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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
Amendment #1
[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
[ ] 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
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(Name of small business issuer in its charter)
DELAWARE 33-0601502
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(State or other jurisdiction of (I.R.S. Employer incorporation
organization) Identification Number)
71 NORTH 490 WEST
AMERICAN FORK, UTAH 84003
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(Address of principal executive offices) (Zip Code)
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]
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<PAGE>
E-AUTOMATE CORPORATION
INDEX-FORM 10-KSB
PART I
Page
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . 1
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission or Matters to a Vote of Security Holders . . . . . . 9
PART II
Item 5. Market for the Common Equity and Related Stockholder Matters. . 9
Item 6. Management's Discussion and Analysis and Plan of Operations . . 10
Item 7. Financial Statements. . . . . . . . . . . . . . . . . . . . . . 14
Item 8. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance
with Section 16(a) of the Exchange Act. . . . . . . . . . . . . . . 14
Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . . . 17
Item 11. Security Ownership of Certain Beneficial Owners and Management 17
Item 12. Certain Relationships and Related Transactions . . . . . . . . 18
PART IV
Item 13. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Index to Financial Statements and Schedules. . . . . . . . . . . . . . . 21
<PAGE>
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.
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.
<PAGE> -1-
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.
<PAGE> -2-
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.
<PAGE> -3-
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.
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.
<PAGE> -4-
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.
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.
<PAGE> -5-
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.
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.
<PAGE> -6-
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.
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.
<PAGE> -7-
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.
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, 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.
<PAGE> -8-
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 current 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.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all
issuances of unregistered shares of the Company's securities
during the past three years. Each of the following transactions
was exempt from registration under the Securities Act by virtue
of the provisions of Section 4(2) of the Securities Act and,
where indicated, by either Rule 504 or 505 of Regulation D
promulgated under the Securities Act.
None of the following transactions involved a distribution
or public offering. All hare and per share information presented
below have been adjusted to give retroactive effect to a forward
stock split, which was approved in July, 1999.
Common Stock
A. During the period January 1997 through August 1998, the
Company issued a total of 78,960 shares of Common Stock to three
employees for services rendered valued at $10,500.
B. During the period January 1997 through August 1998, the
Company issued 122,200 shares of Common Stock to three directors
for services rendered valued at $16,250.
C. During the period of May through August 1997, the
Company issued 265,219 shares of Common Stock to four employees
for services rendered valued at $35,269.
D. During the period April and May 1997 the Company issued
75,200 shares of Common Stock to an existing shareholder, for
$10,000 interest on indebtedness.
E. During the period from October 1997 through April 1998,
the Company issued 256,620 shares of Common Stock to an existing
shareholder for $34,125 interest on indebtedness.
F. In May 1998, the Company issued 45,120 shares of Common
Stock to a director for $6,000 interest in indebtedness.
G. During the period September 1998 through February 1999,
the Company issued 79,990 shares of Common Stock to two employees
for services rendered.
H. In September 1998, the Company issued 45,120 shares of
Common Stock to a director for interest on notes and related
expenses in the amount of $9,360.
I. On December 17, 1998, the Company issued 846,000 shares
of Common Stock to two directors for services rendered and for
$100,000 cash.
J. On May 20, 1999, the Company issued 82,720 shares of
Common Stock to three directors for services rendered $248,160.
K. On May 29, 1999, the Company issued 626,040 shares of
Common Stock to a total of 11 holders of convertible debentures
of their loans for $333,000.
L. During the period May through December of 1999, the
Company issued 434,669 shares of its Common Stock at a price of
$3.00 per share to 26 private placement investors for $819,721
cash, $417,104 in marketable equity securities, and $66,500 in
restricted equity securities. The 434,669 Common shares were
issued with 217,334 Class A Warrants, exercisable at $3.50 per
share, and 217,335Class B Warrants, exercisable at $4.50 per
share. No commissions were paid in connection with this
Offering.
M. During May 1999, the Company received a $135,000 cash
advance from five private placement investors to satisfy short-
term expenses. On July 11, 1999, that advance was converted
into 45,000 shares of Common Stock and 22,500 each Class A and
Class B Warrants.
N. In December 1999, the Company issued 11,750 shares of
Common Stock to an employee upon the exercise of stock options
for $62 cash.
O. In January 2000, the Company issued 80,000 shares
of Common Stock and 40,000 each Class A and Class B Warrants
for $240,000 cash to a private investor.
