UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1999
Commission File Number: 0-24380
E-AUTOMATE CORPORATION
(formerly Aureus Corporation)
-----------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE
--------
(State or other jurisdiction of incorporation or organization)
33-0601502
----------
(IRS Employer Identification No.)
71 North 490 West, American Fork, Utah 84003
--------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including Area Code: (801) 492-1705
-------------
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 12 months (or for
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 NO X
There were 5,139,318 shares of common stock, $0.001 par value, outstanding
as of February 10, 2000.
E-AUTOMATE CORPORATION
FORM 10-QSB
QUARTER ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) - December 31, 1999
and March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months and Nine Months Ended December 31, 1999 and 1998 and for
the Cumulative Period from November 22, 1995(Date of Inception)
through December 31,1999 . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Nine Months Ended December 31, 1999 and 1998 and for the Cumulative
Period from November 22, 1995 (Date of Inception) through
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to the Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis and Plan of Operation . . 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 16
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . 16
Item 6. Exhibits and Reports of Form 8-K . . . . . . . . . . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
E-AUTOMATE CORPORATION
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
ASSETS
December 31, March 31,
1999 1999
------------ ---------
Current Assets
Cash $ 3,257 $ -
Prepaid expenses - 4,700
Accounts receivable 6,217 62,986
Securities available-for-sale 64,050 -
------------ ---------
Total Current Assets 73,524 67,686
------------ ---------
Property and Equipment
Furniture and fixtures 65,330 43,821
Computer equipment 144,796 -
------------ ---------
Total Property and Equipment 210,126 43,821
Accumulated depreciation (42,995) (20,970)
------------ ---------
Net Property and Equipment 167,131 22,851
------------ ---------
Other Assets
Purchased software licenses,
net of accumulated amortization 13,152 -
Other assets 4,611 1,760
------------ ---------
Total Other Assets 17,763 1,760
------------ ---------
Total Assets $ 258,418 $ 92,297
============ =========
See accompanying notes to the condensed financial statements.
<PAGE> 3
E-AUTOMATE CORPORATION
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
UNAUDITED
LIABILITIES AND STOCKHOLDERS' DEFICIT
December 31, March 31,
1999 1999
------------ ----------
Current Liabilities
Cash overdraft $ - $ 2,696
Accounts payable 298,256 53,624
Accrued liabilities 3,080 16,835
Deferred revenue 117,911 159,289
Related party notes payable 370,973 129,635
Revolving line of credit note payable 169,916 11,703
Deferred tax liability 152,331 -
Note payable - current portion, net of discount 113,000 321,635
Obligation under capital leases - current portion 27,435 -
---------- ---------
Total Current Liabilities 1,252,902 695,417
---------- ---------
Long-Term Liabilities
Notes payable 55,000 183,000
Obligation under capital leases 48,812 -
---------- ---------
Total Long-Term Liabilities 103,812 183,000
---------- ---------
Total Liabilities 1,356,714 878,417
---------- ---------
Stockholders' Deficit
Preferred stock, $0.001 par value, 1,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, $0.001 par value, 20,000,000 shares
authorized, Shares issued and outstanding:
4,94,651 at December 31, 1999, 2,797,181
shares at March 31, 1999 4,974 2,797
Additional paid-in-capital 2,476,893 467,578
Unrealized gain on investment in securities
available-for-sale 1,550 -
Unearned compensation (114,937) -
Deficit accumulated during the development
stage (3,466,776) (1,256,495)
------------ ----------
Total Stockholders' Deficit (1,098,296) (786,120)
------------ ----------
Total Liabilities and Stockholders' Equity $ 258,418 $ 92,297
============ ===========
See accompanying notes to the condensed financial statements.
