<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
SECOND AMENDED 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 75-1984048
- ---------------------------------------- ------------------------------------
(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)
<PAGE> 2
PALWEB CORPORATION
SECOND AMENDED FORM 10-SB
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 1. Description of Business ............................................3
Item 2. Management's Discussion and Analysis or Plan of Operation ..........6
Item 3. Description of Property ...........................................11
Item 4. Security Ownership of Certain Beneficial Owners and Management ....12
Item 5. Directors, Executive Officers, Promoters and Control Persons ......14
Item 6. Executive Compensation .............................................16
Item 7. Certain Relationships and Related Transactions .....................16
Item 8. Legal Proceedings ..................................................16
Item 9. Market for Common Equity and Related Stockholder Matters ...........17
Item 10. Recent Sales of Unregistered Securities ............................17
Item 11. Description of Securities ..........................................19
Item 12. Indemnification of Directors and Officers ..........................20
Item 13. Financial Statements ...............................................20
Item 14. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure .....................................20
Item 15. Financial Statements and Exhibits ..................................20
Exhibit Table ...................................................41
</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. PalWeb Corporation'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, PalWeb Corporation, hereinafter
referred to as "PalWeb," 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 a November 1997 contract for a
reverse acquisition approved by the PalWeb Stockholders on December 12, 1997,
PalWeb 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
PalWeb, then known as Cabec Energy Corp. Immediately subsequent to the
finalization of the reverse acquisition contract, all of the assets, contract
rights, and liabilities of PalWeb that relate in any way to the oil and gas and
service business were transferred to The Union Group, Inc., a subsidiary of
PalWeb. Shortly thereafter, PalWeb distributed all of the issued and outstanding
stock of The Union Group, Inc. to its stockholders (other than the former
shareholders of Plastic Pallet Production, Inc.) on a pro rata basis.
Following the acquisition of all of the issued and outstanding stock of
Plastic Pallet Production, Inc., PalWeb's primary business is (i) manufacturing
and selling plastic pallets, and (ii) the custom design, manufacture, and sale
of large plastic injection molding machines and systems. PalWeb is currently a
development stage company.
PalWeb's principal subsidiary, Plastic Pallet Production, Inc.,
hereinafter referred to as "PPP", is the entity through which PalWeb conducts
its business of selling plastic pallets and plastic injection molding machines.
PPP holds several patents for the original design of various types of plastic
pallets, and currently has a patent pending for the original design of material
handling plastic pallet. 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.
PPP has a patent pending on a 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. However, it must be noted that there is no assurance
that PalWeb will be able to sell any of the newly designed plastic injection
molding machines.
Page -3-
<PAGE> 4
PPP is currently producing pallets at the rate of 500 pallets per
month. It is anticipated that production will increase to approximately 4,000
pallets per month as of March 2000. 4,000 pallets per month is the maximum
capacity of PPP's research/prototype plastic injection molding system that it is
currently using for the manufacture of pallets. When approximately $3,500,000 in
funding is obtained, PPP will be able to fabricate and operate four of its
patent pending style of plastic injection molding machines. It is anticipated
that four new plastic injection molding machines will increase production
capacity to approximately 50,000 pallets per month. The fabrication of these new
plastic injection molding machines should take approximately six months to
complete following receipt of funding. If $7,000,000 of funding is obtained, PPP
plans to fabricate eight plastic injection molding machines. At that point its
production capacity should be approximately 100,000 pallets per month.
PPP's patents on its plastic pallet designs and its plastic injection
molding machines, along with appropriate pricing of its products, should give it
a competitive sales advantage with respect to its competition.
The principal raw material used in manufacturing plastic pallets is
high density polyethylene plastic, which is in abundant supply, and some of this
material may be obtained from recycled soft drink bottles. The other raw
material used in manufacturing PPP's plastic pallets is glass fibers. The high
density polyethylene plastic and the glass fibers needed are plentiful and
widely available and are purchased from plastic manufacturers and recyclers. At
the present time, these materials are being purchased from Atlan Plastic
Company, Dallas, Texas.
In the past two years, approximately $2,000,000 has been spent on the
development of PalWeb's business by designing plastic pallets, and building
prototypes of the plastic injection molding machines that will be manufactured
by PalWeb for its own use in manufacturing plastic pallets and for resale to
industrial users of plastic injection molding systems.
PPP leases its employees from Accord Human Resources, Inc., an
independent employee leasing company, including PalWeb's President, Ronald G.
Hale, who is also the President of PPP. PalWeb, through PPP, leases its
employees from Accord Human Resources, Inc. because at a low number of employees
it is more cost effective than having its own employees due to the costs of
maintaining the accounting staff necessary and providing the benefits currently
available to the employees through Accord Human Resources, Inc. PalWeb's
management has determined that leasing the present number of employees saves
approximately $1,500.00 per month. The cost of leasing the employees from Accord
Human Resources, Inc., over and above the actual cost of payroll, is
approximately 2.0% of payroll, which is approximately $500.00 per month, while a
full-time human resource employee would cost approximately $2,000.00 per month.
After Management made this determination, PalWeb's former President negotiated
the Employee Lease Agreement with Accord Human Resources, Inc. and executed this
Agreement on behalf of PPP.
PPP plans to distribute its pallets its plastic injection molding
systems through a combination of (a) a network of independent contractor
distributors, and (b) sales by company officers.
Page -4-
<PAGE> 5
PPP currently holds the following patents:
1. Interlocking Modular Pallet Application and Method of
Construction
Application No. 08/779,372
Filing Date: November 26, 1996
U.S. Patent No. 5,860,369 issued on January 19, 1999
Expiration Date: January 18, 2016
2. Modular Pallet with Interlocking Apparatus
Application No. 08/795,856
Filing Date: February 6, 1997
U.S. Patent No. 5,887,529 issued on March 30, 1999
Expiration Date: March 29, 2016
3. Vertical Interlocking Modular Pallet Application and
Method of Construction
Application No. 08/796,571
Filing Date: February 6, 1997
U.S. Patent No. 5,889,905 issued on September 22, 1998
Expiration Date: September 21, 2015
PPP has patents pending on its current style materials handling pallet and its
plastic injection molding machine/system. Unless amended and extended, patents
that are approved are valid for 17 years from the date of issuance.
PPP's pallets and plastic injection molding machines have a broad
spectrum of possible applications. As a result, it is not foreseen that sales
will be dependent on one or a few major customers.
PalWeb has a total of six wholly owned subsidiaries, but the only one
that is active is PPP. The other subsidiaries currently are inactive and have no
employees. They were formed as part of the business planning process so they
would be in existence at the time that they become needed.
A list of PalWeb'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
Page -5-
<PAGE> 6
Item. 2. Management's Discussion and Analysis or Plan of Operation
Plan of Operations and Liquidity
PalWeb has recently transferred all of its energy services related
assets, contract rights, and liabilities to The Union Group, Inc., a Nevada
corporation that was formerly a wholly owned subsidiary of PalWeb. Shortly
following this transfer, all of the issued and outstanding stock of The Union
Group, Inc. was distributed to the stockholders of PalWeb (other than the former
shareholders of PPP) as a dividend. As a result, PalWeb is essentially in the
position of being a start-up business by and through its wholly owned
subsidiary, PPP. PPP is engaged in the design and development of a plastic
pallet that will compete with traditional wood pallets.
