SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO.1
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Quarter Ended September 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from
-------
to
-----------
Commission File Number: 0-24380
E-AUTOMATE, CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0601502
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
831 East 340 South
American Fork, Utah 84003
(Address of principal executive offices and zip code)
(801) 492-1705
(Registrant's telephone number, including area code)
71 North 490 West
American Fork, Utah 84003
(Former name, address and fiscal year, if changed since last report)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of October 31, 2000:
Common Stock: 5,824,462
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [x]
E-AUTOMATE CORPORATION
FORM 10-QSB/A
AMENDMENT NO. 1
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 2000 March 31, 2000 3
Condensed Consolidated Statements of Operations (Unaudited) for
the Three and Six Months Ended September 30, 2000 and 1999
and for the Cumulative Period From November 22, 1995
(Date of Inception) through September 30, 2000 5
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the Six Months Ended September 30, 2000 and 1999 and for the
Cumulative Period from November 22, 1995 (Date of Inception)
through September 30, 2000 6
Notes to the Condensed Consolidated Financial Statements
(Unaudited) 7
Item 2. Management's Discussion and Analysis and Plan of Operations 20
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 21
Item 6. Exhibits and Reports of Form 8-K 23
Signatures 24
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, March 31,
2000 2000
---------- ----------
CURRENT ASSETS
Cash $ 338,095 $ 219
Investment in securities available-
for-sale - 5,470
Trade accounts receivable, net of
$17,901 and $0 allowance for doubtful
accounts, respectively 137,200 23,099
Prepaid expenses 16,390 -
---------- ----------
TOTAL CURRENT ASSETS 491,685 28,788
---------- ----------
PROPERTY AND EQUIPMENT
Furniture and fixtures 307,122 75,566
Computer equipment 427,027 173,946
---------- ----------
TOTAL PROPERTY AND EQUIPMENT 734,149 249,512
Less: Accumulated depreciation (82,759) (44,752)
---------- ----------
NET PROPERTY AND EQUIPMENT 651,390 204,760
---------- ----------
OTHER ASSETS
Purchased software for internal use,
net of accumulated amortization of
$7,736 at September 30, 2000 and
$2,755 at March 31, 2000 86,037 15,548
Purchased software for sale or lease,
net of accumulated amortization of
$12,500 137,500 -
Purchased customer list, net of
accumulated amortization of $10,169 233,895 -
Security deposits 9,362 5,401
Deferred redeemable preferred stock
offering costs 491,595 -
---------- ----------
TOTAL OTHER ASSETS 958,389 -
---------- ----------
TOTAL ASSETS $2,101,464 $ 254,497
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 3
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, March 31,
2000 2000
---------- ----------
CURRENT LIABILITIES
Cash overdraft $ - $ 114,075
Accounts payable 540,259 278,454
Accrued liabilities 334,689 1,258
Deferred revenue 63,732 158,138
Notes payable - related party 25,000 237,281
Revolving credit note payable - 169,915
Note payable - current portion - 168,000
Obligation under capital leases -
current portion 26,570 24,614
---------- ----------
TOTAL CURRENT LIABILITIES 990,250 1,151,735
---------- ----------
LONG-TERM LIABILITIES
Obligation under capital leases 32,252 46,045
REDEEMABLE PREFERRED STOCK
Series 2000-A convertible preferred
stock - $0.001 par value; 5,500 shares
authorized; 2,000 shares outstanding
at September 30, 2000; liquidation
preference $2,000,000 1,000,448 -
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Series B Convertible preferred stock
- $0.001 par value; 1,000,000 shares
authorized; 629 shares outstanding
at September 30, 2000 liquidation
preference $629,000 628,983 -
Undesignated preferred stock - $0.001
par value; 994,500 shares authorized;
no shares outstanding - -
Common stock - $0.001 par value;
20,000,000 shares Authorized;
shares outstanding: 5,842,462 at
September 30, 2000 and 5,296,205
at March 31, 2000 5,842 5,296
Additional paid-in-capital 6,717,845 3,784,079
Unearned compensation (113,622) (179,572)
Deficit accumulated during the
development stage (7,160,534) (4,553,086)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) 78,514 (943,283)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 2,101,464 $ 254,497
========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 4
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION> For the Period
From Inception
(November 22,
For the Three Months For the Six Months 1995)
Ended September 30, Ended September 30, Through
------------------------- ------------------------- September 30,
2000 1999 2000 1999 2000
REVENUES -------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Software licenses $ 165,506 $ 65,357 $ 280,411 $ 107,407 $ 838,179
Services 76,667 22,689 125,578 32,634 364,621
-------------- ---------- ---------- ---------- ----------
TOTAL REVENUES 242,173 88,046 405,989 140,041 1,202,800
COST OF REVENUES 181,440 187,864 362,367 271,013 1,005,104
-------------- ---------- ---------- ---------- -----------
GROSS PROFIT (LOSS) 60,733 (99,818) 43,622 (130,972) 197,696
-------------- ---------- ---------- ---------- -----------
OPERATING EXPENSES
Research and development 583,229 184,667 927,000 298,096 2,645,790
Selling and marketing 299,712 133,693 562,144 216,910 1,938,922
General and administrative 742,634 141,457 1,088,120 598,934 2,450,235
-------------- ---------- ---------- ----------- -----------
TOTAL OPERATING EXPENSES 1,625,575 459,817 2,577,264 1,113,940 7,034,947
-------------- ---------- --------- ----------- -----------
LOSS FROM OPERATIONS (1,564,842) (559,635) (2,533,642) (1,244,912) (6,837,251)
INTEREST EXPENSE (2,735) (20,556) (34,244) (51,839) (283,721)
-------------- ---------- ----------- ---------- -----------
NET LOSS (1,567,577) (580,191) (2,567,886) (1,296,751) (7,120,972)
PREFERRED DIVIDENDS (36,802) - (39,562) - (39,562)
-------------- ---------- ----------- ---------- -----------
LOSS APPLICABLE TO COMMON SHARES $ (1,604,379) $ (580,191) $(2,607,448) $(1,296,751) $(7,160,534)
============= ========== =========== =========== ===========
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.28)$ (0.12) $ (0.47) $ (0.33) $ (2.32)
============= =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN PER SHARE CALCULATION 5,794,070 4,793,168 5,593,919 3,936,257 3,085,838
============ ============ ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 5
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
From Inception
(November 22,
1995)
For the Six Months Through
Ended September 30, September 30,
-------------------------- -----------
2000 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,567,886) $(1,296,751) $(7,120,972)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 65,657 16,001 113,164
