SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 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
(Name of small business issuer in its charter)
DELAWARE 33-0601502
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number
71 North 490 West 84003
American Fork, Utah (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 492-1705
Securities to be registered under Section 12(g) of the Act:
Name of each exchange
Title of each Class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year were $259,472
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 31, 2000: Not
applicable, shares not traded.
As of June 17, 2000, Registrant had outstanding 5,461,033 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Additional documents set forth in Part IV hereof are incorporated by
reference.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
e-automate Corporation
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INDEX-FORM 10-KSB
PART I
Page
Item 1. Description of Business. . . . . . . . . . . . . . . . . . . 1
Item 2. Description of Property. . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 8
PART II
Item 5. Market for the Common Equity and Related Stockholder Matters 8
Item 6. Management's Discussion and Analysis and Plan of Operations. 9
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . .11
Item 8. Changes in and disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . .11
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 10. Executive Compensation . . . . . . . . . . . . . . . . .14
Item 11. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . 15
Item 12. Certain Relationships and Related Transactions . . . . .15
PART IV
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . .15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Index to Financial Statements and Schedules. . . . . . . . . . . . .18
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ii
PART I
ITEM 1. Description of Business
Forward Looking Statements and Information May Prove Inaccurate
When used in this Form 10-KSB and in other filings by the
Company with the SEC, in the Company's press releases or in other
public or stockholder communications or oral statements made with
the approval of an authorized executive officer of the Company, 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.
The Company cautions 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, the Company's
actual results for future periods could differ materially from those
anticipated or projected.
The Company does not intend to update the forward looking
statements contained in this report, except as may occur as part of
its ongoing periodic reports filed with the Securities and Exchange
Commission.
The Company
Whenever in this discussion the term "Company," "Our," or
"We" is used, it should be understood to refer to e-automate
Corporation ("e-automate") except where the context clearly
indicates otherwise.
The Company is a development stage company engaged in the
development and marketing of electronic automation information
systems and on-line consulting services to the small business market
e-automate's products and services include an on-line analysis and
evaluation of a small business's needs and the design and
development of automated software solutions to address those needs.
The Company's mission is focused on "changing the way small
businesses do business". "The Way to e-automate Your Business" is
the process which the Company markets to profitably facilitate
improved business performance through increased revenue production,
cost reduction and management of cash flow. e-automate relies on
Internet technology to reduce the investment in time and cost to
small business owners to learn, evaluate, and implement e-automate's
enterprise information systems. The Company's products and services
are designed to automate essential business functions - from
implementation to system operations - facilitate improvement in
ongoing business performance, and enhance the strategic value of
financial information. e-automate utilizes, a web-based system for
acquisition of new, timely ideas and technology for improved
business operations without the costly dependence on business
consultants. The e-automate system enables small business owners to
download the task-specific automation agents that will perform or
automate the recommended business activities.
In order to meet the needs of the small business market, the
Company designs, develops, markets, sells and supports client/server
products that are cost-effective, scalable and easy to implement,
customize and use. The Company's client/server products are
optimized for Microsoft technologies, notably Windows NT, Windows
95, Windows 98, which are increasingly becoming the standard in the
small business market. Moreover, by utilizing emerging Internet and
electronic commerce technologies, the client is better positioned to
conduct business over the Internet.
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The Company believes that responsive, effective service and
technical support are essential elements of a complete financial
management solution. The Company is committed to dedicating
significant resources to delivering timely, reliable and
cost-effective service to its customers.
Organization and General Development
The Company, originally known as Woodlake Village Associates,
Inc. ("Woodlake") was incorporated in Delaware on June 12, 1992, for
the stated purpose of seeking out various business acquisitions. On
July 2, 1999, Woodlake executed an Agreement and Plan of
Reorganization ("Reorganization Agreement") with Aureus Corporation,
a Utah corporation ("Aureus"). Under the terms of the
Reorganization Agreement, Woodlake issued 3,505,941 shares to
acquire all of the outstanding shares of Aureus. Concurrent with the
merger $333,000 of debentures were converted to 626,040 shares of
common stock. As a result of the reorganization, the Woodlake
shareholders became shareholders of the Company in a transaction
intended to qualify as a tax-free reorganization. Concurrent with
the reorganization, Woodlake changed its name to Aureus Corporation,
which subsequently changed its name to e-automate Corporation on
August 20, 1999.
In contemplation of the reorganization, the Company received
pre-closing advances in the respective amounts of $100,000, on June
7, 1999, and $35,000 on June 28, 1999, in order to meet short term
operating expenses. The advances were converted into common stock
at the date of the reorganization.
The transaction was treated as the reorganization of Woodlake
and the acquisition of Aureus in a purchase business combination.
There was no market for Woodlake common stock, which corporation had
minimal assets; therefore, the 1,000,000 shares of common stock
outstanding at the date of the reorganization were booked at $0.
The merger was accounted for as the reorganization of Aureus with a
related 1.88 for 1 stock split. The financial statements were
restated for the effects of the stock split for all periods
presented.
The Company's mission is focused on "automating the way
businesses do business." Its system is designed to facilitate
improved business performance profitability through increased
revenue production, cost reduction, and management of cash flow.
The Company's web-based system, provides business improvement ideas,
business solutions, office technology and enables the downloading of
automation applications for recommended business activities. The
Company uses Internet technology to reduce the investment in time
and cost to small business owners to learn, evaluate and implement
information systems specifically tailored to that particular
company's business requirements. The Company's products and
services are designed to automate essential business functions to
facilitate improvements in ongoing business performance, promote
revenue production, enhance the strategic value of financial
information, and to manage cash flow.
For years, business information system providers such as SAP,
PeopleSoft and Oracle have successfully helped large organizations
manage all aspects of their business in an integrated, efficient
fashion through their sophisticated enterprise resource planning
("ERP") systems. More recently, the Internet has become a key
component to these business systems, helping companies maximize
business-to-business and business-to-consumer relationships.
Typically, the benefits of such an efficient business system
have been reserved for larger organizations economically positioned
and willing to pay millions of dollars for large, custom solutions.
However, in recent years, the small business segment (comprised of
companies with up to 200 employees and $50M in annual revenues) has
exploded, becoming the fastest-growing segment in the global
economy. These companies, facing rapid growth and expansion
challenges, need the benefits of an ERP system with e-commerce
capability, however, they lack the supplier options of the larger
companies. e-automate is poised to provide a world-class
ERP/e-commerce solution to this burgeoning small-business market.
The Company currently offers a sophisticated small-business ERP
system to a number of vertical markets, and is moving rapidly toward
substantially more Web-enabled commerce and reporting functionality.
Such a leading-edge product for small business, coupled with rapid
implementation and low conversion costs, position the Company for
substantial future growth
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Products and Services
Due to the rapid pace of technological change in its
industry, the Company believes that its future success will depend,
in part, on its ability to innovate, enhance, and develop its
software products to satisfactorily achieve the needs of a dynamic
market.
The e-automate system is designed to provide business
solutions and to facilitate improved business performance
profitability. The Company recognizes that effective and profitable
business performance is predicated on implementation of effective
automation systems which are responsive and tailored to the
specific/individual needs of the business enterprise. Business
owners and managers are motivated to improve business performance,
increase revenues, reduce costs and effectively manage cash flows.
To ensure performance improvements from an information system, many
company-specific needs must be assessed and automated. The Company
uses Internet technologies to reduce significantly the time and
expense required for businesses to learn, evaluate and implement
e-automate's automation system.
The Company's product is a business-improvement tool that
differentiates and automates specific functions, as well as monitors
all aspects of business operations. The product is strategically
marketed to business owners, managers and purchasers through a
direct sales channel as well as through the Company's website. The
Company uses Internet technologies to reduce dramatically the time
and cost required for businesses to learn, evaluate and implement
e-automate's automation system. The e-automate system permits an
infinite number of automations and adaptations to the customer's
specific business requirements.
The Company's system includes a web-based tool for acquisition
of new, timely ideas for business improvement with the added
advantage of avoiding costly expense and time involvement with
actual business consultants. This tool differs from other competing
consulting services and programs by enabling businesses to download
automation agents that will perform or automate the recommended
business specific activities.
The e-automate system is Microsoft(R) Windows(R)-based and
uses Microsoft's powerful SQL Server 7.0 as its database engine.
With the Web flexibility of SQL, a robust Automation add-in system,
and substantial new Web-based commerce tools (coming in the near
future), e-automate's system offers significant performance
improvement and future scalability to small businesses.
Functional areas of the system currently include accounting
functions (general ledger, accounts payable, accounts receivable and
cash), sales, purchasing, contact management, point-of-sale,
inventory/warehouse management, and service dispatch management.
Wrapped around this enterprise-wide functionality are full-service
reporting and a solid security system.
The e-automate system also includes a unique Automation
Manager, which allows the system to be extended with custom
Automation Tasks(TM) ("Tasks") that adds external functionality to
the system without affecting future upgrades. These Tasks can be
custom designed to automate various functions or actions within the
system, such as automated inventory ordering or sales invoice
creation under specified circumstances.
The Company also provides associated implementation and
conversion services. Typical accounting/information systems require
a three to six month window for implementation, while large-scale
ERP systems have even longer lead times of one to two years. The
e-automate system can be deployed and operating in a small business
environment in 30 to 60 days. This rapid implementation model
translates into significant cost savings to the client. Typical ERP
systems require approximately $4 of implementation service costs for
every $1 spent on software. The e-automate system can be
implemented at a far more affordable $1:$1 ratio of services to
software. The Company is pushing its competitive advantage further
by developing industry-leading automated implementation tools.
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Markets and Marketing
The Company's target market is primarily small businesses. The
Company has adopted a modified strategic partner strategy to market
its automation systems. This marketing approach integrates
strategic partners while simultaneously promoting direct-sales to
purchasers over the Internet. In terms of the Company's reliance on
strategic partners, the Company intends to use caution in the
selection of its relationships, selecting partners who are highly
knowledgeable of their markets and who demonstrate a capacity to
establish substantial market presence. The Company believes that its
two -level approach to marketing will be advantageous.
The Company's marketing rationale is also driven by its
general business commitment to leanness at the corporate level and
to limited staffing as much as possible through outsourcing. This
rationale will apply to the marketing staff as well, while still
allowing the Company to focus resources on accomplishing its
objective of developing and providing unique products on a "first to
market" and "meet the market need" basis. "First to market" must be
the Company's primary focus, with "new and improved" to follow in a
strategic course.
For the foreseeable future, the Company plans to rely on
sales of software and services as the source of its revenues.
General Awareness. The Company utilizes direct mail, Internet
search listings, telemarketing, trade shows, advertising and public
relations to target and direct businesses to its website. Once
business managers have accessed the website they obtain an overview
of the e-automate approach for improving their business. The
web-based approach is convenient and includes a two-minute
assessment survey that enables the prospective user to determine
whether more time should be spent in pursuing the e-automate way to
improve business performance.