PalWeb's financial statements have been qualified on a going concern
basis principally due to lack of long term financing to achieve its goal of
production and marketing of plastic pallets to compete with wood pallets. Until
recently, the cash needed by PalWeb to fund its operations came from (a)
advances from entities affiliated with Paul A. Kruger ($659,600), and (b) funds
received by PPP as a down payment on the sale of a plastic injection molding
system to Pace Plastic Pallets, Inc., an Oklahoma corporation that has assigned
all of its property to Hidalgo Trading Co., L.C. Currently, PalWeb is obtaining
the cash required for its operations by means of loans from Paul A. Kruger. Mr.
Kruger is the Chairman of the Board of Directors of PalWeb and is the sole owner
of Hidalgo Trading Co., L.C. and PaceCo Financial Services, Inc. Effective
December 1, 1999, PalWeb obtained a $500,000 line of credit from an individual
for its operations.
The molds needed for PalWeb to manufacture plastic pallets have just
been completed. These molds will be modified slightly and PalWeb will then be
able to begin producing plastic pallets commercially. PalWeb also plans to
continue development of its plastic injection molding system and make any
improvements that are possible. Using its prototype plastic injection molding
system, the prototype equipment has a capacity of producing approximately 4,000
plastic pallets per month beginning March 2000.
The revenue that will be generated from the sale of plastic pallets,
along with the proceeds of PalWeb's recently obtained line of credit should
provide its cash operational needs for 12 months or more.
PalWeb is currently attempting to raise $7,000,000 of funds by means of
a private placement offering of Preferred Stock. Such Preferred Stock is being
offered for sale at $1.00 per share. Each share of Preferred Stock is
convertible into Common Stock on a to be determined basis.
Successful completion of the preferred stock offering described above
will provide the funding necessary to build eight plastic injection molding
systems for PalWeb's use in manufacturing plastic pallets. These new machine
systems will give PalWeb a production capacity of approximately 100,000 pallets
per month. The projected time for the construction, installation, and set-up of
the injection molding systems is six months from the date of funding.
Page -6-
<PAGE> 7
PalWeb has just applied for patents on its 40 inch by 48 inch rackable
plastic pallet and its plastic injection molding system and plans to apply for
additional patents on different plastic pallet styles in the next twelve months.
PalWeb's business is relatively clean and does not produce hazardous
waste. As a result, no expenditures will be necessary in order to comply with
applicable environmental laws.
It is anticipated that PalWeb will have three management 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.
According to Phil Araman of the U. S. Forest Service, as printed in the
National Wooden Pallet and Container Association publication, 400,000,000 new
wood pallets are purchased in the United States each year. At an overall average
selling price of $9/pallet, the pallet manufacturing and sales business is
approximately a $4,000,000,000 industry. It is estimated that the United States
wood pallet industry is served by approximately 3,600 companies, most of which
are small, privately held firms that operate in only one location. The industry
is generally comprised of companies that (a) manufacture new pallets or (b)
repair and recycle pallets. New pallet manufacturing generates about 60%-65% of
the industry's revenues. The U.S. Forest Service estimates that approximately
1,900,000,000 wood pallets are in circulation in the United States today, that
approximately 400,000,000 new wooden pallets are produced annually, and that
roughly 1,000,000,000 of the wood pallets currently in circulation were newly
manufactured. Approximately 175,000,000 wood pallets are recycled through a
process of retrieval, repair, remanufacturing, and secondary marketing,
approximately 225,000,000 are sent to landfills, and approximately 100,000,000
are burned, lost, abandoned, or leave the country.
The pallet industry has experienced significant change and growth
during the past several years. These changes are partly due to the focus of
large and small businesses on improving the logistical efficiency of their
manufacturing and distribution systems, including the use of just-in-time
procurement, manufacturing, and distribution systems. With the adoption of these
systems, expedited product movement has become increasingly important and the
demand has increased for a high-quality source of pallets distributed through an
efficient, more sophisticated system. The June 1996 issue of Modern Material
Handling states that product damage resulting from faulty wood pallets is
between $1,000,000,000 and $2,000,000,000 annually. This damage is caused by
pallets breaking under load, splinters and nails from the pallets, worker
injury, and other myriad causes. In addition, environmental concerns (plastic is
recyclable) and product sanitation concerns (plastic pallets can be sanitized,
wood pallets cannot) have created a strong potential demand for cost-effective
plastic pallets.
Pallets are used in virtually all United States industries in which
products are broadly distributed, including, but not limited to, the automotive,
chemical, consumer products, grocery, produce and food production, paper and
forest products, retailing, and steel and metals industries. Forklifts, pallet
trucks, and pallet jacks are used to move loaded pallets, reducing the need for
costly loading and unloading at distribution centers and warehouses.
Page -7-
<PAGE> 8
Pallets come in a wide range of shapes and sizes. However, the grocery
industry, which accounts for about one-third of the demand for new pallets, uses
a standard 40 inch by 48 inch pallet and this has become the standard in most
industries. Some industries, however, have developed specialized pallet sizes.
Block edge, rackable pallets are heavy duty pallets with 9 blocks
between the pallet decks, to allow true four-way entry by forklifts, pallet
trucks, and pallet jacks. Block edge, rackable pallets are often used to
transport goods from manufacturers to distribution centers.
Nestable pallets have "feet" on them so that they can be easily
stacked. Nestable pallets are often used to transport goods between distribution
centers and retail stores.
Until very recently, plastic pallets had not penetrated the market
significantly, due in part to their cost. Heavy duty plastic pallets cost
$46-$100, heavy duty wood pallets typically cost approximately $26, and less
sturdy wood pallets typically cost $8-$11. As stated in an article in the July
1996 issue of Material Handling Engineering, wood pallets have an estimated
useful life of 7-10 trips before repair or recycling is required [a trip, or
cycle, is defined as the movement of a pallet under a load from a manufacturer
to a distributor (or from a distributor to a retailer) and the movement of the
empty pallet back to the manufacturer]. Heavy duty plastic pallets, as currently
manufactured, have a useful life of 60 or more trips, on average.
The trend that appears to be emerging is a switch from wood to plastic,
with the only limiting factor being price. Therefore, PalWeb will target both
wood and plastic pallet users during its market introduction phase
PalWeb intends to stay on the "cutting edge" of the market by
constantly conducting research on pallet design, plastic injection molding
system design, and source materials composition (the materials used to make the
plastic pallets).