P. During the period January through March of 2000, the
Company issued 234,667 shares of Common Stock, with a like number
of Class C Warrants convertible into one share of Common Stock
at the price of $5.50 per share , to 12 private placement
investors for $704,003 cash.
<PAGE> -9-
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) through March 31, 2000 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 of
The Years Ended March 31, of Inception)
------------------------- Through
2000 1999 March 31, 2000
----------- ---------- -----------
Revenue $ 259,472 $ 244,801 $ 796,811
Net Income (Loss) (3,296,591) (618,277) (4,553,086)
Basic and Diluted Earnings
(Loss) per share $ (0.73) $ (0.24) $ (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 254,497 29,697
Stockholder's Deficit (943,283) (786,120)
Deficit Accumulated during
the Development Stage (4,553,086) (1,256,495)
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
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 although most small businesses
have many activities that must done on a continuing basis, though few of
them can afford to accomplish those activities through hiring more people
therefore, electronic automation of company-specific activities is the
natural solution.
<PAGE> -10-
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
Comparison of Fiscal Years Ended March 31, 2000 and 1999.
REVENUES
Our 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. Our 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 our new product offerings and a larger sales team.
-11-
<PAGE>
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 our 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 our software licenses are
negligible. Costs to develop the software licenses have been expensed as
incurred as research and development.
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 our Company focused
on building an infrastructure to handle future sales growth. We expect that
these costs will remain fairly level as software license revenues increase.
We have developed methods to improve implementation efficiencies and shorten
the implementation cycle using Internet technologies. These improvements are
anticipated to increase our gross profit in the future.
Our sales and marketing expenses consist mainly of salary, commission,
travel, trade shows, market activities and other promotional expenses. Our
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. For the year ended March 31, 2000, our R&D
expenses were $1,039,642 compared with $156,615 for the year ended March 31,
1999, representing 34.3% and 23.3% of total operating expenses,
respectively. Our 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.
Our general and administrative expenses for the year ended March 31,
2000, were $1,041,659 as compared to $299,576 for the year ending March 31,
1999, representing 34.3% and 44.5% of our total operating expenses,
respectively. This increase in expenses was largely attributable to our
growth from a 5-person operation one year ago to a 55-person operation as of
the fiscal year ended March 31, 2000. These expenses are mainly fixed and
are expected to remain relatively level until we increase revenues.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had $219 in cash. Our working capital deficit
as of March 31, 2000, increased to $1,122,947 as compared to a working capital
deficit of $627,731 on March 31, 1999. This decrease in working capital
was primarily due to an increase in our notes payable, accounts payable, and
deferred revenue. We believe that our working capital will significantly
improve during the coming year through an increase in sales and additional
funding through our private placement memorandum. However, this improvement
in working capital is not assured.
On June 19, 2000, we entered into an agreement to issue up to 5,000
shares of Series A Convertible Preferred Stock ("Series 2000-A Preferred
Stock") together with up to 1,000,000 warrants as a unit for up to $5,000,000.
The agreement calls for the issuance over ten traunches of 500 Series 2000-A
Preferred Stock shares and 100,000 warrants each for $500,000 in cash.
Receipt of the financing is solely at the discretion of the investor and
there is no obligation on the investor to provide the financing.
-12-
<PAGE>
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, we received cash proceeds of $450,000 net of $50,000
offering costs, in exchange for the issuance of 500,000 shares of Series
2000-A Preferred Stock and 100,000 warrants. In connection with this
offering, we issued additional warrants to purchase 500,000 shares of Common
Sock at $5.00 per share for cash proceeds of $5,000.
On June 19, 2000, $628,983 of notes payable were converted into 629
shares of Series B Preferred Stock. The Series B Preferred Stock is
convertible into common stock at $5.00 per share.
From April through June 2000, we 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 share of Common Stock
at $5.50 per share through August 31, 2001.
During May 2000 an officer and director advanced $200,000 to our
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.
This loan bears interest at 8 percent.
During June 2000, an officer and director advanced $155,000 to our
Company to meet current operating expenses. This short-term operating loan
is payable upon demand and bears interest at 15 percent.
We financed our operations principally through founder loans, borrowings
under notes payable, and private placements of equity securities and product
sales. We generated $2,181,707 in cash from financing activities during the
year ended March 31, 2000, compared to $349,827 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. We 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, our current liabilities
totaled $1,151,735.
