SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Quarter Ended September 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from
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to
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Commission File Number: 0-24380
E-AUTOMATE, CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0601502
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
831 East 340 South
American Fork, Utah 84003
(Address of principal executive offices and zip code)
(801) 492-1705
(Registrant's telephone number, including area code)
71 North 490 West
American Fork, Utah 84003
(Former name, address and fiscal year, if changed since last report)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of October 31, 2000:
Common Stock: 5,824,462
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [x]
E-AUTOMATE CORPORATION
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets September 30, 2000 (Unaudited) and
March 31, 2000 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months Ended September 30, 2000 and 1999 and for the Cumulative
Period From November 22, 1995 (Date of Inception) through
September 30, 2000 5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended September 30, 2000 and 1999 and for the Cumulative
Period from November 22, 1995(Date of Inception) through
September 30, 2000 6
Notes to the Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis and Plan of Operations 11
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports of Form 8-K 18
Signatures 19
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Quarterly Report contain forward-looking
statements that involve risks and uncertainties. All forward-looking statements
are based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements. The
Company's actual results may differ materially from the results discussed in
such forward-looking statements as a result of a number of factors.
Readers should carefully review the risk factors described in other documents
that the Company files from time to time with the Commission, including the
Annual Report on Form 10-KSB and the Quarterly Reports on Form 10-QSB.
INTRODUCTION
e-automate Corporation is a five-year old company that has developed and now
markets sophisticated, highly scalable ERP (Enterprise Resource Planning)
business management software systems designed to meet the needs of small
businesses in a number of targeted vertical market segments. e-automate
provides true Microsoft Windows(r) functionality; an intuitive, easy-to-use
interface; task automation, and many more desirable innovations that
streamline business operations and enable a company to be run more
efficiently, effectively and profitably.
RESULTS OF OPERATIONS
Comparison of Quarters Ended September 30, 2000, and 1999.
GROSS REVENUE
For the quarter ended September 30, 2000, our total gross revenue was $242,173
compared to $88,046 for the quarter ended September 30, 1999, an increase of
$154,127. The increase can be attributed to increased sales efforts in our
market niche; hiring of additional sales representatives; and the release of
our e-automate product version 3.0 . Through the first three months of this
fiscal year, we hired additional sales staff. These sales representatives
are now fully integrated into the sales process.
GROSS PROFIT
We experienced a gross profit for the quarter ended September 30, 2000, of
$60,733 compared to gross loss of $(99,818) for the quarter ended September 30,
1999. The increase can be attributed to an increase in automation processes for
the implementation of e-automate software. The automation has reduced the cost
of implementation and therefore decreased the gross loss of the Company. Future
plans show the gross profit margin to increase as we continue to refine our
implementation processes and continue to develop automated implementation
processes.
Our cost of license revenue includes the cost of manuals and product
documentation, production media used to deliver our products, and packaging
costs. Our cost of support and service revenues includes salaries and related
expenses for the customer support, implementation and training services.
OPERATING EXPENSES
Our operating expenses are classified as research and development, sales and
marketing, and general and administrative. We classify all charges to these
operating expense categories based on the nature of the expenditures. Although
each category includes expenses that are unique to the category type, there are
common recurring expenditures that are typically included in all operating
expense categories, including salaries, employee benefits, incentive
compensation, bonuses, travel costs, professional fees, telephone,
communication, rent, and allocated facilities costs.
The sales and marketing category of operating expenses includes additional
expenditures specific to the sales group, such as commissions, and expenditures
specific to the marketing group, including public relations and advertising,
trade shows and marketing collateral materials.
In the development of enhancements of existing products, the technological
feasibility of the software is not established until substantially all product
development is complete. Historically, software development costs eligible for
capitalization have been insignificant, and we have expensed all costs related
to internal research and development as we have incurred them.
We anticipate that our operating expenses will remain relatively flat over the
next two fiscal quarters. However, we intend to continue to incur higher
research and development costs then our competitors in our current market niche.
We will incur these costs in the production of additional automated
implementation processes, product enhancements, and automated tasks to be sold
as modules to our current product release. Further, we also intend to invest
additional resources in the expansion of our sales, and support organizations to
build an infrastructure to support our long-term growth strategy.