Common stock issued for legal expense 20,001 - 20,001
Common stock issued for interest expense - - 15,360
Preferred stock issued for interest expense 4,835 - 4,835
Preferred stock issued for rent expense 13,500 - 13,500
Stock-based compensation 36,000 248,160 695,050
Compensation from stock options granted 65,950 46,190 295,682
Compensation paid with a note payable - 58,969 58,969
Debt discount amortized as interest - 2,125 44,125
Change in assets and liabilities:
Trade accounts receivable (98,500) (133,302) (129,784)
Prepaid expenses (16,390) - (16,390)
Securities deposit (3,961) (2,481) (9,362)
Accounts payable 261,805 (17,897) 540,259
Accrued liabilities 293,869 (13,390) 298,937
Deferred revenue (94,406) 178,043 71,917
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,019,526) (878,539) (5,104,709)
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities
available-for-sale 74,415 - 487,695
Purchase of property and equipment (486,088) (84,851) (656,829)
Purchase of software for internal use (13,684) (7,135) (13,684)
Purchase of source code and customer
list (200,000) - (200,000)
----------- ----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES (625,357) (91,986) (382,818)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in bank overdraft (114,075) (3,082) -
Proceeds from issuance of common stock 1,243,219 710,085 3,100,005
Proceeds from issuance of redeemable
preferred stock and warrants 1,805,000 225,000 1,805,000
Proceeds from issuance of notes payable - - 672,000
Proceeds from notes payable - related
parties 445,000 40,000 883,997
Principal payments on notes payable -
related parties (384,548) (72,355) (767,067)
Principal payments on obligation under
capital leases (11,837) 7,165 (30,228)
Payments to redeem common stock from
employees - - (8,000)
Net change in revolving line of credit
note payable - 74,787 169,915
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,982,759 981,600 5,825,622
----------- ----------- -----------
NET INCREASE IN CASH 337,876 11,075 338,095
CASH AT BEGINNING OF PERIOD 219 386 -
----------- ----------- -----------
CASH AT END OF PERIOD $ 338,095 $ 11,461 $ 338,095
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 6
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Condensed Interim Financial Statements - The accompanying
consolidated financial statements at September 30, 2000 and for
the three and six months ended September 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. The
results of operations for the three and six months ended
September 30, 2000 are not necessarily indicative of the
operating results to be expected for the full year. The
accompanying consolidated financial statements include the
accounts and transactions of e-automate Corporation and its
wholly owned subsidiaries. The operations of acquired entities
have been included from the dates of their acquisitions.
Intercompany accounts and transactions have been eliminated in
consolidation.
Business Condition - The accompanying financial statements have
been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
ordinary course of business. As shown in the accompanying
financial statements, the Company sustained losses of $2,567,886
and $1,296,751 during the six months ended September 30, 2000 and
1999, respectively. In addition, operating activities used cash
of $2,019,526 and $878,539 during the same periods, respectively.
These factors raise substantial doubt about the Company's ability
to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon its ability to
generate sufficient cash flows to meet its obligations on a
timely basis, to obtain additional financing, and ultimately to
attain profitable operations. Management's plans include
obtaining additional equity financing and management believes
that profitability and cash flows from operations will improve
and will provide the necessary capital to fund operations due to
the continued success of existing products and the introduction
of new products. Subsequently during November, 2000 the Company
has reduced its work force by 25%. There is no assurance,
however, that these efforts will result in profitable operations
or in the Company's ability to meet obligations when due. The
financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts
or the amount and classification of liabilities that might be
necessary should the Company be unable to continue as a going
concern. In addition, because the Company's registration
statement was not effective by October 17, 2000, the
Company is in default on the terms of the Series 2000-A preferred
stock purchase agreement, the results of which are disclosed in
Note 6.
Property and Equipment - Property and equipment are reported at
cost. Minor repairs, enhancements, and maintenance costs are
expensed when incurred. Depreciation is computed using the
straight-line method over the estimated useful lives of the
assets. Depreciation expense for the six months ended September
30, 2000 and 1999 was $38,007 and $15,100, respectively. Major
categories of property and equipment and estimated useful lives
are as follows:
<PAGE> 7
Estimated
Useful Life
-----------
Furniture and fixtures 5-7 years
Computer equipment 5 years
Other Assets, Including Intangible Assets - The realizability of
intangible and other long-lived assets is evaluated periodically
when events or circumstances indicate a possible inability to
recover the carrying amount. An impairment loss is recognized for
the excess of the carrying amount over the fair value of the
assets. Fair value is determined based on estimated expected net
future cash flows or other valuation techniques available in the
circumstances. The analyses necessarily involve significant
management judgment to evaluate the capacity of an asset to
perform within projections. Based upon these analyses, no
impairment losses were recognized in the accompanying financial
statements.
Software Revenue and Cost Recognition - Revenue from licenses of
the e-automate system is recognized when delivery is complete,
when no significant obligations remain unfulfilled by the Company
under the terms of the license contract and when collection of
any remaining receivable is probable. Payments collected prior to
recognition are accounted for as a liability, "deferred revenue."
Until approximately August 15, 2000, licenses of the e-automate
system provided for a return of the software by the customer
through the completion of implementation and data conversion--
typically 30 or 60 days from the date of the license.
Accordingly, an allowance for returns was provided and included
in the deferred revenue liability until the return privilege
expired. Subsequently, the Company has changed its policy to
allow for return of the software within 30 days of delivery.
Costs related to software licenses are not material due to
charging software research and development costs to expense as
incurred. Revenue from implementation and data conversion are
unbundled from software license revenue and are included in
revenue from services.