Carving a niche in an industry as competitive as the pallet business
requires more than just capital and equipment. PalWeb's current and future
success will depend in large part on the strategic planning done by its
Management. PalWeb has received very strong indications of interest from a
number of extremely large users of pallets now that the material handling pallet
has been successfully tested under applicable industry standards. This has
substantially increased the level of interest and has greatly increased the
viability of PalWeb's pallet being a large volume seller. However, there is no
assurance that PalWeb or PPP will be successful in marketing the pallets
commercially.
Results of Operations
General to All Periods
Sales reflected for all periods presented are occasional sales of
prototype plastic pallets of a design which did not meet development standards.
Accordingly, comparisons of operating
Page -8-
<PAGE> 9
results to sales are meaningless. As of August 31, 1999, PalWeb is in the final
stages of development of both a plastic pallet to compete with wood pallets and
injection molding systems to produce the plastic pallet. PalWeb has obtained
short-term financing to meet its working capital needs and is seeking long-term
financing to acquire the equipment to produce plastic pallets on a commercial
basis. Current testing of the new pallet design indicates that it is meeting
industry standards.
For all periods presented, PalWeb's effective tax rate is 0%. PalWeb
has generated net operating losses since inception which would normally reflect
a tax benefit in the statement of operations and a deferred asset on the balance
sheet. However, because of the current uncertainty as to PalWeb's ability to
achieve profitability, a valuation reserve has been established which offsets
the amount of any tax benefit available for each period presented in the
consolidated statement of operations.
Three Months Ended August 31, 1999 to Three Months Ended August 31, 1998
Salaries and benefits and depreciation and amortization reflect
relatively insignificant changes for the three months ended August 31, 1999
compared to August 31, 1998. Other general and administrative expenses for the
three months ended August 31, 1999 increased $545,454 over August 31, 1998
primarily due to cost of consultation services. Consultation costs were $613,336
for the three months ended August 31, 1999 which is an increase of $410,336 over
the period ended August 31, 1998.
Interest expense declined $9,762 from $48,145 for the period ended
August 31, 1998 to $38,383 for August 31, 1999. The decrease is attributable to
the reduction in notes payable. During the fiscal year ended May 31, 1999,
management negotiated a settlement of certain delinquent notes payable through
foreclosure proceedings, cash payments or part cash, part common stock.
Principally as a result of the above, PalWeb had a net loss of $883,035
for the three months ended August 31, 1999 compared to $351,926 for August 31,
1998 for an increase in losses of $531,109.
Year Ended May 31, 1999 Compared to the Year Ended May 31, 1998
Salaries and benefits were $298,414 in 1999 compared to $448,176 in
1998 for a decrease of $149,762. The decrease is principally due to a reduction
of a marketing person who was employed during 1998. Other general and
administrative expenses increased $4,801,226 from $660,383 in 1998 to $5,461,643
in 1999. This increase is primarily due to consultation costs which were
$5,013,000 in 1999 and $222,000 in 1998 for an increase of $4,791,000.
Consultation costs are payments principally through the issuance of common stock
to individuals to assist the company in attaining its goals of product
development and the financing to achieve commercial production levels.
Page -9-
<PAGE> 10
In 1998, the Company incurred a charge to operations to write down
certain investments due to impairment for a total of $3,456,231. There was no
corresponding charge in 1999.
Interest expense increased $52,237 from $189,527 in 1998, to $241,764
in 1999. The increase is primarily due to the issuance long-term notes payable
for the acquisition of the plant and other real estate.
Because of the above, the loss before discontinued operations and
extraordinary gain increased $1,223,538 from a loss of $4,807,184 in 1998 to a
loss of $6,030,725 in 1999.
In 1998, PalWeb acquired Plastic Pallet Production, Inc.(PPP) in a
reverse acquisition whereby the stockholders of PPP gained majority control of
PalWeb through the exchange of stock. The prior assets of PalWeb primarily
engaged in the business of energy services were to be spun off to the previous
stockholders of PalWeb. PPP was engaged in the development of plastic pallets
and plastic injection molding systems and the primary interest in the
acquisition was to acquire a shell corporation which was publicly held. The
energy services were not distributed until November 10, 1998. Because the
operations of energy services was a different segment from the continuing
operations of PalWeb/PPP, the operations of energy services is classified a
discontinued operations. The loss for 1998 totaled $367,805 which included
estimated closing costs of $130,688.
PalWeb had two Promissory Notes payable totaling $830,057 as of May 31,
1998. During 1999, PalWeb negotiated settlements on these debts through cash
payments, issuance of common stock, and foreclosure resulting in a gain of
$68,616. This gain is classified as an extraordinary gain.
Principally because of the above, the net loss of $5,969,409 in 1999
was an increase of $794,420 over the net loss of $5,174,989 in 1998.
Year Ended May 31,1998 Compared to the Period from Inception (November 20, 1995)
to May 31, 1997
Research and development expenses were $406,943 in 1997 and $0 in 1998.
In 1997, Plastic Pallet Production, Inc. (PPP) engaged a design engineer to
design and oversee the development on an injection molding system process
including molds to produce plastic pallets. This phase was complete as of May
31,1997.
Salaries and benefits in 1998 totaled $448,176, compared to $247,516 in
1997, for an increase of $200,660. The increase was primarily attributable to
the addition of a marketing person.
Depreciation expense in 1998 was $157,656, compared to $96,871 in 1997,
for an increase of $60,785. The expense in 1997 reflects generally a one-half
year's depreciation since it is the primary acquisition year.
Page -10-
<PAGE> 11
Other general and administrative expenses for 1998 and 1997 were
$660,383 and $685,695, respectively. The net change was not significant.
In 1998, management determined that the molds for the original design
were obsolete due to design deficiencies in the product. PalWeb recognized an
impairment of the molds resulting in a charge of $184,982 to operations. In
addition, a loss in the amount of $126,249 was recognized in 1997 for a milling
machine that was sold in June 1998. PalWeb also recognized impairment of its 20%
investment in Vimonta AG, a marketing logistics company. Management determined
that Vimonta AG was a startup company with no material assets or net worth.
Primarily because of the above, loss before discontinued operations
increased $3,477,666 from 1997, $1,329,518, to 1998, $4,807,184.
In 1998, PalWeb acquired Plastic Pallet Production, Inc.(PPP) in a
reverse acquisition whereby the stockholders of PPP gained majority control
through the exchange of stock. The prior assets of PalWeb primarily engaged in
the business of energy services were to be spun off to the previous
stockholders of PalWeb. PPP was engaged in the development of plastic pallets
and injection molding systems and the primary interest in the acquisition was
to acquire a shell corporation which was publicly held. The energy services
were not distributed until November 10, 1998. Because the operations of energy
services was a different segment from the continuing operations of PalWeb/PPP,
the operations of energy services is classified a discontinued operations. The
loss for 1998 totaled $367,805 which included estimated closing costs of
$130,688.
Principally because of the above, the net loss in 1998 of $5,174,989
increased $3,845,471 from 1997 amount of $1,329,518.
Item 3. Description of Property
PalWeb, through PPP, 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. This leased space was originally owned by PPP, but was sold to and
leased back from a related entity. The lease contains a 3-year option to
repurchase the property. For accounting purposes, this property is still treated
as owned by PPP and carried on its books as an asset. This accounting treatment
will continue until the option to repurchase is exercised or expires.
