"Socrates Technologies, Inc.", a Maryland corporation and a wholly-owned
subsidiary of the Company. "NWL" shall mean Networkland Inc., a Virginia
corporation and a wholly-owned subsidiary of the Company.
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT AUTHORIZED
ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN
OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN ON THE FRONT OF THESE
DOCUMENTS.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC this Form S-3 Registration Statement
registering the Shares offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all of the information in the
Registration Statement or the exhibits that are part of the Registration
Statement. For further information with respect to Socrates and the common
shares, please see the Registration
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<PAGE>
Statement and the exhibits that are part of the Registration Statement.
You may read and copy any document we file at the SEC's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. Our SEC filings are also available to the public from the SEC's
Website at http://www.sec.gov.
We are subject to the information and periodic reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As
required by the Exchange Act, we file periodic reports, proxy statements, and
other information with the SEC. These periodic reports, proxy statements, and
other information will be available for inspection and copying at the SEC's
public reference rooms and the Website of the SEC referred to above.
THE COMPANY
We are a Delaware holding company with two primary businesses: (1)
providing information technology products and services, including network
engineering and computer system integration services and products, to commercial
and government customers in the Mid-Atlantic area (hereinafter referred to as
the "IT Services Business"); and (2) custom software development and maintenance
services, especially in basic business and management and information systems,
to commercial customers in the United States (referred to as the "Systems
Development Business"). The IT Services Business is conducted primarily through
Socrates' NWL subsidiary. The Systems Development Business is conducted
primarily through our Technet subsidiary.
The Systems Development Business includes SSC which company is intended to
be the vehicle in which the Company develops new business lines and products.
SSC acquired in March 2000 substantially all of the assets and assumed certain
liabilities of Object Application Systems, Inc., a New York corporation formed
in 1994 that develops, maintains and licenses a enterprise resource planning
("ERP") computer software program (the "ERP Product") that enables small and
medium sized manufacturing companies to perform basic financial, inventory
control, and sales and distribution functions through the ERP Product.
SSC is developing a Web-enabled version of the ERP Product and to also to
integrate e-commerce front-end browser with the ERP Product to produce a
proprietary, integrated e-commerce system for customers seeking to engage in the
sale of their products, services or both over the Internet, intranets, extranets
or virtual private networks to businesses or governments (the "e-commerce
solution"). The e-commerce solution would be intended for use as a basic system
for conducting sales by customers a variety of industries. The Company currently
anticipates that it will cost $1.2 million to develop the e-commerce solution.
The Company does not currently have sufficient cash flow from operations
or cash reserves to completely fund the proposed development of the e-commerce
solution. The Company will have to raise additional working capital during the
next 90 days, either through the sale of securities or debt financing, to fund
the development of the e-commerce solution. While the exercise of the Warrants
to be issued in connection with the 4% Debenture due March 20, 2005 would
produce some infusion of working capital to the Company, there can be no
assurance that the Warrants will be exercised and, even if all of the Warrants
are exercised, the anticipated working capital to the Company from such an
exercise would not be sufficient to completely fund the development of the
e-commerce solution.
The Company is actively seeking sources of working capital to fund the
development, the marketing and sale of the e-commerce solution by September
2000. Since the Company has suffered successive fiscal quarters of losses, the
Company does not believe that it can obtain a loan from banks or financial
institutions and will have to, alternatively, sell its securities in private
placements to raise the necessary funds, which private placements will dilute
the stock ownership of existing shareholders and will typically offer these
shares at a discount from then-current market prices. The Company is not
currently confident that it will be able
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<PAGE>
to raise sufficient working capital through private placements to completely
fund the development of the e-commerce solution.
The e-commerce solution is viewed by the Company as a key business line
for future profitability. The e-commerce solution industry is highly competitive
and the Company faces competition from numerous companies that have
significantly superior financial, technical and sales and marketing resources
and has an existing customer base that is significantly greater than the
Company's existing customer base. The Company believes that it can only achieve
a profitable market niche in providing the e-commerce solution to small and
medium sized enterprises in North America. The Company does not believe that
there is currently a dominant company or product in the e-commerce solution in
the SME market in most industries in that market. The inability of the Company
to obtain sufficient working capital in year 2000 on reasonable terms could
undermine the Company's ability to develop a profitable e-commerce solution and,
by such failure, significantly undermine the Company's ability to develop new
business lines and sources of revenues and profits.