Business Needs Analysis. At the Company's website business
owners and managers may perform a self-assessment survey of their
business needs. These assessments are conducted with visual images
and descriptions of the automation system software. The process is
structured to help guide the customer quickly through a thorough,
discovery process.
System Consultation. From the website, business managers may
review their assessment results; watch a specific system
presentation based upon the assessment results, download system
recommendations, agreement to purchase and proceed documents, as
well as review text and multi-media based descriptions of the
e-automate automation system. This information will be
automatically delivered to the customer via the Internet in
electronic format, or may be optionally hand delivered to the
customer by a business system consultant. The contract agreement
comprehensively incorporates all costs and offers leasing options
for the entire product, package of software and services.
Business Improvement Consulting. Business managers/clients
will be able to access business improvement ideas and download
automation agents and address specific activities. The customer can
request online assistance from a business consultant, request a
quote for a new automation application, or view statistics
reflecting performance comparisons with other e-automate customers
in their industry.
Small business enterprises are currently among the fastest
growing segments in the global market. The U.S. Small Business
Administration reports that there are now over 23 million small
businesses in the United States, with record numbers of new
businesses every year since 1991. As small businesses have grown, so
has the need for management software and systems that provide
efficiency and growth capability at a reasonable cost. In addition,
these businesses want to take advantage of the Internet to compete
more aggressively and on a broader scale.
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The business information/ERP system market is enormous,
because it touches virtually all types of organizations across the
globe. While most of the Fortune 500 companies have turned over a
new information system in the last five years, small-to-midsize
companies continue to represent high-growth segments because (a)
they experience faster growth themselves, and (b) new business
enterprises are dynamically evolving.
While much of the late 1990s was focused on "one-to-one"
marketing tools for business-to-consumer (b-to-c) relationships, the
year 2000 has brought a new emphasis on technologies that enable
business-to-business (b-to-b) relationships. Recent estimates are
that the b-to-b market will reach some $2 trillion in the next five
years. In either case, it is clear that flexible, scalable,
Web-enabled information systems will be the critical component of
any company's b-to-c and b-to-b strategies at all levels.
Unfortunately, small businesses often become encumbered with
a "hodge-podge" of databases and management tools. For example,
small businesses may use QuickBooks or some other accounting
system, plus a sales/contact manager (such as Goldmine), and any
number of inventory/shipping/customer databases. While this
approach may initially be manageable, most companies soon realize
that duplicated efforts and non-integrated databases are costing
them productivity and efficiency as well as usurping valuable
economic resources.
Status of Any Publicly Announced New Product or Service.
On March 30, 2000, the Company reached an agreement with
Toshiba America Business Systems to develop and host a web-based
service dispatch center to be used by all of Toshiba's affiliated
office equipment dealers, and national accounts. This relationship
with Toshiba is integral with the Company's continuing strategy into
the Internet business-to-business arena.
Competition
Competitive Business Conditions. The market for the
Company's products is highly competitive and rapidly changing. The
Company's primary market consists of businesses, for which current
and prospective competitors offer a variety of solutions. The
Company experiences significant competition and expects substantial
additional competition from established and emerging software
companies that offer products similar to the Company's products and
target the same customers as the Company. The Company believes it
competes on the basis of (i) product features, functionality,
performance and price; (ii) the capacity and capabilities of
strategic partners; (iii) the quality of the Company's and its VAR
network's customer service and technical support; (iv) direct sales
capability via the Company's website; (v) sales and marketing
efforts; (vi) new product and technology introductions; and (vii)
company image and stability. Notwithstanding the foregoing, the
Company may be unable to penetrate the existing market and acquire a
sufficient market share to be profitable. Significant competitive
factors which will affect future sales include regulatory approvals,
performance, pricing, timely product shipment, safety, customer
support, convenience of use and general market acceptance.
Certain of the Company's competitors have substantially
greater financial, marketing or technical resources than the
Company. There can be no assurance that other software development
companies have not developed or in the future will not develop any
market products that may be superior to those of the Company, that
may be offered at substantially lower prices than those of the
Company, or that have or will achieve greater market acceptance than
those of the Company. In addition, there can be no assurance that
alternative methods of delivering automation systems will not
provide increased competition.
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Industry Competition. The e-automate system constitutes a
new, revolutionary category of information systems and is designed
so an infinite number of activities can be automated. e-automate
is the only system presently in the industry that has the capability
of enabling endless automations. The system itself uses a number of
architectural building blocks that must be present to fully deliver
automations. Duplicating these advanced technology-enabled features
presents a formidable barrier for new or established companies.
Most competitors cannot easily modify their systems to perform such
automations. Because of e-automate's unique ability to automate
activities, and to automate or simplify the implementation process,
the Company believes that there are currently no comparable direct
competitors.
Competitors in the small business information system market
can be broken down into five categories:
Large ERP Vendors. Major business information systems
providers have typically chosen to avoid the small business segment
because their expensive, highly custom products are not suited for
low-cost, rapid implementation in a small-business environment. In
addition, the relative per-sale revenue of small business compared
to large enterprises is probably unattractive to those playing in
the high-end market.
Mid-market Vendors. These systems, such as Great Plains or
Solomon, tend to be about double the cost of e-automate for
comparable installations, and recent market trends have shown these
companies pushing "upward" in the market toward larger enterprises,
rather than downward. They also typically are built on older
technologies, and lack the Web flexibility included in today's
cutting-edge systems. However, they probably represent the most
substantial threat if they chose to reverse course and dedicate
substantial resources to a small-business solution.
Low-end Vendors. Off-the-shelf systems (such as QuickBooks
and Peachtree) are inadequate for a business of any substantial
size. While easy to use, they basically handle accounting duties
only and don't integrate information from other areas of the business.
General Small Business Vendors. There are a handful of small
business "accounting only" systems. These represent a very small
market share, however, and don't appear capable of threatening the
"enterprise-wide" information system model used by e-automate.
Vertical Specialty Systems. The small business segment is
unique in that the very lack of a viable general solution in the
last 10 years has given birth to hundreds of small, specialty
systems designed for a very specific niche. By and large, these
systems are built on older technologies using proprietary databases.
In virtually all cases, they lack scalability and any real
e-commerce or Web capability, and they usually include only some
aspects of the business. Their customers usually describe their
reason for purchase as "it's the only thing available that I could
afford."
Competitive Advantage. The Company's competitive advantage
is its ability to automate comparatively more business functions and
activities than other similar mass-marketed systems. e-automate's
core competencies include the ability to: (1) rapidly discover and
assess business improvement needs; and (2) design and develop
automated software solutions that are tailored to and responsive to
the particular customer's business needs.
The Company is unique in the industry, no other competitor
currently has a web-based, assessment, purchase, and automated
implementation process comparable to e-automate's system. In
addition, the Company's technology appears to be the only system in
the industry that facilitates an infinite number of automated tasks.
Because of the time and significant expense required for
redesigning and adapting existing platforms to achieve infinite
functions, duplicating advanced technology features of the
e-automate system presents a significant technological barrier for
new as well as established competitors.
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Based on current market conditions, e-automate's key
competitive advantages can be summarized as follows:
Comprehensiveness. The e-automate system encompasses the
whole range of business activities and is not limited to specific
functions, as compared to most small business specialty competitors.
Flexibility. The e-automate system's Microsoft SQL database
and scalable architecture make it technically superior to most
small-business market players, and maximize the ability to manage
future growth and move into e-business activities.
Rapid, low-cost implementation. The e-automate system can be
deployed in 30 to 60 days (less than half of the industry average),
at a "service-to-software" cost ratio of $1:1 as compared to the
typical ratio of $2:1 to $5:1 industry wide.
The e-automate system constitutes a new, revolutionary
category of information systems and is designed so an infinite
number of activities can be automated. e-automate is the only
system presently in the industry that has the capability of enabling
endless automations. The system uses a number of architectural
building blocks that must be present to fully deliver automations.
Duplicating these advanced technology-enabled features presents a
formidable barrier for new or established companies. Most
competitors cannot easily modify their systems to perform such
automations. Because of e-automate's unique ability to automate
activities, and to automate or simplify much of the implementation
process, the Company believes that there are currently no comparable
direct competitors.
Sources and Names of Principal Suppliers.
The Company's products utilize certain software licensed to
it by third party software developers. Although the Company believes
that there are alternatives for these products, any significant
interruption in the supply of such third party software could have a
material adverse impact on the Company's sales unless and until the
Company can replace the functionality provided by these products. In
addition, the Company is to a certain extent dependent upon such
third parties' abilities to enhance their current products, to
develop new products on a timely and cost-effective basis and to
respond to emerging industry standards and other technological
changes. There can be no assurance that the Company would be able to
replace the functionality provided by the third party software
currently offered in conjunction with the Company's products in the
event that such software becomes obsolete or incompatible with
future versions of the Company's products or is otherwise not
adequately maintained or updated.
The Company's software products currently are designed to run
on Microsoft operating system technologies, including Windows NT,
Windows 95, Windows 98 and SQL Server, which are increasingly
becoming the standard in the business market. In addition, the
Company's products utilize other Microsoft technologies, including
Internet Information Server, FrontPage, Visual Basic, Visual Basic
for Applications and Site Server. Although the Company believes
that Microsoft technologies are and will continue to be widely
utilized by small businesses, no assurance can be given that these
businesses will actually adopt such technologies as anticipated or
will not in the future migrate to other computing technologies that
the Company does not support. Moreover, the Company's strategy will
require that the Company's products and technology be compatible
with new developments in Microsoft's technology.
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Dependence on One or a Few Major Customers.
The market for the Company's products is highly competitive and
rapidly changing. The Company's primary market consists of a broad
spectrum of small businesses. The Company is not limited on
dependent on a narrow customer base but has the technology and
product flexibility to broaden its market and address the business
needs of a diverse customer base.
Intellectual Property; Licensing and Proprietary Rights.
The Company seeks to protect its software, documentation and
other written materials under trade secret and copyright laws, which
afford only limited protection. The Company generally enters into
confidentiality and non-disclosure agreements with our employees and
with key vendors and suppliers. Currently the Company uses the
following trade names: "The Way to e-automate Your Business";
"automating the way businesses do business"; "Automation Tasks". We
are in the process of making application for registration of our
trade name and marks with the United States Patent and Trademark
Office ("PTO"), and intend to continually evaluate the
appropriateness of seeking registration of additional product names
and marks as they evolve.
At the present time the Company has no patents or patents
pending. However, we may file for patent protection on certain
aspects of our proprietary technology in the future, including our
business information system, a task automation tool and a
data-mining tool. Our present or future products may be found to
infringe upon the patents of others. If our products were found to
infringe on the patents, or otherwise impermissibly to utilize the
intellectual property of others, our development, manufacture and
sale of such products could be severely restricted or prohibited.
In such eventuality we would be required to obtain licenses to
utilize such patents or proprietary rights of others, for which
acceptable terms may be unavailable. If we were not able to obtain
such licenses, the development, manufacture or sale of products
requiring such licenses could be materially adversely affected. In
addition, we could incur substantial costs in defending our self
against challenges to our patents or infringement claims made by
third parties or in enforcing any patents we may obtain.
