As filed with the Securities and Exchange Commission on October 17, 2000
Commission File No. 333-44072
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM SB-2/A
AMENDMENT #2 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
e-automate Corporation
(Name of small business issuer in its charter)
Delaware 7373 33-0601502
(State of jurisdiction (Primary Standard Industrial (I.R.S. Employer
of organization) Classification Code or Identification
Number)
831 East 340 South
American Fork, Utah 84003
(801) 492-1705
(Address and telephone number of registrant's principal
executive offices and principal place of business
Lon D. Price, President
831 East 340 South
American Fork, Utah 84003
(801) 492-1705
(Name, address and telephone number of agent for service)
______________________
Copies to:
Randall A. Mackey, Esq.
Dwight B. Williams, Esq.
Mackey Price & Williams
170 South Main Street, Suite 900
Salt Lake City, Utah 84101-1655
Telephone: (801) 575-5000
Approximate date of proposed sale to the public:
As soon as practicable after the Registration Statement
becomes effective.
_______________________
If any of the securities being registered on this Form
are being offered on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933 (the
"Securities Act"), check the following box. [ ]
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under
the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration
statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
maximum Proposed
Title of each class Amount offering maximum Amount of
of securities to to be price per aggregate registration
be registered registered Share(1) offering price(1) fee(3)(4)
------------------------ -------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
Resale of Common Stock 615,385 $5.75 (2) $ 3,538,464 $ 934.16
issuable upon conversion
of Series 2000-A Convertible
Preferred Stock
Resale of Common Stock 125,800 $5.00 (2) $ 624,000 $ 166.06
issuable upon conversion
of Series B Convertible
Preferred Stock
Resale of Series 2000-B 325,000 $5.00 (2) $ - $ -
Warrants
Resale of Common Stock issued 1,000,000 $5.00 (2) $ 5,000,000 $ 1,320.00
on or before July 2, 1999 ----------
Total Registration Fee $ 2,420.22
</TABLE>
(1) Estimated solely for the purpose of determining the
registration fee.
(2) The registrant will receive no proceeds from the sale
of these shares and warrants.
(3) No fees were calculated under Rule 457(c) under the
Securities Act and warrants of 1933.
(4) Fee previously remitted.
The Registration hereby amends this Registration
Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall file a
further amendment which specifically states that this
registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act or until
the Registration Statement shall become effective on such
date as the Commission acting pursuant to said Section
8(a), may determine.
The date of this Prospectus is October 17, 2000.
<PAGE>
e-automate Corporation
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form SB-2 Item No. and Caption Prospectus Caption
------------------------------------------- -------------------
<S> <C> <C>
Item 1. Front of Registration Statement and Outside Outside Front Cover
Front Cover Page of Prospectus
Item 2. Inside Front and Outside Back Cover Pages Inside Front and Outside
of Prospectus Back Cover Pages
Item 3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
Item 4. Use of Proceeds Use of Proceeds
Item 5. Determination of Offering Price Risk Factors
Item 6. Dilution Not Applicable
Item 7. Selling Security Holders Not Applicable
Item 8. Plan of Distribution Outside Front Cover Page;
Plan of Distribution
Item 9. Legal Proceedings Business - Legal Proceedings
Item 10. Directors, Executive Officers, Promoters Management
and Control Persons
Item 11. Security Ownership of Certain Beneficial Principal Shareholders
Owners and Management
Item 12. Description of Securities Outside Front Cover Page; Description
of Securities
Item 13. Interest of Named Experts and Counsel Legal Matters; Experts
Item 14. Disclosure of Commission Position on Description of Securities; Plan of
Indemnification for Securities Act Distribution
Liabilities
Item 15. Organization Within the Last Five Years Certain Transactions
Item 16. Description of Business Business
Item 17. Management's Discussion and Analysis or Management's Discussion and Analysis
Plan of Operation or Plan of Operation
Item 18. Description of Property Business - Properties
Item 19. Certain Relationships and Certain Transactions
Related Transactions
Item 20. Market for Common Equity and Related Price Range of Common Stock and Class
Stockholder Matters A Warrants and Dividend Policy,
Description of Securities
Item 21. Executive Compensation Management - Executive Compensation
Item 22. Financial Statements Financial Statements
Item 23. Changes in and Disagreements with Not Applicable
Accountants on Accounting and
Financial Disclosure
</TABLE>
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<PAGE>
PROSPECTUS
1,741,185 Shares
325,000 Warrants
e-automate Corporation
Common Stock
_____________
e-automate Corporation 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. Our products and
services include an on-line analysis and evaluation of the needs of a small
business and the design and development of automated software solutions to
address those needs. Our mission is focused on "changing the way small
businesses do business.(TM)" "The Way to e-automate Your Business(TM)"is
the process which we market to facilitate profitability and improved
business performance through increased revenue production, cost reduction
and management of cash flow. We rely on Internet technology to reduce the
investment in time and cost to small business owners to learn, evaluate, and
implement our enterprise information systems. Our 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. We utilize a
web-based system for acquisition of new, timely ideas and technology for
improved operations without the costly dependence on business consultants.
Our 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 we design, develop,
market, sell and support client/server products that are cost-effective,
scalable and easy to implement, customize and use. Our client/server
products are optimized for Microsoft technologies, notably Windows NT,
Windows 95, and 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.
We believe that responsive, effective service and technical support are
essential elements of a complete financial management solution. We are
committed to dedicating significant resources to delivering timely, reliable
and cost-effective service to our customers.
The primary purpose of this offering is to register for resale shares of our
Common Stock which are issuable upon the conversion of shares of Series
2000-A and Series B Preferred Stock, as well as to register for resale shares
of our Common Stock issued prior to July 2, 1999, and to register for resale
325,000 of our Series 2000-B Warrants ("Warrants"). We will not receive funds
from the sale of any of these shares or Warrants. We are registering for resale
a total of 1,741,185 shares of Common Stock and a total of 325,000 Series 2000-B
Warrants.
This Prospectus supercedes all prior registrations. Prior to this offering,
there has been no public market for our shares.
Our executive offices and telephone number are:
831 East 340 South
American Fork, Utah 84003
(801) 492-1705
Investing in our Common Stock and Warrants involves a high degree of risk.
You should purchase these securities only if you can afford a complete loss
of your investment.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if
this Prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
THIS PROSPECTUS IS DATED OCTOBER 17, 2000.
-iii-
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. It may
not contain all of the information that is important to you. To
understand this offering fully, you should read the entire prospectus
carefully, including the risk factors and the financial statements.
THE COMPANY
We are 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. Our
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. Our mission is focused on
"changing the way small businesses do business.(TM)" "The Way to
e-automate Your Business(TM)"is the process which we market to facilitate
profitability and improved business performance through increased
revenue production, cost reduction and management of cash flow. We
rely on Internet technology to reduce the investment in time and cost
to small business owners to learn, evaluate, and implement our enterprise
information systems. Our 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. We utilize a web-based system
for acquisition of new, timely ideas and technology for improved
operations without the costly dependence on business consultants. Our
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 we design,
develop, market, sell and support client/server products that are
cost-effective, scalable and easy to implement, customize and use. Our
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.
Our position is that responsive, effective service and technical support
are essential elements of a complete automation solution for addressing
the financial management and operation needs of small businesses. We
are committed to dedicating significant resources to delivering timely,
reliable and cost-effective service to our customers.
PRODUCTS AND SERVICES
Due to the rapid pace of technological change in our industry, we believe
that our future success will depend, in part, on our ability to innovate,
enhance, and develop our software products to achieve satisfactorily the
needs of a dynamic market.
Our e-automate information system is Microsoft(R) Windows(R)-based and
uses Microsoft's powerful SQL (structured query language) Server 7.0 as
its database engine. With the Web flexibility of SQL, a robust automation
plug-in system, powerful reporting via ActiveViews, and substantial new
Web-based commerce tools (coming in the near future), our system offers
significant performance improvement, flexibility, and future scalability
to small businesses, especially when compared with competitive offerings.
Functional areas of our core system currently include general accounting
functions (general ledger, accounts payable, accounts receivable and
cash), sales, purchasing, contact management, point-of-sale, inventory
/warehouse management, and service dispatch management. Full-service
reporting and a solid security system are wrapped around this enterprise
-wide functionality. Version 3.0 of our system, which is due in
September 2000, will provide a leading-edge user interface that
will significantly enhance our marketability and competitive position.
-1-
<PAGE>
SERVICES. We provide associated implementation and conversion services.
After implementation, we provide full support and upgrade services (as
a recurring revenue source), and ongoing training and business
consulting as needed by our clients. We plan to enhance our competitive
advantage with industry-leading automated implementation tools.
AUTOMATION MANAGER. Our e-automate system (version 3.0) will also
support an updated Automation Manager, which allows the system to be
extended with custom Automation Tasks(TM) ("Tasks") that add external
functionality to the system with minimal impact from 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.
We also believe that the Automation Manager technology has substantial
market potential in conjunction with third-party systems.
ACTIVEVIEWS(TM). Our e-automate system (version 3.0) will be able to
interface with our newly acquired ActiveViews web-based reporting tool
to provide a virtually limitless number of custom reports and data
analysis scenarios based on the data collected by the e-automate
information system. The reporting flexibility of ActiveViews, coupled
with its ease of use and integration with Microsoft Office tools,
provides a notable competitive advantage over other small-business
information solutions.
In addition, the ActiveViews reporting technology is designed for rapid
integration with virtually any database system. Because of its robust
engine, scalability, and security model, we plan to market the
ActiveViews product to strategic partners at a number of market levels,
and believe that ActiveViews as a standalone product has substantial
market potential independent of its use in our e-automate information
system.
MARKET ACCEPTANCE
Small business enterprises comprise the fastest growing segment 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. These businesses want to take advantage of the Internet to
compete more aggressively and on a broader scale.
Small businesses often become encumbered with a diverse collection of
non-integrated 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 cost them productivity and efficiency and
usurp valuable economic resources. The e-automate system solves many
of these problems for small businesses.
Our ActiveViews product considerably enhances our market. While
businesses of all sizes have spent billions on information systems
that collect and aggregate data, the dispersal and flexible use of
that data has remained an elusive proposition and has typically required
database specialists and expensive tools. The ActiveViews technology
provides user-friendly access and reporting to any kind of database,
helping organizations extend the use and reach of the data they spend
so much time and money to collect.
-2-
<PAGE>
COMPETITIVE ADVANTAGE
Comprehensiveness. Our 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. This provides a
significant advantage to our clients over a multiple-system environment.
Flexibility. Our e-automate system's Microsoft SQL database, scalable
architecture, and add-ins such as our Automation Manager and ActiveViews
make it technically superior to other enterprise software applications
in the small-business market. Our system can be custom-adapted to a
business's specific needs, including management of future growth and
transition into e-business activities.
Ease-of-use. Because all of our products have been designed with an
emphasis on ease of use, they are more appealing than many competitive
products even those that offer more features.
Time to Market. Many of the software applications in our market segment
are built on outdated technology. In order for these competitors to
modernize these legacy systems, they would need to expend significant
resources in designing a new architecture and at least 18 to 24 months
in development time. The legacy systems of these companies cannot simply
be upgraded to support new technology such modernization would require
them to develop a completely new system using current technology. This
gives our company a significant market advantage.
-3-
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities We are registering the resale 1,741,185 shares of Common Stock,
Offered consisting of the resale of 615,385 shares of Common Stock issuable
upon the exercise of the Series 2000-A Convertible Preferred Stock
(the "Series 2000-A Preferred Stock"); the resale of 125,800 shares
of Common Stock issuable upon the conversion of the Series B Preferred
Stock; and the resale of 1,000,000 shares of Common Stock issued
before July 2, 1999. In addition to the resale of the shares of
common stock, we are registering the resale of 325,000 Series 2000-B
Warrants.
Common Stock 5,842,462 shares.
outstanding
prior to the
offering
Common Stock 6,583,647 shares.
outstanding
after the
offering
(1)
Preferred 2,629 shares.
shares
outstanding
prior to the
offering
(1)
Use of Proceeds We will not receive any proceeds from the conversion of the Series
2000-A or Series 2000-B Preferred Stock or from sale of the shares
of Common Stock issued before July 2, 1999, or from the resale of
Series 2000-B Warrants.
Risk
Factors/Dilution The offering involves a high degree of risk.
</TABLE>
________________________
(1) Assumes the conversion of all the shares of
Series 2000-A Preferred Stock issued and outstanding
into 615,385 shares of Common Stock, and the conversion
of all the shares of Series 2000-B Preferred Stock
issued and outstanding into 125,800 shares of Common Stock.
-4-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY FINANCIAL INFORMATION
-----------------------------
For the For the For the For the
Quarter Quarter Fiscal Year Fiscal Year
Ended Ended Ended Ended
June 30, June 30, March 31, March 31,
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Sales $ 163,816 $ 51,995 $ 259,472 $ 244,801
Costs of sales 180,927 83,149 436,700 90,975
Operating expenses 951,689 654,123 3,035,144 672,261
Operating loss (968,800) (685,277) (3,212,372) (518,435)
Other income (expense) (31,509) (31,283) (84,219) (99,842)
Net loss (1,000,309) (716,560) (3,296,591) (618,277)
Net loss attributable to common shareholders
After non-cash preferred dividend (1,003,069) (716,560) (3,296,591) (618,277)
Net loss per common share $ (0.20) $ (0.23) $ (0.73) $ (0.24)
Shares used in computing net loss per
share 5,136,451 3,069,926 4,491,393 2,570,511
Cash dividends per share None None None None
</TABLE>
<TABLE>
<CAPTION>
As of As of As of
June 30, March 31, March 31,
2000 2000 1999
----------- ----------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Current assets $ 964,162 $ 28,788 $ 5,086
Current liabilities 793,692 1,151,735 632,817
Working capital 170,470 (1,122,947) (627,731)
Total assets 2,097,316 254,497 29,697
Long-term debt, less current portion 40,239 46,045 183,000
Accumulated deficit (5,556,155) (4,553,086) (1,256,495)
Stockholders' equity 1,013,273 (943,283) (786,120)
</TABLE>
RISK FACTORS
Before you invest in our Common Stock or Warrants, you should be
aware that there are various risks, including those described below.
You should consider carefully these risk factors together with all of
the other information included in this Prospectus before you decide to
purchase shares of our Common Stock. No investment should be made by
any person who is not in a position to lose the entire amount of his
investment.
Some of the information in this Prospectus may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
("Securities Act") and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Such statements can be identified by the
use of forward-looking terminology such as "believes," "may," "will,"
"expect," "anticipate," "estimate," "continue" or other similar words or the
negative thereof or other variations thereon or comparable terminology, or
by discussions of strategy that involve risks and uncertainties. These
statements discuss future expectations, contain projections of results of
operations or of financial condition or state other "forward-looking"
information. When considering such forward-looking statements, the investor
should keep in mind the risk factors and other cautionary statements in this
Memorandum. The risk factors and other factors noted throughout this
Memorandum, including certain risks and uncertainties, could cause the
Company's actual results to differ materially from those contained in any
forward-looking statement.
-5-
<PAGE>
LIMITED OPERATING HISTORY.
We commenced operations in 1996 and were reorganized in 1999. Due to
our limited operating history, it is difficult to predict future results of
our operations with any degree of accuracy. Our prospects must be considered
in light of the risks, expenses and difficulties frequently encountered by
businesses in their early stage of development, particularly firms in new
and rapidly evolving markets. Our ability to become profitable largely
depends on our successfully marketing our products and our development of
new products that are responsive to customer requirements on a timely basis.
The problems and expenses frequently encountered in developing new products
and the competitive industry in which we operate will impact whether we are
successful. We may never achieve profitability. Furthermore, we may
encounter substantial delays and unexpected expenses related to research,
development, production, marketing, regulatory matters or other unforeseen
difficulties. To address these risks inherent in development stage
companies, we must respond to market opportunities, competitive
developments, and attract, retain and motivate qualified persons, design and
incorporate progressive technologies, and commercialize products, among
other things. There can be no assurance that we will be successful in
addressing these risks or that we will achieve or sustain profitability.
LIMITED WORKING CAPITAL; ACCUMULATED DEFICIT; ANTICIPATED LOSSES.
Our growth has been limited by lack of working capital. There can be
no assurance that we will ever be able to achieve a significant level of
sales or profitability. We intend to expand our operations substantially
in 2000. Because of the increase in operating expenses caused by this
expansion, operating results may be adversely affected should significant
sales not materialize, whether due to competition or otherwise. As a
result, we believe that prior results of operation are not necessarily
definitive and should not be relied upon as an indication of our future
performance.
Future revenues will depend upon our ability to market our
proprietary technology and develop new applications. Our ability to
generate future revenues will depend on a number of factors, some of which
are beyond our control, including, among others, competition. Because of
the foregoing factors, among others, we are unable to forecast our revenues
or the rate at which we can generate revenues on current products with any
degree of accuracy. There can be no assurance that we will be able to
increase our sales in accordance with internal forecasts or to a level that
meets the expectations of investors. Our ability to become profitable
depends largely on marketing our products successfully and developing new
software that is responsive to customer requirements on a timely basis. The
problems and expenses frequently encountered in developing new products and
the competitive industry in which we operate will impact whether we are
successful. We may never achieve profitability. Furthermore, we may
encounter substantial delays and unexpected expenses related to research,
development, production, marketing, regulatory matters or other unforeseen
difficulties.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING.
Our business is capital intensive. We may require substantial funds
for various reasons, including continuing research and development and sales
and marketing. In the short term, based on past financial needs and on
currently planned programs, we anticipate that the funds generated from
product sales, should be adequate, even if at the minimum level, to satisfy
our capital requirements for approximately eight months. This estimate is
based on certain assumptions and there can be no assurance that our revenue
from product sales will be sufficient to satisfy our capital requirements
for that period. We will still need to seek additional capital, possibly
through public or private sales of our securities, in order to fund our
activities on a long-term basis. Adequate funds may not be available when
needed or on terms acceptable to us. Insufficient funds may require us to
delay, scale back or eliminate certain or all of our research and development
programs or to license third parties to commercialize products or technologies
that we would otherwise seek to develop ourself, which may materially and
adversely affect our continued operations.
SALES OF SUBSTANTIAL NUMBER OF SHARES CURRENTLY AVAILABLE FOR FUTURE SALE
MAY ADVERSELY AFFECT MARKET PRICES.
As of September 30, 2000, we had 5,796,462 shares of Common Stock
outstanding, but we also had up to approximately 5,295,974 shares of Common
Stock reserved in the events of conversion of convertible preferred stock
issued or subject to issuance and the exercise of warrants issued or subject
to issuance without any allowance for additional shares which may be issued
in the event of default of the Series 2000-A Preferred Stock.
Assuming the conversion of all of these securities into Common Stock, and
without any default, we would have approximately 11,092,436 shares of Common
Stock outstanding. Of said shares after conversion, approximately 5,955,759
are subject to resale restrictions and approximately 5,136,677 could be
immediately resold pursuant to this prospectus or pursuant to Rule 144.
Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.
-6-
<PAGE>
REDEEMABLE PREFERRED STOCK ISSUED AS SERIES 2000-A CONVERTIBLE PREFERRED STOCK
On June 19, 2000, we entered into a Securities Purchase Agreement
whereby the purchaser, Aspen Capital Resources, L.L.C. ("Aspen"), purchased
500 shares of Series 2000-A Convertible Preferred Stock ("Series 2000-A
Preferred Stock") for $500,000, less a ten percent (10%) placement fee
payable to Aspen, and Warrants exercisable for the purchase of additional
shares of our Common Stock. The Purchase Agreement also grants to Aspen the
right, but not the obligation, to make subsequent purchases of an additional
4,500 shares of Series 2000-A Preferred Stock with accompanying warrants for
an aggregate amount of $4,500,000. The anticipated monthly closings are to
be for $500,000 each, less a similar 10% placement fee to Aspen. As of
September 15, 2000, we have sold Aspen a total of 2,000 shares of Series
2000-A Preferred Stock and 400,000 Series 2000 A Warrants in exchange for
net proceeds of $1,800,000.
FAILURE TO MEET PUBLIC TRADING DEADLINE FOR SERIES 2000-A PREFERRED STOCK
ENTITLES HOLDERS TO ADDITIONAL SHARES OF COMMON STOCK.
The Securities Purchase Agreement requires that the shares of our
Common Stock into which the Series 2000-A Preferred Stock is convertible be
registered, and that our Common Stock be traded publicly not later than
October 17, 2000. Aspen has not waived this deadline. In the event we fail
to meet these requirements, the holder(s) of the Series 2000-A Preferred
Stock will be entitled to receive an additional number of shares of our
Common Stock equal to 7.0% of the total number of such shares into which
the Series 2000-A Preferred Stock is converted beyond the deadline for
each month or portion thereof that said requirements are not met.
Therefore, in the event we fail to meet these deadlines, substantial
dilution of our shareholders' equity will result.
The Securities Purchase Agreement with Aspen provides that we may be
required to redeem all of the outstanding shares of Series 2000-A Preferred
Stock by paying a sum equal to 125% of the stated value of $1,000 per share,
plus accrued and unpaid dividends and penalties, if any, through the date of
redemption if: (i) we are in default or in breach of any obligation under
the Securities Purchase Agreement; (ii) an event of noncompliance occurs, or
(iii) after the first date upon which our Common Stock is quoted in the
Nasdaq Stock Market System or reported on the NASD's OTC Bulletin Board, the
average of the closing prices for our Common Stock for twenty-two (22)
consecutive trading days, as quoted in the Nasdaq stock market system or
reported on the NASD's OTC Bulletin Board, is less than or equal to $3.25
per share. If we do not make the redemption payment when due, dividends
will accrue on all outstanding Series 2000-A Preferred Stock from and after
the redemption date at twenty-one percent (21%) per annum until paid in full
and the conversion price will be reduced by $1.00 per share.
The Purchase Agreement defines events of noncompliance as: (i) our
failure to pay on any dividend payment date the full amount of dividends
then accrued on our preferred stock; (ii) our failure to make any required
redemption payment; (iii) our failure to perform or observe any material
provision of the Purchase Agreement, where we do not cure it within 15 days
after the occurrence; (iv) any representation or warranty in the Purchase
Agreement or required to be furnished to any holder which we make is false
or misleading in any material respect; (v) we are required to make an
assignment for the benefit of creditors or admit in writing our inability to
pay our debts generally as they become due, or an order, judgment or decree
is entered adjudicating e-automate as bankrupt or insolvent; (vi) if any
material provision of the Purchase Agreement is at any time for any reason
declared to be null and void; (vii)(A) if any registration statement
required to be filed by us and declared effective by the Securities and
Exchange Commission (the "SEC") pursuant to the Purchase Agreement does not
become effective as provided in the Purchase Agreement or shall cease to be
effective, (B) if the SEC issues any stop order suspending the effectiveness
under the Securities Act of any registration statement we are required to
file and declared effective by the SEC pursuant to the Purchase Agreement or
any state securities commission suspends the qualification of the securities
covered thereby for offering for sale in any jurisdiction, (C) if any
proceeding for purposes of either (A) or (B) above is initiated, or (D)
after October 17, 2000, our Common Stock is not quoted or reported on the
Nasdaq Stock Market System or the NASD's OTC Bulletin Board or after
quotation; (viii) if at any time we do not have the required number of
reserved and available authorized but unissued shares of Common Stock required
under the Purchase Agreement; or (ix) the occurrence of any material adverse
change in our business, condition (financial or otherwise), prospects, or
results of operations taken as a whole.