Since April 2000, SSC has also developed and offered an application
service provider or "ASP" product to SME market, which ASP consists of the ERP
Product, high-speed Internet access, Microsoft Exchange, SalesLogix computer
software program and Web hosting and e-mail options. SSC retained the services
of an Internet marketing firm to assist in the promotion of the ASP business.
Based on its experience in marketing the ASP services, SSC has concluded that
the ASP SME market is highly competitive and that the offering of the e-commerce
solution to the SME market presents a better opportunity for SSC to attain
profitability than the ASP services. SSC has shifted its business strategy to
promote the e-commerce solutions with the ASP services as a component. There can
be no assurance that SSC can develop or market and sell the e-commerce solution,
especially in light of its need for additional working capital.
Prior to 1999, STI was the primary business of Socrates and was engaged
as a value added reseller ("VAR") in the resell of third-party and proprietary
computer hardware and software products. Due to decreasing profit margins in the
computer reselling business and resulting financial losses sustained by the
Company in that business, Socrates refocused the primary business lines to the
IT Services Business and Systems Development Business in 1999 and phased out in
1999 the computer reseller business conducted by STI continues to offer a
limited number of courses designed to train individuals to become certified
engineers in computer systems and network engineering, website development and
website communication technologies through its STI subsidiary. STI also offers
training in basic computer skills and network engineering to job training
candidates sponsored by local county governments. The sales and service staff of
STI were transferred to NWL or laid off in the fall of 1999. Socrates first
offered its common shares to the public in August 1995. Our registered offices
are located at 8500 Leesburg Pike, Suite 406, Vienna, Virginia 22183, and our
telephone number is (703) 288-6500.
Socrates has experienced a considerable change in business focus and
revenues during 1999. Under a new management team, that was installed in
September and October 1999, Socrates is now focused primarily on the Systems
Development Business.
MANAGEMENT
As of the June 6, 2000, the Board of Directors of Socrates consists of
Timothy Keenan, Mitchell Jerine (Acting Chairman), Richard Prins (outside
director), Mariellen Lowry (outside director), Andreas A, Keller, Farshad Sajedi
and Paul Richter.
Mr. Keller resigned as Chairman, effective May 1, 2000, in order to
assume and focus on the responsibilities of Vice President of Finance and
Administration. Mr. Keller will be responsible for the duties of the Chief
Financial Officer until Socrates appoints a person for that position. Mitchell
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<PAGE>
Jerine, President of SSC, was appointed by the Board as a director and Chairman
of the Board and as Chief Operating Officer of Socrates, effective May 1, 2000.
The Board selected Mr. Jerine as Chairman and Chief Operating Officer in order
to place an executive, with a technical background in those two key management
positions. Socrates Board will elect a permanent Chairman of the Board at a
board meeting to be held prior to October 31, 2000. Mr. Jerine is eligible to
stand for election as permanent Chairman.
As of June 6, 2000, the senior management of Socrates consists of
Timothy Keenan as Chief Executive Officer and President, Mitchell E. Jerine as
Acting Chairman and Chief Operating Officer and Andreas Keller as Vice President
of Finance and Administration.
The Board is currently seeking to appoint one or more outside directors
in 2000 who will satisfy Nasdaq Stock Market Inc. rules governing the new
qualifications of directors serving on the Board's Audit Committee. The current
Audit Committee members are Richard Prins and Mariellen Lowry.
THE SELLING SHAREHOLDERS
The Shares will be sold by certain holders of Socrates' 4% Debentures
due March 20, 2005 and underlying Warrants and any holders of any other
debentures or warrants issued by the Company in year 2000, all of which were or
will be issued in private placements by Socrates to Accredited Investors in
2000.
