As filed with the Securities and Exchange Commission on February 9, 2000
Registration No. 333-91611
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT No. 2 TO THE
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PACEL CORP.
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(Name of small business issues in its charter)
VIRGINIA 54-1712558
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
8870 RIXLEW LANE, SUITE 201, MANASSAS, VIRGINIA 20109-3795; (703) 257-4759
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(Address and telephone number of principal executive offices)
8870 RIXLEW LANE, SUITE 201, MANASSAS, VIRGINIA 20109-3795
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(Address of principal place of business or intended principal place of business)
DAVID E. CALKINS, PRESIDENT AND CEO
PACEL CORP.
8870 RIXLEW LANE, SUITE 201
MANASAS, VIRGINIA 20109
(703) 257-4759
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(Name, address and telephone number of agent for service)
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
Martin L. Meyrowitz, P.C.
Michael S. Sadow, P.C.
SILVER, FREEDMAN & TAFF, L.L.P.
(a limited liability partnership including professional corporations)
1100 New York Avenue, NW
Seventh Floor, East Tower
Washington, DC 20005-3934
(202) 414-6100
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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, check
the following box. [ ]
THE REGISTRANT 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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
Subject to Completion, Dated February 9, 2000
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement which has been filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
Up To
20,000,000 Shares
Common Stock
[PACEL CORP. LOGO]
PACEL CORP.
This is an offering of up to 20,000,000 shares of common stock of PACEL Corp.
There is no minimum investment requirement by a purchaser in this offering.
PACEL's common stock is traded on the Over-the-Counter Electronic Bulletin Board
under the symbol "PLRP."
The shares are being offered for sale by PACEL through its officers and
directors on a direct participation basis. These officers and directors will not
receive any remuneration for such sales. PACEL has not established a minimum
number of shares that it must sell. Proceeds received from any sales of its
shares will be immediately available for use by PACEL and will not be held in
escrow, trust or any type of similar arrangement. PACEL will offer its shares
for sale for a period of six months from the effective date of this prospectus,
with an additional 90 days extension at its option.
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
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Per Share Total
Public offering price............... $0.15 $3,000,000
Commissions......................... $ --- $ ---
Proceeds to PACEL................... $0.15 $3,000,000
If an underwriter is used, of which there can be no assurance, discounts or
commissions are not anticipated to exceed 10% of the offering price. The
"Proceeds to PACEL" reflected in the "Total" column in the above table do not
include an estimated $200,000 in expenses relating to the issuance and
distribution of the securities in this offering.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is ____________, 2000
<PAGE>
PROSPECTUS SUMMARY
OUR COMPANY
PACEL Corp. is engaged in the design, development, deployment, service and
support of user-friendly, off-the-shelf software business products . We have
also expanded our activities to offer a full line of Internet services and
provide information technology consulting services. Our most recently developed
software product is ChildWatch[TRADEMARK]. ChildWatch[TRADEMARK] offers parents
the ability to protect their children from unwanted web sites and to monitor
their activity without the necessity of finding the sites beforehand, or relying
on a robotic search engine. ChildWatch[TRADEMARK] also assists ChildWatch of
North America in its ongoing attempts to locate missing children and advise
families how they can protect their own.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common stock offered by PACEL Corp. . . . . . . . . Up to 20,000,000 shares
Minimum investment . . . . . . . . . . . . . . . . . .None
Common stock outstanding after the offering . . . . . 33,263,569 shares, assuming
sale of the entire 20,000,000
shares offered hereby
Use of proceeds . . . . . . . . . . . . . . . . . . All proceeds of this offering will
go to PACEL, net of expenses, for
general corporate purposes, including
working capital, expansion of
operations , sales and marketing
capabilities , possible acquisitions
and reduction of debt, if any.
Over-the-Counter Electronic
Bulletin Board symbol . . . . . . . . . . . . . .PLRP
</TABLE>
----------------------
We started our business in 1994 as a Virginia corporation. Our principal
offices are at 8870 Rixlew Lane, Suite 201 in Manassas, Virginia 20109. Our
telephone number is (703) 257-4759. We maintain a Web site at www.pacel.com.
INFORMATION CONTAINED ON OUR WEB SITE IS FOR INFORMATIONAL PURPOSES ONLY AND IS
NOT INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of September 30, 1999 and for
the nine-month periods ended September 30, 1998 and 1999 are unaudited and
include all adjustments, consisting only of normal, recurring adjustments that
PACEL considers necessary for a fair presentation . Operating results for the
nine-month period ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1999. The
selected financial data is qualified by reference to, and should be read in
conjunction with, PACEL's consolidated financial statements and the notes to
those financial statements, included elsewhere in this prospectus. Outstanding
stock options, convertible debentures and convertible preferred stock to
purchase 1,638,200 shares of common stock were not considered in computing
diluted earnings per common share because they are antidultive.
<TABLE>
<CAPTION>
For the For the
Nine Months Ended Years Ended
September 30, December 31,
------------------------------------------------------------
1999 1998 1998 1997
--------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues................................................ $ 37,955 $ 29,093 $ 52,447 $ 56,799
Operating Costs and Expenses............................ 464,307 866,005 327,258
1,008,033
Net income (loss)....................................... (970,078) (435,214) (813,558) (270,459)
Basic and Diluted net income (loss)
per common share...................................... (0.12) (0.09) (0.17) (0.06)
Weighted average common shares
outstanding - Basic and Diluted....................... 8,083,629 4,878,937 4,877,247 4,476,000
</TABLE>
At At
September 30, December 31,
1999 1998
-------------------------------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............. $ 125,915 $ 28,857
Working capital (deficit)............. (37,961) (283,593)
Total assets ......................... 323,756 247,737
Stockholders' equity (deficit) ....... 104,686 (145,097)
3
<PAGE>
RISK FACTORS
BECAUSE OUR OPERATING EXPENSES AND CAPITAL EXPENDITURES WILL OUTPACE OUR
REVENUES, WE WILL INCUR SIGNIFICANT LOSSES IN THE NEAR TERM.
We expect to incur significant operating expenses and make relatively high
capital expenditures as we develop and distribute our ChildWatch[TRADENARK]
software, and produce and develop our other products and businesses. These
operating expenses and capital expenditures will initially outpace revenues and
result in significant losses in the near term. We may never be able to reduce
these losses. We have generated only nominal revenues to date and have incurred
an aggregate net loss of $1.7 million during the period from January 1, 1998 to
September 30, 1999.
BECAUSE WE HAVE SEVERAL AGREEMENTS WHICH REQUIRE US TO SHARE A SIGNIFICANT
PORTION OF THE REVENUES WE GENERATE WITH A THIRD-PARTY, IT WILL BE MORE
DIFFICULT FOR US TO BECOME A PROFITABLE BUSINESS.
We will not retain all revenues generated through our ChildWatch[TRADEMARK]
software product, or the other software products we produce and sell, which will
make it more difficult for us to become a profitable business. We have an
agreement with Child Watch of North America through December 2002, under which
it provides its expertise, marketing efforts and membership list and we provide
the software product and updates. During the term of the agreement with Child
Watch of North America, we are obligated to share 20 percent of our revenue from
the ChildWatch[TRADEMARK] software products with them. We also have a
distribution agreement for our software products with Digital River, which
allows them to sell our products at a reduced price, and one with Tiger Direct,
which requires that we pay an advertising fee if sales do not reach minimum
levels.
BECAUSE OUR EXECUTIVE OFFICERS LACK SIGNIFICANT MANAGEMENT EXPERIENCE, WE MAY
NOT BE ABLE TO EFFECTIVELY MANAGE OUR GROWTH.
The growth of our business may place a significant strain on our management
team and we may not be able to effectively manage our growth. None of our
executive officers has significant experience in managing a company or
overseeing a company's rapid growth.
WE NEED TO EXPAND OUR SALES AND DISTRIBUTION CHANNELS OR OUR GROWTH COULD BE
LIMITED.
We will need to expand our direct and indirect sales operations in order to
increase market awareness of our products and services and to generate increased
revenue. As of September 30, 1999, we employed three individuals in our sales
and marketing division. Currently, we believe we will need to expand our sales
division by more than 150% of its present size over the next 18 months. In
addition, we currently have relationships with only a limited number of
distribution partners. We cannot be certain that we will be able to establish
relationships with additional distribution partners on a timely basis, or at
all, or that these distribution partners will devote adequate resources to
promoting or selling our products.
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<PAGE>
WE RELY ON STRATEGIC RELATIONSHIPS TO IMPLEMENT AND PROMOTE OUR SOFTWARE
PRODUCTS AND, IF THESE RELATIONSHIPS FAIL, OUR BUSINESS COULD BE HARMED.
We have entered into relationships with hardware platform and software
applications developers and service providers. We expect to derive a significant
portion of our revenues from customers that purchase products or services from
our partners. In most cases, the partner refers the customer to us, and we enter
into a software license agreement directly with the customer. To the extent our
partners are not successful, or they do not stay with us, we could lose these
sources of customers.
WE MAY NOT HAVE ACCESS TO PROGRAMMING INTERFACES WITH APPLICATIONS MADE BY THIRD
PARTIES, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
Our software products use software components to communicate with our
customers' enterprise applications. Our ability to develop these software
components is largely dependent on our ability to gain access to the application
programming interfaces for the applications, and we may not have access to
necessary interface connections in the future. These connections are written
and controlled by the application provider. Accordingly, if an application
provider becomes a competitor by entering into our market, it could restrict our
access to its interface connections for competitive reasons. Our business could
suffer if we are unable to gain access to these interface connections.
THE FAILURE OF THIRD PARTIES TO DEVELOP SOFTWARE COMPONENTS NECESSARY FOR THE
INTEGRATION OF APPLICATIONS USING OUR SOFTWARE COULD HAVE AN ADVERSE IMPACT ON
OUR OPERATIONS.
A core element of our strategy is to enable third parties to develop
software components that operate with our software. If these third parties are
unable or unwilling to develop these software components, we may need to develop
them internally, which would require us to divert financial and technical
resources to these efforts.
OUR INTELLECTUAL PROPERTY COULD BE USED BY OTHERS, CAUSING US TO LOSE A
COMPETITIVE ADVANTAGE.
We do not currently own any issued patents, and other protection of our
intellectual property is limited. If competitors gain access to and use of our
intellectual property, they may be able to better compete against our products.
WE NEED THE PROCEEDS OF THIS OFFERING TO CONTINUE AND EXPAND OUR OPERATIONS.
We have a minimal amount of cash flow from operations. We, therefore, are
substantially dependent upon the proceeds of this offering to provide financing
to continue, and to expand the scope of, our present operations. In the event we
sell less than the maximum number of shares offered we may be required to seek
additional sources of funding, the availability of which cannot be assured. We
may also be required to delay or abandon some of our planned future expansion or
expenditures if we fail to raise sufficient funds.
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<PAGE>
THE REPORT OF OUR INDEPENDENT ACCOUNTANT CONTAINS A GOING CONCERN QUALIFICATION
WHICH STATES THAT WE MAY NOT BE ABLE TO CONTINUE OUR OPERATIONS IF WE DO NOT
OBTAIN ADDITIONAL CAPITAL.
Our independent accountant's report for the period ended December 31, 1998
contains an explanatory paragraph. This paragraph states that our having had
minimal revenues since inception raises substantial doubt about our ability to
continue as a going concern. Accordingly, if we do not complete this offering,
we may not be able to continue our operations.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH MAY NOT PROVE TO BE
ACCURATE.
This prospectus contains forward-looking statements. These forward-looking
statements include statements about our beliefs, plans, objectives, goals,
expectations, anticipations, estimates and intentions, that are subject to
significant risks and uncertainties, and are subject to change based on various
factors, some of which are beyond our control. Without limitation, the words
"anticipates," "believes," "estimates," "expects," "intends," "plans" and
similar expressions are intended to identify forward-looking statements. The
important factors we discuss in this "Risk Factors" section and under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations," as well as other factors identified in PACEL's filings with the
SEC and those presented elsewhere by its management from time to time, could
cause actual results to differ materially from those indicated by the
forward-looking statements made in this prospectus.
USE OF PROCEEDS
PACEL will receive proceeds of approximately $2.8 million from the sale of
the entire 20,000,000 shares of common stock it is offering, net of estimated
expenses and assuming no brokerage or underwriting commissions, and based on an
assumed public offering price of $0.15 per share. Our management will retain
broad discretion as to the allocation of the proceeds of this offering.
We intend to use the net proceeds received from this offering as follows:
<TABLE>
<CAPTION>
If 25% of the If 50% of the If 75% of the If 100% of the
stock is sold stock is sold stock is sold stock is sold
<S> <C> <C> <C> <C>
Sales and marketing $500,000 $750,000 $1,000,000 $1,200,000
Working capital and general
corporate purposes 250,000 550,000 1,050,000 1,600,000
-------- ---------- ---------- ----------
Net proceeds from stock
offering $550,000 $1,300,000 $2,050,000 $2,800,000
======== ========== ========== ==========
</TABLE>
PACEL currently intends to use most of the offering's net proceeds for
working capital and general corporate purposes. Specifically, we plan to
increase PACEL's, E-Business-Stor.Com's and Fairfax Communication's marketing
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<PAGE>
and sales activities and hire more personnel in these functional areas. We also
plan to expand our operations and hire more software programers and Internet
solutions professionals. From time to time, in the ordinary course of business,
PACEL evaluates potential acquisitions of businesses, products or technologies.
