<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
PALWEB CORPORATION
(Name of small business issuer in its charter)
DELAWARE
----------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1607 WEST COMMERCE STREET DALLAS, TEXAS 75208
-------------------------------------- -------------------------
(Address of principal executive offices) (City, State, and Zip Code)
(214) 698-8330
-------------------------
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
------------------- -------------------------------
Securities to be registered under Section 12(g) of the Act:
Common stock, $0.10 par value
-----------------------------
(Title of class)
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<PAGE> 2
PALWEB CORPORATION
FORM 10-SB
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . 4
Item 3. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 4. Security Ownership of Certain Beneficial Owners and Management. . . . . . 5
Item 5. Directors, Executive Officers, Promoters and Control Persons. . . . . . . 6
Item 6. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 7. Certain Relationships and Related Transactions. . . . . . . . . . . . . . 7
Item 8. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 9. Market for Common Equity and Related Stockholder Matters. . . . . . . . . 7
Item 10. Recent Sales of Unregistered Securities . . . . . . . . . . . . . . . . . 8
Item 11. Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 12. Indemnification of Directors and Officers . . . . . . . . . . . . . . . . 10
Item 13. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 14. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . 10
Item 15. Financial Statements and Exhibits . . . . . . . . . . . . . . . . . . . . 10
Exhibits Attached are:
Certificate of Incorporation and Amendments
Bylaws
</TABLE>
Page -2-
<PAGE> 3
INFORMATION REQUIRED IN
REGISTRATION STATEMENT
Item 1. Description of Business
PalWeb Corporation, the registrant herein, is a Delaware corporation
that was incorporated on February 24, 1969. The registrant's former name was
Cabec Energy Corp. f/k/a Browning Enterprises, Inc., and was originally named
Permaspray Manufacturing Corporation.
From April 1993 to December 1997, the registrant engaged in the
business of exploration, production, and development of oil and gas properties
in the continental United States and the operation of related service
businesses. In November 1997, the registrant acquired all of the issued and
outstanding stock of Plastic Pallet Production, Inc., a Florida corporation
that has been converted into a Texas corporation, in exchange for a majority of
the issued and outstanding stock of the registrant.
Following the acquisition of all of the issued and outstanding stock
of Plastic Pallet Production, Inc., the registrant's primary business is
manufacturing, selling, and leasing plastic pallets and transportation
logistics consulting, and the custom design, manufacture, and sale of large
plastic injection molding machines.
The registrant holds several patents for the original design of
various types of plastic pallets, and has several patents pending for the
original design of other types of plastic pallets. These newly designed plastic
pallets are much more durable and sanitary than traditional wood pallets.
Further, the widespread use of plastic pallets could greatly reduce the
destruction of trees on a worldwide basis. It is anticipated that as of
December 1999, the registrant will have the production capability of producing
approximately 100,000 plastic pallets per month.
The registrant has expertise in, and will engage in the business of
leasing and pooling plastic pallets and acting as a third party consultant in
materials handling logistics.
The registrant has worldwide patents pending on a radically new
concept in the construction of functional, operational plastic injection
molding machines. These new type machines are approximately 20% to 30% of the
length of a traditional style plastic injection molding machine, use
approximately one-third of the electricity used by a traditional style machine,
use approximately 10% of the oil (circulated) used by a traditional style
machine, and can be profitably sold to the end user at a cost that is
substantially less than the cost of a traditional style machine.
The registrant's patents on its plastic pallet designs and its plastic
injection molding machines, along with appropriate pricing of its products,
should give the registrant a competitive sales advantage with respect to its
competition.
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<PAGE> 4
The principal raw material used in manufacturing plastic pallets is
high and low density polyethylene plastic, both of which are in abundant
supply, and some of this material may be obtained from recycled soft drink
bottles.
In the past two years, approximately $2,000,000 has been spent on
research and development and building prototypes of the plastic injection
molding machines manufactured by registrant.
From a technical standpoint, the registrant has no employees. The
registrant's President, Michael John, is employed pursuant to the terms of a
Consulting Agreement. Plastic Pallet Production, Inc., one of the registrant's
wholly owned subsidiaries, leases seven employees from Accord Human Resources,
Inc., an employee leasing company.
A list of the registrant's wholly owned subsidiaries is set forth
below:
Plastic Pallet Production, Inc., a Texas corporation
Plastic Pallet Support Equipment, Inc., a Texas corporation
Modular Plastic Pallets, Inc., a Texas corporation
PP Financial, Inc., a Texas corporation
PP Transport, Inc., a Texas corporation
PP Systrans, Inc., a Texas corporation
Item. 2. Management's Discussion and Analysis or Plan of Operation
The registrant has recently spun-off all of its energy related assets,
contract rights, and liabilities. As a result, it is essentially in the
position of being a start-up business.
Currently, PaceCo Financial Services, Inc. is supplying the registrant
with the cash required for operations, and it is anticipated that PaceCo will
continue to provide the registrant with the cash that it needs until it becomes
self sufficient, whether that occurs in less than or more than twelve months.
The registrant is in the process of amending a number of its current
pending and issued patents and plans to apply for additional patents on
different plastic pallet styles in the next twelve months.
In the next twelve months, the registrant plans to fine tune its
plastic pallet manufacturing process and begin marketing its pallets on a
worldwide basis. The registrant also plans to continue development of its
plastic injection molding system and make any improvements that are
Page -4-
<PAGE> 5
possible.
It is anticipated that the registrant will be self sufficient in
approximately twelve months, but not before. Once the registrant is self
sufficient, it will have the approximately three actual employees and it is
anticipated that the manufacturing personnel, currently seven leased employees,
will increase to ten or more. Additionally, there will be a sales distribution
network that will be comprised of self employed persons or entities.
Item 3. Description of Property
The registrant currently leases approximately five acres of land in an
industrial area of Dallas, Texas that is improved with 138,000 square feet of
manufacturing and warehouse space, and approximately 6,500 square feet of
office space.
The registrant has sufficient office equipment, such as computers,
printers, copiers, etc., to operate effectively, and the
warehouse/manufacturing facility is sufficiently equipped for it to function
effectively.
Item 4. Security Ownership of Certain Beneficial Owners and Management
a. Security ownership of certain beneficial owners.
<TABLE>
<CAPTION>
Name and Amount and
address of nature of
Title of beneficial beneficial Percent of
class owner owner class
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common PaceCo Financial Ser- 41,000,000 shares 18.81%
vices, Inc.
2500 S. McGee St.
Suite 147
Norman, OK 73072
Common Wolfgang Ullrich 31,000,000 shares 14.22%
1607 W. Commerce
Dallas, TX 75208
Common Michael John 30,000,000 shares 13.76%
1607 W. Commerce
Dallas, TX 75208
</TABLE>
Page -5-
<PAGE> 6
b. Security ownership of management.
<TABLE>
<CAPTION>
Name and Amount and
address of nature of
Title of beneficial beneficial Percent of
class owner owner class
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Michael John 30,000,000 shares 13.76%
1607 W. Commerce
Dallas, TX 75208
</TABLE>
c. Changes in control. There are currently no plans for any
arrangement or acquisition which would change ownership of a controlling
interest in the common stock of the registrant.
Item 5. Directors, Executive Officers, Promoters and Control Persons
<TABLE>
<CAPTION>
DIRECTORS:
---------
NAME AND ADDRESS POSITION
---------------- --------
<S> <C> <C>
Michael John Director (Chairman of the Board)
1607 West Commerce Street
Dallas, Texas 75208
OFFICERS:
--------
Michael John President
1607 West Commerce Street
Dallas, Texas 75208
Michael John Secretary
1607 West Commerce Street
Dallas, Texas 75208
Michael John Treasurer
1607 West Commerce Street
Dallas, Texas 75208
</TABLE>
Mr. John, currently 46 years old, has served on the registrant's Board
of Directors and has acted as its President since December 1997. Mr. John has
been elected to serve in the above capacities until the registrant's Annual
Meeting of Stockholders and the Annual Meeting of Directors which will be held
on the second Saturday of December 1999.
Page -6-
<PAGE> 7
Mr. John has been involved in international business and marketing for
the past twenty years. He has run and operated various types of businesses in
Germany, Switzerland, and Brazil.
Item 6. Executive Compensation
Mr. John is currently compensated under the terms of a Consulting
Agreement. He is paid $20,000.00 per month and he pays his administrative
assistant out of such consulting fee. This monthly payment is paid to Mr. John
by PaceCo Financial Services, Inc. The registrant will begin paying Mr. John's
compensation as soon as it is able.
Item 7. Certain Relationships and Related Transactions
In November 1997, the registrant, then known as Cabec Energy Corp.,
acquired all of the issued and outstanding stock of Plastic Pallet Production,
Inc. from Michael John, who held all of the stock of Plastic Pallet Production,
Inc. for the benefit of himself and others. The registrant issued Mr. John and
other parties a total of 119,000,000 shares of its common stock, a clear
majority of the voting control.
Item 8. Legal Proceedings
The registrant is currently involved in one legal proceeding, which is
styled "Cabec Energy Corp., Plaintiff v. Wolfgang Ullrich and Rosarin
Chaisayan, Defendants." This cause of action was filed on January 8, 1999 in
the District Court of Dallas County, Texas.
In this lawsuit, the registrant seeks (i) cancellation of the common
stock of the registrant that was issued to the defendants, and (ii) recovery of
damages caused by Defendant Wolfgang Ullrich's failure to provide the
registrant with funding that it needed for development of its business.
Wolfgang Ullrich and his common law wife, Rosarin Chaisayan, were
issued a collective total of 41,000,000 shares of the registrant's common stock
in consideration of Mr. Ullrich's agreement to supply the operating and
research and development capital needed, which he failed to do.
Item 9. Market for Common Equity and Related Stockholder Matters
The registrant's common stock currently trades on the Over-the-Counter
Bulletin Board Exchange, with "PAEB" as its trading symbol.
From June 1, 1997 to May 31, 1999, the Bid price of the common stock
has been as high as $0.73 and as low as $0.05.
Page -7-
<PAGE> 8
Item 10. Recent Sales of Unregistered Securities
During the past three years, the registrant has sold the following
securities without registering the securities under the Securities Act of 1933:
<TABLE>
<CAPTION>
Name Class No. of Shares Date
---- ----- ------------- ----
<S> <C> <C> <C>
Steve Bright Common 25,000 07/07/97
Don Sauders, TTE Common 400,000 07/14/97
Richard Wood Common 50,000 07/14/97
Ronald Siler Common 40,000 08/27/97
Jay Ungerman Common 220,000 08/27/97
Electric & Gas Tech-
nology, Inc. Common 1,000,000 12/08/97
John Gourley Common 300,000 12/19/97
James Bradshaw Common 300,000 12/19/97
John Gourley Common 100,000 12/23/97
Michael John, et al Common 101,000,000 01/09/98
John Poe Common 30,000 03/06/98
Robert Seago Common 30,000 03/06/98
Margarete Jung Common 15,000,000 03/13/98
Michael Young &
Partners, Inc. Common 1,028,907 03/25/98
Michael John Common 18,145,725 07/16/98
Ralph Curton, Jr Common 2,000,000 08/11/98
Alan Haliburton Common 100,000 08/26/98
Robert V. Daigle Common 1,000,000 02/03/99
USGT Investors Common 25,000 03/05/99
PaceCo Financial
Services, Inc. Common 32,500,000 04/30/99
Julie Smith Barksdale Common 250,000 04/30/99
Arlin Plender Common 2,860,000 04/30/99
Ron Hale Common 2,000,000 04/30/99
Brett Wimberley Common 500,000 04/30/99
Mark R. Kidd Common 500,000 04/30/99
Courtney Beth Kruger Common 250,000 04/30/99
Garret Paul Kruger Common 250,000 04/30/99
Hidalgo Trading Co., L.C Common 830,000 04/30/99
Chadwick Presten, L.L.C Common 400,000 04/30/99
K-P Sullivan, L.L.C Common 120,000 04/30/99
Litchfield, L.L.C Common 180,000 04/30/99
Leach, Sullivan & Watkins Common 360,000 04/30/99
F. Edwin Smith, Jr.,
Trustee Preferred 100,000 12/10/97
Jo Ann R. Cox Preferred 10,000 12/10/97
</TABLE>
Page -8-
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
F. Edwin Smith, Jr.,
Trustee Preferred 450,000 01/05/98
Jo Ann R. Cox Preferred 50,000 01/05/98
Michael John Series B Pref. 600,000 04/29/98
Michael John Series B Pref. 217,778 08/17/98
Ralph Curton, Jr Series B Pref. 408,889 08/17/98
</TABLE>
Item 11. Description of Securities
As of May 31, 1999, (i) there were 217,981,046 shares of common stock
issued and outstanding, (ii) there were 880,000 shares of original series
preferred stock issued and outstanding, and (iii) there were 1,226,667 shares
of Series B Preferred Stock issued and outstanding
When the registrant was organized, a total of five hundred thousand
(500,000) shares of common voting stock were issued to eight hundred (800)
shareholders.