Shares to be Issued under 4% Debentures due March 20, 2005 and
Underlying Warrants. The exact number of Shares to be issued upon the conversion
of the 4% Debentures due March 20, 2005 and/or the underlying Warrants and sold
under this Registration Statement will be determined by the lowest closing bid
price of the Shares for the 30 day trading period prior to conversion. The
number of shares issued upon exercise of Warrants will be determined by the
formula: X=(A-B)/A, where X is the number of Shares, Y is the number of Shares
if only a portion of the Warrant is exercised, A is the closing bid price of the
Shares on the date of exercise and B is the "Warrant Price", subject to reset of
the exercise price under certain circumstances. You should read the Form of
Debenture and Form of Warrant, which are Exhibits to the Registration Statement
(Commission File Number 333-34126), to understand all of the terms and
conditions of the 4% Debenture due March 20, 2005 and the Warrants under Section
4 of the Form of Warrant.
Under the terms of the Financing Agreements, the Company shall be
obligated to call a special meeting of its shareholders to approve the issuance
of the Shares through the conversion of the 4% Debentures due March 20, 2005 and
exercise of the underlying Warrants if such issuance causes the Company to issue
Shares that equal more than 20% of the then outstanding and issues Shares. The
Company believes that the issuance of the Shares upon the conversion of the 4%
Debenture due March 20, 2005 and the issuance of the Shares upon the exercise of
the Warrants might result in the issuance of Shares exceeding the aforementioned
20% level and that, under the terms of the Financing Agreement and applicable
Nasdaq Stock Market Rules, the Company will be required to call a special
meeting of shareholders as soon as practicable to vote on the issuance of the
Shares under the 4% Debentures due March 20, 2005 and the underlying Warrants.
If the shareholders fail to approve the issuance of Shares under the 4%
Debentures due March 20, 2005 and the underlying Warrants, then the Company
would be obligated under the Financing Agreements to promptly redeem the 4%
Debentures due March 20, 2005 at 125% of face amount.
Shares to be Issued under Other Debentures and Warrants. The Company
has issued from time to time to Accredited Investors warrants to purchase the
Shares. Said Warrants typically offered an exercise price equal to the trading
average of the Shares for the 10 day period immediately preceding the issuance
of the Warrants or a set discount of 10% to 20% from the closing bid price of
the Shares on the date of the issuance of the Warrants.
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<PAGE>
FORWARD-LOOKING STATEMENT
An investment in Shares involves a high degree of risk. In addition to
the other information contained in this Prospectus, you should carefully
consider the risk factors identified below before investing in our common
shares. All statements, trend analyses, and other information contained in this
Prospectus regarding the markets for our container leasing services and net
revenue, profitability, and anticipated expense levels, and any statements
containing the words "anticipate," "believe," "plan," "estimate," "expect,"
"intend," or other similar expressions constitute forward-looking statements.
These forward-looking statements are subject to business and economic risks. Our
actual results of operations may differ materially from those contained in the
forward-looking statements. The cautionary statements made in this Prospectus
apply to all forward-looking statements wherever they appear in this Prospectus.
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this Prospectus before investing in the shares.
Investing in the shares involves a high degree of risk. Any of the following
factors could harm our business and could result in a partial or complete loss
of your investment.
OUR BUSINESS IS HIGHLY COMPETITIVE
Socrates is engaged in businesses where there are numerous competitors
that possess substantially greater resources and market share than Socrates. As
such, Socrates is unable to effectively compete for certain projects or for
projects requiring resources that exceed Socrates' current capabilities,
especially in the IT Services Business.
Socrates is attempting to develop a new business line in providing
e-commerce computer programming services as well as proprietary computer
programs designed to provide customers with the ability to create, develop and
manage e-commerce sites on the Internet or over other networks. Socrates is
marketing its e-commerce business to small and medium sized enterprises in the
Mid-Atlantic region. Through its Technet subsidiary and SSC subsidiary, Socrates
has the basic computer programming services and software products for this new
business, but needs to raise capital to fund further technical development of
software products and to market and promote the new business line. Socrates
needs to raise additional capital to fund this development work and marketing
and promotional efforts. If Socrates fails to raise additional capital in year
2000, it will be unable to adequately fund its new business line. Socrates
anticipates that the new e-commerce business line will be the principal source
of future revenue growth.
Socrates has numerous competitors in its new e-commerce business. Many
of these competitors not only possess superior resources than Socrates but are
ahead of Socrates in terms of developing and marketing products and services and
obtaining market share. Without sufficient funding, Socrates will not be able to
effectively compete in its new e-commerce business line. Socrates anticipates
that it needs at least $1.5 million to fund the new e-commerce business line in
year 2000.
