UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 333-75137
PASW, INC.
Formerly Pacific Softworks, Inc.
(Exact name of registrant as specified in its charter)
California 77-0390628
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
703 Rancho Conejo Boulevard
Newbury Park, California 91320
(Address of principal executive offices) (Zip Code)
(805) 499-7722
(Registrant's telephone number, including area code)
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 days.
Yes _ X__ No____
There were 4,500,900 shares outstanding of the registrant's Common
Stock, par value $.001 per share, as of August 10, 2000.
<PAGE>
PASW, INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited):
Balance Sheets at June 30, 2000 and
December 31, 1999 3
Statements of Operations for the three
months ended June 30, 2000 and 1999 and
six months ended June 30, 2000 and 1999 5
Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 7
Notes to Condensed Financial Statements 9
Item 2. Management's Discussion and Analysis or
Plan of Operations 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibits
Exhibit 11 22
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PASW, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 717,156 $1,661,708
Accounts receivable, net of allowance
of $72,986 and $72,986 102,301 175,751
Note receivable 1,000,000
Prepaid expenses and other current assets 53,688 75,753
Total current assets 873,145 2,913,212
Property and equipment less accumulated
depreciation and amortization of
$474,299 and $426,589 318,032 241,003
Investments 1,000,000
Other assets 19,038 13,193
Total assets $2,210,215 $3,167,408
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
PASW, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
LIABILITIES AND STOCKHOLDERS'EQUITY
<S> <C> <C>
Current liabilities
Accounts payable and accrued expenses $ 310,758 $ 390,546
Total current liabilities 310,758 390,546
Deferred revenues 143,164 149,872
Commitments and contingencies
Minority interest 1,400
Stockholders' equity
Preferred stock, par value $.01 per share,
10,000,000 shares authorized; no shares
outstanding
Common stock, par value $.001 per share,
50,000,000 shares authorized; 4,500,900 and
4,402,500 shares issued and
outstanding 4,501 4,403
Additional paid in capital 5,939,750 5,042,624
Retained earnings (deficit) (4,293,866) (2,445,615)
Cumulative adjustment for currency
translation 104,508 25,578
Total stockholders' equity 1,754,893 2,626,990
$2,210,215 $3,167,408
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
PASW, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net revenue
Sales $ 369,318 $ 495,678 $ 927,920 $1,208,737
Royalties and others 133,565 151,711 235,000 210,302
Total 502,883 647,389 1,162,920 1,419,039
Cost of revenue
Purchases and
royalty fees 11,024 44,923 48,648 75,259
Gross profit 491,859 602,466 1,114,272 1,343,780
Expenses
Selling, general and
administrative 930,837 541,476 1,759,660 922,291
Research and
development 537,526 354,145 1,155,153 677,969
Depreciation and
amortization 18,214 13,460 47,710 26,920
Former officers
consulting and
administrative
expense 97,905 180,585
Total 1,486,577 1,006,986 2,962,523 1,807,765
Net loss $ (994,718) $ (404,520) $(1,848,251) $(463,985)
Net loss per common share
Basic and diluted $ (0.21) $ (0.12) $ (0.40) $ (0.14)
Weighted average common
stock shares outstanding
Basic and diluted 4,640,900 3,440,000 4,606,345 3,409,613
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
PASW, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net loss $( 994,718) $ (404,520) $(1,848,251) $ (463,985)
Other comprehensive
income (loss)
Foreign currency
translation
adjustment 184,475 1,377 104,508 ( 27,192)
Comprehensive loss $( 810,243) $(403,143) $(1,743,743) $ (491,177)
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
PASW, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six
Months Ended June 30,
2000 1999
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,848,251) $ (463,985)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 47,710 26,920
(Increase) decrease in assets:
Accounts receivable 73,450 (130,426)
Related party receivable 43,000
Other receivables ( 25,000)
Prepaid expenses 22,065 ( 22,180)
Other assets (5,845)
Deposits and trademarks ( 518)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses ( 79,788) 287,260
Related party payable
Accrued taxes payable ( 7,243)
Customer deposits ( 23,100)
Deferred revenue ( 6,708) 44,000
Net cash used in
operating activities (1,797,367) (271,272)
Cash flows from investing activities
Acquisition of fixed assets ( 124,739) ( 61,770)
Disposition of assets, net 1,254
Net cash used in investing activities ( 124,739) ( 60,516)
Cash flows from financing activities:
Exercise of warrants 548,624
Private placement of preferred stock 350,000
Proceeds from borrowings 249,295
Repayment of borrowings (103,705)
Deferred offering costs (324,450)
Private placement of common stock 500,000
Net cash provided by financing
activities 898,624 321,140
Effect of exchange rate changes on cash 78,930 ( 27,193)
Net decrease in cash ( 944,522) ( 37,841)
Cash - Beginning 1,661,708 224,031
Cash - Ending $ 717,156 $ 186,190
Supplemental non-cash financing activities:
During the period ended June 30, 1999
Warrants valued at $200,000 were issued in
connection with the public offering.
