SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 000-29459
PACEL CORP.
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(Exact name of small business issuer as specified in its charter)
Virginia 54-1712558
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(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification or
organization) number)
8870 Rixlew Lane, Suite 201, Manassas, Virginia 20109-3795
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(Address of principal executive offices)
(703) 257-4759
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(issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 day Yes [X] No [ ]
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
State the number of Shares outstanding of each of the issuer's classes of
common equity, as of the latest date:
As of June 30, 2000, there were 25,472,409 shares of the Registrant's
common stock outstanding.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Consolidated Condensed Financial Statements
Consolidated Balance Sheets for the Six Months
Ended June 30, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Operations
for the Six Months Ended June 30, 2000 and 1999
and the Three Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION 9
Signature Page 10
2
<PAGE>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE SIX MONTHS ENDED JUNE 30,
UNAUDITED
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
2000 1999
Unaudited Audited
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 243,918 $ 95,631
Accounts receivable, net of allowance for doubtful
accounts of $6,608 and $2,336 respectively 32,426 41,577
Inventory 19,221 13,680
Other receivables 25,076 -
Prepaid expenses 38,998 11,867
Escrow deposit 139,240 -
----------- -----------
Total current assets 498,879 162,755
----------- -----------
Property and equipment, net 116,162 48,880
----------- -----------
Non-current assets:
Note receivable 71,000 71,000
Goodwill 9,188 10,270
Security deposits 7,970 7,985
----------- -----------
Total non-current assets 88,158 89,255
----------- -----------
Total assets $ 703,199 $ 300,890
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 250,029 $ 50,000
Accounts payable 195,100 291,812
Loans payable officers-Stockholders 14,000 14,000
Accrued expense 65,770 211,921
----------- -----------
Total current liabilities 524,899 567,733
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Minority interest
Commitments:
Stockholders' equity (deficit)
Preferred stock, no par value,
no liquidation value, 5,000,000 shares
authorized, issued 1,000,000 shares
1997 class A convertible preferred stock 11,320 11,320
Common stock - no par value,
40,000,000 shares authorized 2000 and 1999,
25,472,409 and 13,990,313 shares outstanding in 2000
and 1999, respectively 4,344,150 2,394,129
Cumulative currency translation adjustment (7,845) (4,807)
Retained Loss (4,169,325) (2,667,485)
Total stockholders' equity (deficit) 178,300 (266,843)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 703,199 $ 300,890
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
UNAUDITED
<TABLE>
<CAPTION>
Six months Six months Three months Three months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 115,957 $ 30,543 $ 57,969 $ 14,584
----------- ----------- ---------- ----------
Operating costs and expenses:
Research and development 873,579 374,355 521,953 307,779
Depreciation 14,374 4,052 9,781 -
Interest expense 41,668 136 7,043 -
Selling, general and administrative 707,844 248,386 472,205 204,470
----------- ----------- ---------- ----------
Total operating costs and expenses 1,637,465 626,929 1,010,982 512,249
----------- ----------- ---------- ----------
Net (loss) $(1,521,508) (596,386) (953,013) (497,665)
=========== =========== ========== ==========
Net (loss) per common share
Basic (0.09) (0.07) (0.05) (0.08)
Diluted
(0.09) (0.07) (0.05) (0.08)
Weighted Average shares outstanding
Basic 16,283,604 8,083,629 18,375,177 6,507,825
Diluted 16,283,604 8,083,629 18,375,177 6,507,825
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
UNAUDITED
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(1,521,508) $ (596,386)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation 14,374 -
Provision for bad debts 4,272 13,850
Other non cash items 57,154 221,865
Increase (Decrease) in Cash from changes in:
Accounts receivable 4,880 (10,105)
Inventory (5,541) -
Other receivables (25,076) (6,650)
Prepaid expenses (27,131) (20,000)
Escrow deposit (139,240) -
Security deposits (15) -
Accounts payable (105,282) (207,662)
Accrued expense (118,451) 52,671
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Net cash (used in) operating activities (1,861,564) (552,417)
Cash flows from investing activities:
Purchase of property and equipment (81,656) -
Net cash used in investing activities (81,656) -
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Cash flows from financing activities:
Loans from shareholders
(5,000)
Notes payable 250,000 (35,000)
Proceeds from sale of common stock 1,844,545 811,373
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Net cash provided by financing activities 2,094,545 776,373
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Effect of exchange rates on cash (3,038) -
Net increase in cash and cash equivalents 148,287 218,956
Cash and cash equivalents at beginning of year 95,631 28,857
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Cash and cash equivalents at end of period $ 243,918 $ 247,813
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest 41,668
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FIANCIAL STATEMENTS
UNAUDITED
JUNE 30, 2000
1. Basis of Presentation
The unaudited financial statements included in the Form 10-QSB have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation SB. The financial information furnished herein reflects all
adjustments, which in the opinion of management are necessary for a fair
presentation of the Company's financial position. The results of operations and
cash flows for the periods presented.
Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted, pursuant to such rules and regulations.
These interim statements should be read in conjunction with the audited December
31, 1999 consolidated financial statements and related notes included in the
Company's year ended certified financial statements. The results of operations
for the six months are not necessarily indicative of the operating results for
the year. The Company presumes that users of the interim financial information
herein have read or have access to the audited financial statements for the
preceding fiscal year and that the adequacy of additional disclosure needed for
a fair presentation may be determined in that context. The results of operations
for any interim period are not necessarily indicative of the results for the
full year.