PalWeb has sufficient office equipment, such as computers, printers,
copiers, etc., to operate effectively. Of the eight employees leased from Accord
Human Resources, Inc., which includes PalWeb's President, Mr. Hale, has need of
typical office equipment. PalWeb has six computer stations, five printers, and
one copy machine in good working order.
The warehouse/manufacturing facility is sufficiently equipped and
designed to accommodate the manufacturing of plastic pallets and plastic
injection molding systems. The ceilings are very high which will allow for the
use of cranes, if needed. The warehouse currently has four heavy duty cranes
installed above the work areas, and is situated on an operational railroad spur.
Further, the warehouse has three-phase (heavy-duty), 240 volt electrical wiring.
Page -11-
<PAGE> 12
Item 4. Security Ownership of Certain Beneficial Owners and Management
a. Security ownership of certain beneficial owners.
The following table sets forth certain information regarding the
176,537,738 shares of Common Stock (out of the 250,000,000 shares of Common
Stock authorized) and the 4,968,890 shares of original issue Preferred Stock
(convertible to Common Stock on a 1-for-1 basis) beneficially owned as of
September 17, 1999, by (i) each person known by PalWeb to beneficially own five
percent (5%) or more of the outstanding Common Stock of the Company (or
preferred stock convertible into Common Stock), (ii) each current director and
executive officer, and (iii) all current directors and executive officers as a
group.
<TABLE>
<CAPTION>
Shares
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
Paul A. Kruger .......................... 45,830,000 25.26%
Michael John ............................ 10,645,725 5.87%
Margarete Jung .......................... 15,000,000 8.26%
All Other Shareholders as a Group 110,030,903 60.61%
----------- ------
Totals .................................. 181,506,628 100.00%
</TABLE>
Page -12-
<PAGE> 13
b. Security ownership of management.
Currently, Paul A. Kruger and Ronald G. Hale are the officers
and directors of PalWeb, and they have served in such capacity since July 9,
1999.
<TABLE>
<CAPTION>
Shares
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
Paul A. Kruger, Chairman of the
Board ................................ 45,830,000 25.26%
Ronald G. Hale, President, Secretary,
Treasurer, & Director ................ 2,000,000 1.10%
----------- ------
Totals ................................ 47,830,000 26.35%
</TABLE>
<TABLE>
<CAPTION>
Shares
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
Directors & Officers as a Group 47,830,000 26.35%
All Other Shareholders as a Group 133,676,628 73.65%
----------- ------
Totals ............................... 181,506,628 100.00%
</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 PalWeb.
Page -13-
<PAGE> 14
Item 5. Directors, Executive Officers, Promoters and Control Persons
DIRECTORS:
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION
- ---------------- --------
<S> <C>
Paul A. Kruger Director (Chairman of the Board)
1607 West Commerce Street
Dallas, Texas 75208
Ronald G. Hale Director
1607 West Commerce Street
Dallas, Texas 75208
OFFICERS:
- --------
Ronald G. Hale President
Ronald G. Hale Secretary
Ronald G. Hale Treasurer
</TABLE>
<TABLE>
<CAPTION>
Shares
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
Paul A. Kruger, Chairman of the
Board .............................. 45,830,000 25.26%
Ronald G. Hale, President, Secretary,
Treasurer, & Director ............... 2,000,000 1.10%
Totals ................................. 47,830,000 26.35%
</TABLE>
<TABLE>
<CAPTION>
Shares
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
Directors & Officers as a Group 47,830,000 26.35%
All Other Shareholders as a Group 133,676,628 73.65%
----------- ------
Totals ............................... 181,506,628 100.00%
</TABLE>
Page -14-
<PAGE> 15
PAUL A. KRUGER
CHAIRMAN OF THE BOARD OF DIRECTORS
Mr. Kruger, age 45, earned a Bachelor of Business Administration degree
in accounting from Cameron University, Lawton, Oklahoma, and earned a Juris
Doctor degree from the University of Oklahoma City Law School. He has 25 years
of experience in the financial services industry. Mr. Kruger co-founded United
Bank Club Association, Inc. ("UBCA"), Norman, Oklahoma, in 1980, and served as
its President and CEO until February 1996, when UBCA was sold. Mr. Kruger
supervised and participated in every facet of UBCA's business, including
strategic planning, sales, marketing, operations, and service quality. Under Mr.
Kruger's leadership, UBCA grew to more than 350 employees, and had operational
and sales branches in Michigan, Florida, Arizona, Texas, and Mexico. At the time
UBCA was sold, it provided financial enhancement services to more than 200
client institutions serving more than 6,000,000 individual customers throughout
the United States, Puerto Rico, the U.S. Virgin Islands, and Mexico.
In 1997, Mr. Kruger became the Chairman of the Board of Directors of
PaceCo Financial Services, Inc. ("PaceCo"). Mr. Kruger also serves as the
Chairman of the Board of Directors of Universal Marketing Services, Inc. His
responsibilities and contributions to these companies include assisting in the
development, implementation, and execution of strategic planning.
RONALD G. HALE
DIRECTOR AND SOLE OFFICER
Mr. Hale, age 55, earned a mechanical engineering degree from Wichita
State University, Wichita, Kansas. He has 29 years of experience in the plastic
molding and plastic composition business. Mr. Hale worked for the Coleman
Company in Wichita, Kansas from 1971 to 1972, supervising its plastic blow
molding operations, assembly lines, and other production related departments.
Mr. Hale worked for Conoco, Inc. from 1972 to 1982 where he served as a Senior
Technical Service Representative for the Chemical Research Division, where he
was responsible for developing compounds and applications for PVC resins. While
working for Conoco, Mr. Hale developed a true expertise in compounding,
formulating, and blending PVC resins and in plastic injection molding, blow
molding, and extrusion, and was recognized as "Conoco's Top Field Service
Representative" as a result of successfully assisting customers in solving
processing problems. Mr. Hale worked for Synthetic Products Company, Cleveland,
Ohio, from 1982 to 1986, where he acted as a Senior Territory Manager and
developed a sales territory in the central and Southeast regions of the United
States. Mr. Hale worked for Colormatrix Corporation, Cleveland, Ohio, from 1986
to 1990 as a sales representative. At Colormatrix, he sold liquid color and
chemical dispersion to the plastics industry in Oklahoma, Arkansas, and Kansas.
From 1990 to 1999, Mr. Hale worked as an independent engineering consultant in
the plastics industry. One of his more substantial clients was Evcon Industries,
Wichita, Kansas.
Page -15-
<PAGE> 16
Item 6. Executive Compensation
Mr. Hale is paid a salary of $72,000.00 per year. He is paid by PPP in
consideration of the services performed by him as the President of PPP. Mr. Hale
is not paid additional compensation for serving as a director of PalWeb and
acting as PalWeb's sole officer. No other parties receive executive
compensation.
