UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________
Commission file number 0-24380
e-automate Corporation
____________________________________
(Exact name of small business issuer as specified in its charter)
Delaware
______________________
(State or other jurisdiction of incorporation or organization)
33-0601502
____________________
(IRS Employer Identification No.)
71 North 490 West
American Fork, Utah 84003
____________
(Address of principal executive offices)
(801) 492-1705
________________
(Issuer's telephone number)
______________________________
(Former name, address and fiscal year, if changed since last report)
Check whether the registrant filed all documents and reports required
to be filed by Section l2, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of July 31, 2000:
Common Stock: 5,796,462
Series 2000-A Preferred: 1,000
Series 2000-B Preferred: 629
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [x]
E-AUTOMATE CORPORATION
FORM 10-QSB
QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
Page
-----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets June 30, 2000 (Unaudited) and
March 31, 2000 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months Ended June 30, 2000 and 1999 and for the Cumulative
Period From November 22, 1995 (Date of Inception) through
June 30, 2000 5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended June 30, 2000 and 1999 and for the Cumulative
Period from November 22, 1995(Date of Inception) through
June 30, 2000 6
Notes to the Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis and Plan of Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 5. Other Information 18
Item 6. Exhibits and Reports of Form 8-K 18
Signatures 19
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, March 31,
2000 2000
------------ -----------
(Unaudited)
Current Assets
Cash $ 283,211 $ 219
Securities available-for-sale - 5,470
Trade accounts receivable,
no allowance for doubtful accounts 32,451 23,099
Receivable from employees 10,900 -
Receivable from shareholders 637,600 -
---------- ----------
Total Current Assets 964,162 28,788
---------- ----------
Property and Equipment
Furniture and fixtures 143,945 75,566
Computer equipment 287,766 173,946
---------- ----------
Total Property and Equipment 431,711 249,512
Less: Accumulated depreciation (57,452) (44,752)
---------- ----------
Net Property and Equipment 374,259 204,760
---------- ----------
Other Assets
Purchased software for internal use, net of
accumulated amortization of $3,655 (unaudited)
at June 30, 2000 and $2,755 at March 31, 2000 16,100 15,548
Security deposits 5,401 5,401
Deferred redeemable preferred stock offering
costs 737,394 -
---------- ----------
Total Other Assets 758,895 20,949
---------- ----------
Total Assets $2,097,316 $ 254,497
========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, March 31,
2000 2000
---------- ----------
(Unaudited)
Current Liabilities
Cash overdraft $ - $ 114,075
Accounts payable 159,020 278,454
Accrued liabilities 169,509 1,258
Deferred revenue 145,548 158,138
Notes payable - related party 295,001 237,281
Revolving credit note payable - 169,915
Note payable - current portion - 168,000
Obligation under capital leases -
current portion 24,614 24,614
---------- ----------
Total Current Liabilities 793,692 1,151,735
---------- ----------
Long-Term Liabilities
Obligation under capital leases 40,239 46,045
---------- ----------
Redeemable Preferred Stock
Series 2000-A convertible preferred stock
- $0.001 par value; 5,500 shares
authorized; 500 shares outstanding at
June 30, 2000 (unaudited);liquidation
preference $500,000 (unaudited) 250,112 -
---------- ----------
Stockholders' Equity (Deficit)
Series B Convertible preferred stock
- $0.001 par value; 1,000,000 shares
authorized ; 629 shares outstanding
at June 30, 2000 (unaudited)
liquidation preference $629,000
(unaudited) 628,983 -
Undesignated preferred stock -
$0.001 par value; 993,500 shares
authorized; no shares outstanding - -
Common stock - $0.001 par value;
20,000,000 shares authorized;
shares outstanding: 5,746,462 at
June 30, 2000 (unaudited), 5,296,205
at March 31, 2000 and 2,797,181
at March 31, 1999 5,746 5,296
Additional paid-in-capital 6,076,076 3,784,079
Unearned compensation (141,377) (179,572)
Deficit accumulated during the
development stage (5,556,155) (1,256,495)
---------- ----------
Total Stockholders' Equity (Deficit) 1,013,273 (943,283)
---------- ----------
Total Liabilities and Stockholders'
Equity (Deficit) $2,097,316 $ 254,497
========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Period
From Inception
For the Three Months (November 22, 1995)
Ended June 30, Through
-------------------------- June 30,
2000 1999 2000
---------- ---------- ------------------
Revenues
Software licenses $ 114,905 $ 42,050 $ 672,673
Services 48,911 9,945 287,954
---------- ---------- ----------
Total Revenues 163,816 51,995 960,627
Cost of Revenues 180,927 83,149 823,664
---------- ---------- ----------
Gross Profit (Loss) (17,111) (31,154) 136,963
---------- ---------- ----------
Operating Expenses
Research and development 343,771 113,429 2,062,561
Selling and marketing 262,432 83,217 1,639,210
General and
administrative 345,486 457,477 1,707,601
---------- ---------- ----------
Total Operating
Expenses 951,689 654,123 5,409,372
Loss From Operations (968,800) (685,277) (5,272,409)
Interest Expense (31,509) (31,283) (280,986)
---------- ---------- ----------