<PAGE> 4
E-AUTOMATE CORPORATION
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
For the Three For the Nine For the Period
Months Ended Months Ended From Inception
December 31, December 31, (November 22, 1995)
--------------------- ------------------------- through December 31,
1999 1998 1999 1998 1999
--------- -------- ----------- --------- -----------
<S>
<C> <C> <C> <C> <C>
Net Revenue $ 48,582 $ 55,496 $ 188,623 $ 224,217 $ 725,962
--------- -------- ----------- ---------- -----------
Costs and Expenses
Cost of products
and implementation 79,786 11,800 206,807 37,077 342,905
Post contract support services 55,731 6,885 134,896 11,324 204,835
Selling and marketing 321,714 50,436 683,329 114,221 1,106,264
Research and development 257,440 61,456 693,659 80,684 1,372,807
General and administrative 235,086 31,665 613,756 67,954 934,212
--------- -------- ----------- ---------- ----------
Total Costs and Expenses 949,757 162,242 2,332,477 311,260 3,961,023
--------- -------- ----------- --------- ----------
Loss From Operations (901,175) (106,746) (2,143,824) (87,043) (3,235,061)
Other Income and (Expense)
Interest expense (12,356) (23,992) (66,457) (99,128) (231,715)
--------- --------- ----------- --------- -----------
Net Loss $(913,531) $(130,738) $(2,210,281) $(186,171) $(3,466,776)
========= ========= =========== ========= ===========
Basic and Diluted Loss
Per Common Share $ (0.19) $ (0.05) $ (0.52) $ (0.07) $ (1.32)
========= ========= =========== ========= ===========
Weighted Average Number
of Shares Used in
Per Share Calculation 4,909,323 2,471,066 4,263,466 2,506,415 2,622,859
========== ========== ============ ========== ============
<FN>
See accompanying notes to the condensed financial statements.
</FN>
</TABLE>
<PAGE> 5
E-AUTOMATE CORPORATION
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For the Period
For the Nine From Inception
Months Ended (November 22, 1995)
December 31, through December 31,
-------------------------- ---------------------
1999 1998 1999
------------ ----------- ---------------------
<S>
<C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (2,210,281) $ (186,171) $ (3,466,776)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 24,000 5,998 44,970
Stock issued for interest expense - 15,360 15,360
Stock based compensation 248,160 86 450 641,050
Compensation from stock options granted 96,787 - 96,787
Debt discount amortized as interest 2,125 29,000 44,125
Change in assets and liabilities:
Accounts receivable 56,769 - (6,215)
Prepaid expenses 4,700 7,763 -
Accounts payable 244,632 - 298,256
Accrued liabilities (13,755) (86,799) 3,079
Accrued interest payable 2,779 - 2,779
Deferred revenue (41,378) 62,230 117,911
Other assets (2,851) (1,413) (4,611)
----------- ----------- ---------------------
Net Cash Used In Operating Activities (1,588,313) (67,582) (2,213,285)
----------- ----------- ---------------------
Cash Flows From Investing Activities
Proceeds from sales of investments in
securities available-for-sale 353,657 - 353,657
Purchase of property and equipment (92,382) (7,539) (128,180)
----------- ----------- ---------------------
Net Cash Provided by (Used In)
Investing Activities 261,275 (7,539) 225,477
----------- ----------- ---------------------
Cash Flows From Financing Activities
Decrease in bank overdraft (2,696) 2,696 -
Proceeds from issuance of common stock 819,782 100,000 919,782
Proceeds from issuance of debt 225,000 65,000 765,635
Proceeds from related party notes payable 269,997 - 410,036
Principal payments on debt (95,760) - (93,635)
Principal payments on related party notes payble (31,439) (81,982) (159,866)
Principal payments on obligation under capital
leases (12,802) - (12,802)
Payments to redeem common stock from employees - (8,000) (8,000)
Net change in revolving line of credit note payable 158,213 (2,204) 169,915
----------- ----------- ---------------------
Net Cash Provided By Financing Activities 1,330,295 75,510 1,991,065
----------- ----------- ---------------------
Net Increase (Decrease) In Cash and Cash Equivalents 3,257 389 3,257
Cash and Cash Equivalents at Beginning of Period - 4,677 -
----------- ----------- ---------------------
Cash and Cash Equivalents at End of Period $ 3,257 $ 5,066 $ 3,257
=========== =========== =====================
<FN>
See accompanying notes to the condensed financial statements.
</FN>
</TABLE>
<PAGE> 6
E-AUTOMATE CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements - The accompanying consolidated financial
statements have been prepared by e-automate ("e-automate" or the "Company")
and are unaudited. In the opinion of management, all necessary adjustments
(which include only normal recurring adjustments) have been made to present
fairly the financial position, results of operations and cash flows for the
periods presented. These financial statements are condensed and, therefore,
do not include all disclosures normally required by generally accepted
accounting principles. The results of operations through December 31, 1999
are not necessarily indicative of the operating results to be expected for
the remainder of fiscal year 2000.