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
PASW, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of presentation
The accompanying unaudited consolidated financial statements of
PASW, Inc. ("PASW", or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial
information and the instructions to Form 10-QSB. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation of the
Company's financial position at June 30, 2000, the results of
operations for the three and six months ended June 30, 2000 and June
30, 1999, and the cash flows for the six months ended June 30, 2000 and
June 30, 1999 are included. Operating results for the three and six
month periods ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
The information contained in this Form 10-QSB should be read in
conjunction with audited financial statements and related notes for the
year ended December 31, 1999 which are contained in the Company's
Annual Report on Form 10-KSB filed with the Securities and Exchange
Commission (the "SEC") on March 29, 2000 and the unaudited financial
statements as of March 31, 1999 filed as a part of the Company's
Registration Statement on Form SB-2 filed with the Securities and
Exchange Commission on July 29, 1999. (File 333-75137).
(2) Earnings per share
The Company adopted SFAS No. 128, "Earnings Per Share", during
1998. SFAS No. 128 requires presentation of basic and diluted earnings
per share. Basic earnings per share is computed by dividing income
available to common stockholders by the weighted average number of
common shares outstanding for the reporting period. Diluted earnings
per share reflects the potential dilution that could occur if
securities or other contracts, such as stock options, to issue common
stock were exercised or converted into common stock. All prior period
weighted average and per share information has been restated in
accordance with SFAS No. 128.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Cautionary Note Regarding Forward-Looking Statements
Except for historical information contained herein, the statements
in this report (including without limitation, statements indicating
that the Company "expects," "estimates," anticipates," or "believes"
and all other statements concerning future financial results, product
offerings, proposed acquisitions or combinations or other events that
have not yet occurred) are forward-looking statements that are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended. Forward-looking statements involve known and unknown
factors, risks and uncertainties, which may cause the Company's actual
results in future periods to differ materially from forecasted results.
Those factors, risks and uncertainties include, but are not limited to:
the positioning of the Company's products in the Company's market
segments; the Company's ability to effectively manage its various
businesses in a rapidly changing environment; the timing of new product
introductions; sell-through of the Company's products; the continued
emergence of the internet resulting in new competition and changing
customer demands; the Company's ability to adapt and expand its product
offerings in light of changes to and developments in the internet
environment; growth rates of the Company's market segments; variations
in the cost of, and demand for, customer service and technical support;
price pressures and competitive environment; the possibility of
programming errors or other "bugs' in the Company's software; the
timing and customer acceptance of new product releases and services
(including current users' willingness to upgrade from older versions of
the Company's products); the consummation of possible acquisitions or
combinations; and the Company's ability to integrate acquired or
combined operations with its existing business and otherwise manage
growth; and the Company's ability to generate or obtain additional
capital resources to fund its operations and growth. Additional
information on these and other risk factors are included in the
"Factors That May Affect Future Results" section in the Company's
Annual Report on Form 10-KSB filed with the SEC on March 29, 2000 and
the risks discussed in the Company's other filings with the SEC.