We have sustained losses of $3,296,591 and $618,277 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. Our ability to continue as a going concern is
dependent upon our ability to generate sufficient cash flows to meet our
obligations on a timely basis, to obtain additional financing, and
ultimately to attain profitable operations. Management plans include
obtaining additional equity financing and our management believes that
profitability and cash flows from our 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 our Company's ability to meet obligations when due.
Our working capital requirements and other capital requirements for the
foreseeable future will be primarily funded through the issuance of equity
securities until we are able to meet our working capital needs with positive
cash flows provided from operations; after this point, we will likely
increase expenditures so as to accelerate our revenue and profitability
growth. We believe 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, we will require additional equity funding. There is no
assurance that profitable operations or positive cash flows from our
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 us.
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> -13-
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 Corporate Secretary
Gregg L. Popp 31 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. Stout4 37 Cofounder, and Director
Raymond Meservy4 50 Director
James K. Phillips3,4 51 Director
Scott Blackham4 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.
<PAGE> -14-
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 where 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.
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 Brigham Young University.
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> -15-
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> -16-
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.
<TABLE>
<CAPTION>
Annual Compensation Long-term
------------------------------------------ Compensation
Other Securities
Name and Annual Underlying
Principal Position Year Salary Bonus Compensation Options
--------------------- ---- ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Rick Stout 1999 $ 112,000 $ - $
(formerly President)1 1998 - -
James K. Phillips 1999 $ 11,030 $ - $ - -
(formerly CEO)2 1998 2,758 - - -
</TABLE>
__________________
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
Name and Address Number of of Class
Benefical 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> -17-
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of March 31, 2000, the Company owed a balance of approximately
$50,000 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
(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 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*
27. Financial Data Schedule*
_______________
<PAGE> -18-
(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.
<PAGE> -19-
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
REGISTRANT
e-automate Corporation
DATED: August 18, 2000 By: /s/ Lon D. Price
----------------------------
Lon D. Price
President and Chief Executive
Officer
In accordance with the Exchange Act, this report has been signed
by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature Title Date
/s/ Lon D. Price President, Chief Executive August 18, 2000
---------------------- Officer and Director
Lon D. Price
/s/ Greg Popp Vice President and August 18, 2000
----------------------- Chief Financial Officer
Greg Popp (Principal Financial and
Accounting Officer)
/s/ Russ Riggins Chairman of the Board August 18, 2000
----------------------- of Directors
Russ Riggins
/s/ Richard F. Stout Director August 18, 2000
-----------------------
Richard F. Stout
/s/ Rayman D. Meservy Director August 18, 2000
-----------------------
Rayman D. Meservy
/s/ James K. Phillips Director August 18, 2000
-----------------------
James K. Phillips
/s/ Scott Blackham Director August 18, 2000
----------------------
Scott Blackham
<PAGE> -20-
FINANCIAL STATEMENTS
E-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants F-1
Balance Sheets - March 31, 2000 (Consolidated) and 1999
(Unconsolidated) F-2
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-4
Statements 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-5
Statements of Cash Flows 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-7
Notes to the Financial Statements F-8
-------------------
<PAGE> -21-
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 sheets of
e-automate Corporation and Subsidiary (a development stage company)
as of March 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' deficit and cash flows
for the years ended March 31, 2000 and 1999 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our
opinion.