Net Loss (1,000,309) (716,560) (5,553,395)
Preferred Dividends (2,760) - (2,760)
---------- ---------- ----------
Loss Applicable to
Common Shares $(1,003,069) $ (716,560) $(5,556,155)
=========== ========== ===========
Basic and Diluted
Loss Per Common Share $ (0.20) $ (0.23) $ (1.90)
=========== ========== ===========
Weighted Average Number
of Shares Used in
Per Share Calculation 5,136,451 3,069,926 2,928,647
=========== ========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Period
From Inception
For the Three Months (November 22,
Ended June 30, 1995) Through
------------------------ June 30,
2000 1999 2000
----------- ---------- ------------
Cash Flows From Operating Activities
Net loss $(1,000,309) $ (716,560) $(5,553,395)
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 13,600 8,001 61,107
Stock issued for legal expense 20,001 - 20,001
Stock issued for interest expense 4,835 - 20,195
Stock issued for rent expense 13,500 - 13,500
Stock based compensation 18,000 248,160 677,050
Compensation from stock
options granted 38,195 - 267,927
Compensation as note payable - 58,969 58,969
Debt discount amortized
as interest - 2,125 44,125
Change in assets and liabilities:
Trade accounts receivable (9,352) (75,278) (40,636)
Accounts payable (119,434) 64,260 159,020
Accrued liabilities 165,491 13,920 170,559
Deferred revenue (12,590) 139,701 153,733
Other assets (10,900) (1,432) (16,301)
---------- ---------- -----------
Net Cash Used In Operating Activities (878,963) (258,134) (3,964,146)
---------- ---------- -----------
Cash Flows From Investing Activities
Proceeds from sales of investments
in securities available-for-sale 74,415 - 487,695
Purchase of property and equipment (183,651) - (354,392)
---------- ---------- -----------
Net Cash Provided by (Used In)
Investing Activities (109,236) - 133,303
---------- ---------- -----------
Cash Flows From Financing Activities
Decrease in bank overdraft (114,075) (3,082) -
Proceeds from issuance of
common stock 610,619 31,670 2,467,405
Proceeds from issuance of
preferred stock 450,000 - 450,000
Proceeds from issuance of
notes payable - 225,000 672,000
Proceeds from related
parties notes payable 445,000 40,000 883,997
Principal payments on notes
payable - related party (114,547) (17,937) (497,066)
Principal payments on obligation
under capital leases (5,806) (2,686) (24,197)
Payments to redeem common stock
from employees - - (8,000)
Net change in revolving line of
credit note payable - 74,398 169,915
---------- ---------- -----------
Net Cash Provided By Financing
Activities 1,271,191 347,363 4,114,054
---------- ---------- -----------
Net Increase In Cash 282,992 89,229 283,211
Cash at Beginning of Period 219 386 -
---------- ---------- -----------
Cash at End of Period $ 283,211 $ 89,615 $ 283,211
========== ========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Condensed Financial Statements - The accompanying condensed
consolidated financial statements at June 30, 2000 and for the three
months ended June 30, 2000 and 1999 are unaudited. In the opinion of
management, all necessary adjustments (which include only normal
recurring adjustments) have been made to present fairly the financial
position, results of operations and cash flows for the periods
presented. Certain information and disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the Company's financial statements and notes thereto
included in the Form 10-KSB, as amended, dated March 31, 2000.
The results of operations for the three-month period ended
June 30, 2000 are not necessarily indicative of the operating results
to be expected for the full year.
Basis of Presentation and Consolidation - The accompanying
consolidated financial statements include the accounts and
transactions of e-automate Corporation and its subsidiaries,
Aureus Corporation and ActiveViews, Inc., (collectively "e-automate"
or the "Company") for all periods presented. Intercompany accounts
and transactions have been eliminated in consolidation.
NOTE 2 - CASH FLOW INFORMATION
Supplemental Cash Flow Information - During the three months ended
June 30, 2000 and 1999 the Company paid $11,244 and $27,049 for
interest, respectively.
During the three months ended June 30, 2000, the Company issued 23,815
common shares upon receipt of marketable securities with a fair value
of $68,945. The Company issued 629 shares of Preferred Series B stock
upon conversion of $168,000 in notes payable, $442,648 in related party
notes payable, and $18,335 in expenses. The Company issued 210,866
common shares for subscriptions receivable in the amount of $632,600.
NOTE 3 - RELATED PARTY NOTES PAYABLE
An officer and director advanced the Company $245,000 during the
three months ended June 30, 2000 to meet current operating expenses
and was repaid $99,999. On June 19, 2000 the Company converted $90,000
of these notes payable into Preferred Series B stock. The remaining
balance on the notes payable to this officer and director at
June 30, 2000 was $55,001.
On May 8, 2000, an officer and director advanced $200,000 to the
Company to meet current operating expenses. The loan bore interest
at 8 percent. On July 5, 2000 the entire principal balance and all
accrued interest was paid to the officer.
NOTE 4 - NOTES PAYABLE
During the three months ended June 30, 2000, the Company converted
notes payable of $168,000 into preferred Series B shares, for an
ending balance of zero in notes payable.