RIGHT OF CONVERSION BY HOLDERS OF SERIES 2000-A PREFERRED STOCK AND
ADJUSTMENT OF CONVERSION PRICE.
The holder(s) of our Series 2000-A Preferred Stock have the right,
but not the obligation, to convert the stated value of the shares and any
accrued and unpaid dividends thereon into fully paid and nonassessable
shares of our Common Stock. The number of resulting common shares is
computed by dividing the stated value of such shares to be converted,
together with any accrued and unpaid dividends thereon, by the conversion
price which is 80% of the average of the three lowest closing bid prices for
the Common Stock quoted on the Nasdaq Stock Market System or reported on the
NASD's OTC Bulletin Board during the 15 trading days preceding the
conversion date. Notwithstanding the formula, a maximum conversion price of
$5.75 per share and a minimum conversion price of $3.25 per share, subject
to adjustment, applies. All remaining shares of Series 2000-A Preferred
Stock to be issued under the Purchase Agreement are convertible upon
issuance. Upon the occurrence of an event of noncompliance (as described
above), the minimum conversion price will not be subject to any
limitations. Notwithstanding the formula, as of September 30, 2000, 2,000
shares of Series 2000-A Preferred Stock were convertible into our Common Stock.
If after June 19, 2000, our Company issues or sells any shares of
Common Stock or grants any rights or options to purchase Common Stock or any
stock or other securities convertible into or exchangeable for Common Stock
or issues or sells any convertible securities, and the price per share for
such Common Stock issuable is less than the fair market value, the
conversion price of the Series 2000-A Preferred Stock must be reduced
according to a formula provided in the Purchase Agreement.
On or after December 19, 2001, we may require the holders of Series
2000-A Preferred Stock to convert all of the shares of Series 2000-A
Preferred Stock then outstanding, if any, into shares of Common Stock.
To the extent that the outstanding shares of Series 2000-A Preferred
Stock are converted into Common Stock, the ownership percentages of other
shareholders may be diluted. If the market value of our Common Stock
decreases significantly, the offering price per share in our private
placements or public offerings as well as the conversion price of some of
our other convertible securities then outstanding, if any, may decrease,
causing dilution of ownership to other stockholders. This occurrence could
also make it significantly more difficult for us to raise additional funding
on favorable terms.
DIVIDENDS TO HOLDERS OF SERIES 2000-A PREFERRED STOCK.
The holder(s) of our Series 2000-A Preferred Stock are entitled to
receive cumulative dividends equal to eight percent (8%) per year and
payable quarterly within five (5) days after the last business day of each
calendar quarter, unless there is an event of noncompliance (as described
above). In the event of noncompliance, the holder(s) of the Series 2000-A
Preferred Stock will be entitled to receive cumulative dividends equal to
21% per annum. The holders of the Series 2000-A Preferred Stock, at their
option, may elect to receive payment of dividends in cash or in shares of
our Common Stock at the Conversion Price. Unless all accrued dividends and
interest on the Series 2000-A Preferred Stock, if any, have been paid in
full, no dividend may be declared or paid on any other shares of our stock
including our common stock.
WARRANT TO HOLDERS OF SERIES 2000-A PREFERRED STOCK.
In connection with each projected monthly closing of the purchase by
Aspen of Series 2000-A Preferred Stock, the Securities Purchase Agreement,
provides for the issuance of Series 2000-A Warrants (the "Warrant"). Each
Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $5.00 per share. If the fair market value of the shares
is less than $5.00 per share at any time during the six months for which
our common shares are quoted, the exercise price must be reduced to $4.00 per
share. The Warrants will become exercisable from May 31, 2001, or earlier upon
the occurrence of an event of default, as defined in the Warrants, or a
change in control of the Company, and may be exercised through May 31, 2004,
provided that at the time of exercise a registration statement relating to
the Common Stock is then in effect and the Common Stock is qualified for
sale or exempt from qualification under applicable state securities laws.
The Warrants are not subject to early redemption by the Company.
In order to prevent dilution of the rights granted under our Warrant
certificates, the initial exercise price for the Warrants and the number of
shares issuable upon exercise of Warrants are subject to adjustment from
time to time.
The exercise of our options, warrants and other convertible
securities outstanding at a given time may have an adverse effect on the
trading price of and market for our Common Stock. We may sell or issue
Common Stock or convertible securities in the future at market prices or at
prices below the then current market price, which issuance may cause
dilution to any other stockholders.
CONVERSION OF OUR CONVERTIBLE SECURITIES MAY DILUTE STOCKHOLDERS.
As of September 30, 2000, we had issued or authorized the issuance of
securities that are convertible or exercisable into approximately 3,012,646
shares of Common Stock. To the extent these convertible securities are
all issued and converted into Common Stock, stockholder interests in us may
be diluted. If the market value of the Common Stock decreases significantly,
the offering price per share in our private placements or public offerings
as well as the conversion price of some of the outstanding convertible
securities, may decrease causing dilution of ownership to other stockholders
and make it significantly more difficult to raise additional funding.
DILUTION OF STOCKHOLDERS DUE TO SALES OF COMMON STOCK AND CONVERSION OF
CONVERTIBLE SECURITIES MAY AFFECT OUR ABILITY TO RAISE ADDITIONAL CAPITAL.
Sales of Common Stock and convertible debentures, and the exercise of
options, warrants and other convertible securities may have an adverse
effect on the trading price of and market for our Common Stock. We may sell
or issue Common Stock or convertible securities in the future at market
prices or at prices below the current market price, which issuance would
cause dilution to stockholders.
UPON COMMENCEMENT OF TRADING, COMMON STOCK PRICE MAY BE VOLATILE.
Our shares are not traded. However, we intend to apply for trading
privileges on the over-the-counter bulletin board or the Nasdaq Small Cap
Market. When traded, the trading price of our Common Stock could be subject
to wide fluctuations in response to variations in operating results,
announcement of technological innovations or new products. In addition, in
recent years the stock market has experienced extreme price and volume
fluctuations that have had a substantial effect on the market prices for
many emerging growth companies, which may be unrelated to the operating
performance of the specific companies.
NO ASSURANCE OF A LIQUID PUBLIC MARKET FOR SECURITIES.
There can be no assurance as to the depth or liquidity of any eventual
market for our Common Stock or the prices at which holders may be able to
sell their shares. As a result, an investment in our Common Stock may not
be liquid, and investors may not be able to liquidate their investment
readily, or at all, when they need or desire to sell.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS.
Our future operating results over both the short term and long term
will be subject to annual and quarterly fluctuations. Our quarterly revenue
and operating results have varied in the past, and may fluctuate in the
future as a result of a variety of factors, many of which are outside of our
control. We established our expenditure levels based on our expectations as
to future revenue, and so, if the revenue level is below expectations in any
given quarter, the adverse impact of the shortfall on our operating results
may be magnified by our inability to adjust spending to compensate for the
shortfall. Therefore, a shortfall in actual as compared to estimated
revenue would have an immediate adverse effect on our business, financial
condition and operating results that could be material. In the future, our
operating results may fluctuate for this reason or as a result of a number
of other factors including the rate at which customers purchase our products
and the prices paid for such products. Additional factors that may affect
our quarterly operating results generally include the amount and timing of
capital expenditures and other costs relating to the expansion of our
business, our introduction of new products or introduction of new products
by our competitors, price competition or changes in the computer hardware,
technical difficulties or general economic conditions and economic
conditions specific to the software industry. A significant portion of our
expenses could be fixed in advance based in large part on future revenue
forecasts.
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Other factors affecting our operating results include: level of
competition; size, timing, cancellation or rescheduling of orders; market
acceptance of new products and product enhancements; new product
announcements or introductions by our competitors; adoption of new
technologies and standards; changes in our pricing structure or in the
pricing structure of our competitors; our ability to develop, introduce and
market new products and product enhancements on a timely basis, if at all;
hardware component costs and availability, particularly with respect to
hardware components obtained from sole or limited source suppliers; our
success in expanding our sales and marketing organization and programs;
technological changes in the market for information systems products; levels
of expenditures on research and development; foreign currency exchange
rates; capital spending patterns of our customers and general economic
trends. In addition, because a high percentage of our operating expenses are
fixed, a small variation in the timing of recognition of revenue can cause
significant variations in operating results from quarter to quarter. We
also plan to increase operating expenses to fund additional sales and
marketing, general and administrative activities and infrastructure. To the
extent that these expenses are not accompanied by an increase in revenues,
our business, operating results and financial condition could be materially
adversely affected. To the extent that we are successful in marketing
products to any single industry, we would be subject to the fluctuations in
the economic conditions of that industry as well. As a result of the
factors discussed above, there can be no assurance that we will be able to
maintain profitability on an annual or quarterly basis.
PRODUCT AND MARKET COMPETITION.
The market for our products is highly competitive and rapidly
changing. Our primary market consists of small businesses. Our current and
prospective competitors offer a variety of solutions for this market. We
experience significant competition and expect substantial additional
competition from established and emerging software companies that offer
products similar to our products and target the same customers as we do. We
believe that we compete on the basis of (i) product features, functionality,
performance and price, (ii) the capacity and capabilities of strategic
partners, (iii) the quality of customer and strategic partner service and
technical support, (iv) direct sales capability via our website; (v) sales
and marketing efforts, (vi) new product and technology introductions, and
(vii) company image and stability. We 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
performance, pricing, timely product shipment, safety, customer support,
convenience of use and general market acceptance.
Certain of our competitors have substantially greater financial,
marketing or technical resources than we do. 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 our products,
that may be offered at substantially lower prices than ours, or that have or
will achieve greater market acceptance than our products. In addition,
there can be no assurance that alternative methods of delivering automation
systems will not provide increased competition.
SALES CYCLE.
Initial sales of our products to a new customer typically involve a
sales cycle, during which we may expend substantial financial resources and
management time and effort with no assurance that a sale will ultimately
result. The length of the sales cycle may vary depending on a number of
factors over which we may have little or no control, including product and
technical requirements, and the level of competition which we may encounter
in our selling activities. Any delays in the sales cycle for new customers
could have a material adverse effect on our business and operating results.
RISKS OF TECHNOLOGICAL CHANGE; PRODUCT DEVELOPMENT RISK.
The market for our products is characterized by rapid technological
advances, evolving industry standards and can be significantly affected by
new product introductions, changing customer requirements and market
activities of industry participants. The life cycles of our products are
difficult to estimate, and our position in the current market could be
undermined by rapid product advances. Our future success will depend, to a
substantial degree, upon our ability to continue to improve the performance,
features and reliability of existing products and successfully develop and
introduce new products with enhanced capabilities that address the
increasingly sophisticated needs of our customers and keep pace with
technological developments and emerging industry standards.
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Even though we have adopted the Internet for marketing and
implementation of our software and consulting services, the emergence of
the Internet as an alternative computing platform and distribution medium
may adversely affect the demand for client/business owner's products and
alter current software utilization, distribution and pricing patterns. There
can be no assurance that we will be able to develop and market new or
enhanced products successfully or to respond effectively to technological
changes or new product announcements by others. Furthermore, we may face
challenges with customers who are slower to adopt new technologies or
otherwise commit resources to convert to a client solution. Any failure on
our part to anticipate or respond adequately to technological developments
and customer requirements, or any significant delays in product development
or introduction, could result in a loss of competitiveness and revenue.
In October 2000, we intend to release a new version of our software
which incorporates new and complex technologies and is expected to be
critical to our business and operating results in future periods. The timing
and success of product development is unpredictable due to the inherent
uncertainty in anticipating technological developments, the need for
coordinated efforts of numerous technical personnel and the difficulties in
identifying and eliminating design flaws prior to product release. Any
significant delay in releasing new products could have a material adverse
effect on the ultimate success of a product and other related products and
could impede continued sales of predecessor products, any of which could
have a material adverse effect on our business and operating results. There
can be no assurance that we will be able to introduce new products on a
timely basis, that our new products will achieve any significant degree of
market acceptance or that any such acceptance will be sustained for any
significant period. Failure of new products to achieve or sustain market
acceptance could have a material adverse effect on our business and
operating results.
The widespread adoption of new technologies or standards would require
substantial expenditures to modify or adapt our products and services and
which could have a material adverse effect on our business, operating
results and financial condition. In addition, our newly introduced products
may contain design flaws or other defects that could have a material adverse
effect on our business, operating results and financial condition.
POTENTIAL OBSOLESCENCE FROM RAPID TECHNOLOGICAL CHANGE.
Our market is subject to rapid technological change. There can be no
assurance that our technology or systems will not become obsolete upon the
introduction of alternative technologies. Development by others of new or
improved products, formulation, processes or technologies may make our
products obsolete or less competitive. Accordingly, we must continue
investing in research and development on our existing products and to
develop new products. Despite such investment, our current or proposed
products may be unsuccessful. If we fail to develop and introduce new
products and services and achieve market acceptance in a timely manner, our
business, financial condition and operating results could be materially and
adversely affected.
DEPENDENCE ON INTRODUCTION OF NEW PRODUCTS.
Delays in the release of new and upgraded versions of our software
products could have a significantly negative impact on our sales and results
of operations. Because of the complexities inherent in developing software
products as sophisticated as those sold by the Company and the lengthy
testing periods associated with such products, no assurance can be given
that our future product introductions will not be delayed. In addition,
complex software programs may contain undetected errors or bugs when they
are first introduced or as new versions are released. There can be no
assurance that errors will not be found in our existing or future products,
with the possible result of delays in or loss of market acceptance of these
products, diversion of our resources, injury to our reputation and increased
service and warranty expenses.
RELIANCE ON MICROSOFT TECHNOLOGY.
Our software products currently are designed to run on Microsoft
operating system technologies, including Windows NT, Windows 95/98 and SQL
Server which are becoming the standard in the business market. In addition,
our products utilize other Microsoft technologies, including Internet
Information Server, FrontPage, Visual Basic, Visual Basic for Applications
and Site Server. Although we believe 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, our strategy will
require that our products and technology adapt and be compatible with new
developments in Microsoft's technology.
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BUSINESS DEVELOPMENT RISKS.
New ventures, particularly those involved in a highly technical
industry such as the software technology industry, have substantial inherent
risks. These risks are in the general, technical and human areas.
Notwithstanding any pre-production planning, new products can incur
unexpected problems, which cannot always be foreseen or accurately
predicted. Quality control and component sourcing failures can also be
expected from time to time. Any business, including ours, is substantially
dependent upon the capabilities and performance of both management and sales
personnel. Mistakes in judgment or performance can be costly and, in
certain instances, disabling. Therefore, management skill, experience,
character and reliability are of significant importance.
NO ASSURANCE OF MARKET ACCEPTANCE.
Our products may not be accepted in the marketplace. Such acceptance
will depend on a number of factors including demonstrating the efficacy and
advantages of our products over those of our current and future competitors.
The market for our products is highly competitive and rapidly changing. Our
primary market consists of a broad spectrum of small businesses. We are not
limited or dependent on a narrow customer base but have the technology and
product flexibility to broaden our market and address the business needs of
a diverse customer base. Nonetheless, we may be unable to market our
products and services successfully even if they perform successfully in
testing.
DEPENDENCE ON PROTECTION OF PROPRIETARY TECHNOLOGY; NO PATENTS.
At the present time we have 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. It is our intention to protect our
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. We rely on a
combination of patent, copyright, trademark and trade secret protection and
non-disclosure agreements to establish and protect our proprietary rights.
There can be no assurance that any of our future patents or trademarks
will not be challenged, invalidated, circumvented or rendered unenforceable,
or that the rights granted thereunder will provide us with significant
proprietary protection or commercial advantage to e-automate. We are not
aware of any infringement of any of our proprietary rights by others.
Although we intend to pursue patent protection of inventions which we
consider important, we do not believe that our patent position has as much
significance as other competitive factors. However, these patents may not
preclude competitors from developing equivalent or superior products and
technology to those of the Company. There can be no assurance that the
measures adopted by the Company for the protection of its intellectual
property will be adequate to protect its interests.
We also rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain our
competitive position. There can be no assurance that others will not
independently develop substantially equivalent proprietary information or
otherwise gain access to or disclose such information belonging to e-automate.
It is our policy to require our employees, certain contractors,
consultants, directors and parties to collaborative agreements to execute
confidentiality agreements upon the commencement of such relationships with
us. There can be no assurance that these agreements will not be breached,
that they will provide meaningful protection of our trade secrets or
adequate remedies in the event of unauthorized use or disclosure of such
information, or that our trade secrets will not otherwise become known or be
independently discovered by our competitors.
Our commercial success will also depend, in part, on not infringing
the proprietary rights of others and not breaching technology licenses that
cover technology used in our products. 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.
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It is uncertain whether any third-party patents will require the
Company to develop alternative technology or to alter its products or
processes, obtain licenses, or cease certain activities. If any such
licenses are required, there can be no assurance that we will be able to
obtain such licenses on commercially favorable terms, if at all. Our
failure to obtain a license to any technology that we may require to
commercialize our products and services could have a material adverse effect
resulting in potential claims or litigation, which could result in
substantial cost to us, may also be necessary to enforce any patents issued
or licensed to the Company or to determine the scope and validity of third
party proprietary rights.
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 we will
develop proprietary products or technologies that are patentable, 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 our business.
LIMITED INTELLECTUAL PROPERTY; LICENSING; AND PROPRIETARY RIGHTS.
Under most of our contracts, we regard our software as proprietary, in
that title to and ownership of our software generally reside 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, we have no patents, as noted above. The Company
attempts to protect its rights with a combination of copyright and trade
secret laws, and employee and third party nondisclosure 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 the Company regards as proprietary, such as source
codes or programming techniques that generate high quality performance on
low end platforms.
RISK OF INFRINGEMENT CLAIMS.
Although we have never been the subject of a material intellectual
property dispute, there can be no assurance that a third party will not
assert that our technology violates its intellectual property rights in the
future. As the number of software products in our target market increases
and the functionality of these products further overlap, we believe that
software developers may become increasingly subject to infringement claims.
Any such claims, including litigation, whether with or without merit, could
be time consuming and expensive to defend. There can be no assurance that
third parties will not assert infringement claims against us in the future
with respect to our current or future products or that any such assertion
will not require us to enter into royalty arrangements or litigation that
could be costly. Any litigation could also divert the efforts of our
technical and management personnel, whether or not the litigation is
determined in our favor. In addition, we may not be able to develop, license
or acquire non-infringing technology under reasonable terms. These
developments could result in an inability to compete for customers or could
adversely affect our ability to increase our earnings.
PRODUCT LIABILITY AND POSSIBLE INSUFFICIENCY OF INSURANCE.
The nature of our business exposes us to risk from product liability
claims and there can be no assurance that we can avoid significant product
liability exposure. Our license agreements with our customers typically
contain provisions designed to limit our exposure to potential product
liability claims. We maintain product liability insurance providing
coverage up to $1,000,000 per claim with an aggregate policy limit of
$2,000,000. There is substantial doubt that this amount of insurance would
be adequate to cover liabilities should we face significant claims. A
successful products liability claim brought against us could have a material
adverse effect on our business, operating results and financial condition.
Further, product liability insurance is becoming increasingly expensive, and
there can be no assurance that we will successfully maintain adequate
product liability insurance at acceptable rates, or at all. Should we be
unable to maintain adequate product liability insurance, our ability to
market our products would be significantly impaired. Any losses that we may
suffer from future liability claims or a voluntary or involuntary recall of
our products and the damage that any product liability litigation or
voluntary or involuntary recall may do to the reputation and marketability
of our products would have a material adverse effect on our business,
operating results and financial condition.
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DEPENDENCE ON KEY PERSONNEL.
Our future success depends to a significant extent on our executive
officers and certain technical, managerial, sales and marketing personnel.
The loss of the services of one or more of these key individuals might
impede the achievement of our business objectives. In addition, such loss
could have a material adverse effect on the development and sale of
proprietary technology, the results of operations, and our financial
condition.
We are especially dependent upon the efforts and abilities of certain
of our senior management, particularly, Russ Riggins Chairman of the Board;
Lon D. Price, President and Chief Executive Officer; and Brad Sorensen,
Vice President of Software Engineering. The loss of any of our key
executives could have a material adverse effect on us and our operations and
prospects, although the loss of Brad Sorensen could have a more significant
adverse effect. We do not have employment contracts with any of our senior
management. Instead, our employment relationships are at-will, which means
we may generally terminate any employee upon reasonable notice. At the
present time we have no key man insurance coverage on any of our key personnel.
Competition for qualified personnel in the software industry is
intense. Recruiting and retaining qualified technical personnel to perform
research, development and technical support work is critical to our success.
If our business grows, we will also need to recruit a significant number of
management, technical and other personnel for such business. Although we
believe that we will be successful in attracting and retaining skilled and
experienced personnel, there can be no assurance that we will be able to
continue to attract and retain such personnel on acceptable terms.
ADVERSE EFFECTS OF BOARD OF DIRECTOR CONTROL OF PREFERRED STOCK.
Our Certificate of Incorporation authorizes the issuance of shares of
"blank check" preferred stock, which can have such designations, rights and
preferences as may be determined from time to time by the Board of
Directors. Accordingly, our Board of Directors is empowered, without
stockholder approval (but subject to applicable government regulatory
restrictions), to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting
power or other rights of the holders of our Common Stock. Those terms and
conditions may include preferences on an equal or prior rank to existing
series of Preferred Stock. Those shares may be issued on such terms and for
such consideration as the Board then deems reasonable and such stock shall
then rank equally in all aspects of the series and on the preferences and
conditions so provided, regardless of when issued. In the event of such
issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change
in our corporate control.
LIMITED LIABILITY FOR OFFICERS AND DIRECTORS AND INDEMNIFICATION MATTERS.
Our Certificate of Incorporation and Bylaws eliminate in certain
circumstances the liability of directors and officers for monetary damages
for breach of their fiduciary duties. Delaware law permits a corporation to
enter into indemnification agreements under which it may indemnify its
officers and directors against expenses, including reasonable attorneys'
fees, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred in connection with any civil or criminal action or
administrative proceeding arising out of the person's performance of his
duties as a director or officer, other than an action instituted by the
director or officer. The indemnification agreements could also require that
we indemnify the director or other party thereto in all case to the fullest
extent permitted by applicable law. Such agreements could permit the
director or officer that were party thereto to bring suit to seek recovery
of amounts due under the agreement and to recover the expenses of such a
suit if he or she were successful. We presently do not have indemnification
agreements but may enter into such agreements in the future.