Nature of Operations - During 1995, a founder of the Company entered the
automation software business with a program and an approach dedicated to
"automating the way businesses do business". The founder recognized that
effective and profitable business performance is predicated on
implementation of effective automation systems which are responsive and
tailored to specific /individual needs of the business enterprise. The founder,
along withother founders contributed the results of their efforts and
incorporated the Company in Utah on February 27, 1996 as Aureus Cororation
(Aureus).
e-automate develops, implements, and suports a software ERP (enterprise
resource planning) solution to the small business market. e-automate's system
is based upon innovative system technologies, web-based commerce and data
exchange, as well as next-generation task automation. e-automate's (ERP)
system offers small businesses automation, performance improvement and future
enhancements.
Reorganization - On July 2, 1999 Aureus entered into a reorganization
agreement with Woodlake Village Associates, Inc. (Woodlake) a publicly held
Delaware corporation, whereby a newly formed wholly owned subsidiary of
Woodlake was merged into Aureus. The shareholders of Aureus
exchanged each of their shares of common stock for 1.88 shares of Woodlake
common stock in connection with the reorganization agreement, which resulted
in Woodlake issuing 3,505,941 shares of its common stock to the Aureus
shareholders. As a result of the reorganization, the Aureus shareholders
became shareholders of the Company in a transaction intended to qualify as a
tax-free reorganization. Subsequent to the reorganization, Woodlake
changed its name to Aureus Corporation, and then to e-automate Corporation.
The reorganization agreement has been considered the reorganization of
Aureus and the acquisition of Woodlake in a purchase business combination.
There was no market for Woodlake 's common stock, which corporation had
substantially no net assets and no ongoing business; therefore, the
1,000,000 shares of common stock outstanding at the date of the
reorganization were recorded at $0. The merger has been accounted for as the
reorganization of Aureus with a related 1.88 for 1 stock split. The
accompanying financial statements have been restated for the effects of the
stock split for all periods presented. The reorganization was not deemed to
be the acquisition of a business; accordingly no pro forma information is
presented.
Principles of Consolidation - The accompanying condensed consolidated
financial statements include the accounts and transactions of Aureus
Corporation for all periods presented, and the accounts and transactions
of e-automate Corporation, from July 7, 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 Company has suffered losses from operations and
has had negative cash flows from operating activities. The Company's continued
existence is dependent upon its ability to achieve profitable operations.
Management believes future operations will provide sufficient cash flows
for the Company to continue as a going concern, although achievement of
profitable or sustainable operations cannot be assured.
<PAGE> 7
E-AUTOMATE CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Development Stage Enterprise - Since inception, the Company has spent most
of its efforts raising capital and developing and marketing its
enterprise-wide software application; 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. Therefore, the Company is considered to be in the development
stage.
Financial Instruments - The amounts reported as cash, securities
available-for-sale, accounts payable, unearned revenue , and accrued
liabilities are considered to be reasonable approximations of their fair
values. The fair value estimates presented herein were based on market
information available to management at the time of preparation of the
financial statements. For the purpose of the statement of cash flows, cash
and cash equivalents are defined as demand deposits as well as other funds
with a maturity of three months or less.
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 nine months ended
December 31, 1999 and 1998 was $22,650 and $5,375, 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
licenses as an other asset. These licenses are amortized over a five year
period by the straight line method. Amortization expense for the nine month
period ended September 30, 1999 and 1998 was $1,350 and $625. 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.
Concentration of Risk - The Company relies onkey personnel with respect to
their development staff. The loss of certain of these key developers could
impact the Company's ability to continue to develop and support its
product. E-automate does not maintain key-man insurance on its developers.