Item 7. Certain Relationships and Related Transactions
In November 1997, PalWeb, then known as Cabec Energy Corp., acquired
all of the issued and outstanding stock of Plastic Pallet Production, Inc. from
Michael John, the former Chairman of the Board of Director and President, who
held all of the stock of PPP for the benefit of himself and others. PalWeb
issued Mr. John and other parties a total of 119,145,725 shares of its common
stock, a clear majority of the voting control.
In April 1999, PaceCo Financial Services, Inc., which is owned 100% by
Paul A. Kruger, was issued 32,500,000 shares of the Common Stock of PalWeb in
exchange for the provision of consulting services to PalWeb.
In April 1999, Hildalgo Trading Co., L.C., which is owned 100% by Paul
A. Kruger, was issued 830,000 shares of the Common Stock of PalWeb in exchange
for the provision of consulting services to PalWeb.
In April 1999, Courtney Beth Kruger., the daughter of Paul A. Kruger,
was issued 250,000 shares of the Common Stock of PalWeb in exchange for the
provision of consulting services to PalWeb.
In April 1999, Garrett Paul Kruger., the son of Paul A. Kruger, was
issued 250,000 shares of the Common Stock of PalWeb in exchange for the
provision of consulting services to PalWeb.
In April 1999, Ronald G. Hale was issued 2,000,000 shares of the Common
Stock of PalWeb in exchange for the provision of consulting services to PalWeb.
Item 8. Legal Proceedings
There is one legal proceeding pending against PalWeb. This is a lawsuit
is a third party cross action filed by Cooper Manufacturing Corp., an Oklahoma
corporation ("Cooper Oklahoma"), against Cooper Manufacturing Corp., a Texas
corporation ("Cooper Texas"), and Cabec Energy Corp. n/k/a PalWeb Corporation,
Case No. 98-7935-NO(D), filed in the 46th Judicial Circuit Court of Otsego
County, Michigan, and styled James Dunevant and Shanda Dunevant, James Dunevant,
Jr., Kaylynn Dunevant, and Katie Dunevant, Minors, by their Next Friend, Shanda
Dunevant, Plaintiffs, vs. Welltech Eastern, Inc. d/b/a Key Energy Drilling, a
Page -16-
<PAGE> 17
Delaware corporation, Mercury Exploration Company, Inc., a Texas corporation,
and Cooper Manufacturing Corp., an Oklahoma corporation.
The Plaintiffs' claim is based on an injury suffered by James Dunevant
that was allegedly caused, among other things, by a design flaw in an oil well
drilling rig allegedly built by Cooper Oklahoma. Cooper Oklahoma's third party
cross action against PalWeb is based on a contractual indemnity claim. It is
PalWeb's position that Cooper Oklahoma is not entitled to be indemnified from
loss by PalWeb in this matter. Further, even if PalWeb is liable to the
Plaintiffs, The Union Group, Inc. is contractually obligated to indemnify PalWeb
from any loss it may incur in connection with any energy related matter.
However, the collection of an indemnity claim from The Union Group, Inc. could
prove to be difficult, if not impossible.
Item 9. Market for Common Equity and Related Stockholder Matters
PalWeb's common stock currently trades on the NASDAQ Over-the-Counter
Exchange, on the Pink Sheets, with "PAEB" as its trading symbol. In the event
that this Form 10-SB is approved by the SEC, PalWeb's common stock will trade on
the Over-the-Counter Bulletin Board Exchange.
From June 1, 1997 to November 30, 1999, the Bid price of the common
stock has been as high as $0.73 and as low as $0.05.
As of September 17, 1999, PalWeb had approximately 1,249 common
stockholders.
PalWeb paid no cash dividends to its common stockholders during the
last two fiscal years and does not plan to pay any cash dividends in the near
future. PalWeb plans to use any profits made to purchase additional plastic
injection molding systems and plastic pallet molds.
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 Consideration
---- ------ ------------- -------- -------------
<S> <C> <C> <C> <C>
Steve Bright Common 25,000 07/07/97 Legal Services
Don Sauders, TTE Common 400,000 07/14/97 Consulting Services
Richard Wood Common 50,000 07/14/97 Consulting Services
Ronald Siler Common 40,000 08/27/97 Accounting Services
Jay Ungerman Common 220,000 08/27/97 Legal Services
Electric & Gas
Technology, Inc. Common 1,000,000 12/08/97 Consulting Services
John Gourley Common 300,000 12/19/97 Consulting Services
James Bradshaw Common 300,000 12/19/97 Consulting Services
John Gourley Common 100,000 12/23/97 Consulting Services
</TABLE>
Page -17-
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
Michael John, et al Common 101,000,000 01/09/98 Stock Exchange
John Poe Common 30,000 03/06/98 Consulting Services
Robert Seago Common 30,000 03/06/98 Consulting Services
Margarete Jung Common 15,000,000 03/13/98 Stock Exchange
Michael Young &
Partners, Inc. Common 1,028,907 03/25/98 Note Conversion
Jan C. von Halle,
Trustee Common 16,145,725 07/16/98 Stock Exchange
Jan C. von Halle Common 2,000,000 07/16/98 Stock Exchange
Ralph Curton, Jr Common 2,000,000 08/11/98 Management Services
Alan Haliburton Common 100,000 08/26/98 Public Relations Services
Robert V. Daigle Common 1,000,000 02/03/99 Consulting Services
USGT Investors, L.P. Common 25,000 03/05/99 Consulting Services
PaceCo Financial
Services, Inc. Common 32,500,000 04/30/99 Consulting Services
Julie Smith Barksdale Common 250,000 04/30/99 Consulting Services
Arlin Plender Common 2,860,000 04/30/99 Consulting Services
Ron Hale Common 2,000,000 04/30/99 Consulting Services
Brett Wimberley Common 500,000 04/30/99 Consulting Services
Mark R. Kidd Common 500,000 04/30/99 Consulting Services
Courtney Beth Kruger Common 250,000 04/30/99 Consulting Services
Garret Paul Kruger Common 250,000 04/30/99 Consulting Services
Hidalgo Trading Co., L.C Common 830,000 04/30/99 Consulting Services
Chadwick Presten, L.L.C Common 400,000 04/30/99 Consulting Services
K-P Sullivan, L.L.C Common 120,000 04/30/99 Consulting Services
Litchfield, L.L.C Common 180,000 04/30/99 Consulting Services
Leach, Sullivan & Watkins Common 360,000 04/30/99 Consulting Services
F. Edwin Smith, Jr.,
Trustee Preferred 100,000 12/10/97 Consulting Services
Jo Ann R. Cox Preferred 10,000 12/10/97 Management Services
F. Edwin Smith, Jr.,
Trustee Preferred 450,000 01/05/98 Consulting Services
Jo Ann R. Cox Preferred 50,000 01/05/98 Management Services
Randall C. McCleskey Preferred 400,000 07/26/99 Consulting Services
John Gourley Preferred 500,000 07/26/99 Consulting Services
Stan Haddock Preferred 25,000 07/26/99 Consulting Services
Ronald A. Siler Preferred 250,000 07/26/99 Accounting Services
Les Kroger Preferred 100,000 07/26/99 Consulting Services
Kenneth Graves Preferred 150,000 07/26/99 Accounting Services
Connie L. Gadt Preferred 80,000 07/26/99 Accounting Services
Jo Ann R. Cox Preferred 25,000 07/26/99 Management Services
Bruce Meador Preferred 25,000 07/26/99 Consulting Services
The BWCC Corporation Preferred 100,000 07/26/99 Consulting Services
The Margrett Corporation Preferred 100,000 07/26/99 Consulting Services
Clair Spencer Preferred 500,000 07/26/99 Consulting Services
Mary Eveyn Soble, Trustee
of the Triad Trust Preferred 866,945 07/26/99 Consulting Services
Donna Lee, Trustee
of the Unity Trust Preferred 866,945 07/26/99 Consulting Services
F. Edwin Smith, Jr.,
Trustee of the TJS
Trust Preferred 100,000 07/26/99 Consulting Services
</TABLE>
Page -18-
<PAGE> 19
PalWeb relied on the exemption set forth in Section 4(2) of the Securities Act
of 1933, as amended, in connection with the issuances of stock set forth above.