PACEL may use a portion of the proceeds intended for working capital and general
corporate purposes for these acquisitions. However, PACEL has no present
understandings or agreements with respect to any acquisition of businesses,
products or technologies.
Pending use of the net proceeds for the above purposes, PACEL intends to
invest such funds in short-term, interest-bearing, investment-grade securities.
In addition to the use of the net proceeds received by it from the offering,
PACEL also expects during the next 18 months to meet its working capital
requirements through existing cash and cash equivalents, investments, cash from
sales of services, its credit facility and other borrowings.
PRICE RANGE OF COMMON STOCK
PACEL's common stock has seen quoted on the Over-the-Counter Electronic
Bulletin Board under the symbol "PLRP" since June 1998. The following table
presents, for the periods indicated, the high and low sales prices per share of
our common stock as reported on the Over-the-Counter Electronic Bulletin Board.
High Low
------- -----
2000:
First Quarter (through January 14, 2000)............ $0.1400 $0.1250
1999:
Fourth Quarter....................................... $0.3000 $0.0625
Third Quarter........................................ 1.0300 0.3500
Second Quarter....................................... 1.4360 0.2500
First Quarter........................................ 0.6000 0.0800
1998:
Fourth Quarter....................................... 1.7500 1.2500
Third Quarter........................................ 2.3752 0.8752
Second Quarter....................................... 1.2800 1.0000
On January 14, 2000 , the last reported sale price of our common stock on
the Over-the-Counter Electronic Bulletin Board was $0.13. As of January 14,
2000, there were 67 holders of record of our common stock. The Over-the-Counter
Electronic Bulletin Board has established a schedule to exclude from quotation
companies that are not required to file periodic reports to the SEC. Under this
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<PAGE>
schedule, PACEL has until March 8, 2000 to register with the SEC. PACEL has
filed a registration statement with the Commission under Section 12(g) of the
Securities Exchange Act of 1934, as amended, together with the registration
statement which includes this prospectus, in order to satisfy this requirement.
DIVIDEND POLICY
PACEL has never declared or paid any cash dividends on its capital stock.
PACEL intends to retain future earnings, if any, to finance the expansion of its
business and does not expect to declare or pay any cash dividends in the
foreseeable future.
CAPITALIZATION
The following table presents our capitalization as of September 30, 1999 on
an actual basis and an adjusted basis. The adjusted basis presentation reflects
the sale of 20,000,000 shares of common stock in this offering at an assumed
offering price of $0.15 per share and application of the estimated net proceeds
of approximately $2.8 million.
The adjusted basis presentation does not include 1,638,200 shares of common
stock issuable upon exercise of stock options, convertible debentures and
convertible preferred stock outstanding as of September 30, 1999. You should
read this information together with the financial statements and notes to those
financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------------------
Actual Adjusted
--------------------- ----------------------
<S> <C> <C>
STOCKHOLDERS' EQUITY:
Preferred stock, no par value: 5,000,000 shares authorized; 1,000,000 shares of
1997 Class A Convertible Preferred Shares issued and outstanding (actual);
1,000,000 shares of 1997 Class A Convertible
Preferred Shares issued and outstanding (adjusted) ............................. $ 11,320 $ 11,320
Common stock, no par value: 40,000,000 shares authorized;
9,090,359 shares issued and outstanding (actual); 29,090,359 shares
issued and outstanding (adjusted)............................................... 2,179,052 5,004,052
Additional paid-in capital...................................................... --- ---
Retained deficit................................................................ (2,085,686) (2,085,686)
Comprehensive income............................................................ --- ---
Treasury stock.................................................................. --- ---
----------- -----------
Total stockholders' equity................................................. 104,686 2,929,686
=========== ===========
Total capitalization................................................... $ 104,686 $2,929,686
=========== ===========
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</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH "SELECTED
CONSOLIDATED FINANCIAL DATA," AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE
NOTES TO THOSE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the relative
composition of revenue and selected statements of operations data as a
percentage of revenue:
<TABLE>
<CAPTION>
At and For the Nine Months At and For the
Ended September 30, Years Ended December 31,
---------------------------------- ------------------------------
1999 1998 1998 1997
---------------------------------- ------------------------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues......................................... 100.00% 100.00% 100.00% 100.00%
Operating expenses:
Research and development....................... 1,462.18% 713.18% 1,223.62% 482.47%
Depreciation................................... 14.80% 12.90% 19.71% 8.55%
Interest Expense............................... 208.33% 0.00% 11.17% 0.77%
Selling, general and administrative............ 970.54% 869.86% 396.70% 84.37%
Total operating costs and expenses........... 2,655.86% 1,595.94% 1,651.20% 576.17%
Net (loss)................................ (2,555.86)% (1,495.94)% (1,551.20)% (476.17)%
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES - Total revenues increased 30% to $37,955 for the nine months
ended September 30, 1999 from $29,093 for the nine months ended September 30,
1998. The increase is attributed to the completion of the WinSentry[TRADENARK]
security program released in 1999.
In October 1999, we acquired Fairfax Communication Limited, a consulting
services and solutions business located in Plymouth, England. We do not expect
to generate any material revenue as a result of the acquisition of Fairfax
Communications until at least the second half of 2000. We do, however, believe
that with proper marketing Fairfax Communications will become a profit center.
RESEARCH AND DEVELOPMENT - Research and development increased 104% to
$554,972 for the nine months ended September 30, 1999 from $271,637 for the nine
months ended September 30, 1998. The increase is attributed primarily to the
development of CarmaSoft[TRADEMARK], a care and people management program, the
completion and upgrade of the WinSentry[TRADEMARK] security program and the
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<PAGE>
development of Zoomer[TRADEMARK]. The upgrades for the WinSentry[TRADEMARK]
program included code stabilization and feature enhancements. In addition, 35%
of the increase is attributed to the formation of a subsidiary,
E-Business-Stor.Com. E-Business-Stor.Com required the development of an
e-commerce web-site which offers one-stop shopping for hardware and software
products for traditional business and home business clients.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses increased 136% to $447,442 for the nine months ended
September 30, 1999 from $188,917 for the nine months ended September 30, 1998.
The increase is primarily attributed to the relocation of Company headquarters
in February 1999, and an increase in marketing and administrative
personnel-related costs. The marketing and administrative staff increased from
two at September 30, 1998 to nine at September 30, 1999.
NET (LOSS) - Net (loss) for the nine months ended September 30, 1999 was
$970,078 compared to $435,214 for the nine months ended September 30, 1998, a
122% increase. The increase resulted from increased staffing during the 1999
period to develop and market our products and weaker than expected sales of The
Visual Writer System and the newly released WinSentry[TRADEMARK] security
program. The lack of sales resulted from the lack of a distribution system,
which has been recently established through relationships with Tiger Direct and
Digital River.
Because we currently expect the majority of our revenues to come from the
sales of our software products and related services, our business could be
materially harmed by factors that adversely affect the pricing and demand for
these products and services.
Because the competition for qualified employees in the high technology and
Internet industries is intense, hiring, training, motivating, retaining and
managing employees with the strategic, technical and creative skills we need is
both time consuming and expensive. These factors create variations and
uncertainties in our compensation expense and directly affect our profits. If we
fail to attract, train, and retain sufficient numbers of these
technically-skilled people, our business, financial condition, and results of
operations will be materially and adversely affected.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES - Total revenues decreased 7.6% to $52,447 for the year end
December 31, 1998 from $56,799 for the year ended December 31, 1997. The
decrease is attributed to resources being directed toward development and beta
testing of new products rather than marketing.
RESEARCH AND DEVELOPMENT - Research and development increased 24.3% to
$641,752 for the year ended December 31, 1998 from $274,040 for the year ended
December 31, 1997. The increase is primarily due to our efforts to continue
expanding our product line, resulting in higher labor costs necessary for the
development of products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses increased 434% to $208,057 for the year ended December
31, 1998 from $47,923 for the year ended December 31, 1997. The increase is
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<PAGE>
primarily due to compensation expense to officers totalling $105,000 in 1998 and
$0 in 1997.
NET (LOSS) - Net (loss) increased 300% to $813,558 for the year ended
December 31, 1998 from $270,459 for the year ended December 31, 1997. The
increase in net (loss) was primarily a result of increased costs associated with
research and development to expand our product lines.
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net cash used for operating activities for the nine months ended September
30, 1999 and 1998 was $788,368 and $202,834, respectively. The use of cash in
operating activities for the nine months ended September 30, 1999 resulted
primarily from the net (loss) and the decrease in accounts payable.
Net cash used in investing activities for the nine months ended September
30, 1999 and 1998 was $10,298 and $0, respectively. The increase in cash used
was primarily attributable to the purchase of computer-related equipment.
Net cash provided by financing activities for the nine months ended
September 30, 1999 and 1998 was $895,724 and $241,113, respectively. The
increase in cash provided was primarily attributable to the sale of common
stock.
At September 30, 1999, we had $125,915 in cash and cash equivalents. We
have subsequently negotiated and utilized a $400,000 credit line convertible
into common stock.
We believe that cash flows from operations, together with funds from the
issuance of convertible debt and the anticipated line of credit will be
sufficient to finance PACEL's operations and meet its foreseeable cash
requirements for the short term. We will, however, require substantial
additional funds to finance our business activities on an ongoing basis and will
have a continuing long-term need to obtain additional financing. A portion of
the proceeds from this offering is expected to be used to expand our marketing
and sales activities, including the marketing and sales activities of Fairfax
Communications.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
We have financed capital requirements with short-term debt converted to
equity. As of December 31, 1998 there was $35,000 short-term debt outstanding
and a $200,000 credit line convertible into common stock available as needed. We
continue to raise capital through private placement offerings and will need to
do so in the foreseeable future. Cash requirements have depended solely upon our
ability to continue to raise money through private placements. We
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<PAGE>
believe that we will meet our foreseeable cash requirements including planned
capital expenditures, through the next twelve months.
Net cash used for operating activities for the years ended December 31,
1998 and December 31, 1997 was $455,329 and $291,655, respectively. The use of
cash in operating activities in 1998 was primarily due to the net (loss) from
operations and the increase in other receivables partially offset by the
increase in accounts payable, accrued expenses and loans from
officers/stockholders.
Net cash used in investing activities was $126,000 in 1998 and $2,797 in
1997. The increase in cash used for investing activities in 1998 was
attributable to the purchase of office furniture, equipment and computers. Also
a loan for $75,000 was issued in connection with a partnering agreement.
Net cash provided from financing activities was $576,026 in 1998 and
$319,470 in 1997. The cash provided from financing activities was from the sale
of common stock and the issuance of debt convertible into common stock.
BUSINESS
OVERVIEW
We are a software applications development company and systems integrator
located approximately 30 miles outside of Washington, D.C. in Manassas,
Virginia. We specialize in providing innovative software products for clients in
the commercial, industrial and government marketplace. We also offer a full line
of Internet services and provide information technology consulting services. We
were formed in 1994 by a group of individuals dedicated to setting the "Pace of
Excellence" in software production and services to our clients. Our motto, "Pace
of Excellence," set the standards for our commitment and performance, and is
reflected in our corporate name, PACEL (PAce of exCELlence) Corp. We also
provide services that encompass inter-related programs and functional
multi-disciplinary skills and experience.
Subsequent to September 30, 1999, Fairfax Communication Limited was acquired as
a wholly-owned subsidiary of PACEL. E-Business-Stor.Com is an 80 percent-owned
subsidiary of PACEL. David E. Calkins and F. Kay Calkins each own ten percent of
E-Business-Stor.Com individually.
We anticipate our business to grow rapidly through increased sales of our
off-the-shelf and custom developed software products and related services,
computer hardware sales and our systems integration and Web design, development
and hosting. This rapid growth will place a significant strain on our
managerial, operational, financial and information systems resources. In order
to manage our growth effectively, we must continue to implement and improve our
operational, financial and information systems, and expand, train and manage our
employee base. We expect that we will need to continue to hire and retain
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management and sales and marketing personnel, and other employees. Expansion of
our information and network systems will also be required to accommodate this
growth. There can be no assurance that we will be able to effectively manage the
expansion of our operations, or that our facilities, systems, procedures or
control will be adequate to support our expanded operations. Our inability to
effectively manage our future growth would have a material adverse effect on our
business.
To be successful, we will need to develop and introduce new products and
product enhancements that respond to technological changes or evolving industry
standards in a timely manner and on a cost-effective basis. We cannot assure you
that we will successfully develop these types of products and product
enhancements or that our products will achieve broad market acceptance. Our
failure to respond in a timely and cost-effective manner to new and evolving
technologies could adversely impact our business. Furthermore, there can be no
assurance that competitors will not introduce products incorporating technology
as advanced or more advanced than ours, thereby rendering our products or
technologies noncompetitive or obsolete. Any significant delays in developing or
shipping new or enhanced products could adversely affect our operating results.
We will attempt to keep abreast, if not ahead, of new technologies and upgrades
in existing technologies. However, there is no assurance that we can do so, or
even if we can do so, that we can maintain our technological edge in an economic
fashion.