Revenue from services, including software implementation, data
conversion, training and consulting, are recognized as the
services are performed during the implementation phase and are
non-refundable. Service revenues from post-contract customer
support contracts and software upgrade contracts are recognized
ratably over the period of the related contracts, which are
generally 12 months.
Basic and Diluted Loss Per Share -Basic loss per common share is
computed by dividing net loss by the number of common shares
outstanding during the period. Diluted loss per share is
calculated to give effect to potentially issuable common shares
except during loss periods when those potentially issuable common
shares would decrease the loss per share. There were 1,274,419
and 227,474 potentially issuable common shares which were
excluded from the calculation of diluted loss per common share
for the years ended March 31, 2000 and 1999, respectively, and
2,060,396 and 367,967 for the three months ended June 30, 2000
and 1999, respectively.
Stock-Based Compensation - The Company accounts for compensation
from stock options granted to employees based on the intrinsic
value of the options on the dates granted.
NOTE 2 - CASH FLOW INFORMATION
Supplemental Cash Flow Information - During the six months ended
September 30, 2000 and 1999 the Company paid $17,313 and $47,605
for interest, respectively.
<PAGE> 7
Noncash Investing and Financing Activities - On July 14 the
Company issued 50,000 common shares for the purchase of software
for sale or lease. On September 13, 2000, the Company issued
40,000 common shares and $200,000 cash in the purchase of the
software rights, source code, customer list and accounts
receivable relating to the FasTrak business segment of Core
Software, Inc.
During the year ended March 31, 2000, the Company issued 139,607
common shares upon receipt of marketable securities with a fair
value of $418,750. The Company issued 626,040 common shares upon
conversion of convertible debentures in the amount of $333,000.
The Company entered into capital lease agreements for $89,000 of
office and computer equipment.
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, $272,733 in related party notes payable, $169,915 in a
revolving credit note payable with a related party, and $18,335
in expenses.
NOTE 3 - OTHER ASSETS
Purchased Software for Internal Use - The Company has recorded
purchased software for internal use as an other asset. Except
for the FasTrak source code discussed below, these licenses are
amortized over a five-year period by the straight-line method.
Amortization expense for the six months ended September 30, 2000
and 1999 was $4,981 and $901, respectively.
FasTrak Asset Purchase - On September 13, 2000, e-automate
acquired the software rights and source code, the related
customer list and accounts receivable of Core Software, Inc.'s
FasTrak business segment in exchange for cash in the amount of
$200,000 and 40,000 common shares valued at $120,000 or $3.00 per
share. Management believes the source code may be useful for
analysis in order to improve the Company's current products but
does not intend selling licenses of any kind relating to this
software. Management also believes the Company may successfully
convert many of the existing FasTrak customers to the Company's
software. Based on management's estimate of the fair value of
the acquired assets and discounted projected future cash flows,
the purchase price was allocated $15,601 to accounts receivable,
$59,795 to the software rights and source code, which has been
recorded as purchased software for internal use and $244,064 to
the customer list. The software rights and source code and the
customer list are being amortized over a two-year period on a
straight-line basis.
Purchased Software for Sale or Lease - 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 Active Views, Inc. (AVI). The
Company owns 100% of the outstanding common shares in AVI,
representing a 75% voting interest in the joint venture
subsidiary. The Company has also 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 own 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 on
the books of AVI and consolidated statements herein. 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.
<PAGE> 8
NOTE 4 - RELATED PARTY NOTES PAYABLE
An officer and director advanced $334,997 to the Company during
the year ended March 31, 2000 to meet current operating expenses
and was repaid $252,234 resulting in a balance on March 31, 2000
of $165,178. During the quarter ended June 30, 2000, the same
officer and director advanced the Company $245,000 to meet
current operating expenses and was repaid $103,510. On June 19,
2000 the Company converted $251,667 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. In addition, another officer and director advanced
$25,000 to the Company during the year ended March 31, 2000 from
a personal line of credit for which the Company has committed to
pay the note according to its terms. The interest rate is 9.75%
and has a credit limit of $100,000 and a balance at March 31,
2000 of $22,103. During the three months ended June 30, 2000,
$1,037 was paid on this loan. The remaining balance of $21,066
was converted into Preferred Series B shares on June 19, 2000.
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.
During December 1998, the Company redeemed 531,288 common shares
in exchange for a note payable to an officer in the amount of
$110,000. During the year ended March 31, 1999, the Company
issued $79,000 in related party notes payable for cash proceeds
of $79,000, and the Company advanced to an officer $59,365,
resulting in an aggregate related party notes payable at March
31, 1999 of $129,635. During the year ended March 31, 2000 the
Company made cash payments to the officer of $60,000 resulting in
a balance at March 31, 2000 of $50,000. During the six months
ended September 30, 2000, the Company made payments of $25,000,
resulting in a balance of $25,000 at September 30, 2000.
NOTE 5 - NOTES PAYABLE
At March 31, 2000 the Company had a note payable of $168,000,
bearing interest at 22%, due at various dates through March 31,
2001, secured by the assets of the Company. The note payable was
converted into 168 Preferred Series B shares on June 19, 2000.
From inception through March 31, 1998, the Company issued
convertible debentures for cash in the amount of $243,000. During
April and May 1999, the Company issued an additional $90,000 of
convertible debentures for cash. The debentures provide for
conversion of principal into shares of the Company's common stock
at $0.53 per share. The conversion rate was granted when the fair
value of the shares was $0.13 per share. On May 29, 1999, holders
of $333,000 in convertible debentures exercised their right under
the debenture agreements and converted their debentures into
626,040 common shares at $0.53 per share.
Subsequently, on October 27, 2000, an officer and director
advanced $107,000 to the Company to meet current operating
expenses. The loans bear interest 12% and are due on demand not
prior to February 1, 2001.
<PAGE> 9
NOTE 6 - OBLIGATION UNDER CAPITAL AND OPERATING LEASES
On July 1, 1999 the Company entered into one-year agreements to
lease four sections of office space for monthly payments of
$1,939, $1,939, $1,350, and $744, respectively. A yearly
escalation allowance of 3% is provided in the lease agreements.