There can be no assurance that any new patents applied for
would be issued, that the Company will develop proprietary products
or technologies that are eligible for patents, that any issued
patent will provide the Company with any competitive advantages or
would not be challenged by third parties, or that the patents of
others will not have a material adverse effect on the Company's
business.
Under most of our contracts, we regard our software as
proprietary, in that title to and ownership of our software
generally resides with the Company. Beginning with our release of
our new version, we will grant nonexclusive licenses to customers
for software developed by the Company. Like many software firms,
the Company has no patents, as noted above. We attempt to protect
our proprietary rights with a combination of copyright and trade
secret laws, as well as employee and third party non-disclosure
agreements. Despite these precautions, it may be possible for
unauthorized third parties to copy certain portions of our product
or obtain and use information that we regard as proprietary, such
as source codes or programming techniques that generate high
quality performance on low end platforms.
Need for Any Government Approval of Principal Products or Services.
None.
Effect of Existing or Probable Government Regulation on Business.
None anticipated.
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Research and Development.
The Company uses state-of-the-art architecture and design
approaches in its system. Our software is dynamically evolving and
we intend to continually innovate using the latest technology to
respond to customer requirements. We are currently in process of
producing the Version 3.0 of our software, a n upgraded version of
the e-automate system which uses the most current technology and is
more "user-friendly" and intuitive to operate. Version 3.0 is
scheduled for release in September 2000. e-automate's future
versions are in the technical design phase and the Company
anticipates the release of this software within 12 to 18 months.
Estimates of Amount Spent During Each of Last Two Fiscal Years on
Research and Development.
The Company spent $156,515 and $1,039,642 respectively for
the fiscal years ended March 31, 1999 and 2000 on research and
development.
Employees
As of March 31, 1999, the Company had 13 full-time employees.
As of March 31, 2000, the Company had 45 full-time employees.
Currently the Company has 56 full-time employees and 2 part-time
employees. This number does not include independent contractors who
are not our employees. The Company also utilizes several
consultants and advisors. There can be no assurance that the we
will be successful in recruiting or retaining key personnel. None
of the Company's employees is a member of a labor union and the
Company has never experienced any business interruption as a result
of any labor disputes.
Reports to Security Holders.
None.
ITEM 2. Description of Property.
The Company currently occupies 6,000 square feet of leased
office space at American Fork, Utah 84003. The Company believes the
facilities described above are adequate to meet its immediate
operating needs. Should growth objectives be exceeded during this
time period, additional space may need to be occupied. Currently,
additional square feet are available immediately in the same
business park as its executive offices, which could be leased on
terms similar to the existing space.
ITEM 3. Legal Proceedings.
The Company is not a party to any material legal proceedings
outside the ordinary course of its business or to any other legal
proceedings which, if adversely determined, would have a material
adverse effect on the Company's financial condition or results of
operations.
ITEM 4. Submission or Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this report.
<PAGE>
-9-
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters
Sales of Unregistered Securities
Issuance of Series A Preferred Stock - On June 19, 2000, the Company
entered into an agreement to issue up to 5,000 shares of Series
2000-A Convertible Preferred Stock, together with up to 1,000,000
warrants as a unit for cash. There is no obligation on the investor
to provide the financing, solely at the discretion of the investor,
which is assigned fair value prior to the common stock being quoted
is $3.00
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, additional warrants to
purchase 500,000 shares of common stock at $5.00 per share were
issued for cash proceeds of $5,000.
Issuance of Series B Preferred Stock - On June 19, 2000, $628,983 of
notes payable were converted into 125,796 shares of Series B
convertible preferred stock at $5.00 per share.
Issuance of Common Stock - From April through June 2000, the Company
issued 143,540 investment units under the terms of the 2000
Placement for cash proceeds of $430,620 or $3.00 per unit. 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 $5.00 per share through August 31, 2001.
There are approximately 238 shareholders of record of the
Company's common stock as of June 17, 2000.
The transfer agent for e-automate is Colonial Stock Transfer
Co, 544 East 400 South, Suite 100, Salt Lake City, Utah 84111.
ITEM 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Selected Financial Data
The following selected financial data of the Company as of
March 31, 2000, March 31, 1999, and cumulative from November 22,
1995. (Date of Inception) are derived from, and are qualified by
reference to, the financial statements of the Company, included
elsewhere in this Form 10-KSB.
Cumulative
From
November 22,
1995
(Date
The Years Ended March 31, of Inception)
-------------------------- March 31,
2000 1999 2000
----------- ----------- -----------
Revenue $ 259,472 $ 244,801 $ 796,811
Net Income (Loss) (3,334,164) (580,704) (4,553,086)
Basic and Diluted Earnings
(Loss) per share (0.74) (0.23) (1.64)
Weighted Average Shares
Outstanding 4,491,383 2,570,511 2,778,624
Cash Dividends Declared per
Common Share - - -
Summary Consolidated Balance Sheet Data
Working Capital $(1,122,947) $ (590,158)
Total Assets 269,834 92,297
Stockholder's (Deficit) (943,283) (748,547)
Accumulated (Deficit) (4,553,086) ( 1,218,922)
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
General
The following discussion and analysis provides
information which management believes is relevant to an assessment
and understanding of the Company's condensed results of operations
of financial condition. Whenever in this discussion the term
"Company" is used, it should be understood to refer to e-automate
Corporation ("e-automate"), except where the context clearly
indicates otherwise.
The Company is primarily engaged in developing and
providing business productivity improvement software and services
for small businesses. The Company uses the Internet, and innovative
technologies, to enable small businesses to purchase and implement
its software more easily, to receive consulting services, and to
automate business activities. These technologies also enable
customers to receive business improvement benefits at a greatly
reduced total cost. The customer need for this software derives
from the fact that most small businesses have many activities that
need to be done on a continuing basis, but few small businesses can
afford to accomplish those activities through hiring more people;
electronic automation of company-specific activities is the solution.
The Company sells its products and services with a
direct sales force and strategic partners. The Company has also
entered into an agreement with Toshiba to develop and host a
web-based service dispatch center to be used by all of their copier
dealers, and national accounts (including government, corporate, and
education). This relationship is also part of the Company's
continuing strategy into the Internet B2B arena.
Development Stage Enterprise. Since inception, the
Company has spent most of its efforts raising capital and developing
and marketing its enterprise-wide software applications. Since
inception has incurred losses from operations. As of March 31, 2000
the Company has had cumulative net losses totaling $4,412,751.
<PAGE>
-11-
The following Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains
forward-looking statements which involve risks and uncertainty. Our
actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors
discussed in this section. The Company is a development stage
company engaged in the development and marketing of electronic
automation systems and on-line consulting services. e-automate's
products and services include automated software solutions to
address business needs. The Company's mission is focused on
"automating the way businesses do business." The Way to e-automate
Your Business is the process which the Company markets to profitably
facilitate improved business performance through increased revenue
production, cost reduction and management of cash flow. e-automate
relies on Internet technology to reduce the investment in time and
cost to learn, evaluate, and implement e-automate's automation
systems. The Company's products and services are designed to
automate essential business functions facilitate improvement in
ongoing business performance, and enhance the strategic value of
financial information. e-automate utilizes Virtual Consulting, a
web-based system for acquisition of new, timely ideas and
technology for improved business operations without the costly
dependence on business consultants. Virtual Consulting(TM) enables
businesses to download the task-specific automation agents that will
perform or automate the recommended business activities.
In order to meet the needs of the business market,
the Company designs, develops, markets, sells and supports
automation products that are cost-effective, scalable and easy to
implement, customize and use. The Company's automation products are
optimized for Microsoft technologies, notably Windows NT, Windows
95, Windows 98, which are increasingly becoming the standard in the
business market. Moreover, by utilizing emerging Internet and
electronic commerce technologies, the client is better positioned to
conduct business over the Internet.
<PAGE>
-12-
Results of Operations
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of the Company's results of operations. Whenever in this discussion
the term "Company" is used, it should be understood to refer to
e-automate Corporation ("e-automate"), except where the context
clearly indicates otherwise.
The Company is primarily engaged in developing and providing
business productivity improvement software and services for small
businesses. The Company uses the Internet, and innovative
technologies, to enable small businesses more easily to purchase and
implement its software, to receive consulting services, and to
automate business activities. These technologies also enable
customers to receive business improvement benefits at a greatly
reduced total cost. Customer need for this software arise
from the fact that most small businesses have many activities that
must done on a continuing basis, few small of them can
afford to accomplish those activities through hiring more people
therefore, electronic automation of company-specific activities is the
natural solution.
The Company sells its products and services through a direct sales
force and strategic partners. The Company has also entered into an
agreement with Toshiba to develop and host a web-based service
dispatch center to be used by all of their copier dealers, and
national accounts (including government, corporate, and education).
This relationship is also part of the Company's continuing strategy
into the Internet B2B arena.
Development Stage Enterprise
Since inception, the Company has spent most of its efforts raising
capital and developing and marketing its enterprise-wide software
applications. Since inception has incurred losses from operations.
As of March 31, 2000 the Company has had cumulative net losses
totaling $4,553,086.
Results of Operations
Revenues
Cumulative operating revenues from inception to March 31, 2000
totaled $796,811. Revenues for the year ended March 31, 2000 were
$259,472 representing a slight increase of 6% in revenues compared
with $244,801 for the year ended March 31, 1999. The Company's
revenues are divided into two revenue streams, "Software Licenses"
and "Services".
Total user license revenues for the year ended March 31, 2000 were
$172,515, representing an increase of 6.8% over the user license
revenues of $161,569 for the year ended March 31, 1999. The
increase in revenues was primarily due to new product offerings and
a larger sales team.
Service revenues for the year ended March 31, 2000 were $86,957,
representing an increase of 4.5% over service revenues of $83,232
for the ended March 31, 1999. The increase in service revenues is
primarily due to the increased number of software licenses for the
e-automate business improvement software.
Costs and Expenses
Cost of Revenues
The costs to produce and distribute software licenses are
negligible. Costs to develop the software licenses have been
expensed as incurred as research and development.
<PAGE>
Cost of services consists primarily of telephone support, training,
training media, database setup and conversion, software
implementation, and business consulting services. Cost of services
for the year ended March 31, 2000 increased to $436,700 from $90,975
for the year ended March 31, 1999. The increase in cost of
services is the result of hiring and training additional qualified
personnel and the acquisition of resources required to support new
implementations. During the past year the Company was focused on
building an infrastructure to handle future sales growth. We expect
that these costs will remain fairly level as software license
revenues increase. The Company has developed methods to improve
implementation efficiencies and shorten the implementation cycle
using Internet technologies. These improvements are anticipated to
increase gross profit in the future.
Sales and marketing expenses consist mainly of salary, commission,
travel, trade shows, market activities and other promotional
expenses. Sales and marketing expenses increased to $953,843 for
the year ended March 31, 2000 compared with $216,070 for the year
ended March 31, 1999. Sales and marketing expenditure increases
were, in part, due to additional resources added to determine new
markets, develop qualified leads, build brand awareness, and create
new advertising campaigns.