In our opinion, 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 1999, and the results of their operations and their cash
flows for the years ended March 31, 2000 and 1999 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
July 20, 2000
<PAGE> F-1
E-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
------------------------------------
2000 1999
--------------- ---------------
(Consolidated) (Unconsolidated)
<S> <C> <C>
Current Assets
Cash $ 219 $ 386
Securities available-for-sale 5,470 -
Trade accounts receivable, no
allowance for doubtful accounts 23,099 -
Prepaid expenses - 4,700
----------- -----------
Total Current Assets 28,788 5,086
----------- -----------
Property and Equipment
Furniture and fixtures 75,566 1,371
Computer equipment 173,946 40,087
----------- -----------
Total Property and Equipment 249,512 41,458
Less: Accumulated depreciation (44,752) (20,345)
----------- -----------
Net Property and Equipment 204,760 21,113
----------- -----------
Other Assets
Purchased software for internal
use, net of accumulated
amortization of $2,755 at
March 31, 2000 and $625 at
March 31, 1999 15,548 1,738
Other assets 5,401 1,760
----------- -----------
Total Other Assets 20,949 3,498
----------- -----------
Total Assets $ 254,497 $ 29,697
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> F-2
E-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
March 31,
------------------------------
2000 1999
------------- --------------
(Consolidated) (Unconsolidated)
Current Liabilities
Cash overdraft $ 114,075 $ 3,082
Accounts payable 278,454 53,624
Accrued liabilities 1,258 16,835
Deferred revenue 158,138 96,303
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 1,151,735 632,817
----------- ----------
Long-Term Liabilities
Notes payable - 183,000
Obligation under capital leases 46,045 -
----------- ----------
Total Long-Term Liabilities 46,045 183,000
----------- ----------
Redeemable Preferred Stock
Series 2000-A convertible preferred
stock - $0.001 par value;
5,500 shares designated; no shares
issued or outstanding - -
----------- ----------
Stockholders' Deficit
Series B Convertible preferred stock -
$0.001 par value; 1,000,000
shares authorized; no shares issued
or outstanding - -
Undesignated preferred stock - $0.001 par
value; 993,500 shares authorized;
no shares issued or outstanding - -
Common stock - $0.001 par value;
20,000,000 shares authorized;
shares issued and outstanding: 5,296,205
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) (1,256,495)
------------ ----------
Total Stockholders' Deficit (943,283) (786,120)
------------ ----------
Total Liabilities and Stockholders' Deficit $ 254,497 $ 29,697
============ ==========
The accompanying notes are an integral part of these financial statements.
<PAGE> F-3
E-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
From Inception
For the Years Ended (November 22, 1995)
March 31, Through
------------------------- March 31,
2000 1999 2000
------------ ----------- -----------
<S> <C> <C> <C>
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 1,041,659 299,576 1,362,115
----------- ----------- -----------
Total Operating Expenses 3,035,144 672,261 4,457,683
----------- ----------- -----------
Loss From Operations (3,212,372) (518,435) (4,303,609)
Interest Expense (84,219) (99,842) (249,477)
----------- ----------- -----------
Net Loss $(3,296,591) $ (618,277) $(4,553,086)
=========== =========== ===========
Basic and Diluted Loss Per Common
Share $ (0.73) $ (0.24) $ (1.64)
=========== =========== ===========
Weighted Average Number of Shares
Used in Per Share Calculation 4,491,393 2,570,511 2,778,627
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> F-4
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) - $ - $ - $ - $ - $ -
Issued to founders for
services, February 1996,
$0.13 per share 1,534,080 1,534 202,466 - - 204,000
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
principal shareholders
to employees for 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
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, 1998 - - - - (638,218) (638,218)
--------- --------- ---------- ------------ ------------- ----------
Balance - March 31, 1998 2,357,449 2,358 358,582 - (638,218) (277,278)
Issued in connection with
debt financing April 1998
- $0.13 per share 119,380 119 15,756 - - 15,875
Shares issued for services
April 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
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
Redeemed for cash, November
1998, $0.04 per share (188,000) (188) (7,812) - - (8,000)
Redeemed for promissory note,
December 1998, $0.21 per
share (531,288) (531) (109,469) - - (110,000)
Issued to director December
1998,
Cash - $0.21 per share 479,320 479 99,521 - - 100,000
Services - $0.21 per
share 366,680 367 6,133 - - 76,500
Net loss for the year
ended March 31, 1999 - - - - (618,277) (618,277)
----------- --------- ---------- ------------ ------------- -----------
Balance - March 31,
1999 2,797,181 $ 2,797 $ 467,578 $ - $ (1,256,495) $ (786,120)
=========== ========= =========== ============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> F-5
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 $ - $ (1,256,495) $ (786,120)
Issued to director for
services,
May 1999 - $3.00 per
share 82,720 83 248,077 - - 248,160
January - March 2000 -
$3.00 per share 6,000 6 17,994 - - 18,000
Issued on conversion of
debentures,
May 1999, $0.53 per