On May 14 and August 14, 2000, respectively, the Company entered
into two five-year lease agreements for its new main offices and
terminated the prior leases. The total monthly cost of the
leases is $20,655, with a yearly escalation allowance of 3%.
Subsequently, on October 8, 2000, the Company entered into a
lease agreement for an office in Houston, Texas. The lease terms
are month-to-month with a monthly rental of $525. The Company
has other operating leases with estimated monthly payments of
$220. Rental expense for the year ended March 31, 2000 was
$46,585. The future minimum lease payments for capital and
operating leases are as follows:
For the Year Ending Capital Operating
March 31, Leases Leases
----------------- --------- ----------
2001 $ 34,208 $ 140,731
2002 33,585 254,832
2003 11,378 260,798
2004 7,909 268,617
2005 2,221 276,673
-------- ---------
Total minimum payments 89,301 $1,201,651
==========
Less amount representing interest (18,642)
--------
Present value of net
minimum lease payments 70,659
Less current portion (24,614)
--------
Long-term capital
lease obligation $46,045
========
NOTE 7 - 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 convertible preferred stock (the "Series A
Convertible Stock") with a $0.001 par value per share and a
stated value of $1,000 per share. The Series A Convertible Stock
shareholder is entitled to the number of votes equal to the
number of shares of common stock into which the Series A
Convertible Stock is convertible.
Securities Purchase Agreement - During the period from June 19,
2000 to October 17, 2000, the Company executed five securities
purchase agreements (the "Purchase Agreement") with Aspen Capital
Resources, L.L.C. (the "Purchaser" or the "Holder"), and issued
2,083 shares of Series A Convertible Stock for $2,083,000, less a
10% placement fee to the Purchaser, and issued warrants for the
purchase of 416,600 common shares as explained below. The
Purchase Agreement initially provided for the issuance of 5,000
shares of Series A Convertible Stock, at the rate of 500 shares
per month, with 1,000,000 warrants for cash in the amount of
$4,500,000. Because of the Company's default on the terms of the
Purchase Agreement as explained below, the Purchaser suspended
funding on October 17, 2000, providing only a partial funding for
the month of October 2000.
Events of Noncompliance -- Under the Purchase Agreement, an event
of noncompliance shall have occurred if (i) the Company fails to
pay on any dividend payment date the full amount of dividends
then accrued, (ii) the Company fails to make any redemption
payment which it is required to make, (iii) any registration
statement required to be filed by the Company and declared
effective by the Securities and Exchange Commission pursuant to
the Purchase Agreement shall not become effective by October 17,
2000 or shall cease to be effective, or (iv) after October 17,
2000 the common stock is suspended from trading on or the price
for the common stock is not quoted or reported on the NASDAQ
Stock Market System or the NASD OTC Bulletin Board, or (v) an
other event of non-compliance as defined in the Certificate of
Designation for the Series-A Convertible Preferred Stock.
<PAGE> 10
Conversion and Redemption - The Series A Convertible 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 no minimum conversion price. Before
the date of default, the conversion was subject to a $3.25
minimum conversion price. On or after December 19, 2001, the
Company can require conversion of the Series A Convertible Stock,
upon a 30-day notice to the Series A Convertible Stock
shareholder.
Warrants - The warrants are exercisable 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 Company's common stock is quoted,
the exercise price will be $4.00 per share.
In connection with this offering, additional 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 as
deferred offering costs and is being charged against the proceeds
received from each issuance of Series A Convertible Stock.
Allocation of Proceeds -On June 19, July 19, August 18 and
September 15, 2000 (Funding Dates), the Company issued 500 shares
of Series A Convertible Stock in exchange for net proceeds of
$1,800,000. The placement fee to the Purchaser was netted against
the proceeds. On each funding date, the net proceeds less
amortization of deferred offering costs of $81,932 were allocated
between the Series A Convertible 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 Stock. If the Purchaser notifies the Company it is
discontinuing the Series A Convertible Stock financing, the
remaining deferred offering costs will be charged to operations
during such period.
Adjustment of the Conversion Price - If, after June 19, 2000, the
Company issues or sells any shares of common stock or grants any
rights or options to purchase common stock or any stock or other
securities convertible into or exchangeable for common stock or
issues or sells any convertible securities, and the value per
share for such common stock is less than the fair market value
per share, the conversion price of the Series A Convertible Stock
is reduced according to a formula defined in the Purchase
Agreement.
Default- Effective October 17, 2000 (date of default), the
Company is in default on the provisions of the Series A
Convertible Stock Purchase Agreement, since it did not have an
effective registration statement on that date, and since the
trading price of the Company's common stock was not quoted or
reported on the NASDAQ Stock Market System or the NASD OTC
Bulletin Board . As a result, the dividend rate on the stated
value of Series A Convertible Stock outstanding ($2,083,000 as of
October 17, 2000) increased from 8% to 21% per year and the
<PAGE> 11
Company is required to issue 44,865 common shares per month (7%
of the number of common shares the Series-A Convertible Stock is
convertible into at $3.25 per share) as additional consideration
for the preferred shares. Cumulative dividends are payable
quarterly. The Company has received a waiver from the Holder for
dividends due as of September 30, 2000. Accordingly, $24,222 in
dividends on the Series A Convertible Stock are included in the
Company's accrued liabilities balance. The Holder, at its
option, may elect to receive payment of dividends in cash or in
common stock. Dividends on the Series A Convertible Stock rank
senior to dividends payable on all other series or classes of
stock.