Further, Socrates ability to attract and retain key personnel may be
adversely impacted upon by the fact that Socrates does not possess the resources
of many of its competitors to attract and compensate, especially in terms of
incentive compensation, key personnel.
Socrates relies on a limited number of sales and marketing personnel to
produce most of its business. It lacks the resources to embark on sustained
national or regional advertising in print, electronic and direct mail marketing
campaigns. This limitation may adversely impact Socrates' ability to maintain
market share or penetrate new markets.
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<PAGE>
OUR BUSINESS HAS EXPERIENCED SUCCESSIVE FISCAL QUARTERS OF SIGNIFICANT FINANCIAL
LOSSES
While Socrates believes that revenues from existing business and its
existing capital resources are sufficient to sustain current, basic operations,
the discontinuance of certain operations in 1998 and 1999 and losses from
discontinued and ongoing businesses have adversely impacted during the past four
fiscal quarters on the ability of Socrates to fund the growth of its primary
business lines. Socrates believes that its current primary business lines are
capable of being or becoming profitable or break even, but it has not been able
in the past five months to obtain new lines of credit or funding that management
believes are sufficient to fund its current operations and proposed new business
lines. Socrates is continuing its efforts to obtain new financing to adequately
fund current operations and new business lines.
Socrates has suffered successive fiscal quarters of substantial
financial losses since 1997. These financial losses have resulted from
discontinuance of certain subsidiaries' businesses and losses from ongoing and
discontinued business operations.
The Company has not received a final decision from the Nasdaq Stock
Market about the possible delisting of the Company's Common Stock. The Company
may have its Common Stock delisted from the Nasdaq Stock Market's National
Market System. If that occurs, the Company would have to seek listing of the
Shares on the Nasdaq Small Cap Market or Bulletin Board.
DEPENDENCE ON FINANCING
We are heavily dependent upon third parties to supply us with the
Working capital needed to acquire products in the IT Services Business. Our
operations require significant capital to purchase computer and information
technology products for customers in the IT Services Business. We have
historically financed product purchases through vendor financing, factoring or
floor financing lines and internal cash reserves and loans from insiders.
Socrates and its subsidiaries currently do not have a non-vendor non-factoring
credit line for the purchase of products or to fund operating expenses. As such,
each company depends on cash flow from operations or vendor-sponsored financing
to purchase products and services and to pay operating expenses.
Socrates entered into a Securities Purchase Agreement and Registration
Rights Agreement on March 20, 2000 or thereabouts to issue 4% Debentures due
March 20, 2005 and underlying Warrants to certain foreign investors who are
"Accredited Investors" under Rule 501 of Regulation D under the Securities Act
of 1933, as amended. These agreements and the terms of the Debentures and
Warrants impose certain restrictions on the ability of Socrates to dilute
current shareholders through the issuance of additional shares of capital stock
and on consummating mergers and acquisitions with third parties without the
consent of the Debenture holders. Further, the conversion of the 4% Debentures
due March 20, 2005, which may occur as early as July 2000, will cause
substantial dilution to existing shareholders. Socrates expects to raise
approximately $3.175 million through the private placement of the Debentures,
which money will be used for working capital, retirement of certain debts of the
Company and its subsidiaries and acquisition costs. The Securities Purchase
Agreement, Registration Rights Agreement, Form of Debenture and Form of Warrant
shall be referred to collectively as the "Financing Agreements".
Socrates is attempting to raise sufficient funds through new,
alternative financing sources to redeem the 4% Debentures due March 20, 2005.
There can be no assurance that Socrates will be able to raise sufficient funds
to redeem the 4% Debentures due March 20, 2005 issued under the Financing
Agreements. The failure to redeem the Debentures may result in the conversion of
these Securities and the exercise of the, which conversion and exercise may
substantially dilute existing shareholders.
Socrates and the representatives of the investors for the 4% Debentures
due March 20, 2005, have an agreement for a standstill in respect of Socrates'
obligations under the Financing Agreements in order to enhance its efforts in
June 2000 to locate alternative financing. There can be no assurance that
Socrates will be able to locate alternative financing to redeem the 4%
Debentures due March 20, 2005. Further, under the standstill agreement with the
investors' representative, LH Financial Services Corporation, the Company
remains obligated to proceed with registering the Shares for issuance upon the
conversion of the 4% Debentures due March 20, 2005 and the exercise of the
underlying Warrants.