Investments -Investment in marketable equity securities were categorized as
available-for-sale at December 31, 1999. Available-for-sale securities are
stated at fair value, with unrealized gains and losses, net of deferred
income taxes, reported as a component of accumulated other comprehensive
loss. Marketable equity securities with fair values of $416,157 were
transferred to the Company from June to December of 1999, in exchange for
138,720 shares of common stock under the terms of a private placement
offering. Deferred income taxes of $152,331 were recognized at the dates
the securities were received. The Company immediately sold most of the
securities received for gross proceeds of $353,657, resulting in no gain or
loss being recognized from the sale of securities during 1999. At December
31, 1999, available-for-sale securities consisted of the following:
Cost $ 62,500
Gross unrealized gains 1,550
------------
Estimated Fair Value $ 64,050
============
<PAGE> 8
E-AUTOMATE CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Revenue Recognition - Revenue from the sale of software products is
recognized once a formal sales contract is agreed upon and delivery is
complete, when no significant obligations remain unfulfilled, and collection
of the resulting receivable is probable. In instances where a significant
obligation exists, revenue recognition is delayed until the obligation has
been satisfied. Generally, sales of the e-automate system provide for return
up through an implementation and data conversion phase, typically 60 days;
an allowance for return is provided until customer return privileges expire.
Revenue from services, including training and consulting and data
conversion, are recognized as the services are performed during the
implementation phase and are non-refundable. Service revenues from post
contract customer support and software upgrades recognized ratably over the
period of the related maintenance contract.
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. Differences between capitalizable software development costs,
together with appropriate amortization of capitalized costs and actual
expenditures to date have been immaterial and as a result the Company has
elected to expense these costs as incurred.
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 965,943
and 232,480 potentially issuable common shares which were excluded from the
calculation of diluted loss per common share for the nine months ended
December 31, 1999 and 1998, respectively.
NOTE 2 - CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION - During the nine months ended December 31,
1999 and 1998, the Company paid $22,437 and $2,259 for interest.
NONCASH INVESTING AND FINANCING ACTIVITIES - On January 15, 1996 a founder
of the Company contributed computer equipment valued at $8,024 to the
Company.
During 1996, one of the founders of the Company paid off the Company's line
of credit at a bank, in the amount of $36,000 for which he received 144,000
common shares.
During 1999, 138,720 common shares of the Company were issued upon receipt
of marketable securities with a fair value of $263,826 net of a deferred tax
liability of $152,331.
The Company issued 626,040 common shares upon conversion of convertible
debentures in the amount of $333,000.
On December 1, 1998 e-automate redeemed 531,288 shares of common
stock for a $110,000 note payable.
During 1999 the Company entered into capital lease agreements on
various pieces of office and computer equipment. This equipment had
a fair value of $89,050 at inception of the capital leases.
On May 30, 1999 the Company settled a short-term advance payable of
$135,000 by issuing 45,000 shares of common stock.
NOTE 3 - NOTES PAYABLE
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 original term of the notes, which was one
year.
CONVERSION OF DEBENTURES - 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. All 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 deemed to be $0.13 per share.
Accordingly, no beneficial conversion feature was ascribed to the
conversion. 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.
There were no unstated rights or privileges relating to the conversion.
RELATED PARTY NOTES PAYABLE - An officer and director advanced funds
to the Company during 1999 to meet current operating expenses pending
funding of the 2000 Offering. The balance of these advances at December
31, 1999 was $279,997. Subsequent to December 1999, a payment of $50,000
was made by the Company towards this related party note payable. The other
December 31, 1999 amount of $90,976 mirrors a personal line of credit
obligation an officer and director secured with a bank. The Company has
committed to pay the note according to the terms set up personally.
The interest rate is 9.75% and has a credit limit of $100,000.
Notes payable are as follows:
December 31, March 31,
1999 1999
---------- ---------
Notes payable, bears interest at 22%, due at
various dates through the fiscal year March 31, 2001,
secured by the assets of the corporation, including
all software code $ 168,000 $ 168,000
Notes payable, to bank, bears interest at prime plus
2.5 percentage points,(10.25% at December 31, 1999)
matures February 28, 2000, minimum monthly - 93,635
Convertible debentures, bear 10%, and 18% interest,
various maturities, converted into shares of common
stock of the Company during the current period - 243,000
---------- ---------
168,000 504,635
Less current portion 113,000 321,635
---------- ---------
Total $ 55,000 $ 183,000
========== =========
NOTE 4 - OBLIGATION UNDER CAPITAL 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
$1050. The future minimum lease payments for these new leases are
as follows:
FOR THE YEAR ENDING CAPITAL
MARCH 31, LEASES
------------------- -------------
2000 $ 34,208
2001 34,208
2002 17,329
2003 7,908
2004 4,198
-------------
Total Minimum Payments 97,851
-------------
Less amount representing interest (21,604)
-------------
Present value of net minimum lease payments 76,247
Less current portion 27,435
-------------
Long-term capital lease obligation $ 48,812
=============
NOTE 5 - 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 down a bank line of credit incurred
while the Company was in-formation.
