UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999 containing only financial statements
pursuant to Rule 15d-2
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-29459
PACEL CORP.
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-1712558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8870 Rixlew Lane, Suite 201, Manassas, Virginia 20109-3795
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 257-4759
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [ ] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of May 9, 2000, there were issued and outstanding 18,220,876 shares of
the Registrant's Common Stock. The aggregate market value of the voting stock
held by non-affiliates of the Registrant, computed by reference to the average
of the closing bid and asked prices of such stock on the OTC Electronic Bulletin
Board as of May 9, 2000, was approximately $5,648,472 million.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
This Report is being filed pursuant to Rule 15d-2 of the Securities
Exchange Act of 1934 as amended. Pursuant to such rule, the Registration
Statement of the Registrant filed under the Securities Act of 1933, SEC File
Number, 333-91611 did not contain certified financial statements for the
Registrant's last full fiscal year. Therefore, contained herein are the
certified financial statements of the Registrant.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors
Pacel Corp.
We have audited the accompanying consolidated balance sheets of Pacel Corp.
and subsidiaries as of December 31, 1999 and 1998 and the related consolidated
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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pacel Corp.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Peter C. Cosmas Co., CPAs
New York, New York
April 27, 2000
<PAGE>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 95,631 $ 28,857
Accounts receivable, net of allowance for doubtful
accounts of $2,336 and $13,851 respectively 41,577 5,034
Inventory 13,680 -
Other receivables - 60,350
Prepaid expenses 11,867 15,000
---------- ----------
Total current assets 162,755 109,241
Property and equipment, net 48,880 57,913
Non-current assets:
Note receivable 71,000 74,000
Good Will net 10,270 -
Other assets - 1,100
Security deposits 7,985 5,483
---------- -----------
Total non-current assets 89,255 80,583
---------- -----------
Total assets $ 300,890 $ 247,737
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 50,000 $ 35,000
Accounts payable 291,812 66,954
Loans payable Officers-Stockholders 14,000 133,000
Accured Expenses 211,921 157,880
---------- -----------
Total current liabilities 567,733 392,834
---------- -----------
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 1999 and 1998,
13,990,313 and 5,834,325 shares outstanding in 1999
and 1998 respectively 2,394,129 959,191
Cumulative currency translation adjustment (4,807) -
Deficit (2,667,485) (1,115,608)
---------- -----------
Total stockholders' equity (deficit) (266,843) (145,097)
---------- -----------
Total liabilities and stockholders' (deficit) $ 300,890 $ 247,737
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net Sales $ 102,464 $ 52,447
----------- -----------
Operating costs and expenses:
Research and development 918,366 641,752
Depreciation 17,636 10,336
Interest expense 176,091 5,860
Selling, general and administrative 542,248 208,057
----------- -----------
Total operating costs and expenses 1,654,341 866,005
----------- -----------
Net (loss) $(1,551,877) $ (813,558)
=========== ===========
Net (loss) per common share
Basic (0.19) (0.17)
Diluted (0.19) (0.17)
Weighted Average shares outstanding
Basic 8,014,285 4,877,247
Diluted 8,014,285 4,877,247
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PACEL CORP. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(1,551,877) $ (813,558)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation 17,636 10,336
Provision for bad debts 2,336 13,851
Other non cash items 325,171 56,694
Increase (Decrease) in Cash from changes in:
Accounts receivable (25,028) 4,346
Inventory (13,680) 976
Other receivables 60,350 (55,850)
Prepaid expenses 3,133 (15,000)
Good will (10,270) -
Other assets 1,100 -
Security deposits (2,502) (5,483)
Accounts payable 224,858 57,479
Accrued expenses 54,041 157,880
Loans payable Officers-Stockholders (119,000) 133,000
------------ -----------
Net cash (used in) operating activities (1,033,732) (455,329)
Cash flows from investing activities:
Note receivable - (74,000)
Purchase of property and equipment (9,025) (52,000)
Proceeds from Principal payment received on note 3,000 -
------------ -----------
Net cash used in investing activities (6,025) (126,000)
------------ -----------
Cash flows from financing activities:
Notes payable 15,000 35,000
Proceeds from sale of common stock 1,086,724 541,026
------------ -----------
Net cash provided by financing activities 1,101,724 576,026
------------ -----------
Effect of exchange rate on cash 4,807 -
------------ -----------
Net increase in cash and cash equivalents 66,774 (5,303)
Cash and cash equivalents at beginning of year 28,857 34,160
------------ -----------
Cash and cash equivalents at end of year $ 95,631 $ 28,857
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest 1,727 5,860
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TWO YEARS ENDED DECEMBER 31, 1999
Total
Preferred Stock Common Stock Retained Currency Stockholders
-------------------- ---------------------- Earnings Translation Equity
Shares Amount Shares Amount (Deficit) Adjustment (Deficit)
------ ------ ------ ------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 1,000,000 $11,320 4,706,300 $ 361,470 $ (302,050) $ $ 70,740
Issuance of common stock
and warrants net of expenses 725,612 541,027 541,027
Issuance of common stock
for professional services 402,413 56,694 56,694
Net loss (813,558) (813,558)
----------------------------------------------------------------------------------------------
Balance, December 31, 1998 1,000,000 11,320 5,834,325 959,191 (1,115,608) (145,097)
Issuance of common stock and
warrants net of expenses 7,307,975 1,164,169 1,164,169
Issuance of common stock for
professional services 848,013 170,769 170,769
Grant of common stock options
exercisable below market on
date of grant - 100,000 100,000
Effect of currency translation (4,807) (4,807)
Net loss (1,551,877) (1,551,877)
----------------------------------------------------------------------------------------------
Balance, December 31, 1999 1,000,000 $11,320 13,990,313 $2,394,129 $(2,667,485) $(4,807) $ (266,843)
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
--------------------------
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
procedure 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) 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 minority stockholders' interest are shown as a minority
interest. Investments in affiliates over which the Company has significant
influence but not a controlling interest are carried on the equity basis.