The registrant (known as Permaspray Manufacturing Corporation at that
time) then issued three hundred thousand (300,000) shares of common stock in
exchange for assets.
The registrant later issued common stock for the assets of Permaspray
Manufacturing of Pennsylvania.
The registrant later issued common and preferred stock (as set forth
below) for the assets and common stock of Cabec Energy Corp., a Texas
corporation, pursuant to the terms of that certain Plan and Agreement of Merger
of Cabec Energy Corp. into Browning Enterprises, Inc. dated November 4, 1992.
On the date of the consummation of the merger, April 28, 1993, the registrant
issued five million (5,000,000) shares of common voting stock (restricted under
Rule 144) and four million (4,000,000) shares of voting, no coupon preferred
stock (restricted under Rule 144). The original series preferred stock may be
converted to common voting stock by its holders on a 1-for-1 basis at any time
following April 28, 1995.
Subsequent to the merger with Cabec Energy Corp., a Texas corporation,
the registrant has issued additional shares of common stock for the acquisition
of numerous assets, operating capital, and services rendered, and additional
shares of original issue preferred stock were issued for services rendered. The
most notable recent acquisition by the registrant occurred as of November 11,
1997, when the stockholders approved the acquisition of all of the issued and
outstanding stock of Plastic Pallet Production, Inc., a Florida corporation
(that has just recently been converted into a Texas corporation) in exchange
for 119,000,000 shares of the Company's common stock.
On December 10, 1997, the registrant authorized a new class of Series
B Preferred Stock. As of December 10, 1999, this Series B Preferred Stock may
be converted into common stock on a 1-for-10 basis (1 share of Series B
Preferred Stock converts into 10 shares of common stock).
Page -9-
<PAGE> 10
The registrant's common stock is its only security that is traded on
an exchange.
Item 12. Indemnification of Directors and Officers
Under the registrant's Bylaws, it is required to indemnify its
officers and directors to the extent allowed and permitted by the General
Corporation Laws of the State of Delaware.
Item 13. Financial Statements
Set forth below are audited financial statements of the registrant for
fiscal years May 31, 1996, 1997, and 1998, and unaudited financial statements
through February 28, 1999. Such financial statements were prepared under
Generally Accepted Accounting Principles and audited under Generally Accepted
Auditing Standards.
Item 14. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
There are no disagreements with accountants on accounting and
financial disclosure.
Item 15. Financial Statements and Exhibits
PALWEB CORPORATION,
a Delaware Corporation
By: /s/ MICHAEL JOHN
-------------------------------
Michael John, President
Dated: June 10, 1999
Page -10-
<PAGE> 11
CABEC ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITOR'S REPORT
YEAR ENDED MAY 31, 1996
<PAGE> 12
INDEPENDENT AUDITOR'S REPORT
June 25, 1997
Board of Directors and Stockholders
Cabec Energy Corporation
Dallas, Texas
We have audited the accompanying balance sheet of Cabec Energy Corporation and
Subsidiary as of May 31, 1996, and the related statements of operations,
stockholders' deficit, and cash flows for the year 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 aspects, the financial position of Cabec Energy Corporation and
Subsidiary as of May 31, 1996, and the 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 2 to the
financial statements, the Company has working capital and stockholders'
deficits at May 31, 1996, which raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ HEIN & ASSOCIATES LLP
Certified Public Accountants
<PAGE> 13
CABEC ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MAY 31, 1996
ASSETS
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA HISTORICAL
------------ ------------
(Note 13)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,688 $ 3,688
OTHER ASSETS:
Machinery and equipment 699,000 --
Note receivable 20,000 20,000
Investment in subsidiary, net of impairment valuation allowance of
$2,009,900 25,000 25,000
------------ ------------
Total assets $ 747,688 $ 48,688
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable $ 47,422 $ 47,422
Accounts payable 54,045 54,045
Salaries and related payroll taxes payable 24,000 24,000
Accrued and other current liabilities 41,283 41,283
------------ ------------
Total current liabilities 166,750 166,750
ADVANCES PAYABLE 157,875 157,875
LONG-TERM DEBT 260,000 --
DUE TO STOCKHOLDER 65,857 65,857
COMMITMENTS AND CONTINGENCIES (NOTES 2, 4 AND 10)
STOCKHOLDERS' DEFICIT:
Convertible preferred stock, $.0001 par value; 20,000,000 shares
authorized; 9,310,000 shares issued and outstanding 931 931
Common stock, $0.10 par value; 50,000,000 shares authorized;
14,049,985 shares issued and outstanding (15,549,985 pro forma) 1,554,999 1,404,999
Additional paid-in capital 2,764,030 2,475,030
Accumulated deficit (4,222,754) (4,222,754)
------------ ------------
Total stockholders' deficit 97,206 (341,794)
------------ ------------
Total liabilities and stockholders' deficit $ 747,688 $ 48,688
============ ============
</TABLE>
See accompanying notes to these consolidated financial statements.
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<PAGE> 14
CABEC ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1996
<TABLE>
<S> <C>
GENERAL AND ADMINISTRATIVE EXPENSES $ 135,500
OTHER EXPENSES:
Interest expense 10,396
Provision for goodwill write-down 14,583
Provision for impairment of investment 2,009,900
------------
Total other expenses 2,034,879
------------
LOSS FROM CONTINUING OPERATIONS (2,170,379)
DISCONTINUED OPERATIONS:
Loss from operations (868,413)
Gain on disposal 239,965
------------
Loss from discontinued operations (628,448)
------------
NET LOSS $ (2,798,827)
============
LOSS PER SHARE:
Continuing operations $ (0.27)
Net loss $ (0.35)
</TABLE>
See accompanying notes to these consolidated financial statements.
-3-
<PAGE> 15
CABEC ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the period from June 1, 1995 through May 31, 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------- -------------------------- Common Additional
Stock Paid-in
Shares Amount Shares Amount Subscribed Capital
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, June 1, 1995 13,310,000 $ 1,331 6,547,985 $ 654,799 $ 71,000 $ 325,180
Issuance of common stock
subscribed -- -- 42,000 4,200 (21,000) 16,800
Adjustment of common shares -- -- (80,000) (8,000) -- 8,000
Issuance of common stock for
services rendered -- -- 2,840,000 284,000 -- 529,750
Purchase and cancellation of
preferred stock (3,600,000) (360) -- -- -- (19,640)
Issuance of common stock for
acquisition of Cooper
Manufacturing Corp. -- -- 3,000,000 300,000 -- 1,734,900
Issuance of common stock for
subsequent purchase of
machinery and equipment -- -- 1,500,000 150,000 -- (150,000)
Issuance of common stock
subscribed -- -- 200,000 20,000 (50,000) 30,000
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, May 31, 1996 9,710,000 $ 971 14,049,985 $ 1,404,999 $ -- $ 2,474,990
=========== =========== =========== =========== =========== ===========
<CAPTION>
Total
Accumulated Stockholders'
Deficit Deficit
----------- -------------
<S> <C> <C>
BALANCES, June 1, 1995 $(1,423,927) $ (371,617)
Issuance of common stock
subscribed -- --
Adjustment of common shares -- --
Issuance of common stock for
services rendered 813,750
Purchase and cancellation of
preferred stock -- (20,000)
Issuance of common stock for
acquisition of Cooper
Manufacturing Corp. -- 2,034,900
Issuance of common stock for
subsequent purchase of
machinery and equipment -- --
Issuance of common stock
subscribed -- --
Net loss (2,798,827) (2,798,827)
----------- -----------
BALANCES, May 31, 1996 $(4,222,754) $ (341,794)
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
-4-
<PAGE> 16
CABEC ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED MAY 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (2,798,827)
Adjustments to reconcile net loss to net cash
used in operating activities
Loss on disposal of property and equipment 23,817
Provision for goodwill write-down 14,583
Provision for impairment of investment 2,009,900
Gain on disposal (239,965)
Common stock issued for services 813,750
Changes in operating assets and liabilities
Accounts receivable 7,189
Accounts payable 21,423
Salaries and related payroll taxes payable (57,313)
Other 3,450
----------------
Net cash used in operating activities (201,993)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of oil and gas properties 27,000
Issuance of note receivable (20,000)
----------------
Net cash provided by investing activities 7,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance payable 157,875
Net advances from stockholder 63,738
Proceeds from notes payable 10,000
Repayment of notes payable (15,308)
Re-purchase of preferred stock (20,000)
----------------
Net cash provided by financing activities 196,305
----------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,312
CASH AND CASH EQUIVALENTS, beginning of year 2,376
----------------
CASH AND CASH EQUIVALENTS, end of year $ 3,688
================
</TABLE>
See accompanying notes to these consolidated financial statements.
-5-
<PAGE> 17
CABEC ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Cabec Energy Corporation (Cabec or the Company) was
incorporated in Texas on November 13, 1981. The Company was engaged in oil
and gas exploration and development in Texas, Louisiana, Kansas and North
Dakota until it disposed of all of its oil and gas properties as described
below.
Principles of Consolidation - The accompanying financial statements include
the accounts of Cabec Energy Corporation and its wholly-owned subsidiary,
CEC Operating, Inc., which is currently inactive. These financial
statements do not include the accounts of Cooper Manufacturing
Corp. (Cooper), a wholly-owned subsidiary acquired May 10, 1996 (see Note
4). Cooper is not consolidated because it is currently operating under
Chapter 11 of the U.S. Bankruptcy Code, as a result, there is uncertainty
as to whether the Company will ultimately control Cooper.
Change in Basis of Accounting - In fiscal year 1995, Company's management
commenced a plan of liquidation and reorganization whereby certain
outstanding debt obligations would be settled out of available assets. As a
result of this plan, the Company applied the liquidation basis of
accounting for the year ended May 31, 1995. Under the liquidation basis of
accounting, assets are stated at their estimated net realizable values, and
liabilities are stated at the estimated amounts creditors are expected
to receive in settlement of the obligations.
During the fiscal year ended May 31, 1996, the Company conveyed
substantially all its oil and gas producing properties and related
production equipment in satisfaction and release of all indebtedness
related to various accounts payable and debt obligations collateralized by
those properties. However, in May 1996, the Company made certain
acquisitions with the intent to continue operations and has changed the
basis of accounting used to determine the amounts at which assets and
liabilities are carried from the liquidation basis to a going-concern basis
of accounting effective for the year ended May 31, 1996.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. The actual
results could differ from those estimates.