Mandatory Redemption - From the date of default, the holder of
the Series A Convertible Stock has the option to require the
Company to redeem all of the outstanding shares of Series A
Convertible Stock at 125% of their stated value, or $1,250 per
share (the Redemption Price).Should the holder request redemption
by issuing a written notice,the Company has ten days to pay the
holder the Redemption Price plus accrued dividends. The Company
is required to make the redemption payment ahead of any
liquidation payments to the common and Series B convertible preferred
shareholders. If the Company fails to make the redemption payment,
dividends will continue to accrue on all outstanding Series A
Convertible Stock at 21% per year on the stated value of the Series
A Convertible Stock until paid in full, the conversion price will be
reduced by $1.00 per share and will not be subject to the minimum
conversion price of $3.25 per share in effect prior to the date of
default. Additionally, the warrants issued to the holder become
immediately exercisable. Due to the redemption provisions and the
events of default above, effective on the date of default, the
Company's Series 2000-A convertible preferred stock balance will
be increased to 125% of the stated value up to the Redemption
Price with a charge to preferred dividends in the amount of
approximately $1,500,000, without regard to whether the Holder
exercises the redemption option.
NOTE 8 - SERIES B CONVERTIBLE 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
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.
<PAGE> 12
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. Cumulative unpaid dividends of $14,118 are
included in accrued liabilities at September 30, 2000.
NOTE 9 - COMMON STOCK
On May 29, 1999, holders of $333,000 in convertible debentures
exercised their right under the debenture agreements to convert
their debentures into 626,040 common shares at $0.53 per share.
Between May and November 1999, the Company issued 273,240 shares
of common stock, together with 136,620 Class A warrants and
136,620 Class B warrants under the terms of a private placement
offering (the 1999 Offering) for cash proceeds of $819,721, or
$3.00 per share. 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.
As part of the 1999 Offering, the Company also issued 139,607
units, as described in the preceding paragraph, in exchange for
securities available-for-sale valued at $418,750. The units were
issued at $3.00 per unit.
In contemplation of the reorganization and the 1999 Offering, an
advance in the amount of $135,000 was received from an investor
during May 1999 in order to meet short-term expenses. The advance
was converted into 45,000 units under the 1999 Offering, at $3.00
per share on July 11, 1999.
On May 20, 1999, 82,720 common shares were issued to directors
for services valued at $248,160, or $3.00 per share. The value
of these shares was based upon the value e-automate received upon
the issuance of common shares for cash in private placements
during the weeks surrounding this issuance.
On July 2, 1999, for accounting purposes, the Company was deemed
to have issued 1,000,000 common shares, valued at $0, to the
shareholders of Woodlake in connection with the reverse
acquisition of Woodlake. No assets were received nor were any
liabilities assumed in connection with this acquisition.
During December 1999, the Company issued 11,750 shares upon
exercise of stock options for cash proceeds in the amount of $62.
During January 2000, the Company issued 80,000 shares of common
stock, 40,000 Class A warrants and 40,000 Class B warrants to one
party in a private placement for cash proceeds of $240,000. Each
Class A warrant is convertible into common stock at $3.50 per
share through August 31, 2000 and each Class B warrant is
convertible into common stock at $4.50 per share through February
28, 2001.
From January through March 2000, the Company issued 314,667
investment units under the terms of a new private placement (the
"2000 Placement") for cash proceeds of $937,003 or $2.92 per unit
net of $7,000 in commissions. Each unit under the 2000 Placement
consists of one common share, and one Class C warrant. Each Class
C warrant is convertible into one common share at $5.50 per share
through August 31, 2001.
<PAGE> 13
From January through September 2000, the Company issued 18,000
shares to one of the Company's directors as part of an agreement
to compensate the director for his services by issuing 24,000
common shares according to a 12-month vesting schedule, or 2,000
shares per month.
From April to June 2000, the Company issued 203,539 investment
units, under the terms of 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
fulfillment of subscription agreements under the 1999 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. 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.
As discussed in Note 3, on July 14 and September 13, 2000, the
Company issued 50,000 and 40,000 common shares, respectively in
the purchase of software for sale or lease and the purchase of
software for internal use.
NOTE 10 - STOCK OPTIONS AND WARRANTS
Stock Options - Between January 1998 and March 31, 1999, the
Company issued 227,474 non-qualified employee stock options with
a weighted-average exercise price of $0.53 per share, which
expire 10 years from the grant date. The options vest 25% after
one year and then 6.25% per quarter of the employees' service.
Since the exercise price was in excess of the fair value of the
underlying shares on the grant date, no compensation was
recognized in connection with these options.
During 1999, the Company adopted the 1999 Employee Incentive
Stock Option Plan ( the "1999 Plan"). The 1999 Plan provides for
issuance of up to 1,000,000 options vesting over four years with
25% vesting one year from the grant date and vesting thereafter
at a rate of 6.25% per quarter year of service. The unexercised
options expire ten years from the date of grant. During the year
ended March 31, 2000, the Company granted 306,266 options with a
weighted-average exercise price of $1.59 per share, according to
the terms of the 1999 Plan. Some of the option agreements
designated exercise prices below the fair value of the underlying
shares on the grant date and compensation in the amount of
$455,704 will be recognized over the vesting period of the
options. During the year ended March 31, 2000, the Company
recognized $229,732 as compensation related to employee stock
option grants. During the six months ended September 30, 2000
the Company recognized $65,950 as amortization of unearned
compensation relating to stock option grants.
During the six months ended September 30, 2000 the Company
granted 664,750 incentive stock options, all with an exercise
price of $3.00 per share under terms of the 1999 Plan.