7
NOTE 5 - REDEEMABLE PREFERRED STOCK
Series A Convertible Preferred Stock - On June 19, 2000, the Board of
Directors designated 5,500 shares of preferred stock as
Series 2000-A preferred stock with a $0.001 par value per share and a
stated value of $1,000 per share (Series A convertible preferred stock)
together with up to 1,000,000 warrants. Each outstanding share of
Series A convertible preferred stock is entitled to the number of votes
equal to the number of shares of common stock into which it is
convertible. Cumulative dividends accrue on the Series A convertible
preferred stock at 8% per annum and are payable quarterly. The holder
of Series A convertible preferred stock, at its option, may elect to
receive payment of dividends in cash or in common stock. Dividends on the
Series A convertible preferred stock rank senior to dividends payable on
all other series or classes of stock.
The Series A convertible preferred stock is convertible into common stock
at 80% of the average of the three lowest quoted closing bid prices
during the 15 trading days preceding the conversion date, subject to a
maximum conversion price of $5.75 per share and a minimum conversion
price of $3.25 per share. On or after December 19, 2001, the Company
can require conversion of the Series A convertible preferred stock,
upon a 30-day notice to the holder. On liquidation, the Series A
convertible preferred shareholders will be entitled to receive $1,000
per share plus any accrued but unpaid dividends ahead of any liquidation
payments to the common shareholders.
On June 19, 2000, the Company entered into an agreement with an investor
to issue up to 5,000 shares of Series A convertible preferred stock
together with up to 1,000,000 warrants as a unit for up to $5,000,000.
The agreement calls for the issuance over ten shares of 500 Series A
convertible preferred stock shares and 100,000 warrants each for $500,000
in cash. Receipt of the financing is solely at the discretion of the
investor and there is no obligation on the investor to provide the
financing.
The warrants are exercisable from May 31, 2001 at an initial price of
$5.00 per share through May 31, 2004. If the fair market value of the
shares is less than $5.00 per share at anytime during the first six
months for which the shares are quoted, the initial exercise price will
be $4.00 per share.
On June 19, 2000 the Company received cash proceeds of $450,000 net of
$50,000 offering costs, in exchange for the issuance of 500 shares of
Series A convertible preferred stock and 100,000 warrants.
In connection with this offering, warrants to purchase 500,000 shares of
common stock at $5.00 per share were issued as a financing fee and for
cash proceeds of $5,000 on June 19, 2000. The fair value of the warrants
of $819,327 was determined based on the Black-Scholes option pricing
model with the following assumptions: risk-free interest rate of 6.56%;
expected dividend yield of 0%; estimated volatility of 125%; and
expected life of two years. The fair value of the warrants was recorded
8
as deferred offering costs and are being charged against the proceeds of
Series A convertible preferred stock financing when each tranche of
funding is received. If the investor notifies the Company of its
discontinuation of the Series A convertible stock financing, the
remaining deferred offering costs will be charged to operations.
The net proceeds received after offering costs of $50,000 and after
amortization of deferred offering costs of $81,932, were allocated
between the Series A convertible preferred stock and the warrants based
on the relative fair value of those instruments with $117,956 allocated
to the warrants and $250,112 allocated to the Series A convertible
preferred stock.
Subsequent to June 30, 2000 on July 19, 2000 the Company issued 500
shares of Series A convertible preferred stock upon receiving cash
proceeds in the amount $450,000, net of $50,000 offering costs.
Contingent Defaults of the Series A Preferred Stock - Under terms of
the default provisions of the Series A convertible preferred stock, if
at any time after issuance the Company has an event of non-compliance,
such as if (i) the Company fails to make the dividend payment when due,
(ii) the trading price for the Company's stock, once trading on NASDAQ
or the NASD's OTC Bulletin Board, falls below $3.25, (iii) the Company
fails to obtain the effectiveness of a registration statement by
October 17, 2000, or (iv) other event of non-compliance as defined in
the Certificate of Designation for the Series A convertible preferred
stock, then the Company is required to redeem the Series A convertible
preferred stock at 125% its face value (together with any accrued but
unpaid dividends) and the related dividend rate changes to 21%. If not
then redeemed with in 10 days the Series A convertible preferred stock
becomes convertible into common stock at a rate of 80% of the fair value
of the underlying common shares, less $1.00 per share, and the
conversion rate is no longer subject to a $3.25 floor conversion price.
The increase in the face value of the Series A preferred stock to 125%
would be accounted for as a contingent preferred dividend in the amount
of $374,888 for each 500 Series A preferred shares outstanding.
The ability the holder has to convert the Series A convertible preferred
stock at a discount from the fair value of the underlying common stock
represents a contingent beneficial conversion feature and the Company
would recognize a preferred dividend in the amount of $250,112, as
limited to the allocation of proceeds assigned to the preferred stock at
the commitment date. Both preferred dividends would be recognized
immediately since the Series A convertible preferred stock is
convertible at any time after its issuance.
NOTE 6 - STOCKHOLDERS' EQUITY
Series B Convertible Preferred Stock - In June 2000, the Board of
Directors designated 1,000 shares of preferred stock as Series B
preferred stock with a $0.001 par value per share and a stated value of
$1,000 per share (Series B convertible preferred stock).