Discontinued Operations - In 1996, the Company disposed of all remaining
oil and gas operations. The loss incurred related to oil and gas operations
of $868,413 has been classified as "discontinued operations" in the
accompanying statement of operations. The loss was net of oil and gas
revenues received of $13,106. During fiscal year 1996, the Company settled
various debt obligations and amounts payable totaling $380,702, which
related to its oil and gas operations through cash payments of $21,365 and
the conveyance of oil and gas properties collateralizing certain
obligations having a net carrying value of $119,372. As a result, a gain of
$239,965 has been reflected in the statement of operations on disposal of
discontinued operations.
Cash and Cash Equivalents - For purposes of the statement of cash flows,
the Company considers cash equivalents to include all cash items, such as
time deposits and short-term investment with maturities of three months or
less at the time of purchase.
Loss Per Share - Loss per share is computed based on the weighted average
number of shares outstanding of 8,050,000. Stock options and warrants are
not considered as their effect is anti-dilutive.
-6-
<PAGE> 18
CABEC ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes - The Company accounts for income taxes under the liability
method, which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included
in the financials statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statements and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
2. GOING CONCERN
As of May 31, 1996 the Company has a working capital deficit of $163,062 and
a stockholders' deficit of $341,794, which raise substantial doubt about its
ability to continue as a going concern. During fiscal year 1995, a change in
the Company's management occurred. The new management arranged settlements
with various trade creditors, employees owed back payroll, and the Internal
Revenue Service in connection with unpaid payroll taxes. As of May 31, 1996,
the Company's working capital position was significantly improved. However,
the Company's continued existence is dependent on its ability to resolve its
liquidity problems, either by obtaining additional debt financing and/or
equity capital or generating profitable operations. While pursuing
additional funding, the Company has relied on limited cash flow advanced by
a major stockholder and outside parties. The Company has made certain
acquisitions in May 1996 and subsequently primarily with its stock. One of
the acquisitions is currently generating positive cash flows, and management
hopes the others will eventually generate positive cash flows. The Company
is actively seeking debt/or equity capital to adequately fund operating
losses, working capital demands and a strategic growth and diversification
program. Discussions are being held with certain investors who management
believes may commit to a material equity investment in the Company.
Management believes these equity proceeds, if obtained, will be adequate to
fund ongoing operations.
The accompanying financial statements do not include any adjustments to
reflect the possible future effects and the recoverability and
classification of assets or the amounts and classification of liabilities
that may result from the possible inability of the Company to continue as a
going concern.
3. NOTE RECEIVABLE
The Company has a note receivable totaling $20,000 at May 31, 1996, which
bears interest at 6% and is collateralized by a piece of machinery owned by
the debtor. Total unpaid principal and accrued interest were due in
November 1996. The note is due from the Fleur-David Corporation, a business
subsequently acquired by the Company (see Note 13).
4. ACQUISITIONS
On May 10, 1996 the Company acquired 100% of the outstanding common stock
of Cooper Manufacturing Corp. (Cooper) in exchange for 3,000,000 shares of
the Company's common stock. Cooper, which is currently operating under
Chapter 11 of the U.S. Bankruptcy Code, holds patents to and manufactures
mobile drilling equipment. Upon closing, the Company transferred 1,500,000
shares of Cabec common stock to the former Cooper stockholders and the
remaining shares were to be held in trust pending satisfactory confirmation
of a Chapter 11 plan of reorganization for Cooper. The acquisition has been
accounted for as a purchase, but Cooper has not been consolidated in the
accompanying financial statements due to the uncertainty resulting from the
bankruptcy proceedings as discussed in Note 1. The shares transferred to
the former Cooper stockholders were recorded at $2,034,900 based on the
trading
-7-
<PAGE> 19
CABEC ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
value of the Company's stock at the time the transaction closed less a 30%
discount to reflect the restricted nature of the shares. The shares held in
trust were assigned no value due to the uncertainty as to their ultimate
issuance. However, these shares were issued to the former stockholder of
Cooper in 1997 in settlement of a lawsuit filed by that individual related
to the Company's acquisition of Cooper.
Subsequent to the acquisition of Cooper, the carrying value of the
investment was written down to $25,000 due to the uncertainty of the
disposition of the bankruptcy proceedings and the related effect upon the
ownership and operations of Cooper. The write down of $2,009,900 has been
recorded as a charge to operations.
5. NOTES PAYABLE
At May 31, 1996, notes payable consist of the following:
<TABLE>
<S> <C>
Demand note payable to a bank with interest
at 12%, collateralized by a $15,000
certificate of deposit owned by a third $ 10,000
Note payable to the father of a former officer
with interest at 10%, collateralized by an
interest in certain oil and gas properties.
The note is due June 1, 1997. 37,422(a)
--------
$ 47,422
========
</TABLE>
(a) The Company is in default on the note payable. Accordingly, this note
has been classified as a current liability in the accompanying balance
sheet. Negotiations are continuing with this creditor; however, the
ultimate outcome of the negotiations cannot currently be determined.
6. ADVANCES PAYABLE
Net advances payable to an outside party total $157,875 at May 31, 1996.
This amount was non-interest bearing, uncollateralized and contained no
specific terms of repayment. However, on October 1, 1996, in recognition of
this obligation, the company executed a convertible promissory note in the
amount of $151,764, bearing interest at 8%. The terms of the note require
semi-annual interest payments due December 1 and June 1. A final payment of
the unpaid principal plus accrued interest is due and payable June 1, 1998.
The note is uncollateralized. The promissory note provides for the right to
convert the outstanding principal and unpaid accrued interest into shares of
the Company's common stock, at a conversion rate of $.50 per share. This
conversion right may be exercised at any time as long as the promissory note
remains outstanding.
-8-
<PAGE> 20
CABEC ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets are presented below:
Deferred tax assets:
Impairment of investment in Cooper $ 700,000
Net operating loss carry forwards 350,000
----------
Total gross deferred tax assets 1,050,000
Less valuation allowance (1,050,000)
----------
Net deferred tax asset $ --
==========
As of May 31, 1996, the Company has approximately $1,000,000 in net
operating loss carry forwards which begin to expire in the year 2008.
During the years ended May 31, 1995 and 1996, the Company underwent changes
in control as defined in Section 382 of the Internal Revenue Code of 1986.
Because of this, it is likely that the utilization of the Company's net
operating loss will be substantially limited.
8. RELATED PARTY TRANSACTIONS
During the year ended May 31, 1996, the Company wrote off amounts due from
related parties totaling approximately $17,380 and conveyed a truck with a
book value of approximately $8,000 to the former president of the Company.
At May 31, 1996 net advances from a major stockholder totaled $65,857. The
amount due to the stockholder is non-interest bearing, uncollateralized,
and has no specific terms of repayment.
9. STOCKHOLDERS' EQUITY
During fiscal year 1996, the Company issued 2,840,000 shares, including
2,500,000 shares to the president of the Company, for various services
rendered. The services rendered by the president of the Company were in
connection with negotiation of the retirement of certain debt obligations.
The shares have been recorded at the trading value at the times of issuance
less a 30% discount to reflect the restricted nature of the stock.
In connection with shares issued to a private investor in fiscal year 1995,
an option was granted to purchase up to a total of an additional 1,600,000
common shares in fiscal years 1995 and 1996. These options had all expired
unexercised as of May 31, 1996.
In August 1994, the Company issued 9,310,000 shares of voting convertible
preferred stock as compensation to directors and certain members of
management. The preferred stock, which is presently convertible, is
convertible into common stock at a rate of one share of common stock for
each share of preferred stock. The shares were valued by the Company at
$.01 per share, which was the Company's estimate of the fair value of the
services provided. In connection with the shares issued to a certain
stockholder, an option was granted to purchase additional common shares at
$.10 per share in the following increments and time period:
-9-
<PAGE> 21
CABEC ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Up to Dates
-------------- ------------------------------------
120,000 shares From August 1, 1993 to July 31, 2003
160,000 shares From August 1, 1994 to July 31, 2004
200,000 shares From August 1, 1995 to July 31, 2005
240,000 shares From August 1, 1996 to July 31, 2006
During the first two quarters of fiscal year 1995, the Company entered into
agreements to sell to various unaffiliated third parties 42,000 shares of
common stock for $.50 per share and 200,000 shares of common stock for $.25
per share. As of May 31, 1995, the shares had not been issued and are
classified as common stock subscribed in the accompanying statement of
stockholders' equity. The stock was subsequently issued in fiscal year
1996.
The Company's board of directors is authorized to issue up to an additional
10,290,000 shares of preferred stock at a price and on terms to be
determined by a majority vote of the board of directors.
10. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings including the
settlements of pending claims against the Company. In the opinion of
management, the Company's ultimate liability cannot presently be
determined. Accordingly, no provision for any additional liability
concerning these matters has been reflected in the Company's financial
statements.
The Company has guaranteed the payment of a $50,000 account payable due by
Cooper (see Note 4) to a former stockholder. The Company also agreed to
have that former stockholder released from any individual guarantees of
Cooper debt, and in the absence of such release, indemnify him therefrom.
11. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<S> <C>
Cash paid during the year for:
Interest $ 6,032
Non-cash investing and financing activities:
Property and equipment conveyed in satisfaction of notes payable 76,465
Investment in subsidiary acquired with issuance of common stock 2,034,900
Machinery and equipment acquired with issuance of common stock 698,945
Issuance of common stock subscribed 71,000
</TABLE>
12. SUBSEQUENT EVENTS
Subsequent to May 31, 1996, the Company acquired 100% of the outstanding
common stock of Fleur-David Corporation (Fleur) in exchange for 4,000,000
shares of the Company's common stock.
In October 1996, the Company granted a warrant to its president to purchase
up to 600,000 shares of common stock for $.50 per share. No expiration date
has been specified.
-10-
<PAGE> 22
CABEC ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September 1996, the Company acquired substantially all the operating
assets (consisting primarily of machinery and equipment) of Sweetwater
Drilling Co. d/b/a Wyoming Pipe & Tool (Wyoming), and placed the assets in
a newly formed subsidiary, Wyoming Pipe & Tool Corp. In consideration, the
Company issued Wyoming 1,500,000 shares of the Company's common stock and a
$260,000 promissory note. The shares were issued and held in escrow in May
1996, pending closing, which occurred in September 1996. No value was
assigned to the shares until closing of the acquisition. The promissory note
was subsequently refinanced with two notes totaling $260,000, bearing 10%
interest and due December 31, 1998.
13. UNAUDITED PRO FORMA INFORMATION
The accompanying balance sheet includes a pro forma column to reflect the
Wyoming acquisition (see Note 12) as if it had occurred on May 31, 1996,
due to its significance. The acquisition has been recorded for pro forma
purposes based on an independent appraisal of the assets at $699,000. The
Fleur acquisition discussed in Note 12 is not included in the pro forma
balance sheet due to uncertainty regarding its valuation of the net assets
acquired.