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The foregoing discussion of the Financing Agreements is qualified in
its entirety by reference to the individual documents and instruments marking up
the Financing Agreements, which are attached to Registration Statement on Form
S-3 (Commission File Number 333-34126) as exhibits.
The restrictive terms of the private placement for the 4% Debentures
due March 20, 20005 may significantly hinder Socrates from raising additional
money or from consummating future acquisitions. Socrates believes that the $3
million financing was essential to initial implementation of Socrates' new
business plan and to improving Socrates' financial condition, especially in
terms of eliminating debts of discontinued operations. These debts used up cash
flow that would have otherwise funded the existing operations and new business
development efforts of the Company.
THE PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE
The market price of our common stock is highly volatile. During the
period from January 1, 1998 to June 5, 2000 the closing price of our common
stock has ranged from a high of $9.06 to a low of $0.50. Following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. If similar
litigation were instituted against us, it could result in substantial costs and
a diversion of our management's attention and resources, which could have an
adverse, if not ruinous, effect on our business. The volatile fluctuations of
the market price are based on (1) the number of shares in the market at the time
as well as the number of shares we may be required to issue in the future,
compared to the market demand for our shares; (2) our performance and meeting
expectations of our performance, including the development and commercialization
of our products and proposed products; and (3) general economic and market
conditions. As a small technology company, any investment in our stock is highly
risky and subject to sudden changes in market price.
WE ARE DEPENDENT UPON KEY MANAGEMENT
Most of our senior executives and other management-level employees have
been with us for less than one year. The loss of the services of one or more of
them could have a material adverse effect on our business. We believe that our
future success will depend on our ability to retain key members of our
management team and to attract capable management in the future. There can be no
assurance that we will be able to do so. We do not maintain "key man" life
insurance policies on any member of management.
Gana Govind, the chief executive officer of Technet Computer Services,
Inc., did not renew his employment agreement as the chief executive officer of
Technet when it expired on September 30, 1999. Badri Devanathan, a senior
executive with Technet, has been appointed President of Technet Computer
Services, Inc., effective January 1, 2000. Mr. Govind continues to provide
management and technical services to Technet as a consultant, but there can be
no assurance that Mr. Govind will continue to provide such services to Technet
in the future.
HOLDING COMPANY STRUCTURE
We are a holding company. We derive all of our operating income and
cash flow from our subsidiaries. We rely upon distributions from our
subsidiaries and inter-company borrowings to generate the funds necessary to
meet our obligations. The ability of our subsidiaries to make payments to us is
subject, among other things, to applicable laws of their respective
jurisdictions of incorporation and such restrictions as may be contained in
credit agreements or other financing arrangements entered into by such
subsidiaries. Claims of creditors of our subsidiaries will generally have
priority as to the assets of such subsidiaries over our claims and those of our
shareholders.
RISK OF SUBSTANTIAL DILUTION OF STOCK OWNERSHIP
In the event that the 4% Debenture due March 20, 2005 are converted and
the underlying Warrants are exercised, shareholders will exercise significant
dilution of their stock ownership in the Company. Such dilution could be 20% or
greater, depending on the conversion ratio and exercise price of those
securities. The Company believes that it will have to obtain shareholder
approval of the financing under the 4% Debentures due March 20, 2005 and the
underlying Warrants. If the Company is unable to redeem the 4% Debentures due
March 20, 2005, then the Company believes that it will be obligated under the
terms of the Financing Agreements and applicable Nasdaq National Stock Market
System Marketplace Rules to call a shareholders' meeting to approve the issuance
of the 4% Debentures due March 20, 2005 and the underlying Warrants.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the common shares
that the Selling Shareholders will sell pursuant to this Prospectus. The Company
will receive proceeds from the exercise of any Warrants underlying the Warrants
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<PAGE>
issued under the 4% Debentures due March 20, 2005 or otherwise, which amount of
proceeds cannot be estimated until the date of exercise.
Any proceeds received from the sale of the Shares will be used to pay
the operating expenses of the Company and its subsidiaries.