SOFTWARE APPLICATIONS DEVELOPMENT AND SYSTEMS INTEGRATION
OFF-THE-SHELF BUSINESS SOFTWARE PRODUCTS. Despite a crowded field of
competitors of widely varying capabilities, the market still has unmet needs for
user-friendly, intuitive products that solve specific business problems in a
cost-effective way. We currently have several products being actively marketed,
both directly and through marketing and distribution agreements with Digital
River and Tiger Direct, in order to increase distribution of our software
products.
VISUAL WRITER SYSTEM[TRADEMARK]. Visual Writer System[TRADEMARK]
provides users with the ability to create, revise, review and run
interactive, electronic documents. Upon completion of the document, users
may view and analyze information collected during implementation.
Interactive, electronic documents are computerized documents that are
created, viewed and implemented on-screen. They may be used for a number of
purposes including training, data collection and inventory control. The
documents can be designed in a variety of fashions, from simple checklist
to complex multi-page procedures. Automated documents allow users to enter
information such as comments, numerical values, initials and electronic
signatures.
ZOOMER[TRADEMARK]. Internet users, who currently number in the tens of
millions and are rapidly growing, enjoy viewing the wide range of images on
the countless numbers of accessible web pages. These users enjoy
"capturing," saving and manipulating images. Unfortunately, the most common
method of accomplishing this task is through an acquisition program which
usually requires the launching of another program.
Zoomer[TRADEMARK] is a resident software program that allows users to
magnify, acquire and save any part of their computer screen.
Zoomer[TRADEMARK] utilizes click and drag technology to allow the user to
enlarge or reduce text or images on the computer screen, save them as BMP
files or paste them on the desktop for further use in other software
applications.
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WINSENTRY[TRADEMARK]. WinSentry[TRADEMARK] provides workstation
security ensuring that the user's information is secure and protected from
unwanted intrusions when the computer is unattended. Most computer users
produce and store sensitive and valuable information on desktop systems at
work, at home and in the home office. An unattended computer represents a
tremendous liability in terms of both privacy and financial risk. While
standard operating systems provide some limited protection, even the most
casual computer user can circumvent these safeguards by accident or design.
WinSentry[TRADEMARK] has proven to be invaluable for professionals in
diverse fields such as law, medicine, accounting and real estate; and
anyone else who is concerned with the security of confidential electronic
documents. WinSentry[TRADEMARK] also keeps track of events such as users'
log-ins and log-outs as well as start-ups and shutdowns that occur while
activated.
CHILDWATCH[TRADEMARK]. A special version of WinSentry[TRADEMARK] is
being developed in concert with ChildWatch of North America.
ChildWatch[TRADEMARK] allows parents to connect to a database of
family-unfriendly internet sites selected by a committee of child experts
from organizations such as ChildWatch of North America and law enforcement
agencies from across the United States. The database is updated on a
frequent basis and provides parents with the ability to protect their
children from unwanted web sites, by allowing them to block inappropriate
sites. The software gives parents this ability without the necessity of
finding the sites beforehand or relying on a robotic search engine that can
limit full utilization of the Internet. The program also monitors and
records all activities on the computer, allowing parents to understand what
children have been using the computer for. The software product is being
offered free to interested parties via Internet download and ChildWatch of
North America sponsor distribution. An add-on service to allow parents to
block non-family-friendly web sites is offered by us for a monthly charge.
CARMASOFT[TRADEMARK]. CarmaSoft[TRADEMARK] is a Windows(R) application
for companies and facilities that must maintain documented information on
the location of personnel including employees, guests and extended
visitors, as well as the security levels of all individuals within the
facility. Carmasoft[TRADEMARK] will be targeted to markets including law
enforcement detention facilities (local, county and state juvenile
detention centers), medical support facilities, such an nursing homes,
assisted care facilities, senior citizen housing and other Government or
private industry facilities.
CUSTOM SOFTWARE DEVELOPMENT. Unique industry or business-specific
requirements often require a custom system to provide a comprehensive
solution. This business may be relationship based or won on a competitive
bid basis.
We have recently made a move into the custom software development arena.
This move opens up a large marketplace for us. Often businesses require software
products that are tailored to their business practices and products, but do not
feel that a full time in-house programming staff is justifiable. For these
business situations, custom software contractors are required. The successful
custom development contractor must have programming experience, in-depth
knowledge of the current techniques and standards of the industry, expertise in
software documentation and testing and the ability to understand the client's
needs and offer meaningful responses. Our in-house programmers have extensive
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backgrounds and experience in the design and development of software, from
simple programs to complex multi-program systems. Our programmers follow
Microsoft standards in the development of all of our programs, ensuring software
quality. Additionally, we recognize the necessity of considering human factors
when creating software programs to achieve a high level of user acceptance. Our
software programs offer intuitive user interfaces such as menus, and icons for
ease of use.
COMPUTER HARDWARE SALES. Computer hardware sales continue to grow as
businesses upgrade older technology and homes become multi-user sites. Declining
margins make "hardware only" sales less desirable than in the past, but failure
to offer hardware would limit our ability to be a total solution provider.
We are a hardware supplier of Great Lakes Electronics Distributing, a
manufacturer of IBM clone personal computers, that will produce computers built
to our specifications, under our name brand and will provide a national warranty
program for the goods and services.
We also have the ability to distribute other name brand hardware and
software products as a reseller for Ingram Micro and MicroWarehouse. Technical
support and user training are also offered, as applicable.
Our technical support personnel augments our services through:
o Hardware upgrades
o Hardware installation, set up, testing and user training
o LAN troubleshooting and maintenance
o Technical documentation library
o Hardware user support
o Configuration Management
o Tracking of warranty repair
o Printer maintenance
These services allow us to be a full service computer organization and
provide us with the ability to maintain our customer-focused business
philosophy.
SYSTEMS INTEGRATION/SERVICE/SUPPORT. Business solutions nearly always
involve integration of disparate hardware (legacy and client/server), software
and network infrastructures. The ability to make all the sub-components work
seamlessly is critical to project and business success.
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The complexity of operations, the need for timely dissemination of
operating experience and the constantly increasing cost of doing business have
forced an increased awareness of the need for timely information about an
organization's operation and maintenance. This concept requires an investment in
the establishment and maintenance of integrating the systems information
resources, including the identification of needed applications and the
development of networks to provide wide accessibility.
We provide services in all aspects of systems integration from requirements
analysis to information systems development and implementation including:
o Business system planning
o Requirements definition and system specifications
o Software engineering
o System design and development
o System interface functionality
o Systems testing and implementation
o Prototyping
Our employees are well recognized within the systems development community
for their work in large scale configuration management, records management and
engineering data base applications.
INTERNET SERVICES
TRADITIONAL WEB DEVELOPMENT SERVICES. Through our subsidiary,
E-Business-Stor.Com we offer a full line of traditional web development
services, including design, graphics creation and layout, development,
maintenance, search engine registration, domain registration and hosting. We
have developed sites for a diverse group of clients including retail stores, ISO
consultants, television personalities, dance performers and not-for-profit
organizations. We offer quality sites with state-of-the art technology at
affordable prices.
Additionally, we provide e-commerce capabilities including site design and
development, shopping cart setup, database creation and maintenance and
consulting services to assist clients in obtaining merchant accounts and
fulfillment house contracts. Our graphical capabilities include custom design,
site theme design, scanning and touch-up, as well as graphical layout and
animation. We provide database design, development and maintenance for customers
who require databased information. E-Business-Stor.Com offers a number of
standard development and hosting packages from which a customer may choose.
Custom development is also offered on a per hour basis or the customer can mix
and match packages and customization to meet their needs. E-mail capability can
be provided at the customer's request.
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WEB PARTNERING SERVICES. We also enter into partnering associations with
qualified clients. These clients have included Morton Downey, Jr.,
E-PiggyBank.com and ISORegistered.com. Web partnering provides clients with the
ability to minimize their e-commerce development and set up costs. In these
agreements, we provide site development, hosting and consulting services at a
reduced fee. In return for the discount, the client agrees to pay a percentage
of their e-commerce sales to us for a predetermined period of time. These
agreements are designed to benefit us by providing an ongoing revenue stream.
HARDWARE AND SOFTWARE SALES. We offer a number of software and hardware
products via our e-commerce site. The site has been designed to provide
businesses with a one-stop on-line site for their computer-related business
needs. Our e-commerce site is designed with an emphasis on the end-user shopping
interface. We strive to make product search and selection easy and quick,
providing a seamless on-line shopping experience for our customers. We have
developed relationships with manufacturers to provide us with preferential
pricing, allowing us to pass the savings on to our customers. In addition, we
offer specialty family-friendly products for our home based business clients.
All of our hardware comes with manufacturer's warranties.
INFORMATION TECHNOLOGY CONSULTING SERVICES
In October 1999, we acquired Fairfax Communications Limited, located in
Plymouth, England. Fairfax Communications provides consulting services and
solutions to military and government clients worldwide. It also offers solutions
to year 2000 compliance problems and general consulting services in all areas of
information technology and systems integration to the general business
community.
Fairfax Communications has established a quality management program which
provides high quality products and services to its clients. The system is
structure to comply with the internationally recognized BS EN ISO 9001:1994
under the TickiT guidelines, for which the company has received registration.
Fairfax Communications is also a Microsoft Authorized Education Reseller
allowing customers to receive their academic software more quickly with the
knowledge that they are receiving legitimate Microsoft Academic Edition
products.
Fairfax Communications has an existing blanket ordering agreement that
allows us to provide hardware, software and services to NATO. We are one of
approximately 20 companies qualified to provide equipment and services in the
information technology area that NATO members can buy from without going out for
an international bidding process. We intend to increase revenue by more
aggressively marketing this blanket order. We also intend to expand, based on
the certifications and expertise discussed above, to enter into commercial
contracts, governments, regulatory agencies and military, both nationally and
internationally.
PERSONNEL AND CULTURE
As of September 30, 1999, PACEL had 20 employees. Of these, three are in
sales and marketing, nine are technical professionals and programmers, one is in
finance, three are in administrative support and four are in management.
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PACEL believes that its ability to provide integrated business strategy,
technology and creative design services is dependent upon the continuation of
its culture of mutual respect among the three disciplines. As a result, PACEL's
employees and its culture are fundamental to the value proposition it offers
clients. PACEL's culture is predicated on personal integrity, open
communications, collaboration and professional development. PACEL fosters an
entrepreneurial spirit that attracts talented professionals, creates innovative
solutions and provides the opportunity for every individual to succeed.
None of PACEL's employees is represented by a labor union, nor has PACEL
ever experienced a work stoppage. PACEL believes its employee relations are
good.
COMPETITION
We have specialized in the design, development, implementation, service and
support of custom software products for the energy and aerospace industries and
governmental agencies. We have also recently expanded our business activities to
include off-the-shelf software products for commercial and consumer use, custom
software development for small to mid-sized businesses, as well as computer
hardware sales, systems integration and Web-based services. We compete with
various software providers, including Adobe, ALTRIS, Conehead Software, INFO
ACCESS, Tropical Software and WinAbility. We also compete with numerous other
companies in our other market areas. We expect additional competition from other
established and emerging companies. Furthermore, our competitors may combine
with each other, and other companies may enter our markets by acquiring or
entering into strategic relationships with our competitors.
The market for PACEL's products and services is subject to rapid
technological change and increased competition from large existing players, new
entrants and internal information systems groups. Substantially larger companies
that have extensive research and development, marketing, financial and human
resources capable of maintaining a high level of competitiveness dominate the
industry. There are several companies with which PACEL competes in the software
and Internet services industry, all of whom have significantly greater assets
and longer operating histories. Some of these companies are extremely
aggressive. They dominate the marketplace by using costly and protective
pricing. If PACEL became a target of focused pricing and counter marketing, it
might not be able to afford to devote the resources, time, funding, or
management necessary to maintain profitability. In addition, there are other
smaller companies which provide software products and Internet services similar
to us, which companies may have substantially more resources (financial, human,
or equipment) than PACEL. Some competitors have developed name loyalty, and a
following that is international in scope. There is no assurance that PACEL can
penetrate this apparent market place dominance. Furthermore, PACEL expects
future consolidation in the Internet professional services market to create
larger, more viable competitors.
PACEL believes the principal competitive factors in the Internet
professional services market include Internet expertise and talent, quality,
pricing and speed of service delivery, client references, integrated strategy,
technology and creative design services and vertical industry knowledge. PACEL
believes it competes favorably with respect to these factors. PACEL
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believes it is in a good position to attract talent with its growth and an
entrepreneurial culture. PACEL believes it offers its clients a unique
combination of integrated strategy, technology and creative design services.
PACEL believes the market will continue to offer significant opportunity for
multiple players.
Our present or future competitors may be able to develop products
comparable or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends or customer requirements, or devote
greater resources to the development, promotion and sale of their products than
we do. Accordingly, we may not be able to compete effectively in our markets,
competition may intensify and future competition may harm our business.