share 626,040 626 332,374 - - 333,000
Issued on conversion of
related party notes
payable, May 1999,
$3.00 per share 45,000 45 134,955 - - 135,000
Issued for acquisition
of Woodlake Village
July 2, 1999 1,000,000 1,000 (1,000) - - -
Issued in connection
with exercise of
stock option - $0.005
per share,
December 14, 1999 11,750 12 50 - - 62
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
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
Issued in exchange for
securities available-
for-sale, May - November
1999 - $3.00 per share 139,607 139 418,611 - - 418,750
Net loss for the year
ended March 31, 2000 - - - - (3,296,591) (3,296,591)
-------------- --------- ----------- ------------ -------------- ------------
Balance - March 31,
2000 5,296,205 $ 5,296 $ 3,784,079 $ (179,572) $ (4,553,086) $ (943,283)
============== ======== =========== ============ ============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> F-6
E-AUTOMATE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
From Inception
(November 22, 1995)
For the Years Ended Through
------------------------------ March 31,
2000 1999 2000
------------ --------------- -------------
(Consolidated) (Unconsolidated) (Consolidated)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (3,296,591) $ (618,276) $ (4,553,086)
Adjustments to reconcile net income to
net cash used in operating
activities:
Depreciation and amortization 26,537 10,600 47,507
Stock issued for interest expense - 15,360 15,360
Stock based compensation 266,160 96,200 659,050
Compensation from stock options
granted 229,732 - 229,732
Compensation as note payable 58,969 - 58,969
Debt discount amortized as
interest 2,125 13,749 44,125
Change in assets and liabilities:
Trade accounts receivable (23,099) - (23,099)
Prepaid expenses 4,700 3,063 -
Accounts payable 224,830 53,624 278,454
Accrued liabilities (11,767) (9,884) 5,068
Deferred revenue 61,835 96,303 158,138
Other assets (3,641) (1,760) (5,401)
------------ --------------- ------------
Net Cash Used In Operating
Activities (2,460,210) (341,021) (3,085,183)
------------ --------------- ------------
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 cash overdraft 110,993 3,082 114,075
Proceeds from issuance of common
stock 1,756,786 100,000 1,856,786
Proceeds from issuance of notes
payable 225,000 93,000 672,000
Proceeds from notes payable -
related party 359,997 79,000 438,997
Principal payments on notes
payable - related party (315,130) (10,554) (382,519)
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 credit
note payable 62,452 93,299 169,915
------------ --------------- ------------
Net Cash Provided By Financing
Activities 2,181,707 349,827 2,842,863
------------ --------------- ------------
Net Increase (Decrease) In Cash (167) (4,291) 219
Cash at Beginning of Period 386 4,677 -
------------ --------------- ------------
Cash at End of Period $ 219 $ 386 $ 219
============ =============== ============
</TABLE>
The accompanying notes are an integral part of these financial statementgs.
<PAGE> F-7
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.
Development Stage 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 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.
<PAGE> F-8
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 5, 2000, the options were sold for cash proceeds of approximately
$9,611.
Software Revenue and Cost Recognition - Revenue from licenses of the e-
automate system is recognized when delivery is complete, when no
significant obligations remain unfulfilled by the Company under the terms
of the license contract and when collection of any remaining receivable
is probable. Payments collected prior to recognition are accounted for as
a liability, "deferred revenue." 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 31, 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.
<PAGE> F-9
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 - RESTATEMENT
The accompanying financial statements have been restated to exclude sales
orders from both trade accounts receivable and deferred revenue. As a result
of this restatement, working capital for each period presented did not
change. In addition the financial statements have been restated to decrease
general and administrative expenses by $37,573 during the year ended March
31, 2000, and to increase general and administrative expenses by $37,573
during the year ended March 31, 1999. As a result, net loss per common share
decreased by $0.01 per share for the year ended March 31, 2000, and net loss
per common share increased by $0.01 per share for the year ended March 31,
1999. As a result of the restatements, deficit accumulated during the
development stage as of March 31, 2000 has not changed from the prior
presentation. In addition, certain prior year amounts have been reclassified
to reflect current presentation.
NOTE 3 - 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 Financing 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, the Company issued 139,607 common shares upon receipt of
marketable securities with a fair value of $418,750. The Company issued
626,040 common shares upon conversion of convertible debentures in the
amount of $333,000. The Company entered into capital lease agreements for
$89,000 of office and computer equipment. On May 30, 1999 the Company
settled a short-term advance payable to a related party of $135,000 by
issuing 45,000 shares of common stock.