PRICE RANGE OF COMMON SHARES
Our common shares are quoted on the Nasdaq National Market under the
symbol "SOCT." The following table sets forth, for the periods indicated, the
high and low closing prices per share of our common shares as reported on the
Nasdaq National Market.
HIGH LOW
---- ---
CALENDAR YEAR 1998
First Quarter............................................... $9.06 $5.00
Second Quarter.............................................. 8.25 4.25
Third Quarter............................................... 7.13 6.00
Fourth Quarter.............................................. 7.75 1.50
CALENDAR YEAR 1999
First Quarter............................................... 4.00 1.00
Second Quarter.............................................. 4.25 1.63
Third Quarter............................................... 2.96 1.00
Fourth Quarter.............................................. 2.19 0.50
On June 26, 2000, the last reported closing price of our common shares
on the Nasdaq National Market was $1.00 per share. As of June 26, 2000, there
were approximately 3,300 shareholders of record of our common shares.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF DECEMBER 31, 2000
For our financial condition and the results of our operations as of
December 31, 1999, we refer you to our Annual Report on Form 10-K for the period
ending December 31, 1999.
PLAN OF DISTRIBUTION
The Selling Shareholder, may be offered from time to time directly to
purchasers in negotiated transactions or otherwise, at prices determined at the
time of sale. The Selling Shareholder may effect such transactions by selling
Common Shares to or through dealers and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the Selling
Shareholders and any purchasers of common shares for whom they may act as
agents.
The place and time of delivery for the common shares in respect of
which this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
DESCRIPTION OF COMMON SHARES
GOVERNING LAW
Socrates is a Delaware company and its affairs are governed by its
Articles of Incorporation (the "Articles"), Delaware General Corporation Law and
federal and state securities laws and regulations.
LEGAL MATTERS
The validity of the common shares offered hereby will be passed upon
for the Company by Paul W. Richter, General Counsel of Socrates.
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<PAGE>
EXPERTS
The consolidated financial statements incorporated in this prospectus
by reference to the Annual Report on Form 10-K for the year end December 31,
1999, have been so incorporated in reliance on the report of Grant Thornton,
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
TRANSFER AGENT
The transfer agent of the Company's Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005, (212)
936-5100.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates documents by reference which are not
presented in or delivered with it. This means that we can disclose certain
information by referring a reader to certain documents. These documents (other
than the exhibits to such documents unless specifically incorporated by
reference) are available, without charge, upon written or oral request directed
to Paul W. Richter, General Counsel and Secretary, Socrates Technologies
Corporation, 8500 Leesburg Pike, Suite 406, Vienna, Virginia 22183, and our
telephone number is (703) 288-6500.
The following documents, which have been filed by Socrates with the SEC
pursuant to the Exchange Act (file no. 0-26614) are incorporated in this
Prospectus by reference and shall be deemed to be a part hereof:
(a) Annual Report on Form 10-K for the year ended December 31,
1999;
(b) Quarterly Reports on Form 10-Q for the quarters ended March
31, 2000, September 30, 1999, and June 30, 1999;
(c) Current Reports on Form 8-K, dated June 26, 2000; dated June
22, 2000; dated March 15, 2000, and Amendment Number One, dated May 25, 2000,
and Amendment Two, dated May 26, 2000, thereto, and February 2, 2000, December
13, 1999, and October 12, 1999, and
(d) All documents filed by Socrates with the SEC Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering made by this Prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superceded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is to be deemed to
be incorporated by reference modifies or supercedes such statement. Any such
statement so modified or superceded shall not be deemed, except as so modified
or superceded, to constitute a part of this Prospectus.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the expenses, other than underwriting discounts and
commissions, expected to be incurred by the Company in connection with the
issuance and distribution of the securities registered under this Registration
Statement. All amounts are estimated, with the exception of the SEC Registration
Fee and Delaware tax on the issuance of the common shares covered by this
Registration Statement:
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SEC Registration Fee..............................................$ 8,800.00
NASD Filing Fee...................................................$17,000.00
Legal Fees and Expenses...........................................$ 7,500.00
Accounting Fees and Expenses......................................$ 3,500.00
Miscellaneous.....................................................$ 1,000.00
Total.............................................................$37,800.00
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has obtained insurance for the benefit of the directors and
officers of the Company and its subsidiaries insuring such persons against
certain liabilities, including liabilities under Federal and state securities
law.