INTELLECTUAL PROPERTY RIGHTS
PACEL's success is dependent, in part, upon its proprietary software
products, its solution components, and other intellectual property rights. We do
not have any patents or patent applications pending. PACEL relies on a
combination of trade secret, nondisclosure and other contractual agreements, and
copyright and trademark laws to protect its proprietary rights. Existing trade
secret and copyright laws afford us only limited protection. PACEL enters into
confidentiality agreements with its employees, generally requires that its
consultants and clients enter into such agreements, to the extent it deems
necessary, and limits access to and distribution of PACEL's proprietary
information.
PACEL's business involves the development of software applications for
specific client engagements. Ownership of such software is frequently assigned
to the client, with PACEL retaining a license or other contractual rights for
limited uses.
Despite our efforts to protect our proprietary rights, unauthorized parties
may copy aspects of our products and obtain and use information that we regard
as proprietary. In addition, other parties may breach confidentiality agreements
or other protective contracts we have entered into, and we may not be able to
enforce our rights in the event of these breaches. There can be no assurance
that the steps PACEL has taken in this regard will be adequate to deter
misappropriation of its proprietary information or that PACEL will be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
property rights.
The software industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent infringement
and the violation of other intellectual property rights. Although we attempt to
avoid infringing known proprietary rights of third parties in our product
development efforts, we expect that we may be subject to legal proceedings and
claims for alleged infringement by us or our licensees of third party
proprietary rights, such as patents, trademarks or copyrights, from time to time
in the ordinary course of business. Any claims relating to the infringement of
third party proprietary rights, even if not meritorious, could result in costly
litigation, divert management's attention and resources, or require us to enter
into royalty or license agreements which are not advantageous to us. In
addition, parties making these claims may be able to obtain an injunction, which
could prevent us from selling our products in the United States or abroad. Any
of these results could harm our business. We may increasingly be subject to
infringement claims as the number of products and
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competitors in our industry grows and functionalities of products overlap.
Furthermore, former employers of our current and future employees may assert
that our employees have improperly disclosed confidential or proprietary
information to us.
FACILITIES
PACEL's headquarters and principal administrative, finance, legal, sales
and marketing operations are located in approximately 8,200 square feet of
leased office space in Manassas, Virginia. PACEL's lease is for a term of five
years and expires on March 1, 2004. PACEL expects that it will need additional
space as it expands its business and believes that it will be able to obtain
space as needed.
LEGAL PROCEEDINGS
PACEL is not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table presents information about each of PACEL's executive
officers and directors. All directors hold office until the next annual meeting
of stockholders or until their successors have been duly elected and qualified.
There are no arrangements or understandings between any director and any other
person pursuant to which he or she was selected as a director.
<TABLE>
<CAPTION>
Term as
Director
Name Age Position(s) with PACEL and its Subsidiaries Expires
- ----------------------------- ---------- ------------------------------------------------------------- --------------
<S> <C> <C> <C>
David E. Calkins 56 Chairman of the Board, President and Chief Executive 2000
Officer of PACEL and Fairfax Communications Limited;
Director of E-Business-Stor.Com
F. Kay Calkins 41 Director of PACEL; Director, President and Chief 2000
Executive Officer of E-Business-Stor.Com; Director of
Fairfax Communications Limited
Keith P. Hicks 77 Director of PACEL, E-Business-Stor.Com and Fairfax 2000
Communications Limited
Thomas N. Southerly 43 Director of PACEL, E-Business-Stor.Com and Fairfax 2000
Communications Limited
James D. Willett, Ph.D. 62 Director of PACEL, E-Business-Stor.Com and Fairfax 2000
Communications Limited
Kenneth J. Russman 36 Vice President, Chief Operating Officer, Treasurer and
Secretary of E-Business-Stor.Com
Michael J. Spiewakowski 51 Vice President of PACEL and Managing Director of
Fairfax Communications Limited
</TABLE>
DAVID E. CALKINS founded PACEL in 1994 and is its acting Chairman,
President and Chief Executive Officer. From 1992 until founding PACEL, Mr.
Calkins was the Regional Manager of three divisions of Pacific Nuclear (now
known as Vectra Technologies, Inc.), an engineering and information services
company and a Nasdaq Stock Market listed company. Vectra Technologies provides
power plant modifications, maintenance support and nuclear fuel handling to
utility companies and the United States Department of Energy (DOE). From 1987 to
1993, Mr. Calkins served as Project Manager, Program Director, Vice
President-Operations, and Executive Vice President Business Development for PRC
Inc., an information systems development and services company. PRC provides
support services to the Federal government and the utility industry. Mr. Calkins
served from 1981 to 1986 as Manager of Engineering and Construction for the Zack
Company, a Chicago, Illinois mechanical contractor to the utility industry. Mr.
Calkins was also a Manager of Quality Engineering, and Startup Engineer for
Westinghouse. From 1972 to 1981, Mr. Calkins served as an Executive Engineer and
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Consultant for NUS Corporation, a consulting firm for domestic and international
utilities, The United States Nuclear Regulatory Commission (NRC) and Department
of Energy. Mr. Calkins is the spouse of F. Kay Calkins.
F. KAY CALKINS is currently a Director of PACEL and was Chief Operating
Officer, Treasurer and Secretary until September 1, 1999, positions she held
since 1996. Ms. Calkins is also a Director and the President and Chief Executive
Officer of PACEL's 80 percent-owned subsidiary, E-Business-Stor.Com Prior
joining PACEL, Ms. Calkins was the President and Chief Executive Officer of CMC
Services, Inc., a consulting company offering consulting services on marketing,
training, proposal development and information systems analysis to industry and
8(a) firms from 1993 to 1996. Ms. Calkins is the spouse of David E. Calkins.
KEITH P. HICKS has been a director of PACEL since January 1998. He is a
retired Captain of the U.S. Army with over 20 active years of service. Mr. Hicks
served as an Ordinance Advisor to the British and French Free Army during World
War II. He was a Squadron Commander in Korea in 1955 and 1956, and served in the
Executive Office to the Inspector General and the Office of Special
Investigations in 1960 and 1961. Upon retiring from the military in 1961, Mr.
Hicks started a private investigation business in the Commonwealth of Virginia,
which became one of the top investigative firms in the state with over 60
agents. Mr. Hicks also served as the Chief Deputy Sheriff of Fairfax County from
1962 to 1969. Mr. Hicks has owned and managed Hicks Cattle Company since 1962,
running over 200 head of beef cattle. In 1972 he formed and continues to manage
Hicks Bonding Company and has been the owner/operator of Hick's Auctioning
Company since 1991. Mr. Hicks is also a 25-year co-owner in a successful real
estate company, C&H Properties Investments. He has been on the Board of
Directors of Xybernaut, Inc. a high technology computer manufacturer of body
worn, voice activated computers since July 1994. He is a graduate of the
University of Denver (BA 1954) and LaSalle University School of Law (LL.B.
1969).
THOMAS N. SOUTHERLY has been a director of PACEL since February 1998. He is
a partner with Smithers & Southerly, Ltd., CPA's in Fairfax, Virginia, a
certified public accounting firm established in 1987. Prior to 1987, the firm
operated under the name of Murphy & Smithers, which was established in 1976. Mr.
Southerly was admitted to the firm as a partner in 1984. He has had more than 15
years of experience in public accounting and specializes in accounting, tax,
management services and business development. He graduated from the Virginia
Polytechnic Institute and State University in 1979.
JAMES D. WILLETT, PH.D. has been a director of PACEL since February 1998.
He is a member of the faculty of George Mason University's Institute for
Biosciences, Bioinformatics and Biotechnology. Since July 1989, in addition to
teaching and research, Dr. Willett has held a variety of administrative
positions including Chairman of the Biology Department, Vice Provost for
Research & Graduate Studies, Acting Director of Computational Sciences,
Executive Director for Bioscience Development, Interim Director for the
Molecular Bioscience and Technology Institute and most recently, as Director for
the Cooperative Enterprise Board. From 1980 through 1989, Dr. Willett worked for
the National Institute of Health in Bethesda, Maryland holding various positions
including Health Science Administrator, Biomedical Research Model Development,
Animal Resource Program, and Chief of the Office of Program Planning and
Evaluation, National Center for Research Resources. Dr. Willett taught chemistry
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and biochemistry at the University of Idaho from 1968 to 1981. He has an
extensive background in research, is an invited lecturer, and holds patents in
the United States and Europe. Dr. Willett has published 33 studies and received
numerous grants and scholarships. Dr. Willett received an A.B. in Chemistry from
the University of California at Berkeley in 1959 and a Ph.D. in Organic
Chemistry from the Massachusetts Institute of Technology in 1965.
KENNETH J. RUSSMAN was appointed Vice President, Chief Operating Officer,
Treasurer and Secretary of E-Business-Stor.Com, an 80%-owned subsidiary of
PACEL, in September 1999. Prior to his position with E-Business-Stor.Com, Mr.
Russman served as Technical Manager for PACEL from April 1998 to September 1999.
Mr. Russman was a software engineer for Interactive Media Corp., a
computer-based training firm located in McLean, Virginia, from November 1996
until April 1998. As a software engineer at Interactive Media Corp., his duties
included computer programming and project management responsibilities. Mr.
Russman also served as a research and design engineer for Analysis and
Technology, Inc., an engineering services firm located in Arlington, Virginia
from May 1993 to November 1996, where his responsibilities included the design,
development, implementation, management and documentation of logistics models
and information management systems for the Navy Logistics Office. From June 1985
to May 1993, Mr. Russman worked as a system test software engineer for Martin
Marietta Corporation in Orlando, Florida. His responsibilities at Martin
Marietta included coordinating the buildup, testing and evaluation of
electro-optical and servo systems and software testing. Mr. Russman received his
Bachelors of Science degree in Electrical Engineering from Michigan
Technological University in 1985, and his Masters of Science degree in
information systems from George Washington University in 1998.
MICHAEL J. SPIEWAKOWSKI was appointed Vice President of PACEL Corp. and
Managing Director of PACEL's wholly-owned subsidiary, Fairfax Communications
Limited, in October 1999. Prior to joining PACEL, Mr. Spiewakowski was a
Director of International Business Development at Advanced Communication
Systems, Inc., a defense services contractor located in Fairfax, Virginia. He
was employed at Advanced Communication Systems from July 1998 to September 1999,
during which time Mr. Spiewakowski was responsible for the development of
international business and the identification of strategic acquisitions for the
company. From 1996 through 1998, Mr. Spiewakowski was a Business Development
Manager of a subsidiary of HunterskilHoward Projects Limited, a defense services
contractor located in London, England. His responsibilities at HunterskilHoward
Project Limited included managing new and existing business relationships with
the firms international clientele. Mr. Spiewakowski served as a consultant to
the Director of Security Service and to the Minister of the Interior of Bahrain
from 1992 until 1996, during which time he was responsible for the management of
technical intelligence operations and information technology systems.
BOARD COMMITTEES
The audit committee reviews, acts on and reports to the board of directors
with respect to various auditing and accounting matters. These matters include
the selection of PACEL's auditors, the scope of the annual audits, fees to be
paid to the auditors, the performance of PACEL's independent auditors and
PACEL's accounting practices. The audit committee consists of Messrs. Hicks and
Willett.
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The compensation committee determines the salaries and incentive
compensation of PACEL's officers and provides recommendations for the salaries
and incentive compensation of other employees and consultants. The compensation
committee also administers PACEL's various incentive compensation, stock and
benefit plans. The compensation committee consists of Messrs. Hicks, Southerly
and Willett.
DIRECTOR COMPENSATION
PACEL does not currently compensate its directors who are employees of
PACEL. Non-employee directors of PACEL were entitled to receive an annual
retainer of $3,600 for service on PACEL's Board of Directors during fiscal 1998,
payable quarterly in arrears. The annual retainer was increased to $5,400 for
fiscal 1999. As of the date hereof, our non-employee directors have not been
paid for their board service. We anticipate issuing restricted shares of PACEL
common stock equal to, and in lieu of, the amount of fees they are currently
owed.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation earned by PACEL's Chief
Executive Officer for services rendered in all capacities to PACEL for the year
ended December 31, 1998. Mr. Calkin's received perquisites and other personal
benefits in addition to salary during 1998. The aggregate amount of these
perquisites and other personal benefits, however, did not exceed the lesser of
$50,000 or 10% of the total of his annual salary and bonus and, therefore, has
been omitted as permitted by the rules of the SEC.
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------ ------------------
All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (#) ($)
- --------------------------------------- ----------- --------------- -------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
David E. Calkins 1998 84,000 --- --- ---
</TABLE>
Mr. Calkins only received $28,000 of the $84,000 reported in the foregoing
table as earned by him during 1998. The $56,000 balance owed to him was accrued
on our books as of the year ended December 31, 1998. In September 1999, Mr.
Calkins was granted an option to purchase 625,000 shares of PACEL common stock
at an exercise price of $.16 per share. The option was granted to Mr. Calkins in
lieu of $50,000 of salary owed to Mr. Calkins as compensation for fiscal 1998.
The difference between the exercise price of this option and the then-current
market price was reflected as compensation expense during the third quarter of
1999. Ms. Calkins was also scheduled to be paid $84,000 in 1998. Her
compensation arrangements were identical to Mr. Calkins', as set forth above.