The number of our full-time employees increased from 15 as of September 30,
1999, to 76 full-time employees and four part-time employees as of September 30,
2000. To achieve profitability, we will have to increase our total revenues
significantly. In order to achieve profitability, we had a workforce reduction
of 21 employees on November 3, 2000. Overall quarterly cost of doing business is
expected to decrease by approximately $258,000 beginning in the fourth fiscal
quarter of 2000, and approximately $86,000 in December 2000. After the
reductions, the number of employees is 65 full-time and 2 part-time employees.
The following paragraphs give a comparison of the period ending September 30,
2000, to the previous period ending September 30, 1999. However, in view of our
limited operating history, we believe that period-to-period comparisons of our
revenues and operating expenses are not necessarily meaningful and should not be
relied upon as indicative of future performance. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in early stages of development, particularly companies
in new and rapidly evolving markets.
Total operating expenses increased, from the quarter ended September 30, 1999,
to the quarter ending September 30, 2000, a total of $1,165,758. Operating
expenses totaled $1,625,575 for the quarter ended September 30, 2000, compared
to a total of $459,817 for the quarter ended September 30, 1999. The following
paragraphs detail the specific changes that created the increase in operating
expenses.
General and administrative expenses for the quarter ending September 30, 2000,
were $742,634 compared to $141,457 for the same quarter of the previous year, an
increase of $601,177. The reason for the increase in general and administrative
expenses is due to the expenses associated with a fully staffed management team,
moving expenses, and expenses related to our new facility. Some of these
expenses are one-time items while those expenses related to a larger workforce
will be on going.
Research and development expenses increased a total of $398,562 from a September
30, 1999, total of $184,667 to the current quarter total of $583,229. The
increase in our research and development expenditure is largely due to two
specific development projects. Both projects were completed in this fiscal
quarter and are expected to generate revenue as well as provide us with
additional revenue sources through automated tasks and module sales. Continued
research and development expenses will be required for these additional revenue
generating products; however, we can now begin to generate higher revenue and
gross profit with the completion of these two development projects.
Selling and marketing expenses for the quarter ending September 30, 1999, were
$133,693 and increased for the period ending September 30, 2000, to $299,712.
The increase of $166,019 represents our increased efforts in marketing our
software package through attendance at various tradeshows and our direct
selling. We expect an additional increase in these expenses over the next
several fiscal quarters as we enter the selling phase of our company.
NET LOSS
Our net loss for the quarter ending September 30, 2000, was $1,567,577, an
increase of $987,386, when compared to the loss for the quarter ended
September 30, 1999, of $580,191.
LIQUIDITY AND CAPITAL RESOURCES
We are currently unable to finance our operations from operating activities,and
historically we have relied on loans, equity instruments, and private placements
from both inside and outside investors. We continue to finance our operations
through the net proceeds from private placements of equity instruments.
At September 30, 2000, we had current assets of $491,685 and current liabilities
of $990,250 resulting in negative working capital of $498,565 and a current
ratio of 0.50. During the three-month period, from June 30, 2000, to September
30, 2000, we moved into a new facility incurring expenses associated with
computer and office equipment. Currently, these expenses appear as current
liabilities; however, we are in the process of securing leases for these
expenses totaling approximately $250,000. Further, we purchased the Fastrak
software asset from Core Systems for $200,000 in cash and 40,000 shares of
common stock. Each of these transactions will help us in our growth stage;
however, we realize that in order for us to capitalize on our market opportunity
that we will need to raise additional capital. We intend to raise the
additional funds needed through private placements of our equity instruments,
loans and extensions from our creditors.
Our total liabilities as of September 30, 2000, were $1,022,502, a decrease of
$175,278 when compared to total liabilities of $1,197,780 as of March 31, 2000.
INFLATION
We do not expect the impact of inflation on operations to be significant.
YEAR 2000
We had developed plans to address the possible exposures related to the impact
on our computer systems for the Year 2000. Since entering the Year 2000, we
have not experienced any major disruptions to our business, nor are we aware of
any significant Year 2000 related disruptions impacting our customers and
suppliers. Furthermore, we did not experience any material impact on business
at calendar year end. We will continue to monitor our critical systems over the
next several months but do not anticipate any significant impacts due to Year
2000 exposures from our internal systems as well as from the activities of our
suppliers and customers.
FORWARD LOOKING STATEMENTS.