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 598,327 shares to
employees for services valued at $82,566, or $0.13 per share, and 122,200
common shares to directors for services valued at $16,250, or $0.13 per
share. The Company has determined the fair value of the shares, based upon a
study prepared by the board, 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. The shares
were valued at $46,386 or $0.13 per share.
<PAGE> 9
E-AUTOMATE CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
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.
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 $16,575, 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 as described in the Notes Payable
footnote to the financial statements.
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 $819,720 or $3.00 per unit. Each unit of the 1999 offering
consists of one common share, 1/2 "A" warrants and 1/2 "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 116,553 units in
exchange for securities available-for-sale valued at $231,836 net of
deferred tax. The units were issued at $3.00 per unit before deferred income
tax of $117,821. Additionally, on November 16, 1999 the Company issued
22,167 units at $3.00 per unit before deferred taxes of $22,610, in exchange
for restricted equity securities valued at $66,500 before the deferred tax.
<PAGE> 10
E-AUTOMATE CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
In contemplation of the reorganization and the 1999 offering of the Company,
an advance in the amount of $135,000 was received from an investor during
June 1999 in order to meet short-term expenses. The advance was converted
into 45,000 shares of common stock 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 as described
in Note 1 - Reorganization. No assets were received nor were any liabilities
assumed in connection with this acquisition.
During December 1999 the Company issued 11,750 shares upon exercise of stock
option for cash proceeds in the amount of $63.
NOTE 6 - STOCK OPTIONS AND WARRANTS
Between January 1998 and March 31, 1999 the Company issued 232,480 non-
qualifying employee stock options with a weighted average exercise price of
$1.88 per share, and 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 of
service. The unexercised options expire ten years from the date of grant.
From April through December 1999 the Company granted 274,154 options with a
weighted-average exercise price of $2.38 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 $211,724 will be recognized over the vesting
period of the options. During the nine months ended December 31, 1999, the
Company recognized $96,786 as compensation related to employee stock option
grants.
STOCK WARRANTS -- A summary of the status of the Company's employee stock
options and warrants as of December 31,1999, and changes during the nine
months then ended are presented below:
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
--------------------------- -----------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
---------- -------------- ---------- ----------------
<S>
<C> <C> <C> <C>
Outstanding at beginning of period 232,480 $ 1.88 - $ -
Granted 288,254 2.35 232,480 1.88
Exercised (11,750) 0.01 - -
--------- ---------
Outstanding at end of year 508,984 2.06 232,480 1.88
========= =========
Options exercisable at
year-end 46,775 1.56 - -
========= =========
Weighted-average fair value of
options granted during the year $ .93 $ -
========= =========
</TABLE>
<PAGE> 11
E-AUTOMATE CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- -------------------------------
Range of Number Weighted-Average Number
Exercise Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Prices At 12/31/99 Contractual Life Exercise Price at 12/31/99 Exercise Price
--------- ----------- ---------------- ---------------- ----------- ----------------
<S>
<C> <C> <C> <C> <C> <C>
$ 0.01 33,850 7.80 years $ 0.01 8,000 $ 0.01
1.88 353,428 8.80 1.88 38,775 1.88
3.50 750 9.00 3.50 - -
3.00 110,956 9.00 3.00 - -
5.00 10,000 9.00 5.00 - -
----------- ---------
508,984 46,775
=========== =========
</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. Stock-based compensation
charged to operations was $0 for the nine months ended December 31,
1999. Had compensation cost for the Company's options been determined
based upon SFAS 123, net loss and loss per share would have increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
December 31, 1999 December 31, 1999
----------------- -----------------
<S> <C> <C>
Net loss:
As reported $ (913,531) $ (2,245,711)
Pro forma (1,029,455) (3,030,414)
Basic and diluted loss per share:
As reported $ (0.19) $ (0.19)
Pro forma (0.21) (0.71)
</TABLE>
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:
weighted-average risk-free interest rate of 5.75%; time to expiration
of 10 years; dividend yield of 0.0% and, because the Company is not
publically held, expected volatility of 0.0%.