24
<PAGE>
EMPLOYMENT AGREEMENT
David Calkins, PACEL's Chairman, President and Chief Executive Officer has
an employment agreement with PACEL. The employment agreement is for an initial
term of two years, which commenced on October 1, 1999, with the right of the
parties to extend the agreement for two one-year periods by mutual consent of
the parties. Under his employment agreement, Mr . Calkins is entitled to receive
an annual base salary of $125,000 per year and annual increases at least equal
to the increase in the cost of living index. In addition, following the
termination of his employment, the agreement provides for continuation of
medical insurance benefits for a period of ten years and the assignment of key
man life insurance, if any. The agreement also contains various provisions for
the protection of PACEL, including non-solicitation and non-competition
provisions, and provides for the grant of options for 625,000 shares of stock
with an exercise price of $.16 per share (in lieu of previous compensation owed
to Mr. Calkins but not paid).
F. Kay Calkins, the President and Chief Executive Officer of
E-Business-Stor.Com, has a contract that is identical to Mr. Calkins' contract,
except the annual salary is $110,000.
STOCK PLANS
KEY EMPLOYEES INCENTIVE STOCK PLAN. The Key Employees Incentive Stock Plan
provides for the grant of options to officers and employees of PACEL. There are
250,000 shares of common stock reserved for issuance under this plan, as
adjusted for prior stock dividends, splits and recapitalizations. As of
September 30, 1999 there were options to purchase 137,500 shares of common stock
outstanding at a weighted average exercise price of $.29 per share. Options
granted under this plan typically vest over time, subject to acceleration in the
event of the optionees termination of service with PACEL as a result of death or
retirement. No option may be granted under this plan after June 15, 2003, and no
option granted under this plan is exercisable after the tenth anniversary of the
option's grant. Each option award shall be on such terms and conditions,
consistent with the plan, as the committee administering the plan may determine.
Any shares subject to an option which expires or is terminated unexercised will
again be available for issuance under this plan or any other plan of PACEL or
its subsidiaries.
1999 STOCK OPTION PLAN. Our Board of Directors has adopted the 1999 Stock
Option Plan, subject to approval by our stockholders at PACEL's next annual
meeting of stockholders. This plan provides for awards in the form of stock
options and stock appreciation rights. There are 1,250,000 shares of common
stock reserved for issuance under this plan. To date, no awards have been
granted under this plan. Each award shall be on such terms and conditions,
consistent with the plan, as the committee administering the plan may determine.
We expect that options granted under this plan will typically vest over time,
subject to acceleration in the event of death, retirement or a change in control
of the company. Any and all such vesting requirements and acceleration
provisions are at the discretion of the committee administering the plan. The
1999 Stock Option Plan shall become effective upon its approval by our
stockholders. This plan shall continue in effect for a term of 15 years
thereafter unless sooner terminated under the provisions of the plan No option
granted under this plan is exercisable after the 15th anniversary of the
option's grant. Any shares subject to an award which expires or is terminated
unexercised will again be available for issuance under this plan or any other
plan of PACEL or its subsidiaries.
25
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Limitation of Liability. Virginia, like many other jurisdictions, provides
limits on the extent to which directors and officers are exposed to personal
liability for claims for money damages. Virginia imposes a statutory cap on
money damages equal to the greater of $100,000 or the compensation received from
the corporation within the preceding twelve months. This limit can be reduced to
zero with the approval of the corporation's stockholders. The only exceptions to
this limit on liability are for the willful misconduct and knowing violations of
criminal law or federal or state securities laws. These exceptions are narrower
than those found in most other jurisdictions. As a result of this provision,
PACEL and its stockholders may be limited in the amount of money damages
obtainable from a director or officer for breach of his or her duty of care.
INDEMNIFICATION. In addition, Virginia provides by statute for broad
indemnity of directors and officers and allows the scope of the indemnity to be
expanded significantly in the articles of incorporation or in stockholder
approved bylaws or resolutions. The only types of conduct that cannot be
indemnified against are willful misconduct and knowing violations of criminal
law. Our articles of incorporation contain provisions which provide for
indemnity of directors and officers except for willful misconduct or gross
negligence.
In order to induce and encourage highly experienced and capable persons to
serve as directors and officers of PACEL, we have entered into an indemnity
agreement with each of our current officers and directors. Pursuant to the terms
of the indemnity agreements, each of the directors and officers will be
indemnified by PACEL to the fullest extent permitted under Virginia law and its
articles of incorporation in the event the officer or director is made or
threatened to be made a party to a claim arising out of such person acting in
his or her capacity as an officer or director of PACEL.
DIRECTOR AND OFFICER LIABILITY INSURANCE. Virginia law also permits a
corporation to obtain insurance on behalf of any of its directors and officers
against liabilities, whether or not the corporation would have the power to
indemnify such person against these liabilities under Virginia law. While we
have not obtained directors' and officers' liability insurance as of the date of
this document, we anticipate obtaining such insurance in the future to the
extent such insurance is available at commercially reasonable rates.
EFFECT OF LIMITATION OF LIABILITY AND INDEMNIFICATION PROVISIONS. We are
not aware of any pending or threatened litigation against PACEL, or its
directors or officers, that would result in any liability for which these
individuals would seek indemnification or similar protections. Because we do not
presently have directors' or officers' liability insurance and because there is
no assurance that we will procure such insurance or that if such insurance is
procured that it will provide sufficient coverage, we may be forced to bear a
portion or all of the cost of any directors' or officers' claims for
indemnification under such provisions. If we are forced to bear the costs for
indemnification, PACEL's business and the value of its stock may be adversely
affected. In the opinion of the SEC, indemnification for liabilities arising
under the Securities Act of 1933 is contrary to public policy and therefore is
unenforceable.
26
<PAGE>
SEC'S POLICY ON INDEMNIFICATION. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officer
or persons controlling PACEL pursuant to the foregoing provisions, it is the
opinion of the SEC that such indemnification is against public policy as
expressed in Securities Act of 1933 and is therefore unenforceable.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF VIRGINIA LAW AND PACEL'S ARTICLES
OF INCORPORATION
Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock of PACEL and to determine the price and the terms, including
preferences and voting rights, of those shares without stockholder approval.
Although we have no current plans to issue additional shares of our preferred
stock, any such issuance could:
o have the effect of delaying, deferring or preventing a change in
control of our company;
o discourage bids for our common stock at a premium over the market
price; or
o adversely affect the market price of, and the voting and other rights
of the holders of, our common stock.
We are subject to certain Virginia laws that could have the effect of
delaying, deterring or preventing a change in control of our company. One of
these laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless approved by at least a majority of the
disinterested directors and two-thirds of the disinterested stockholders of
PACEL. Another statutory protection against takeovers is the Virginia control
share statute. The control share statute offers protection from unwanted
corporate takeovers by requiring an interested investor who acquires a threshold
percentage of stock in a target corporation to obtain the approval of
non-interested stockholders before it may exercise voting rights. In addition,
the significant amount of common stock held by our executive officers, directors
and affiliates, could have the effect of discouraging potential takeover
attempts or making it more difficult for stockholders to change management.
CERTAIN TRANSACTIONS
On September 30, 1999, the Board of Directors granted to each of Mr.
Calkins and Ms. Calkins an option to purchase 625,000 of PACEL common stock at
an exercise price of $.16 per share. The number of shares subject to the options
and the option exercise price reflect the one-for-four reverse stock split
declared by PACEL on October 6, 1999. The options are immediately exercisable
and expire on August 1, 2009.
27
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of common stock, as of November 22, 1999 and as adjusted to reflect the sale of
20,000,000 shares of common stock in this offering, by:
o each person (or group of affiliated persons) who is the beneficial
owner of more than 5% of the outstanding common stock;
o the named executive officer of PACEL;
o each PACEL director; and
o all of the executive officers and directors of PACEL as a group.
The persons named in this table have sole voting power for all shares of
common stock shown as beneficially owned by them, subject to community property
laws where applicable and except as indicated in the footnotes to this table.
Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options,
convertible debentures and convertible preferred stock held by that person that
are currently exercisable or convertible, or exercisable or convertible within
60 days after January 14, 2000 are deemed outstanding. Such shares, however, are
not deemed outstanding for the purpose of computing the percentage ownership of
any other person.
28
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to the Offering After the Offering
------------------------ Share to be ------------------------
Name Number Percentage Purchased Number Percentage
- --------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
David E. Calkins (1) 2,250,000 16.1% --- 2,250,000 6.6%
9514 Vinnia Court
Manassas, VA 20110
F. Kay Calkins (1) 2,250,000 16.1% --- 2,250,000 6.6%
9514 Vinnia Court
Manassas, VA 20110
Keith P. Hicks 320,091 2.4% --- 320,091 1.0%
4121 Roberts Road
Fairfax, VA 22032
Thomas N. Southerly, CPA 25,000 0.2% --- 25,000 0.1%
3930 University Drive, Suite 200
Fairfax, VA 22030-2525
James D. Willett, Ph.D 25,000 0.2% --- 25,000 0.1%
14502 Faraday Drive
Rockville, MD 20853
All officers and directors as 4,945,091 33.3% --- 4,945,091 14.2%
a group (7 persons)
- -------------------
(1) David E. Calkins and F. Kay Calkins are husband and wife. In the
aggregate they beneficially own 4,500,000 shares, or approximately 30%,
of PACEL common stock outstanding. Included in their individual amounts
is the right of each of Mr. and Ms. Calkins to acquire 125,000 shares of
common stock upon conversion of their 500,000 shares of 1997 Class A
preferred stock and the right to acquire 625,000 shares upon exercise of
outstanding stock options. See "Description of Capital Stock-Preferred
Stock" below.
</TABLE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
PACEL's authorized capital stock consists of common stock and preferred
stock, each with no par value per share. The authorized classes of stock, and
the number of shares which are authorized and outstanding as of the date of this
document are as follows:
Security Authorized Outstanding
----------------- ------------ ------------
Common stock 40,000,000 13,263,569
Preferred stock 5,000,000 1,000,000
29
<PAGE>
COMMON STOCK
As of January 14, 2000, there were 13,263,569 shares of common stock
outstanding and held of record by 67 stockholders. Based upon the number of
shares outstanding as of January 14, 2000 and giving effect to the issuance of
20,000,000 shares of common stock by PACEL in this offering, there will be
33,263,569 shares of common stock outstanding upon completion of this offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. They do not have cumulative voting
rights. As a result, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably,
dividends, if any, as the board of directors may declare out of funds legally
available, subject to any preferential dividend rights of any then-outstanding
preferred stock. Upon the liquidation, dissolution or winding up of PACEL, the
holders of common stock are entitled to receive ratably the net assets of PACEL
available after the payment of all debts and other liabilities and subject to
the prior rights of any then-outstanding preferred stock. Holders of the common
stock have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are, and the shares offered by PACEL in the
offering will be, when issued in consideration for payment, fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock which PACEL may designate and issue in
the future. See "-- Preferred Stock."
Preferred Stock
The board of directors is authorized, without further stockholder approval,
to issue from time to time up to an aggregate of 5,000,000 shares of preferred
stock in one or more series. The board of directors may fix or alter the
designations, preferences, rights and any qualification, limitations or
restrictions of the shares of any series, including the dividend rights,
dividend rates, conversion rights, voting rights, redemption terms and prices,
liquidation preferences and the numbers of shares constituting any series. One
million shares of preferred stock are currently outstanding as described above
in the section entitled "Certain Transactions." Although the ability of the
board of directors to designate and issue preferred stock could provide
flexibility in possible acquisitions or other corporate purposes, issuance of
preferred stock may have adverse effects on the holders of common stock. The
effects could include.
o restrictions on dividends on the common stock if dividends on the
preferred stock have not been paid;
o dilution of voting power of the common stock to the extent the
preferred stock has voting rights; or
o deferral of participation in PACEL's assets upon liquidation until
satisfaction of any liquidation preference granted to holders of the
preferred stock.
30
<PAGE>
In addition, issuance of preferred stock could make it more difficult for a
third party to acquire a majority of the outstanding voting stock and
accordingly may be used as an "anti-takeover" device. The board of directors,
however, currently does not contemplate the issuance of any additional preferred
stock and is not aware of any pending transactions that would be affected by
such issuance.
To date, the Board of Directors has issued 1,000,000 shares of the 1997
Class A Preferred Stock to David E. Calkins and F. Kay Calkins, each of whom
owns 500,000 shares. Each share of the 1997 Class A Preferred Stock is
convertible into .25 of a share of PACEL common stock. The preferred stock is
convertible by the holders into common stock at any time and at no cost. The
preferred stock was issued to the Calkins by the Board of Directors in exchange
for the forgiven of approximately $11,320 owed to them by PACEL.
TRANSFER AGENT
Olde Monmouth Stock Transfer Co., Inc. will act as PACEL'S transfer agent
and registrar for the common stock.
LISTING
The common stock trades on the National Association of Securities' Dealers,
Inc. Over-the-Counter Electronic Bulletin Board under the symbol "PLRP."
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the common stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of the common stock in the
public market following the offering. The 20,000,000 shares being offered hereby
will be freely tradable unless held by affiliates of PACEL. In addition, a total
of 9,893,478 securities issued prior to the offering were sold pursuant Rule 504
of Regulation D and are freely tradable except to the extent held by affiliates.
Upon completion of the offering, executive officers and directors of PACEL will
own a total of:
o 3,370,091 shares of common stock;
o options to acquire 1,325,000 shares of common stock; and
o preferred stock convertible into 250,000 shares of common stock.