A summary of the status of the Company's employee stock options
as of September 30, 2000 and March 31, 2000 and changes during
the periods then ended are presented below:
<PAGE> 14
<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000 March 31, 1999
---------------------- ---------------------- ----------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period 502,790 $ 1.15 227,474 $ 0.53 - $ -
Granted 664,750 3.00 306,266 1.59 227,474 0.53
Exercised - - (11,750) 0.01 - -
Forfeited (38,400) 1.91 (19,200) 0.58 - -
---------- ---------- ----------
Outstanding at end of period 1,129,140 1.94 502,790 1.15 227,474 0.53
========== ========== ==========
Options exercisable at
the end of the period 191,243 69,570 -
========== ========== ==========
Weighted-average fair value
of options granted during
the period $ 3.00 $ 2.11 $ 0.02
========== ========== ==========
</TABLE>
The following table summarizes information about stock options
outstanding at September 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- -----------------------
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted-
Range of at Remaining Average At Average
Exercise September Contractual Exercise September Exercise
Prices 31, 2000 Life Price 31, 2000 Price
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$0.01 - 0.99 312,090 8.38 $ 0.47 117,393 $ 0.46
$1.00 - 2.99 56,400 8.76 1.00 14,100 1.00
$3.00 - 3.49 760,650 9.61 3.00 57,750 3.00
--------- ---------
$0.01 - 5.00 1,129,140 191,243
</TABLE>
The following table summarizes information about stock options
outstanding at March 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- -----------------------
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted-
Range of at Remaining Average At Average
Exercise March 31, Contractual Exercise March 31, Exercise
Prices 2000 Life Price 2000 Price
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$0.01 - 0.99 312,084 8.89 $ 0.48 69,570 $ 0.42
$1.00 - 2.99 81,400 9.27 1.00 - -
$3.00 - 3.49 98,556 9.51 3.00 - -
$3.50 - 5.00 10,750 9.52 4.90 - -
---------- ----------
$0.01 - 5.00 502,790 69,570
</TABLE>
<PAGE> 15
The Company measures compensation under stock-based options and
plans using the intrinsic value method prescribed in Accounting
Principles Board Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations, for stock options granted
to employees, and determines compensation cost granted to non-
employees based on the fair value at the grant dates. Had
compensation cost for the Company's stock options been determined
based upon the fair value at the grant dates, loss applicable to
common shares and basic and diluted loss per common share would
have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the Three Months For the Years
Ended September 30, Ended March 31,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loss applicable to common shares:
As reported $(2,607,448) $(1,296,751) $(3,296,591) $ (618,277)
Pro forma (2,766,858) (1,462,892) (4,266,486) (623,778)
Basic and diluted loss per share:
As reported $ (0.47) $ (0.33) $ (0.73) $ (0.24)
Pro forma (0.49) (0.37) (0.95) (0.24)
</TABLE>
The fair value of each option granted was estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1999
and 2000: weighted-average risk-free interest rate of 5.75%;
estimated life of 10 years; dividend yield of 0.0% and, expected
volatility of 0.0%. Assumptions used for grants during the six
months ended September 30, 2000 were: weighted-average risk-free
interest rate of 6.0%; estimated life of 10 years; dividend yield
of 0.0% and expected volatility of 125%.
Stock Purchase Warrants - Under the terms of the 1999 private
placement offering, the Company issued 239,835 Class A warrants
and 239,835 Class B warrants in connection with the 479,669
shares of common stock issued under that offering. Additionally,
the Company issued 40,000 Class A warrants and 40,000 Class B
warrants in conjunction with the 80,000 shares of common stock
issued under a 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. Subsequently, during the six months ended
September 30, 2000, the Class A warrants were modified to extend
the expiration date to February 28, 2001. The Company issued
657,102 Class C warrants along with 657,102 shares of common
stock under the terms of the 2000 private placement offering.
Each Class C warrant is convertible into one common share at
$5.50 per share through August 31, 2001. During the six months
<PAGE> 16
ended September 30, 2000, 416,600 Series 2000-A warrants were
issued in connection with the issuance of the Series A
Convertible Stock discussed in Note 7. These warrants are
exercisable at an initial price of $5.00 per share through May
31, 2004. If the fair market value of the Company's common shares
is less than $5.00 per share at anytime during the first six
months for which the Company's common stock is quoted, the
exercise price will be $4.00 per share. Also in connection with
the issuance of the Series A Convertible Stock, 500,000
additional warrants were issued to purchase the Company's common
shares at $5.00 per share through May 31, 2004.
NOTE 11 - 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.
The Company has committed to fund $1,200,000 of the operations of
its subsidiary, Active Views, Inc. (AVI) by issuing a $1,200,000
demand note payable to AVI. See Note 3.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Quarterly Report contain forward-looking
statements that involve risks and uncertainties. All forward-looking statements
are based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements. The
Company's actual results may differ materially from the results discussed in
such forward-looking statements as a result of a number of factors.
Readers should carefully review the risk factors described in other documents
that the Company files from time to time with the Commission, including the
Annual Report on Form 10-KSB and the Quarterly Reports on Form 10-QSB.
INTRODUCTION
e-automate Corporation is a five-year old company that has developed and now
markets sophisticated, highly scalable ERP (Enterprise Resource Planning)
business management software systems designed to meet the needs of small
businesses in a number of targeted vertical market segments. e-automate
provides true Microsoft Windows(r) functionality; an intuitive, easy-to-use
interface; task automation, and many more desirable innovations that
streamline business operations and enable a company to be run more
efficiently, effectively and profitably.
RESULTS OF OPERATIONS
Comparison of Quarters Ended September 30, 2000, and 1999.
GROSS REVENUE
For the quarter ended September 30, 2000, our total gross revenue was $242,173
compared to $88,046 for the quarter ended September 30, 1999, an increase of
$154,127. The increase can be attributed to increased sales efforts in our
market niche; hiring of additional sales representatives; and the release of
our e-automate product version 3.0 . Through the first three months of this
fiscal year, we hired additional sales staff. These sales representatives
are now fully integrated into the sales process.
<PAGE> 17
GROSS PROFIT
We experienced a gross profit for the quarter ended September 30, 2000, of
$60,733 compared to gross loss of $(99,818) for the quarter ended September 30,
1999. The increase 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. Future
plans show the gross profit margin to increase as we continue to refine our
implementation processes and continue to develop automated implementation
processes.
Our cost of license revenue includes the cost of manuals and product
documentation, production media used to deliver our products, and packaging
costs. Our cost of support and service revenues includes salaries and related
expenses for the customer support, implementation and training services.
OPERATING EXPENSES
Our operating expenses are classified as research and development, sales and
marketing, 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 remain relatively flat over the
next two fiscal quarters. However, we intend to continue to incur higher
research and development costs then our competitors in our current market niche.
We will incur these costs in the production of additional automated
implementation processes, product enhancements, and automated tasks to be sold
as modules to our current product release. Further, we also intend to invest
additional resources in the expansion of our sales, and support organizations to
build an infrastructure to support our long-term growth strategy.