All parties listed above are sophisticated persons or entities, performed
services for PalWeb, or personally knew members of PalWeb's management staff at
the time of the transactions listed above. There was no underwriting and no
commissions were paid to any party upon the issuance of such stock.
Item 11. Description of Securities
As of September 17, 1999, (i) there were 176,537,738 shares of common
stock issued and outstanding, and (ii) there were 4,968,890 shares of original
series preferred stock issued and outstanding.
When PalWeb was originally organized, a total of five hundred thousand
(500,000) shares of common voting stock were issued to eight hundred (800)
shareholders.
PalWeb (known as Permaspray Manufacturing Corporation at that time)
then issued three hundred thousand (300,000) shares of common stock in exchange
for assets.
PalWeb later issued common stock for the assets of Permaspray
Manufacturing of Pennsylvania.
PalWeb 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, PalWeb 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,
PalWeb 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
119,145,725 shares of PalWeb's common stock.
On September 1, 1999, PalWeb authorized a new class of Series C
Preferred Stock. This Series C Preferred Stock may be converted into common
stock on a 1-for-7 basis (1 share of Series C Preferred Stock converts into 7
shares of common stock) by the holder.
PalWeb's common stock is its only security that is traded on an
exchange.
Page -19-
<PAGE> 20
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 Section 145 of the General
Corporation Law of the State of Delaware.
Item 13. Financial Statements
Set forth below are audited financial statements of the registrant for
fiscal years May 31, 1997, 1998, and 1999 and unaudited balance sheet as of
August 31, 1999 and unaudited statements of operations and cash flows for the
three month periods ended August 31, 1999 and 1998. Such financial statements
were prepared under Generally Accepted Accounting Practices and audited under
Generally Accepted Auditing Practices.
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
Page -20-
<PAGE> 21
INDEPENDENT AUDITOR'S REPORT
Board of Directors
PalWeb Corporation
Dallas, Texas
We have audited the accompanying consolidated balance sheets of PalWeb
Corporation and subsidiaries as of May 31, 1999, 1998, and 1997 and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for the years ended May 31, 1999 and 1998 and the period from inception
(November 20, 1995) to May 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material aspects, the financial position of PalWeb Corporation and
subsidiaries as of May 31, 1999, 1998, and 1997 and the results of their
operations and their cash flows for the years ended May 31, 1999 and 1998 and
the period from inception (November 20, 1995) to May 31, 1997 in conformity with
generally accepted accounting principles.
Page -21-
<PAGE> 22
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, 1999, 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.
HULME RAHHAL HENDERSON,INC.
September 15, 1999
Ardmore, Oklahoma
Page -22-
<PAGE> 23
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
August 31, ---------------------------------------------
ASSETS 1999 1999 1998 1997
------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 1,064 $ 710 $ -- $ 6,641
Inventory 9,938 9,938 33,687 54,068
Assets held for resale -- -- 74,995 --
------------ ------------ ------------ ------------
Total current assets 11,002 10,648 108,682 60,709
PROPERTY, PLANT AND EQUIPMENT, NET
of accumulated depreciation 1,814,864 1,819,216 2,437,900 1,408,649
OTHER ASSETS:
Net assets, discontinued operations -- 245,695 --
Patent costs, net 60,749 60,749 56,072 31,731
Deposits and other 30,173 30,173 29,353 24,000
------------ ------------ ------------ ------------
Total other assets 90,922 90,922 331,120 55,731
------------ ------------ ------------ ------------
TOTAL ASSETS $ 1,916,788 $ 1,920,786 $ 2,877,702 $ 1,525,089
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Notes payable $ 50,000 $ 50,000 $ 963,807 $ 472,827
Mortgage payable - related party -- -- 1,350,000 --
Accounts payable 445,723 352,733 428,524 295,308
Accrued expenses 101,651 119,938 349,779 53,996
Payable to related parties 2,413,992 2,222,992 1,812,623 1,540,500
Customer deposits 300,000 300,000 -- --
------------ ------------ ------------ ------------
Total current liabilities 3,311,366 3,045,663 4,904,733 2,362,631
LEASE FINANCE OBLIGATION 1,766,958 1,766,958 -- --
STOCKHOLDERS' DEFICIENCY:
Preferred stock, $.0001 par,
20,000,000 shares authorized -
outstanding - 4,968,890, 880,000,
380,000 and -0-, respectively 497 88 38 --
Common stock, $.10 par value,
250,000,000 authorized, outstanding -
217,981,046, 217,981,046, 166,856,046
and 119,145,725, respectively 21,798,105 21,798,105 16,685,605 11,914,572
Additional paid-in capital 2,640,390 2,027,465 1,797,015 --
Deficit accumulated during
development stage (27,600,528) (26,717,493) (20,509,689) (12,752,114)
------------ ------------ ------------ ------------
Total stockholders' deficiency (3,161,536) (2,891,835) (2,027,031) (837,542)
------------ ------------ ------------ ------------
............
TOTAL LIABILITIES AND
STOCKHOLDERS DEFICIENCY $ 1,916,788 $ 1,920,786 $ 2,877,702 $ 1,525,089
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of this consolidated financial statement.