The shares of common stock held by directors and executive officers may be
sold in the public market only if registered or pursuant to Rule 144 of the
Securities Act. The provisions of Rules 144 provide that these securities will
be available for sale in the public market on the date which is one year from
the date they were issued, subject to the volume limitations and other
conditions of Rule 144.
31
<PAGE>
In general, under Rule 144, a person who has owned shares of our common
stock for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
o one percent of the number of shares of common stock then outstanding,
which will equal approximately 332,636 shares immediately after this
offering, assuming we sell all of the shares offered hereby; or
o the average weekly trading volume of the common stock on the National
Association of Securities' Dealers Over-the-Counter Electronic
Bulletin Board during the four calendar weeks preceding the filing of
a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
PACEL.
PLAN OF DISTRIBUTION
This offering of common stock is being made to members of the general
public. The offering is being made to provide financing to continue, and to
expand the scope of, our present operations. There is no minimum amount that
must be sold in the offering. The shares of common stock offered hereby will be
offered for sale by officers and directors of PACEL and its subsidiaries. It is
anticipated that our directors and officers may hold informational meetings to
review the prospectus with potential purchasers and to discuss the terms and
provisions of the common stock. PACEL will rely on Rule 3a4-1 of the Securities
Exchange Act of 1934, and sales of common stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers and directors to
participate in the sale of PACEL common stock. No officer or director of PACEL
or its subsidiaries will be compensated in connection with his or her
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in PACEL common stock. In addition,
PACEL may employ a broker/dealer who is a member of the National Association of
Securities Dealers, Inc. to sell the common stock offered hereby. Any
broker/dealer who sells the common stock of PACEL shall be paid a commission
which is not expected to exceed 10%.
The price at which the shares are offered hereby has been arbitrarily set
by PACEL's management, and has no relationship to the book value per share,
current earnings of PACEL, or other generally accepted measurement of value.
The subscriptions and completed agreements shall be sent directly to PACEL
payable to "PACEL Corp." for the sale of the common stock. Subscriptions shall
be received within six months from the effective date of this offering which
period may be extended up to an additional 90 days at the sole discretion of
PACEL.
PACEL reserves the right to reject any offer, in whole or in part, for any
reason whatsoever . We will notify subscribers of the acceptance of their
subscriptions within ten (10) days of their acceptance. Common stock
32
<PAGE>
certificates will be delivered to investors by mail or other delivery within
thirty (30) days of acceptance of the subscription by PACEL or the offering
termination date set forth in the preceding paragraph, whichever is later. We
reserve the right to allocate the shares of common stock in any manner as we, in
our sole discretion, deem appropriate in the event of an oversubscription.
LEGAL MATTERS
The validity of the shares of common stock being offered and other legal
matters will be passed upon for PACEL by Silver, Freedman & Taff, L.L.P.,
Washington, D.C. As of the date of this prospectus, a member of Silver, Freedman
& Taff, L.L.P. beneficially owns 18,750 shares of PACEL's common stock. In
addition, a portion of that firm's legal fees are to be paid in shares of common
stock.
EXPERTS
The financial statements as of September 30, 1999 and December 31, 1998 and
for each of the nine month periods ended September 30, 1999 and 1998, and the
two years in the period ended December 31, 1998 included in this prospectus have
been so included in reliance on the report of Peter C. Cosmas & Co., CPAs,
independent accountants, given as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act of 1933 with respect to the shares of common stock to be sold in
this offering. The registration statement includes exhibits and schedules in
addition to this prospectus. For further information with respect to PACEL and
the shares of common stock to be sold in the offering, reference is made to the
registration statement. Statements contained in this prospectus as to the
contents of any material contract, agreement or other document referred to are
summaries which disclose the material terms of such documents. Each of these
statements is qualified in its entirety by reference to the copy of the
applicable document filed as an exhibit to the registration statement.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information PACEL files at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference room's operations. PACEL's SEC filings, including the
registration statement, are also available to you on the SEC's Web site
(http://www.sec.gov).
33
<PAGE>
PACEL CORP. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet at September 30, 1999 (unaudited) and
December 31, 1998 (audited)............................................. F-2
Consolidated Statements of Operations for the Nine Months
Ended September 30, 1999 and 1998...................................... F-3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998...................................... F-4
Notes to Consolidated Financial Statements for the Nine Months
Ended September 30, 1999 .............................................. F-5
Report of Independent Accountants........................................ F-7
Balance Sheets at December 31, 1998 and 1997............................. F-8
Statements of Operations for the Years Ended December 31, 1998 and 1997.. F-9
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997.. F-10
Statements of Stockholders' Equity (Deficit)
for the Two Years Ended December 31, 1998.............................. F-11
Notes to Consolidated Financial Statements for the
Years Ended December 31, 1998 and 1997................................. F-12
F - 1
<PAGE>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1999 1998
------------- ------------
Unaudited Audited
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 125,915 $ 28,857
Accounts receivable, net of allowance for doubtful accounts 16,444 5,034
Other receivables 5,000 60,350
Prepaid expenses 33,750 15,000
----------- -----------
Total current assets 181,109 109,241
Property and equipment, net 63,592 57,913
Non-current assets:
Note receivable 73,000 74,000
Other assets -- 1,100
Security deposits 6,055 5,483
----------- -----------
Total non-current assets 79,055 80,583
----------- -----------
Total assets $ 323,756 $ 247,737
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 17,160 $ 35,000
Accounts payable 201,910 357,834
----------- -----------
Total current liabilities 219,070 392,834
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, 9,090,359 and 5,200,730
shares issued and outstanding at September 30, 1999
and 1998 respectively 2,179,052 959,191
Deficit (2,085,686) (1,115,608)
----------- -----------
Total stockholders' equity (deficit) 104,686 (145,097)
----------- -----------
Total liabilities and stockholders' equity $ 323,756 $ 247,737
=========== ===========
</TABLE>
F - 2
<PAGE>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Net Sales $ 37,955 $ 29,093
------------ -----------
Operating costs and expenses:
Research and development 554,972 271,637
Depreciation 5,619 3,753
Interest expense 79,073 ---
Selling, general and administrative 368,369 188,917
------------ -----------
Total operating costs and expenses 1,008,033 464,307
------------ -----------
Net (loss) $ (970,078) $ (435,214)
============ ===========
Basic and diluted net (loss) per share (0.12) (0.09)
============ ===========
Weighted average number of shares 8,083,629 4,878,937
outstanding - Basic and Diluted
</TABLE>
F - 3
<PAGE>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(970,078) $(435,214)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation 5,619 1,284
Non cash item-stock issued for services 228,837 50,000
-issuance of options (100,000) --
-interest expense paid in stock 77,460 --
Increase (Decrease) in Cash from changes in:
Accounts receivable (11,410) 22,710
Other receivables 55,350 (1,500)
Other assets 1,100 --
Prepaid expenses (18,750) --
Security deposits (572) (328)
Accounts payable and accrued expenses (55,924) 160,214
--------- --------
Net cash (used in) operating activities (788,368) (202,834)
Cash flows (used) in investing activities:
Purchase of property and equipment (11,298) --
Notes receivable 1,000 --
--------- --------
Net cash used in investing activities (10,298) --
--------- --------
Cash flows from financing activities:
Proceeds from note payable 2,000 50,000
Payment of notes payable (19,840) --
Proceeds from sale of common stock 913,564 191,113
--------- --------
Net cash provided by financing activities 895,724 241,113
--------- --------
Net increase in cash 97,058 38,279
Cash and cash equivalents at beginning of period 28,857 34,160
--------- --------
Cash and cash equivalents at end of period $ 125,915 $ 72,439
========= ========
Supplemental disclosure of cash flow information: Cash paid during the period:
Interest 1,583 --
Income taxes -- --
</TABLE>
F - 4
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to fairly present the Company's financial position and
its results of operations and cash flows as of the dates and for the periods
indicated.
Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These condensed consolidated financial statements should be
read in conjunction with the audited December 31, 1998 consolidated financial
statements and related notes included in the Company's year end certified
financial statements. The results of operations for the nine months are not
necessarily indicative of the operating results for the year.
Amounts for the nine months ended September 30, 1998 have been reclassified to
conform with the September 30, 1999 presentation.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all of its subsidiaries in which a controlling interest is maintained. All
significant intercompany accounts and transactions have been eliminated in
consolidation. For those consolidated subsidiaries where Company ownership is
less than 100%, the outside stockholders' interest are shown as minority
interest. Investments in affiliates over which the Company has significant
influence but not a controlling interest are carried on the equity basis.
In July 1999, the Company formed an eighty percent owned subsidiary,
E-Business-Stor.Com for the purpose of expanding its Internet business. At
September 30, 1999, there were no significant transactions in E-Business.
3. REVENUE RECOGNITION
Revenue is recognized when earned. The Company's revenue recognition policies
are in compliance with American Institute of Certified Public Accountants
Statement of Position 97-2. Software Revenue Recognition. Revenue from products
licensed to original equipment manufacturers is recorded when the manufacturers
ship licensed products while revenue from organization license programs is
recorded when the software has been delivered and the customer is invoiced.
Revenue from packaged product sales to distributors and resellers is recorded
when related products are shipped. Maintenance and subscription revenue is
recognized ratably over the contract period. Revenue attributable to significant
support is based on the price charged or derived value of the undelivered
elements and is recognized ratably on a straight-line basis over the producer's
life cycle. Costs related to insignificant obligations, which include telephone
support for certain products, are accrued. Provisions are recorded for returns
and bad debts.
4. KEY EMPLOYEE STOCK OPTION PLAN
In June, 1998 the Company adopted the Key Employees Stock Option Plan. 250,000
shares were reserved under the Plan. The Plan is administered by the Board of
Directors. Options are granted at market price the date of the grant and vest
20% per year. Options for 75,000 shares have been issued under the Plan, with an
exercisable price of $.20 per share, and a five year vesting period. Options for
10,000 shares have vested.
F - 5
<PAGE>
5. EXECUTIVE COMPENSATION
On September 30, 1999 the Company granted options to each of David and F. Kay
Calkins to purchase 625,000 shares of common stock at $.16 per share in lieu of
$50,000 of compensation owed. The market price of the shares at the grant date
was $.32. As a result, additional compensation expense was recorded in the
amount of $100,000 on September 30, 1999.
6. SHORT-TERM DEBT
In September 1999, the Company issued $100,000 of convertible debt with an
interest rate of 8% that could be converted into stock at the debt holder's
discretion, at 80% of the market price on the day of conversion. Upon
conversion, a charge to interst has been recorded for the 20% discount.
Interest expense of $27,460 was recorded during the nine month period ended
September 30, 1999 with respect to this debt.
7. SUBSEQUENT EVENTS
On October 6, 1999 the Company had a 1 to 4 reverse split. The shares
outstanding at September 30, 1999 were 36,261,437 before the reversal and
9,090,359 after. The financial statements have been restated to reflect this
change.
On October 22, 1999 PACEL Corp. acquired all of the outstanding stock, 29,055
shares of Fairfax Communications Limited for $30,000. $4,000 will be allocated
to computers and office equipment and the remaining $26,000 will be charged to
good will and amortized over a five year period. The acquisition will be
accounted for by the purchase method.
In October and November 1999, the Company issued a total of $400,000 of
convertible debentures with an interest rate of 8% that could be converted into
stock at the debt holder's discretion, at 80% of the market price on the day of
conversion. On the date of conversion a charge to interest will be recorded for
the 20% discount. Interest expense of $100,000 was recorded during the fourth
quarter of 1999 with respect to this debt.
F - 6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors
PACEL Corp.
We have audited the accompanying balance sheet of Pacel Corp. as of
December 31, 1998 and 1997 and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pacel Corp. as of December
31, 1998 and 1997, and results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1(i) to the
financial statements, the Company has had minimal revenues since inception and
requires additional capital to continue operations. These conditions raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1(i). The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Peter C. Cosmas Co., CPAs
370 Lexington Ave.
New York, NY 10017
August 7, 1999
(Except for Notes 3, 6, 8, 9 10, and 13
which are as of October 6, 1999)
F - 7
<PAGE>
PACEL CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
---------------------------------
1998 1997
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28,857 $ 34,160
Accounts receivable, net of allowance for doubtful accounts
of $13,851 and -0- respectively 5,034 23,230
Other receivables 60,350 4,500
Inventories -- 976
Prepaid expenses 15,000 --
----------- ----------
Total current assets 109,241 62,866
Property and equipment, net 57,913 16,249
Non-current assets:
Note receivable 74,000 --
Other assets 1,100 1,100
Security deposits 5,483 --
----------- ----------
Total non-current assets 80,583 1,100
----------- ----------
Total assets $ 247,737 $ 80,215
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 35,000 $ --
Accounts payable 224,834 9,475
Loans payable Officers - Stockholders 133,000 --
----------- ----------
Total current liabilities 392,834 9,475
----------- ----------
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 and 20,000,000 shares authorized 1998 and 1997
respectively, 5,834,325 and 4,706,300 shares outstanding in
1998 and 1997 respectively 959,191 361,470
Deficit (1,115,608) (302,050)
----------- -----------
Total stockholders' equity (deficit) (145,097) 70,740
------------ ----------
Total liabilities and stockholders' equity (deficit) $ 247,737 $ 80,215
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F - 8
<PAGE>
PACEL CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net Sales $ 52,447 $ 56,799
---------- ------------
Operating costs and expenses:
Research and development 641,752 274,040
Depreciation 10,336 4,858
Interest expense 5,860 437
Selling, general and administrative 208,057 47,923
---------- ------------
Total operating costs and expenses 866,005 327,258
---------- ------------
Net (loss) $ (813,558) $ (270,459)
========== ============
Net (loss) per common share
Basic (0.17) (0.06)
Diluted (0.17) (0.06)
Weighted Average shares outstanding
Basic 4,877,247 4,476,000
Diluted 4,877,247 4,476,000
</TABLE>
See accompanying notes to financial statements.