Readers are cautioned not to place undue reliance on these forward-
looking statements, which reflect management's analysis, judgement,
belief and expectations only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date
hereof.
<PAGE>
General
The Company completed an initial public offering of 950,000 units
consisting of one share of common stock and one warrant on July 29,
1999. An additional 142,500 units representing the underwriter's
overallotment was sold on September 13, 1999. The Company develops and
licenses software which enables internet and web based communications.
The software products are embedded into systems and "information
appliances" developed or manufactured by others. Information appliances
are internet-connected versions of every day products such as
telephones, fax machines, personal digital assistants and other
digitally based devices. The Company has developed a new proprietary
internet browser for use within independent, "non Windowsr" information
appliances. The browser may be effectively placed in use without an
operating system and does not require substantial amounts of memory.
The Company began marketing the initial version of this browser during
the first quarter of 2000.
The Company refined its strategic focus in the Fourth Quarter of
1999 in order to enhance its positioning and flexibility in the rapidly
growing market for Internetworking technology and to improve the
utilization of its assets and competencies. Key elements of the
business strategy involve the segregation of the Company's core
technology into separate business units and identifying strategic
investment opportunities and/or associations with other operating
companies. In conjunction with this strategy at the annual meeting on
May 26, 2000 the Company changed its name to PASW, Inc.
Establishing separate business units for the core technology will
facilitate the ability to develop and commercialize the underlying
technology and will also allow for either private or public investment,
joint ventures or mergers that are beneficial to such development and
commercialization. Accordingly, the Company transferred the operating
assets and technology that represented the historical business of the
Company into two wholly owned subsidiaries. The technology and
personnel responsible for the Internet and Web related software and
software development tools now operate as Pacific Softworks. The
technology and personnel responsible for the embedded Web browser and
server now operate as PSI Web Technologies, Inc. During 1999 the
Company also established iApplianceNet.com, a development stage company
and a wholly owned subsidiary, to provide Internet-active merchandise
and service store displays and the infrastructure that supports them.
The Company also commenced a program of identifying strategic
investment opportunities and/or associations with operating companies
that are compatible and complementary to the plan of operations. In
accordance with this program, the Company made an investment in
FSPNetwork, Inc. ("FSPN") in December 1999 and signed a letter of
intent to invest in RedFlag, Inc. ("RedFlag") in early 2000. The goal
of this strategy is to both increase shareholder value and to create an
operating group of companies that have mutually beneficial technology
<PAGE>
and businesses. Future investments and/or associations, if any, will
focus on companies that:
> have a strong Internet/Web presence that are synergistic with the
Company's core businesses and that can utilize the Company's
Internet and web technology in the implementation of their internet
strategies;
> have a strong Internet/Web presence that are synergistic with the
businesses of companies in which the Company has an investment/and
or affiliation ("PSI network companies") and that can utilize the
technology of the PSI network companies in the implementation of
their internet strategies;
> present cross licensing opportunities for the Company's technology;
> are past the start-up phase of operations, have revenues and
earnings and are near term candidates for an initial public
offering; and
> can benefit from the Company's financial and operational resources
in securing both private and public investment capital.
FSPNetwork, Inc.
On October 25, 1999 the Company and FSPNetwork, Inc ("FSPN")
signed a Letter of Intent to enter into discussions with the purpose of
entering a strategic relationship to jointly develop certain internet
applications with financial institutions. The Company indicated that
subject to entering into a definitive agreement it would invest up to
$1,000,000 in FSPN and under certain conditions up to an additional
$2,000,000. On October 25, 1999 the Company loaned FSPN $250,000
through a promissory note bearing interest at ten (10%) percent due in
ninety days. The loan was for general corporate purposes. On December
3, 1999 the Company loaned FSPN an additional $750,000 and converted
the $250,000 note evidenced by a $1,000,000 convertible promissory
note. On April 28, 2000 the note was converted into 713,129 shares of
Series A Preferred Stock of FSPN. The stock is equal to 5% of the
outstanding capital stock of FSPN concurrent with FSPN's closing of an
equity financing on the same time.
iApplianceNet
In March 2000, the Company's wholly owned subsidiary
iApplianceNet completed a private placement of 140,000 shares of Series
A redeemable convertible preferred stock for net proceeds of $350,000.