-11-
<PAGE> 23
CABEC ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITOR'S REPORT
YEAR ENDED MAY 31, 1997
<PAGE> 24
INDEPENDENT AUDITOR'S REPORT
June 27, 1998
Board of Directors and Stockholders
Cabec Energy Corporation
Dallas, Texas
We have audited the accompanying balance sheet of Cabec Energy Corporation and
Subsidiaries as of May 31, 1997, and the related statements of operations,
stockholders' deficit, and cash flows for the year 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 aspects, the financial position of Cabec Energy Corporation and
Subsidiaries as of May 31, 1997, and the results of their operations and their
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 2 to the
financial statements, the Company has working capital and stockholders' deficits
at May 31, 1997, which raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ HEIN & ASSOCIATES LLP
Certified Public Accountants
<PAGE> 25
CABEC ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 31, 1997
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,672
Trade accounts receivable, no allowance for
doubtful accounts considered necessary 83,159
Prepaid expense 2,960
---------------
Total current assets 92,791
PROPERTY AND EQUIPMENT, at cost
Plant equipment 593,095
Vehicle 10,500
Furniture and fixtures 4,950
---------------
608,545
Less accumulated depreciation (69,543)
---------------
Net property and equipment 539,002
OTHER ASSETS:
Deposits and other 71,880
Natural gas processing plant held for sale 25,000
Investment in Cooper Manufacturing Corp. 25,000
---------------
Total assets $ 753,673
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable $ 262,704
Accounts payable and accrued expenses 336,271
Advances due to stockholder 81,955
Accrued liability 45,000
---------------
Total current liabilities 725,930
LONG-TERM DEBT 440,296
PRODUCTION PAYMENT LIABILITY 323,485
COMMITMENTS AND CONTINGENCIES (Notes 2 and 9)
STOCKHOLDERS' DEFICIT:
Convertible preferred stock, $.0001 par value;
20,000,000 shares authorized; 5,530,000 shares issued
and outstanding 553
Common stock, $0.10 par value; 50,000,000 shares
authorized; 24,446,414 shares issued and outstanding 2,444,641
Additional paid-in capital 6,518,663
Accumulated deficit (9,699,895)
---------------
Total stockholders' deficit (736,038)
---------------
Total liabilities and stockholders' deficit $ 753,673
===============
</TABLE>
See accompanying notes to these consolidated financial statements.
-2-
<PAGE> 26
CABEC ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997
<TABLE>
<S> <C>
REVENUES:
Service revenues $ 427,943
Oil and gas sales 20,539
Other 26,901
------------
Total revenues 475,383
COSTS AND EXPENSES:
Cost of service revenues 84,000
Lease operating expense 91,327
Impairment of investment 3,727,305
General and administrative expenses 1,933,720
Depreciation 69,543
Interest expense 46,629
------------
Total costs and expenses 5,952,524
------------
NET LOSS $ (5,477,141)
============
NET LOSS PER SHARE $ (0.26)
============
</TABLE>
See accompanying notes to these consolidated financial statements.
-3-
<PAGE> 27
CABEC ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 1, 1996 THROUGH MAY 31, 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------- ------------------------- Additional
Paid-in
Shares Amount Shares Amount Capital
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES, June 1, 1996 9,710,000 $ 971 14,049,985 $1,404,999 $2,474,990
Sales of common stock
for cash -- -- 400,000 40,000 210,000
Adjustment of common shares -- -- 294,568 29,457 (21,959)
Issuance of common stock for
services rendered -- -- 1,346,861 134,685 441,669
Grant of stock options to officer -- -- -- -- 680,000
Conversion of preferred stock
to common stock (4,180,000) (418) 4,180,000 418,000 (417,582)
Issuance of common stock for
acquisition of Fleur-David
Corporation -- -- 4,000,000 400,000 2,800,000
Record purchase of machinery
and equipment for common
stock issued in escrow in
prior year -- -- -- -- 303,545
Issuance of common stock
for retirement of liabilities -- -- 175,000 17,500 48,000
Net loss -- -- -- -- --
----------- ----------- ----------- ---------- ----------
BALANCES, May 31, 1997 5,530,000 $ 553 24,446,414 $2,444,641 $6,518,663
=========== =========== =========== ========== ==========
<CAPTION>
Total
Accumulated Stockholders'
Deficit Deficit
----------- -------------
<S> <C> <C>
BALANCES, June 1, 1995 $(4,222,754) $ (341,794)
Sale of common stock for cash -- 250,000
Adjustment of common shares -- 7,498
Issuance of common stock for
services rendered -- 576,354
Grant of stock options to officer -- 680,000
Conversion of preferred stock
to common stock -- --
Issuance of common stock for
acquisition of Fleur-David
Corporation -- 3,200,000
Record purchase of machinery
and equipment for common
stock issued in escrow in
prior year -- 303,545
Issuance of common stock
for retirement of liabilities -- 65,500
Net loss (5,477,141) (5,477,141)
----------- -----------
BALANCES, May 31, 1997 $(9,699,895) $ (736,038)
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
-4-
<PAGE> 28
CABEC ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED MAY 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES -
Net loss $ (5,477,141)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation 69,543
Provision for impairment of investment 3,727,305
Common stock issued for services 576,354
Stock options granted officer 680,000
Changes in operating assets and liabilities:
Accounts receivable (73,185)
Accounts payable and accrued expenses 263,814
------------
Other (4,804)
Net cash used in operating activities (238,114)
CASH FLOWS FROM INVESTING ACTIVITIES -
Advances to related party (13,720)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 250,000
Net advances from stockholder 29,818
Repayments of notes payable (25,000)
------------
Net cash provided by financing activities 254,818
------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,984
CASH AND CASH EQUIVALENTS, beginning of year 3,688
------------
CASH AND CASH EQUIVALENTS, end of year $ 6,672
============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 2,154
============
Non-cash investing and financing activities:
Common stock issued in satisfaction of liabilities $ 65,500
Investment in subsidiary acquired with issuance of common stock $ 3,200,000
Machinery and equipment acquired with issuance of common stock
and notes payable $ 563,545
============
</TABLE>
See accompanying notes to these consolidated financial statements.
-5-
<PAGE> 29
CABEC ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Cabec Energy Corporation (Cabec or the Company) was incorporated in Texas
on November 13, 1981. The Company was engaged in oil and gas exploration
and development until it disposed of all of its oil and gas properties in
fiscal year 1996. As of May 31, 1998, the Company was engaged primarily in
repairing and remanufacturing down-hole rotary tools used in the
exploration of oil and natural gas, through its subsidiary, Wyoming Pipe &
Tool Corp (WP&T).
Principles of Consolidation
The accompanying financial statements include the accounts of Cabec Energy
Corporation and its wholly-owned subsidiaries, CEC Operating, Inc., which
is currently inactive, Wyoming Pipe & Tool Corp., and Fleur-David
Corporation (Fleur). Fleur owns interests in certain oil and gas leases,
with minimal production, and a gas processing plant held for sale.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed on the
straight-line basis over the estimated useful lives of the underlying
assets. The estimated useful lives of plant equipment range from three to
seven years. Automobiles are depreciated over three years and furniture and
fixtures over five years.
Expenditures for repairs and maintenance are charged to operations as
incurred. Major replacements and betterments are capitalized and
depreciated over the estimated remaining life of the asset.
Investment in Cooper Manufacturing Corp.
In fiscal year 1996, the Company acquired 100% of the outstanding common
stock of Cooper Manufacturing Corp. (Cooper). Cooper holds patents to and
manufactures mobile drilling equipment. As part of a plan of reorganization
for Cooper under Chapter 11 of the U.S. Bankruptcy Code, the Company's
ownership interest was reduced to 15% in December 1997 and the Company was
assigned a royalty in future revenues of Cooper. The Company accounts for
its investment in Cooper at cost.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and the accompanying notes. The actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers cash equivalents to include all cash items, such as
time deposits and short-term investments with maturities of three months or
less at the time of purchase.
Loss Per Share
Loss per share is computed based on the weighted average number of shares
outstanding of 21,005,000. Convertible preferred stock, stock options and
warrants are not considered as their effect is anti-dilutive.
Stock-Based Compensation
In June 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which
requires recognition of the value of stock options and
-6-
<PAGE> 30
CABEC ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
warrants granted based on an option pricing model. However, as permitted by
SFAS No. 123, the Company continues to account for stock options and warrants
granted to directors and employees pursuant to APB Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. See Note 8.
Accounting for Long-Lived Assets
The Company evaluates long-lived assets periodically for impairment. When
events or circumstances indicate that the cost of an asset may be impaired, a
comparison of the estimated future undiscounted cash flows associated with the
asset to the asset's carrying amount is made to determine if a writedown to
market value or discounted cash flow is required.
Income Taxes
The Company accounts for income taxes under the liability method, which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
2. LIQUIDITY
As of May 31, 1997 the Company has a working capital deficit of $633,139 and a
stockholders' deficit of $736,038, which raise substantial doubt about its
ability to continue as a going concern. The Company's continued existence is
dependent on its ability to resolve its liquidity problems, either by obtaining
additional debt financing and/or equity capital or generating profitable
operations. The Company's intention with regard to this matter is that new
management will attempt to develop the business acquired in December 1997 (see
Note 12) into a profitable operation.
The accompanying financial statements do not include any adjustments to reflect
the possible future effects and the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
3. ACQUISITIONS
In June 1996, the Company acquired 100% of the outstanding common stock of
Fleur (see Note 1) in exchange for 4,000,000 shares of the Company's common
stock. The acquisition was accounted for under the purchase method of accounting
and the operations of Fleur are included in the accompanying financial
statements beginning June 1, 1996. The acquisition was recorded at $3,200,000,
which reflected the estimated value of the Company's stock at the time. Fleur's
principal assets when acquired by the Company were interests in proved
undeveloped reserves and in a natural gas processing plant. The value of both
of these assets became impaired subsequent to acquisition due to diminished
prospects for development of the oil and gas reserves or for profitable
operation of the gas plant resulting primarily from a decline in oil and gas
prices. Therefore, the amounts recorded for the assets acquired were reduced to
market value as estimated by management resulting in a charge to impairment
expense of approximately $3,727,000 for the year ended May 31, 1997.
In September 1996, the Company acquired substantially all the operating assets
(consisting primarily of machinery and equipment) of Sweetwater Drilling Co.
d/b/a Wyoming Pipe & Tool (Wyoming), and placed
-7-
<PAGE> 31
CABEC ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the assets in a newly formed subsidiary, Wyoming Pipe & Tool Corp. (WP&T).
In consideration, the Company issued Wyoming 1,500,000 shares of the Company's
common stock and a $260,000 promissory note. The shares were issued and held in
escrow in May 1996, pending closing, which occurred in September 1996. No value
was assigned to the shares until closing of the acquisition at which time the
acquisition was recorded based on the appraised value of the acquired assets.
The promissory note was subsequently refinanced with two notes to related
parties totaling $260,000 (see Note 4). The acquisition was accounted for as a
purchase and the operations of WP&T are included in the accompanying financial
statements beginning September 18, 1996.
Pro forma information to reflect the results of operations of the Company as if
the acquisitions of Fleur and WP&T had occurred at the beginning of the period
is not presented because the effect would not be material.
4. NOTES PAYABLE AND LONG-TERM DEBT
At May 31, 1997, notes payable consist of the following:
<TABLE>
<S> <C>
Unsecured note payable to an individual with interest at 8%. The
note is due June 1, 1998. The note is convertible into shares of the
Company's common stock (See Note 12). $ 142,875
Notes payable to two individuals for $130,000 each, bearing interest
at 10%. One of the individuals is a family member of the
president of the Company. Principal and accrued interest are due
on December 31, 1998. Collateralized by the assets and common
stock of WP&T. 260,000
Note payable to an individual with interest at 6%, collateralized by
gas plant equipment. The note is due May 31, 1998. 90,463
Notes payable to a director of the Company and various family
members. The notes all bear interest at 6%, are collateralized by
gas plant equipment and are due May 1, 1998. 172,240
Notes payable to the father of a former officer with interest at 10%,
collateralized by an interest in certain oil and gas properties.
The note is due June 1, 1999. 37,422
----------
Total 703,000
Less current portion (262,704)
----------
Long-term debt $ 440,296
==========
</TABLE>
Maturity on long-term debt as of May 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
<S> <C>
1998 $ 262,704
1999 402,874
2000 37,422
---------
$ 703,000
=========
</TABLE>
-8-
<PAGE> 32
CABEC ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PRODUCTION PAYMENT LIABILITY
The Company has a liability to another company with a principal balance of
$323,485 at May 31, 1997. Repayment of the liability is due solely from
production from an oil and gas field with no current production. The
Company's investment in the oil and gas field has been fully impaired at
May 31, 1997.
6. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the Company's net deferred tax asset at May 31, 1997 are
presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Impairment of investments $ 2,000,000
Net operating loss carry forwards 650,000
-----------
Total gross deferred tax assets 2,650,000
Less valuation allowance (2,650,000)
-----------
Net deferred tax asset $ --
===========
</TABLE>
The valuation allowance increased by $1,600,000 from the preceding year.
As of May 31, 1997, the Company has approximately $2,000,000 in net
operating loss carry forwards which begin to expire in the year 2008.
During the years ended May 31, 1995 and 1996, the Company underwent changes
in control as defined in Section 382 of the Internal Revenue Code of 1986.
Because of this, it is likely that the utilization of the Company's net
operating loss will be substantially limited.
7. RELATED PARTY TRANSACTIONS
At May 31, 1997 net advances from a major stockholder totaled $81,955. The
amount due to the stockholder is non-interest bearing, uncollateralized,
and has no specific terms of repayment.
8. STOCKHOLDERS' EQUITY
During fiscal year 1997, the Company issued 1,346,861 shares, including
250,000 shares to a director of the Company, for various services rendered.
The shares have been recorded at the trading value at the times of issuance
less a 20% discount to reflect the restricted nature of the stock.
In August 1994, the Company issued 9,310,000 shares of voting convertible
preferred stock as compensation to directors and certain members of
management. The preferred stock is convertible into common stock at a rate
of one share of common stock for each share of preferred stock. In
connection with the shares issued to a certain stockholder, an option was
granted to purchase additional common shares at $.10 per share as set forth
below. None of the options had been exercised as of May 31, 1997.
<TABLE>
<CAPTION>
Up to Expiration Dates
-------------- ----------------------
<S> <C>
120,000 shares July 31, 2003
160,000 shares July 31, 2004
200,000 shares July 31, 2005
240,000 shares July 31, 2006
</TABLE>
-9-
<PAGE> 33
CABEC ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended May 31, 1997, 4,180,000 shares of preferred stock
were converted to common stock.
In October 1996, the Company granted a warrant to its president to purchase
up to 600,000 shares of common stock for $.50 per share. The exercise price
approximated the quoted value of the stock at the time of issuance. No
expiration date has been specified. In September 1996, the Company granted
options to acquire 1,000,000 shares of common stock at $.10 per share to an
officer in connection with an employment agreement. The trading price of
the Company's stock at the grant date exceeded the exercise price by $.68
per share and $680,000 has been charged to expense for the year ended May
31, 1997. The options may be exercised through August 2002. None of the
options on the warrants had been exercised as of May 31, 1997.
As discussed in Note 1, the Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock options and warrants.
Accordingly no compensation cost is recognized for grants of options to
employees or directors when the exercise prices are not lower than the
market prices of the Company's common stock on the measurement date. Had
compensation been determined based on the estimated fair value at the
measurement date for the warrant and options discussed above consistent
with the method prescribed by SFAS No. 123, the Company's May 31, 1997 net
loss and loss per share would have changed to the pro forma amounts
indicated below:
<TABLE>
<S> <C>
Net loss:
As reported $ (5,477,141)
Pro forma $ (5,768,141)
Net loss per common share:
As reported $ (0.26)
Pro forma $ (0.27)
</TABLE>
The fair values of the warrant and options granted during fiscal year 1997
were estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:
<TABLE>
<S> <C>
Expected volatility 158%
Risk-free interest rate 6.0%
Expected dividends --
Expected terms (in years) 3 years
</TABLE>
The Company's board of directors is authorized to issue up to an
additional 14,470,000 shares of preferred stock at a price and on terms to
be determined by a majority vote of the board of directors.
9. COMMITMENTS AND CONTINGENCIES
The Company granted a five-year employment agreement, effective September
1, 1996 to an officer with annual salary commitments of $96,000 and
$120,000 the first two years of the contract and with subsequent
escalations as defined in the agreement.
The Company leases its operating facility under a noncancellable operating
lease. The total minimum rental commitments at May 31, 1997 are as follows:
-10-
<PAGE> 34
CABEC ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Years Ending May 31,
--------------------
<S> <C>
1998 $ 24,000
1999 24,000
2000 24,000
2001 24,000
2002 6,000
----------
$ 102,000
==========
</TABLE>
Rent expense for the period ended May 31, 1997 totaled $18,000.
10. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
The Company operates primarily in one industry segment, oil field
services. A geographic concentration exists because the Company's customers
are generally located in the Rocky Mountain region of the United States.
Financial instruments that subject the Company to credit risk consist
principally of accounts receivable. At May 31, 1997, accounts receivable
applicable to the oil field services segment totaled $73,185. Two of the
Company's customers accounted for approximately 76% of that balance. For
the period ended May 31, 1997, approximately 39% of the Company's service
revenue was derived from two customers. No other customer accounted for
more than 10% of total accounts receivable or revenue.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are primarily cash, accounts receivable
and payable and notes payable (including long-term debt). The fair value
of the Company's financial instruments generally approximate their carrying
values due to the short-term nature of the instruments. In the case of
long-term debt, management estimates the fair value based on expected cash
flows and believes the fair value approximates the carrying value at May
31, 1997.
12. SUBSEQUENT EVENTS
The following significant events occurred subsequent to May 31, 1997:
o In December 1997, the Company was acquired in a reverse acquisition by
the stockholders of Plastic Pallet Production, Inc. As part of the
transaction the parties agreed that the assets and liabilities in the
Company prior to the reverse acquisition would be distributed into a
new company to be owned by the stockholders of the Company prior to the
reverse acquisition.
o In December 1997, the Company issued 1,620,000 shares of preferred
stock (including 1,510,000 shares to the president of the Company) for
consulting services.
o In December 1997, the Company's board of directors authorized creation
of a new "Series B" preferred stock. One share of Series B would be
convertible into 10 shares of common stock after December 10, 1999 and
one share of preferred stock would have votes equal to 10 shares of
common stock.
-11-
<PAGE> 35
CABEC ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o In December 1997, a note payable with a balance of $142,875 at May 31, 1997
(see Note 4) was converted to 1,028,907 shares of common stock.
o In November 1997, an employment agreement was entered into with a director,
which required compensation of approximately $840,000 over the five year
term of the agreement.
-12-
<PAGE> 36
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
PalWeb Corporation
Dallas, Texas
We have audited the accompanying consolidated balance sheet of PalWeb
Corporation and subsidiaries as of May 31, 1998, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the year
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 aspects, the financial position of PalWeb Corporation and
subsidiaries as of May 31, 1998, and the results of their operations and their
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. The Company is in the development
stage and has suffered significant losses from operations. Substantial
additional funding will be required to implement its business plan and to attain
profitable operations. The lack of adequate funding to maintain working capital
and stockholders' deficits at May 31, 1998, raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ HULME RAHHAL HENDERSON, INC.
May 25, 1999
Ardmore, Oklahoma
<PAGE> 37
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, May 31,
ASSETS 1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Inventory $ 18,688 $ 33,687
Assets held for resale -- 74,995
------------ ------------
Total current assets 18,688 108,682
PROPERTY, PLANT AND EQUIPMENT,
net of accumulated depreciation 2,037,275 2,454,950
OTHER ASSETS:
Net assets, discontinued operations -- 352,933
Patent costs, net 60,781 56,072
Deposits and other 30,173 29,353
------------ ------------
Total other assets 90,954 438,358
------------ ------------
TOTAL ASSETS $ 2,146,917 $ 3,001,990
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Notes payable $ 480,980 $ 963,807
Mortgage payable - related party 1,350,000 1,350,000
Accounts payable 378,245 359,237
Accrued expenses 214,016 366,213
Payable to related parties 184,090 2,073,778
Customer deposits 534,000 --
------------ ------------
Total current liabilities 3,141,331 5,113,035
NOTES PAYABLE -- --
STOCKHOLDERS' DEFICIENCY:
Preferred stock, $.0001 par,
20,000,000 shares authorized -
Preferred, outstanding - 880,000
and 380,000, respectively 88 38
Preferred, Series B, 1,226,667 outstanding 123 123
Common stock, $.10 par value,
250,000,000 authorized, outstanding -
170,956,046 and 148,710,321, respectively 17,095,605 14,871,032
Additional paid-in capital (12,408,757) (12,468,144)
Deficit accumulated during development stage (5,681,473) (4,514,094)
------------ ------------
Total stockholders' deficiency (994,414) (2,111,045)
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S DEFICIENCY $ 2,146,917 $ 3,001,990
============ ============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
-2-
<PAGE> 38
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From Inception
Nine Months Year (November 20, 1995)
Ended Ended Through
February 28, May 31, May 31,
1999 1998 1998
------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
SALES $ 45,083 $ 40,057 $ 43,575
OTHER INCOME:
Scrap sales -- 4,267 96,205
Rental income 78,000 76,600 107,980
Miscellaneous income -- -- 1,241
------------- ------------- -------------
Total other income 78,000 80,867 205,426
EXPENSES:
Research and development -- 49,379 406,943
Salaries and benefits 329,859 476,916 627,758
Depreciation and amortization 115,555 158,701 240,909
Other general and administrative 816,575 1,051,282 1,652,802
Impairment investment -- 1,806,231 1,806,231
Interest expense 56,760 33,240 52,270
------------- ------------- -------------
Total expense 1,318,749 3,575,749 4,786,913
------------- ------------- -------------
LOSS FROM CONTINUING OPERATIONS (1,195,666) (3,454,825) (4,537,912)
------------- ------------- -------------
INCOME FROM DISCONTINUED OPERATIONS 28,287 23,818 23,818
------------- ------------- -------------
NET LOSS $ (1,167,379) $ (3,431,007) $ (4,514,094)
============= ============= =============
LOSS PER COMMON SHARE:
Continuing operations $ (.01) $ (.04)
Discontinued operations -- --
------------- -------------
Total $ (.01) $ (.03)
============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 168,601,000 91,769,000
============= =============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
-3-
<PAGE> 39
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock, Series B
---------------------------- ----------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCES, Beginning -- $ -- -- $ --
Common stock for cash, September, 1996 -- -- -- --
Additional cash contributions -- -- -- --
Net loss for period -- -- -- --
------------ ------------ ------------ ------------
BALANCES, September 30, 1997 -- -- -- --
Reverse purchase acquisition:
Capital of acquired company 5,530,000 553 -- --
Common stock exchanged for Plastic
Pallet Production, Inc. (PPP)common 101,000,000 10,100,000 (19,063,857) 9,699,895
Elimination of PPP common stock -- -- -- --
Issuance of stock for services 110,000 11 1,226,667 123
Issuance of stock for investment -- -- -- --
Preferred stock converted to common (4,840,000) (484) -- --
Cancellation of preferred stock (420,000) (42) -- --
Issuance of common stock for
retirement of debt -- -- -- --
Net loss for the period -- -- -- --
------------ ------------ ------------ ------------
BALANCES, May 31, 1998 380,000 38 1,226,667 123
Issuance of stock for services
(unaudited) 500,000 50 -- --
Forgiveness of debt (unaudited) -- -- -- --
Stock issued for debt (unaudited) -- -- -- --
Adjustment in stock issuance on
PPP stock exchange (unaudited) -- -- -- --
Spin off of subsidiaries (unaudited) -- -- -- --
Net loss for the period (unaudited) -- -- -- --
------------ ------------ ------------ ------------
BALANCES, February 28, 1999 (unaudited) 880,000 $ 88 1,226,667 $ 123
============ ============ ============ ============
<CAPTION>
Common Stock Additional Total
---------------------------- Paid-in Accumulated Stockholders;
Shares Amount Capital Deficit Deficit
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCES, Beginning -- $ -- $ -- $ -- $ --
Common stock for cash, September, 1996 2,000,000 40,000 -- -- 40,000
Additional cash contributions -- -- 451,976 -- 451,976
Net loss for period -- -- -- (1,083,087) (1,083,087)
------------ ------------ ------------ ------------ ------------