F - 9
<PAGE>
<TABLE>
<CAPTION>
PACEL CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(813,558) $(270,459)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation 10,336 4,858
Provision for bad debts 13,851
Other non cash items 56,694
Increase (Decrease) in Cash from changes in:
Accounts receivable 4,346 (24,254)
Inventories 976 2,224
Other receivables (55,850) -
Prepaid expenses (15,000) -
Security deposits (5,483) -
Accounts payable and accrued expenses 215,359 (4,024)
Loans payable Officers-Stockholders 133,000 -
----------- ---------
Net cash (used in) operating activities (455,329) (291,655)
Cash flows from investing activities:
Purchase of property and equipment (52,000) -
Notes receivable (74,000) (2,797)
----------- ---------
Net cash used in investing activities (126,000) (2,797)
----------- ---------
Cash flows from financing activities:
Notes payable 35,000 -
Proceeds from sale of common stock 541,026 319,470
----------- ---------
Net cash provided by financing activities 576,026 319,470
----------- ---------
Net increase in cash and cash equivalents (5,303) 25,018
Cash and cash equivalents at beginning of year 34,160 9,142
------------ ---------
Cash and cash equivalents at end of year $ 28,857 $ 34,160
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest 5,860 437
</TABLE>
See accompanying notes to financial statements
F - 10
<PAGE>
<TABLE>
<CAPTION>
PACEL CORP.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TWO YEARS ENDED DECEMBER 31, 1998
Total
Preferred Stock Common Stock Retained Stockkholders
----------------------- ----------------------- Earnings Equity
Shares Amount Shares Amount (Deficit) (Deficit)
------ ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 -- $ -- 12,000,000 $ 2,000 $(31,591.00) $ (29,591)
Issuance of common stock and warrants net
of expenses 6,825,200 359,470 -- 359,470
Issuance of 1,000,000 shares of convertible
preferred stock 1,000,000 11,320 11,320
Net loss (270,459) (270,459)
------------------------------------------------------------------------------
Balance, December 31, 1997 1,000,000 11,320 18,825,200 361,470 (302,050) 70,740
Issuance of common stock and warrants net
of expenses 2,902,448 541,027 541,027
Issuance of common stock for professional
services 1,609,650 56,694 56,694
Net loss (813,558) (813,558)
------------------------------------------------------------------------------
Balance, December 31, 1998 1,000,000 $ 11,320 23,337,298 $ 959,191 $(1,115,608) (145,097)
Reverse split, one-for-four -- -- (17,502,973) -- -- --
------------------------------------------------------------------------------
Balace, Decewmber 31, 1998, as adjusted
for one-for-four reverse split 1,000,000 $ 11,320 5,834,325 $ 959,191 $(1,115,608) (145,097)
==============================================================================
</TABLE>
See accompanying notes to Financial Statements
F - 11
<PAGE>
PACEL CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
----------------------------
1) Summary of Significant Accounting Policies
a) Nature of the business
PACEL Corp. (the "Company") was incorporated on May 3, 1994 under the laws
of the State of Virginia. The Company was formed for the purpose of developing
and marketing its own computer software programs. To date, the Company has
developed and is marketing several versions of its interactive electronic
procedures software to be used with Microsoft Windows under the name Visual
Writer (the "Visual Writer System").
The Company has completed research and development and testing activities
on the Visual Writer system and has funded the development of the software
through management contributions of money, time and materials, investor
financing and limited sales of software. It has hired personnel and developed
consulting relationships.
b) Cash and cash equivalents.
Cash equivalents consist of liquid investments, with a maturity of three
months or less at the time of purchase. Cash equivalents are stated at cost
which approximate market value.
c) Inventories:
Inventories are stated at the lower of cost (first in, first out) or
market.
d) Property and Equipment:
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets ranging from 5 to 7 years using the
straight line method. Maintenance and repairs are charged against income and
betterments are capitalized.
e) Reclassification
Certain prior year amounts have been reclassified to conform to current
year's presentation.
f) Revenue recognition:
Revenue is recognized when earned. The Company's revenue recognition
policies are in compliance with American Institute of Certified Public
Accountants Statement of Position 97-2. Software Revenue Recognition. Revenue
from products licensed to original equipment manufacturers is recorded when the
manufacturers ship licensed products while revenue from organization license
programs is recorded when the software has been delivered and the customer
F - 12
<PAGE>
is invoiced. Revenue from packaged product sales to distributors and resellers
is recorded when related products are shipped . Maintenance and subscription
revenue is recognized ratably over the contract period. Revenue attributable to
significant support is based on the price charged or derived value of the
undelivered elements and is recognized ratably on a straight-line basis over the
producer's life cycle. Costs related to insignificant obligations, which include
telephone support for certain products, are accrued. Provisions are recorded for
returns and bad debts.
g) Research and Development Expenses:
Costs incurred in the product development of new software products are
expensed as incurred until technological feasibility has been established. To
date, the establishment of technological feasibility of the Company's products
and general release substantially coincide. As a result, the Company has not
capitalized any software development costs.
h) 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 of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Operating results in the future could vary from the amount derived from
management's estimates and assumptions.
i) Basis of Financial Statement Presentation:
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 normal course of business. The Company has generated minimal
revenues from inception to December 31, 1998. These factors indicate that the
Company's continuation, as a going concern is dependent upon its ability to
obtain adequate financing.
The Company is anticipating that with the completion of proposed private
placements of its securities, the Company will have sufficient funding to
increase sales of its software. The Company will require substantial additional
funds to finance its business activities on an ongoing basis and will have a
continuing long-term need to obtain additional financing. The Company's future
capital requirements will depend on numerous factors including, but not limited
to, continued progress developing its source code to complete proposed computer
programming assignments, development of a marketing program and signing clients
to use the Company's products. The Company plans to engage in such ongoing
financing efforts on a continuing basis.
j) Impact of Recently Issued Accounting Standards:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards for derivative
instruments. The Company has not in the past nor does it anticipate that it will
engage in transactions involving derivative instruments which will impact the
financial statements.
F - 13
<PAGE>
Statement of Position 98-1, " Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", requires an entity to expense all
software development costs incurred in the preliminary project stage, training
costs and data conversion costs for fiscal years beginning after December 15,
1998. The Company believes that this statement will not have a material effect
on the Company's accounting for computer software costs.
Statement of Position 98-5, " Accounting for Start-up Costs", requires an
entity to expense all start-up related costs as incurred for the fiscal years
beginning after December 15, 1998. The Company believes that this statement will
not have a material effect on the Company's accounting for start-up costs.
k) Impairment of Long-Lived Assets
Effective January 1, 1996, the Company adopted SFAS NO. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," SFAS No. 121 required the Company to review the recoverability of the
carrying amounts of its long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of the asset might not be
recoverable.
In the event that facts and circumstances indicate that the carrying
amounts of long-live assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to fair value is required.
Fair value may be determined by reference to discounted future cash flows over
the remaining useful life of the related asset. Such adoption did not have a
material effect on the Company's financial position or results of operations.
l) Fair Value Disclosures:
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, inventories, accounts payable and accrued
expenses, approximate fair value because of the immediate or short-term maturity
of these financial instruments.
m) Stock Options:
The Company accounts for its stock options in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the current market price
of the underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted the disclosure requirements of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-based Compensation. Had the
Company determined compensation cost based on fair value at the grant date for
stock options under SFAS No. 123 the effect would have been immaterial.
F - 14
<PAGE>
2) Property and Equipment:
Property and equipment consist of the following:
December 31,
-----------------------------------
1998 1997
---- -----
Office Equipment $ 77,684 $ 25,684
Less accumulated depreciation 19,771 9,435
---------- --------
$ 57,913 $ 16,249
---------- --------
3) Notes Receivable
The company extended a long term note to CTM Automated Systems, Inc. in the
amount of $75,000 at an interest rate of 5.25% payable monthly with a balloon
payment October, 2002. The loan is collateralized by 1,000 shares of CTM stock.
The balance of the loan at December 31, 1998 was $74,000. CTM continues to pay
$1,000 a month toward principal and interest.
In 1998 the Company entered into a contract to acquire property, plant and
equipment, intellectual property and the right to interview and possibly hire
employees of CTM. The intention at the time of the contract was for the Company
to acquire CTM at the end of four years. The acquisition never materialized. The
Company did, however, purchase $52,000 of furniture and fixtures, $25,000 of
intellectual property and paid $23,000 for the right to interview certain
employees. The $52,000 of furniture and fixtures have been capitalized as
property, plant and equipment, and the balance of $48,000 was expensed, because
it was determined after a thorough review that the purchased technology was not
feasible.
4) Short-Term Debt
Short-term debt consists of notes payable of $35,000 and -0- at December
31, 1998 and 1997 respectively. The notes bear an interest rate of 11%. In
conjunction with the notes the Company issued Common Stock purchase warrants to
the lenders in consideration for execution of the financing agreements.
Under the term of the warrant agreements, the exercise price of the
warrants and the number of shares purchasable with each warrant are adjusted
when converted. On the conversion date, the exercise price of the warrants is
50% of the average market price of the stock for the five days prior to
conversion. This discount from market amounted to $50,000 and was charged to
interest expense in 1999.
F - 15
<PAGE>
5) Income Taxes
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any, represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of December 31, 1998 and 1997, the
Company had no material current tax liability, deferred tax assets, or
liabilities respectively. The Company has available a net operating loss carry
forward of approximately $1,115,608 for tax purposes to offset future taxable
income. The net operating loss carryforwards expires in 2011-2018.
6) Earnings (Loss) Per Share:
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards ("SFAS") No. 128. "Earnings Per
Share" applicable for financial statements issued for periods ending after
December 15, 1997. As required the Company adopted "SFAS" No. 128 for the year
ended December 31, 1997 and restated all prior period earnings per share
figures. The Company has presented basic earnings per share. Basic earnings per
share excludes potential dilution and is calculated by dividing income available
to common stockholders by the weighted average number of outstanding common
shares. Diluted earnings per share incorporates the potential dilutions from all
potentially dilutive securities that would have reduced earnings per share.
Since the potential issuance of additional shares would reduce loss per share
they are considered anti-dilutive and are excluded from the calculation.
The weighted average number of shares used to compute basic earnings (loss) per
share was 4,877,247 and 4,476,000 at December 31, 1998 and 1997 respectively.
7) Commitments and Contingencies:
a) Operating Leases
1999 $ 56,304
2000 65,461
2001 66,368
2002 65,572
2003 67,539
After 2003 11,311
---------
Total minimum lease payments $332,555
Rent expenses for December 31, 1998 and 1997 was $14,400 and $13,200
respectively.
F - 16
<PAGE>
8) Stockholders' Equity:
a) Preferred Stock:
The Company's Amended Certificate of Incorporation authorizes 5,000,000
shares of no par, no liquidating value preferred stock, of which 1,000,000
shares have been designated the 1997 Class A Convertible Preferred Stock. The
number of shares of the 1997 Class A shall be limited to 1,000,000. The Board of
Directors of the Company has the authority to establish and designate any shares
of stock in series or classes and to fix any variations in the designations,
relative rights, preferences and limitations between series as it deems
appropriate, by a majority vote.
The shares of the 1997 Class A Convertible Preferred Stock shall have no
liquidation value, and shall be entitled to receive, out of any funds of the
Company at the time legally available for the declaration of dividends, a per
share participating dividend equivalent to that declared and or paid with
respect to a share of Common Stock. The 1997 Class A Convertible Preferred Stock
shall not have voting rights, and are convertible at anytime into one quarter
share of Common Stock.
b) Common Stock:
The authorized common stock of the Company consists of 40,000,000 and
20,000,000 shares at December 31, 1998 and 1997 respectively without par value.
In April of 1998 the Company effected a forward recapitalization of the number
of shares of common stock outstanding in a ratio of 4 to 1 restating the number
of shares of common stock outstanding from 4,410,000 to 18,825,200 shares of
common stock without par value. In May, 1997 the Company effected a forward
recapitalization of the number of shares of common stock outstanding in a ratio
of 30,000 to 1 restating the number of shares of common stock outstanding from
147 shares, $1.00 par value per share to 4,410,000 shares of common stock
without par value. In October 1999, the Company effected a one-for-four reverse
split restating the number of common shares as of December 31, 1998 from
23,337,298 to 5,834,325.
9) Convertible Securities:
a) Common Stock Purchase Warrants:
The Company authorized one hundred thousand common stock purchase warrants.