2. Stock options
On February 14, 2000 the board of directors granted David and F. Kay Calkins
each options to purchase 1,399,031 shares of the Company's common stock at an
exercise price of $.21.
In connection with a commitment for $2,500,000 of financing the Company has
issued options to purchase 250,000 shares of the Company's common stock for
every $1,000,000 or proportion of capital provided, for $.4062 per share
exercisable until April 2004.
On April 15, 2000 in consideration for certain consulting service the Company
has issued warrants to purchase 50,000 shares of the Company's common stock for
$5.00 per share (above market), exercisable until April, 2004.
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<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Six Months ended June 30, 2000 Compared to the Six Months ended June 30, 1999
For the six months ended June 30, 2000, product sales were $115,957 compared to
$30,543 for the six months ended June 30, 1999 an increase of 85,414. The
Company intends to continue to focus its efforts on the marketing of Child Watch
software and anti-virus software. Sales of the Company's Child Watch software
have not been realized due to marketing delays. We do not expect to see any
substantial revenue from this product until at least the fourth quarter. The
increase in sales is directly attributed to the sales generated from existing
NATO contracts of Fairfax Communication Limited (FCL). We believe that with
additional marketing FCL will have continued growth. EB Stors' contribution to
sales for these periods was minimal. EB Stor is starting to expand its marketing
efforts and we expect to see revenues from this effort in the first quarter of
2000.
Research and development expenses for the six months ended June 30, 2000 were
$873,579 compared to $374,355 for the six months ended June 30, 1999, an
increase of $499,224. The increase is attributed primarily to the continued
enhancement of the Child Watch software. The Child Watch software program is
designed to secure and limit access to files on your hard drive, as well as
protect your children from access to inappropriate web sites, based on their
age. We have also developed anti-virus software to protect computer from all
types of computer viruses. It is a unique system that co-exists and interacts
with the Windows Operating system and monitors file activity and processes to
provide a sturdy and robust PC security environment. The Company expects these
costs to remain constant in the near term because, as software goes from
development to production, we expect to continue development of new software
products at or about the same cost. Resources to be allocated to the marketing
of these products are expected to comprise approximately 40% of total expenses
for six months to a year.
Selling, general and administrative expenses were $707,844 for the six months
ended June 30, 2000 compared to $248,386 for the six months ended June 30, 1999
an increase of $459,458. The increase is attributed primarily to the continued
growth of the Company, and building of the management infrastructure.
Three Months ended June 30, 2000 Compared to the Three Months ended June 30,
1999
For the three months ended June 30, 2000, product sales were $57,969 compared to
$14,584 for the three months ended June 30, 1999 an increase of $43,385. The
increase in sales is directly attributed to the sales generated from existing
NATO contracts of FCL. We believe that with additional marketing, FCL will have
continued growth.
Research and development expenses for the three months ended June 30, 2000
were $521,953 compared to $307,779 for the three months ended June 30, 1999, an
increase of $214,174. The increase is attributed to the same items discussed
above.
Selling, general and administrative expenses were $472,205 for the three months
ended June 30, 2000 compared to $204,470 for the three months ended June 30,
1999, an increase of $267,735. The increase is attributed primarily to the
continued growth of the Company.
7
<PAGE>
Liquidity and Capital Resources
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net cash used from operating activities for the six months ended June 30, 2000
and 1999 was $1,861,564 and $552,417 respectively. The use of cash in operating
activities for the six months ended June 30, 2000 resulted primarily from the
net loss and the reduction in accounts payable and accrued expenses.
Net cash used in investing activities for the six months ended June 30, 2000 and
1999 was $81,656 and $0 respectively. We continue to purchase additional
computer and office equipment for the companies expansion.
Net cash provided by financing activities for the Six Months Ended June 30, 2000
and 1999 was $2,094,545 and $776,373 respectively. The increase in cash provided
was primarily attributable to the sale of common stock from the registered
offering.
At June 30, 2000, we had $243,918 in cash and cash equivalents. We have an
effective registration statement with the SEC to raise $3,000,000. To date we
have received over $2,000,000 net of expenses and have commitments for the
balance. We will continue to have significant capital requirements due to
substantial increase in our capital expenditures and lease commitments
consistent with our anticipated growth in operations, infrastructure and
personnel. We currently anticipate that we will continue to experience
significant growth in our operating expenses for the foreseeable future and that
our operating expenses will be a material use of our cash resources.
At the current time our expenditures are exceeding our limited revenues on a
monthly basis. While we expect our revenues to increase during the coming year,
we will continue to deplete our cash resources from our current public offering.
In the event we do not develop and market our existing products quickly we will
require additional financing. We have no current arrangements with respect to,
or potential sources of, additional financing and we do not anticipate that
existing shareholders will satisfy any portion of our future financing
requirements. We cannot assure you that any additional financing will be
available to us when needed, on commercially reasonable terms, or at all. If we
are unable to obtain additional financing when needed, this may have a material
adverse effect on us, including the curtailment of our product development,
marketing and expansion activities.
PACEL has committed itself to the continued development and distribution of the
Child Watch Software, along with upgrading existing products and development of
new software in the security area. Our goal is to be a leading edge provider of
security software. Depending on the demand for the Child Watch Software, the
company may have to raise additional funds through the issuance of equity, debt
or other securities.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits 27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30,
2000.
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<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACEL CORP.
Date: August 11, 2000 By: /s/ David E. Calkins
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David E. Calkins
Chairman of the Board, President and
Chief Executive Officer
(Duly Authorized Representative)
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