MANAGEMENT OF GROWTH.
Our growth has resulted in an increase in responsibilities placed upon
our management and has placed added pressures on our operating and other
systems. In order to manage our growth effectively, we will be required to
continue to implement additional systems and controls, and to expand, train
and manage our employee base. There can be no assurance that the management
skills and systems currently in place will be adequate if we continue to
grow, or that we will be able to implement additional systems successfully
and in a timely manner as required. In addition, we may, from time to time,
seek acquisitions of businesses, products and technologies that are
complementary to those we already have, or that will allow us to enter new
markets. Any such acquisition would place additional strains upon our
management resources.
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RISKS ASSOCIATED WITH ENTRY INTO NEW BUSINESS AREAS.
We will choose to expand our operations by developing new business
alliances, promoting new or complementary products or sales formats,
expanding the breadth and depth of products and services offered, or
expanding our market presence through relationships with third parties. In
addition, we may pursue the acquisition of new or complementary businesses,
or technologies.
NO INTERNATIONAL SALES AND OPERATIONS.
We currently promote our products and services only in North America.
In the future, we expect to expand into international markets. Our future
international business may be affected by such factors as local economic and
market conditions, political and economic instability, greater difficulty in
administering operations, difficulties in enforcing intellectual property
and contractual rights, difficulties in tailoring our software products to
fit local accounting principles, rules, regulations, language, tax codes and
customs, fluctuations in currency exchange rates and the need for compliance
with a wide variety of foreign and United States export regulations. There
can be no assurance that one or more of these factors will not have a
material adverse effect on our future international operations and,
consequently, our business, results of operations and financial condition.
INTELLECTUAL PROPERTY; LICENSING AND PROPRIETARY RIGHTS.
We seek to protect our software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. We generally enter 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"(TM); "automating the way businesses do business"(TM); "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 we have 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 we will develop proprietary products or technologies that are
eligible for patents, that any issued patent will provide us 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 our
business.
Under most of our contracts, we regard our software as proprietary,
because we generally have title to and ownership of our software.
Beginning with our release of our new version, we will grant nonexclusive
licenses to customers for software developed by us. Like many software
firms, we have no patents. 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.
Version 3.0 was released during September 2000. Our future
versions of e-automate software are in the technical design phase. We
anticipate the release of this software within 12 to 18 months.
-13-
<PAGE>
CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING.
We intend to continue the development, deployment and
commercialization of our products and services. The timing and amount of
capital expenditures may vary significantly depending on numerous factors
including market acceptance of our services, availability and financial
terms of site agreements for our network infrastructure, technological
feasibility, and availability of sufficient management, technical, marketing
and financial resources.
We will need to raise additional funds through the sale of equity or
debt securities in private or public financing or through strategic
partnerships in order to complete the deployment and commercialization of
our products. There can be no assurance that such funds will be sufficient
to fund such deployment as planned.
In addition, we can provide no assurance that additional financing
will be available or that, if available, such funding can be obtained on
terms favorable to our Company. Should we be unable to obtain additional
financing, we may be required to scale back the planned deployment of our
services and reduce capital expenditures, which would have a materially
adverse effect on our business, financial condition and operating results.
NO DIVIDENDS ON COMMON STOCK.
We have not paid any cash dividends on our Common Stock and do not
expect to declare or pay any cash or other dividends in the foreseeable
future so that we may reinvest earnings, if any, into the development of the
business. The holders of our Series 2000-A Preferred Stock, and our Series
B Convertible Preferred Stock ("Series B Preferred Stock") are entitled to
cumulative cash dividends paid out of surplus earnings.
DILUTIONARY POSSIBILITIES.
The Board of Directors has the inherent right under applicable
Delaware law, for whatever value the Board deems adequate, to issue
additional shares of Common Stock up to the limit of shares authorized by
our Certificate of Incorporation, and, upon such issuance, all holders of
shares of Common Stock, regardless of when issued, thereafter generally rank
equally in all aspects of that class of stock, regardless of when issued.
The Board of Directors likewise has the inherent right, limited only by
applicable Delaware law and provisions of the Certificate of Incorporation
to increase the number of shares of Preferred Stock in a series, to create a
new series of Preferred Stock and to establish preferences and all other
terms and conditions in regard to such newly-created series. Any of those
actions will dilute the holders of Common Stock and also affect the relative
position of the holders of any series of any class. Current stockholders
have no rights to prohibit such issuances nor inherent "preemptive" rights
to purchase any such stock when offered.
-14-
<PAGE>
FORWARD LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. This information
can be identified by the use of "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements are based
on our beliefs and the assumptions we made using information currently
available to us. When considering these forward-looking statements, you
should keep in mind the risk factors and other cautionary statements in this
prospectus. These statements are subject to known and unknown risks,
uncertainties and other factors that could cause our actual results to
differ materially from those contemplated by the statements.
USE OF PROCEEDS
The primary objective of this offering is to register for resale shares
of our Common Stock which are issuable upon the conversion of shares of
Series 2000-A and Series B Preferred Stock as well as to register for resale
shares of our Common Stock issued prior to July 2, 1999, and the resale of
Series 2000-A Warrants.
There has been no public market for our shares. We will not receive
any proceeds from the issuance of shares of Common Stock upon conversion of
the Series 2000-A or Series B Preferred Stock or from the resale by holders
of shares of Common Stock issued prior to July 2, 1999. Furthermore,
although we are registering the Series 2000-B Warrants we are not registering
the underlying shares of Common Stock. Therefore, there is no assurance that
any of these Warrants will be exercised and consequently, we do not expect to
receive any proceeds from this offering.
CAPITALIZATION
On September 15, 2000, we closed on the fourth tranche of a financing,
whereby we received $500,000, less a $50,000 placement fee, pursuant to a
Securities Purchase Agreement, dated June 19, 2000. Under the terms of the
financing, Aspen Capital Resources, LLC initially provided us, on June 19,
2000, with proceeds of $500,000, less a $50,000 placement fee and other
offering and registration costs which we must cover approximately $131,932,
in exchange for the issuance of 500 shares of Series A Preferred Stock and
Series 2000-A Warrants exercisable for 100,000 shares of our Common Stock
for a four-year period as further described below.
Through September 15, 2000, we have received on a total of 1,800,000 (net
of placement fees) in exchange for 2000 shares of our Series 2000-A Preferred
Stock and Series 2000-A Warrants, to purchase 400,000 shares of our Common
Stock.
The following table sets forth the capitalization of the Company at
June 30, 2000:
- on an actual basis
- on a proforma basis to reflect the issuance of 50,000 shares of
Common Stock for a software license, 40,000 shares of Common Stock
for acquisition of a competitor's customer base and to reflect
proceeds from issuance on July 19, 2000, August 18, 2000, and
September 15, 2000, an aggregate of a total of 1,500 shares of
Series 2000-A Preferred Stock and Warrants to purchase 300,000
shares of Common Stock from $4.00 to $5.00 per share for net
proceeds of $1,350,000.
-15-
<PAGE>
<TABLE>
<CAPTION>
As of March 31, 2000
--------------------
Actual Pro Forma
----------- -----------
<S> <C> <C>
Notes payable related party, notes payable -
current portion and obligation under capital
leases - current portion $ 319,615 $ 319,615
=========== ===========
Long-term notes payable and obligations under
capital leases $ 40,239 $ 40,239
----------- -----------
Redeemable Series 2000-A Preferred Stock, $0.001
par value; 5,500 shares authorized; 500
shares outstanding (actual) and 1,000 (pro forma) 250,112 1,000,448
----------- -----------
Stockholders' equity:
Series B Preferred Stock, $0.001 par value;
1,000 shares authorized; 629 shares
outstanding (actual and pro forma) 628,983 628,983
Undesignated preferred stock, $0.001 par value;
993,500 shares authorized; no shares outstanding
(actual and pro forma) - -
Common stock, $0.001 par value; 20,000,000 shares
authorized; 5,746,438 shares outstanding
(actual) and 5,796,438 (pro forma) 5,746 5,836
Additional paid-in capital 6,076,076 6,699,851
Unearned compensation (141,377) (141,377)
Deficit accumulated during the development stage (5,556,155) (5,556,155)
----------- -----------
Total stockholders' equity 1,013,273 1,281,228
----------- -----------
Total Capitalization $ 1,303,624 $ 1,821,691
=========== ===========
</TABLE>
-------------
(1) Does not include any shares of Common Stock which may be issued pursuant
to the exercise of stock options or warrants that are not owed by
Aspen Capital Resources.
-17-
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth the Company's selected historical
financial data for the three months ended June 30, 2000, and 1999 and for the
years ended March 31, 2000, and 1999. The selected financial data is derived
from the consolidated financial statements of the Company presented elsewhere
and should be read in conjunction with those consolidated financial statements
and the accompanying notes to the consolidated financial statements.
<TABLE>
<CAPTION>
For the For the For the For the
Quarter Quarter Year Year
Ended Ended Ended Ended
June 30, June 30, March 31, March 31,
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Sales $ 163,816 $ 51,995 $ 259,472 $ 244,801
Costs of sales 180,927 83,149 436,700 90,975
Operating expenses 951,689 654,123 3,035,144 672,261
Operating loss (968,800) (685,277) (3,212,372) (518,435)
Other income (expense) (31,509) (31,283) (84,219) (99,842)
Net loss (1,000,309) (716,560) (3,296,591) (618,277)
Net loss attributable to common shareholders
After non-cash preferred dividend (1,003,069) (716,560) (3,296,591) (618,277)
Net loss per common share $ (0.20) $ (0.23) $ (0.73) $ (0.24)
Shares used in computing net loss per share 5,136,451 3,069,926 4,491,393 2,570,511
Cash dividends per share None None None None
</TABLE>
<TABLE>
<CAPTION>
As of As of As of
June 30, March 31, March 31,
2000 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
Balance Sheet Data:
Current assets $ 964,162 $ 28,788 $ 5,086
Current liabilities 793,692 1,151,735 632,817
Working capital 170,470 (1,122,947) (627,731)
Total assets 2,097,316 254,497 29,697
Long-term debt, less current portion 40,239 46,045 183,000
Accumulated deficit (5,556,155) (4,553,086) (1,256,495)
Stockholders' equity 1,013,273 (943,283) (786,120)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PLAN OF OPERATION
GENERAL
RESULTS OF OPERATIONS
Comparison of Quarters Ended June 30, 2000, and 1999.
GROSS REVENUE
For the quarter ended June 30, 2000, our total gross revenue was
$163,816 compared to $51,995 for the quarter ended June 30, 1999, an
increase of 111,821. The major portion of the increase can be
attributed to increased sales efforts in the Company's market niche.
Through the first three months of this fiscal year, we hired additional
sales staff.
GROSS PROFIT (LOSS)
Our cost of license revenues include the cost of manuals and product
documentation, production media used to deliver our products, and packaging
costs. Our cost of support and services revenues includes salaries and
related expenses for the customer support, implementation and training
services and an allocation of overhead expenses.
We experienced a gross loss for the quarter ended June 30, 2000, of
$17,111 compared to gross loss of $31,154 for the quarter ended June 30,
1999. The increase, or reduction in the gross loss, can be attributed to an
increase in automation processes for the implementation of e-automate
software. The automation has reduced the cost of implementation and
therefore decreased the gross loss of the Company.
COSTS AND EXPENSES
OPERATING EXPENSES
Our operating expenses are classified as sales and marketing,
research and development, and general and administrative. We classify all
charges to these operating expense categories based on the nature of the
expenditures. Although each category includes expenses that are unique to
the category type, there are common recurring expenditures that are
typically included in all operating expense categories, including salaries,
employee benefits, incentive compensation, bonuses, travel costs,
professional fees, telephone, communication, rent, and allocated facilities
costs. The sales and marketing category of operating expenses includes
additional expenditures specific to the sales group, such as commissions,
and expenditures specific to the marketing group, including public relations
and advertising, trade shows and marketing collateral materials. In the
development of enhancements of existing products, the technological
feasibility of the software is not established until substantially all
product development is complete. Historically, software development costs
eligible for capitalization have been insignificant, and we have expensed
all costs related to internal research and development as we have incurred
them.
We anticipate that our operating expenses will increase
substantially as we intend to continue to incur higher research and
development costs and invest heavily in the expansion of our sales,
marketing, and support organizations to build an infrastructure to support
our long-term growth strategy. The number of our full-time employees
increased from 20 as of June 30, 1999, to 57 full-time employees and four
part-time employees as of June 30, 2000. We will seek to hire additional
employees in the future. To achieve profitability, we will have to increase
our total revenues significantly.
The following paragraphs give a comparison of the period ending June
30, 2000, to the previous period ending June 30, 1999. However, in view of
our limited operating history, we believe that period-to-period comparisons
of our revenues and operating expenses are not necessarily meaningful and
should not be relied upon as indicative of future performance. Our
prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in early stages of
development, particularly companies in new and rapidly evolving markets.
Total operating expenses increased, from the quarter ended June 30,
1999, to the quarter ending June 30, 2000, a total of $297,566. Operating
expenses totaled $654,123 for the quarter ended June 30, 1999, compared to a
total of $951,689 for the quarter ended June 30, 2000. The following
paragraphs detail the specific changes that created the increase in
operating expenses.
General and administrative expenses for the quarter ending June 30,
2000, were $345,486 compared to $457,477 for the same quarter of the
previous year, a decrease of $111,991. The reason for the decrease in
general and administrative expenses is due to certain sales/marketing and
development expenses allocated to their appropriate departments and
employees.
-18-
<PAGE>
Research and development expenses increased a total of $230,342 from
a June 30, 1999, total of $113,429 to the current quarter total of $343,771.
The increase in our research and development expenditure is largely due to
two specific development projects. We have developed an upgrade to its
existing software package to be introduced in August of this year. In
addition, we have been developing a product for Toshiba Corporation since
March of this year. We have completed phase one of the development process,
and have one more phase to complete. Phase two of this project will begin
in the second fiscal quarter of this year.
Selling and marketing expenses for the quarter ending June 30, 1999,
were $83,217 and increased for the period ending June 30, 2000, to $262,432.
The increase of $179,215 represents our increased effort in marketing our
software package through attendance at various tradeshows and direct
selling.
NET LOSS
Our net loss for the quarter ending June 30, 2000, was $1,000,309,
an increase of $283,749, when compared to the loss for the quarter ended
June 30, 1999, of $716,560.
LIQUIDITY AND CAPITAL RESOURCES
We are currently unable to finance our operations from operating
activities, and historically we have relied on loans, equity instruments,
and private placements from both insiders and outside investors. We
continue to finance our operations through the net proceeds from private
placements of equity instruments.
At June 30, 2000, we had current assets of $964,162 and current
liabilities of $793,692 resulting in net working capital of $170,470 and a
current ratio of 1.21. This is an increase of $1,293,417 from our working
capital of ($1,122,947) as of March 31, 2000. During the three-month
period, from March 31, 2000, to June 30, 2000, the Company converted
approximately $628,983 of debt into Series 2000-B Preferred Stock, and used
net proceeds from a private placement to fund current operations and pay
down certain liabilities. Our total liabilities as of June 30, 2000, were
$833,931, a decrease of $363,849 when compared to total liabilities of
$1,197,780 as of March 31, 2000.
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.
-19-
<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.
-20-
<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
Stock 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.
-21-
<PAGE>
INFLATION
We do not expect the impact of inflation on operations to be
significant.
YEAR 2000
We had developed plans to address the possible exposures related to
the impact on our computer systems for the Year 2000. Since entering the
Year 2000, we have not experienced any major disruptions to our business,
nor are we aware of any significant Year 2000 related disruptions impacting
our customers and suppliers. Furthermore, we did not experience any
material impact on business at calendar year end. We will continue to
monitor our critical systems over the next several months but do not
anticipate any significant impacts due to Year 2000 exposures from our
internal systems as well as from the activities of our suppliers and
customers.
FORWARD-LOOKING STATEMENTS.
When used in this SB-2 and in other filings by e-automate with the
Securities and Exchange Commission ("SEC"), in our press releases or in
other public or stockholder communications or oral statements made with the
approval of any of our authorized executive officers, the words or phrases
"would be," "will allow," "intends to," "believes," "plans," "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"project," or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. These statements are based on our beliefs and the assumptions
we made using information currently available to us. We caution readers not
to place undue reliance on any forward-looking statements, which speak only
as of the date made, are based on certain assumptions and expectations which
may or may not be valid or actually occur, and which involve risks of
product demand, market acceptance, economic conditions, competitive products
and pricing, difficulties in product development, commercialization, and
technology, and other risks. In addition, sales and other revenues may not
commence and/or continue as anticipated due to delays or otherwise. As a
result, our actual results for future periods could differ materially from
those anticipated or projected.
-22-
<PAGE>
We do not intend to update the forward looking statements contained
in this report, except as may occur as part of our ongoing periodic reports
filed with the Securities and Exchange Commission.
DESCRIPTION OF OUR BUSINESS
GENERAL
Whenever in this discussion the term "Company," "Our," or "We" is
used, it should be understood to refer to e-automate Corporation and its
subsidiaries ("e-automate") except where the context clearly indicates
otherwise.
e-automate Corporation is a development stage company engaged in the
development and marketing of electronic information systems and associated
consulting services to various segments in the small business market. Our
products and services include an analysis and evaluation of a small
business's needs, and the implementation of our automated software solutions
to address those needs. Our mission is to "let your system do it for you,"
and our products and services are designed to automate essential business
functions, facilitate improvement in ongoing business performance, and
enhance the strategic value of financial information. We rely on Internet
technology to reduce the investment in time and cost to small business
owners to learn, evaluate, implement, and use e-automate's enterprise
information systems.
To meet the needs of the small business market we design, develop,
market, sell and support both client/server and web-based products that are
cost-effective, scalable and easy to implement and use. Our client/server
products are optimized for Microsoft technologies, notably Windows NT,
Windows 98, and Windows 2000, which are 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.
We believe that responsive, effective service and technical support
are essential elements of a complete financial management solution. We are
committed to dedicating significant resources and technology to delivering
timely, reliable and cost-effective service to our customers.
BACKGROUND
Our business originated in 1995 as Rick Stout and
Todd Hardman began development of a software product targeted at
copier sales and service providers. A customer provided initial start up
funds of approximately $30,000 as a prepayment for the first copy of the
software product and a license limited to his use in his business. The
customer also agreed to act as a beta test site for the software. On
February 27, 1996, Rick Stout and Todd Hardman incorporated their software
development business under the name of Aureus Corporation, a Utah
corporation ("Aureus").
On July 2, 1999, pursuant to an Agreement and Plan of
Reorganization, Aureus entered into a merger intended to qualify as a
tax-free reorganization with Woodlake Village Associates, Inc. ("Woodlake"),
a Delaware corporation formed on June 12, 1992. 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 Woodlake Common Stock. As
part of the reorganization, Woodlake changed its name to Aureus Corporation,
which subsequently changed its name to e-automate Corporation on August 20,
1999.
Pursuant to the reorganization of Woodlake, we 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 was 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).
On July 14, 2000, we invested an aggregate amount of $150,000 in a
software license and source code for the Active Views technology. We
issued 50,000 shares of our Common Stock, valued at $150,000, or $3.00 per
share, to Eric Meyers and Aaron Meyers, the developers of the data mining
tool known as ActiveViews, for the software license. We started a new joint
venture subsidiary called ActiveViews, Inc. (AVI) which will market the
technology. Eric Meyers and Aaron Meyers contributed the source code for a
25% voting interest in AVI. The license allows us to bundle Active Views
with our core software product. The ownership of the source code allows us
to market ActiveViews as a standalone product.
-23-
<PAGE>
On September 13, 2000, we purchased certain assets from Core
Software, Inc., including all of the software, documentation, source
code, copyrights, patents and trademarks, and all existing contracts
associated with a competitive software package called Fastrak. The
current Fastrak system is deployed at more than 200 small businesses
across the United States, with a few international installations. The
purchase of $200,000 in cash and 40,000 shares of our Common Stock
expands our total client base to more than 300 sites, with over
2,500 user licenses.
OVERVIEW
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,
which help companies maximize business-to-business and business-to-consumer
relationships.
Our mission is to assist small businesses to accomplish more, and to
operate more effectively, by optimizing the way they use their technology.
We currently offer a sophisticated small-business ERP system to a number of
vertical segments in the rapidly expanding small-business market. These
systems are designed to automate essential business functions and provide
unprecedented flexibility in information access. The results to our
customers are improved business performance and profitability through
increased revenue production, cost reduction, and management of cash flow.
Our leading-edge products for small business, coupled with rapid
implementation and low conversion costs, position us for substantial future
growth. We plan to capitalize on these advantages in order to rapidly
dominate a number of vertical business segments.
In addition, our new ActiveViews technology is designed to provide
improved business performance through significantly enhanced access to and
analysis of the vast data resources of a given enterprise. We plan to
identify and license ActiveViews to partners who are positioned to rapidly
penetrate information system markets at all levels.
PRODUCTS AND SERVICES.
Due to the rapid pace of technological change in our industry, we
believe that our future success will depend, in part, on our ability to
innovate, enhance, and develop our software products to achieve
satisfactorily the needs of a dynamic market.
Our e-automate information system is Microsoft(R) Windows(R)-based
and uses Microsoft's powerful SQL (structured query language) Server 7.0 as
its database engine. With the Web flexibility of SQL, a robust automation
plug-in system, powerful reporting via ActiveViews, and substantial new
Web-based commerce tools (coming in the near future), our system offers
significant performance improvement, flexibility, and future scalability to
small businesses, especially when compared with competitive offerings.
Functional areas of our core system currently include general
accounting functions (general ledger, accounts payable, accounts receivable
and cash), sales, purchasing, contact management, point-of-sale,
inventory/warehouse management, and service dispatch management.
Full-service reporting and a solid security system are wrapped around this
enterprise-wide functionality. Version 3.0 of our system, which is due in
September, 2000, will provide a leading-edge user interface that will
significantly enhance our marketability and competitive position.
SERVICES. We provide associated implementation and conversion
services. After implementation, we provide full support and upgrade
services (as a recurring revenue source), and ongoing training and business
consulting as needed by our clients. We plan to enhance our competitive
advantage with industry-leading automated implementation tools.
AUTOMATION MANAGER. Our e-automate system (version 3.0) will also
support an updated Automation Manager, which allows the system to be
extended with custom Automation Tasks(TM) ("Tasks") that add external
functionality to the system with minimal impact from 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.
We also believe that the Automation Manager technology has
substantial market potential in conjunction with third-party systems.
ACTIVEVIEWS(TM). Our e-automate system (version 3.0) will be able to
interface with our newly acquired ActiveViews web-based reporting tool to
provide a virtually limitless number of custom reports and data analysis
scenarios based on the data collected by the e-automate information system.