Research and development (R&D) expenses largely consisted of
compensation of development engineers, quality assurance and
documentation personnel, and allocated overhead costs. R&D expenses
were $1,039,642 for the year ended March 31, 2000 compared with
$156,615 for the year ended March 31, 1999 representing 33.8% and
24.7% of total operating expenses, respectively. R&D expenses
increased as a percentage of total operating expenses due to
increased development resources to prepare for multiple product
releases scheduled for the year 2000. R&D expenses are expected to
increase as a percentage of total operating expenses during the
coming year.
General and administrative expenses were $1,079,204 in the year
ending March 31, 2000, compared to $262,003 for the year ending
March 31, 1999, representing 35.1% and 41.3% of total operating
expenses, respectively. This increase in expenses was largely
attributable to the Company's growth from a 5-person operation one
year ago to a 55-person operation today. These expenses are mainly
fixed and are expected to remain relatively level until e-automate
has increased its revenues.
Liquidity and Capital Resources
The Company had $219 in cash as of March 31, 2000. Working capital
deficit as of March 31, 2000, increased to $1,122,947 as compared to
a working capital deficit of $590,158 at March 31, 1999. This
decrease in working capital was primarily due to an increase in
notes payable, accounts payable, and deferred revenue. The Company
believes that its working capital will significantly improve during
the coming year through an increase in sales and additional funding
through its private placement memorandum. However, this improvement
in working capital is not assured.
On June 19, 2000, the Company entered into an agreement 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 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. In connection with the conversion terms of the Series A
convertible preferred stock at 80% of market valve, the assigned
fair value of the common stock prior to its being quoted by a market
is $3.00 per share.
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, additional warrants to
purchase 500,000 shares of common stock at $5.00 per share were
issued for cash proceeds of $5,000.
On June 19, 2000, $628,983 of notes payable were converted into 629
shares of Series B convertible preferred stock. The Series B
convertible preferred stock is convertible into common stock at
$5.00 per share.
From April through June 2000, the Company issued 143,540 units under
the terms the 2000 Placement for cash proceeds of $430,620 or $3.00
per unit. 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>
During May, 2000 an officer and director advanced $200,000 to the
Company to meet current operating expenses. The short-term bridge
loan is convertible into 66,667 common shares under the terms of the
2000 Placement. The loan bears interest at 8 percent.
During June 2000, an officer and director advanced $155,000 to the
Company to meet current operating expenses. This short-term
operating loan is payable upon demand and bears interest at 15
percent.
The Company has financed its operations principally through founder
loans, borrowings under notes payable, and private placements of
equity securities and product sales. The Company generated
$2,182,093 in cash from financing activities during the year ended
March 31, 2000, compared to $349,441 during the year ended March 31,
1999. Cash provided by financing activities during the year ended
March 31, 2000 consisted principally of $1,756,786 from the issuance
of common stock, $225,000 from the issuance of notes payable, and
$359,997 from the issuance of notes payable to related parties. The
Company used cash in operating activities of $2,460,210 and $341,021
for the years ended March 31, 2000 and 1999, respectively. As of
March 31, 2000, the Company's current liabilities totaled $1,167,072.
The financial statements of the Company 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. The Company has sustained losses of $3,334,164 and
$580,704 for the years ended March 31, 2000 and 1999, respectively.
In addition, operating activities have used cash of $2,460,210 and
$341,021 for the years ended March 31, 2000 and 1999, 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 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. 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.
The Company's working capital requirements and other capital
requirements for the foreseeable future will be primarily funded
through the issuance of equity securities until the Company is able
meet its working capital needs with positive cash flows provided
from operations; after this point, the Company will likely increase
expenditures so as to accelerate its revenue and profitability
growth. The Company believes that proceeds from subsequent issuance
of equity securities will enable it to establish profitable
operations and positive cash flows from operations. If sales do not
develop as quickly as anticipated, the Company will require
additional equity funding. There is no assurance that profitable
operations or positive cash flows from operations will be realized,
that any future funding will be available or that if available, the
terms of such offering or funding will be acceptable to the Company.
Cautionary Statement Relevant To Forward-Looking Information
When used in this Form 10-KSB, in other filings by the Company with
the SEC, in the Company's press releases or other public or
stockholder communications, or in oral statements made with the
approval of an authorized executive officer of the Company, the
words or phrases "would be," "will allow," "intends to," "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.
The Company cautions readers not to place undue reliance on any
forward-looking statement, 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 various risks and
uncertainties, including but not limited to risk 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 of otherwise. As a result,
the Company's actual results for future periods could differ
materially from those anticipated or projected.
Unless otherwise required by applicable law, the Company does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences, developments,
unanticipated events or circumstances after the date of such statement.
<PAGE>
Employees and Consultants
As of March 31, 1999, the Company had 13 full-time employees. As
of March 31, 2000, the Company had 45 full-time employees.
Currently the Company has 56 full-time employees and 2 part-time
employees. This number does not include independent contractors who
are not our employees. The Company also utilizes several
consultants and advisors. There can be no assurance that the we
will be successful in recruiting or retaining key personnel. None
of the Company's employees is a member of a labor union and the
Company has never experienced any business interruption as a result
of any labor disputes.
ITEM 7. Financial Statements
The financial statements are set forth immediately following the
signature page.
ITEM 8. Changes in and disagreements with Accountants on
Accounting and Financial Disclosure
The Company and its auditors have not disagreed on any items of
accounting treatment or financial disclosure.
PART III
ITEM 9. Management and Certain Security Holders
Directors and Executive Officers
The table below sets forth the name, age and positions or offices
of each director and executive officer of e-automate Corporation.
Name Age Position
----------------- ------------ ------------------------------
Russ Riggins 1, 4 55 Director, Chairman of the Board
Lon D. Price 2,4 40 Director, President and Chief
Executive Officer
Kim Green 47 Chief Financial Officer
Ken Meyers 30 Vice President of Operations
Brad Sorensen 33 Vice President of Software
Engineering
Ben deHoyos 44 Vice President of Product
Development
Richard F. Stout 4 37 Cofounder, and Director
Raymond Meservy 4 50 Director
James K. Phillips 3,4 51 Director
Scott Blackham 4 33 Director
_________________________
1 Became Chairman of the Board effective June 19, 2000.
2 Became President and Chief Executive Office on April 13, 2000.
3 Resigned as Chairman of the Board effective June 19, 2000.
4 Members of Board of Directors
Executive officers are elected annually by the Board of Directors
to hold office until the first meeting of the Board following the
next annual meeting of shareholders and until their successors have
been elected and qualified.
Russ Riggins, Chairman, Director. Mr. Riggins is an executive
with 30 years experience, he has worked with both large and small
companies in a variety of industries. Since 1994, he has been a
partner and owner in The ParaMarketing Group, LLC, a marketing
consulting firm specializing in go-to-market strategies. He has
consulted with IBM, Hitachi, Adobe, Cisco, Adaptec, Docent and other
technology companies. From 1992 to 1994 he served as COO, Executive
Vice President and CFO of Generra Sportswear, a $300 million mens
sportswear company. The board of directors brought in Mr. Riggins to
take the Company through bankruptcy. He focused on restructuring
the Company, selling off unprofitable lines of business, and
renegotiating the Company's debt. The company successfully emerged
from bankruptcy in 1994. From 1970 to 1992, he was with KPMG Peat
Marwick ("KPMG"). From 1982-1988 he was an audit partner responsible
for the high technology practice in the Seattle area. He focused on
working with start-up companies, assisting them with their business
strategies, raising capital and going public. From 1988-1992 he
served as Partner in Charge of KPMG's consulting business in the
Pacific Northwest. He successfully grew this business that focused
on information technology, business process re-engineering and
business strategies. He is a CPA and has a B.A. in Business
Administration from the University of Washington.
<PAGE>
Lon D. Price, CEO, President, Director. Mr. Price brings over 17
years experience in high technology software companies, including
nine years of senior management. He began his career in software
development at WordPerfect Corporation, then moved on to high-level
consulting and sales at Oracle Corporation. He then managed
consulting and sales for Viewstar and Aris Corp., both with P&L
responsibility. Most recently, Mr. Price served as vice president of
training and education at TenFold Corporation, where he had full
business unit financial and operations responsibility. His expertise
includes consulting, education, organizational management, strategic
planning, and growth management. Mr. Price holds a BS in computer
science from Brigham Young University.
Kim A. Green, Director of Finance and Corporate Secretary. Mr.
Green joined e-automate Corporation in January of 1999. He received
a degree in mechanical engineering from Brigham Young University and
an MBA from the University of Utah. For the past 15 years Mr. Green
has worked as an engineer and project manager at various
organizations. For seven years prior to joining the Company, he
worked for Novell, where he participated in various levels of
software product and project management development activities.
Prior to Novell Mr. Green was employed at ARINC Research for seven
years.
Ken Meyers, Vice President of Operations. Mr. Meyers brings ten
years of experience in a broad range of areas, including strategy,
marketing, and product and service development. Prior to joining
e-automate, he was vice president of client services for
MyComputer.com, a market leader in ASP-delivered web tools for small
businesses. Other experience includes three years in marketing and
web management at Dentrix Dental Systems (a two-time Inc. 100
business software company), public communications work at United
Nations headquarters in New York, editorial management of two
publications and marketing communications consulting work. In
addition, from 1993-1995 Mr. Meyers co-founded, operated, and sold a
small business . Mr. Meyers holds a B.S. in communications from
Brigham Young University, and an MBA from the Marriott School of
Management at BYU.
Brad Sorensen, Vice President of Engineering. Mr. Sorensen has
13 years experience in programming and management at various levels
of the software engineering process. For the six years prior to
joining the Company, he served as a senior developer at
Corel/WordPerfect, where he managed major web-based development
projects, and at Merasoft. Mr. Sorensen oversees all software
engineering activities, including architecture, project management,
technology development and use, and engineering standards. He has
recruited a strong team including alumni of Intel, Novell,
Corel/WordPerfect, and TenFold. Mr. Sorensen has a B.S. in
electrical engineering from Brigham Young University.
Ben de Hoyos, Vice President of Product Development. Mr. de Hoyos
has 18 years experience in corporate, retail, and academic
environments, including 12 years combined management experience in
marketing and in high-tech product development and operations.
Specifically, his experience includes product management and
technical experience in online communities, Internet business, and
networking; corporate and institutional education and training; and
print/online publications. Among other organizations, he has worked
for Novell, TenFold Corporation, MyFamily.com, and National
Evaluation Systems, and he spent three years in business for himself
as an entrepreneur in the consumer electronics/home entertainment
business. Mr. de Hoyos holds a B.A. and an M.A. in English
Literature from Brigham Young University, and spent two years in
post-graduate work in English Literature at Harvard University on a
fellowship.
<PAGE>
Richard F. Stout, Co-founder and Director. For the past 15 years
Mr. Stout has engaged in small business consulting and management
activities. As a student he distinguished himself academically,
serving on the curriculum redesign committee where he helped to
write a book on quantitative decision-making methods and modeling.