BALANCES, September 30, 1997 2,000,000 40,000 451,976 (1,083,087) (591,111)
Reverse purchase acquisition:
Capital of acquired company 24,446,414 2,444,641 6,518,663 (9,699,895) (736,038)
Common stock exchanged for Plastic
Pallet Production, Inc. (PPP)common 736,038
Elimination of PPP common stock (2,000,000) (40,000) 40,000 -- --
Issuance of stock for services 2,395,000 239,500 -- -- 239,634
Issuance of stock for investment 15,000,000 1,500,000 -- -- 1,500,000
Preferred stock converted to common 4,840,000 484,000 (483,516) -- --
Cancellation of preferred stock -- -- 42 -- --
Issuance of common stock for
retirement of debt 1,028,907 102,891 68,548 -- 171,439
Net loss for the period -- -- -- (3,431,007) (3,431,007)
------------ ------------ ------------ ------------ ------------
BALANCES, May 31, 1998 148,710,321 14,871,032 (12,468,144) (4,514,094) (2,111,045)
Issuance of stock for services
(unaudited) 3,100,000 310,000 -- -- 310,050
Forgiveness of debt (unaudited) -- -- 1,775,491 -- 1,775,491
Stock issued for debt (unaudited) 1,000,000 100,000 83,993 183,993
Adjustment in stock issuance on
PPP stock exchange (unaudited) 18,145,725 1,814,573 (1,814,573) -- --
Spin off of subsidiaries (unaudited) -- -- 14,476 -- 14,476
Net loss for the period (unaudited) -- -- -- (1,167,379) (1,167,379)
------------ ------------ ------------ ------------ ------------
BALANCES, February 28, 1999 (unaudited) 170,956,046 $ 17,095,605 $(12,408,757) $ (5,681,473) $ (994,414)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
-4-
<PAGE> 40
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From Inception
Nine Months Year (November 20, 1995)
Ended Ended Through
February 28, May 31, May 31,
1999 1998 1998
------------ ----------- -----------
(unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss, continuing operations $(1,195,666) $(3,454,825) $(4,537,912)
Adjustments to reconcile net loss to
cash used by operating activities:
Depreciation and amortization 115,555 158,701 240,909
Consulting services paid by
issuance of common stock 310,000 239,634 239,634
Impairment of investment -- 1,806,231 1,806,231
Loss of disposition of property 76,155 -- --
Changes in inventory 14,999 20,381 (33,687)
Changes in other assets (7,911) (21,286) (84,411)
Changes in payable to related party (114,197) 621,917 2,073,778
Changes in accounts payable
and accrued expenses (133,143) 617,450 896,888
----------- ----------- -----------
Net cash provided (used) by
continuing operations (934,208) (11,797) 601,431
Net cash provided by
discontinued operations 42,767 33,256 33,256
----------- ----------- -----------
Net cash provided (used) by
operating activities (891,441) 21,459 634,687
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (108,555) (87,350) (3,087,537)
Proceeds from sale of equipment 74,995
Net change in discontinued assets 352,933 (352,933) (352,933)
----------- ----------- -----------
Net cash provided (used) by
investing activities 319,373 (440,283) (3,440,470)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable 38,068 418,824 963,807
Proceeds from mortgage payable -
related party -- -- 1,350,000
Increase in customer deposits 534,000 -- --
Proceeds from issuance of common stock -- -- 491,976
----------- ----------- -----------
Net cash provided (used) by
financing activities 572,068 418,824 2,805,783
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH -- -- --
CASH, beginning of period -- -- --
----------- ----------- -----------
CASH, end of period $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
-5-
<PAGE> 41
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PalWeb Corporation (Company), formerly Cabec Energy Corporation, was
incorporated November 13, 1981. In December 1997, the Company was acquired
in a reverse acquisition by the stockholders of Plastic Pallet Production,
Inc. (Pallet). As part of the transaction, it was agreed that the assets
and liabilities of the Company prior to the transaction would be
distributed into a new company to be owned by the stockholders of the
Company prior to the reverse acquisition.
Effective with the reverse acquisition, the Company and its wholly owned
subsidiary Pallet will pursue the manufacture and marketing of plastic
pallets and the related equipment to produce plastic pallets.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Statement of Cash Flows
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
materially from those estimates.
Inventory
Inventory consists of finished pallets and is stated at the lower of cost
(first-in, first-out) or market value.
-6-
<PAGE> 42
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment
The Company's property, plant and equipment is stated at cost. Depreciation
expense is computed on the straight-line method over the estimated useful
lives, which range from three to twenty years. Gains and losses from
retirements and dispositions of fixed assets are recorded in the period
incurred.
Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets in accordance with
SFAS 121, "According for Impairment of Long- Lived Assets". SFAS 121
requires that in the event that facts and circumstances indicate that the
cost 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 market value or
discounted cash flow value is required.
Patents
Amortization expense for the costs incurred by the Company to obtain the
patents on the modular pallet system and accessories is computed on the
straight-line method over the estimated life of 17 years.
Income Taxes
The Company accounts for income taxes under the liability method, which
requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based in the difference between the
financial statements and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
Research and Development Costs
Research and Development costs are charged to operations in the period
incurred.
-7-
<PAGE> 43
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss Per Share
Loss per share is computed based on weighted average number of shares
outstanding. Convertible preferred stock and stock options are not
considered as their effect is antidilutive.
Impact of Recently-Issued Accounting Standards
Recently-issued pronouncements include Statement of Financial Accounting
Standards 128, "Earnings per Share" and Statement of Financial Accounting
Standards 129 "Disclosure of Information About an Entity's Capital
Structure". Statement 128 provides a different method of calculating
earnings per share than is currently used in accordance with Accounting
Principles Board Opinion 15 "Earnings Per Share". Statement 128 provides
for the calculation of "basic" and "diluted" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share. Statements 128 and 129
are effective for financial statements issued for periods ending after
December 15, 1997. Their implementation does not have a material effect on
the Company's consolidated financial statements.
Statement of Financial Accounting Standards 130, "Reporting Comprehensive
Income" establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
Statement 130 requires that all items that are required to be recognized
under current accounting standards as components of comprehensive income be
reported in a financial statement that is presented with the same
prominence as other financial statements. Statement 130 is effective for
financial statements for periods beginning after December 15, 1997 and
requires comparative information for earlier years to be restated. Because
of the recent issuance of this standard, management has been unable to
fully evaluate the impact, if any, the standard may have on future
financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of this standard.
-8-
<PAGE> 44
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CONTINUATION AS A GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in the development
stage and has suffered significant losses from operations. In addition, the
Company has received substantial funding from one investor to date and will
require additional substantial funding in order to implement its business
plan and have an opportunity to achieve profitable operations. Neither the
receipt of additional funding in adequate amounts nor the successful
implementation of its business plan can be assured. The combination of
these factors raise substantial doubt about the Company's ability to
continue as a going concern. It is management's opinion that the funding
required to reach necessary production levels will be obtained and, based
upon expressions of interest from potential customers, the Company will
obtain adequate sales to reach a profitable status, and will continue as a
going concern.
3. PROPERTY, PLANT AND EQUIPMENT
A summary of the property, plant and equipment as of February 28, 1999
(unaudited) and May 31, 1998 is as follows:
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
------------ -----------
(unaudited)
<S> <C> <C>
Land $ 278,000 $ 691,057
Plant building 1,166,127 1,166,127
Plant and building improvements 141,791 141,791
Production machinery and equipment 639,785 551,571
Office equipment 94,282 73,941
Furniture and fixtures 33,654 33,654
----------- -----------
2,353,639 2,658,141
Less accumulated depreciation (316,364) (203,191)
----------- -----------
$ 2,037,275 $ 2,454,950
=========== ===========
</TABLE>
Production machinery and equipment include work-in-progress of $399,359 and
$297,204, at February 28, 1999 (unaudited) and May 31, 1998, respectively.
The work-in-progress consists of injection molding machines and molds for
the manufacture of plastic pallets.
Depreciation expense for the periods was $115,555 (unaudited) and $117,251,
respectively.
-9-
<PAGE> 45
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. NOTES PAYABLE
A summary of the notes payable as of February 28, 1999 (unaudited) and May
31, 1998 are as follows:
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
Note payable to several organizations and
individuals, interest at 8.5%, principal
and accrued interest due at maturity of
December 1997, collateralized by land $ -- $339,077
Note payable to finance company, interest at
10%, principal and accrued interest due at
maturity of January 1998, collateralized
by certain production machinery and equipment -- 133,750
Note payable to individual, interest imputed
at 10%, principal and interest, due in
November 1998, collateralized by mortgages
on certain portions of the plant building
and land and a guarantee by a stockholder 480,980 490,980
-------- --------
480,980 963,807
Current portion 480,980 963,807
-------- --------
Long-term $ -- $ --
======== ========
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company's subsidiary Pallet has received substantial funding that has
come from an investor and his affiliated companies. As of February 28, 1999
(unaudited) and May 31, 1998, the Company had a mortgage payable to the
investor of $1,350,000 which bears interest at 12.35% and is due on demand;
however, no interest has been paid or accrued or paid on this note for the
year ended May 31, 1998 or the nine months ended February 28, 1999
(unaudited). This note is collateralized by a first mortgage on a portion
of the plant and land in Dallas, Texas. Additionally, this investor has
advanced operating funds of $1,411,352 as of May 31, 1998. These advances
are non-interest bearing. In connection with stock received from the
reverse acquisition, the investor agreed to convert these advances to
capital. During the period ended February 28, 1999 (unaudited), the
advances were accounted for as a contribution to additional paid in
capital.
-10-
<PAGE> 46
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. RENTAL INCOME
The Company leases a portion of its plant facilities in Dallas, Texas to
another manufacturing company under an operating lease which expires in May
2000. The lease requires monthly payments of $4,860.
The following is an analysis of the leased property under operating leases
by major class as of February 28, 1999 (unaudited) May 31, 1998
<TABLE>
<CAPTION>
Class of Property
-----------------
<S> <C>
Plant building $ 385,995
Plant land 92,574
---------
478,569
Less accumulated depreciation (17,569)
$ 461,000
=========
</TABLE>
The following is a schedule by year of future minimum rental payments to be
received under the operating lease as of May 31, 1998:
<TABLE>
<CAPTION>
Year Ending May 31,
------------------
<S> <C>
1999 $ 58,320
2000 58,320
---------
$ 116,640
=========
</TABLE>
7. IMPAIRMENT OF INVESTMENT
In March 1998, the Company issued 15,000,000 of common stock for a 20%
investment in Vimonta AG which was valued at par value ($.10 per share) of
the Company's common stock. The transaction was principally to assist the
Company in marketing its products in Europe. Since Vimonta AG is primarily
a marketing company with few assets and the Company's products continue to
be in the development stage, the Company has recorded a charge to income in
the amount or $1,495,000.
In addition, the Company recorded an impairment loss in the amount of
$311,231 on certain plant equipment to recognize the net realizable value
of equipment held for resale and to charge off certain molds for plastic
products that have no future value.
-11-
<PAGE> 47
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. FEDERAL INCOME TAXES
The Company has a net operating loss (NOL) for Federal income tax purposes
as of May 31, 1998 of approximately $4,500,000 which will expire, if
unused, in 2000 through 2013. The Company has a deferred tax asset of
approximately $1,530,000 as a result of the NOL. The deferred tax asset is
fully reserved at February 28, 1999 (unaudited) and May 31, 1998. The
company has no material deferred tax liabilities.