The reporting flexibility of ActiveViews, coupled with its ease of use and
integration with Microsoft Office tools, provides a notable competitive
advantage over other small-business information solutions.
In addition, the ActiveViews reporting technology is designed for
rapid integration with virtually any database system. Because of its robust
engine, scalability, and security model, we plan to market the ActiveViews
product to strategic partners at a number of market levels, and believe that
ActiveViews as a standalone product has substantial market potential
independent of its use in our e-automate information system.
MARKETING AND SALES
Our target market is primarily small businesses, with the exception
of selected large-market partners for the ActiveViews product and specific
vertical market manufacturers. Our objective is to develop and provide
unique products on a "first to market" and "meet the market need" basis.
Currently, we generate sales of the e-automate information system
through various vertically specific marketing activities coupled with
dedicated in-house direct sales staff. We are complementing our direct
sales staff with vertical-specialist resellers in selected markets. Each
sale includes software licenses and associated services. We require our new
customers to participate in our ongoing support and maintenance services,
which are billed monthly or annually on a recurring basis. In addition, we
independently market and sell our ActiveView product on a partnership level,
involving in-house business development staff. Licensing of the product to
partners will likely occur on an ongoing royalty basis.
CURRENT MARKET ACCEPTANCE AND POTENTIAL. Small business enterprises
comprise the fastest growing segment 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. These businesses want to take advantage of
the Internet to compete more aggressively and on a broader scale.
Small businesses often become encumbered with a diverse collection of
non-integrated 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 cost them productivity and efficiency as well as
usurp valuable economic resources. The e-automate system solves many of
these problems for small businesses.
Our ActiveViews product considerably enhances our market. While
businesses of all sizes have spent billions on information systems that
collect and aggregate data, the dispersal and flexible use of that data
remains an elusive proposition and has typically required database
specialists and expensive tools. The ActiveViews technology provides
user-friendly access and reporting to any kind of database, helping
organizations extend the use and reach of the data they spend so much time
and money to collect.
PRODUCT SERVICE AND SUPPORT.
All service and support for our products are overseen from our
American Fork, Utah headquarters. We plan to expand service offerings to
include licensed regional contract partners for greater reach and cost
efficiency in delivering training and other consulting.
SOURCES AND NAMES OF SUPPLIERS.
Our software products currently are designed to run on Microsoft(R)
operating system technologies, including Windows(R) NT, Windows 95, Windows
98, Windows 2000 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
and Visual Basic Internet web browsers.
RESEARCH AND DEVELOPMENT.
We use state-of-the-art software architecture and design approaches
in our system. Our software is evolving dynamically and we intend to
innovate continually by using the latest technology to respond to customer
requirements. We are currently in the process of producing Version 3.0 of
our software, which is an upgraded version of our system. Version 3.0 uses
the most current technology and is more "user-friendly" and intuitive to
operate. Version 3.0 was released during September 2000. Our future
versions are in the technical design phase and we anticipate the release
of this software within 12 to 18 months.
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<PAGE>
In addition, we are actively researching and developing our
Automation Manager and ActiveViews technologies, for sale and use both with
our e-automate system and as complementary technologies to other third-party
products.
COMPETITION
COMPETITIVE BUSINESS CONDITIONS. The market for our products is
highly competitive and rapidly changing. Our primary market is comprised of
businesses, for which current and prospective competitors offer a variety of
solutions. We experience significant competition and expect substantial
additional competition from established and emerging software companies that
offer products similar to ours and target the same customers. We believe
that we compete on the basis of: (i) product features, functionality,
performance and price; (ii) the capacity and capabilities of strategic
partners; (iii) the quality of our value-added retailers network's customer
service and technical support; (iv) direct sales capability via our website;
(v) sales and marketing efforts; (vi) new product and technology
introductions; and (vii) our image and stability. Notwithstanding the
foregoing, we 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 our competitors have substantially greater financial,
marketing or technical resources. 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 ours, that may be
offered at substantially lower prices, or that have or will achieve greater
market acceptance. In addition, there can be no assurance that alternative
methods of delivering automation systems will not provide increased
competition.
INDUSTRY COMPETITION.
Competitors in the small business information system market can be
broken down into four categories, or "strata":
Entry-level systems. This segment consists of pre-packaged, low-cost
software such as QuickBooks and Peachtree. Such software is not integrated
with the business's other systems, and is inadequate for a business of any
substantial size. Although pre-packaged software is easy to use, basically
these products handle accounting duties only and do not integrate
information from other areas of the business. Buyers in this enterprise
segment are typically start-ups and smaller businesses such as sole
proprietorships and partnerships.
Small vertical specialty systems. The lack of a viable general
solution that is a "next step" past QuickBooks has given rise to hundreds of
small, specialty systems often designed for very specific niches. Such
systems have emerged from any number of small companies because of
customized (although frequently not unique) needs for that niche, coupled
with the expense of purchasing a higher-tier system. Because these systems
are typically developed and sold by "mom-and-pop shops", these usually are
built on older technologies, using proprietary databases. In almost all
cases, these systems lack scalability and any real e-commerce or Web
capability. These systems usually include only some aspects of a business.
Buyers in this segment, typically small-but-growing businesses, generally
describe their reason for a system purchase as "it's the only available
product that I could afford."
Mid-market systems. Systems, such as Great Plains, Platinum, and
Solomon, tend to cost two to three times an e-automate system for a
comparable installation. Recent market trends have shown these companies
pushing "upward" in the market toward larger companies, rather than
downward. Typically they are built on older technologies and lack the Web
flexibility included in recently developed systems. These vendors, if they
were to reverse course and focus on a small-business solution, would
represent our most substantial threat. Buyers in the mid-market segment are
mid-to-large sized businesses with more sophisticated specialization needs
for their system.
Enterprise systems. Large-scale, integrated, custom systems are
typically the only choice for large enterprises. Vendors in this segment
include Oracle, SAP, Peoplesoft, Baan, and others. Such systems generally
cost millions of dollars and require millions more in implementation
investment, making them virtually untouchable for small businesses. Buyers
in this segment are typically Fortune 1000-type companies, multinational
corporations, and other large organizations.
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<PAGE>
BUSINESS STRATEGY
Each of the four market segments described above are distinguished by
price and customization level of the software product. Many of the clients
in this market begin at the lowest segment and, as their business grows,
require more sophisticated and customized solutions.
Our business strategy focuses on the second segment of the market,
which falls between the two "generalist" segments highlighted by QuickBooks
on the low end and Great Plains on the upper end. This segment contains
hundreds of vertical markets, and just as many specialty small-business
systems. Viewing the larger picture, e-automate has been able to find
"clusters" of vertical niches that share virtually identical needs, yet have
disparate (and unaware) competitors. By building around our core
technologies and functionality, we can sell our standard business solutions
directly to the customer in multiple segments, and sell our customized
business solutions to our strategic business alliances. In addition, we
will continue to seek opportunities for licensing and partnership
arrangements for some of our customized solutions to the other three
segments of the market described above.
Initially, we plan to continue to contract, sell and distribute our
products in the United States. However, our product has application in the
world markets, and we project future expansion into foreign markets.
COMPETITIVE ADVANTAGE
Based on current market conditions, our key competitive advantages
can be summarized as follows:
Comprehensiveness. Our system encompasses a wide range of business
activities and is not limited to specific functions, as compared to most
small business specialty competitors. This provides a significant advantage
to our clients over a
multiple-system environment.
Flexibility. Our e-automate system's Microsoft SQL database,
scalable architecture, and add-ins such as our Automation Manager and
ActiveViews make it technically superior to other enterprise software
applications in the small-business market. Our system can be custom-adapted
to a business's specific needs, including management of future growth and
transition into e-business activities.
Ease-of-Use. Because all of our products have been designed with an
emphasis on ease of use, they are more appealing than many competitive
products - even those that offer more features.
Time-to-Market. Many of the software applications in our market
segment are built on outdated technology. In order for these competitors to
modernize their legacy systems, they would need to expend significant
resources in a new architecture which would require a minimum of 18 to 24
months in development time. Their legacy systems cannot simply be upgraded
to support new technology, it would require them to develop a completely new
system using current technology. This gives our Company a significant
time-to-market advantage.
INTELLECTUAL PROPERTY PROTECTION; LICENSING AND PROPRIETARY RIGHTS
We seek to protect our software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. Generally we enter into confidentiality and non-disclosure
agreements with our employees and with key vendors and suppliers. Currently
we use the following trade names: "The Way to e-automate Your
Business(TM)"; "automating the way businesses do business(TM)"; and
"Automation Tasks(TM)". 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 evaluate continually the
appropriateness of seeking registration of additional product names and
marks as they evolve.
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<PAGE>
At the present time we have not registered for any patents nor do we
have any 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 and 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 we will develop proprietary products or technologies that are
eligible for patents, that any future patent, even if issued, would provide
us 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 our business.
Under most of our contracts, we regard our software as proprietary,
because we generally own our software. Beginning with the release of our
new version 3.0, we will grant nonexclusive licenses to customers for our
software. As noted above, like many software firms, we do not have any
patents. Instead, 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 to 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.
EMPLOYEES
As of September 30, 2000, we had 76 full-time employees and 4 part-time
employees. This number does not include independent contractors who are not
our employees. We also utilize several consultants and advisors. There can
be no assurance that we will be successful in recruiting or retaining key
personnel. None of our employees is a member of a labor union and the
Company has never experienced any business interruption as a result of any
labor disputes.
FACILITIES
We currently occupy 10,000 square feet of new leased office space at
831 East 340 South, American Fork, Utah 84003. We anticipate that this new
space will be adequate for our needs for the foreseeable future.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings outside the
ordinary course of our business or to any other legal proceedings which, if
adversely determined, would have a material adverse effect on our financial
condition or results of operations.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of e-automate Corporation and their
ages and their positions are set forth below:
<TABLE>
<CAPTION>
Name Age Position Current Term
----- ---- --------- ------------
<S> <C> <C> <C>
Russ Riggins 1, 4 55 Chairman of the Board 12/1999 - 12/2001
Lon D. Price 2,4 40 President Chief
Executive Officer
Director 4/2000 - 4/2001
Greg L. Popp 31 Chief Financial Officer
Ken Meyers 30 Chief Operations Officer
Brad Sorensen 33 Chief Technical Officer
Ben DeHoyos 44 Vice President of Product
Development
Kenneth Jennings 51 General Counsel and Corporate
Secretary
Richard F. Stout4 37 Director 3/2000 - 3/2001
Rayman D. Meservy4 50 Director 4/2000 - 4/2001
James K. Phillips3,4 51 Director 12/1999 - 12/2000
Scott Blackham4 33 Director 4/2000 - 4/2001
</TABLE>
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<PAGE>
__________________________
1 Became Chairman of the Board effective June 19, 2000.
2 Became President and Chief Executive Office on April 13, 2000.
3 Resigned as Chairman of the Board effective June 19, 2000.
4 Members of Board of Directors. Executive officers are elected
annually by the Board of Directors to hold office until the
first meeting of the Board following the next annual meeting of
shareholders and until their successors have been elected
and qualified.
RUSS RIGGINS. Chairman of the Board of Directors. 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, and 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 Chief Operating Officer, Executive Vice President and Chief Financial
Officer of Generra Sportswear, a $300 million men's sportswear company. The
board of directors of Generra recruited Mr. Riggins to take their company
through bankruptcy. He focused on corporate restructuring, selling off
unprofitable lines of business, and renegotiating outstanding debt. Generra
successfully emerged from bankruptcy in 1994. From 1970 to 1992, Mr. Riggins
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 that business by focusing on information technology,
business process re-engineering and business strategies. Mr. Riggins is a
C.P.A. and has a Bachelor of Arts in Business Administration from the
University of Washington.
LON D. PRICE, Chief Executive Officer, President and Director. Mr. Price
joined us in April 2000. He has over 17 years experience in high technology
software companies, including nine years of senior management before he
joined us in April 2000. He began his career in 1985 in software
development at WordPerfect Corporation, then moved on to high-level
consulting and sales at Oracle Corporation in 1986. From 1991 to 1995 he
managed consulting and sales for Viewstar. From 1995 to 1996 he managed
consulting training and sales for Aris Corp. From 1996 through 2000, Mr.
Price served as vice president of training and education at TenFold
Corporation, where he was responsible for full business unit finance and
operations. His expertise includes consulting, education, organizational
management, strategic planning, and growth management. Mr. Price holds a
Bachelor of Science in computer science from Brigham Young University.
GREG L. POPP, Chief Financial Officer. We hired Mr. Popp in July 2000. He
has over nine years of experience in accounting, having served as a
financial officer in both the public and private sectors. He received his
Bachelor of Science degree in finance from the University of Utah, and
graduated from the executive M.B.A. program at the David Eccles School of
Business at the University of Utah. Mr. Popp began his career as an
assistant controller for a publicly traded company and was soon promoted to
the controller position for a smaller subsidiary. In the past five years,
Mr. Popp has served on two boards of directors, and served as the Chief
Operations Officer in charge of investor relations, market relations and SEC
compliance. During this term, Mr. Popp was part of a team that negotiated
the acquisition and sale of several subsidiaries and asset purchases. From
1994 to 1998, Mr. Popp was assistant controller for Automater Compliance and
Training (later Chequemate International). From 1998 to June 2000, he
served as the Vice President of finance for Non-Stop Music, a privately held
company where he focused on preparing the company to register an initial
public offering or a significant private placement.
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<PAGE>
KEN MEYERS, Chief Operations Officer. Mr. Meyers has ten years of experience
in a broad range of areas, including strategy, marketing, and product and
service development. Prior to joining us in 1999, he was Chief Operating
Officer and Vice President of Client Services for MyComputer.com, a market
leader in ASP-delivered web tools for small businesses from 1998 to 1999.
From 1994 to 1997 he performed marketing and web management at Dentrix
Dental Systems (a two-time Inc. 100 business software company). He then
took a year off to earn an M.B.A. at Brigham Young University. Mr. Meyers
worked in public communications 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. He holds a Bachelor of Science in
communications from Brigham Young University, and an M.B.A. from the
Marriott School of Management at Brigham Young University.
BRAD SORENSEN, Chief Technical Officer. 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 us in early 1999, 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
for us a strong team including alumni of Intel, Novell, Corel/WordPerfect,
and TenFold. Mr. Sorensen has a Bachelor of Science in electrical
engineering from Brigham Young University.
BEN DE HOYOS, Vice President of Product Development. Before joining us in
2000, 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. 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. In the last five
years, he has worked for Novell, TenFold Corporation, MyFamily.com, and
National Evaluation Systems. Mr. de Hoyos holds a Bachelor of Arts and an
Master of Arts degree in English Literature from Brigham Young University,
and spent two years in post-graduate work in English Literature at Harvard
University on a fellowship.
KENNETH W. JENNINGS, JR., General Counsel and Corporate Secretary. We hired
Mr. Jennings in September 2000. He has over twenty years of corporate legal
experience, including nine years as in-house counsel with major software
companies. In addition to general corporate practice, his experience includes,
intellectual property, software licensing, securities, and international law.
Mr. Jennings received his Bachelor of Arts degree in Asian Studies from the
University of Washington and his Juris Doctorate from Brigham Young University.
Prior to joining us, Mr. Jennings served as General Counsel of TenFold
Corporation from 1998 to 2000, Associate General-Technology of Novell, Inc.
from 1996 to 1998 and Asia-Pacific Division Counsel of Oracle Corporation
from 1992 to 1996.
RICHARD F. STOUT, Director. Mr. Stout has been with us since
our inception in 1995. For the past 15 years he has engaged in small
business consulting and management activities. As a student he
distinguished himself academically by 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 helping them to improve their business
performance. While he was engaged in theses activities, he identified
common problems that information systems should have been solving for small
businesses but were not. Along with Todd Hardman, Mr. Stout co-founded our
predecessor in order to develop business-improvement software. He continues
to serve us by providing vision and strategy consulting and representing us
in business development interactions. Mr. Stout received an M.B.A. from
Brigham Young University.
RAYMAN D. MESERVY, Director. Dr. Meservy received a Ph.D. in Accounting
from the 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 one of our major investors. He is experienced in assisting
businesses in their 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 our senior managers and helping us to 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 in managing their
financial risk. He also created and priced new financial products which
were 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 profit
and loss responsibility for one of their largest on-site accounts. Mr.
Blackham has a Bachelor of Science degree in Mechanical Engineering and an
M.B.A. from Brigham Young University.
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<PAGE>
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of three meetings during the
fiscal year ended March 31, 2000. The Audit Committee of the Board which
consists of Directors Russ Riggins, Rayman D. Meservy and Richard F. Stout,
convened one meeting with the accountants during the preceding fiscal year.
The Audit Committee is primarily responsible for reviewing the services
performed by our independent public accountants and evaluating accounting
principles and our system of internal accounting controls. The Compensation
Committee of the Board consists of Directors Lon D. Price, Richard F. Stout,
Scott Blackham, as well as Greg Popp, our Chief Financial Officer. The
Compensation Committee is primarily responsible for reviewing compensation
of executive officers and overseeing the granting of stock options. No
director attended fewer than 75% of all meetings of the Board of Directors
during our 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 1999, the affected persons were in
compliance.
EXECUTIVE COMPENSATION
The following table sets forth, for each of the last three fiscal
years, the compensation received by Lon D. Price, our President and Chief
Executive Officer, and all other executive officers (collectively, the
"Named Executive Officers") at March 31, 2000, whose salary and bonus for
all services in all capacities exceeded $100,000 for the fiscal year ended
March 31, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------------
Annual Compensation Awards Payouts
------------------------------------ ---------------------- ---------
Other Securities
Annual Restricted Underlying Long-term All Other
Name and Compensation Stock Options/ Incentive Compensation
Principal Position Period Salary($) Bonus($) ($) Awards($) SARs(#) Payout($) ($)
------------------ ------ --------- --------- ------------ --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lon D. Price,
President and Chief
Executive Officer(1) 1999 $ 0 0 0 0 0 0 0
Richard F. Stout (2) 1999 $ 112,000 0 0 0 0 0 0
James K. Phillips (3) 1999 $ 11,030 0 0 0 0 0 0
</TABLE>
_________________________
(1) Mr. Price commenced employment with e-automate Corporation
during April 2000. He received no compensation during the
periods specified.
(2) Mr. Stout resigned as President on December 31, 1999.
(3) Mr. Phillips resigned as Chairman of the Board on June 19, 2000.
The following table sets forth information concerning the exercise of
options to acquire shares of our Common Stock by the officers named above
during the fiscal year ended March 31, 2000, as well as the aggregate number
and value of unexercised options held by these officers on March 31, 2000.
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<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs In-the-Money Options/SARs at
At March 31, 2000(#) At March 31, 2000($)
-------------------------- ------------------------------
Shares
Acquired
On Exercise Value
Name # Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------ ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lon D. Price -0- -0- -0- -0- -0- -0-
Rick Stout -0- -0- -0- -0- -0- -0-
James K. Phillips -0- -0- -0- -0- -0- -0-
</TABLE>
COMPENSATION OF DIRECTORS.
Richard F. Stout and James K. Phillips each received 12,000 shares of
Common Stock, and Rayman D. Meservy received 24,000 shares of Common Stock,
for their service on the Board of Directors. We have committed to provide
Russ Riggins 24,000 shares of common stock per year of service
vested on a monthly basis. The Board has appointed a Compensation Committee
and has instructed the committee to prepare its recommendation for a
monetary and stock option compensation plan.
EMPLOYMENT AGREEMENTS
Currently, we have not entered into any employment agreements with any
of our employees.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Delaware law authorizes, and our Bylaws provide for, indemnification of
our directors and officers against claims, liabilities, amounts paid in
settlement and expenses in a variety of circumstances. Although
indemnification for liabilities arising under the Securities Act of 1933 may
be permitted for directors, officers and controlling persons pursuant to
those sources or otherwise, we do not currently have indemnification
agreements with any of our officers or directors but may enter into such
arrangements in the future. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
STOCK OPTION PLAN
We adopted an Incentive Stock Option Plan ("Plan") for our officers,
employees, directors and consultants on January 5, 1999. This Plan
authorized the granting of stock options to purchase an aggregate of not
more than 1,000,000 shares of our Common Stock, of which options 982,690
shares have been granted through July 31, 2000. During our fiscal year
ended March 31, 2000, we granted options for 306,266 shares.
The Plan is administered by our Compensation Committee. In general,
the Compensation Committee will select the persons to whom options will be
granted and will determine, subject to the terms of the Plan, the number,
exercise, conditions and other provisions of such options. Options granted
under the Plan will become exercisable at such times as may be determined by
the Compensation Committee.
Options under the Plan may be either incentive stock options (ISOs) as
such term is defined in the Internal Revenue Code of 1986, as amended, or
non-qualified options. ISOs may only be granted to persons who are
employees. Non-qualified options may be granted to any person, including,
but not limited to, employees, independent agents, and consultants, who the
Compensation Committee believes has contributed, or will contribute, to our
success. The Compensation Committee determines the exercise price of
options granted under the Plan, provided that, in the case of ISOs, such
price may not be less than 100% (110% in the case of ISOs granted to holders
of 10% of voting power of our Common Stock) of the fair market value (as
defined in the plan) of our Common Stock on the date of grant. The
aggregate fair market value (determined at the time of option grant) of our
shares with respect to which ISOs become exercisable for the first time in
any year cannot exceed $100,000.
-32-
<PAGE>
The term of each option may not be more than ten years (five years in
the case of ISOs granted to holders of 10% of the voting power of our Common
Stock) from the date of grant. The Board of Directors has a right to amend,
suspend or terminate the Plan at any time; provided, however, that unless
ratified by our stockholders, no amendment or change in the Plan may be
effective which would increase the total number of shares which may be
issued under the Plan, materially increase the benefits accruing to persons
granted under the Plan or materially modify the requirements regarding
eligibility and participation in the Plan. No amendment, supervision or
termination of the Plan may, without the consent of an employee to whom an
option has previously been granted, affect the rights of that employee under
an option.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of July 31, 2000, June 30, 2000, and March 31, 2000, we owed
a balance of approximately $35,000, $40,000 and $50,000, respectively,
to Richard F. Stout with respect to the redemption several years ago of
certain of his original shares by us. Since June 30, 2000, we owed a
balance of $55,000 to James K. Phillips for short term operating expenses.
The balance due Mr. Phillips at June 30, 2000 was paid off, in its entirety
on July 21, 2000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the number of shares of our Common Stock
beneficially owned as of September 30, 2000, by each person known by us to be
the beneficial owner of more the five percent (5%) of the Common Stock, by each
of our directors, by our Chief Executive Officer, and by all of our officers
and directors as a group. Unless noted otherwise, each person named has
sole voting and investment power with respect to the shares indicated.