The preferred shares carry a 5% dividend payable semi-annually in
common shares of iApplianceNet valued at $2.50 per share.
Each share of preferred stock shall be convertible, at the option
of the holder, into one fully paid and nonassessable share of Common
Stock, subject to adjustment for stock splits and stock dividends. Each
share of preferred stock will automatically convert into shares of
Common Stock at the time of the earlier of (i) the closing of a firm
commitment underwritten public offering of not less than $5,000,000, or
(ii) the date specified by written consent or agreement of the holders
of 60% percent of the outstanding shares of such series.
<PAGE>
In the event that iApplianceNet has not been sold or closed a
firm commitment underwritten public offering of not less than
$5,000,000 within two years following the closing of the private
placement, the preferred stock holders will have the option of
converting their shares into common stock of PASW, Inc., the majority
shareholder of iApplianceNet. The preferred shares will receive shares
of PASW common stock based on the ratio of the cost of the preferred
shares over 85% of the average per share closing price for PASW for 15
consecutive days. The value of the PASW shares used in the conversion
calculation is limited to a range of $1.00 to $15.00.
The Company operates in one business segment. The Company's
fiscal year ends on December 31.
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the
percentage relationship to net revenue of certain items in the
consolidated statements of operations and comprehensive income:
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net revenue 100.00% 100.00% 100.00% 100.00%
Cost of revenue 2.19 6.94 4.19 5.31
Gross profit 97.81 93.06 95.81 94.69
Selling, general and
administrative 185.10 83.63 151.31 64.99
Research and development 106.89 54.71 99.33 47.78
Depreciation and Amortization 3.62 2.08 4.10 1.89
Former officer consulting and
And administrative expense 0.00 15.12 0.00 12.73
Total operating expenses 295.61 155.54 254.74 127.39
Net loss from operations (197.80) (62.48) (158.93) (32.70)
Foreign currency translation
adjustment 36.66 0.21 8.99 (1.91)
Comprehensive loss (161.14%) (62.27%) (149.94%) (34.61%)
</TABLE>
The following table sets forth, for the periods indicated, the
percentage of net revenue by principal geographic area to total
revenue:
Unaudited Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
United States 57% 53% 58% 48%
United Kingdom and Europe 14 20 22 32
Japan and Asia 28 26 19 19
Other 1 1 1 1
Total 100% 100% 100% 100%
<PAGE>
Three months ended June 30, 2000 and 1999.
Net revenue
For the three months ended June 30, 2000 revenues decreased 22%
to $502,883 from $647,389 for the three months ended June 30, 1999.
Sales of licenses decreased 25% for the three months ended June 30,
2000 due to lower sales in the United Kingdom and North America.
Royalty revenue decreased by 12% for the three months ended June 30,
2000 to $133,565 from $151,711 for the three months ended June 30, 1999
principally due to lower revenue in Japan.
Cost of revenue
The cost of revenue for the three months ended June 30, 2000 was
$11,024 or 2.1% of sales compared to $44,923 or 6.9% of sales for the
three months ended June 30, 1999. The decrease in cost of sales related
to lower direct and indirect costs for production and duplication of
manuals and media for software products charged against sales for the
three months ended June 30, 2000.
