SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 000-29459
PACEL CORP.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Virginia 54-1712558
- ------------------------------ -----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification or
organization) number)
8870 Rixlew Lane, Suite 201, Manassas, Virginia 20109-3795
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(Address of principal executive offices)
(703) 257-4759
- --------------------------------------------------------------------------------
(issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 day Yes [X] No [ ]
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
State the number of Shares outstanding of each of the issuer's classes of
common equity, as of the latest date:
As of May 12, 2000, there were 18,220,876 shares of the Registrant's common
stock outstanding.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets as of
March 31, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Operations
for the Three Months Ended March 31, 2000 and 1999 4
Consolidated Condensed Statements of Cash
Flows for the Three Months Ended March 31,
2000 and 1999 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION 9
Signature Page 10
2
<PAGE>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
Unaudited Audited
---------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 275,983 $ 95,631
Accounts receivable, net of allowance for doubtful
accounts of $6,608 and $2,336 respectively 30,870 41,577
Inventory 17,763 13,680
Other receivables 9,814 -
Prepaid expenses 107,489 11,867
Escrow deposit 138,120 -
---------- ---------
Total current assets 580,039 162,755
---------- ---------
Property and equipment, net 47,796 48,880
---------- ---------
Non-current assets:
Note receivable 71,000 71,000
Good-will 9,729 10,270
Security deposits 8,149 7,985
---------- ---------
Total non-current assets 88,878 89,255
---------- ---------
Total assets $ 716,713 $ 300,890
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 50,000 $ 50,000
Accounts payable 272,415 291,812
Loans payable officers-Stockholders 39,000 14,000
Accrued expense 108,552 211,921
---------- ---------
Total current liabilities 469,967 567,733
---------- ---------
Minority interest
Commitments:
Stockholders' equity (deficit)
Preferred stock, no par value,
no liquidation value, 5,000,000 shares
authorized, issued 1,000,000 shares
1997 class A convertible preferred stock 11,320 11,320
Common stock - no par value,
40,000,000 shares authorized 2000 and 1999,
18,083,876 and 13,990,313 shares outstanding
in 2000 and 1999 respectively 3,488,854 2,394,129
Cumulative currency translation adjustment (17,447) (4,807)
Deficit (3,235,981) (2,667,485)
----------- ----------
Total stockholders' equity (deficit) 246,746 (266,843)
----------- ----------
Total liabilities and stockholders' equity (deficit) $ 716,713 $ 300,890
=========== ==========
</TABLE>
3
<PAGE>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
UNAUDITED
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 57,988 $ 15,959
----------- ----------
Operating costs and expenses:
Research and development 351,625 66,576
Depreciation 4,593 4,052
Interest expense 34,625 136
Selling, general and administrative 235,641 43,916
----------- ----------
Total operating costs and expenses 626,484 114,680
----------- ----------
Net (loss) $ (568,496) (98,721)
=========== ==========
Net (loss) per common share
Basic (0.04) (0.02)
Diluted (0.04) (0.02)
Weighted Average shares outstanding
Basic 14,067,227 6,507,825
Diluted 14,067,227 6,507,825
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
UNAUDITED
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (568,496) $ (98,721)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation 4,593 4,052
Provision for bad debts 4,272 -
Other non cash items 62,725 133,717
Increase (Decrease) in Cash from changes in:
Accounts receivable 6,435 1,463
Inventory (4,083) -
Other receivables (9,814) -
Prepaid expenses (95,622) -
Escrow deposit (138,120) -
Security deposits (164) -
Accounts payable (19,397) (17,672)
Accrued expense (103,369) (123,168)
------------ -----------
Net cash (used in) operating activities (861,040) (100,329)
Cash flows from investing activities:
Purchase of property and equipment (2,968) (2,076)
Proceeds from principal payment received - -
------------ -----------
Net cash used in investing activities (2,968) (2,076)
------------ -----------
Cash flows from financing activities:
Loans from shareholders 25,000 -
Notes payable - (35,000)
Proceeds from sale of common stock 1,032,000 257,295
------------ -----------
Net cash provided by financing activities 1,057,000 222,295
------------ -----------
Effect of exchange rates on cash (12,640) -
Net increase in cash and cash equivalents 180,352 119,890
Cash and cash equivalents at beginning of year 95,631 28,857
------------ -----------
Cash and cash equivalents at end of year $ 275,983 $ 148,747
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest 1,727
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FIANCIAL STATEMENTS
UNAUDITED
MARCH 31, 2000
1. Basis of Presentation
The unaudited financial statements included in the Form 10-QSB have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation SB. The financial information furnished herein reflects all
adjustments, which in the opinion of management are necessary for a fair
presentation of the Company's financial position. The results of operations and
cash flows for the periods presented.
Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted, pursuant to such rules and regulations.
These interim statements should be read in conjunction with the audited December
31, 1999 consolidated financial statements and related notes included in the
Company's year ended certified financial statements. The results of operations
for the three months are not necessarily indicative of the operating results for
the year. The Company presumes that users of the interim financial information
herein have read or have access to the audited financial statements for the
preceding fiscal year and that the adequacy of additional disclosure needed for
a fair presentation may be determined in that context. The results of operations
for any interim period are not necessarily indicative of the results for the
full year.