-33-
<PAGE>
<TABLE>
<CAPTION>
Number of Percentage of
Title of Class Name and Address of Beneficial Owner Shares Class Outstanding
-------------- ------------------------------------ ----------- -----------------
<S> <C> <C> <C>
Common Stock Lon D. Price 291,666 (1) 5.0%
8866 South Willow Green
Sandy, UT 84093
Rayman D. Meservy 45,120 (2) 0.8%
603 South 1050 East
Orem, UT 84097
Russ Riggins 14,000 (3) 0.2%
1215 120th Avenue NE #101
Bellevue, WA 98005
Scott Blackham 148,432 (4) 2.5%
1632 South 200 East
Orem, UT 84058
James K. Phillips 662,680 (5)(6) 11.3%
652 South 1050 East
Orem, UT 84097
Richard F. Stout 596,156 10.2%
5747 West 10770 North
Highland, UT 84003
Alan Fine * 508,040 (6)(7) 8.7%
5031 West Old Oak Lane
Highland, UT 84003
Patricia Fish * 431,240 (8) 7.4%
1115 East Mountain Road
Alpine, UT 84004
Lee E. Monson * 623,580 (9) 10.7%
10519 Colorado Road
Atascadero, CA 93422
All Directors and Officers as a group 1,794,054 30.7%
</TABLE>
* Individuals are neither an officer nor a director of the Company.
___________________________
(1) Includes 25,000 vested options; 133,333 Class C Warrants in
the name of the Lon D. Price Family Trust; 133,333 shares of
Common Stock in the name of the Lon D. Price Family Trust.
(2) Mr. Meservy's son, Tom Meservy, and daughter-in -law, Sunday
Meservy, are employees and each has our stock and stock
options. Jason White, a son-in-law is also an employee.
(3) 14,000 shares have been earned but are not issued. Mr.
Riggins' shares will vest over a period of 12 months beginning
January 1, 2000.
(4) Mr. Blackham also owns 18,942 Series A Warrants and 18,942
Series B Warrants. Mr. Blackham is a brother-in-law of
Merlin Fish, the sole owner of Pangea Equities, L.C., who own
300,000 of our Series 2000-B Warrants ("Pangea"). Pangea also
assisted us in arranging the purchase of the Series 2000-A Preferred
Stock and the Series 2000-A Warrants by Aspen Capital Resources, LLC.
(5) Our indebtedness to James K. Phillips for rent, payroll and a
personal line of credit aggregating $265,167 was converted to
437 shares of Series B Preferred Stock on June 19, 2000.
Mr. Phillips is brother-in-law of Lee E. Monson.
(6) In a Lock-up Agreement with us for Shares of Common
Stock, dated June 19, 2000, James K. Phillips, Alan Fine, and
Lee E. Monson each separately agreed that 95% of their respective
shares of Common Stock would be locked-up, with 5% to be released
for sale six months following the first day of trading ("Trading").
An additional 5% will be released 12 months from Trading. An
additional 10% of Common Stock will be released 18 months from
Trading. An additional 10% will be released 24 months from Trading.
Their Common Stock positions will not be subject to the Lock-Up
Agreement after 30 months from Trading.
-34-
<PAGE>
(7) 503,840 shares of Common Stock are registered in the name of
the Alan Fine Living Trust, u/a/d June 21, 2000. The 503,840
shares are subject to a Lock-up Agreement. (See note (6)
above). Indebtedness of the Company to Mr. Fine was converted
to 21 shares of Series B Convertible Preferred Stock on June 19,
2000, which shares are issued in the name of the Alan Fine
Living Trust u/a/d June 21, 2000.
(8) Also includes shares owned by Mrs. Fish's children, Candace L.
Fish and Kevin B. Fish, sho live in their household. Mrs. Fish
is married to Merlin Fish, who is the sold owner of Pangea, which
owns 300,000 Series 2000-B Warrants.
(9) Mr. Monson's 589,380 shares of Common Stock are owned as
follows: 524,980 shares by Mr. Monson; 9,400 shares by Heidi
Monson, his wife; and 55,000 shares, separately owned, in
varying amounts, by his five children. Indebtedness of the
Company to Mr. Monson was converted to 171 shares of Series B
Preferred Stock on June 19, 2000. Mr. Monson is a
brother-in-law of James K. Phillips.
The following table lists the number of Series B Preferred Stock
beneficially owned as of July 31, 2000, by each person known by us to
be the beneficial owner of more than five percent (5%) of the Common
Stock, by each of our directors, by our Chief Executive Officer, and by
all of our officers and directors as a group. Unless noted otherwise,
each person named has sole voting and investment power with respect to
the shares indicated.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percentage of
Title of Class Beneficial Owner of Beneficial Owner Class Outstanding
-------------- ------------------- ------------------- -----------------
<S> <C> <C> <C>
Series B Convertible James K. Phillips 437 69.5%
Preferred Shares
Alan Fine 21 3.3%
Lee E. Monson 171 27.2%
</TABLE>
SECURITYHOLDERS REGISTERING SHARES
Of the shares of Common Stock, up to a total of 615,385 shares will
be offered and sold by Aspen Capital Resources, LLC, the holder of the
Series 2000-A Preferred Stock and of the Series 2000-A Warrants, and up to
125,800 shares will be offered and sold by the holders of Series B Preferred
Stock. The remaining 1,000,000 shares of Common Stock are to be offered and
sold by holders of shares issued on or before July 2, 1999. Additionally,
holders of Series 2000-B Warrants are offering 325,000 of their Warrants
for resale.
The tables on the page that follows set forth, as of the date of this
Prospectus: (i) the name of each Selling Securityholder; (ii) certain
beneficial ownership information with respect to the Selling Seurityholder;
(iii) the number of Shares that may be sold from time to time by each
Selling Seurityholder pursuant to this Prospectus, and (iv) the amount (and,
if one percent or more, the percentage) of Common Stock to be owned by each
Selling Securityholder if all Shares are sold. Beneficial ownership is
determined in accordance with securities rules and regulations and generally
includes voting or investment power with respect to securities. Shares of
Common Stock that are issuable upon the exercise of outstanding options,
warrants or other purchase rights, to the extent exercisable within 60 days
of the date of this Prospectus, are treated as outstanding for purposes of
computing each Selling Securityholder's percentage ownership of outstanding
Common Stock.
The following table sets forth information regarding the beneficial
ownership of our Common Stock as of September 30, 2000, by the holder
of Series 2000-A Preferred Stock (the "Selling Series 2000-A Preferred
Stockholder"), assuming the Series 2000-A Preferred Stockholder elects to
exercise its conversion rights to convert the Series 2000-A Convertible
Preferred shares into shares of Common Stock at the minimum conversion price
equal to $3.25 per share of Common Stock, the number of shares of Common
Stock to be sold by each Selling Series 2000-A Preferred Shareholder, and
the percentage of each Selling Series 2000-A Preferred Stockholder after the
sale of Common Stock included in this Prospectus.
-35-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned
Offering Number of After Offering(1)
---------------------- Shares Being -------------------
Stockholder Number Percent(2) Offered Number Percent
---------------------------- ------------ -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
Aspen Capital Resources, LLC 615,385(3) 9.6% 615,385(3) -0- *
</TABLE>
________________________
* Less than 1%.
(1) Assuming the sale by the Selling Series 2000-A Preferred
Stockholder of all of its shares of Common Stock offered hereunder by
such Selling Series 2000-A Preferred Stockholder. There can be no
assurance that any of the Shares of Common Stock offered hereby will
be sold.
(2) The percentages set forth above have been computed assuming the
number of shares outstanding equals the sum of (a) 5,842,462, which
is the number of shares of Common Stock actually outstanding on
September 30, 2000, and (b) shares of Common Stock subject to conversion
rights held by the person(s) with respect to which such percentage is
calculated.
(3) Includes up to 615,385 shares of Common Stock representing the shares
issuable by us upon the conversion of Series 2000-A Preferred Stock
pursuant to a Securities Purchase Agreement between us and Aspen Capital
Resources, LLC, whereby the Selling Series 2000-A Preferred Stockholder
has purchased 2,000 shares of Series 2000-A Preferred Stock and up to a
maximum of 400,000 Series 2000-A Warrants for $2,000,000 less offering
expenses of $200,000 and may, but is not required to, purchase up to an
additional 3,000 shares of Series 2000-A Preferred Stock and up to a
maximum of 600,000 additional Warrants for $3,000,000. Upon conversion
of all 2,000 preferred shares purchased to date, a maximum of 615,385
shares of Common Stock could be issuable to the Selling Series 2000-A
Preferred Stockholder. The Securities Purchase Agreement requires the
Company to register the Common Stock into which the Series 2000-A
Preferred Stock is convertible, and our Common Stock to be traded publicly,
not later than October 17, 2000. In the event we fail to meet these
requirements, the holder(s) of the Series 2000-A Preferred Stock
will be entitled to receive an additional number of shares of Common
Stock equal to 7.0% of the total number of such shares into which
the Series 2000-A Preferred Stock is convertible for each month or
portion beyond that deadline. The actual number of shares of Common
Stock that will be issued to the Selling Series 2000-A Preferred
Stockholder in the event of conversion pursuant to the Securities
Purchase Agreement will vary, and may vary materially from the
aggregate of 615,385 shares registered under the Registration
Statement.
There can be no assurance that any of the shares of Common Stock will
be issued to the Selling Series 2000-A Preferred Stockholder pursuant to the
Securities Purchase Agreement and therefore that any of the Shares of Common
Stock offered hereby by the Selling Series 2000-A Preferred Stockholder will
be sold.
36
<PAGE>
The following table sets forth information regarding the beneficial
ownership of our Common Stock as of September 30, 2000, by the holders of
Series B Preferred Stock (the "Selling Series B Preferred Stockholder"),
assuming the Series B Preferred Stockholders elect to exercise their
conversion rights to convert the Series B Convertible Preferred shares into
shares of Common Stock at the minimum conversion price equal to $5.00 per
share of Common Stock, the number of shares of Common Stock to be sold by
each Selling Series B Preferred Shareholder, and the percentage of each
Selling Series B Preferred Stockholder after the sale of Common Stock
included in this Prospectus.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
Offering Number of Offering(1)
----------------------- Shares Being ---------------
Stockholder Number Percent(2) Offered Number Percent
---------------------------- ----------- ---------- ----------- ------ -------
<S> <C> <C> <C> <C> <C>
James K. Phillips 87,400(3) 1.5% 87,400(3) -0- *
Lee E. Monson 34,200 * 34,200 -0- *
Alan Fine 4,200 * 4,200 -0- *
------- ------- ----
Total 125,800 125,800 -0-
</TABLE>
________________________
* Less than 1%.
(1) Assuming the sale by the Selling Series B
Preferred Stockholders of all of their respective
shares of Common Stock offered hereunder by such
Selling Series B Preferred Stockholders. There can be
no assurance that any of the Shares of Common Stock
offered hereby will be sold.
(2) The percentages set forth above have been
computed assuming the number of shares outstanding
equals the sum of (a) 5,842,462, which is the number
of shares of Common Stock actually outstanding on September
30, 2000, and (b) shares of Common Stock subject to
conversion rights and warrants held by the person(s)
with respect to which such percentage is calculated.
(3) Includes up to 125,800 shares of Common Stock
representing the shares issuable by the Company upon
the conversion of Series B Preferred Stock pursuant to
a Securities Purchase Agreement between the Company
and the Selling Series 2000-B Preferred Stockholders,
whereby the Selling Series B Preferred Stockholders
have purchased 629 shares of Series B Preferred Stock
in cancellation of indebtedness in the respective
amounts of $436,837 for Mr. Phillips, $171,080 for Mr.
Monson, and $21,066 for Mr. Fine. Upon conversion of
all 629 such Series B Preferred Shares, a maximum of
125,800 shares of Common Stock could be issuable to
the Selling Series B Preferred Stockholders. The
actual number of shares of Common Stock that will be
issued to the Selling Series B Preferred Stockholders
in the event of conversion pursuant to their
Securities Purchase Agreement will vary, and may vary
materially from the aggregate of 125,800 shares
registered under the Registration Statement.
There can be no assurance that any of the shares of Common Stock will
be issued to the Selling Series B Preferred Stockholders pursuant to their
Securities Purchase Agreement and therefore that any of the Shares of Common
Stock offered hereby by the Selling Series B Preferred Stockholders will be
sold.
The following table sets forth information regarding the beneficial
ownership of our Series 2000-B Warrants as of September 30, 2000, by the
holders of Series B Warrants (the "Selling Series 2000-B Warrantholder"),
the number of such Warrants to be sold by said Selling Series 2000-B
Warrantholder, and the percentage of said Selling Series 2000-B
Warrantholder after the sale of the shares included in this Prospectus.
<TABLE>
<CAPTION>
Series 2000-B Warrants Series 2000-B Warrants
Beneficially Owned Beneficially Owned
Prior to Offering Number of After Offering(1)
---------------------- Shares Being -------------------
Warrantholder Number Percent(2) Offered Number Percent
---------------------------- ------------ -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
Pangea Equities, L.C. 300,000 (3) 60.0% 125,000 (3) 175,000 35.0%
Jacob Fish 200,000 (3) 40.0% 200,000 (3) 0 *
</TABLE>
________________________
(1) The Series 2000-B Warrants, pursuant to the Warrant Purchase
Agreement dated June 19, 2000, are exercisable at any time and from
time to time on or after the date of issuance of the Warrants, on
June 19, 2000. The Common stock underlying the Warrants have not
been registered. There can be no assurance that any of the Shares of
Common Stock offered hereby will be sold.
(2) The percentages set forth above have been computed assuming the
number of Series 2000-B Warrants actually outstanding on September
30, 2000.
(3) On June 19, 2000, we sold 500,000 Series 2000-B Warrants to Pangea
Equities, L.C. ("Pangea") pursuant to a Securities Purchase
Agreement. The sole owner of Pangea is Merlin Fish, whose wife,
Patricia Fish owns 365,462 shares of our Common Stock. On September
15, 2000, Pangea transferred 200,000 Series 2000-B Warrants to Jacob
Fish, and adult son of Mr. and Mrs. Fish.
There can be no assurance that any of the shares of Series 2000-B
Warrants will be issued to the Selling Warrantholder pursuant to its
Securities Purchase Agreement and therefore that any of the Shares of
Common Stock offered hereby the Selling Warrantholder will be sold.
The following table sets forth information regarding the beneficial
ownership of our Common Stock as of September 30, 2000, by each of the
holders of shares of Common Stock issued on or before July 2, 1999, (the
"Selling Shareholders"), assuming each of the Selling Shareholders elects to
sell his or her shares of Common Stock, at market price, the number of
shares to be sold by each Selling Shareholder and the percentage of each
Selling Shareholder after the sale of the shares included in this Prospectus.
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially
Owned Prior to Being Owned after
Offering Offered(1) Offering
--------------------- ----------- -------------------
Stockholder Number Percent Number Number Percent
------------------------------- --------------------- ----------- --------------------
<S> <C> <C> <C> <C> <C>
Alfred C Adams & Kathie B Adams 15,000 * 15,000 0 *
William E Beifuss(9) 41,666 * 25,000 16,666 *
Heath T Birchall & Lori F
Birchall JT TEN (4)(9) 7,833 * 7,833 0 *
Lori F. Cust. For Candace
L. Fish (4)(5)(9) 34,556 * 15,000 19,556 *
Lori F. Cust. For Kevin B.
Fish (4)(5)(9) 31,222 * 15,000 16,222 *
Marshall S Blackham(9) 148,432 2.5% 59,750 88,682 1.5%
Keri F Burrows & Matthew
Burrows JT TEN(9) 22,980 * 15,000 7,980 *
Randy H Carlson 1,000 * 1,000 0 *
Thomas G Chapman 7,000 * 7,000 0 *
Jane H Clark 7,000 * 7,000 0 *
American Pension Services
Cust. For Jennie Curtis(2)(3) 1,500 * 1,500 0 *
American Pension Services
Cust. For Kent Curtis
(2)(3) 1,500 * 1,500 0 *
R Steve Disbrow 1,500 * 1,500 0 *
Cindy L Dunkin 5,000 * 5,000 0 *
Gregory M Fish (2)(9) 43,180 * 10,500 32,680 *
Ryan A Fish(9) 48,846 * 15,500 33,346 *
Marci L Fish(9) 26,222 * 20,000 6,222 *
Patricia Fish (5)(9) 365,462 6.2% 227,600 137,862 2.4%
Jacob C Fish(9) 33,166 * 22,500 10,666 *
Tyler Fish 10,000 * 10,000 0 *
Melvin G Fish 10,000 * 10,000 0 *
American Pension Services 4,500 * 4,500 0 *
Cust. For Gregory Fish (2)
Kenneth Goggia 5,000 * 5,000 0 *
Greenhead Capital LLC (7) 10,000 * 10,000 0 *
Don Hacking 25,000 * 25,000 0 *
Hand & Hand (6) 13,900 * 13,900 0 *
Jehu Hand (6) 150,000 2.6% 150,000 0 *
Daniel Hemmert 2,125 * 2,125 0 *
Hewlett Enterprises LLC (7) 10,000 * 10,000 0 *
Todd K Hewlett (7)(9) 75,000 1.3% 75,000 0 *
Sandra A Hewlett 5,000 * 5,000 0 *
American Pension Services 30,000 * 6,000 24,000 *
Cust. For Stefanie Hewlett
(2)(7)(9)
American Pension Services 16,000 * 6,000 10,000 *
Cust. For Todd Hewlett
(2)(7)(9)
Robert Higginson 5,000 * 5,000 0 *
Rachel W Hirschi 13,612 * 13,612 0 *
David N Johnson 1,000 * 1,000 0 *
Kim LeGrande 5,000 * 5,000 0 *
Robert Lundgreen 3,000 * 3,000 0 *
Randall Lunt 1,875 * 1,875 0 *
Societe Financiere du Suejet 40,000 * 40,000 0 *
S.A.(8)
Dru R Nielson & Laurel B 25,000 * 25,000 0 *
Nielson JT TEN
W Clark Peterson 1,000 * 1,000 0 *
Brian T Peterson 2,000 * 2,000 0 *
Red Bell LTD 15,000 * 15,000 0 *
Richard K Robins 2,000 * 2,000 0 *
Richard K Scott 2,000 * 2,000 0 *
Monte F Shelley(9) 121,500 2.1% 1,500 120,000 2.1%
David D & Julia F Thompson 22,380 * 14,400 7,980 *
JT TEN(9)
Joann Tolman 2,000 * 2,000 0 *
Marcia Tyler 1,000 * 1,000 0 *
Douglas A. & Valerie B 20,000 * 20,000 0 *
Whitaker
John Wilding(9) 22,000 * 2,000 20,000 *
Kevin J Williams 2,000 * 2,000 0 *
Louis Wong 2,000 * 2,000 0 *
Held by 112 shareholders 32,905 * 32,905 0 *
each of which beneficially
owns less than 1 percent of
the outstanding common
shares
Total 1,556,029 25.7% 1,000,000 556,029 9.2%
</TABLE>
(1) Only includes shares that we originally issued prior to July 2, 1999.
(2) We have been advised that American Pension Services (APS)
acts as administrator of self-directed IRAs and other
fiduciary investments and has no control or discretion over
the accounts administered by it.
(3) Kent Curtis and Jennie Curtis are husband and wife and live
in the same household.
(4) Lori F. Birchall and Heath T. Birchall are husband and wife
and Lori F. Birchall is custodian for Candace L. Fish and
Kevin B. Fish
(5) Patricia B. Fish is the mother of, and lives in the same
household as Candace L. Fish and Kevin B. Fish, whose shares are
not included in this total of Mrs. Fish's shares.
(6) Jehu Hand is the sole shareholder of Hand & Hand.
(7) Todd K. Hewlett and Stefanie Hewlett are husband and wife
and Todd K. Hewlett is the General Manager of Greenhead
Capital LLC, and Hewlett Enterprises LLC.
(8) Societe Financiere du Seujet, S.A. is controlled by Ricardo
Mortara.
(9) Includes warrants to purchase common stock
There can be no assurance that any of the shares of Common Stock
offered hereby by the Selling Shareholders will be sold.
-39-
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of e-automate Corporation
consists of 20,000,000 shares of Common Stock, $.001 par value
per share, and 1,000,000 shares of Preferred Stock, $.001 par
value per share. We have created two classes of Preferred
Stock, designated as Series 2000-A Preferred Stock and Series B
Preferred Stock.
COMMON STOCK. The holders of Common Stock are entitled to
one vote for each share held of record on all matters to be voted
on by stockholders. The holders of Common Stock are entitled to
receive such dividends, if any, as may be declared from time to
time by the Board of Directors in its discretion from legally
available funds. Upon liquidation or dissolution of e-automate
Corporation, the holders of Common Stock are entitled to receive,
pro rata, assets remaining available for distribution to
stockholders. The Common Stock has no cumulative voting,
preemptive or subscription rights and is not subject to any future
calls. There are no conversion or redemption rights applicable to
the shares of Common Stock. All the outstanding shares of Common
Stock are fully paid and nonassessable.
PREFERRED STOCK. The Board of Directors is authorized,
without further action by the stockholders, to issue, from time to
time, up to 1,000,000 shares of Preferred Stock in one or more
classes or series, and to fix or alter the designations, power and
preferences, and relative participation, option or other rights,
if any, and qualifications, limitations or restrictions thereof,
including, without limitation, dividend rights (and whether
dividends are cumulative), conversion rights, if any, voting
rights (including the number of votes, if any, per share),
redemption rights (including sinking fund provisions, if any), and
liquidation preferences of any unissued shares or wholly unissued
series of preferred stock, and the number of shares constituting
any such class or series and its designation and to increase or
decrease the number of such class or series subsequent to the
issuance of shares of such class or series, but not below the
number of shares of such class or series then outstanding. The
issuance of any series of preferred stock under certain
circumstances could have the effect of delaying, deferring or
preventing a change in control and could adversely affect the
rights of the holders of the Common Stock. As of the date of this
Memorandum, e-automate has created and issued shares of two
classes of preferred stock more fully discussed below.
SERIES 2000-A PREFERRED STOCK. The Board of Directors has
designated a total of 5,500 shares of Series 2000-A Preferred
Stock. The $1,000 stated value of each share of Series 2000-A
Preferred Stock, together with accrued and unpaid dividends, is
convertible into shares of Common Stock at a rate equal to 80% of
the fair market value, which is, as provided in the Securities
Purchase Agreement for such shares, $3.00 per share until said
Common Stock is quoted on the Nasdaq Stock Market System or
reported on the NASD's OTC bulletin board during the 15 trading
days preceding the date of conversion, subject to maximum and
minimum conversion prices of $5.75 and $3.25 per share,
respectively. Shares of our Common Stock are not now quoted
or listed, nor are they otherwise traded. However, the Securities
Purchase Agreement pursuant to which the holder of the Series
2000-A Preferred Stock and Series 2000-A Warrants acquired said
shares and warrants obligates us to register the shares already
purchased of Common Stock into which the Series 2000-A Preferred
Stock are convertible or which underlie the Warrants and that the
Common Stock trade publicly beginning no later than October 17, 2000.