9. ACQUISITION
Effective December 12, 1997, the Company issued 101,000,000 shares of
common stock to the shareholder of Plastic Pallet Production, Inc., in a
reverse acquisition. The transaction is treated as a purchase. The assets
of the Company prior to the acquisition were distributed in December 1998,
to the shareholders of record prior to the issuance of shares in connection
with the acquisition (see Note 12 for summary of assets acquired by Plastic
Pallet Production which are accounted for as a discontinued operation). In
July 1998, an additional 18,145,725 shares of common stock of the Company
were issued to the shareholder of Plastic Pallet Production, Inc.
10. STOCKHOLDERS' EQUITY
The Company issued 1,000,000 shares (unaudited) and 1,028,907 shares of
common stock to retire certain liabilities totalling $183,993 and $171,439
during the periods ended February 28, 1999 and May 31, 1998, respectively.
The Company also issued shares of common stock and preferred during the
periods ended February 28, 1999 (unaudited) and May 31, 1998 for services.
These shares were valued at par value of $.10.
Preferred stock converted into common stock during the period ended May 31,
1998 totalled 4,840,000.
Preferred stock is convertible into common stock at a ratio of one to one.
The preferred stock, Series B, is convertible into common stock at ten
shares of common for one share of preferred, series B.
-12-
<PAGE> 48
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCKHOLDERS' EQUITY (CONTINUED)
The Company has granted options to purchase common stock and at May 31,
1998, the following are outstanding:
<TABLE>
<CAPTION>
Number of shares Per Share Expiration Date
---------------- --------- ---------------
<S> <C> <C>
120,000 $.10 July 31, 2003
160,000 .10 July 31, 2004
200,000 .10 July 31, 2005
240,000 .10 July 31, 2006
600,000 .50 None
1,000,000 .10 August 31, 2002
</TABLE>
11. FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of accounts
payable, accrued liabilities and notes and mortgages payable. Management
estimates the market value of the notes and mortgage payable based on
expected cash flows and believes these market values approximate carrying
values at February 28, 1999 (unaudited) and May 31,1998.
12. SUPPLEMENTAL INFORMATION OF CASH FLOWS
Non-cash investing and financing activities are as follows:
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
Common stock issuances in exchange for:
Consulting services $ 310,000 $ 239,634
Retirement of liabilities 1,959,484 171,439
Investment in securities -- 1,500,000
Conversion of preferred stock -- 484,000
Outstanding shares of Plastic Pallet
Production, Inc. in reverse acquisition 1,814,573 12,504,641
Retirement of mortgage debt in exchange
for mortgaged property 336,902 --
Interest paid:
Continuing operations -- --
Discontinued operations -- --
</TABLE>
-13-
<PAGE> 49
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. DISCONTINUED OPERATIONS
As part of the reverse acquisition with Pallet, it was agreed that the
assets and liabilities of the Company prior to the transaction would be
distributed into a new company to be owned by the stockholders of the
Company prior to the reverse acquisition. Those net assets consisted
principally of Wyoming Pipe & Tool Corp., Fleur-David Corporation and a 15%
interest in the outstanding common stock of Cooper Manufacturing. The
disposal of these entities has been accounted for as a discontinued
operation and, accordingly, the net assets (liabilities) have been
segregated from continuing operations in the accompanying consolidated
balance sheets, and its operating results are segregated and reported as
discontinued operations in the accompanying consolidated statements of
operations and cash flows.
Information relating to the discontinued operations for the periods ended
February 28, 1999 (unaudited) and May 31, 1998 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
February 28, May 31,
1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
Net sales $ 423,212 $ 857,148
Cost of sales (266,029) (164,242)
--------- ---------
Gross Profit 157,183 692,906
Operating costs (192,869) (642,037)
Nonoperating costs (income) 63,973 (27,051)
--------- ---------
Income before taxes 28,287 23,818
Provision for income taxes -- --
--------- ---------
Net income $ 28,287 $ 23,818
========= =========
</TABLE>
-14-
<PAGE> 50
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net assets and liabilities of the discontinued operations included in
the accompanying consolidated balance sheets as of May 31, 1998 are as
follows:
<TABLE>
<CAPTION>
May 31,
1998
---------
<S> <C>
Accounts receivable $ 147,869
Prepaid expenses 4,433
Property, plant and equipment, net 480,717
Goodwill 736,038
Deposits and other assets 100,500
Accounts payable and accrued expenses (233,013)
Notes payable (883,611)
---------
Net assets $ 352,933
=========
</TABLE>
14. SUBSEQUENT EVENTS
The following events occurred subsequent to May 31, 1998 not otherwise
disclosed herein with respect to the unaudited consolidated financial
statements as of February 28, 1999:
In April 1999, a related party acquired the Company's plant in Dallas,
Texas based on an appraisal and the buyer assumed the mortgage payable
- related party in the amount of $1,350,000. The Company executed a
one year lease at $12,235 per month to occupy the facility. The
Company also has a three year option to purchase the property for
$2,700,000.
In April 1999, the Company retired a note payable in the amount of
$490,980 at February 28, 1999 (unaudited) and May 31, 1998 through the
exchange of certain land located in Dallas, Texas with a cost of
$278,000.
In March 1999, the Company issued 25,000 shares of common stock for
consulting services.
In April 1999, the Company issued 41,000,000 shares of common stock
for $534,000 and consulting services.
The Company issued 7,000,000 shares of common stock in May 1999 to a
shareholder as a settlement in the stock exchange with Plastic Pallet
Production, Inc.
-15-
<PAGE> 51
EXHIBITS
1. Certificate of Incorporation and Amendments
2. Bylaws
<PAGE> 1
EXHIBIT 2
BYLAWS
OF
PALWEB CORPORATION
ARTICLE I
OFFICES
Section 1. The principal office shall be located at 1607 West Commerce
Street, Dallas, Dallas County, State of Texas.
Section 2. The corporation may also have offices at such other places
within or without the State of Texas as the Board of Directors may from time to
time determine, or as the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of the stockholders shall be held at such place
within or without the State of Texas as shall be specified in the notice of the
meeting or in a waiver thereof.
Section 2. An annual meeting of the stockholders shall be held on the
second Saturday of each year, unless such day is a legal holiday, in which case
such meeting shall be held at the specified time on the first business day
thereafter which is not a legal holiday. At such meeting the stockholders
entitled to vote thereat shall elect by a majority vote a Board of Directors,
and may transact such other business as may properly be brought before the
meeting.
Section 3. Special meetings of the stockholders may be called: (1) by
the Chairman of the Board of Directors, the President, or the Board of
Directors; or (2) by the holders of at least ten percent (10%) of the shares
entitled to vote at the proposed special meeting, unless the Certificate of
Incorporation provide for a number of shares greater than or less than ten
percent (10%), in which event special meetings of the stockholders may be
called by the holders of at least the percentage of shares so specified in the
Certificate of Incorporation. The record date for determining stockholders
entitled to call a special meeting is the date the first stockholder signs the
notice of that meeting.
Section 4. Written or printed notice stating the place, day, and hour
of the meeting and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than ten (10) nor
more than sixty (60) days before the date of the meeting, either personally or
by mail, by or at the direction of the President, the Secretary, or the officer
or person calling the meeting, to each stockholder at his address as it
appeared on the stock transfer books of the corporation with postage thereon
prepaid.
<PAGE> 2
Section 5. Any notice required to be given to any stockholder, under
any provision of the General Corporation Laws of the State of Delaware, the
Certificate of Incorporation, or these Bylaws, need not be given to the
stockholder if (1) notice of two consecutive annual meetings and all notices of
meetings held during the period between those annual meetings, if any, or (2)
all (but in no event less than two) payments (if sent by first class mail) of
distributions or interest on securities during a 12-month period have been
mailed to that person, addressed at his address as shown on the records of the
corporation, and have been returned undeliverable. Any action or meeting taken
or held without notice to such a person shall have the same force and effect as
if the notice had been duly given and, if the action taken by the corporation
is reflected in any Certificate or document filed with the Secretary of State,
those Certificate or that document may state that notice was duly given to all
persons to whom notice was required to be given. If such a person delivers to
the corporation a written notice setting forth his then current address, the
requirement that notice be given to that person shall be reinstated.
Section 6. Only business within the purpose or purposes described in
the notice of any special meeting of stockholders may be conducted at such
special meeting.
Section 7. The holders of a majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at meetings of
stockholders except as otherwise provided in the Certificate of Incorporation.
If, however, a quorum shall not be present or represented at any meeting of the
stockholders, the stockholders present in person, or represented by proxy,
shall have power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which may have been transacted at
the meeting as originally notified.
Section 8. The vote of the holders of a majority of the shares
entitled to vote and represented at a meeting at which a quorum is present
shall be the act of the stockholders' meeting, unless the vote of a greater
number is required by law or by the Certificate of Incorporation.
Section 9. A stockholder may vote either in person or by proxy
executed in writing by the stockholder or by his duly authorized
attorney-in-fact. No proxy shall be valid after eleven (11) months from the
date of its execution, unless otherwise provided in the proxy. Each proxy shall
be revocable unless the proxy form conspicuously states that the proxy is
irrevocable and the proxy is coupled with an interest.
Section 10. The officer or agent having charge of the stock transfer
books shall make, at least ten (10) days before each meeting of stockholders, a
complete list of the stockholders entitled to vote at such meeting or any
adjournment thereof, arranged in alphabetical order, with the address and the
number of shares held by each, which list, for a period of ten (10) days prior
to such meeting, shall be kept on file at the registered office of the
corporation, and shall be subject to inspection by any stockholder at any time
during usual business hours. Such list shall also be produced and kept open at
the time and place of the meeting, and shall be subject to the inspection of
any stockholder during the whole time of the meeting. The original stock
transfer book shall be prima facie evidence as to who are the stockholders
entitled to examine such list or transfer books or to vote at any such meeting
of stockholders.
Section 11. Any action required by law to be taken at a meeting of the
stockholders, or
2
<PAGE> 3
any action which may be taken at a meeting of the stockholders, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the stockholders entitled to vote with respect to the
subject matter thereof.
ARTICLE III
DIRECTORS
Section 1. (a) The number of directors of the corporation shall be not
less than one (1) nor more than nine (9). The directors shall be elected at the
annual meeting of stockholders, except as provided in Sections 2, 3, 4, or 5 of
this Article III, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be residents of the
States of Texas or Delaware or stockholders of the corporation.
(b) Any director may be removed with cause by the affirmative
vote of the holders of a majority of the shares represented at any
stockholders' meeting at which a quorum is present; provided, that the proposed
removal is stated in the notice of the meeting.
(c) This Section 1 may not be amended in absence of a
unanimous vote of the Board of Directors.
Section 2. Any vacancy occurring in the Board of Directors shall be
filled in accordance with Section 5 of this Article III or may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office.
Section 3. A directorship to be filled by reason of an increase in the
number of directors may be filled in accordance with Section 5 of this Article
III or may be filled by the Board of Directors for a term of office continuing
only until the next election of one (1) or more directors by the stockholders;
provided, that the Board of Directors may not fill more than two (2) such
directorships during the period between any two (2) successive annual meetings
of the stockholders.
Section 4. Notwithstanding Sections 2 and 3 above, whenever the
holders of any class or series of shares are entitled to elect one or more
directors by the provisions of the Certificate of Incorporation, any vacancies
in such directorships and any newly created directorships of such class or
series to be filled by reason of an increase in the number of such directors
shall be filled in accordance with the provisions of the General Corporation
Laws of the State of Delaware.
Section 5. Any vacancy occurring in the Board of Directors or any
directorship to be filled by reason of an increase in the number of directors
may be filled by election at an annual or special meeting of stockholders
called for that purpose.