Page -23-
<PAGE> 24
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Month Period
Ended August 31, Year Ended May 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES $ -- $ 11,585 $ 51,510 $ 37,863
OTHER INCOME (EXPENSE):
Scrap sales and other (6,337) -- 3,573 7,486
Rental income -- 27,400 70,600 59,440
------------- ------------- ------------- -------------
Total other income (6,337) 27,400 74,173 66,926
EXPENSES:
Research and development -- -- -- --
Salaries and benefits 67,747 72,354 298,414 448,176
Depreciation and
amortization 37,840 35,477 154,587 157,656
Other general and
administrative 732,728 221,071 5,461,643 660,383
Impairment of investment -- -- -- 3,456,231
Interest expense 38,383 48,145 241,764 189,527
------------- ------------- ------------- -------------
Total expense 876,698 377,047 6,156,408 4,911,973
------------- ------------- ------------- -------------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEMS (883,035) (338,062) (6,030,725) (4,807,184)
LOSS FROM DISCONTINUED OPERATIONS -- (13,864) (7,300) (367,805)
EXTRAORDINARY GAIN -- -- 68,616 --
------------- ------------- ------------- -------------
NET LOSS $ (883,035) $ (351,926) (5,969,409) $ (5,174,989)
============= ============= ============= =============
LOSS PER COMMON SHARE:
Loss before discontinued
operations & extraordinary gain $ (.01) $ -- $ (.03) $ (.04)
Discontinued operations -- -- -- --
Extraordinary gain -- -- -- --
------------- ------------- ------------- -------------
Total $ (.01) $ -- $ (.03) $ (.04)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 217,981,046 117,556,000 183,189,000 127,020,000
============= ============= ============= =============
<CAPTION>
From Inception
(November 20, 1995) To
------------------------------
May 31, August 31,
1997 1999
------------- -------------
(unaudited)
<S> <C> <C>
SALES $ 3,321 $ 92,694
OTHER INCOME (EXPENSE):
Scrap sales and other 92,346 97,068
Rental income 43,740 173,780
------------- -------------
Total other income 136,086 270,848
EXPENSES:
Research and development 406,943 406,943
Salaries and benefits 247,516 1,061,853
Depreciation and
amortization 96,871 446,954
Other general and
administrative 685,695 7,540,449
Impairment of investment -- 3,456,231
Interest expense 31,900 501,574
------------- -------------
Total expense 1,468,925 13,414,004
------------- -------------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEMS (1,329,518) (13,050,462)
LOSS FROM DISCONTINUED OPERATIONS -- (375,105)
EXTRAORDINARY GAIN -- 68,616
------------- -------------
NET LOSS $ (1,329,518) $ (13,356,951)
============= =============
LOSS PER COMMON SHARE:
Loss before discontinued
operations & extraordinary gain $ (.01)
Discontinued operations --
Extraordinary gain --
-------------
Total $ (.01)
=============
WEIGHTED AVERAGE SHARES OUTSTANDING 119,145,725
=============
</TABLE>
The accompanying notes are an integral part of
this consolidated financial statement.
Page -24-
<PAGE> 25
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Proceeds from sale of stock -- $ -- 119,145,725 $ 11,914,572
Net Loss -- --
------------ ------------ ------------ ------------
BALANCES, May 31, 1997 -- -- 119,145,725 11,914,572
Common stock held by minority
stockholders of PalWeb in connection
with reverse acquisition 530,000 53 31,960,321 3,196,033
Issuance of stock for services 600,000 60,000
Issuance of stock for investment -- -- 15,000,000 1,500,000
Preferred stock converted to common (150,000) (15) 150,000 15,000
Net loss for the period -- -- -- --
------------ ------------ ------------ ------------
BALANCES, May 31, 1998 380,000 38 166,856,046 16,685,605
Issuance of stock for services 500,000 50 48,125,000 4,812,500
Stock issued for debt -- -- 3,000,000 300,000
Distribution of energy services
segment to minority stockholders -- -- -- --
Net loss -- -- -- --
------------ ------------ ------------ ------------
BALANCES, May 31, 1999 880,000 $ 88 217,981,046 $ 21,798,105
============ ============ ============ ============
<CAPTION>
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Deficiency
------------ ------------ ------------
<S> <C> <C> <C>
Proceeds from sale of stock $ -- $(11,422,596) $ 491,976
Net Loss -- (1,329,518) (1,329,518)
------------ ------------ ------------
BALANCES, May 31, 1997 -- (12,752,114) (837,542)
Common stock held by minority
stockholders of PalWeb in connection
with reverse acquisition -- (2,582,586) 613,500
Issuance of stock for services 162,000 -- 222,000
Issuance of stock for investment 1,650,000 -- 3,150,000
Preferred stock converted to common (14,985) -- --
Net loss for the period -- (5,174,989) (5,174,989)
------------ ------------ ------------
BALANCES, May 31, 1998 1,797 015 (20,509,689) (2,027,031)
Issuance of stock for services 200,450 -- 5,013,000
Stock issued for debt 30,000 -- 330,000
Distribution of energy services
segment to minority stockholders -- (238,395) (238,395)
Net loss -- (5,969,409) (5,969,409)
------------ ------------ ------------
BALANCES, May 31, 1999 $ 2,027,465 $(26,717,493) $ (2,891,835)
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of this consolidated financial statement.
Page -25-
<PAGE> 26
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From Inception
(November 20, 1995) To
----------------------------
August 31, Year Ended May 31, May 31, August 31,
--------------------------- ---------------------------- ------------ ------------
1999 1998 1999 1998 1997 1999
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited) (unaudited) (unaudited)
Net loss $ (883,035) $ (318,129) $ (5,969,409) $ (5,174,989) $ (1,329,518) $(13,356,951)
Adjustments to reconcile net loss to
cash used by operating activities:
Depreciation and amortization 37,840 35,477 154,587 188,456 96,871 477,754
Extraordinary gain on debt retirement -- -- (68,616) -- -- (68,616)
Consulting services paid by
issuance of common stock 613,336 203,000 5,013,000 222,000 -- 5,848,336
Impairment of investment -- -- -- 3,145,000 -- 3,145,000
Loss of disposition of property 6,337 -- -- 311,231 -- 317,568
Changes in inventory -- 5,341 23,749 20,381 (54,068) (9,938)
Changes in other assets -- 89,960 (1,426) (26,380) (58,031) (85,837)
Changes in payable - related party 191,000 (53,705) 410,369 272,123 1,540,500 2,413,992
Changes in accounts payable
and accrued expenses 74,703 38,056 244,600 766,004 349,304 1,434,611
Increase in customer deposits -- -- 300,000 -- -- 300,000
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided by (used)
operating activities 40,181 -- 106,854 (276,174) 545,058 415,919
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (57,827) -- (140,906) (1,571,447) (1,503,220) (3,273,400)
Proceeds from sale of equipment 18,000 -- 74,995 -- -- 92,995
Proceeds from lease finance obligation -- -- 149,517 -- -- 149,517
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided by (used)
investing activities (39,827) -- 83,606 (1,571,447) (1,503,220) (3,030,888)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable -- -- 50,000 490,980 472,827 774,057
Payments on notes payable -- -- (239,750) -- -- --
Proceeds from mortgage payable -
related party -- -- -- 1,350,000 -- 1,350,000
Proceeds from issuance of common stock -- -- -- -- 491,976 491,976
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided (used) by
financing activities -- -- (189,750) 1,840,980 964,803 2,616,033
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 354 -- 710 (6,641) 6,641 1,064
CASH, beginning of period 710 -- -- 6,641 -- --
------------ ------------ ------------ ------------ ------------ ------------
CASH, end of period $ 1,064 $ -- $ 710 $ -- $ 6,641 $ 1,064
============ ============ ============ ============ ============ ============
</TABLE>
SUPPLEMENTAL INFORMATION (Note 10)
The accompanying notes are an integral part of this consolidated financial
statement.