For nearly ten years Mr. Stout has worked with small and mid-sized
businesses to help them to improve business performance. It was
while engaged in theses activities that he identified common
problems which information systems should solve, but were not
solving for small businesses. Along with Todd Hardman, Mr. Stout
co-founded e-automate Corporation in order to develop
business-improvement software. He continues to serve the Company by
providing vision and strategy consulting and representing the
Company in business development interactions. Mr. Stout received an
MBA from Brigham Young University.
Raymond D. Meservy, Director. Dr. Meservy received a Ph.D. in
Accounting from University of Michigan. For the past nine years he
has been a university professor. Dr. Meservy has served as an
Associate Professor at Carnegie Mellon University and now teaches
accounting and information systems studies at Brigham Young University.
James K. Phillips, Director. Mr. Phillips is a founder of
several companies, and a major investor in e-automate. He is
experienced in assisting companies to transition to successful
public companies. For the last six years, he has personally coached
hundreds of Fortune 500 executives on how to improve their
performance. Mr. Phillips has been invaluable in coaching senior
managers and helping create a high-performance environment.
Scott Blackham, Director. Mr. Blackham has spent the past three
years working with development stage companies with Pangea Equities,
an angel investment firm. From 1996-98 Mr. Blackham worked for
ING-Barings, where he specialized in using financial derivatives as
risk management tools. He interfaced with large institutional
clients, assisting them manage their financial risk. He also
created and priced new financial products, customized to the needs
of individual clients, by using sophisticated computer modeling
techniques. Prior to his work at ING-Barings, Mr. Blackham was an
operations manager for Ryder Integrated Logistics where he had P&L
responsibility for one of their largest on-site accounts. Mr
Blackham has a Bachelor of Science degree in Mechanical Engineering
from Brigham Young University and an MBA from the Marriott School of
Management.
board Meetings and Committees
The Board of Directors held a total of five meetings during the
fiscal year ended March 31, 2000. The Compensation Committee,
consisting of Jim Phillips and Rick Stout, is primarily responsible
for reviewing compensation of executive officers and overseeing the
granting of stock options. Russ Riggins served as Chairman of the
Audit Committee and convened one meeting with the accountants during
the preceding fiscal year. No director attended fewer than 75% of
all meetings of the Board of Directors during the 1999 fiscal year.
Compliance with Section 16(a) of the Securities and Exchange Act of
1934
Effective May 1, 1991, the Securities and Exchange Commission
adopted revised rules regarding reporting of beneficial ownership of
securities by officers, directors and owners of more than 10% of any
class of a company's equity securities. During fiscal 1998, the
affected persons were in compliance.
The directors are elected for one-year terms, which expire at the
next annual meeting of shareholders. Executive officers are elected
annually by the Board of Directors to hold office until the first
meeting of the Board following the next annual meeting of
shareholders and until their successors have been elected and
qualified.
<PAGE>
ITEM 10. Executive Compensation
Summary Compensation Table. The following table sets forth, for the
three fiscal years ended March 31, 2000, the compensation paid to
the Company's Chief Executive Officer and all other officers and
directors (collectively, the "Named Executive Officers") at March
31, 2000 whose salary and bonus for all services in all capacities
exceed $100,000 for the fiscal year ended March 31, 2000.
Annual Compensation Long-term
-------------------------------------- Compensation:
Other Securities
Name and Annual Underlying
Principal Position Year Salary Bonus Compensation Options
------------------ ----- --------- ----- ------------- -----------
Rick Stout 1999 $ 112,000 $ - $ _
(formerly President)1 1998 - -
James K. Phillips 1999 $ 11,030 $ - $ - -
(formerly CEO)2 1998 2,758 - - -
__________________
1 Mr. Stout resigned as President of e-automate Corporation on
December 31, 1999.
2 Mr. Phillips resigned as Chairman of the Board on June 19, 2000.
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management
The following table lists the number of shares of Common Stock
beneficially owned as of March 31, 2000, by each person known by
the Company to be the beneficial owner of more the five percent (5%)
of the Common Stock, by each director of the Company, by the Chief
Executive Officer, and by all officers and directors of the Company
as a group. Unless noted otherwise, each person named has sole
voting and investment power with respect to the shares indicated.
Percentage
Number of of Class
Name and Address of Beneficial Owner Shares Outstanding
------------------------------------ ---------- -----------
Alan Fine* 503,840 9.4%
Patricia Fish* 285,802 5.3%
Lee Monson 579,980 10.8%
James K. Phillips 565,880 10.6%
Richard F. Stout 619,272 11.6%
*Not an officer or director
All officers and directors as a group (2 persons)
The percentages set forth above have been computed based on
5,296,181 shares, which is the number of shares of the Common Stock
outstanding and exercisable options held by officers and directors
outstanding as of March 31, 2000.
<PAGE>
ITEM 12. Certain Relationships and Related Transactions
As of March 31, 2000, the Company owed a balance of approximately
$45,000 to Richard F. Stout with respect to the sale several years
ago of certain of his original shares to the Company. As of June
24, 2000, the Company owes a balance of $56,000 to Jim Phillips for
short term operating expenses.
PART IV
EXHIBITS AND REPORTS
ITEM 13. Exhibits and Reports on Form 8-K
Exhibits
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-B or are incorporated by reference to previous filings.
Exhibit No. Document Description
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)
3.4 Amendment to Certificate of Incorporation
changing name to e-automate corporation (4)
4. Instruments Defining Rights of Security Holders
4.1 Certificate of Designation creating Series 2000-A
Convertible Preferred Stock*
4.2 Warrant Certificate for Series 2000-A Warrants*
4.3 Certificate of Designation creating Series B
Convertible Preferred Stock*
4.4 Warrant Certificate for Series 2000-B Warrants*
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(4)
10.6 Stock Purchase Agreement with Richard Stout,
James A. Phillips and Alan Fine*
10.7 Loan Agreement with Inside Out Development, LLC*
10.8 Securities Purchase Agreement with James K.
Phillips*
10.9 Securities Purchase Agreement with Alan Fine*
10.10 Securities Purchase Agreement with Lee Monson*
10.11 Purchase Agreement dated as of June 19, 2000,
between Registrant and Aspen capital Resources, LLC*
<PAGE>
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 report on Form 8-K
filed November 17, 1999.
(4) Incorporated by reference to the Company's quarterly report
on Form 10-QSB filed December 2, 1999.
___________________________
* Filed herewith.
(b) Reports on Form 8-K
Report on Form 8-K, as filed on June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
REGISTRANT
e-Automate Corporation
DATED: June 30, 2000 By: /s/ Lon D. Price
---------------------------------
Lon D. Price
Its: President
DATE: June 30, 2000 By: /s/ Kim A. Green
-----------------------------------
Kim A. Green
Chief Financial Officer and Corporate
Secretary
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
E-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants - Hansen,
Barnett & Maxwell . . . . . . . . . . . . . . . . . . . . . F-1
Independent Auditor's Report - Squire & Company. . . . . . . . . F-2
Balance Sheets - March 31, 2000. . . . . . . . . . . . . . . . . F-3
Statements of Operations for the Years Ended March 31, 2000
(Consolidated) and 1999 (Unconsolidated) and for the
Cumulative Period from November 22, 1995 (Date of
Inception) through March 31, 2000 (Consolidated) . . . . . . . F-5
Statement of Stockholders' Deficit for the Cumulative
Period from November 22, 1995 (Date of Inception) through
March 31, 1998 (Unconsolidated) and for the Years Ended
March 31, 1999 (Unconsolidated) and 2000
(Consolidated) . . . . . . . . . . . . . . . . . . . . . . . . F-6
Statements of Cash Flows for the Years Ended March 31, 2000
and 1999 (Unconsolidated) and for the Cumulative Period
from November 22, 1995 (Date of Inception) through March
31, 2000 (Consolidated). . . . . . . . . . . . . . . . . . . . F-8
Notes to the Financial Statements. . . . . . . . . . . . . . . . F-9
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates, Inc. Salt Lake City, Utah
84111-2693
www.hbmcpas.com
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
e-automate Corporation
We have audited the accompanying consolidated balance sheet of e-automate
Corporation and Subsidiary (a development stage company) as of March 31,
2000, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for the year ended March 31, 2000 and for the
cumulative period from November 22, 1995 (date of inception) through March
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of the Company from
November 22, 1995 through March 31, 1999 were audited by other auditors
whose reports, dated June 18, 1999 contained an explanatory paragraph stating
that operating losses and negative operating cash flows raised substantial
doubt about the Company's ability to contine as a going concern. Our opinion,
in so far as it relates to the cumulative amounts for the period from November
22, 1995 (date of inception) through March 31, 1999, is based solely on
the report of the other auditors.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit and the report of the other auditors provides a reasonable basis for
our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of e-automate Corporation and
Subsidiary as of March 31, 2000, and the results of their operations and
their cash flows for the year ended March 31, 2000 and for the cumulative
period from November 22, 1995 (date of inception) through March 31, 2000 in
conformity with accounting principles generally accepted in the United
States.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company is a
development stage company engaged in developing business productivity
improvement software for small businesses. As discussed in Note 1 to the
financial statements, the Company's operating losses and negative operating
cash flows for the years ended March 31, 2000 and 1999 raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 1.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
June 9, 2000
<PAGE>
F-1
Squire & Company, PC
Certified Public Accountants and Business Consultants
1329 SOUTH 800 EAST*OREM, UTAH 84097-7700*(801)225-6900*FAX (801)226-7739
-------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
of e-automate Corporation
We have audited the accompanying balance sheet of e-automate Corporation
(a development stage company) as of March 31, 1999, and the related
statements of operations, stockholders' deficit, and cash flows for the
year ended March 31, 1999 and for the period from inception (November 22,
1995) through March 31, 1999. These financial statements are the
responsibility of the management of e-automate Corporation. Our
responsibility is to express an opinion on these financial statements based o
n our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of e-automate
as of March 31, 1999, and the results of its operations and its cash flows
for the year ended March 31, 1999 and for the period from inception
(November 22, 1995) through March 31, 1999 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
company engaged in developing business productivity improvement software
for small businesses. As discussed in Note 1 to the financial statements,
the Company's operating loss and negative operating cash flows for the year
ended March 31, 1999 raise substantial doubt about its ability to continue
as a going concern. Management's plans concerning these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
SQUIRE & COMPANY, PC
June 18, 1999
Orem, Utah
<PAGE>
F-2
E-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31,
----------------------------
2000 1999
------------ ------------
(Consolidated) (Unconsolidated)
Current Assets
Cash. . . . . . . . . . . . . . . . . . $ 219 $ -
Securities available-for-sale . . . . . 5,470 -
Trade accounts receivable, no