2. Stock options
On February 14, 2000 the board of directors granted David and F. Kay Calkins
each options to purchase 1,399,031 shares of the Company's common stock at an
exercise price of $.21.
In connection with a commitment for $2,500,000 of financing the Company has
issued options to purchase 250,000 shares of the Company's common stock for
every $1,000,000 or proportion of capital provided, for $.4062 per share
exercisable until April 2004.
On April 15, 2000 in consideration for certain consulting service the Company
has issued warrants to purchase 50,000 shares of the Company's common stock for
$5.00 per share (above market), exercisable until April, 2004.
6
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table summarizes the basic results of operations for the periods
indicated in the Consolidated Statement of Operations.
Three Months ended March 31, 2000 compared to the Three Months ended March 31,
1999
Three Months Ended
March 31,
------------------------
2000 1999
--------- ---------
Sales 57,988 15,959
Net Loss 568,496 98,721
Net Loss Per share $(0.04) $(0.02)
<TABLE>
<CAPTION>
Operating Expenses Percent of Sales
2000 1999 2000 1999
------------------------ ------------------------
<S> <C> <C> <C> <C>
Research and development 351,625 66,576 606.4% 417.0%
Depreciation 4,593 4,052 7.9% 25.4%
Interest expense 34,625 136 59.7% .8%
Selling,General and Admin. 235,641 43,916 406.3% 275.2%
Total Operating Costs and Expenses 626,484 114,680 1,080.3% 718.6%
</TABLE>
Revenues - Total revenues increased 363% to $57,988 for the three months ended
March 31, 2000 from $15,959 for the three months ended March 31, 1999. The
increase is directly attributed to the sales generated from existing NATO
contracts of Fairfax Communication Limited (FCL). We believe that with
additional marketing FCL will have continued growth. Software sales were
slightly lower than last year for the same period. The decrease is primarily
attributed to the shifting of resources for development of Child Watch Software,
which will be released late in the second quarter of this year. We will not see
any substantial revenue from this product until the third quarter of this year.
Research and development - Research and development increased 528% to $351,625
for the three months ended March 31, 2000 from $66,576 for the three months
ended March 31, 2000. The increase is attributed primarily to the development of
the Child Watch software. The Child Watch software program is designed to secure
and limit access to files on your hard drive, as well as protect your children
from access to inappropriate web site, based on their age.
Selling, general and administrative expenses - Selling, general and
administrative expenses increased 536% to $235,641 for the three months ended
March 31, 2000 from $43,916 for the three months ended March 31, 1999. The
increase is attributed primarily to the continued growth of the company.
7
<PAGE>
Liquidity and Capital Resources
Three Months Ended March 31, 2000 Compared to three Months Ended March 31, 1999
Net cash used from operating activities for the three months ended March 31,
2000 and 1999 was $861,040 and $100,329, respectively. The use of cash in
operating activities for the three months ended March 31, 2000 resulted
primarily from the net loss and the reduction in accounts payable and accrued
expenses.
Net cash used in investing activities for the three months ended March 31, 2000
and 1999 was $2,968 and $2,076, respectively. We continue to purchase additional
computer and office equipment for the companies expansion.
Net cash provided by financing activities for the three months ended March 31,
2000 and 1999 was $1,057,000 and $222,295, respectively. The increase in cash
provided was primarily attributable to the sale of common stock from the
completion of the SB-2 filing.
At March 31, 2000, we had $275,983 in cash and cash equivalents. We have
completed an SB-2 filing to raise $3,000,000. To date we have received over
$1,000,000 net of expenses and have commitments for the balance. In
consideration for a $2,500,000 commitment the company has issued options to
purchase 250,000 shares of the Company's common stock for every $1,000,000 or
proportion of capital provided, for $.4062 per share exercisable until April
2004. We anticipate that we will experience a substantial increase in our
capital expenditures and lease commitments consistent with our anticipated
growth in operations, infrastructure and personnel. We currently anticipate that
we will continue to experience significant growth in our operating expenses for
the foreseeable future and that our operating expenses will be a material use of
our cash resources. We believe that the net proceeds of our recent offering of
common stock, together with our existing cash and future forecasts relating to
operations will be sufficient to working capital for the next twelve months.
Pacel has committed itself to the continued development and distribution of the
Child Watch Software along with upgrading existing products and development of
new software in the security area. Our goal is to be a leading edge provider of
security software.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits 27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1999.
9
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACEL CORP.
Date: May 15, 2000 By: /s/ David E. Calkins
-----------------------------
David E. Calkins
Chairman of the Board, President and
Chief Executive Officer
(Duly Authorized Representative)
10
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 275,983
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 71,000
<ALLOWANCE> 0
<TOTAL-ASSETS> 716,713
<DEPOSITS> 0
<SHORT-TERM> 469,967
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
11,320
<COMMON> 3,488,854
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 716,713
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 34,625
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 591,859
<INCOME-PRETAX> (568,496)
<INCOME-PRE-EXTRAORDINARY> (568,496)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (568,496)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
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</TABLE>