When used in this 10QSB and in other filings by e-automate with the Securities
and Exchange Commission ("SEC"), in our press releases or in other public or
stockholder communications or oral statements made with the approval of any of
our authorized executive officers, the words or phrases "would be," "will
allow," "intends to," "believes," "plans," "will likely result," "are expected
to," "will continue," "is anticipated," "estimate," "project," or similar
expressions are intended to identify "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are based on our beliefs and the assumptions we made using
information currently available to us. We caution readers not to place undue
reliance on any forward-looking statements, which speak only as of the date
made, are based on certain assumptions and expectations which may or may not be
valid or actually occur, and which involve risks of product demand, market
acceptance, economic conditions, competitive products and pricing, difficulties
in product development, commercialization, and technology, and other risks. In
addition, sales and other revenues may not commence and/or continue as
anticipated due to delays or otherwise. As a result, our actual results for
future periods could differ materially from those anticipated or projected.
We do not intend to update the forward looking statements contained in this
report, except as may occur as part of our ongoing periodic reports filed with
the Securities and Exchange Commission.
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
(c) Recent Sales of Unregistered Securities
During the period from June 19, 2000 to October 17, 2000, the Company executed
five securities purchase agreements (the "Purchase Agreement") with Aspen
Capital Resources, L.L.C. (the "Purchaser" or the "Holder"), and issued 2,083
shares of Series A Convertible Stock for $2,083,000, less a 10% placement fee to
the Purchaser, and issued warrants for the purchase of 416,600 common shares as
explained below. The Purchase Agreement initially provided for the issuance of
5,000 shares of Series A Convertible Stock, at the rate of 500 shares per month,
with 1,000,000 warrants for $4,500,000. Because of the Company's default on the
terms of the Purchase Agreement as explained below in item 3 "Defaults Upon
Senior Securities", the Purchaser ceased funding on October 17, 2000, providing
only a partial funding of $83,000 (a total of 83 shares of Series A Preferred
Stock) for the month of October 2000. As of October 31, 2000, there were a
total of 2,083 shares of Series 2000-A Preferred Stock issued and outstanding.
Each share of Series A Preferred Stock has one Series 2000-A Warrant. Each
Series 2000-A Warrant entitles the holder to purchase one share of Common Stock
at an exercise price of $5.00 per share, or $4.00 per share if, during the first
six months for which the Common Shares are quoted at less than $5.00 per share
on the Nasdaq Stock Market System or reported on the NASD Bulletin Board. The
Warrants are exercisable from 90 days following the effective date of
registration of the underlying shares of Common Stock through June 21, 2004,
provided that at the time of exercise a current prospectus relating to the
Common Stock is then in effect and the Common Stock is qualified for sale or
exempt from qualification under applicable state securities laws. The Series
2000-A Warrants are not subject to early redemption by the Company.
On July 14, 2000, the Company acquired a license and acquired the source code to
a data-mining tool. To acquire these assets, the Company issued 50,000 shares of
restricted common stock, valued at $150,000, or $3.00 per share, to the owners
of ActiveViews Acquisition Corporation (Eric and Aaron Meyers) which held as its
sole asset the user license and agreed to start up a new joint venture
subsidiary called ActiveViews, Inc. For a 75% voting interest in Active Views,
Inc., the Company has committed to fund $1,200,000 of Active Views, Inc.'s
operations by issuing a $1,200,000 demand note payable to Active Views, Inc. The
developers of the data-mining tool contributed the related source code for a 25%
voting interest in the joint venture subsidiary.
On September 13, 2000, e-automate acquired the software rights for internal use,
the related customer list, and accounts receivable of Core Software, Inc.'s
FasTrak business segment in exchange for cash in the amount of $200,000 and
40,000 restricted common shares valued at $120,000 or $3.00 per share. The
shares of restricted common stock were issued to Core Software, Inc. a Texas
Corporation.
Item 3. Defaults Upon Senior Securities.
(a) Also refer to footnote #7 in the financial statements enclosed in Part 1
Item 1 above.
(b) On October 14, 2000 e-automate received a waiver of payment of dividends on
the Series 2000-A Preferred shares until December 31, 2000.
Item 6. Exhibits and Reports on Form 8-K.