Each outstanding share of Series B convertible preferred stock is
entitled to the number of votes equal to the number of shares of common
stock into which it is convertible. Cumulative dividends accrue on the
Series B convertible preferred stock at 8% per annum and are payable
9
quarterly. The holder of Series B convertible preferred stock, at its
option, may elect to receive payment of dividends in cash or in common
stock. Dividends on the Series B convertible preferred stock are
preferential to dividends on all other series or classes of stock but
are junior in preference and subordinate to dividends on the Series A
convertible preferred stock.
Each share of Series B convertible preferred stock is convertible into
200 common shares, or at $5.00 per share, upon its issuance. On or
after December 19, 2001, the Company can require conversion of the
Series B convertible preferred stock, upon a 30-day notice to the
holder.
On liquidation, the Series B convertible preferred shareholders will
be entitled to receive $1,000 per share plus any accrued but unpaid
dividends. The liquidation preference of the Series B convertible
preferred stock ranks junior to the Series A convertible preferred
stock but retains priority as to all other series or classes of stock.
On June 19, 2000, the Company issued 629 shares of Preferred Series B
stock upon the conversion of $168,000 in notes payable, $442,648 in
related party notes payable, and $18,335 in expense reimbursements.
Common Stock - From April to June 2000, the Company issued 203,539
investment units, under the terms of an ongoing private placement,
(the "2000 Placement") for cash proceeds of $610,619 or $3.00 per
unit. Included as a part of the 2000 Placement, 1,363 units were
issued in exchange for securities available-for-sale with a value
of $4,091, or $3.00 per unit. In fulfilment of subscription agreements
under a prior private placement offering, 21,822 units were issued in
exchange for securities available-for-sale with a value of $64,854,
or $3.00 per unit.
During June 2000, the Company issued 210,866 units, under the terms of
the 2000 Placement, for subscriptions receivable in the amount of
$632,600, or $3.00 per unit. All funds related to the subscription
receivables were received during July 2000. The 2000 Placement
was closed June 30, 2000.
During June 2000, 6,667 common shares were issued for legal services
with a value of $20,001 and 6,000 common shares were issued to a
director for services provided. The value of these shares was based upon
the value the company received upon the issuance of common shares for
cash in private placements during the weeks surrounding this issuance.
>From April through June 2000, the Company issued 6,000 shares to one of
the Company's directors as part of an agreement to compensate the
director for his services by issuing 24,000 shares according to a
12-month vesting schedule, or 2,000 shares per month.
NOTE 7 - STOCK OPTIONS AND WARRANTS
Stock Options - During the three months ended June 30, 2000 the
Company granted 376,700 incentive stock options, all with an
exercise price of $3.00 per share under terms of the 1999 Employee
Incentive Stock Option Plan. At June 30, 2000, there was a total
of 842,690 incentive stock options outstanding.
10
Stock Purchase Warrants - During the three months ended
June 30, 2000, the Company issued 10,911 Class A warrants
and 10,911 Class B warrants in connection with 21,822 shares of
common stock issued under the terms of the 1999 private placement
offering. Each Class A warrant is convertible at $3.50 per share
through August 31, 2000, and each Class B warrant is convertible at
$4.50 per share through February 28, 2001. Also during the three months
ended June 30, 2000, the Company issued 422,435 Class C warrants along
with 422,435 shares of common stock under the terms of the 2000
Placement. Each Class C warrant is convertible into one common share at
$5.50 per share through August 31, 2001.
NOTE 8 - COMMITMENTS
During December 1999 the shareholders elected a new director and the
Company agreed to compensate the director for his services by issuing
24,000 common shares according to a 12-month vesting schedule or 2,000
shares per month.
NOTE 9 - SUBSEQUENT EVENTS
Issuance of Series A Convertible Preferred Stock - On July 19, 2000,
the Company received cash proceeds of $450,000 net of $50,000 offering
costs, in exchange for the issuance of 500 shares of Series A
convertible preferred stock and 100,000 warrants. The net proceeds
received after the additional amortization of deferred redeemable
preferred stock offering costs in the amount of $81,922, were allocated
between the Series A convertible preferred stock and the detached
warrants issued based on the relative fair value of those instruments
with $117,956 being allocated to the warrants and $250,112 to the
Series A preferred stock.
Acquisition of Software License - On July 14, 2000, the Company
acquired a license to bundle a data-mining tool with its core software
product, and acquired the source code to the same data-mining tool.
To acquire these assets, the Company issued 50,000 shares of common
stock, valued at $150,000, or $3.00 per share, to the owners of
ActiveViews Acquisition Corporation which held as its sole asset the
user license, and agreed to start up a new joint venture subsidiary
called ActiveViews, Inc., (AVI). For a 75% voting interest (an initial
100% of the outstanding common shares) in AVI, the Company has
committed to fund $1,200,000 of the operations of AVI by issuing a
$1,200,000 demand note payable to AVI. The developers of the
data-mining tool contributed the related source code for 2.5 million
convertible preferred shares of AVI, representing a 25% voting interest
in the joint venture subsidiary. The source code and the minority
interest are valued at its historical cost of zero.
The Company will account for the acquisition as the purchase of
software for sale or lease in the amount of $150,000 and will amortize
the software over a three-year period on a straight-line basis.
11
Item 2. Managements Discussion and Analysis And Plan of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
General
Results of Operations
Comparison of Quarters Ended June 30, 2000, and 1999.