Each common stock purchase warrant authorizes the holder to purchase one share
of common stock, subject to anti-dilution protection. The price of the shares
shall be the lesser of: (a) two dollars and fifty cents ($2.50) per share; (b)
the opening bid price for the Company's common stock upon the commencement of
trading; and (c) fifty percent (50%) of the average closing bid price for the
F - 17
<PAGE>
five (5) days immediately preceding exercise. The warrants expire on April 30,
2000. The above warrants were exercised by the holder subsequent to December 31,
1998.
10) Related Party Transactions:
a) Issuance of Common Stock:
The Company sold an aggregate of 100 shares to David and F. Kay Calkins for
$2,000. After stock splits and reverse stock splits declared and paid by the
Company, the 100 common shares owned by David and F. Kay Calkins has been
restated to 3,000,000 shares.
b) Officers Loans:
The Company borrowed an aggregate of $11,320 from David and F. Kay Calkins.
The loan was payable on demand with interest at 9%. As of March 31, 1997, they
each received 500,000 shares of Class "A" Preferred Stock in consideration of
the cancellation of the indebtedness of $11,320.
In 1998 the Company recorded a liability to David and F. Kay Calkins in the
amount of $119,000 for accrued payroll.
c) Employment Agreements:
In 1998 the Company entered into employment agreements with David and F.
Kay Calkins respectively. Each will receive a base salary of $84,000 per year
and be eligible for retroactive increases based on earnings per share of the
Company. No retroactive increases were paid.
Effective October 1, 1999 the Company entered into new employment
agreements with David and F. Kay Calkins, superseding the above 1998 agreements,
for a period of 24 months. The new agreements provide for a base salary of
$125,000 per year for David Calkins and $110,000 for F. Kay Calkins, with no
retroactive increases.
11) Business and Credit Concentrations:
The amount reported in the financial statements for cash, trade accounts
receivable and investments approximates fair market value. Because the
difference between cost and the lower of cost or market is immaterial, no
adjustment has been recognized and investments are recorded at cost.
F - 18
<PAGE>
Financial instruments that potentially subject the company to credit risk
consist principally of trade receivables. Collateral is generally not required.
12) Comprehensive Income
At December 31, 1998 and 1997 net income and comprehensive income were the
same.
13) Stock Option Plan:
a) Nonstatutory Stock Option Plan
In May 1997, the Company adopted the Fiscal 1997 Nonstatutory Stock Option
Plan (the "Plan"). 1,000,000 Common Shares were reserved under the Plan. The
Plan is administered by the Board of Directors. 500,000 options have been issued
under the Plan exercisable at $1.25 for a period of three years. An aggregate of
300,000 of those options were issued to F. Kay and David Calkins.
Stock options under the Plan may be granted to employees, officers,
directors, consultants of the Company or any other parties who have made a
significant contribution to the business and success of the Company. The
exercise price under the Plan may be more, equal to or less than the then
current market price of the Common Shares as deemed to be appropriate.
b) Key Employees Stock Option Plan
In June, 1998 the Company adopted the Key Employees Stock Option Plan.
250,000 shares were reserved under the Plan. The Plan is administered by the
Board of Directors. Options are granted at market price on the date of the grant
and vest 20% per year. Options for 50,000 shares have been issued under the Plan
with an exercise price of $.20 per share, and a five year vesting period.
Options for 10,000 shares have vested.
F - 19
<PAGE>
<TABLE>
<CAPTION>
================================================================ ===================================================
<S> <C>
You may rely on the information contained in this prospectus. No
dealer, salesperson or other person has been authorized to give
any information or to make any representation other than as
contained in this prospectus in connection with the offering made UP TO
hereby, and, if given or made, such other information or 20,000,000 SHARES
representation must not be relied upon as having been authorized
by PACEL Corp. When you make a decision about whether to invest
in our common stock, you should not rely upon any information
other than the information in this prospectus. This prospectus
does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby to any person
in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or [PACEL Logo]
solicitation is not qualified to do so, or to any person to whom
it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this prospectus nor sale of PACEL Corp.
common stock means that information contained in this prospectus
is correct after the date of this prospectus.
--------------
TABLE OF CONTENTS
Page
Prospectus Summary............................... 2
Risk Factors..................................... 5 COMMON STOCK
Use of Proceeds.................................. 9
Price Range of Common Stock...................... 10
Dividend Policy.................................. 11
Capitalization................................... 11
Management's Discussion and --------------------
Analysis of Financial Condition PROSPECTUS
and Results of Operations...................... 12 --------------------
Business......................................... 15
Management ...................................... 23
Certain Transactions............................. 30
Principal Stockholders........................... 30
Description of Capital Stock..................... 31
Shares Eligible for Future Sale.................. 33
Plan of Distribution............................. 34
Legal Matters.................................... 35
Experts.......................................... 35
Where You Can Find More Information.............. 35
Index to Consolidated Financial Statements....... F-1
____________, 2000
Dealer Prospectus Delivery Obligation:
Until__________, 2000 (25 days after the commencement of this
offering) all dealers that buy, sell or trade these shares of
common stock, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
================================================================ ===================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
- -------- -----------------------------------------
Article 10 of the Virginia Stock Corporation Act provides, in general,
that Virginia corporations shall have the power, under specified circumstances,
to indemnify their directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against expenses incurred in any such
action, suit or proceeding. The Virginia Stock Corporation Act also provides
that Virginia corporations may purchase insurance on behalf of any such
director, officer, employee or agent.
Pacel's Articles of Incorporation provide, in general, for mandatory
indemnification of its directors and officers (including former directors and
officers and persons serving at the request of Pacel as directors and officers
of another corporation, partnership, joint venture, trust or other enterprise
against liability incurred by them in proceedings by third parties, or by or on
behalf of Pacel, by reason of the fact that such person is, or was, a director
or officer of Pacel, or is, or was, serving at the request of Pacel as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise. Such indemnity shall only be provided after Pacel determines
that the director or officer was not guilty of gross negligence or willful
misconduct.
In addition, Pacel's Articles of Incorporation provide that Pacel may
purchase insurance to cover any losses sustained as a result of providing
indemnification to the aforementioned persons.
Item 25. Other Expenses of Issuance and Distribution
- -------- -------------------------------------------
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance of the shares. All amounts shown are estimates except for the SEC
registration fee.
SEC registration fee $ 843
Blue Sky fees and expenses 6,500
Counsel and accounting fees and expenses
(including Blue Sky legal fees) 185,000
Printing, postage and mailing 5,000
Stock Transfer Agent and Certificates 2,000
Other expenses 657
---------
TOTAL $ 200,000
=========
- --------------------
Item 26. Recent Sales of Unregistered Securities
- -------- ---------------------------------------
The following is a summary of the transactions involving the issuance
of PACEL securities during the past three years without registering the
securities under the Securities Act of 1933. The number of securities issued set
forth below have been adjusted for all stock splits and dividends, and reverse
stock splits and dividends declared and paid by PACEL as of the date hereof.
<PAGE>
On March 31, 1997, David E. Calkins and F. Kay Calkins each received
500,000 shares of PACEL's 1997 Class A convertible preferred stock in exchange
for the forgiveness of $11,320 of personal loans owed to them. Each share of
preferred stock is convertible into one share of PACEL common stock at any time
and at no cost to the Calkins. The transaction was a private placement and
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
From June 1997 through December 1997, PACEL issued 296,800 shares of
common stock to various individuals for an aggregate purchase price of $211,470.
The transaction was a private placement and exempt from registration under Rule
504 of Regulation D of the Securities Act of 1933.
During 1998, PACEL issued 452,463 shares of common stock to various
individuals in exchange for professional and consulting services valued at
approximately $45,982. The transactions were private placements and exempt from
registration pursuant to Rule 504 of the Securities Act of 1933.
In April 1998, Kenneth Russman received an option to purchase 50,000
shares of common stock at an exercise price of $.20 per share, the market value
of the common stock as of the date of grant. The transaction was a private
placement and exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933. Mr. Russman qualified as an accredited investor and had
full access to information.
From June 1998 through September 1998, PACEL sold 39,946 shares of
common stock to various individuals for an aggregate purchase price of $54,000.
The transaction was a private placement and exempt from registration under Rule
504 of Regulation D of the Securities Act of 1933.
During August 1998, PACEL issued $50,000 of debt convertible into
287,707 shares of common stock to Augustine Fund. The transaction was a private
placement and exempt from registration pursuant to Rule 504 of the Securities
Act of 1933.
From September 1998 through November 1998, PACEL sold 400,573 shares of
common stock to various individuals for an aggregate purchase price of $278,575.
The transaction was a private placement and exempt from registration under Rule
504 of Regulation D of the Securities Act of 1933.
From January 1999 through April 1999, PACEL issued 1,508,844 shares of
common stock to various individuals for an aggregate purchase price of $277,425.
The transaction was a private placement and exempt from registration under Rule
504 of Regulation D of the Securities Act of 1933.
From January 1999 through September 1999, PACEL issued 988,013 shares
of common stock to various individuals in exchange for professional and
consulting services valued at approximately $193,268. The transactions were
private placements and exempt from registration pursuant to Rule 504 of the
Securities Act of 1933.
<PAGE>
In April 1999, Kenneth Russman received an option to purchase 25,000
shares of common stock at an exercise price of $.20 per share. The transaction
was a private placement and exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933. Mr. Russman qualified as an accredited investor and
had full access to information.
During September 1999, PACEL issued $100,000 of debt convertible into
420,959 shares of common stock. The transaction was a private placement and
exempt from registration under Rule 504 of Regulation D of the Securities Act
of 1933.
On September 30, 1999, David E. Calkins and F. Kay Calkins each
received an option to purchase 625,000 shares of common stock at an exercise
price of $.16 per share, in exchange for $50,000 of compensation owed to each of
them by PACEL. The transactions were private placements and exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933. Mr. Calkins
and Ms. Calkins qualified as accredited investors and had full access to
information.
During October and November 1999, PACEL issued $400,000 of debt,
$357,840 of which has been converted into 4,561,044 shares of common stock.
The transaction was a private placement and exempt from registration under Rule
504 of Regulation D of the Securities Act of 1933.
Item 27. Exhibits
- -------- --------
See the Index to Exhibits filed as part of this Registration Statement.
Item 28. Undertakings
- -------- ------------
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment 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 thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
<PAGE>
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 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 proceeding) 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 public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
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 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 purpose of determining any liability under the Securities Act
of 1933, 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 thereof.
<PAGE>
SIGNATURES
Pursuant to 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, thereunto duly authorized in the
City of Manassas, Commonwealth of Virginia, on February 9, 2000.
PACEL CORP.
By: /s/ David E. Calkins
--------------------------------------------
David E. Calkins
Chairman of the Board, President and
Chief Executive Officer
(DULY AUTHORIZED REPRESENTATIVE)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David E. Calkins and F. Kay Calkins, and each of
them, his or her true and lawful attorney-in-fact and agent, with full power of
substitution and re-substitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to file the same,
with all exhibits thereto, and all other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-facts and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all said
attorney-in-facts and agents or their substitutes or substitute may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ David E. Calkins /s/ F. Kay Calkins*
- -------------------------------- -------------------------------------
David E. Calkins F. Kay Calkins
Chairman of the Board, President Director, Secretary and Treasurer
and Chief Executive Officer
(PRINCIPAL EXECUTIVE AND
FINANCIAL OFFICER)
Date: February 9, 2000 Date: February 9, 2000
/s/ Keith P. Hicks* /s/ James D. Willet*
- -------------------------------- -------------------------------------
Keith P. Hicks James D. Willet, Ph.D.
Director Director
Date: February 9, 2000 Date: February 9, 2000
/s/ Thomas Southerly* /s/ Jeanette N. Taylor*
- -------------------------------- -------------------------------------
Thomas Southerly Jeanette N. Taylor
Director Accounting Manager
(PRINCIPAL ACCOUNTING OFFICER)
Date: February 9, 2000 Date: February 9, 2000
*Executed pursuant to a power of attorney.
<PAGE>
EXHIBIT INDEX
Exhibits:
3.1 Articles of Incorporation, as amended and currently in effect*
3.2 Articles of Amendment to fix the Preferences, Limitations and
Relative Rights of the 1997-Class A Convertible Preferred Stock*
3.3 Bylaws, as currently in effect*
4 Form of Pacel Corp. stock certificate*
5 Opinion with respect to legality of stock*
10.1 Employment Agreement by and between Pacel Corp. and David E. Calkins*
10.2 Key Employees Incentive Stock Plan*
10.3 Class A Convertible Preferred Stock Agreement with David A. Calkins*
21 Subsidiaries of Pacel Corp.*
23.1 Consent of Expert (see Exhibit 5)*
23.2 Consent of Peter C. Cosmas Co.
24 Power of Attorney (set forth on signature page)*
27 Financial Data Schedule*
- ------------------------------
* Previously filed.
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to use in this Amendment No. 2 to the Registration Statement of Pacel
Corp. on Form SB-2 of our report dated August 7, 1999 (except for Notes 3, 6, 8,
9, 10, and 13 which are as of October 6, 1999) on the financial statements of
Pacel Corp. appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Prospectus.
/s/ Peter C. Cosmas Co., CPAs
PETER C. COSMAS CO., CPAs
New York, New York
February 9, 2000