NOTE 4 - RELATED PARTY NOTES PAYABLE
An officer and director advanced $334,997 to the Company during the year
ended March 31, 2000 to meet current operating expenses and was repaid
$252,234 resulting in a balance on March 31, 2000 of $165,178. 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 5 - 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.
<PAGE> F-10
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, net of discount - 240,875
----------- -----------
Total Notes Payable 168,000 408,875
Less current portion (168,000) (225,875)
------------ -----------
Long-Term Notes Payable $ - $ 183,000
============ ===========
<PAGE> F-11
NOTE 6 - 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:
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 7 - REDEEMABLE PREFERRED STOCK
Series A Convertible Preferred Stock - On June 19, 2000, the Board of
Directors designated 5,500 shares of preferred stock as Series 2000-A
preferred stock with a $0.001 par value per share and a stated value of
$1,000 per share (Series A convertible preferred stock) together with up
to 1,000,000 warrants. Each outstanding share of Series A convertible
preferred stock is entitled to the number of votes equal to the number of
shares of common stock into which it is convertible. Cumulative dividends
accrue on the Series A convertible preferred stock at 8% per annum and
are payable quarterly. The holder of Series A convertible preferred
stock, at its option, may elect to receive payment of dividends in cash
or in common stock. Dividends on the Series A convertible preferred stock
rank senior to dividends payable on all other series or classes of stock.
The Series A convertible preferred stock is convertible into common stock
at 80% of the average of the three lowest quoted closing bid prices
during the 15 trading days preceding the conversion date, subject to a
maximum conversion price of $5.75 per share and a minimum conversion
price of $3.25 per share. On or after December 19, 2001, the Company can
require conversion of the Series A convertible preferred stock, upon a 30-
day notice to the holder. On liquidation, the Series A convertible
preferred shareholders will be entitled to receive $1,000 per share plus
any accrued but unpaid dividends ahead of any liquidation payments to the
common shareholders.
<PAGE> F-12
Contingent Defaults of the Series A Preferred Stock - Under terms of the
default provisions of the Series A convertible preferred stock, if at any
time after issuance the Company has an event of non-compliance, such as
if (i) the Company fails to make the dividend payment when due, (ii) the
trading price for the Company's stock, once trading on NASDAQ or the
NASD's OTC Bulletin Board, falls below $3.25, (iii) the Company fails to
obtain the effectiveness of a registration statement by October 17, 2000,
or (iv) other event of non-compliance as defined in the Certificate of
Designation for the Series A convertible preferred stock, then the
Company is required to redeem the Series A convertible preferred stock at
125% its face value (together with any accrued but unpaid dividends) and
the related dividend rate changes to 21%. If not redeemed with in
10 days the Series A convertible preferred stock becomes convertible into
common stock at a rate of 80% of the fair value of the underlying common
shares, less $1.00 per share, and the conversion rate is no longer
subject to a $3.25 floor conversion price.
If a default occurs, the increase in the face value of the Series A
preferred stock to 125% will be accounted for as a contingent preferred
dividend in the amount of $374,888 for each 500 Series A preferred shares
outstanding. In addition, the contingent beneficial conversion feature
will be recognized as a preferred dividend in the amount of $250,112.
The contingent preferred dividends will be recognized if a default occurs
and if the Company fails to redeem the Series A Convertible Preferred
Stock within 10 days of the default.
NOTE 8-STOCKHOLDERS' EQUITY
Series B Convertible Preferred Stock - In June 2000, the Board of
Directors designated 1,000 shares of preferred stock as Series B
preferred stock with a $0.001 par value per share and a stated value of
$1,000 per share (Series B convertible preferred stock). Each
outstanding share of Series B convertible preferred stock is entitled to
the number of votes equal to the number of shares of common stock into
which it is convertible. Cumulative dividends accrue on the Series B
convertible preferred stock at 8% per annum and are payable quarterly.
The holder of Series B convertible preferred stock, at its option, may
elect to receive payment of dividends in cash or in common stock.
Dividends on the Series B convertible preferred stock are preferential to
dividends on all other series or classes of stock but are junior in
preference and subordinate to dividends on the Series A convertible
preferred stock.
Each share of Series B convertible preferred stock is convertible into
200 common shares, or at $5.00 per share, upon its issuance. On or after
December 19, 2001, the Company can require conversion of the Series B
convertible preferred stock, upon a 30-day notice to the holder.