Gross Revenue
For the quarter ended June 30, 2000, our total gross revenue was
$163,816 compared to $51,995 for the quarter ended June 30, 1999, an
increase of 111,821. The major portion of the increase can be
attributed to increased sales efforts in the Company's market niche.
Through the first three months of this fiscal year, we hired additional
sales staff.
Gross Loss
Our cost of license revenues include the cost of manuals and product
documentation, production media used to deliver our products, and
packaging costs. Our cost of support and services revenues includes
salaries and related expenses for the customer support, implementation
and training services and an allocation of overhead expenses.
We experienced a gross loss for the quarter ended June 30, 2000,
of $17,111 compared to gross loss of $31,154 for the quarter ended
June 30, 1999. The increase, or reduction in the gross loss, can be
attributed to an increase in automation processes for the
implementation of e-automate software. The automation has reduced
the cost of implementation and therefore decreased the gross loss of
the Company.
Costs and Expenses
Operating Expenses
Our operating expenses are classified as sales and marketing, research
and development, and general and administrative. We classify all
charges to these operating expense categories based on the nature of
the expenditures. Although each category includes expenses that are
unique to the category type, there are common recurring expenditures
that are typically included in all operating expense categories,
including salaries, employee benefits, incentive compensation, bonuses,
travel costs, professional fees, telephone, communication, rent, and
allocated facilities costs. The sales and marketing category of
operating expenses includes additional expenditures specific to the
sales group, such as commissions, and expenditures specific to the
marketing group, including public relations and advertising, trade
shows and marketing collateral materials. In the development of
enhancements of existing products, the technological feasibility of
the software is not established until substantially all product
development is complete. Historically, software development costs
eligible for capitalization have been insignificant, and we have
expensed all costs related to internal research and development as
we have incurred them.
We anticipate that our operating expenses will increase substantially
as we intend to continue to incur higher research and development costs
and invest heavily in the expansion of our sales, marketing, and
support organizations to build an infrastructure to support our
long-term growth strategy. The number of our full-time employees
increased from 20 as of June 30, 1999, to 57 full-time employees and
four part-time employees as of June 30, 2000. We will seek to hire
additional employees in the future. To achieve profitability, we will
have to increase our total revenues significantly.
The following paragraphs give a comparison of the period ending
June 30, 2000, to the previous period ending June 30, 1999.
However, in view of our limited operating history, we believe that
period-to-period comparisons of our revenues and operating expenses
are not necessarily meaningful and should not be relied upon as
indicative of future performance. Our prospects must be considered
in light of the risks, expenses and difficulties frequently
encountered by companies in early stages of development, particularly
companies in new and rapidly evolving markets.
Total operating expenses increased, from the quarter ended
June 30, 1999, to the quarter ending June 30, 2000, a total of $297,566.
Operating expenses totaled $654,123 for the quarter ended June 30, 1999,
compared to a total of $951,689 for the quarter ended June 30, 2000.
The following paragraphs detail the specific changes that created the
increase in operating expenses.
General and administrative expenses for the quarter ending June 30,
2000, were $345,486 compared to $457,477 for the same quarter of the
previous year, a decrease of $111,991. The reason for the decrease in
general and administrative expenses is due to certain sales/marketing
and development expenses allocated to their appropriate departments and
employees.
Research and development expenses increased a total of $230,342 from a
June 30, 1999, total of $113,429 to the current quarter total of
$343,771. The increase in our research and development expenditure is
largely due to two specific development projects. We have developed
an upgrade to its existing software package to be introduced in August
of this year. In addition, we have been developing a product for
Toshiba Corporation since March of this year. We have completed phase
one of the development process, and have one more phase to complete.
Phase two of this project will begin in the second fiscal quarter of
this year.
Selling and marketing expenses for the quarter ending June 30, 1999,
were $83,217 and increased for the period ending June 30, 2000, to
$262,432. The increase of $179,215 represents our increased effort in
marketing our software package through attendance at various tradeshows
and direct selling.
Net Loss
Our net loss for the quarter ending June 30, 2000, was $1,000,309,
an increase of $283,749, when compared to the loss for the quarter ended
June 30, 1999, of $716,560.
Liquidity and Capital Resources
We are currently unable to finance our operations from operating
activities, and historically we have relied on loans, equity instruments,
and private placements from both insiders and outside investors.
We continue to finance our operations through the net proceeds from
private placements of equity instruments.
At June 30, 2000, we had current assets of $964,162 and current
liabilities of $793,692 resulting in net working capital of $170,470
and a current ratio of 1.21. This is an increase of $1,293,417 from
our working capital of ($1,122,947) as of March 31, 2000. During the
three-month period, from March 31, 2000, to June 30, 2000, the Company
converted approximately $628,983 of debt into Series 2000-B Preferred
Stock, and used net proceeds from a private placement to fund current
operations and pay down certain liabilities. Our total liabilities as
of June 30, 2000, were $833,931, a decrease of $363,849 when compared
to total liabilities of $1,197,780 as of March 31, 2000.
Inflation
We do not expect the impact of inflation on operations to be
significant.
Year 2000
We had developed plans to address the possible exposures related to
the impact on our computer systems for the Year 2000. Since entering
the Year 2000, we have not experienced any major disruptions to our
business, nor are we aware of any significant Year 2000 related
disruptions impacting our customers and suppliers. Furthermore, we did
not experience any material impact on business at calendar year end.