allowance for doubtful accounts . . . 38,436 62,986
Prepaid expenses. . . . . . . . . . - 4,700
---------- ---------------
Total Current Assets . . . . . . . 44,125 67,686
---------- ---------------
Property and Equipment
Furniture and fixtures. . . . . . . . . 75,566 43,821
Computer equipment. . . . . . . . . . . 173,946 -
---------- ---------------
Total Property and Equipment . . . 249,512 43,821
Less: Accumulated depreciation. . . . . (44,752) (20,970)
---------- ---------------
Net Property and Equipment . . . . 204,760 22,851
---------- ---------------
Other Assets
Purchased software for internal use, net of
accumulated amortization of $2,755. . 15,548 -
Other assets. . . . . . . . . . . . . . 5,401 1,760
---------- ---------------
Total Other Assets . . . . . . . . 20,949 1,760
---------- ---------------
Total Assets . . . . . . . . . . . . . . . . $ 269,834 $ 92,297
========== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
F-3
E-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
March 31,
-----------------------------
2000 1999
------------ --------------
(Consolidated) (Unconsolidated)
Current Liabilities
Cash overdraft. . . . . . . . . . . . $ 114,075 $ 2,696
Accounts payable. . . . . . . . . . . 278,454 16,051
Accrued liabilities . . . . . . . . . 1,258 16,835
Deferred revenue. . . . . . . . . . . 173,475 159,289
Notes payable - related party . . . . 237,281 129,635
Revolving credit note payable . . . . 169,915 107,463
Note payable - current portion . . . 168,000 225,875
Obligation under capital leases -
current portion . . . . . . . . . . 24,614 -
----------- --------------
Total Current Liabilities . . . . . . 1,167,072 657,844
----------- --------------
Long-Term Liabilities
Notes payable . . . . . . . . . . . . . - 183,000
Obligation under capital leases . . . . 46,045 -
----------- --------------
Total Liabilities. . . . . . . . . . . . . 1,213,117 840,844
----------- ---------------
Redeemable Preferred Stock
Series 2000 - A convertible preferred stock
- $0.001 par value; 5,500 shares designated;
no shares issued or outstanding. . . . . . - -
Series B convertible preferred stock - $0.001 par
value; 1,000 shares designated; no shares
issued or outstanding. . . . . . . . . . - -
Stockholders' Deficit
Preferred stock, - $0.001 par value; 1,000,000
shares authorized; 993,500 shares not
designated shares issued or outstanding - -
Common stock, - $0.001 par value; 20,000,000
shares authorized; shares issued and
outstanding:
5,296,181 at March 31, 2000, 2,797,181
at March 31, 1999. . . . . . . . . . . 5,296 2,797
Additional paid-in-capital . . . . . . . 3,784,079 467,578
Unearned compensation. . . . . . . . . . (179,572) -
Deficit accumulated during the development
stage. . . . . . . . . . . . . . . . . (4,553,086) (1,218,922)
----------- --------------
Total Stockholders' Deficit. . . (943,283) (748,547)
----------- --------------
Total Liabilities and Stockholders' Deficit $ 269,834 $ 92,297
=========== ==============
<PAGE>
F-4
E-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Period
From Inception
(November 22,
1995)
Through
For the Years Ended March 31,
----------------------------- ------------
2000 1999 2000
----------- ------------- -------------
(Consolidate) (Unconsolidate) (Consolidated)
Revenues
Software licenses. . . . . $ 172,515 $ 161,569 $ 557,768
Services . . . . . . . . . 86,957 83,232 239,043
----------- -------------- -------------
Total Revenues . . . . . . 259,472 244,801 796,811
Cost of Revenues . . . . . . . 436,700 90,975 642,737
---------- -------------- -------------
Gross Profit (Loss). . . . . . (177,228) 153,826 154,074
---------- -------------- -------------
Operating Expenses
Research and development. 1,039,642 156,615 1,718,790
Selling and marketing . . 953,843 216,070 1,376,778
General and administrative 1,079,232 262,003 1,362,115
----------- -------------- -------------
Total Operating Expenses 3,072,717 634,688 4,457,683
----------- -------------- -------------
Loss From Operations . . . . . (3,249,945) (480,862) (4,303,609)
Interest Expense . . . . . . . (84,219) (99,842) (249,477)
----------- -------------- -------------
Net Loss . . . . . . . . . . . $(3,334,164) $ (580,704) $ (4,553,086)
=========== ============== =============
Basic and Diluted Loss Per Common
Share. . . . . . . . . . . . $ (0.74) $ (0.23) $ (1.64)
=========== ============== =============
Weighted Average Number of Shares
Used in Per Share Calculation 4,491,383 2,570,511 2,778,624
=========== ============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
F-5
E-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Shares Additional During the Total
---------------------- Paid-In Unearned Development Stockholders'
Shares Amount Capital Compensation Stage Deficit
---------- ------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance - November 22, 1995
(Date of Inception). . . . $ - $ - $ - $ - $ - $ -
Shares issued to founders for
services February 1996 - $0.13
per share. . . . . . . . . . 1,534,080 1,534 202,466 - - 204,000
Shares issued for assumption of debt
February 1996 - $0.13 per share 270,720 271 35,729 - - 36,000
Shares issued for services
February 1996 - $0.13 per share 200,429 201 26,452 - - 26,653
November 1996 - $0.13 per share 39,619 40 5,228 - - 5,268
March 1997 - $0.13 per share 3,760 4 496 - - 500
April 1997 - $0.13 per share 75,200 75 9,925 - - 10,000
December 1997 - $0.13 per share 51,281 51 6,768 - - 6,819
March 1998 - $0.13 per share 45,120 45 5,955 - - 6,000
Transfer of shares by founding
shareholders As employee bonuses
or other services
75,200 shares - May 1997 . - - 10,000 - - 10,000
150,400 shares - May 1997 . - - 20,000 - - 20,000
39,619 shares - August 1997 - - 5,269 - - 5,269
16,399 shares - December 1997 - - 2,181 - - 2,181
Transfer of shares by founding
shareholder in connection with debt
financing
56,400 shares - October 1997 - - 7,500 - - 7,500
18,800 shares - November 1997 - - 2,500 - - 2,500
Shares issued in connection with debt
financing
January 1998 - $0.13 per share 75,200 75 9,925 - - 10,000
February 1998 - $0.13 per share 62,040 62 8,188 - - 8,250
Net loss for the period from
November 22, 1995 (date of
inception) through
March 31, 1988 . . . . . . . . - - - - (638,218) (638,218)
---------- ------- --------- --------- ------------ ------------
Balance - March 31, 1998 . . . . 2,357,449 2,358 358,582 - (638,218) (277,278)
Shares issued in connection with
debt financing
April 1998 - $0.13 per share 119,380 119 15,756 - - 15,875
Shares issued for services
April 1998 through August 1998-
$0.13 per share 23,500 23 3,101 - - 3,124
November 1998 through February-
1999
$0.21 per share . . . . . . . 79,900 80 16,496 - - 16,576
Shares issued in lieu of interest
payments
May 1998 - $0.13 per share. . 45,120 45 5,955 - - 6,000
September 1998 - $0.21 per
share . . . . . . . . . . . 45,120 45 9,315 - - 9,360
Shares redeemed for cash,
November 1998, $0.04 per share (188,000) (188) (7,812) - - (8,000)
Shares redeemed for promissory
note, December 1998, $0.21
per share . . . . . . . . . . . (531,288) (531) (109,469) - - (110,000)
Shares issued to director
December 1998, $0.21 per share
Cash . . . . . . . . . . . . . 479,320 479 99,521 - - 100,000
Services . . . . . . . . . . . 366,680 367 76,133 - - 76,500
Net loss for the year ended
March 31, 1999. . . . . . . . - - - - (580,704) (580,704)
------------ ------- --------- ---------- ---------- ------------
Balance - March 31, 1999 . . . . 2,797,181 $ 2,797 $ 467,578 $ - $(1,218,922) $ (748,547)
============ ======= ========= =========== =========== ============
The accompanying notes are an integral part of these consolidated financial
statements
</TABLE>
<PAGE>
F-6
E-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS STOCKHOLDERS' DEFICIT (CONTINUED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Shares Additional During the Total
---------------------- Paid-In Unearned Development Stockholders'
Shares Amount Capital Compensation Stage Deficit
---------- ------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1999 . . . . 2,797,181 $ 2,797 $ 467,578 $ - $ (1,218,922) $ (748,547)
Shares issued to director for
services, May 1999, $3.00
per share. . . . . . . . . . . 82,720 83 248,077 - - 248,160
Shares issued on conversion
of debentures, May 1999,
$0.53 per share. . . . . . . . 626,040 626 332,374 - - 333,000
Shares issued for acquisition
of Woodlake Village July 2,
1999. . . . . . . . . . . . . . 1,000,000 1,000 (1,000) - - -
Shares issued in connection with
exercise of stock option -
$0.005 per share, December
14, 1999 . . . . . . . . . . . 11,750 12 50 - - 62
Shares issued for cash
June - November 1999 -
$3.00 per share. . . . . . . 273,240 273 819,448 - - 819,721
January - March 2000 - $3.00
per share. . . . . . . . . . 314,667 315 936,688 - - 937,003
Shares issued to director for
services, January - March 2000,
$3.00 per share. . . . . . . . 6,000 6 17,994 - - 18,000
Shares issued in exchange for
securities available- for-sale,
May - November 1999 - $3.00
per share . . . . . . . . . . 139,583 139 418,611 - - 418,750
Shares issued on conversion of
related party notes payable,
May 1999, $3.00 per share . . 45,000 45 134,955 - - 135,000
Compensation related to grant
of stock options . . . . . . - - 455,704 (455,704) - -
Forfeiture of stock options. . - - (46,400) 46,400 - -
Amortization of unearned
compensation . . . . . . . . - - - 229,732 - 229,732
Net loss for the year ended
March 31, 2000 . . . . . . - - - - (3,334,164) (3,334,164)
---------- ------- ---------- -------------- ----------- ------------
Balance - March 31, 2000 . . . 5,296,181 $ 5,296 $3,784,079 $ (179,572) $(4,553,086) $ (943,283)
========== ======= ========== ============== =========== ============
</TABLE>
<PAGE>
F-7
E-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
From Inception
For the Years Ended (November 22, 1995)
Ended March 31, Through
-------------------------------- March 31,
2000 1999 2000
-------------- ------------ ------------------
(Consolidated) (Unconsolidated) (Consolidated)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss. . . . . . . . . . . . . . . $ (3,334,164) $ (580,704) $ (4,553,086)
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization . 26,537 10,601 47,508
Stock issued for interest expense - 31,235 65,254
Stock based compensation . . . . 266,160 96,200 644,282
Compensation from stock options
granted. . . . . . . . . . . . 229,732 - 238,732
Compensation as note payable . . 58,969 - 58,969
Debt discount amortized as interest 2,125 (2,125) -
Change in assets and liabilities:
Trade accounts receivable. . . 24,550 (62,986) (38,436)
Prepaid expenses . . . . . . . 4,700 3,064 -
Accounts payable . . . . . . . 262,403 16,049 278,452
Accrued liabilities. . . . . . (11,767) (9,884) 5,069
Deferred revenue . . . . . . . 14,186 159,289 173,475
Other assets . . . . . . . . . (3,641) (1,760) (5,401)
-------------- ------------ ----------------
Net Cash Used In Operating
Activities . . . . . . . . . . (2,460,210) (341,021) (3,085,182)
Cash Flows From Investing Activities
Proceeds from sales of investments
in securities available-for-sale 413,280 - 413,280
Purchase of property and equipment (134,944) (13,097) (170,741)
-------------- ------------ ----------------
Net Cash Provided by Investing
Activities . . . . . . . . . 278,336 (13,097) 242,539
-------------- ------------ ----------------
Cash Flows From Financing Activities
Increase in bank overdraft. . . . . 111,379 2,696 114,075
Proceeds from issuance of common stock 1,756,786 100,000 1,892,786
Proceeds from issuance of notes payable 225,000 108,000 651,000
Proceeds from related parties notes
payable . . . . . . . . . . . . . 359,997 78,604 474,601
Principal payments on related parties
notes payable . . . . . . . . . . (315,130) (10,158) (382,124)
Principal payments on obligation under
capital leases. . . . . . . . . . (18,391) - (18,391)
Payments to redeem common stock from
employees . . . . . . . . . . . . - (8,000) (8,000)
Net change in revolving line of credit
note payable. . . . . . . . . . . 62,452 78,299 118,915
-------------- ------------ ----------------
Net Cash Provided By Financing
Activities . . . . . . . . . 2,182,093 349,441 2,842,862
-------------- ------------ ----------------
Net Increase (Decrease) In Cash. . . . . 219 (4,677) 219
Cash at Beginning of Period. . . . . . . - 4,677 -
-------------- ------------ ----------------
Cash at End of Period. . . . . . . . . . $ 219 $ - $ 219
============== ============ ================
</TABLE>
<PAGE>
F-8
e-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS - e-automate Corporation (e-automate, or the
Company) is primarily engaged in developing and providing business
productivity improvement software and services to small businesses.