Between June and December 1999, the Company issued 456,956 investment units
at $3.00 per share in a private placement offering. Each investment unit
consisted of one common share and 1/2 class "A" warrants exercisable at
$3.50 expiring August 31, 2000, and 1/2 class "B" warrants exercisable at
$4.50 expiring February, 2001.
NOTE 7 - 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.
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. An yearly escalation allowance of 3% is
provided in the lease agreements. The Company has other
operating leases with estimated monthly payments of $220. Yearly
commitments under these leases is as follows:
Year ended March 31,
2000 $18,576
2001 20,556
2002 1,696
NOTE 8 - SUBSEQUENT EVENTS
During January 2000, the Company issued 80,000 investment units to one
party in a private placement (the "January Private Placement") for cash
proceeds of $240,000 or $3.00 per unit. Each unit under the January
Private Placement consists of one common share, 1/2 class "A" warrants
and 1/2 class "B" warrants. 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.
<PAGE> 12
E-AUTOMATE CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
During January 2000, the Company issued 84,667 investment units under
the terms of a new private placement (the "2000 Placement") for cash
proceeds of $247,002 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 Offering 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 Offering
provides for an additional 915,333 units to be sold through July 1,
2000, though the success of the Company in securing the additional
financing cannot be assured.
During January 2000 the Company paid $50,000 payments on a
related party loan, together with approximately $3,000 in accrued
interest.
Item 2. Management's Discussion and Analysis
Management's Discussion and Analysis
------------------------------------
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 and 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.
Overview
--------
The Company has been in a development stage, and since inception has
incurred losses from operations. As of December 31, 1999 the Company
has had cumulative net losses totaling $3,466,776. 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 more easily 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. 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.
Financial Position
------------------
The Company had $3,257 in cash as of December 31, 1999. This
represented a decrease of $7,168 from $10,425 at September 30, 1999.
Working capital as of December 31, 1999, decreased to ($1,177,378) as
compared to a working capital of $82,233 at September 30, 1999. This
decrease was largely due to an increase in notes payable, accounts
payable and deferred revenue. The Company believes that its working
capital will improve during the coming quarters through an increase in
sales and additional funding through its private placement memorandum.
<PAGE> 13
Results of Operations
---------------------
Operating revenues history to date are $725,962. Revenues for the
quarter ended December 31, 1999 were $48,582, representing a decrease
of 12.5% in revenues compared with $55,496 for the quarter ended
December 31, 1998. This decrease in revenues was mainly attributed to
a refocusing of resources to building an infrastructure to handle
future sales and implementations. Revenues for the nine months ended
December 31, 1999 were $188,623 compared with $224,217 for the
comparative nine month period ending December 31, 1998.
Cost of products and implementation consists primarily of training,
database setup, documentation, media, and shipping. For the quarter
ended December 31, 1999, cost of products and implementation increased
to $79,786 from $11,800 in the quarter ended December 31, 1998. The
dollar increase in cost of products and implementation in the quarter
ended December 31, 1999 is the result of additional qualified personnel
and resources required to support new implementations. We expect that
these costs will increase in dollar amount as implementation service
revenues increase.
Post contract support services consists mainly of telephone support and
business consulting services. Post contract support services expenses
increased to $55,731 for the quarter ended December 31, 1999 compared
with $6,885 for the quarter ended December 31, 1998. The dollar
increase in post contract support services is attributable to hiring
and training additional personnel to support these business functions.
Sales and Marketing expenses consists mainly of salary, commission,
travel, trade shows, market research and analysis, and other
promotional expenses. Sales and marketing expenses increased to
$321,714 for the quarter ended December 31, 1999 compared with $50,436
in the comparative quarter ending December 31, 1998. Sales and
marketing expenditure increases were, in part, due to additional
resources added to ascertain new markets, develop qualified leads,
build brand awareness, and create innovative advertising campaigns.
Research and Development costs largely consisted of compensation of
development engineers, documentation personnel, quality assurance
personnel and depreciation of capital equipment. R&D expenses were
$257,440 for the quarter ended December 31, 1999 compared with $61,456
for the quarter ended December 31, 1998, representing 24.7% and 19.5%
of total costs and expenses, respectively. R&D expenses increased as a
percentage of total costs and expenses due to increased development
efforts to prepare for a new product release scheduled in February
2000. Development expense is expected to grow in the coming months.
General and administrative expenses were $235,086 in the quarter ending
December 31, 1999, compared to $31,665 in the comparative quarter
ending December 31, 1998. This increase in expenses was largely
attributable to the Company's growth from a 5-person operation one year
ago, to a 50+ person operation today. These expenses are mainly fixed,
and are expected to remain relatively level until e-automate has
increased its base of productive strategic partners.
e-automate has financed its operations principally through founder
loans, debenture bonds (that have all been converted), notes, and
private placements of equity securities and product sales. The Company
generated $1,330,295 in net proceeds through financing from inception
through December 1999. The Company used net cash in operating
activities of ($1,588,313) during the nine months ended December 1999.