We will continue to monitor our critical systems over the next several
months but do not anticipate any significant impacts due to Year 2000
exposures from our internal systems as well as from the activities of
our suppliers and customers.
Forward-Looking Statements.
When used in this SB-2 and in other filings by e-automate with the
Securities and Exchange Commission ("SEC"), in our press releases or in
other public or stockholder communications or oral statements made
with the approval of any of our authorized executive officers, the
words or phrases "would be," "will allow," "intends to," "believes,"
"plans," "will likely result," "are expected to," "will continue,"
"is anticipated," "estimate," "project," or similar expressions are
intended to identify "forward looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements
are based on our beliefs and the assumptions we made using information
currently available to us. We caution readers not to place undue
reliance on any forward-looking statements, which speak only as of the
date made, are based on certain assumptions and expectations which may
or may not be valid or actually occur, and which involve risks of
product demand, market acceptance, economic conditions, competitive
products and pricing, difficulties in product development,
commercialization, and technology, and other risks. In addition, sales
and other revenues may not commence and/or continue as anticipated due
to delays or otherwise. As a result, our actual results for future
periods could differ materially from those anticipated or projected.
We do not intend to update the forward looking statements contained in
this report, except as may occur as part of our ongoing periodic reports
filed with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
(c) Recent Sales of Unregisterd Securities
We issued 422,435 shares of common stock in a private placement from
April 7, 2000 to June 30, 2000. Each share of common stock included a
Class C Warrant to purchase one share of Common Stock at a price of $5.50
per share.
These securities were sold to individuals, an employee, friends and
family of that employee, and a consultant. The offering price of the
security was $3.00 per share for a total placement of $1,267,305.
The securities offered under this private placement were not registered
with the United States Securities and Exchange Commission or the
Securities Commission of any state because they were believed to be
exempt from registration under section 4(2) of the Securities Act of
1933 and regulation D promulgated thereunder, and corresponding
provisions of state blue sky laws or other exemptions from such laws.
On June 19, 2000, we issued 500 shares of Series 2000-A Preferred Stock
and 100,000 Series 2000-A Warrants to a private investor for $500,000
cash, less a placement discount to the purchaser of $50,000.
Series 2000-A Preferred Stock. The Board of Directors has designated a
total of 5,500 shares of Series 2000-A Preferred Stock.
The $1,000 stated value of each share of Series 2000-A Preferred Stock,
together with accrued and unpaid dividends, is convertible into shares
of Common Stock at a rate equal to 80% of the fair market value, which
is, as provided in the Securities Purchase Agreement for such shares,
$3.00 per share until said Common Stock is quoted on the Nasdaq Stock
Market System or reported on the NASD's OTC bulletin board during the 15
trading days preceding the date of conversion, subject to maximum and
minimum conversion prices of $5.75 and $3.25 per share, respectively.
Shares of our Common Stock are not now quoted or listed, nor are they
otherwise traded. However, the Securities Purchase Agreement pursuant
to which the holder of the Series 2000-A Preferred Stock and Series
2000-A Warrants acquired said shares and warrants obligates us to
register the shares of Common Stock into which the Series 2000-A
Preferred Stock are convertible or which underlie the Warrants and that
the Common Stock trade publicly beginning no later than
October 17, 2000. A penalty will be assessed for each month that these
conditions are not met equal to 7.0% of the total Common Shares into
which the Series 2000-A Preferred Stock is convertible. If, as and when
the Common Stock is quoted on the Nasdaq Stock Market System or reported
on the NASD's OTC Bulletin Board, fair market value will then be equal
to the average of the three lowest closing bid prices for the Common
Stock during the 15 trading days preceding the date of conversion,
subject to minimum and maximum conversion prices of $5.75 and $3.25
per share, respectively.
At any time after December 19, 2001, we may, at our sole option,
redeem all of the then outstanding shares of Series 2000-A Preferred
Stock at a price equal to 125% of stated value per share, plus accrued
and unpaid dividends, if any. The holders of shares of Series 2000-A
Preferred Stock are entitled to cumulative preferred dividends at the
rate of 8.0% of the stated value per annum per share, payable in cash or
Common Stock, at the election of the holder, on or before the end of
each calendar quarter, commencing June 30, 2000. In an event of
noncompliance as defined in the Certificate of Designation, the
cumulative preferred dividend rate becomes 21% per annum.
The Series 2000-A Preferred Stock has priority rights to dividends over
the Common Stock, but will not participate in any dividends payable to
the holders of shares of Common Stock. No dividends will be paid to
holders of shares of Common Stock unless and until all dividends on
shares of Preferred Stock have been paid in full for the same period.
In the event of any liquidation, dissolution or winding-up of the
company, the holders of shares of Series 2000-A Preferred Stock are
entitled to receive, prior and in preference to, any distribution of
any of our assets or surplus funds to the holders of shares of Common
Stock, Series B Preferred Stock or any other stock of e-automate ranking
on liquidation junior or subordinate to the Series 2000-A Preferred
Stock, an amount equal to the $1,000 stated value per share, plus
accrued and unpaid dividends, if any. The holder of shares of Series
2000-A Preferred Stock have voting rights equal to the number of shares
of our Common Stock into which said holder's shares of Series 2000-A
Preferred Stock are convertible, except in those instances required by
Delaware law.