The Company uses the Internet and other innovative technologies to
enable small businesses to more easily purchase and implement its
software, to receive consulting services and to automate business
activities. The founders began operation November 22, 1995 and
incorporated their business in Utah on February 27,1996 as Aureus
Corporation (Aureus).
REORGANIZATION - On July 2, 1999, Aureus entered into a
reorganization agreement with Woodlake Village Associates, Inc.
(Woodlake), a publicly held Delaware corporation incorporated June
11, 1992. Under the terms of the reorganization agreement, Aureus
became a wholly-owned subsidiary of Woodlake and the shareholders of
Aureus exchanged each of their shares of common stock for 1.88 shares
of Woodlake common stock. The agreement resulted in Woodlake issuing
3,505,941 share of its common stock to the Aureus shareholders.
Woodlake had no assets or liabilities on the date of the
reorganization. The transaction has been accounted for as a
recapitalization of the Company with a related 1.88-for-1 stock split
and the issuance of 1,000,000 shares of common stock to the Woodlake
shareholders which were valued at nothing. Subsequent to the
reorganization, Woodlake changed its name to Aureus Corporation, and
then to e-automate Corporation.
BASIS OF PRESENTATION AND CONSOLIDATION - The accompanying
consolidated financial statements include the accounts and transactions
of Aureus for all periods presented and the accounts and transactions
of e-Automate Corporation (formerly Woodlake) from July 2, 1999.
Intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts in the financial statements and accompanying notes. Actual
results could differ from those estimates.
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 has sustained losses of $3,334,164 and $580,704 for the years
ended March 31, 2000 and 1999, respectively. In addition, operating
activities have used cash of $2,460,210 and $341,021 for the years
ended March 31, 2000 and 1999, 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 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. 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.
<PAGE>
F-9
e-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEVELOPMENT STATE ENTERPRISE - The Company is considered to be in the
development stage. Since inception, the Company has spent most of its
efforts raising capital and developing and marketing its business
productivity improvement software; however, it has not yet had sales
sufficient to sustain operations and has relied upon cash flows from
financing activities (primarily debt and equity issuances) to sustain
operations.
Financial Instruments - The amounts reported as cash, securities
available-for-sale, trade accounts receivable, cash overdraft,
accounts payable accrued liabilities and unearned revenue, accounts
payable, unearned revenue, and accrued liabilities are considered
to be reasonable approximations of their fair values due to their
near-term maturities except that the amount reported as securities
available-for-sale are based upon quoted market prices.
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 years ended March 31, 2000 and 1999 was $24,407 and $10,292,
respectively. Major categories of property and equipment and
estimated useful lives are as follows:
Estimated
Useful Life
-----------
Furniture and fixtures. . . 3-7 years
Computer equipment. . . . . 5 years
INTANGIBLE AND OTHER ASSETS - The Company has recorded purchased
software for internal use as an other asset. These licenses are
amortized over a five-year period by the straight-line method.
Amortization expense for the years ended March 31, 2000 and 1999 was
$2,130 and $310. 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 judgement 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.
INVESTMENTS - Investment in marketable equity securities were
categorized as available-for-sale at March 31, 2000.
Available-for-sale securities are stated at fair value. There were no
unrealized gains or losses at March 31, 2000. Marketable equity
securities with fair values of $418,750 were transferred to the
Company from June to December of 1999 in exchange for 139,583 shares
of common stock under the terms of a private placement offering. The
Company immediately sold most of the securities received for gross
proceeds of $413,280, resulting in no gain or loss being recognized
from the sale of securities during the year ended March 31, 2000. At
March 31, 2000, available-for-sale securities consisted of market
options with a cost and a fair value of $5,470. Subsequently, on May
26, 2000, the options were sold for cash proceeds of approximately
$5,000.
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
<PAGE>
F-10
e-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
receivable is probable. Payments collected prior to recognition are
accounted for as a liability, "deferred revenue." Generally, licenses
of the e-automate system provide for return of the software by the
customer until implementation and data conversion are completed which
is typically 30 or 60 days from the date of the license. Accordingly,
an allowance for returns is provided and included in the deferred
revenue liability until the return privilege expires. 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.
RESEARCH AND DEVELOPMENT - Research and development costs include
expenditures incurred in development of software products or
enhancements to existing products. Research and development costs
are charged to expense as incurred.
MAJOR CUSTOMERS - During the year ended March 21, 2000, revenue from
a customer amounted to $39,764. During the year ended March 31, 1999,
revenue from a second and a third customer were $88,460 and $26,531,
respectively.
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.
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 year ended March 31,
2000 and 1999, the Company paid $97,609 and $54,262 for interest.
NONCASH INVESTING AND FINANCIAL ACTIVITIES - During 1996 the Company
received computer equipment valued at $8,024 from a founder, in
exchange for related party notes payable. One of the founders of the
Company paid the Company's revolving credit note payable in the
amount of $36,000 for which the Company issued 270,720 common shares.
On December 1, 1998 e-automate redeemed 531,288 shares of common
stock for a $110,000 note payable- related party.
During 1999, 139,583 common shares of the Company were issued 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. On May 30, 1999 the Company settled a short-term advance
payable related to a party of $135,000 by issuing 45,000 shares of
common stock.
<PAGE>
F-11
e-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - 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.
In addition, another officer and director advanced $25,000 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 December 1998 the Company redeemed common shares in exchange
for a note payable to an officer in the amount of $110,000. 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.
NOTE 4 - NOTES PAYABLE
From October 1997 through April 1998, the Company issued notes
payable in the amount of $176,500 together with 331,820 common shares
for cash proceeds of $176,500. The proceeds were allocated to the
common shares and to the notes based upon their relative fair values,
with $44,125, or $0.13 per share, allocated to the common shares and
the balance allocated to the notes. The resulting discount to the
notes payable of $44,125 was charged to interest expense over the
term of the notes, which was one year.
During the two years ended 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.
March 31, March 31,
2000 1999
---------- ---------
Notes payable, bear interest at 22%,
due at various dates through
March 31, 2001, secured by the
assets of the Company . . . . . . $ 168,000 $ 168,000
Convertible debentures, bear
interest at 10% and 18%,
converted into shares of common
stock discount. . . . . . . . . . - 240,875
----------- ----------
Total Notes Payable . . . . . . . . 168,000 408,875
Less current portion . . . . . . . (168,000) (225,875)
----------- ----------
Long-Term Notes Payable. . . . . $ - $ 183,000
=========== ==========
NOTE 5 OBLIGATION UNDER CAPITAL AND OPERATING LEASES
The Company entered into various capital lease agreements for
computer and office equipment. These leases are for periods from 36
to 60 months with minimum monthly payments ranging from $312 to
$1,050. Equipment under capital leases as of March 31, 2000 was as
follows:
<PAGE>
F-12
e-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equipment . . . . . . . . . . . 121,111
Less accumulated depreciation . (13,089)
--------
$108,022
========
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. A yearly escalation allowance of 3% is provided in
the lease agreements. 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 $ 16,801
2002 33,585 1,630
2003 11,378 -
2004 7,909 -
2005 2,221 -
---------- ----------
Total minimum payments 89,301 $ 18,431
----------- ==========
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 6 -- REDEEMABLE PREFERRED STOCK
SERIES A CONVERTIBLE PREFERRED STOCK -
In June 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). 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. The
conversion price will be reduced if common stock is subsequently
issued at less than market value.
At the option of the holder of the Series A convertible preferred
stock, the Company is obligated to redeem the Series A convertible
preferred stock by paying $1,250 per share, plus accrued and unpaid
dividends and penalties if the Company fails to paid dividends
timely, does not register the common stock underlying the Series A
convertible preferred stock or if, after the first date upon which
the Company's common stock is quoted in the NASDAQ Stock Market
System or reported on the NASD's OTC Bulletin Board, the average of
the closing bid price for 22 consecutive trading days is less than
or equal to $3.25 per share. If the Company does not make the
payment when due, or if the holder does not elect redemption, the
cumulative dividends will accrue at 21% per annum. In addition, the
conversion price will be reduced by $1.00 per share, without regard
to the minimum conversion price.
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.
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 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.
The Series B 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 B
convertible preferred stock, upon a 30-day notice to the holder. The
conversion price will be reduced if common stock is subsequently
issued at less than market value.
At the option of the holder of the Series B convertible preferred
stock, the Company is obligated to redeem the Series B convertible
preferred stock by paying $1,250 per share, plus accrued and unpaid
dividends and penalties if the Company fails to paid dividends
timely, does not register the common stock underlying the Series B
convertible preferred stock or if, after the first date upon which
the Company's common stock is quoted in the NASDAQ Stock Market
System or reported on the NASD's OTC Bulletin Board, the average of
the closing bid price for 22 consecutive trading days is less than
or equal to $3.25 per share. If the Company does not make the
payment when due, or if the holder does not elect redemption, the
cumulative dividends will accrue at 21% per annum. In addition, the
conversion price will be reduced by $1.00 per share, without regard
to the minimum conversion price.
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.