(a) Index to Exhibits
Exhibit
No. Description of Exhibit
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2. Plan of acquisition, reorganization, arrangement,
Liquidation, or succession
2.1 Series A Preferred Stock Purchase Agreement, dated August 1, 2000,
by and between ActiveViews, Inc. a Delaware corporation and the
Series A Investors, Eric Meyers and Aaron Meyers.*(5)
2.2 Reorganization Agreement, dated August 1, 2000, between and among
e-automate Corporation, a Delaware corporation, and ActiveViews
Acquisition Corporation, a Utah corporation, Eric Meyers, an
individual, and Aaron Meyers, an individual, e-automate, AAC,
Aaron Meyers and Eric Meyers collectively referred to as the "
Parties" and Aaron Meyers and Eric Meyers collectively referred
to as the "Shareholders."*(5)
2.3 Joint Formation Agreement, dated August 1, 2000, between and among
e-automate Corporation, a Delaware corporation, and Eric Meyers,
an individual, and Aaron Meyers, an individual.*(5)
2.4 e-automate Stock Purchase Agreement, by and between ActiveViews, Inc.
a Delaware corporation and e-automate Corporation, a Delaware
corporation.*(5)
3. Certificate of Incorporation and Bylaws
3.1 Articles of Incorporation.(1)
3.2 Bylaws(1)
3.3 Amendment to Certificate of Incorporation changing name to Aureus
Corporation.
3.4 Amendment to Certificate of Incorporation changing name to
e-automate Corporation.(3)
3.5 Articles of Incorporation of ActiveViews Acquisition Corporation,
dated August 1, 2000.*(5)
3.6 Bylaws of ActiveViews Acquisition Corporation.*(5)
4. Instruments Defining Rights of Security Holders
4.1 Certificate of Designation creating Series 2000-A Convertible
Preferred Stock, dated as of June 19, 2000. (4)
4.2 Warrant Certificate for Series 2000-A Warrants, dated as of
June 19, 2000. (4)
4.3 Certificate of Designation creating Series B Convertible Preferred
Stock, dated as of June 19, 2000. dated as of June 19, 2000. dated
as of June 19, 2000. (4)
4.4 Warrant Certificate for Series 2000-B Warrants, dated as of
June 19, 2000. (4)
10. Material Contracts
10.1 1992 Stock Option Plan(1)
10.2 Stock Option Agreement with Jehu Hand(1)
10.3 Stock Option Agreement with Eric Anderson(1)
10.4 Stock Option Agreement with Jehu Hand(2)
10.5 1999 Stock Incentive Plan(3)
10.6 Stock Purchase Agreement with Richard Stout, James A. Phillips
and Alan Fine, dated as of June 19, 2000. (4)
10.7 Loan Agreement with Inside Out Development, LLC. (4)
10.8 Securities Purchase Agreement with James K. Phillips, dated as of
June 19, 2000. (4)
10.9 Securities Purchase Agreement with Alan Fine, dated as of
June 19, 2000. (4)
10.10 Securities Purchase Agreement with Lee Monson, dated as of
June 19, 2000. (4)
10.11 Purchase Agreement between Registrant and Aspen Capital
Resources, LLC, dated as of June 19, 2000. (4)
10.12 Asset Purchase and Sale Agreement, dated as of September 13, 2000
_____________________________
(1) Incorporated by reference to the same numbered exhibits as filed with
the Company's registration statement on Form 10-SB, File No. 0-24380.
(2) Incorporated by reference by the Company's 1996 Annual Report on Form
10-KSB.
(3) Incorporated by reference to the Company's quarterly report on Form
10-QSB, filed December 2, 1999.
(4) Incorporated by reference to the Company's 2000 Annual Report filed
on Form 10-KSB, dated June 30, 2000.
(5) Incorporated by reference to the Company's quarterly report on Form 10-QSB,
filed August 15, 2000
_____________________________
* Filed herewith.
(b) Reports on Form 8-K
A Form 8-K/A was filed on 07/07/2000 regarding an Agreement And Plan of Merger
dated June 14, 1999 between Aureus Corporation and Woodlake Village Associates,
Inc., including the audited financial statements of Aureus Corporation as of and
for the year ended March 31, 1999.
A Form 8-K was filed on 09/28/2000 regarding the acquisition of software source
code and a customer list from Core Software, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
e-automate Corporation
/s/ Lon D. Price
_______________________
Lon D. Price
Chief Executive Officer
Date: November 20, 2000
/s/ Greg L. Popp
_______________________
Greg L. Popp
Chief Financial Officer
Date: November 20, 2000