Series 2000-A Warrants. Each Series 2000-A Warrant entitles the holder
to purchase one share of Common Stock at an exercise price of $5.00 per
share, or $4.00 per share if, during the first six months for which the
Common Shares are quoted at less than $5.00 per share on the Nasdaq
Stock Market System or reported on the NASD Bulletin Board.
The Warrants are exercisable from 90 days following the effective date
of registration of the underlying shares of Common Stock through
June 21, 2004, provided that at the time of exercise a current
prospectus relating to the Common Stock is then in effect and the
Common Stock is qualified for sale or exempt from qualification under
applicable state securities laws. The Series 2000-A Warrants are not
subject to early redemption by the Company. The Series 2000-A
Warrants may be exercised upon surrender of the certificate(s)
therefore on or prior to the expiration or the redemption date at the
offices of Colonial Stock Transfer Company, 544 E. 400 S. Suite 100,
Salt Lake City, Utah 84111, our warrant agent (the "Warrant Agent")
with the subscription form on the reverse side of the certificate(s)
completed and executed as indicated, accomplished by payment (in the
form of a certified or cashier's check payable to the order of the
Company) of the full exercise price for the number of Series 2000-A
Warrants being exercised.
The Warrants are exercisable from May 31, 2001, or earlier upon the
occurrence of an event of default or a change in control of the Company.
Series 2000-A Warrants are exercisable through May 31, 2004, provided
that at the time of exercise a current prospectus relating to the
Common Stock is then in effect and the Common Stock is qualified for
sale or exempt from qualification under applicable state securities
laws. The Series 2000-A Warrants are not subject to early redemption
by the Company.
The Securities Purchase Agreement provides that the Warrantholder may
exercise by paying for the underlying shares of Common Stock in cash
or by means of a cashless exercise, whereby, if applicable, the
requisite number of shares of Common Stock to be issued on such
exercise would be reduced as if they had been sold and the excess
proceeds applied to cover the exercise price of the remaining shares of
Common Stock.
The Series 2000-A Warrants contain provisions that protect the holders
thereof against dilution by adjustment of the exercise price per
share and the number of shares issuable upon exercise thereof upon the
occurrence of certain events including issuances of Common Stock
(or options or securities convertible, exchangeable or exercisable
into Common Stock) at less than market value, stock dividends, stock
splits, mergers, sale of substantially all of our assets, and for
other extraordinary events; provided, however, that no such adjustment
shall be made upon, among other things (i) the issuance or exercise
of options or other securities under employee benefit plans (ii) the
sale or exercise of outstanding Series 2000-A or Series 2000-B
Warrants, or (iii) the conversion of shares of the Company's Preferred
Stock to Common Stock.
The holder of Series 2000-A Warrants will not possess any right as a
shareholder of the Company unless or until it exercises the Series
2000-A Warrants. It is anticipated that, through March 19, 2001, the
Series 2000-A Warrantholder will purchase, although it is not required
to, additional shares of Series 2000-A Preferred Stock, whereupon we
will issue to the Series 2000-A Warrantholder additional Series 2000-A
Warrants, which, together with such warrants it currently holds, could
be adjusted to as many as 1,000,000 such warrants. Therefore, the
Company has reserved a total of 1,000,000 shares of Common Stock in
the event the holder of the now and subsequently issued and adjusted
Series 2000-A Warrants elects to exercise the same and thereby to
purchase Common Stock. As of July 31, 2000, no Series 2000-A Warrants
have been exercised.
As of July 31, 2000, there were a total of 1,000 shares of Series
2000-A Preferred Stock issued and outstanding. It is anticipated that
the Company will sell to the holder of Series 2000-A Preferred Stock,
although said stockholder is not required to purchase, an additional
total of 4,000 shares of Series 2000-A Preferred Stock for $1,000 per
share, in phases at 30-day intervals through March 19, 2001. A total of
1,538,462 shares of Common Stock has been set aside and reserved in the
event that the holder of the now and subsequently issued shares of
Series 2000-A Preferred Stock elects to convert those shares into shares
of Common Stock. As of July 31, 2000, no shares of Series 2000-A
Preferred Stock have been converted into shares of Common Stock
Further, we issued securities in the conversion of certain liabilities.
On June 19, 2000, the Company sold 629 shares of Series B Preferred
Stock to three existing shareholders, one of which is also a director,
in exchange for outstanding indebtedness in a total amount of $628,983.
Series B Preferred Stock. The Board of Directors has designated a
total of 1,000 shares of Series B Preferred Stock. The $1,000 stated
value of each share of Series B Preferred Stock, together with accrued
and unpaid dividends, is convertible into shares of Common Stock at a
price of $5.00 per share. The Series B Preferred Stock has priority
rights to dividends over the Common Stock, but will not participate in
any dividends payable to the holders of shares of Common Stock.