NOTE 7 - STOCKHOLDERS' EQUITY
During February 1996, the Company issued 1,534,080 common shares for
services valued at $204,000, or $0.13 per share, as determined to be
fair value by the Company. Additionally, the Company issued 270,720
common shares, valued at $0.13 per share, to a founder of the Company
in exchange for a $36,000 cash payment the founder made to pay the
Company's revolving credit note payable to a bank.
From February 1996 through August 1998 the Company issued shares of
its common stock to employees and directors for services or as
performance based bonuses. During this time the Company issued a
total of 333,108 shares to employees for services valued at $44,296,
or $0.13 per share, and 105,801 common shares to directors for
services valued at $16,250, or $0.13 per share. In as much as the
Company's common shares were and are not publicly traded, the Board
of Directors determined the fair value of the Company's common shares
to be $0.13 per share from inception through September 1998.
During April and May, 1997 a principal shareholder of the Company
contributed 356,818 common shares back to the Company and the Company
reissued the shares to employees and to directors for services and in
connection with debt financing. The shares were valued at $47,450 or
$0.13 per share.
From October 1997 through April 1998, the Company issued 331,820
common shares and notes payable in the amount of $176,500 for cash
proceeds of $176,500. The proceeds were allocated to the common
shares and to the notes based upon their relative fair values, with
$44,125, or $0.13 per share, allocated to the common shares and the
balance allocated to the notes. The resulting discount to the notes
payable of $44,125 was charged to interest expense over the term of
the notes, which was one year.
<PAGE>
F-13
e-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During May 1998, 45,120 common shares, were issued for interest on
notes. The common shares and the related interest expense were valued
at $6,000, or $0.13 per share.
During September 1998 the Company completed the development of their
product and therefore considered the fair value of the Company to
have increased to $0.21 per share. From September 1998 through May
1999 the Company issued 79,990 common shares to employees for
services valued at $16,576, or $0.21 per share.
During September 1998, 45,120 common shares were issued for interest
on notes. The common shares and the related interest expense were
valued at $9,360, or $0.21 per share.
At the dates certain employees were hired, common stock was issued to
the employee , as described above. At the dates of their employment
those employees entered into agreements with the Company that upon
the termination of their employment, the Company would redeem common
shares which had been issued to the employees at the book value of
the stock. At the time of the employees' termination, due to the
negative book value, the employees and the Company agreed the stock
would be redeemed at $0.04 per share. During November 1998, the
Company redeemed 188,000 common shares from terminated employees for
$8,000, which was paid in cash. There were no unstated rights or
privileges granted or received in connection with the redemption.
On December 1, 1998, 531,288 common shares were redeemed from one of
the Company's founders in exchange for a $110,000 promissory note, or
$0.21 per share, which was considered the fair value on the date
redeemed. The redemption was recorded at cost and there were no
unstated rights or privileges granted or received in connection with
the redemption.
On December 17, 1998, 846,000 common shares were issued to a director
in exchange for services and for $100,000 cash. The fair value of the
common shares issued was $0.21 per share; accordingly, compensation
for services valued at $76,500 was charged to operations and included
in capital.
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 investment
units under the terms of a private placement offering (the 1999
Offering) for cash proceeds of $819,721, or $3.00 per unit. Each unit
of the 1999 Offering consists of one common share, 1/2 "Class A"
warrants and 1/2 "Class B" warrants. 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 139,583 units
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.
<PAGE>
F-14
e-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During December 1999, the Company issued 11,750 shares upon exercise
of stock option 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. Included as a part of the 2000 Placement, 8,333 units were
issued to an officer and director of the Company for proceeds of
$25,000, or $3.00 per unit. There were no unstated rights or
privileges associated with the sale of investment units to the officer
and director. The 2000 Placement provides for an additional 685,333
units to be issued through July 1, 2000, though the success of the
Company in securing the additional financing cannot be assured.
NOTE 8 - STOCK OPTIONS AND WARRANTS
Between January 1998 and March 31, 1999 the Company issued 227,480
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 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.
A summary of the status of the Company's employee stock options as
of March 31, 2000 and 1999, and changes during the years then ended
are presented below:
<TABLE>
<CAPTION> March 31, 2000 March 31, 1999
---------------------------- -----------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------------ -------------- -------- --------------
<S> <C> <C> <C>
Outstanding at beginning of period . . 27,474 $ 0.53 $ - -
Granted. . . . . . . . . . . . . . . . 306,266 1.59 227,474 0.53
Exercised . . . . . . . . . . . . . . (11,750) 0.01 - -
Cancelled . . . . . . . . . . . . . . (19,200) 0.58 - 0.53
------------ -------------- -------- --------------
Outstanding at end of period . . . . . 502,790 1.15 227,474 0.53
============ ============== ========
Options exercisable at
the end of the period . . . . . . . . 69,570 - -
=========== ========
Weighted-average fair value of
options granted during the period . . $ 2.11 $ 0.02
=========== ========
</TABLE>
The following table summarizes information about stock options
outstanding at March 31, 2000:
<PAGE>
F-15
e-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------- ---------------------
Weighted-
Average Weighted Weighted
Range of Number Remaining -Average Number -Average
Exercise Outstanding Contractural Exercise Exercisable Exercise
Prices At 03/31/99 Life Price at 03/31/00 Price
--------------- -------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 0.01 - 0.52 33,850 8.63 $ 0.01 15,050 $ 0.01
$ 0.53 - 0.99 278,234 8,92 0.52 54,520 0.53
$ 1.00 - 2.99 81,400 9.27 1.00 - -
$ 3.00 - 3.49 98,556 9.51 3.00 - -
$ 3.50 - 4.99 750 9.54 3.50 - -
$ 5.00 10,000 9.52 5.00 - -
</TABLE>
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 consistent with the alternative method
set forth under Statement of Financial Accounting Standards No. 123,
(SFAS 123) Accounting for Stock-Based Compensation. Had
compensation cost for the Company's stock options been determined
based upon SFAS 123, net loss and loss per share would have increased
to the pro forma amounts indicated below:
For the Years Ended March 31,
---------------------------------
2000 1999
--------------- -------------
Net loss:
As reported. . . $ (3,334,164) $ (580,704)
Pro forma . . . (4,118,867) (585,216)
Basic and diluted loss
per share:
As reported . . $ (0.74) $ (0.23)
Pro forma. . . . (0.91) (0.23)
The fair value of each option and warrant 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%
NOTE 9 - INCOME TAXES
Prior to its reorganization with Woodlake, the Company, with the
consent of its shareholders, had elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those
<PAGE>
F-16
e-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
provisions, the Company was not allowed a net operations loss
carryforward or carryback as a deduction. Instead, the shareholders
included their proportionate share of the Company's net operating
loss in their individual income tax returns. Therefore, no benefit or
asset for federal or state income taxes was included in these
financial statements for the period from November 22, 1995 (Date of
Inception) through March 31, 1999 or through June 30, 1999, the date
the S election was terminated. There were no temporary differences on
June 30, 1999 and therefore no deferred tax asset or liability was
established upon termination of S Corporation election. The following
presents the components of the net deferred tax asset at March 31,
2000:
Difference in fair value and tax
basis of contributed securities $ (2,040)
----------
Total Deferred Tax Liability . . (2,040)
----------
Deferred revenue. . . . . . . . . . 64,706
Operating loss carry forwards . . . 738,680
----------
Total Deferred Tax Assets. . . . 803,386
----------
Valuation allowance for deferred
tax assets. . . . . . . . . . . . (801,346)
----------
Net Deferred Tax Asset . . . . . $ -
==========
The valuation allowance for deferred tax assets increased by
$957,539 and $0 during the years ended March 31, 2000 and June 30,
1999. A deferred tax liability tax liability and an equal reduction
in the valuation allowance of $156,194 were recognized from June to
December 1999 in connection with marketable securities that were
received in exchange for 139,583 shares of common stock in a tax-free
transfer.
The Company has U.S. Federal net operating loss carry forwards of
$1,980,375 at March 31, 2000, which expire, if unused, in year 2015.
There was no provision for or benefit from income taxes during the
years ended March 31, 2000 and 1999. The following is a
reconciliation of the income tax benefit computed at the federal
statutory tax rate with the provision for income taxes for the years
ended March 31, 2000 and 1999:
2000 1999
-------------- ------------
Income tax benefit at statutory rate (34%) $ (1,133,616) $ (197,439)
Loss incurred while an S Corporation . . . . 256,398 197,439
Non deductible expenses. . . . . . . . . . . 29,706 -
Change in valuation allowance. . . . . . . . 957,539 -
State benefit, net of federal tax. . . . . . (110,027) -
-------------- -----------
Benefit from Income Taxes. . . . . . . . . . $ - $ -
============== ===========
NOTE 10 - 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.
<PAGE>
F-17
e-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SUBSEQUENT EVENTS
STOCK OPTIONS GRANTED - On April 13, 2000 e-automate granted 10-year
options to purchase 250,000 common shares at $3.00 per share to the
Company's new president. The options vest quarterly over three
years.
ISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK -On June 19, 2000,
the Company entered into an agreement to issue up to 5,000 shares of
Series A convertible preferres stock together with up to 1,000,000
warrants as a unit for up to $5,000,000 in cash. Receipt of the
financing is solely at the discretion off the investor and there is no
obligation on the investor to provide the financing. In connection
with the conversion terms of the Series A convertible preferred stock
at 80% of market value, the assigned fair value of the common stock
prior its being quoted by a market is $3.00 per share.
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, additional warrants to purchase
500,000 shares of common stock at $5.00 per share were issued for
cash proceeds of $5,000.
The net proceeds received were allocated between the Series A
convertible preferred stock and the warrants issued based on the
relative fair value of those instruments with $333,860 being
allocated to the warrants and $121,140 being allocated to the
beneficial conversion feature of the preferred stock resulting
in a discount to the preferred stock of $455,000. The relative fair
value of the warrants of $1,370,628 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 four years.
The beneficial conversion feature will be recognized as additional
paid-in capital. The discount on the Series A convertible preferred
stock will be recognized immediately as additional preferred dividends
as the Series A convertible stock is also immediately convertible.
ISSUANCE OF SERIES B PREPERRED STOCK - On June 19, 2000, $628,983 of
notes payable were converted into 629 shares of Series B
convertible preferred stock. The Series B convertible preferred stock
is convertible into common at $5.00 per share.
ISSUANCE OF COMMON STOCK - From April through June 2000, the Company
issued 143,540 units under the terms the 2000 Placement for cash
proceeds of $430,620 or $3.00 per unit. 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.
RELATED PARTY CONVERTIBLE BRIDGE LOAN - During May, 2000 an officer
and director advanced $200,000 to the Company to meet current
operating expenses. The short-term bridge loan is convertible into
66,667 common shares under the terms of the 2000 Placement. The loan
bears interest at 8 percent.
RELATED PARTY NOTE PAYABLE-During June 2000, an officer and director
advanced $155,000 to the Company to meet current operating expenses.
This short-term operating loan is payable upon demand and bears
interest at 15 percent.
<PAGE>