Section 6. The business and affairs of the corporation shall be
managed by its Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by law or by the
Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
3
<PAGE> 4
Section 7. Meetings of the Board of Directors, regular or special, may
be held either within or without the State of Delaware.
Section 8. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, providing a quorum shall be present. In the event of the failure of
the stockholders to fix the time and place of such a first meeting of the newly
elected Board of Directors, or in the event such meeting is not held at the
time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 9. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 10. Special meetings of the Board of Directors may be called
by the Chairman of the Board of Directors or the President, and shall be called
by the Secretary on the written request of two directors. Written notice of
special meetings of the Board of Directors shall be given to each director at
least three (3) days before the date of the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
Section 11. A majority of the directors shall constitute a quorum for
the transaction of business, and the act of the majority of the directors
present at the meeting at which a quorum is present shall be the act of the
Board of Directors, unless a greater number is required by the Certificate of
Incorporation or elsewhere in these Bylaws. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
Section 12. The Board of Directors, by resolution adopted by a
majority of the whole Board, may designate one or more directors to constitute
an executive committee and one or more other committees, each of which, to the
extent provided in such resolution, shall have and may exercise all of the
authority of the Board of Directors in the business and affairs of the
corporation except as otherwise provided by law. Vacancies in the membership of
any such committee shall be filled by the Board of Directors at a regular or
special meeting of the Board of Directors. The committees shall keep regular
minutes of their proceedings and report the same to the Board when required.
The designation of such committee and the delegation thereto of authority shall
not operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon it or him by law.
Section 13. Any action required or permitted to be taken at a meeting
of the Board of Directors or any committee may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all the
members of the Board of Directors or committee, as the case may be.
4
<PAGE> 5
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing,
shall specify the time and place of the meeting, and shall be delivered
personally or mailed to the directors or stockholders at their addresses
appearing on the books of the corporation. Notice by mail shall be deemed to be
given at the time when same shall be mailed. Notice to directors may also be
given by telegram.
Section 2. Whenever any notice is required to be given to any
stockholder or director under the provisions of any laws or of the Certificate
of Incorporation or these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be equivalent to the giving of such notice.
Section 3. Attendance of a director at a meeting shall constitute a
waiver of notice of such a meeting, except where a director attends a meeting
for the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall consist of a
President and a Secretary, and may include one or more Vice Presidents, a
Treasurer, and a Chairman of the Board, each of whom shall be elected by the
Board of Directors. Any two or more offices may be held by the same person.
Section 2. The Board of Directors, at its first meeting after each
annual meeting of stockholders, shall choose a President and a Secretary and
may choose one or more Vice Presidents and a Treasurer, none of whom need be a
member of the Board, and may appoint one of their number Chairman of the Board.
Section 3. Such other officers and assistant officers and agents as
may be deemed necessary may be elected or appointed by the Board of Directors.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer or agent or member of the
executive committee elected or appointed by the Board of Directors may be
removed by the Board of Directors whenever in its judgement the best interests
of the corporation will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Any vacancy
occurring in any office of the corporation by death, resignation, removal, or
otherwise shall be filled by the Board of Directors.
Chairman of the Board and President
Section 6. The Board of Directors may designate whether the Chairman
of the
5
<PAGE> 6
Board, if such an officer shall have been appointed, or the President, shall be
the chief executive officer of the corporation. In the absence of a contrary
designation, the President shall be the chief executive officer. The chief
executive officer shall preside at all meetings of the stockholders and the
Board of Directors, and shall have such other powers and duties as usually
pertain to such office or as may be delegated by the Board of Directors. The
President shall have such powers and duties as usually pertain to such office,
except as the same may be modified by the Board of Directors. If the Board of
Directors shall not have appointed a Treasurer, then all the duties and powers
set forth in Sections 11 through 14 of this Article V to be performed or
exercised by such an officer shall be performed or exercised by the President.
Unless the Board of Directors shall otherwise delegate such duties, the
President shall have general and active management of the business of the
corporation, and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 7. The President shall execute bonds, mortgages, and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed, and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
Vice President
Section 8. The Vice Presidents, if any such officers shall have been
appointed, in the order of their seniority, unless otherwise determined by the
Board of Directors, shall, in the absence or disability of the President,
perform the duties and exercise the powers of the President. They shall perform
such other duties and have such other powers as the Board of Directors shall
prescribe.
Secretary
Section 9. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders, and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to
be kept for that purpose. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or the President, under whose supervision he shall be. He shall keep
in safe custody the seal of the corporation, and, when authorized by the Board
of Directors, affix the same to any instrument requiring it, and, when so
affixed, it shall be attested by his signature or the signature of the
Treasurer, an Assistant Secretary, or an Assistant Treasurer.
Section 10. The Assistant Secretaries, if any such officers shall have
been appointed, in the order of their seniority, unless otherwise determined by
the Board of Directors, shall, in the absence or disability or the Secretary,
perform the duties and exercise the power of the Secretary. They shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
Treasurer
Section 11. The Treasurer, if such an officer shall have been
appointed, shall have the custody of the corporate funds and securities, and
shall keep full and accurate accounts of receipts
6
<PAGE> 7
and disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the Board of
Directors.
Section 12. The Treasurer shall disburse the funds of the corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer, and of the financial condition of the
corporation.
Section 13. If required by the Board of Directors, the Treasurer shall
give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in his possession
or under his control belonging to the corporation.
Section 14. The Assistant Treasurers, if any such officers shall have
been appointed, in the order of their seniority, unless otherwise determined by
the Board of Directors, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer. They shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
ARTICLE VI
CERTIFICATE FOR SHARES
Section 1. The corporation shall deliver certificates representing all
shares to which stockholders are entitled; and such certificates shall be
signed by the President or the President and a Vice President, the Secretary,
or an Assistant Secretary of the corporation, and may be sealed with the seal
of the corporation or a facsimile thereof. No certificate shall be issued for
any share until the consideration therefor has been fully paid. Each
certificate representing shares shall state upon the face thereof that the
corporation is organized under the laws of the State of Delaware, the name of
the person to whom issued, the number and class and the designation of the
series, if any, which such certificate represents, and the par value of each
share represented by such certificate or a statement that shares are without
par value.
Section 2. The signature of the President or the President and a Vice
President, the Secretary, or an Assistant Secretary, as the case may be, upon a
certificate may be facsimiles. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of the
issuance.
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of the fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his
7
<PAGE> 8
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed.
Section 4. Upon surrender to the corporation, or the transfer agent of
the corporation, of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment, or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate, and record the transaction upon
its books.
Section 5. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive a distribution by the corporation (other than a
distribution involving a purchase or redemption by the corporation of any of
its own shares) or a share dividend, or in order to make a determination of
stockholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, sixty (60) days. If the stock transfer books shall be
closed for the purpose of determining stockholders entitled to notice of or to
vote at a meeting of stockholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting. In lieu of closing the stock
transfer books, the Board of Directors may fix in advance a date as the record
date for any such determination of stockholders, such date in any case to be
not more than sixty (60) days, and, in the case of a meeting of stockholders,
not less than ten (10) days, prior to the date on which the particular action
requiring such determination of stockholders is to be taken. If the stock
transfer books are not closed and no record date is fixed for the determination
of stockholders entitled to notice of or to vote at a meeting of stockholders,
or stockholders entitled to receive a distribution (other than a distribution
involving a purchase or redemption by the corporation of any of its own shares)
or a share dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such
distribution or share dividend is adopted, as the case may be, shall be the
record date for such determination of stockholders. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this Section, such determination shall apply to any adjournment
thereof, except where the determination has been made through the closing of
stock transfer books and the stated period of closing has expired.
Section 6. Distributions of cash or property (tangible or intangible)
made or payable by the corporation, whether in liquidation or from earnings,
profits, assets, or capital, including all distributions that were payable but
not paid to the registered owner of the shares, his heirs, successors, or
assigns but that are now being held in suspense by the corporation or that were
paid or delivered by it into an escrow account or to a trustee or custodian,
shall be payable by the corporation, escrow agent, trustee, or custodian to the
person registered as owner of the shares in the corporation's stock transfer
books as of the record date determined for that distribution as provided in
Section 5 of this Article VI, his heirs, successors, or assigns. The person in
whose name the shares are or were registered in the stock transfer books of the
corporation as of the record date shall be deemed to be the owner of the shares
registered in his name at that time. Neither the corporation nor any of its
officers, directors, or agents shall be under any liability for making such a
distribution to a person in whose name shares were registered in the stock
transfer books as of the record date or to the heirs, successors, or assigns of
the person, even though the person, or his heirs, successors, or assigns, may
not possess a certificate for shares.
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Section 7. The corporation shall be entitled to recognize the
exclusive rights of a person registered on its books as the owner of shares to
receive distributions or share dividends, and to vote as such owner, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
the State of Delaware or these Bylaws.
Section 8. When shares are registered on the books of the corporation
in the names of two or more persons as joint owners with the right of
survivorship, after the death of a joint owner and before the time that the
corporation receives actual written notice that parties other than the
surviving joint owner or owners claim an interest in the shares or any
distributions thereon, the corporation may record on its books and otherwise
effect the transfer of those shares to any person, firm, or corporation
(including that surviving joint owner individually) and pay any distributions
made in respect of those shares, in each case as if the surviving joint owner
or owners were the absolute owner(s) of the shares. The corporation by
permitting such a transfer by and making any distribution to such a surviving
joint owner or owners before the receipt of written notice from other parties
claiming an interest in those shares or distributions is discharged from all
liability for the transfer or payment so made; provided, however, that the
discharge of the corporation from liability and the transfer of full legal and
equitable title of the shares in no way affects, reduces, or limits any cause
of action existing in favor of any owner of an interest in those shares or
distributions against the surviving owner or owners.
ARTICLE VII
GENERAL PROVISIONS
Section 1. The Board of Directors may authorize and the corporation
may (1) make distributions or (2) pay share dividends, subject to any
restrictions in its Certificate of Incorporation and to the limitations set
forth in the General Corporation Laws of the State of Delaware.
Section 2. The Board of Directors may by resolution create a reserve
or reserves out of its surplus or designate or allocate any part or all of
surplus in any manner for any proper purpose or purposes, and may increase,
decrease, or abolish any such reserve, designation, or allocation in the same
manner.
Section 3. The Board of Directors must, when requested by the holders
of at least twenty five percent (25%) of the outstanding shares of the
corporation, present written reports of the situation and amount of business of
the corporation.
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
Section 6. The corporate seal shall have inscribed thereon the name of
the corporation
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and may be in such form as the Board of Directors may determine, and may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
ARTICLE VIII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The corporation shall indemnify directors, officers, employees, and
agents of the corporation to the extent required by the General Corporation
Laws of the State of Delaware and shall indemnify such individuals to the
extent permitted by the General Corporation Laws of the State of Delaware. The
corporation may purchase and maintain liability insurance, or make other
arrangements for such obligations or otherwise, to the extent permitted by the
General Corporation Laws of the State of Delaware.
ARTICLE IX
AMENDMENTS
The Board of Directors may amend or Repeal the Bylaws of the
corporation or adopt new Bylaws, unless: (1) the Certificate of Incorporation
or the General Corporation Laws of the State of Delaware reserves the power
exclusively to the stockholders in whole or in part; or (2) the stockholders in
amending, repealing, or adopting a particular bylaw expressly provide that the
Board of Directors may not amend or repeal that bylaw. Unless the Certificate
of Incorporation or a bylaw adopted by the stockholders provides otherwise as
to all or some portion of the Bylaws, the stockholders may amend, repeal, or
adopt the Bylaws even though the Bylaws may also be amended, repealed, or
adopted by the Board of Directors.
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