Selling, general and administrative
Selling, general and administrative expense increased $389,361 to
$930,837 for the three months ended June 30, 2000 from $541,476 for the
three months ended June 30, 1999. This increase is the result of
increases in the sales and marketing staffs which were expanded after
the receipt of funds from the Company's initial public offering in
July, 1999, and an increase in administrative costs for expenses
associated with the Company becoming a public company. Because of the
22% decrease in net revenues the cost of these expenses as a percentage
of revenue increased to 185% of net revenue for the three months ended
June 30, 2000 from 84% for the three months ended June 30, 1999.
Research and development expense
Research and development expense increased to $537,526 or 106% of
revenue for the three months ended June 30, 2000 from $354,145 or 55%
of revenue for the three months ended June 30, 1999. The increase is
principally attributable to a continuation of development of the Fast
Track product line, the development of the FUSION WebPilot Micro
BrowserT begun in 1998 and research and development expenses associated
with the initial operation of the Company's iApplianceNet subsidiary.
<PAGE>
Depreciation and amortization
Depreciation and amortization increased to $18,214 in the three
months ended June 30, 2000 from $13,460 for the three months ended June
30, 1999. This increase was attributable to an increase of $28,640 in
capital additions for the three months ended March 30, 2000 over
capital additions of $32,534 in the three months ended June 30, 1999.
Former officer's consulting and administrative expense
The former officer's consulting and administrative expense
decreased to zero for the three months ended June 30, 2000 from $97,905
for the three months ended June 30, 1999. This agreement plus an
agreement not to compete and a consulting agreement with the former
officer expired in September 1999.
Provision for taxes
Commencing in 1995 the Company elected to be treated as a
subchapter S corporation. Through 1998 all federal tax liabilities were
recognized at the individual stockholder level. In February 1999 the
Company terminated the S election and became subject to taxation at the
corporate level. For the three months ended June 30, 2000 the Company
had no income tax liability.
Six months ended June 30, 2000 and 1999.
Net revenue
For the six months ended June 30, 2000 revenues decreased 18% to
$1,162,920 from $1,419,039 for the six months ended June 30, 1999.
Sales of licenses decreased 23% for the six months ended June 30, 2000
due to lower sales in the United Kingdom. Royalty revenue increased by
11% for the six months ended June 30, 2000 to $235,000 from $210,302
for the six months ended June 30, 1999 principally due to higher
royalty revenue in Japan.
Cost of revenue
The cost of revenue for the six months ended June 30, 2000 was
$48,648 or 4.2% of sales compared to $75,259 or 5.3% of sales for the
six months ended June 30, 1999. The decrease in cost of sales related
to lower direct and indirect costs for production and duplication of
manuals and media for software products charged against sales for the
six months ended June 30, 2000.
<PAGE>
Selling, general and administrative
Selling, general and administrative expense increased $837,369 to
$1,759,660 for the six months ended June 30, 2000 from $922,291 for the
six months ended June 30, 1999. This increase is the result of
increases in the sales and marketing staffs which were expanded after
the receipt of funds from the Company's initial public offering in
July, 1999, and an increase in administrative costs for expenses
associated with the Company becoming a public company. Because of the
18% decrease in net revenues the cost of these expenses as a percentage
of revenue increased to 151% of net revenue for the six months ended
June 30, 2000 from 65% for the six months ended June 30, 1999.
Research and development expense
Research and development expense increased to $1,155,153 or 99%
of revenue for the six months ended June 30, 2000 from $677,969 or 48%
of revenue for the six months ended June 30, 1999. The increase is
principally attributable to a continuation of development of the Fast
Track product line, the development of the FUSION WebPilot Micro
BrowserT begun in 1998 and research and development expenses associated
with the initial operation of the Company's iApplianceNet subsidiary.
Depreciation and amortization
Depreciation and amortization increased to $47,710 in the six
months ended June 30, 2000 from $26,920 for the six months ended June
30, 1999. This increase was attributable to an increase of $62,969 in
capital additions for the six months ended June 30, 2000 over capital
additions of $61,770 in the six months ended June 30, 1999.
Former officer's consulting and administrative expense
The former officer's consulting and administrative expense
decreased to zero for the six months ended June 30, 2000 from $180,585
for the six months ended June 30, 1999. This agreement plus an
agreement not to compete and a consulting agreement with the former
officer expired in September 1999.