c) 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.
d) Inventories:
Inventories are stated at the lower of cost or market, which approximates
actual cost, using the first in, first out method.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
e) Property and Equipment:
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets
ranging from five to seven years. Maintenance and repairs are charged against
income and betterments are capitalized.
f) Reclassification
Certain prior year amounts have been reclassified to conform to current
year's presentation.
g) Revenue recognition:
Revenue is recognized when earned. The Company's revenue recognition
polices 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 are 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.
h) 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.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
i) 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.
j) Impact of Recently Issued Accounting Standards:
In March 1998, the Accounting Standards Executive committee issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"0. SOP 98-1 requires all costs
related to the development of internal use software other than those incurred
during the application development stage to be expensed as incurred. Costs
incurred during the application development stage are required to be capitalized
and amortized over the estimated useful lif of the software. The Company adopted
SOP 98-1 on January 3, 1999 and there was no significant impact on the Company's
financial position or operating results.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up Activities
("SOP 98-5"). SOP 98-5 requires costs of start-up activities and organization
costs be expensed as incurred. The Company adopted SOP 98-5 on January 3, 1999
and there was no significant impact on the Company's financial position or
operating results.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB No. 101"), which provided guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 101 did not impact the
Company's revenue recognition policy.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133")> SFAS No. 133 is effective
for fiscal years beginning after June 15, 2000. SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income. The Company does not expect that the
adoption of SFAS No. 133 will have a material impact on its financial statements
because the Company does not currently hold any derivative instruments.
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-lived 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) Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are measured
using the local currency as the functional currency. Assets and liabilities of
these subsidiaries are translated at exchange rates as of the balance sheet
date. Revenues and expenses are translated at average rates of exchange in
effect during the year. The resulting cumulative translation adjustments are
included in the consolidated and combined statements of operations and were not
material for any periods presented herein.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
m) Segment Information
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments in financial statements. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or chief decision
making group, in deciding how to allocate resources and in assessing
performance. The Company operates in one segment.
n) 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.
o) 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, Accountin 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.
2) Business Combinations
On October 22, 1999 Pacel Corp. acquired all of the outstanding stock
29,055 shares of Fairfax Communications Limited for $30,000, which included
$57,774 of assumed debt. The acquisition was accounted for as a purchase under
Accounting Principles Board Opinion No. 16 (APB no. 16). In accordance with APB
No. 16, the Company allocated the purchase price based on the fair value of the
assets acquired and liabilities assumed. Good will resulting for the purchase of
$10,811 was recognized and wil be amortized over a five-year period. $541 was
charged to amortization expense in 1999.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
In July 1999, the Company formed an eighty- percent owned subsidiary,
E-Business Store.Com Inc. for the purpose of expanding its internet business.
The 20% minority interest is owned equally by David and F. Kay Calkins. The
subsidiary operated at a loss, the minority's 20% share of the loss of $40,630
is not reflected in the statement of operations. E-Business has no net book
value so there is no value reflected on the consolidated balance sheet for
minority interest.
3) Property and Equipment:
Property and equipment consist of the following:
December 31,
------------------------------
1999 1998
---- -----
Office Equipment $ 86,709 $ 77,684
Less accumulated depreciation 37,829 19,771
--------- --------
$ 48,880 $ 57,913
--------- --------
4) 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 was $71,000 and $74,000 at December 31, 1999 and
December 31, 1998 respectively.