The number of our full-time employees increased from 15 as of September 30,
1999, to 76 full-time employees and four part-time employees as of September 30,
2000. To achieve profitability, we will have to increase our total revenues
significantly. In order to achieve profitability, we had a workforce reduction
of 21 employees on November 3, 2000. Overall quarterly cost of doing business is
expected to decrease by approximately $258,000 beginning in the fourth fiscal
quarter of 2000, and approximately $86,000 in December 2000. After the
reductions, the number of employees is 65 full-time and 2 part-time employees.
The following paragraphs give a comparison of the period ending September 30,
2000, to the previous period ending September 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.
<PAGE> 18
Total operating expenses increased, from the quarter ended September 30, 1999,
to the quarter ending September 30, 2000, a total of $1,165,758. Operating
expenses totaled $1,625,575 for the quarter ended September 30, 2000, compared
to a total of $459,817 for the quarter ended September 30, 1999. The following
paragraphs detail the specific changes that created the increase in operating
expenses.
General and administrative expenses for the quarter ending September 30, 2000,
were $742,634 compared to $141,457 for the same quarter of the previous year, an
increase of $601,177. The reason for the increase in general and administrative
expenses is due to the expenses associated with a fully staffed management team,
moving expenses, and expenses related to our new facility. Some of these
expenses are one-time items while those expenses related to a larger workforce
will be on going.
Research and development expenses increased a total of $398,562 from a September
30, 1999, total of $184,667 to the current quarter total of $583,229. The
increase in our research and development expenditure is largely due to two
specific development projects. Both projects were completed in this fiscal
quarter and are expected to generate revenue as well as provide us with
additional revenue sources through automated tasks and module sales. Continued
research and development expenses will be required for these additional revenue
generating products; however, we can now begin to generate higher revenue and
gross profit with the completion of these two development projects.
Selling and marketing expenses for the quarter ending September 30, 1999, were
$133,693 and increased for the period ending September 30, 2000, to $299,712.
The increase of $166,019 represents our increased efforts in marketing our
software package through attendance at various tradeshows and our direct
selling. We expect an additional increase in these expenses over the next
several fiscal quarters as we enter the selling phase of our company.
NET LOSS
Our net loss for the quarter ending September 30, 2000, was $1,567,577, an
increase of $987,386, when compared to the loss for the quarter ended
September 30, 1999, of $580,191.
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 inside and outside investors. We continue to finance our operations
through the net proceeds from private placements of equity instruments.
At September 30, 2000, we had current assets of $491,685 and current liabilities
of $990,250 resulting in negative working capital of $498,565 and a current
ratio of 0.50. During the three-month period, from June 30, 2000, to September
30, 2000, we moved into a new facility incurring expenses associated with
computer and office equipment. Currently, these expenses appear as current
liabilities; however, we are in the process of securing leases for these
expenses totaling approximately $250,000. Further, we purchased the Fastrak
software asset from Core Systems for $200,000 in cash and 40,000 shares of
common stock. Each of these transactions will help us in our growth stage;
however, we realize that in order for us to capitalize on our market opportunity
that we will need to raise additional capital. We intend to raise the
additional funds needed through private placements of our equity instruments,
loans and extensions from our creditors.
Our total liabilities as of September 30, 2000, were $1,022,502, a decrease of
$175,278 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.
<PAGE> 19
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 10QSB 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 2. Changes in Securities.
(c) Recent Sales of Unregistered Securities
During the period from June 19, 2000 to October 17, 2000, the Company executed
five securities purchase agreements (the "Purchase Agreement") with Aspen
Capital Resources, L.L.C. (the "Purchaser" or the "Holder"), and issued 2,083
shares of Series A Convertible Stock for $2,083,000, less a 10% placement fee to
the Purchaser, and issued warrants for the purchase of 416,600 common shares as
explained below. The Purchase Agreement initially provided for the issuance of
5,000 shares of Series A Convertible Stock, at the rate of 500 shares per month,
with 1,000,000 warrants for $4,500,000. Because of the Company's default on the
terms of the Purchase Agreement as explained below in item 3 "Defaults Upon
Senior Securities", the Purchaser ceased funding on October 17, 2000, providing
only a partial funding of $83,000 (a total of 83 shares of Series A Preferred
Stock) for the month of October 2000. As of October 31, 2000, there were a
total of 2,083 shares of Series 2000-A Preferred Stock issued and outstanding.
Each share of Series A Preferred Stock has one Series 2000-A Warrant. 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.
<PAGE> 20
On July 14, 2000, the Company acquired a license and acquired the source code to
a data-mining tool. To acquire these assets, the Company issued 50,000 shares of
restricted common stock, valued at $150,000, or $3.00 per share, to the owners
of ActiveViews Acquisition Corporation (Eric and Aaron Meyers) which held as its
sole asset the user license and agreed to start up a new joint venture
subsidiary called ActiveViews, Inc. For a 75% voting interest in Active Views,
Inc., the Company has committed to fund $1,200,000 of Active Views, Inc.'s
operations by issuing a $1,200,000 demand note payable to Active Views, Inc. The
developers of the data-mining tool contributed the related source code for a 25%
voting interest in the joint venture subsidiary.
On September 13, 2000, e-automate acquired the software rights for internal use,
the related customer list, and accounts receivable of Core Software, Inc.'s
FasTrak business segment in exchange for cash in the amount of $200,000 and
40,000 restricted common shares valued at $120,000 or $3.00 per share. The
shares of restricted common stock were issued to Core Software, Inc. a Texas
Corporation.
Item 3. Defaults Upon Senior Securities.