Article X of the Company's By-Laws, as amended, provides that the
Company shall indemnify each person who is or was a director or officer of the
Company, each person who is or was serving or has agreed to serve at the request
of the Company as a director or officer of, or in a similar capacity with,
another organization against all liabilities, costs and expenses reasonably
incurred by such persons in connection with the defense or disposition of or
otherwise in connection with or resulting from any action, suit or other
proceeding in which they may be involved by reason of being or having been such
a director or officer or by reason of any action taken or not taken in such
capacity, except with respect to any matter as to which such person shall have
been finally adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that his or her action was in the best
interests of the Company. Delaware General Corporation Law authorizes
corporations to indemnify their directors and officers unless such person shall
have been finally adjudicated in any proceeding to have not acted in good faith
and in the reasonable belief that such action was in the best interests of the
corporation.
ITEM 16. EXHIBITS.
4.1 Form of 4% Debenture due March 20, 2005 (1)
4.2 Form of Warrant(2)
4.3 Securities Purchase Agreement(2)
4.4 Registration Rights Agreement, dated March 20, 2000, between Socrates
and Certain Investors (2)
10.1 Form of Standstill Agreement between Socrates and the Representative of
the Investors in the 4% Debentures due March 20, 2005 (4);
10.2 Form of Mutual Release between Socrates and the Representative of the
Investors in the 4% Debentures due March 20, 2005 (4);
24.1 By-Laws, as amended, dated February 7, 1998 (3)
24.2 Opinion of Paul Richter (previously filed)
24.3 Consent of Grant Thornton, LLP.
24.4 Power of Attorney (included as part of the signature page of this
Registration Statement).
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(1) Filed as Exhibit 4.1 to the Registration Statement on Form S-3 (File Number
333-34126) as filed with the Commission on April 8, 2000.
(2) Filed as an Exhibit to Post-Effective Amendment Number Two to the
Registration Statement on Form S-3 (File Number 333-34126) as filed with the
Commission on June 29, 2000.
(3) Incorporated by reference to Exhibit 3(b) to the Form 10-K for the year
ended December 31, 1999 (2) To be filed by amendment.
(4) To be filed by amendment.
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ITEM 17. UNDERTAKINGS.
A. Undertaking to Update.
The undersigned Registrant hereby undertakes:
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<PAGE>
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act");
(ii) reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the Registration Statement;
and
(iii) include any material information with respect
to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement. Provided, however, that paragraph (A)(1)(i) and (A)(1)(ii) do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. Undertaking With Respect to Documents Incorporated by Reference.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
C. Undertaking With Respect to Indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
D. Undertaking With Respect to Pricing Information.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of any prospectus filed as
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<PAGE>
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing of this Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the County of Fairfax, Virginia on the 29th day of June
2000.
SOCRATES TECHNOLOGIES CORPORATION
By: /s/ Timothy Keenan
----------------------------------------
Timothy Keenan, Chief Executive Officer
and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Paul W. Richter, Addreas Keller and
each of them, any of whom may act without joinder of the others, his or her true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all pre- and post-effective amendments and
supplements to this Registration Statement, and to file the same, or cause to be
filed the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or the substitute or substitutes
of any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing this Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, who being
duly authorized to sign, in the County of Fairfax, Virginia on June 29, 2000.
Date: June 29, 2000
By: /s/ Timothy Keenan
----------------------------------------
Timothy Keenan, Chief Executive Officer
and President
<PAGE>
SOCRATES TECHNOLOGIES CORPORATION
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ MITCHELL E. JERINE Acting Chairman and Chief Operating 6/23/00
------------------------ Officer
Mitchell E. Jerine
/s/ TIMOTHY KEENAN Chief Executive Officer and 6/23/00
President
------------------------
Timothy Keenan
/s/ ANDREAS A. KELLER Director, Vice President-Finance and 6/23/00
------------------------ Administration
Andreas A. Keller
/s/ FARSHAD SAJEDI Director 6/23/00
------------------------
Farshad Sajedi
/s/ MARIELLEN LOWRY Director 6/23/00
------------------------
Mariellen Lowry