5) Short-Term Debt
Short-term debt consists of notes payable of $50,000 and $35,000 December
31, 1999 and 1998 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.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Under the terms 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
ranges from 20%-50% of the average market price of the stock for the five days
prior to conversion. This discount from market amounted to $175,000 and $0.00 in
1999 and 1998 respectively, and was charged to interest expense.
6) 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, 1999 and 1998, 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 $2,6 million for tax purposes to offset future taxable
income. The net operating loss carryforwards expire in 2011-2018.
7) 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 exclude 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 8,014,285 and 4,877,247 at December 31, 1999 and 1998
respectively.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
8) Commitments and Contingencies:
a) Operating Leases
2000 $298,634
2001 164,508
2002 146,743
2003 135,185
2004 139,240
--------
Total minimum lease payments $884,310
========
Rent expense for December 31, 1999 and 1998 was $60,321 and $14,400
respectively.
9) 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.
At any time after June 30, 2000, the Company, at the option of the Board of
Directors, may redeem the whole of or part of, the 1997, Class A Convertible
Preferred Stock by paying in cash $ .001 per share and in addition an amount
equal to all unpaid dividends.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
The 1997 Class A Convertible Preferred Stock shall not have voting rights,
and are convertible at anytime into an equal number of shares of Common Stock
provided the Company achieves the following gross revenues in the years ended
December 31, 1997, 1998 and 1999: 250,000 shares upon attainment of $ 1,000,000
in annual revenues, an additional 250,000 shares upon the attainment of $
2,000,000 in annual revenues, an additional 250,000 shares upon attainment of $
3,000,000 in annual revenues, and an additional 250,000 shares upon the
attainment of $ 4,000,000 in annual revenues. The 1997 Class A Convertible
Preferred Stock has expired. No shares were issued.
b) Common Stock:
The authorized common stock of the Company consists of 40,000,000 shares at
December 31, 1999 and 1998 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.
All references to average number of shares outstanding and prices per share have
been restated retroactively to reflect the split.
10) Related Party Transactions:
a) Issuance of Common Stock:
The Company sold and aggregate of 100 shares to David and F. Kay Calkins
for $2,000. These shares were split in May 1997 in a ratio of 30,000 to 1
restating the number of common shares owned by David and F. Kay Calkins from 100
to 3,000,000 after adjustments for splits and reverse splits.
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.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
The Company recorded a liability to David and F. Kay Calkins in the amount
of $14,000 and $119,000 at December 31, 1999 and December 31, 1998 respectively,
for accrued payroll. On September 30, 1999 the Company issued an Option to 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.
c) Employment Agreements:
In 1999 the Company entered into employment agreements with David and F.
Kay Calkins. At base salaries of $125,000 and $110,000 per year respectively,
and are eligible for retroactive increases based on earnings per share of the
Company.
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.
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, 1999 and 1998 net income and comprehensive income were
substantially 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.
<PAGE>
PACEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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.
25,000 stock options were issued at a market price of $.20 per share and
vest immediately.
b. 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 125,000 shares have been issued under the
plan, with an exercisable price between $.20 and $.32 per share, and a five year
vesting period. Options for 10,000 shares have vested.
14) Subsequent Events
On February 11, 2000 the Company completed an SB-2 filing to raise
$3,000,000. To date the Company has received over $1,000,000 net of expenses and
has a commitment for the balance.
On February 14, 2000 the board of directors granted David and F. Kay
Calkins each options purchase 1,399,031 shares of the Company's common stock at
an exercise price of $.21.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) 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.
By: /s/ David E. Calkins
-----------------------------
David E. Calkins
Chairman of the Board, President and
Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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, Accounting
and Financial Officer)
Date: May 11, 2000 Date: May 11, 2000
/s/ Keith P. Hicks /s/ James D. Willett, Ph.D.
- ------------------------------------- ---------------------------------
Keith P. Hicks James D. Willett, Ph.D.
Director Director
Date: May 11, 2000 Date: May 11, 2000
/s/ Thomas Southerly
- -------------------------------------
Thomas Southerly
Director
Date: May 11, 2000
INDEPENDENT ACCOUNTANTS' CONSENT
We have issued our report dated April 27, 2000, accompanying the consolidated
financial statements included in the Annual Report of Pacel Corp. on Form 10-KSB
for the year ended December 31, 1999. We hereby consent to the incorporation by
reference of said report in the Registration Statement of Pacel Corp. on Form
S-8 (File No. 333-31876, effective March 7, 2000).
/s/ Peter C. Cosmas Co., CPAs
PETER C. COSMAS CO., CPAs
New York, New York
May 10, 2000
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