(a) Effective October 17, 2000 (date of default), the
Company is in default on the provisions of the Series A
Convertible Stock Purchase Agreement, since it did not have an
effective registration statement on that date, and since the
trading price of the Company's common stock was not quoted or
reported on the NASDAQ Stock Market System or the NASD OTC
Bulletin Board . As a result, the dividend rate on the stated
value of Series A Convertible Stock outstanding ($2,083,000 as of
October 17, 2000) increased from 8% to 21% per year and the
Company is required to issue 44,865 common shares per month (7%
of the number of common shares the Series-A Convertible Stock is
convertible into at $3.25 per share) as additional consideration
for the preferred shares. Cumulative dividends are payable
quarterly. The Company has received a waiver from the Holder for
dividends due as of September 30, 2000. Accordingly, $24,222 in
dividends on the Series A Convertible Stock are included in the
Company's accrued liabilities balance. The Holder, at its
option, may elect to receive payment of dividends in cash or in
common stock. Dividends on the Series A Convertible Stock rank
senior to dividends payable on all other series or classes of
stock.
Mandatory Redemption - From the date of default, the holder of
the Series A Convertible Stock has the option to require the
Company to redeem all of the outstanding shares of Series A
Convertible Stock at 125% of their stated value, or $1,250 per
share (the Redemption Price).Should the holder request redemption
by issuing a written notice,the Company has ten days to pay the
holder the Redemption Price plus accrued dividends. The Company
is required to make the redemption payment ahead of any
liquidation payments to the common and Series B convertible preferred
shareholders. If the Company fails to make the redemption payment,
dividends will continue to accrue on all outstanding Series A
Convertible Stock at 21% per year on the stated value of the Series
A Convertible Stock until paid in full, the conversion price will be
reduced by $1.00 per share and will not be subject to the minimum
conversion price of $3.25 per share in effect prior to the date of
default. Additionally, the warrants issued to the holder become
immediately exercisable.
Also refer to footnote #7 in the financial statements enclosed in Part 1
Item 1 above.
(b) On October 14, 2000 e-automate received a waiver of payment of dividends on
the Series 2000-A Preferred shares until December 31, 2000.
<PAGE> 21
Item 6. Exhibits and Reports on Form 8-K.
(a) Index to Exhibits
Exhibit
No. Description of Exhibit
----- ----------------------
2. Plan of acquisition, reorganization, arrangement,
Liquidation, or succession
2.1 Series A Preferred Stock Purchase Agreement, dated August 1, 2000,
by and between ActiveViews, Inc. a Delaware corporation and the
Series A Investors, Eric Meyers and Aaron Meyers.(5)
2.2 Reorganization Agreement, dated August 1, 2000, between and among
e-automate Corporation, a Delaware corporation, and 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."(5)
2.3 Joint Formation Agreement, dated August 1, 2000, between and among
e-automate Corporation, a Delaware corporation, and Eric Meyers,
an individual, and Aaron Meyers, an individual.(5)
2.4 e-automate Stock Purchase Agreement, by and between ActiveViews, Inc.
a Delaware corporation and e-automate Corporation, a Delaware
corporation.(5)
3. Certificate of Incorporation and Bylaws
3.1 Articles of Incorporation.(1)
3.2 Bylaws(1)
3.3 Amendment to Certificate of Incorporation changing name to Aureus
Corporation.
3.4 Amendment to Certificate of Incorporation changing name to
e-automate Corporation.(3)
3.5 Articles of Incorporation of ActiveViews Acquisition Corporation,
dated August 1, 2000.(5)
3.6 Bylaws of ActiveViews Acquisition Corporation.(5)
4. Instruments Defining Rights of Security Holders
4.1 Certificate of Designation creating Series 2000-A Convertible
Preferred Stock, dated as of June 19, 2000. (4)
4.2 Warrant Certificate for Series 2000-A Warrants, dated as of
June 19, 2000. (4)
4.3 Certificate of Designation creating Series B Convertible Preferred
Stock, dated as of June 19, 2000. dated as of June 19, 2000. dated
as of June 19, 2000. (4)
4.4 Warrant Certificate for Series 2000-B Warrants, dated as of
June 19, 2000. (4)
10. Material Contracts
10.1 1992 Stock Option Plan(1)
10.2 Stock Option Agreement with Jehu Hand(1)
10.3 Stock Option Agreement with Eric Anderson(1)
10.4 Stock Option Agreement with Jehu Hand(2)
10.5 1999 Stock Incentive Plan(3)
10.6 Stock Purchase Agreement with Richard Stout, James A. Phillips
and Alan Fine, dated as of June 19, 2000. (4)
10.7 Loan Agreement with Inside Out Development, LLC. (4)
10.8 Securities Purchase Agreement with James K. Phillips, dated as of
June 19, 2000. (4)
10.9 Securities Purchase Agreement with Alan Fine, dated as of
June 19, 2000. (4)
10.10 Securities Purchase Agreement with Lee Monson, dated as of
June 19, 2000. (4)
<PAGE> 22
10.11 Purchase Agreement between Registrant and Aspen Capital
Resources, LLC, dated as of June 19, 2000. (4)
10.12 Asset Purchase and Sale Agreement, dated as of September 13, 2000
27 Financial Data Schedule *
_____________________________
(1) Incorporated by reference to the same numbered exhibits as filed with
the Company's registration statement on Form 10-SB, File No. 0-24380.
(2) Incorporated by reference by the Company's 1996 Annual Report on Form
10-KSB.
(3) Incorporated by reference to the Company's quarterly report on Form
10-QSB, filed December 2, 1999.
(4) Incorporated by reference to the Company's 2000 Annual Report filed
on Form 10-KSB, dated June 30, 2000.
(5) Incorporated by reference to the Company's quarterly report on Form 10-QSB,
filed August 15, 2000
_____________________________
* Filed herewith.
(b) Reports on Form 8-K
A Form 8-K/A was filed on 07/07/2000 regarding an Agreement And Plan of Merger
dated June 14, 1999 between Aureus Corporation and Woodlake Village Associates,
Inc., including the audited financial statements of Aureus Corporation as of and
for the year ended March 31, 1999.
A Form 8-K was filed on 09/28/2000 regarding the acquisition of software source
code and a customer list from Core Software, Inc.
<PAGE> 23
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
Chief Executive Officer
Date: November 21, 2000
/s/ Greg L. Popp
_______________________
Greg L. Popp
Chief Financial Officer
Date: November 21, 2000
<PAGE> 24