As of December 31, 1999, the Company's current liabilities totaled
$1,252,902.
<PAGE> 14
The Company's working capital requirements and other capital
requirements for the foreseeable future could vary based upon a number
of factors, but are expected to remain fairly constant until sales
reach several hundred thousand per month in revenues; after this point,
the Company will likely increase expenditures so as to accelerate its
revenue and profitability growth. The Company believes that projected
funding shown in its private placement memorandum will enable it to
ultimately 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 any funding will be available, or that, if available, the terms of
such offering or funding will be favorable to the Company.
When used in this Form 10-QSB 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 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 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 or 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> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The company is not currently involved in any significant legal proceedings.
Item 2. Changes in Securities.
(c) Sales of Unregistered Securities
------------------------------------
In July 1999, the Company initiated a private placement (the "1999
Private Placement") pursuant to which the Company issued 263,240
investment units in a private placement offering (the "1999 Private
Placement") under Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). The Company did not use an underwriter
in connection with the 1999 Private Placement. Each unit consists of
one common share, 1/2 Class "A" warrant and 1/2 Class "B" warrant. 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. The Company received cash proceeds of
$789,720 at $3.00 per unit.
As part of the 1999 Private Placement, the Company also issued 115,511
units in exchange for securities available-for-sale valued at $228,711
net of deferred tax. The units were shares issued at $3.00 per unit
before deferred income tax of $117,821. Additionally, on November 16,
1999 the Company issued 22,167 units at $3.00 per unit before deferred
taxes of $22,610, in exchange for restricted equity securities valued
at $66,500 before deferred taxes.
In January 2000, the Company issued 80,000 investment units to one
party in a private placement (the "January Private Placement") for cash
proceeds of $240,000 or $3.00 per unit. Each unit under the January
Private Placement consists of one common share, 1/2 Class "A" warrant
and 1/2 Class "B" warrant. 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.
During January 2000, the company issued 84,667 investment units under
the terms of a new private placement (the "2000 Offering") pursuant to
Rule 504 of Regulation D under the Securities Act for cash proceeds of
$247,002 at $2.92 per unit net of $7,000 in commissions. Each unit
under the 2000 Offering 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. As part of the 2000 offering
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 Offering provides for an additional
915,333 units to be sold through July 1, 2000.
<PAGE> 16
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-B or are incorporated by reference to previous filings.
Exhibit # Description
27 Financial Data Schedule*
------------
* Filed herewith
(b) Reports of Form 8-K
The Company filed a Form 8-K on November 17, 1999 regarding its
reorganization and combination with Woodlake Village Associates,
Inc.
SIGNATURES
Pursuant to the requirement 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
Registrant
DATED: February 15, 2000 By:/s/James K. Phillips
----------------------
James K. Phillips, CEO
DATED: February 15, 2000 By:/s/Kim A. Green
----------------------
Kim A. Green, Chief Financial Officer
<PAGE> 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of December 31, 1999, and statements of operations for the nine months
ended December 31, 1999, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 3,257
<SECURITIES> 64,050
<RECEIVABLES> 6,217
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 75,524
<PP&E> 210,126
<DEPRECIATION> (42,995)
<TOTAL-ASSETS> 258,418
<CURRENT-LIABILITIES> 1,252,902
<BONDS> 0
0
0
<COMMON> 4,985
<OTHER-SE> (1,098,296)
<TOTAL-LIABILITY-AND-EQUITY> 258,418
<SALES> 188,623
<TOTAL-REVENUES> 188,623
<CGS> 206,807
<TOTAL-COSTS> 134,896
<OTHER-EXPENSES> 1,990,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,457
<INCOME-PRETAX> (2,210,281)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,210,281)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,210,281)
<EPS-BASIC> .52
<EPS-DILUTED> .52
</TABLE>