A penalty will be assessed for each month that these conditions are
not met equal to 7.0% of the total Common Shares into which the
Series 2000-A Preferred Stock is convertible. If, as and when the
Common Stock is quoted on the Nasdaq Stock Market System or
reported on the NASD's OTC Bulletin Board, fair market value will
then be equal to the average of the three lowest closing bid
prices for the Common Stock during the 15 trading days preceding
the date of conversion, subject to maximum and minimum conversion
prices of $5.75 and $3.25 per share, respectively.
At any time after December 19, 2001, we may, at our sole
option, redeem all of the then outstanding shares of Series
2000-A Preferred Stock at a price equal to 125% of stated value
per share, plus accrued and unpaid dividends, if any. The holders
of shares of Series 2000-A Preferred Stock are entitled to
cumulative preferred dividends at the rate of 8.0% of the stated
value per annum per share, payable in cash or Common Stock, at the
election of the holder, on or before the end of each calendar
quarter, commencing June 30, 2000. In an event of noncompliance
as defined in the Certificate of Designation, the cumulative
preferred dividend rate becomes 21% per annum.
The Series 2000-A Preferred Stock has priority rights to
dividends over the Common Stock, but will not participate in any
dividends payable to the holders of shares of Common Stock. No
dividends will be paid to holders of shares of Common Stock unless
and until all dividends on shares of Preferred Stock have been
paid in full for the same period. In the event of our
liquidation, dissolution or winding-up, the holders
of shares of Series 2000-A Preferred Stock are entitled to
receive, prior and in preference to, any distribution of any of
our assets or surplus funds to the holders of shares of Common
Stock, Series B Preferred Stock or any other stock of e-automate
ranking on liquidation junior or subordinate to the Series 2000-A
Preferred Stock, an amount equal to the $1,000 stated value per
share, plus accrued and unpaid dividends, if any. The holder of
shares of Series 2000-A Preferred Stock have voting rights equal
to the number of shares of our Common Stock into which said holder's
shares of Series 2000-A Preferred Stock are convertible, except in
those instances required by Delaware law.
-40-
<PAGE>
As of September 30, 2000, there were a total of 2,000 shares of
Series 2000-A Preferred Stock issued and outstanding. It is
anticipated that we will sell to the holder of Series 2000-A Preferred
Stock, although said stockholder is not required to purchase, an
additional total of 3,000 shares of Series 2000-A Preferred Stock for
$1,000 per share, in phases at 30 day intervals through March 19, 2001.
We have a total of 1,538,462 shares of our Common Stock reserved and
set aside in the event that the holder of the now and subsequently
issued shares of Series 2000-A Preferred Stock elects to convert those
shares into shares of Common Stock. As of July 31, 2000, no shares of
Series 2000-A Preferred Stock have been converted into shares of Common
Stock.
SERIES B PREFERRED STOCK. Our Board of Directors has
designated a total of 1,000 shares of Series B Preferred Stock.
The $1,000 stated value of each share of Series B Preferred Stock,
together with accrued and unpaid dividends, is convertible into
shares of Common Stock at a price of $5.00 per share.
The Series B Preferred Stock has priority rights to dividends
over the Common Stock, but will not participate in any dividends
payable to the holders of shares of Common Stock. No dividends
will be paid to holders of shares of Common Stock unless and until
all dividends on shares of Preferred Stock have been paid in full
for the same period. In the event of any liquidation, dissolution
or winding-up of the Company, the holders of shares of Series B
Preferred Stock are entitled to receive, prior and in preference
to, any distribution of any of our assets or surplus funds to the
holders of shares of Common Stock, or any other class of our stock
ranking on liquidation junior or subordinate to the Series B Preferred
Stock, an amount equal to the $1,000 stated value per share, plus
accrued and unpaid dividends, if any. The holder of shares of Series B
Preferred Stock have voting rights equal to the number of shares of
our Common Stock into which said holder's shares of Series 2000-A
Preferred Stock are convertible, except in those instances required
by Delaware law.
As of September 30, 2000, there were a total of 629 shares of
Series B Preferred Stock issued and outstanding. A total of
125,800 shares of Common Stock has been set aside and reserved in
the event that the holders of the issued shares of Series B
Preferred Stock elect to convert those shares into shares of
Common Stock. As of July 31, 2000, no shares of Series B
Preferred Stock have been converted into shares of Common Stock.
SERIES 2000-A WARRANTS. Each Series 2000-A Warrant entitles
the holder to purchase one share of Common Stock at an exercise
price of $5.00 per share, or $4.00 per share if, during the first
six months for which the Common Shares are quoted at less than
$5.00 per share on the Nasdaq Stock Market System or reported on
the NASD Bulletin Board. The Series 2000-A Warrants are not subject
to early redemption by us. The Series 2000-A Warrants may be
exercised upon surrender of the certificate(s) thereof on or
prior to the expiration or the redemption date at the offices of
Colonial Stock Transfer Company, 544 E. 400 S. Suite 100, Salt
Lake City, Utah 84111, our warrant agent (the "Warrant Agent") with
the subscription form on the reverse side of the certificate(s)
completed and executed as indicated, accomplished by payment (in the
form of a certified or cashier's check payable to our order) of
the full exercise price for the number of Series 2000-A Warrants
being exercised.
The Warrants are exercisable from May 31, 2001, or earlier
upon the occurrence of an event of default or a change in our control.
Series 2000-A Warrants are exercisable through May 31, 2004, provided
that at the time of exercise a current prospectus relating to the
Common Stock is then in effect and the Common Stock is qualified for
sale or exempt from qualification under applicable state securities
laws. The Series 2000-A Warrants are not subject to early redemption
by us.
The Securities Purchase Agreement provides that the
Warrantholder may exercise by paying for the underlying shares of
Common Stock in cash or by means of a cashless exercise, whereby,
if applicable, the requisite number of shares of Common Stock to
be issued on such exercise would be reduced as if they had been
sold and the excess proceeds applied to cover the exercise price
of the remaining shares of Common Stock.
The Series 2000-A Warrants contain provisions that protect
the holders thereof against dilution by adjustment of the exercise
price per share and the number of shares issuable upon exercise
thereof upon the occurrence of certain events including issuances
of Common Stock (or options or securities convertible,
exchangeable or exercisable into Common Stock) at less than market
value, stock dividends, stock splits, mergers, sale of
substantially all of our assets, and for other extraordinary events;
provided, however, that no such adjustment shall be made upon, among
other things (i) the issuance or exercise of options or other
securities under employee benefit plans (ii) the sale or exercise of
outstanding Series 2000-A or Series 2000-B Warrants, or (iii) the
conversion of shares of our Preferred Stock to Common Stock.
-41-
<PAGE>
The holder of Series 2000-A Warrants will not possess any
right as one of our shareholders unless or until it exercises
the Series 2000-A Warrants. It is anticipated that, through March
19, 2001, the Series 2000-A Warrantholder will purchase, although
it is not required to, additional shares of Series 2000-A
Preferred Stock, whereupon the Company will issue to the Series
2000-A Warrantholder additional Series 2000-A Warrants, which,
together with such warrants it currently holds, could be adjusted
to as many as 1,000,000 such warrants. Therefore, we have
reserved a total of 1,000,000 shares of Common Stock in the event
the holder of the now and subsequently issued and adjusted Series
2000-A Warrants elects to exercise the same and thereby to
purchase Common Stock. As of September 30, 2000, no Series 2000-A
Warrants have been exercised.
SERIES 2000-B WARRANTS. Each Series 2000-B Warrant entitles
the holder to purchase one share of Common Stock at an exercise
price of $5.00 per share, or $4.00 per share if, during the first
six months for which the Common Shares are quoted at less than
$5.00 per share on the Nasdaq Stock Market System or reported on
the NASD Bulletin Board. The Warrants are exercisable from 90
days following the effective date of any future registration of the
underlying shares of Common Stock through June 21, 2004, provided
that at the time of exercise a current prospectus relating to the
Common Stock is then in effect and the Common Stock is qualified
for sale or exempt from qualification under applicable state
securities laws. The Series 2000-B Warrants are not subject to
early redemption by us. The Series 2000-B Warrants may be
exercised upon surrender of the certificate(s) thereof on or
prior to the expiration or the redemption date at the offices of
Colonial Stock Transfer Company, 544 E. 400 S. Suite 100, Salt
Lake City, Utah 84111, our warrant agent (the "Warrant Agent")
with the subscription form on the reverse side of the certificate(s)
completed and executed as indicated, accomplished by payment (in
the form of a certified or cashier's check payable to our order)
of the full exercise price for the number of Series 2000-B Warrants
being exercised.
The Warrant Certificate provides that the Series 2000-B
Warrantholder may exercise by paying for the underlying shares of
Common Stock in cash or by means of a cashless exercise, whereby,
if applicable, the requisite number of shares of Common Stock to
be issued on such exercise would be reduced as if they had been
sold and the excess proceeds applied to cover the exercise price
of the remaining shares of Common Stock.
The Series 2000-B Warrant Certificate contains provisions
that protect the holders thereof against dilution by adjustment of
the exercise price per share and the number of shares issuable
upon exercise thereof upon the occurrence of certain events
including issuances of Common Stock (or options or securities
convertible, exchangeable or exercisable into Common Stock) at
less than market value, stock dividends, stock splits, mergers,
sale of substantially all our assets, and for other
extraordinary events; provided, however, that no such adjustment
shall be made upon, among other things (i) the issuance or
exercise of options or other securities under employee benefit
plans (ii) the sale or exercise of outstanding Series 2000-A or
Series 2000-B Warrants, or (iii) the conversion of shares of
our Preferred Stock to Common Stock.
The holder of Series 2000-B Warrants will not possess any
right as one of our shareholders unless or until it exercises
the Series 2000-B Warrants. We have reserved 500,000 shares
of one of our Common Stock in the event the holder of the Series
2000-B Warrants elects to exercise the same and thereby to
purchase Common Stock. As of September 30, 2000, no Series 2000-B
Warrants have been exercised.
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION. Our
Certificate of Incorporation provides that to the fullest extent
permitted by Delaware law, its directors shall not be liable to
us. The Certificate of Incorporation also contains provisions
entitling the officers and directors to indemnification by the
Company to the fullest extent permitted by the Delaware General
Corporation Law.
INDEMNIFICATION AGREEMENTS. We have not entered into
Indemnification Agreements with any of our officers and
directors, however, we may do so in the future. Such
Indemnification Agreements would provide that the Company will
indemnify its officers and directors against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
arising out of threatened, pending or completed legal action
against any officer or director to the fullest extent permitted by
the Delaware General Corporate Law.
TRANSFER AND WARRANT AGENT. Our transfer agent and
registrar for our Common Stock and Series 2000-A Preferred
Stock is Colonial Stock Transfer Co., 544 East 400 South,
Suite 100, Salt Lake City, Utah 84111.
PLAN OF DISTRIBUTION
Selling Securityholders may effect sales by selling their
shares of Common Stock directly to purchasers, through
broker-dealers acting as agents for the Selling Securityholders or
to broker-dealers who may purchase securities as principals and
thereafter sell the Common Stock from time to time in the
over-the-counter market, in negotiated transactions or otherwise.
Such broker-dealers, if any, may receive compensation in the form
of discounts, concessions or commissions from the Selling
Securityholders and/or the purchasers for whom such broker-dealers
act as agents or to whom they may sell as principals or otherwise
(which compensation as to a particular broker-dealer may exceed
customary commissions). The Selling Securityholders will pay all
commissions, transfer taxes, and other expenses associated with
the sale of Common Stock by them.
-42-
<PAGE>
The Selling Securityholders and broker-dealers, if any,
acting in connection with such sales may be deemed to be
"underwriters" within the meaning of Section 2(11) of the
Securities Act and any commission received by them and any profit
on the resale of the securities by them might be deemed to be
underwriting discounts and commissions under the Securities Act.
We have agreed to indemnify the Series 2000-A Preferred
Stockholders against certain liabilities under the Securities Act.
From time to time this Prospectus will be supplemented and amended
as required by the Securities Act of 1933, as amended. During any
time when a supplement or amendment is so required, the Selling
Securityholders are to cease sales until the Prospectus has been
supplemented or amended. Pursuant to the registration rights
granted to certain of the Selling Securityholders, we have agreed
to update and maintain the effectiveness of this Prospectus.
Certain of the Selling Securityholders also may be entitled to
sell their Shares without the use of this Prospectus, provided
that they comply with the requirements of Rule 144 promulgated
under the Securities Act.
We do not plan to solicit the holder of Series 2000-A
Preferred Stock regarding the conversion of its Series 2000-A
Preferred shares into shares of Common Stock.
EXPERTS
Our consolidated balance sheets as of March 31, 2000 and 1999,
and the consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended and for the
cumulative period from November 22, 1995 (date of inception) through
March 31, 2000, have been included herein reliance on the report of
Hansen, Barnett & Maxwell, independent certified public accountants,
given on the authority of that firm as experts in auditing and
accounting.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock
offered hereby and certain other legal matters in connection have
been passed upon for us by Mackey Price & Williams, Salt Lake City,
Utah. We granted Dwight B. Williams, a member of Mackey Price &
Williams, our legal counsel, 6,667 shares of Common Stock in partial
payment for legal services to us in 1999 and 2000, including services
in connection with our private offering.
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange
Commission ("SEC"). Our SEC filings are available to the public
over the Internet at the SEC's website at http://www.sec.gov.
You may also read and copy any document we file at the SEC's public
reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1 (800) SEC-0330 for
further information on public reference rooms.
This Prospectus does not contain all the information which is
in the registration statement, as allowed by the rules and
regulations of the SEC. We refer you to the registration
statement and to the exhibits for further information offered in
this prospectus. Copies of the registration statement and the
exhibits are on file at the offices of the SEC and may be obtained
upon payment of the prescribed fee. They may be examined without
charge at the SEC's Public Reference Room or through the SEC's
website described above. Statements contained in this prospectus
concerning the provisions of documents are not necessarily summaries
of the material provisions of such documents, and each statement
is qualified in its entirety by reference to the copy of the
applicable document filed with the SEC.
-43-
<PAGE>
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants . . . . . . . . . . . F-1
Consolidated Balance Sheets - June 30, 2000 (Unaudited) and March 31,
2000 and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the Three Months Ended June
30, 2000 and 1999 and for the Cumulative Period from November 22, 1995
(Date of Inception) through June 30, 2000 (Unaudited) . . . . . . . . . F-4
Consolidated Statements of Operations 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 . . . . . F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the
Cumulative Period from November 22, 1995 (Date of Inception) through
March 31, 1998, for the Years Ended March 31, 1999 and 2000 and for
Three Months Ended June 30, 2000 (Unaudited) . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 2000 and 1999 and for the Cumulative Period from November
22, 1995 (Date of Inception) through June 30, 2000 (Unaudited) . . . . F-8
Consolidated Statements of 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. . . . . . . . . . . . F-9
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . F-10
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates, Inc. Salt Lake City, Utah 84111-2693
www.hbmcpas.com
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the Shareholders
e-automate Corporation
We have audited the accompanying consolidated balance sheets of e-automate
Corporation and Subsidiaries (a development stage company) as of March 31,
2000 and 1999, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the years then ended
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 audits 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 Subsidiaries as of March 31, 2000 and 1999,
and the results of their operations and their cash flows for the years
then ended 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 and for the cumulative
period from November 22, 1995 (date of inception) through March 31, 2000
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 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 SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
June 30, ---------------------
2000 2000 1999
----------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Current Assets
Cash . . . . . . . . . . . . . . . . . . . $ 283,211 $ 219 $ 386
Investment in securities available-
for-sale. . . . . . . . . . . . . . . . . - 5,470 -
Trade accounts receivable, no allowance for
doubtful accounts. . . . . . . . . . . . 32,451 23,099 -
Receivable from employees. . . . . . . . . 10,900 - -
Receivable from shareholders . . . . . . . 637,600 - -
Prepaid expenses . . . . . . . . . . . . . - - 4,700
----------- --------- ---------
Total Current Assets. . . . . . . . . . . 964,162 28,788 5,086
----------- --------- ---------
Property and Equipment
Furniture and fixtures . . . . . . . . . . 143,945 75,566 1,371
Computer equipment . . . . . . . . . . . . 287,766 173,946 40,087
----------- --------- ---------
Total Property and Equipment. . . . . . . 431,711 249,512 41,458
Less: Accumulated depreciation . . . . . . (57,452) (44,752) (20,345)
------------ --------- ---------
Net Property and Equipment. . . . . . . . 374,259 204,760 21,113
----------- ---------- ---------
Other Assets
Purchased software for internal use, net of
accumulated amortization of $3,655 (unaudited)
at June 30, 2000, $2,755 at March 31, 2000 and
$625 at March 31, 1999 . . . . . . . . . 16,100 15,548 1,738
Security deposits. . . . . . . . . . . . . 5,401 5,401 1,760
Deferred redeemable preferred stock offering
costs . . . . . . . . . . . . . . . . . 737,394 - -
----------- --------- ---------
Total Other Assets . . . . . . . . . . . 758,895 20,949 3,498
----------- -------- ---------
Total Assets . . . . . . . . . . . . . . . . $ 2,097,316 $254,497 $ 29,697
=========== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
<PAGE> F-2
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
March 31,
June 30, --------------------------
2000 2000 1999
------------ ------------ -----------
(Unaudited)
Current Liabilities
<S> <C> <C> <C>
Cash overdraft . . . . . . . . . . . . . . . . $ - $ 114,075 $ 3,082
Accounts payable . . . . . . . . . . . . . . . 159,020 278,454 53,624
Accrued liabilities. . . . . . . . . . . . . . 169,509 1,258 16,835
Deferred revenue . . . . . . . . . . . . . . . 145,548 158,138 96,303
Notes payable - related party. . . . . . . . . 295,001 237,281 129,635
Revolving credit note payable. . . . . . . . . - 169,915 107,463
Notes payable - current portion. . . . . . . . - 168,000 225,875
Obligation under capital leases - current
portion . . . . . . . . . . . . . . . . . . 24,614 24,614 -
------------ ------------ ------------
Total Current Liabilities . . . . . . . . . . 793,692 1,151,735 632,817
Long-Term Liabilities
Notes payable . . . . . . . . . . . . . . . . - - 183,000
Obligation under capital leases . . . . . . . 40,239 46,045 -
------------ ------------ -------------
Total Long-Term Liabilities . . . . . . . . . 40,239 46,045 183,000
------------ ------------ ------------
Redeemable Preferred Stock
Series 2000-A Convertible preferred stock - $0.001
par value; 5,500 shares authorized; 500 shares
outstanding at June 30, 2000 (unaudited);
liquidation preference $500,000 (unaudited). . 250,112 - -
------------ ------------ ------------
Stockholders' Equity (Deficit)
Series B Convertible preferred stock - $0.001
par value; 1,000,000 shares authorized ; 629
shares outstanding at June 30, 2000 (unaudited)
liquidation preference $629,000 (unaudited). . 628,983 - -
Undesignated preferred stock - $0.001 par value;
994,500 shares authorized; no shares
outstanding . . . . . . . . . . . . . . . . - - -
Common stock - $0.001 par value; 20,000,000
shares authorized; shares outstanding: 5,746,462 at
June 30, 2000 (unaudited), 5,296,205 at March 31,
2000 and 2,797,181 at March 31, 1999 . . . . 5,746 5,296 2,797
Additional paid-in-capital . . . . . . . . . . 6,076,076 3,784,079 467,578
Unearned compensation. . . . . . . . . . . . . (141,377) (179,572) -
Deficit accumulated during the development stage (5,556,155) (4,553,086) (1,256,495)
------------ ------------ ------------
Total Stockholders' Equity (Deficit) . . . . 1,013,273 (943,283) (786,120)
------------ ------------ ------------
Total Liabilities and Stockholders' Equity
(Deficit) . . . . . . . . . . . . . . . . . . $ 2,097,316 $ 254,497 $ 29,697
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> F-3
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period From
November 22, 1995
For the Three Months (Date of Inception)
Ended June 30, Through
----------------------- June 30,
2000 1999 2000
----------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues
Software licenses $ 114,905 $ 42,050 $ 672,673
Services 48,911 9,945 287,954
----------- ---------- -----------
Total Revenues 163,816 51,995 960,627
Cost of Revenues 180,927 83,149 823,664
----------- ---------- -----------
Gross Profit (Loss) (17,111) (31,154) 136,963
----------- ---------- -----------
Operating Expenses
Research and development 343,771 113,429 2,062,561
Selling and marketing 262,432 83,217 1,639,210
General and administrative 345,486 457,477 1,707,601
----------- ---------- -----------
Total Operating Expenses 951,689 654,123 5,407,372
----------- ---------- -----------
Loss From Operations (968,800) (685,277) (5,272,409)
Interest Expense (31,509) (31,283) (280,986)
----------- ---------- -----------
Net Loss (1,000,309) (716,560) (5,553,395)
Preferred Dividends (2,760) -- (2,760)
----------- ---------- ------------
Loss Applicable to Common Shares $(1,003,069) $ (716,560) $(5,556,155)
=========== ========== ===========
Basic and Diluted Loss Per
Common Share $ (0.19) $ (0.23) $ (1.90)
=========== ========== ===========
Weighted Average Number of Shares
Used in Per Share Calculation 5,319,917 3,069,926 2,928,647
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period From
November 22, 1995
For the Years Ended (Date of Inception)
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 4,459,683
----------- ---------- -----------
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)
Preferred Dividends -- -- --
----------- ---------- -----------
Loss Applicable to Common Shares $(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 2,778,624
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Common Stock Additional During the Stockholders'
---------------------- Paid-In Unearned Development Equity
Shares Amount Capital Compensation Stage (Deficit)
---------- ------- --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance - November 22, 1995
(Date of Inception) . . . . . . . . . . . . . . . . - $ - $ - $ - $ - $ -
Issued 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 principal 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 cumulative 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 76,133 - - 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 consolidated financial
statements.