On liquidation, the Series B convertible preferred shareholders will be
entitled to receive $1,000 per share plus any accrued but unpaid
dividends. The liquidation preference of the Series B convertible
preferred stock ranks junior to the Series A convertible preferred stock
but retains priority as to all other series or classes of stock.
Common Stock - 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.
<PAGE> F-13
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 from April to November 1997 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.
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 February 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 shares of
common stock, together with 136,620 Class A warrants and 136,620 Class B
warrants under the terms of a private placement offering (the 1999
Offering) for cash proceeds of $819,721, or $3.00 per share. Each Class A
warrant is convertible at $3.50 per share through August 31, 2000, and
each Class B warrant is convertible at $4.50 per share through February
28, 2001.
As part of the 1999 Offering, the Company also issued 139,607 units 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.
<PAGE> F-14
On May 20, 1999, 82,720 common shares were issued to directors for
services valued at $248,160, or $3.00 per share. The value of these
shares was based upon the value e-automate received upon the issuance of
common shares for cash in private placements during the weeks surrounding
this issuance.
On July 2, 1999, for accounting purposes, the Company was deemed to have
issued 1,000,000 common shares, valued at $0, to the shareholders of
Woodlake in connection with the reverse acquisition of Woodlake. No
assets were received nor were any liabilities assumed in connection with
this acquisition.
During December 1999, the Company issued 11,750 shares upon exercise of
stock 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.
From January through March 2000, the Company issued 6,000 shares to one
of the Company's directors as part of an agreement to compensate the
director for his services by issuing 24,000 common shares according to a
12-month vesting schedule, or 2,000 per month.
NOTE 9 - STOCK OPTIONS AND WARRANTS
Stock Options - 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:
<PAGE> F-15
March 31, 2000 March 31, 1999
------------------------ ------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------------ -------- ------- ---------
Outstanding at beginning of year 227,474 $ 0.53 - $ -
Granted 306,266 1.59 227,474 0.53
Exercised (11,750) 0.01 - -
Cancelled (19,200) 0.58 - -
------------ -------
Outstanding at end of year 502,790 1.15 227,474 0.53
============ =======
Options exercisable at
the end of the year 69,570 - -
============ =======
Weighted-average fair value of
options granted during the
year $ 2.11 $ 0.02
============ =======
The following table summarizes information about stock options
outstanding at March 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- -----------------------------------
Range of Number of Weighted-Average Number
Exercise Outstanding at Remaining Weighted-Average Exercisable at Weighted-Average
Prices March 31, 2000 Contractual Life Exercise Price March 31, 2000 Exercise Price
-------------- ------------- ---------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.01 - 0.99 312,084 8.64 $ 0.48 110,577 $ 0.43
$ 1.00 - 2.99 56,400 9.02 1.00 - -
$ 3.00 - 3.49 91,756 9.72 3.00 - -
$ 3.50 - 5.00 5,750 9.31 4.80 - -
</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 $(3,296,591) $(618,277)
Pro forma (4,226,486) (623,778)
Basic and diluted loss
per share:
As reported $ (0.73) $ (0.24)
Pro forma (0.95) (0.24)
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%.
Stock Purchase Warrants - During the fiscal year ended March 31, 2000,
the Company issued 228,924 Class A warrants and 228,924 Class B warrants
in connection with the 457,847 shares of common stock issued under the
terms of the 1999 private placement offering. Additionally, the Company
issued 40,000 Class A warrants and 40,000 Class B warrants in
conjunction with the 80,000 shares of common stock issued under another
private placement offering. Each Class A warrant is convertible at $3.50
per share through August 31, 2000, and each Class B warrant is
convertible at $4.50 per share through February 28, 2001. The Company
issued 234,667 Class C warrants during the fiscal year ended March 31,
2000 along with 234,667 shares of common stock under the terms of the
2000 private placement offering. Each Class C warrant is convertible
into one common share at $5.50 per share through August 31, 2001.
NOTE 10 - 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 provisions, the
Company was not allowed a net operating loss carryforward or carryback
as a deduction. Instead, the shareholders included their proportionate
<PAGE> F-16
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 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 taxed as 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 11 - COMMITMENTS
During December 1999 the shareholders elected a new director and the
Company agreed to compensate the director for his services by issuing
24,000 common shares according to a 12-month vesting schedule, or 2,000
shares per month.