Provision for taxes
Commencing in 1995 the Company elected to be treated as a
subchapter S corporation. Through 1998 all federal tax liabilities were
recognized at the individual stockholder level. In February 1999 the
Company terminated the S election and became subject to taxation at the
corporate level. For the six months ended June 30, 2000 the Company had
no income tax liability.
<PAGE>
Liquidity and capital resources
At June 30, 2000 and December 31, 1999 the Company had working
capital of $562,387 and $2,522,666 and cash and cash equivalents of
$717,156 and $1,661,708.
The Company used $1,797,367 in cash flow from operating
activities in the six months ended June 30, 2000 compared to using
$271,272 in the six months ended June 30, 1999. The increase in use of
cash of $1,526,095 for operating activities was the result of an
increase of $73,450 in accounts receivable, an increase of $22,065 in
other assets, a decrease in accounts payable and other accrued expenses
of $79,788, a decrease of $5,845 in other assets, and a decrease of
$6,708 in deferred revenue.
Investing activities in the six months ended June 30, 2000
consisted of purchase of fixed assets of $124,739 compared to the
purchase of assets of $61,770 in the six months ended June 30, 1999.
The Company provided $898,624 from financing activities in the
six months ended March 30, 2000 through the exercise of warrants of
$548,624 and the investment of $350,000 through the private placement
of preferred stock in the Company's iApplianceNet subsidiary. Financing
activities for the six months ended March 30, 1999 consisted of
$500,000 from a private placement of common stock, borrowings net of
repayments of $145,590 and deferred offering costs of $324,450
associated with the Company's Initial Public Offering.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1999 the Company was notified that a merchant banker,
Golenberg & Co., had asserted rights under a June 1998 letter agreement
to purchase 10% of the then outstanding common stock of the Company for
$400,000. In June 1999 counsel for Golenberg & Co. reiterated this
demand and advised the Company that these claims were being evaluated
for possible legal action. To date no action has been taken by
Golenberg & Co.
The Company is not currently involved in any litigation that is
expected to have a material adverse effect on the Company's business or
financial position. There can be no assurance, however, that third
parties will not assert infringement or other claims against the
Company in the future which, regardless of the outcome, could have an
adverse impact on the Company as a result of defense costs, diversion
of management resources and other factors.
ITEM 2. CHANGES IN SECURITIES.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual meeting of stockholders was held on May
26, 2000.
The directors elected at the meeting were:
For Withheld
Glenn P. Russell 1,471,238 3,165
Wayne Grau 1,471,038 3,365
Reuben Sandler Ph.D. 1,471,238 3,165
Approval of the name change of the corporation from Pacific Softworks,
Inc to PASW, Inc.
For Against Abstain
1,463,426 7,777 3,200
<PAGE>
Ratification of the appointment of Merdinger, Fruchter, Rosen and
Corso, PC as independent auditors for the fiscal year end December 31,
2000
For Against Abstain
1,469,375 860 4,168
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herewith:
Exhibit 11 - Weighted Average of Common Stock Shares
Outstanding
Exhibit 27 - Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the
quarter for which this form is filed.
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SIGNATURES
Pursuant to the requirements 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.
Date: August 10, 2000
PASW, INC.
/s/ WILLIAM E. SLINEY
__________________________________
William E. Sliney
President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
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EXHIBIT 11
PASW, INC.
COMPUTATION OF WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING
Three Months Six Months
Total Number Ended Ended
Of Shares June 30, 2000 June 30, 2000
Outstanding shares
as of January 1, 2000 4,402,500 4,402,500 4,402,500
Exercise of warrants 98,400 98,400 63,845
Total weighted average
shares outstanding 4,500,900 4,640,900 4,606,345
Net loss $(994,718) $(1,848,251)
Net loss per common share
basic and diluted $ (0.21) $ (0.40)