F-6
<PAGE>
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
<TABLE>
<CAPTION> Deficit
Series B Convertible Accumulated Total
Preferred Stock Common Stock Additional Unearned During the Stockholders'
----------------- ---------------------- Paid-In Compensa- Development Equity
Shares Amount Shares Amount Capital tion Stage Deficit
------- --------- --------- -------- -------- --------- ----------- ------------
<S> <C> <C> <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) - - -
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 in connection with
exercise of stock option, $0.005
per share, December 14, 1999 . . - - 11,750 12 50 - - 62
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)
Issued for cash, April - June 2000,
$3.00 per share (unaudited) . . - - 203,539 203 610,416 - - 610,619
Issued in exchange for securities
available-for-sale, May - June
2000, $3.00 per share (unaudited) - - 23,185 23 68,922 - - 68,945
Issued for legal services, June 2000,
$3.00 per share (unaudited) . . . - - 6,667 7 19,994 - - 20,001
Issued to director for services, April
- June 2000, $3.00 per share
(unaudited) . . . . . . . . . . . - - 6,000 6 17,994 - - 18,000
Issued for receivables from
shareholders, June 2000 - $3.00
per share (unaudited) . . . . . . - - 210,866 211 632,389 - - 632,600
Issuance of Series B preferred
stock on conversion of debt, -
June 2000 - $1,000 per share
(unaudited) . . . . . . . . . . . 629 628,983 - - - - - 628,983
Issuance of warrants for cash in
connection with Series A preferred
stock, June 19, 2000 (unaudited) . - - - - 117,955 - - 117,955
Issuance of Series 2000 - B
Warrants for cash proceeds of
$5,000, June 21, 2000 (unaudited). - - - - 824,327 - - 824,327
Amortization of unearned compensation
(unaudited) - - - - - 38,195 - 38,195
Preferred dividends related to
Series A preferred stock
(unaudited) . . . . . . . . - - - - - - (1,222) (1,222)
Preferred dividends related to
Series B preferred stock
(unaudited) . . . . . . . . . . . - - - - - - (1,538) (1,538)
Net loss for the three months
ended June 30, 2000 (unaudited) . - - - - - - (1,000,309) (1,000,309)
------- --------- ---------- -------- --------- -------- ----------- ------------
Balance - June 30, 2000
(Unaudited) . . . . . . . . . . 629 $ 628,983 5,746,462 $ 5,746 $6,076,076 $(141,377) $(5,556,155) $ 1,013,273
======== ========= ========= ======== ========== ========= =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> F-7
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period From
November 22, 1995
For the Three Months (Date of Inception)
Ended June 30, Through
----------------------- June 30,
2000 1999 2000
----------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(1,000,309) $ (716,560) $(5,553,395)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 13,600 8,001 61,107
Common stock issued for legal expense 20,001 -- 20,001
Common stock issued for interest expense -- -- 15,360
Preferred stock issued for interest
expense 4,835 -- 4,835
Preferred stock issued for rent expense 13,500 -- 13,500
Stock-based compensation 18,000 248,160 677,050
Compensation from stock options granted 38,195 -- 267,927
Compensation paid with a note payable -- 58,969 58,969
Debt discount amortized as interest -- 2,125 44,125
Change in assets and liabilities:
Trade accounts receivable (9,352) (75,278) (40,636)
Prepaid expenses -- -- --
Accounts payable (119,434) 64,260 159,020
Accrued liabilities 165,491 13,920 170,559
Deferred revenue (12,590) 139,701 153,733
Other assets (10,900) (1,432) (16,301)
----------- ---------- -----------
Net Cash Used In Operating Activities (878,963) (258,134) (3,964,146)
----------- ---------- -----------
Cash Flows From Investing Activities
Proceeds from sales of securities
available-for-sale 74,415 -- 487,695
Purchase of property and equipment (183,651) -- (354,392)
----------- ---------- -----------
Net Cash Provided by Investing Activities (109,236) -- 133,303
----------- ---------- -----------
Cash Flows From Financing Activities
Increase (decrease) in cash overdraft (114,075) (3,082) --
Proceeds from issuance of common stock 610,619 31,670 2,467,405
Proceeds from issuance of redeemable
preferred stock and warrants 450,000 -- 450,000
Proceeds from issuance of notes payable -- 225,000 672,000
Proceeds from notes payable -
related parties 445,000 40,000 883,997
Principal payments on notes payable -
related parties (114,547) (17,937) (497,066)
Principal payments on obligation under
capital leases (5,806) (2,686) (24,197)
Payments to redeem common stock
from employees -- -- (8,000)
Net change in revolving credit note payable -- 74,398 169,915
----------- ---------- ------------
Net Cash Provided By Financing Activities 1,271,191 347,363 4,114,054
----------- ---------- ------------
Net Increase (Decrease) In Cash 282,992 89,229 283,211
Cash at Beginning of Period 219 386 --
----------- ---------- ------------
Cash at End of Period $ 283,211 $ 89,615 $ 283,211
=========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<PAGE>
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period From
November 22, 1995
For the Years Ended (Date of Inception)
March 31, Through
----------------------- March 31,
2000 1999 2000
----------- ---------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(3,296,591) $ (618,277) $(4,553,086)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 26,537 10,600 47,507
Common stock issued for legal expense -- -- --
Common stock issued for interest expense -- 15,360 15,360
Preferred stock issued for interest expense -- -- --
Preferred stock issued for rent expense -- -- --
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) -- (31,284)
Prepaid expenses 4,700 3,063 --
Accounts payable 224,830 53,624 278,454
Accrued liabilities (11,767) (9,883) 5,068
Deferred revenue 61,835 96,303 166,323
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 (decrease) 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 redeemable
preferred stock -- -- --
Proceeds from issuance of notes payable 225,000 93,000 672,000
Proceeds from notes payable -
related parties 359,997 79,000 438,997
Principal payments on notes payable -
related parties (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 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 $ 3 $ 219
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE>
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to June 30, 2000 and for the Three Months Ended
June 30, 2000 and 1999 is Unaudited)
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
shares 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.
Interim Financial Statements - The accompanying
consolidated financial statements at June 30, 2000
and for the three months ended June 30, 2000 and
1999 are unaudited. In the opinion of management,
all necessary adjustments (which include only
normal recurring adjustments) have been made to
present fairly the financial position, results of
operations and cash flows for the periods
presented. The results of operations for the three-
month period ended June 30, 2000 are not
necessarily indicative of the operating results to
be expected for the full year.
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 $3,296,591 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.
These factors raise substantial doubt about the
Company's ability to continue as a going concern.
The Company's ability to continue as a going
concern is dependent upon its ability to generate
sufficient cash flows to meet its obligations on a
timely basis, to obtain additional financing, and
ultimately to attain profitable operations.
Management's plans include obtaining additional
equity financing and management believes that
profitability and cash flows from operations will
improve and will provide the necessary capital to
fund operations due to the continued success of
existing products and the introduction of new
products. Subsequent to June 30, 2000, e-automate
has received $1,800,000 cash proceeds for the sale of
its Series 2000-A Preferred Stock (unaudited). In
addition, e-automate may be in default after October
17, 2000 under terms of the Series 2000-A purchase
agreement, because of its failure to obtain the effectiveness
of a registration statement by then, and the Company could
have difficulty in meeting its obligations and the related
redemption requirements. There is no assurance, however,
that these efforts will result in profitable operations
or in the Company's ability to meet obligations
when due. The financial statements do not include
any adjustments relating to the recoverability and
classification of recorded asset amounts or the
amount and classification of liabilities that
might be necessary should the Company be unable to
continue as a going concern.
<PAGE> F-8
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to June 30, 2000 and for the Three Months Ended
June 30, 2000 and 1999 is Unaudited)
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.
Concentrations of Credit Risk Arising From Cash
Deposits in Excess of Insured Limits - The Company
maintains its cash balances in one financial
institution located in Orem, Utah. The balances
are insured by the Federal Deposit Insurance
Corporation up to $100,000. At June 30, 2000, the
Company's uninsured cash balance totaled $384,836.
Financial Instruments - The amounts reported as
cash, investment in securities available-for-sale,
trade accounts receivable, cash overdraft, accounts
payable, and accrued liabilities are considered to be
reasonable approximations of their fair values due to
their near-term maturities except that the amount
reported as securities available-for-sale are based
upon quoted market prices.
Property and Equipment - Property and equipment
are reported at cost. Minor repairs,
enhancements, and maintenance costs are expensed
when incurred. Depreciation is computed using the
straight-line method over the estimated useful
lives of the assets. Depreciation expense for the
years ended March 31, 2000 and 1999 was $24,407
and $10,290, respectively. Depreciation expense
for the three months ended June 30, 2000 and 1999
was $12,700 and $7,550, 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. Amortization
expense for the three months ended June 30, 2000
and 1999 was $900 and $451, respectively. 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 have been categorized as available-for-sale.
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 May to November
of 1999 in exchange for 139,607 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.
During the three months ended June 30, 2000, the
Company issued 23,185 common shares upon receipt
of securities available-for-sale with a fair value
of $68,945, or $3.00 per share. The securities
were sold, together with securities on hand as of
March 31, 2000, for total proceeds of $74,415.
<PAGE> F-9
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to June 30, 2000 and for the Three Months Ended
June 30, 2000 and 1999 is Unaudited)
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, and 2,060,396 and 367,967
for the three months ended June 30, 2000 and 1999,
respectively.
Stock-Based Compensation - The Company accounts
for compensation from stock options granted to
employees based on the intrinsic value of the
options on the dates granted.
NOTE 2 - CASH FLOW INFORMATION
Supplemental Cash Flow Information - During the
year ended March 31, 2000 and 1999, the Company
paid $97,609 and $54,262 for interest. During the
three months ended June 30, 2000 and 1999 the
Company paid $11,244 and $27,049 for interest,
respectively.
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.
<PAGE> F-10
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to June 30, 2000 and for the Three Months Ended
June 30, 2000 and 1999 is Unaudited)
On December 1, 1998 e-automate redeemed 531,288
shares of common stock for a $110,000 note
payable- related party.
During the year ended March 31, 2000, the Company issued
139,607 common shares upon receipt of marketable securities
with a fair value of $418,750. The Company issued
626,040 common shares upon conversion of
convertible debentures in the amount of $333,000.
The Company entered into capital lease agreements
for $89,000 of office and computer equipment. 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.
During the three months ended June 30, 2000, the
Company issued 23,815 common shares upon receipt
of marketable securities with a fair value of
$68,945. The Company issued 629 shares of
Preferred Series B stock upon conversion of
$168,000 in notes payable, $272,733 in related
party notes payable, $169,915 in a revolving credit
note payable with a related party, and $18,335 in
expenses. The Company issued 210,866 common shares for
subscriptions receivable in the amount of $632,600.
NOTE 3 - RELATED PARTY NOTES PAYABLE
An officer and director advanced $334,997 to the
Company during the year ended March 31, 2000 to
meet current operating expenses and was repaid
$252,234 resulting in a balance on March 31, 2000
of $165,178. During the quarter ended June 30,
2000, the same officer and director advanced the
Company $245,000 to meet current operating
expenses and was repaid $103,510. On June 19,
2000 the Company converted $251,667 of these notes
payable into Preferred Series B stock. The
remaining balance on the notes payable to this
officer and director at June 30, 2000 was $55,001.
In addition, another officer and director
advanced $25,000 to the Company during the year ended
March 31, 2000 from a personal line of credit
for which the Company has committed to pay the
note according to its terms. The interest rate is
9.75% and has a credit limit of $100,000 and a
balance at March 31, 2000 of $22,103. During the
three months ended June 30, 2000, $1,037 was paid
on this loan. The remaining balance of $21,066
was converted into Preferred Series B shares on
June 19, 2000.
On May 8, 2000, an officer and director advanced
$200,000 to the Company to meet current operating
expenses. The loan bore interest at 8 percent.
On July 5, 2000 the entire principal balance and
all accrued interest was paid to the officer.
During December 1998, the Company redeemed 531,288
common shares in exchange for a note payable to an
officer in the amount of $110,000. During the year ended
March 31, 1999, the Company issued $79,000 in related
party notes payable for cash proceeds of $79,000, and
the Company advanced to an officer $59,365, resulting
in aggregate related party notes payable at March 31,
1999 of $129,645. During the year ended March 31, 2000
the Company made cash payments to the officer of $60,000
resulting in a balance at March 31, 2000 of $50,000.
During the three months ended June 30, 2000, the Company
made payments of $10,000, resulting in a balance of
$40,000 at June 30, 2000.
NOTE 4 - NOTES PAYABLE
From October 1997 through April 1998, the Company
issued notes payable in the amount of $168,000
together with 256,650 common shares and the transfer of
75,200 common shares by a principal shareholder to the
for cash proceeds of $168,000. 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.
From inception through March 31, 1998, the
Company issued convertible debentures for cash in
the amount of $243,000. During April and May 1999,
the Company issued an additional $90,000 of
convertible debentures for cash. The debentures
provide for conversion of principal into shares of
the Company's common stock at $0.53 per share. The
conversion rate was granted when the fair value of
the shares was $0.13 per share. On May 29, 1999,
holders of $333,000 in convertible debentures
exercised their right under the debenture
agreements and converted their debentures into
626,040 common shares at $0.53 per share.
<PAGE> F-11
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to June 30, 2000 and for the Three Months Ended
June 30, 2000 and 1999 is Unaudited)
June 30, March 31, March 31,
2000 2000 1999
-------- --------- --------
Notes payable, bear interest at 22%,
due at Various dates through March 31,
2001, secured by the assets of the
Company, converted into Preferred
Series B shares. . . . . . . . . . . . . $ - $ 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
========= ========= =========
NOTE 5 - OBLIGATION UNDER CAPITAL AND OPERATING
LEASES
The Company entered into various capital lease
agreements for computer and office equipment.
These leases are for periods from 36 to 60 months
with minimum monthly payments ranging from $312 to
$1,050. Equipment under capital leases as of
March 31, 2000 was as follows:
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, respectively. 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
========
<PAGE> F-12
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to June 30, 2000 and for the Three Months Ended
June 30, 2000 and 1999 is Unaudited)
NOTE 6 - REDEEMABLE PREFERRED STOCK
Series A Convertible Preferred Stock -- On June 19, 2000, the
Board of Directors designated 5,500 shares of preferred stock
as Series 2000-A convertible preferred stock (the "Series A
Convertible Stock") with a $0.001 par value per share and a
stated value of $1,000 per share. The Series A Convertible
Stock shareholder is entitled to the number of votes equal to
the number of shares of common stock into which the Series A
Convertible Stock is convertible. Cumulative dividends accrue
on the Series A Convertible Stock at 8% per annum and are
payable quarterly. The Series A Convertible Stock shareholder,
at its option, may elect to receive payment of dividends in
cash or in common stock. Dividends on the Series A Convertible
Stock rank senior to dividends payable on all other series or
classes of stock. The annual aggregate dividend requirement
for Series A Convertible Stock issued to date is $120,000.
Conversion and Redemption -- The Series A Convertible Stock is
convertible into common stock at 80% of the average of the three
lowest quoted closing bid prices during the 15 trading days preceding
the conversion date, subject to a maximum conversion price of
$5.75 per share and 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 Stock, upon a 30-day
notice to the Series A Convertible Stock shareholder. As discussed
below, the Series A Convertible Stock must be redeemed by the
Company if the Company has an event of non-compliance. On
liquidation, the holders of Series A Convertible Stock will be
entitled to receive $1,250 per share plus any accrued but unpaid
dividends ahead of any liquidation payments to the common shareholders.
Securities Purchase Agreement -- On June 19, 2000, the Company
executed a securities purchase agreement (the "Purchase
Agreement") with Aspen Capital Resources, L.L.C. (the
"Purchaser" or the "Series A Convertible Stock shareholder"), and
issued 500 shares of Series A Convertible Stock for $500,000,
less a 10% placement fee to the Purchaser, and issued warrants
for the purchase of 100,000 shares of common stock as explained
below. The Purchase Agreement provides for the issuance of 4,500
shares of Series A Convertible Stock, at the rate of 500 shares
per month, with 900,000 warrants for $4,500,000. The subsequent
closings are planned to be for $500,000 each, less a similar 10%
placement fee. Receipt of the financing is solely at the discretion
of the Purchaser and there is no obligation on the Purchaser to
provide the future financing. During July and August 2000, the
Company issued an additional 1,000 shares of Series A Convertible
Stock and 200,000 warrants to the Purchaser in exchange for net
proceeds of $900,000.
Warrants -- 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
Company's common stock is quoted, the exercise price will be
$4.00 per share.
In connection with this offering, additional warrants to
purchase 500,000 shares of common stock at $5.00 per share
were issued as a financing fee and for cash proceeds of $5,000
on June 19, 2000. The fair value of the warrants of $819,327
was determined based on the Black-Scholes option pricing model
with the following assumptions: risk-free interest rate of
6.56%; expected dividend yield of 0%; estimated volatility of
125%; and expected life of two years. The fair value of the
warrants was recorded as deferred offering costs and is being
charged against the proceeds received from each issuance of
Series A Convertible Stock. If the Purchaser notifies the
Company of its discontinuation of the Series A Convertible
Stock financing, the remaining deferred offering costs will be
charged to operations.
Allocation of Proceeds -- On June 19, 2000, the Company issued
500 shares of Series A Convertible Stock in exchange for net
proceeds of $450,000. The placement fee to the Purchaser was
netted against the proceeds. The net proceeds less
amortization of deferred offering costs of $81,932 were
allocated between the Series A Convertible Stock and the
warrants based on the relative fair value of those instruments
with $117,956 allocated to the warrants and $250,112 allocated
to the Series A Convertible Stock.
Redemption and Contingent Default -- Upon receiving written
notification from the purchaser, the Company is required to
redeem all of the outstanding shares of Series A Convertible
Stock at $1,250 per share, plus accrued and unpaid dividends,
through the date of redemption if (i) an event of
noncompliance occurs as discussed below, or (ii) if, after the
first date upon which the Company's common stock is quoted on
the NASDAQ Stock Market System or reported on the National
Association of Securities Dealers' ("NASD") OTC Bulletin
Board, the average of the closing quoted bid prices for the
Company's common stock for 22 consecutive trading days, is
less than or equal to $3.25 per share. If the Company fails to
make the redemption payment within five days, dividends will
accrue on all outstanding Series A Convertible Stock at 21%
per year until paid in full, the conversion price will be
reduced by $1.00 per share and will not be subject to the
minimum conversion price. Upon the occurrence of an event of
default, the warrants issued to the Purchaser become
immediately exercisable. If by October 17, 2000 e-automate
fails to obtain the effectiveness of a registration statement,
or if e-automate's common stock is not trading on a public market,
e-automate will be rquired to issue common shares equal to 7%
per month of that number of common shares the Series-A Convertible
Stock would be convertible into.
Under the Purchase Agreement, an event of noncompliance shall
have occurred if (i) the Company fails to pay on any dividend
payment date the full amount of dividends then accrued, (ii)
the Company fails to make any redemption payment which it is
required to make, (iii) any registration statement required to
be filed by the Company and declared effective by the
Securities and Exchange Commission pursuant to the Purchase
Agreement shall not become effective by October 17, 2000 or
shall cease to be effective, or (iv) after October 17, 2000
the common stock is suspended from trading on or the price for
the common stock is not quoted or reported on the NASDAQ Stock
Market System or the NASD OTC Bulletin Board, or (v) an other
event of non-compliance as defined in the Certificate of
Designation for the Series-A Convertible Preferred Stock.
If a default occurs, the increase in the face value of the
Series A preferred stock by 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 currently estimated contingent beneficial conversion feature
will be recognized as an additional contingent preferred dividend
in the amount of $250,112. The contingent preferred dividends
will be recognized if a default occurs.
Adjustment of the Conversion Price -- If, after June 19, 2000,
the Company issues or sells any shares of common stock or
grants any rights or options to purchase common stock or any
stock or other securities convertible into or exchangeable for
common stock or issues or sells any convertible securities,
and the value per share for such common stock is less than the
fair market value per share, the conversion price of the
Series A Convertible Stock is reduced according to a formula
defined in the Purchase Agreement.
NOTE 7 - 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.
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.
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.
<PAGE> F-14
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to June 30, 2000 and for the Three Months Ended
June 30, 2000 and 1999 is Unaudited)
From February 1996 through August 1998 the Company
issued shares of its common stock to employees and
directors for services or as performance based
bonuses. During this time the Company issued a
total of 333,108 shares to employees for services
valued at $44,296, or $0.13 per share, and 105,801
common shares to directors for services valued at
$16,250, or $0.13 per share. In as much as the
Company's common shares were and are not publicly
traded, the Board of Directors determined the fair
value of the Company's common shares to be $0.13
per share from inception through September 1998.
During April and May, 1997 a principal shareholder
of the Company contributed 356,818 common shares
back to the Company and the Company reissued the
shares 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.
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 November 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.
<PAGE> F-15
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to June 30, 2000 and for the Three Months Ended
June 30, 2000 and 1999 is Unaudited)
Between May and November 1999, the Company issued
273,240 shares of common stock, together with
136,620 Class A warrants and 136,620 Class B
warrants under the terms of a private placement
offering (the 1999 Offering) for cash proceeds of
$819,721, or $3.00 per share. Each Class A warrant
is convertible at $3.50 per share through August
31, 2000, and each Class B warrant is convertible
at $4.50 per share through February 28, 2001.
As part of the 1999 Offering, the Company also
issued 139,607 units, as described in the preceeding
paragraph in exchange for securities available-for-sale
valued at $418,750. The units were issued at $3.00 per unit.
In contemplation of the reorganization and the
1999 Offering an advance in the amount of $135,000
was received from an investor during May 1999 in
order to meet short-term expenses. The advance was
converted into 45,000 units under the 1999
Offering, at $3.00 per share on July 11, 1999.
On May 20, 1999, 82,720 common shares were issued
to directors for services valued at $248,160, or
$3.00 per share. The value of these shares was
based upon the value e-automate received upon the
issuance of common shares for cash in private
placements during the weeks surrounding this
issuance.
On July 2, 1999, for accounting purposes, the
Company was deemed to have issued 1,000,000 common
shares, valued at $0, to the shareholders of
Woodlake in connection with the reverse
acquisition of Woodlake. No assets were received
nor were any liabilities assumed in connection
with this acquisition.
During December 1999, the Company issued 11,750
shares upon exercise of stock options for cash
proceeds in the amount of $62.
During January 2000, the Company issued 80,000
shares of common stock, 40,000 Class A warrants
and 40,000 Class B warrants to one party in a
private placement for cash proceeds of $240,000.
Each Class A warrant is convertible into common
stock at $3.50 per share through August 31, 2000
and each Class B warrant is convertible into
common stock at $4.50 per share through February
28, 2001.
From January through March 2000, the Company
issued 314,667 investment units under the terms of
a new private placement (the "2000 Placement") for
cash proceeds of $937,003 or $2.92 per unit net of
$7,000 in commissions. Each unit under the 2000
Placement consists of one common share, and one
Class C warrant. Each Class C warrant is
convertible into one common share at $5.50 per
share through August 31, 2001.
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 shares per month.
From April to June 2000, the Company issued
203,539 investment units, under the terms of the
2000 Placement, for cash proceeds of $610,619 or
$3.00 per unit. Included as a part of the 2000
Placement, 1,363 units were issued in exchange for
securities available-for-sale with a value of
$4,091, or $3.00 per unit. In 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.
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.
<PAGE> F-16
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to June 30, 2000 and for the Three Months Ended
June 30, 2000 and 1999 is Unaudited)
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.