NOTE 12 - 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 with an investor to issue up to 5,000
shares of Series A convertible preferred stock together with up to
1,000,000 warrants as a unit for up to $5,000,000. The agreement calls
for the issuance over ten tranches of 500 Series A convertible preferred
stock shares and 100,000 warrants each for $500,000 in cash. Receipt of
the financing is solely at the discretion of the investor and there is
no obligation on the investor to provide the financing.
<PAGE> F-17
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.
The Company issued warrants to purchase 500,000 shares of common stock
at $5.00 per share as a finder's fee and for cash proceeds of $5,000,
in connection with the issuance of the Series A Convertible Preferred
Stock on June 19, 2000. The warrants had a fair value on the grant date
of $819,327 as determined by the Black-Scholes option pricing model with
the following assumptions, risk-free interest rate of 6.56%; expected
dividend yield of 0%; estimated volatility of 125%; and expected life
of two years. The $819,327 fair value of the warrants will be amortized
as an offering cost to each of the ten tranches of Series A Convertible
Preferred Stock contemplated. In the event that the Series A Convertible
Preferred Stock agreement is discontinued prior to all ten tranches being
issued, the remaining unamortized amount of the offering costs will be
recognized as a current expense.
From June 19, 2000 through July 19, 2000, the Company received cash
proceeds of $900,000 net of $100,000 offering costs, in exchange for the
issuance of 1,000 shares of Series A convertible preferred stock and
200,000 warrants. The net proceeds received were allocated between the
Series A convertible preferred stock and the warrants based on the
relative fair value of those instruments with $333,860 allocated
to the warrants, $121,140 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 Preferred Stock -On June 19, 2000, the Company
issued 629 shares of Preferred Series B stock upon the conversion of
$168,000 in notes payable, $442,648 in related party notes payable, and
$18,335 in expense reimbursements.
Issuance of Common Stock -From April to June 2000, the Company issued
203,539 investment units, under the terms of the 2000 Placement, for
cash proceeds of $610,619 or $3.00 per unit. Included as a part of the
2000 Placement, 1,363 units were issued in exchange for securities
available-for-sale with a value of $4,091, or $3.00 per unit. In
fulfilment of subscription agreements under the 1999 Offering, 21,822
units were issued in exchange for securities available-for-sale with a
value of $64,854, or $3.00 per unit.
During June 2000, the Company issued 210,866 units, under the terms of
the 2000 Placement, for subscriptions receivable in the amount of
$632,600, or $3.00 per unit. All funds related to the subscription
receivables were received during July 2000. The 2000 Placement was
closed June 30, 2000.
During June 2000, 6,667 common shares were issued for legal services
with a value of $20,001 and 6,000 common shares were issued to a
director for services provided. The value of these shares was based upon
the value the company received upon the issuance of common shares for
cash in private placements during the weeks surrounding this issuance.
From April through June 2000, the Company issued 6,000 shares to one of
the Company's directors as part of an agreement to compensate the
director for his services by issuing 24,000 shares according to a 12-
month vesting schedule, or 2,000 shares per month.
Related Party Convertible Bridge Loan -On May 8, 2000 an officer and
director advanced $200,000 to the Company to meet current operating
expenses. On July 5, 2000, the entire principal and all accrued interest
was paid to the officer.
Related Party Note Payable -On June 9, 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. A partial payment of $99,999 was made on June
26, 2000 and the remaining balance of $55,001 was paid on July 21, 2000.
<PAGE> F-18
Acquisition of Software License - On July 14, 2000, the Company acquired
a license to bundle a data mining tool with its core software product,
and acquired the source code to the same data mining tool. To acquire
these assets, the Company issued 50,000 shares of common stock, valued
at $150,000, or $3.00 per share, to the owners of Active Views
Acquisition Corporation which held as its sole asset the user license
and agreed to start up a new joint venture subsidiary called Active
Views, Inc. (AVI). For a 75% voting interest (an initial 100% of the
outstanding common shares) in AVI, the Company has committed to fund
$1,200,000 of the operations of AVI by issuing a $1,200,000 demand note
payable to AVI. The developers of the data mining tool contributed the
related source code for 2.5 million convertible preferred shares of AVI,
representing a 25% voting interest in the joint venture subsidiary. The
source code and the minority interest are valued at its historical cost
of zero.
The Company will account for the acquisition as the purchase of software
for sale or lease in the amount of $150,000 and will amortize the
software over a three-year period on a straight-line basis.
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