No dividends will be paid to holders of shares of Common Stock unless
and until all dividends on shares of Preferred Stock have been paid
in full for the same period. In the event of any liquidation,
dissolution or winding-up of the company, the holders of shares of
Series B Preferred Stock are entitled to receive, prior and in
preference to, any distribution of any of the assets or surplus funds
of the Company to the holders of shares of Common Stock, or any
other stock of e-automate ranking on liquidation junior or
subordinate to the Series B Preferred Stock, an amount equal to the
$1,000 stated value per share, plus accrued and unpaid dividends,
if any. The holder of shares of Series B Preferred Stock have voting
rights equal to the number of shares of our Common Stock into which
said holder's shares of Series 2000-A Preferred Stock are convertible,
except in those instances required by Delaware law.
As of July 31, 2000, there were a total of 629 shares of Series B
Preferred Stock issued and outstanding. A total of 125,800 shares of
Common Stock has been set aside and reserved in the event that the
holders of the issued shares of Series B Preferred Stock elect to
convert those shares into shares of Common Stock. As of July 31, 2000,
no shares of Series B Preferred Stock have been converted into shares
of Common Stock.
Series 2000-B Warrants. Each Series 2000-B Warrant
entitles the holder to purchase one share of Common Stock at an
exercise price of $5.00 per share, or $4.00 per share if, during the
first six months for which the Common Shares are quoted at less than
$5.00 per share on the Nasdaq Stock Market System or reported on the
NASD Bulletin Board. The Warrants are exercisable from 90 days
following the effective date of registration of the underlying shares
of Common Stock through June 21, 2004, provided that at the time of
exercise a current prospectus relating to the Common Stock is then in
effect and the Common Stock is qualified for sale or exempt from
qualification under applicable state securities laws.
The Series 2000-B Warrants are not subject to early redemption by the
Company. The Warrant Certificate provides that the Series 2000-B
Warrantholder may exercise by paying for the underlying shares of
Common Stock in cash or by means of a cashless exercise, whereby,
if applicable, the requisite number of shares of Common Stock to be
issued on such exercise would be reduced as if they had been sold and
the excess proceeds applied to cover the exercise price of the
remaining shares of Common Stock.
The Series 2000-B Warrant Certificate contains provisions that protect
the holders thereof against dilution by adjustment of the exercise
price per share and the number of shares issuable upon exercise thereof
upon the occurrence of certain events including issuances of Common
Stock (or options or securities convertible, exchangeable or
exercisable into Common Stock) at less than market value, stock
dividends, stock splits, mergers, sale of substantially all of the
Company's assets, and for other extraordinary events; provided,
however, that no such adjustment shall be made upon, among other
things (i) the issuance or exercise of options or other securities under
employee benefit plans (ii) the sale or exercise of outstanding Series
2000-A or Series 2000-B Warrants, or (iii) the conversion of shares of
the Company's Preferred Stock to Common Stock.
The holder of Series 2000-B Warrants will not possess any right as a
shareholder of the Company unless or until it exercises the Series
2000-B Warrants. We have reserved 500,000 shares of Common Stock in
the event the holder of the Series 2000-B Warrants elects to exercise
the same and thereby to purchase Common Stock. As of July 31, 2000, no
Series 2000-B Warrants have been exercised.
Item 5. Other Information.
During July 2000, e-automate and Eric Meyers and Aaron Meyers (Meyers)
incorporated a joint venture subsidiary, ActiveViews, Inc., (AVI) a
Delaware Corporation. AVI will market a data-mining tool. e-automate
committed to invest $1,200,000 in cash for 100% of the outstanding
common stock of AVI and the Meyer's contributed the source code to
the ActiveViews product, valued at its historical cost of $0, to AVI
for 2,500,000 shares of Convertible Series A Preferred Stock. The
preferred shareholders have a 25% voting interest. Concurrent with this
transaction e-automate acquired the rights to the ActiveViews product
for inclusion in its core software product for 50,000 shares of common
stock valued at $3.00 a share.
Item 6. Exhibits and Reports on Form 8-K.
(a) Index to Exhibits
Exhibit
No. Description of Exhibit
----- ----------------------
2.1 Series A Preferred Stock Purchase Agreement, dated July 14, 2000,
by and between ActiveViews, Inc. a Delaware corporation and the Series
A Investors, Eric Meyers and Aaron Meyers.*
2.2 Reorganization Agreement, dated July 14, 2000, between and among
e-automate Corporation, a Delaware corporation, ActiveViews
Acquisition Corporation, a Utah corporation, Eric Meyers, an
individual, and Aaron Meyers, an individual, e-automate, AAC, Aaron
Meyers and Eric Meyers collectively referred to as the "Parties" and
Aaron Meyers and Eric Meyers collectively referred to as the
"Shareholders."*
2.3 Joint Formation Agreement, dated July 14, 2000, between and
among e-automate Corporation, a Delaware corporation, and Eric Meyers,
an individual, and Aaron Meyers, an individual.*
2.4 e-automate Stock Purchase Agreement, by and between ActiveViews,
Inc. a Delaware corporation and e-automate Corporation, a Delaware
corporation.*
3.5 Articles of Incorporation of ActiveViews Acquisition Corporation,
dated July 14, 2000.*
3.6 Bylaws of ActiveViews Acquisition Corporation.*
27. Financial Data Schedule*
_____________________________
* Filed herewith.
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
e-automate Corporation
/s/ Lon D. Price
__________________
Lon D. Price
Date: August 14, 2000
/s/ Greg L. Popp
__________________
Greg L. Popp
Date: August 14, 2000
19