NOTE 8 - STOCK OPTIONS AND WARRANTS
Stock Options - Between January 1998 and March 31,
1999, the Company issued 227,474 non-qualified
employee stock options with a weighted average
exercise price of $0.53 per share, which expire
10 years from the grant date. The options vest
25% after one year and then 6.25% per quarter of
the employees' service. Since the exercise price
was in excess of the fair value of the underlying
shares on the grant date, no compensation was
recognized in connection with these options.
During 1999, the Company adopted the 1999 Employee
Incentive Stock Option Plan ( the "1999 Plan").
The 1999 Plan provides for issuance of up to
1,000,000 options vesting over four years with 25%
vesting one year from the grant date and vesting
thereafter at a rate of 6.25% per quarter year of
service. The unexercised options expire ten years
from the date of grant. During the year ended
March 31, 2000, the Company granted 306,266 options
with a weighted-average exercise price of $1.59 per
share, according to the terms of the 1999 Plan.
Some of the option agreements designated exercise
prices below the fair value of the underlying
shares on the grant date and compensation in the
amount of $455,704 will be recognized over the
vesting period of the options. During the year
ended March 31, 2000, the Company recognized
$229,732 as compensation related to employee stock
option grants. During the three months ended June
30, 2000 the Company recognized $38,195 as
amortization of unearned compensation relating to
stock option grants.
During the three months ended June 30, 2000 the
Company granted 376,700 incentive stock options,
all with an exercise price of $3.00 per share
under terms of the 1999 Plan.
A summary of the status of the Company's employee
stock options as of June 30, 2000 and March 31,
2000 and 1999, and changes during the periods then
ended are presented below:
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000 March 31, 1999
---------------------- ----------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- ------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period. . . . . . . . . . . 502,790 $ 1.15 227,474 $ 0.53 - $ -
Granted . . . . . . . . . . . 376,700 3.00 306,266 1.59 227,474 0.53
Exercised. . . . . . . . . . . . - - (11,750) 0.01 - -
Forfeited. . . . . . . . . . . . (36,800) 1.91 (19,200) 0.58 - -
------- ------- ---------
Outstanding at end of period . . 842,690 1.94 502,790 1.15 227,474 0.53
======= ======= =========
Options exercisable at
the end of the period. . . . . 135,577 69,570 -
======= ======= ==========
Weighted-average fair value
of options granted during
the period . . . . . . . . . . $ 2.89 $ 2.11 $ 0.02
======= ======== ==========
</TABLE>
<PAGE> F-17
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to June 30, 2000 and for the Three Months Ended
June 30, 2000 and 1999 is Unaudited)
The following table summarizes information about stock options
outstanding at June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ --------------------------
Weighted
-Average Weighted Weighted
Range of Number Remaining -Average Number -Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices June 30, 2000 Life Price June 30, 2000 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 - 3.49 468,456 9.72 3.00 25,000 3.00
$3.50 - 5.00 5,750 9.31 4.80 - -
------- -------
$0.01 - 5.00 842,690 135,577
======= =======
</TABLE>
The following table summarizes information about stock options outstanding at
March 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ --------------------------
Weighted
-Average Weighted Weighted
Range of Number Remaining -Average Number -Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices March 31, 2000 Life Price March 31, 2000 Price
------------ ------------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$0.01 - 0.99 312,084 8.89 $ 0.48 69,570 $ 0.42
$1.00 - 2.99 81,400 9.27 1.00 - -
$3.00 - 3.49 98,556 9.51 3.00 - -
$3.50 - 5.00 10,750 9.52 4.90 - -
------------ ----------
$0.01 - 5.00 502,790 69,570
============ ==========
</TABLE>
The Company measures compensation under stock-based
options and plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion 25,
Accounting for Stock Issued to Employees, and related
interpretations, for stock options granted to employees,
and determines compensation cost granted to non-employees
based on the fair value at the grant dates. Had compensation
cost for the Company's stock options been determined based
upon the fair value at the grant dates, loss applicable to
common shares and basic and diluted loss per common share
would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the Three Months For the Years Ended
Ended June 30, Ended March 31,
--------------------------- ------------------------
2000 1999 2000 1999
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Loss applicable to common shares:
As reported. . . . . . . . . . . . . . . $ (1,003,069) $(716,560) $ (3,296,591) $(618,277)
Pro forma. . . . . . . . . . . . . . . . (1,162,479) (882,701) (4,266,486) (623,778)
Basic and diluted loss per share:
As reported. . . . . . . . . . . . . . . $ (0.19) $ (0.23) $ (0.73) $ (0.24)
Pro forma. . . . . . . . . . . . . . . . (0.23) (0.29) (0.95) (0.24)
</TABLE>
The fair value of each option granted was
estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions used for grants in 1999 and 2000:
weighted-average risk-free interest rate of 5.75%;
estimated life of 10 years; dividend yield of 0.0% and,
expected volatility of 0.0%. Assumptions used for
grants during the three months ended June 30, 2000 were:
weighted-average risk-free interest rate of 6.0%;
estimated life of 10 years; dividend yield of 0.0% and
expected volatility of 125%.
Stock Purchase Warrants - Under the terms of the 1999
private placement offering, the Company issued 239,835
Class A warrants and 239,835 Class B warrants in
connection with the 479,669 shares of common stock
issued under that offering. Additionally, the Company
<PAGE> F-18
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to June 30, 2000 and for the Three Months Ended
June 30, 2000 and 1999 is Unaudited)
issued 40,000 Class A warrants and 40,000 Class B
warrants in conjunction with the 80,000 shares of common
stock issued under a private placement offering. Each
Class A warrant is convertible at $3.50 per share
through August 31, 2000, and each Class B warrant is
convertible at $4.50 per share through February 28,
2001. The Company issued 657,102 Class C warrants along
with 657,102 shares of common stock under the terms of
the 2000 private placement offering. Each Class C
warrant is convertible into one common share at $5.50
per share through August 31, 2001.
NOTE 9 - INCOME TAXES
Prior to its reorganization with Woodlake, the Company,
with the consent of its shareholders, had elected to be
taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions, the
Company was not allowed a net operating loss
carryforward or carryback as a deduction. Instead, the
shareholders included their proportionate share of the
Company's net operating loss in their individual income
tax returns. Therefore, no benefit or asset for federal
or state income taxes was included in these financial
statements for the period from November 22, 1995 (Date
of Inception) through March 31, 1999 or through June 30,
1999, the date the S election was terminated. There were
no temporary differences on June 30, 1999 and therefore
no deferred tax asset or liability was established upon
termination of S Corporation election. The following
presents the components of the net deferred tax asset at
March 31, 2000:
Difference in fair value and tax basis of
contributed securities . . . . . . . . . . . . . $ (2,040)
----------
Total Deferred Tax Liability. . . . . . . . . (2,040)
----------
Deferred revenue . . . . . . . . . . . . . . . . . 64,706
Operating loss carry forwards. . . . . . . . . . . 738,680
----------
Total Deferred Tax Assets . . . . . . . . . . 803,386
----------
Valuation allowance for deferred tax assets . . . (801,346)
----------
Net Deferred Tax Asset. . . . . . . . . . . . $ -
==========
The valuation allowance for deferred tax assets
increased by $957,539 and $0 during the years ended
March 31, 2000 and June 30, 1999. A deferred tax
liability 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) $(197,439)
Loss incurred while taxed as an S Corporation. . . . 256,398 197,439
Non deductible expenses. . . . . . . . . . . . . . . 29,706 -
Change in valuation allowance. . . . . . . . . . . . 957,539 -
State benefit, net of federal tax. . . . . . . . . . (110,027) -
----------- ---------
Benefit from Income Taxes. . . . . . . . . . . . . .$ - $ -
=========== =========
<PAGE> F-19
E-AUTOMATE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to June 30, 2000 and for the Three Months Ended
June 30, 2000 and 1999 is Unaudited)
NOTE 10 - COMMITMENTS
During December 1999 the shareholders elected a new
director and the Company agreed to compensate the
director for his services by issuing 24,000 common
shares according to a 12-month vesting schedule, or
2,000 shares per month.
NOTE 11 - SUBSEQUENT EVENTS
Issuance of Series A Convertible Preferred Stock - On
July 19, 2000, the Company received cash proceeds of
$450,000 net of $50,000 offering costs, in exchange for
the issuance of 500 shares of Series A convertible
preferred stock and 100,000 warrants. The net proceeds
received after the additional amortization of deferred
redeemable preferred stock offering costs in the amount
of $81,932, were allocated between the Series A
convertible preferred stock and the detached warrants
issued based on the relative fair value of those
instruments with $117,956 being allocated to the
warrants and $250,112 to the Series A preferred stock.
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 ActiveViews Acquisition Corporation which held
as its sole asset the user license and agreed to start
up a new joint venture subsidiary called Active Views,
Inc. (AVI) 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.
Acqusition of Fastrak - On September 13, 2000, e-automate
acquired certain assets, including software rights and
source code, as well as the customer base and support contracts
of the Fastrak business segment of Core Software, Inc. in
exchange for cash in the amount of $200,000 and 40,000 shares
of common stock valued at $120,000 or $3.00 per share.
(Unaudited).
<PAGE> F-20
No dealer, salesman or any other person has
been authorized to give information or to make
any representations other than those contained
in this Prospectus, and, if given or made, such
information or representations must not be relied 4,164,262 Shares of
upon as having been authorized by the Company or Common Stock
the Underwriter. This Prospectus does not 325,000 Warrants
constitute an offer to sell or a solicitation of
any offer to buy any of the securities offered
hereby by anyone in any jurisdiction in which e-automate Corporation
such offer or solicitation is not authorized ----------------------
or in which the person making such offer or PROSPECTUS
solicitation is not qualified to do so or to ----------------------
anyone to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, October 17, 2000
under any circumstances, create any implication
that there has been no change in the affairs of
the Company since the date hereof.
-----------------
TABLE OF CONTENTS
Page
Prospectus Summary
Risk Factors
Forward Looking Statements
Use of Proceeds
Capitalization
Selected Financial Data
Management's Discussion and Analysis
Description of Our Legal Proceedings
Business
Management
Certain Relationships and Related Transactions
Security Ownership of Certain Beneficial
Owners and Management
Securityholders Registering Shares
Description of Securities
Plan of Distribution
Experts
Legal Matters
Available Information
Index of Financial Statements F-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of
Delaware (the "Delaware Law") empowers a Delaware corporation to
indemnify any person who is, or is threatened to be made, a party
to any threatened, pending or completed legal action, suit or
proceedings, whether civil, criminal, administrative or
investigative (other than action by or in the right of such
corporation), by reason of the fact that such person was an
officer or director of such corporation, or is or was serving at
the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
such person in connection with such action, suit or proceeding,
provided that such officer or director acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to
the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his or her conduct was illegal.
A Delaware corporation may indemnify officers and directors in an
action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his or her duty.
Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the
corporation must indemnify him or her against the expenses which
such officer or director actually and reasonably incurred.
In accordance with the Delaware Law, the Certificate of
Incorporation of the Company contains a provision to limit the
personal liability of the directors of the Company for violations
of their fiduciary duty. This provision eliminates each
director's liability to the Registrant or its stockholders for
monetary damages except (i) for any breach of the director's duty
of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware Law providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which a director
derived an improper personal benefit. The effect of this
provision is to eliminate the personal liability of directors for
monetary damages for actions involving a breach of their fiduciary
duty of care, including any such actions involving gross negligence.
The Company may not indemnify an individual unless
authorized and a determination is made in the specific case that
indemnification of the individual is permissible in the
circumstances because his or her conduct was in good faith, he or
she reasonably believed that his or her conduct was in, or not
opposed to, the Company's best interests and, in the case of any
criminal proceeding, he or she had no reasonable cause to believe
his or her conduct was unlawful. The Company may not advance
expenses to an individual to whom the Company may ultimately be
responsible for indemnification unless authorized in the specific
case after the individual furnishes the following to the Company:
(1)a written affirmation of his or her good faith belief that his or
her conduct was in good faith, that he or she reasonably believed
that his or her conduct was in, or not opposed to, the Company's
best interests and, in the case of any criminal proceeding, he or
she had no reasonable cause to believe his or her conduct was
unlawful and (2) the individual furnishes to the Company a
written undertaking, executed personally or on his or her behalf,
to repay the advance if it is ultimately determined that he or she
did not meet the standard of conduct referenced in part (1) of
this sentence. In addition to the individual furnishing the
aforementioned written affirmation and undertaking, in order for
the Company to advance expenses, a determination must also be made
that the facts then- known to those making the determination would
not preclude indemnification.
All determinations relative to indemnification must be made
as follows: (1) by the Board of Directors of the Company by a
majority vote of those present at a meeting at which a quorum is
present, and only those directors not parties to the proceeding
shall be counted in satisfying the quorum requirement; or (2) if a
quorum cannot be obtained as contemplated in part (1) of this
sentence, by a majority vote of a committee of the Board of
Directors designated by the Board of Directors of the Company,
which committee shall consist of two or more directors not parties
to the proceeding, except that directors who are parties to the
proceeding may participate in the designation of directors for the
committee; or (3) by special legal counsel selected by the Board
of Directors or its committee in the manner prescribed in part (1)
or part (2) of this sentence (however, if a quorum of the Board of
Directors cannot be obtained under part (1) of this sentence and a
committee cannot be designated under part (2) of this sentence,
then a special legal counsel shall be selected by a majority vote
of the full board of directors, in which selection directors who
are parties to the proceeding may participate); or (4) by the
shareholders, by a majority of the votes entitled to be cast by
holders of qualified shares present in person or by proxy at a
meeting.
II-2
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable by the
Company in connection with the issuance and distribution of the
securities being registered, other than underwriting discount (all
amounts except the Securities and Exchange Commission filing fee
and the NASD fee are estimated):
Filing fee - Securities and Exchange Commission $ 5,801
NASD fee 0
Printing and engraving expenses 5,000
Legal fees and disbursements 60,000
Accounting fees and disbursements 45,000
Blue Sky fees and expenses (including legal fees) 15,000
Miscellaneous 0
Total expenses --------
$130,801
ITEM 26. RECENT 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 shares 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 cash.
F. In May 1998, the Company issued 45,120 shares of Common Stock
to a director for $6,000 interest on 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 a director for services rendered and an existing
investor for $100,000 cash.
J. On May 20, 1999, the Company issued 82,720 shares of Common
Stock to three directors for services rendered valued at $248,160.
II-3
<PAGE>
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 Common Stock at a price of $3.00 per
share to 26 private placement investors for $819,721, 417,104 in
marketable equity securities, and $66,500 in restricted equity
securities. The 434,669 shares of Common Stock were issued with
217,334 Class A Warrants, exercisable at $3.50 per share, and
217,335 Class 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 Class A and 22,500 Class B
Warrants.
N. In December 1999, the Company issued 11,750 shares of Common
Stock to a director 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 July of 2000, the Company
issued 649,072 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 40 private placement investors
for $1,947,222 cash.
Q. In June 2000, the Company issued 1,363 shares of Common
Stock to an existing shareholder for which the Company received
marketable securities valued at $4,091.
R. From April through June 2000, the Company issued 6,667
shares of Common Stock and a like number of Class C Warrants
to a consultant for services rendered.
S. In June 2000, the Company issued 6,000 shares of Common
Stock to a director for services rendered.
T. On July 14, 2000, the Company issued 50,000 shares of Common
Stock for the purchase of Active Views web-based reporting tool.
U. On September 13, 2000, the Company issued 40,000 shares for
purchase from a third party the core software for Fastrack.
SERIES 2000-A CONVERTIBLE PREFERRED STOCK
On June 19, 2000, the Company issued 500 shares of Series 2000-A
Preferred Stock and 100,000 Series 2000-A Warrants to a private
investor for $500,000 cash, less a placement discount to the
purchaser of $50,000. Contemporaneously, the Company issued 500,000
Series 2000-B Warrants with a value of 824,327 for proceeds of
$5,000 in the form of a receivable from shareholders finder's
fees for the Series 2000-A stock purchase agreement.
On July 19, 2000, the Company issued an additional 500 shares of
Series 2000-A Preferred Stock and 100,000 Series 2000-A Warrants
to the same private investor for $500,000 cash, less a placement
discount to the purchaser $50,000.
On August 18, 2000, the Company issued an additional 500 shares of
Series 2000-A Preferred Stock and 100,000 Series 2000-A Warrants to
a private investor for $500,000 cash, less a placement discount to
the purchaser of $50,000.
On September 15, 2000, the Company issued an additional 500 shares
of Series 200-A Preferred Stock and 100,000 Series 2000-A Warrants
to a private investor for $500,000 cash, less a placement discount
to the purchaser of $50,000.
SERIES B PREFERRED STOCK
On June 19, 2000, the Company sold 629 shares of Series B
Preferred Stock to three existing shareholders, one of which is
also a director, in exchange for outstanding indebtedness in a
total amount of $628,983.
SERIES 2000-B WARRANTS
On June 19, 2000, the Company sold 500,000 Series 2000-B Warrants
to Pangea Equities, L.C. ("Pangea") pursuant to a Securities Purchase
Agreement.
ITEM 27. EXHIBITS
(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
2. Plan of acquisition, reorganization, arrangement, liquidation,
or succession.
2.1 Agreement and Plan of Reorganization dated July 2,
1999, among Registrant, Woodlake Village Associates, Inc. and
Aureus Acquisition Corporation. (3)
II-4
<PAGE>
2.2 Series A Preferred Stock Purchase Agreement, dated
July 14, 2000, by and between ActiveViews, Inc. a Delaware
corporation and the Series A Investors, Eric Meyers and Aaron
Meyers. (6)
2.3 Reorganization Agreement, dated July 14, 2000, between
and among e-automate Corporation, a Delaware corporation,
ActiveViews Acquisition Corporation, a Utah corporation, Eric
Meyers, an individual, and Aaron Meyers, an individual,
e-automate, AAC, Aaron Meyers and Eric Meyers collectively
referred to as the "Parties" and Aaron Meyers and Eric Meyers
collectively referred to as the "Shareholders." (6)
2.4 Joint Formation Agreement, dated July 14, 2000,
between and among e-automate Corporation, a Delaware corporation,
and Eric Meyers, an individual, and Aaron Meyers, an individual.(6)
2.5 e-automate Stock Purchase Agreement, by and between
ActiveViews, Inc. a Delaware corporation and e-automate
Corporation, a Delaware corporation. (6)
3. Certificate of Incorporation and Bylaws.
3.1 Certificate 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)
3.5 Articles of Incorporation of ActiveViews Acquisition
Corporation, dated August 1, 2000. (6)
3.6 Bylaws of ActiveViews Acquisition Corporation. (6)
4. Instruments Defining Rights of Security Holders.
4.1 Certificate of Designation creating Series 2000-A
Preferred Stock, dated as of June 19, 2000. (5)
4.2 Warrant Certificate for Series 2000-A Warrants,
dated as of June 19, 2000. (5)
4.3 Certificate of Designation creating Series B Preferred
Stock, dated as of June 19, 2000. (5)
4.4 Warrant Certificate for Series 2000-B Warrants,
dated as of June 19, 2000. (5)
5. Opinion of Mackey Price & Williams.
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 (5)
10.6 Stock Purchase Agreement with Richard Stout, James K.
Phillips and Alan Fine, dated as of June 19, 2000. (5)
10.7 Loan Agreement with Inside Out Development, LLC. (5)
10.8 Securities Purchase Agreement with James K.
Phillips, dated as of June 19, 2000. (5)
10.9 Securities Purchase Agreement with Alan Fine, dated
as of June 19, 2000. (5)
10.10 Securities Purchase Agreement with Lee Monson, dated
as of June 19, 2000. (5)
10.11 Purchase Agreement between Registrant and Aspen
Capital Resources, LLC, dated as of June 19, 2000. (5)
10.12 Asset Purchase and Sale Agreement, dated as of September
13, 2000. (7)
23. Consents of experts and counsel.
23.4 Consent of Mackey Price & Williams
23.5 Consent of Hansen, Barnett & Maxwell
27. Financial Data Schedule
_____________________________
(1) Incorporated by reference to the same numbered exhibits as
filed with the Company's registration statement on Form 10-SB,
File No. 0-24380.
(2) Incorporated by reference to the Company's 1996
Annual Report on Form 10-KSB.
(3) Incorporated by reference to the same numbered
exhibits as filed with the Company's Form 8-K, filed
July 29, 1999.
(4) Incorporated by reference to the Company's quarterly
report on Form 10-QSB, filed December 2, 1999.
(5) Incorporated by reference to the Company's
Annual Report on Form 10-KSB/A, for March 31, 2000,
as amended, filed August 18, 2000.
(6) Incorporated by reference to the Company's quarterly
report on Form 10-QSB, filed August 14, 2000.
(7) Incorporated by reference to the Company's Form 8-K, filed
September 13, 2000.
II-5
<PAGE>
(b) Reports on Form 8-K
Report on Form 8-K, as filed on November 17, 1999.
Report on Form 8-K/A, as filed on July 7, 2000.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes (a) subject to
the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, to file with the Securities and Exchange
Commission such supplementary and periodic information, documents
and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section; (b) to provide the
Underwriter at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in the names as
required by the Underwriters to permit prompt delivery to each
purchaser; (c) if any public offering by the Underwriters is to be
made on terms differing from those set forth on the cover page of
the Prospectus, to file a post-effective amendment setting forth
the terms of such offering; and (d) to deregister, by means of a
post-effective amendment, any securities covered by this
Registration Statement that remain unsold at the termination of
this offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by
a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or preceding) is asserted
by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant also undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of a registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under
the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering of those securities.
The undersigned Registrant further undertakes that it will
file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to (i)
include any prospectus required by Section 10(a)(3) of the
Securities Act, (ii) reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in
the information in the Registration Statement, and (iii) include
any additional or changed material information on the plan of
distribution.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements of filing on Form
SB-2 and authorized this registration statement to be signed on
its behalf by the undersigned, in Salt Lake City, State of Utah,
on October 17, 2000.
e-automate Corporation
By: /s/ Lon D. Price
-------------------------
Lon D. Price, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Lon D. Price as
his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same,
with all Exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to
do and perform each and every act and thing requisite or necessary
to be done in and about the premises as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of
1933, this registration statement has been signed below 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 October 17, 2000
---------------------- Executive Officer and
Lon D. Price Director
/s/ Greg Popp Chief Financial Officer October 17, 2000
-----------------------
Greg Popp
/s/ Russ Riggins Chairman of the Board October 17, 2000
----------------------- of Directors
Russ Riggins
/s/ Richard F. Stout Director October 17, 2000
-----------------------
Richard F. Stout
/s/ Rayman D. Meservy Director October 17, 2000
-----------------------
Rayman D. Meservy
/s/ James K. Phillips Director October 17, 2000
-----------------------
James K. Phillips
/s/ Scott Blackham Director October 17, 2000
----------------------
Scott Blackham
II-7
<PAGE>