Page -26-
<PAGE> 27
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Effective December 12, 1997, PalWeb Corporation ("PalWeb"), formerly
Cabec Energy Corporation, was acquired in a reverse acquisition by the
stockholders of Plastic Pallet Production, Inc.("PPP") whereby the
stockholders of PPP became majority owners of PalWeb. Pursuant to the
agreement, PalWeb exchanged its common stock for the outstanding common
stock of PPP and the assets and liabilities of PalWeb and its
subsidiaries as of the effective date were to be transferred into a new
company whose stock was to be distributed to the stockholders of
PalWeb, other than the new stockholders resulting from the PPP stock
transfer. This latter distribution was effected November 10, 1998.
PPP shareholders received 119,145,725 shares of common stock for an
ownership of approximately 78% of PalWeb in exchange for its shares of
PPP. The outstanding shares of PalWeb just prior to the acquisition
were 31,960,321 shares of common stock and 530,000 shares of
convertible preferred stock resulting in an ownership retained by the
pre-acquisition shareholders of PalWeb of approximately 22%. The basis
for the number of PalWeb common shares issued to the PPP shareholders
was to effect the agreed upon interest ownership levels based on the
then outstanding shares of PalWeb.
The business of PalWeb as of December 12, 1997 is principally involved
in energy services. The accounting for the reverse acquisition is a
purchase and the net assets of PalWeb acquired are valued at fair value
of the underlying assets for a total of $613,500 based on managements
assessment therein. Goodwill of approximately $1,233,000 is amortized
by the straight line method over 40 years. The operating results for
the period from June 1, 1997 to December 12, 1997 is not significant.
Since the disposition of the energy services net assets was approved at
the time of approval of the PPP stock exchange, these net assets are
accounted for in the accompanying financial statements as discontinued
operations. Further, the distribution effected as of November 10, 1998
is accounted for as a spin off in accordance with APB Opinion No. 29,
"Accounting for Nonmonetary Transactions."
The consolidated balance sheet and consolidated statements of
operations and cash flows as of and for the period ended May 31, 1997
are the consolidated accounts of Plastic Pallet Production, Inc. and
its subsidiaries. Similarly, the activity for the period June 1, 1997
through December 12, 1997, the effective date of the reverse
acquisition, included in the consolidated statements of operations and
cash flows for the year ended May 31, 1998, represent the consolidated
accounts of PPP.
PalWeb and its wholly owned subsidiary PPP will pursue the manufacture
and marketing of plastic pallets and the related injection molding
equipment necessary to produce plastic pallets.
Page -27-
<PAGE> 28
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of PalWeb and its subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Development Stage Company
PPP from its inception, November 20, 1995, has pursued the development
of a plastic pallet which will compete with traditional wood pallets.
Additionally, PPP has designed an injection molding machine which it
anticipates can be built and operated more economically than
competitive equipment. At May 31, 1999, both products are in the
development stage. PPP expects these products to become commercially
marketable during the next year.
Statement of Cash Flows
PalWeb considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
Use of Estimates
The preparation of PalWeb's financial statements in conformity with
generally accepted accounting principles requires PalWeb'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.
Property, Plant and Equipment
PalWeb's property, plant and equipment is stated at cost. Depreciation
expense is computed on the straight-line method over the estimated
useful lives, as follows:
<TABLE>
<S> <C>
Plant building 20 years
Plant improvements 7 years
Production machinery equipment 5 - 10 years
Office equipment & furniture & fixtures 3 - 5 years
</TABLE>
Upon sale, retirement or other disposal, the related costs and
accumulated depreciation of items of property, plant or equipment are
removed from the related accounts and any gain or loss is recognized.
When events or changes in circumstances indicate that assets may be
impaired, an evaluation is performed comparing the estimated future
Page -28-
<PAGE> 29
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
undiscounted cash flows associated with the asset to the assets
carrying amount. If the assets carrying amount exceeds the future cash
flows, a write-down to market value or discounted cash flow value is
required.
Investment in Vimonta AG
PalWeb's 20% ownership in Vimonta AG is valued at cost since management
has no board representation, financial information or other influence
on the operation of Vimonta AG.
Patents
Amortization expense for the costs incurred by PalWeb 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.
Recognition of Revenues
Revenue is recognized at the time a sale is completed.
Income Taxes
PalWeb 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.
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.
Accounting Changes
During the year ended May 31, 1998, PalWeb adopted 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 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. The
implementation of these standards does not have a material effect on
PalWeb's consolidated financial statements.
Page -29-
<PAGE> 30
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED
Accounting Changes - continued
During the year ended May 31, 1999, PalWeb adopted Statement of
Financial Accounting Standards 130, "Reporting Comprehensive Income"
which 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. The
implementation of this standard does not have a material effect on
PalWeb's consolidated financial statements.
2. CONTINUATION AS A GOING CONCERN
The accompanying financial statements have been prepared assuming that
PalWeb will continue as a going concern. PalWeb is in the development
stage and has suffered significant losses from operations. To date,
PalWeb has received substantial advances from investors but will
require additional substantial funding in order to implement its
business plan and have an opportunity to achieve profitable operations.
Management plans to meet this funding need through a short term bank
loan of approximately $400,000 and the pursuit of a $7,000,000
preferred stock offering. 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 PalWeb'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, PalWeb 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 and May 31 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Land $ 85,000 $ 691,057 $ 412,057
Plant building 1,166,127 1,166,127 --
Plant improvements 141,791 141,791 131,296
Production machinery and equipment 254,367 254,368 600,115
Office equipment 94,282 73,941 66,098
Furniture and fixtures 33,654 33,654 33,654
Work in Progress 417,761 299,370 260,000
---------- ---------- ----------
2,192,982 2,660,308 1,503,220
Less accumulated depreciation (373,766) (222,408) (94,571)
---------- ---------- ----------
$1,819,216 $2,437,900 $1,408,649
========== ========== ==========
</TABLE>
The work-in-progress consists of the construction of a prototype
injection molding machine and molds for the manufacture of plastic
pallets.
Page -30-
<PAGE> 31
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Depreciation expense from continuing operations for the periods was
$151,358, $155,970 and $94,571, respectively.
4. NOTES PAYABLE
A summary of the notes payable as of May 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Note payable to bank, interest at 2% over
prime, due May 2000 $ 50,000 $ -- $ --
Note payable to several organizations and
individuals, interest at 8.5%, principal
and accrued interest due at maturity of
December 1997, collateralized by land -- 339,077 339,077
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 -- 133,750 133,750
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 -- 490,980 --
-------- -------- --------
50,000 963,807 472,827
Current portion 50,000 963,807 472,827
-------- -------- --------
Long-term debt $ -- $ -- $ --
======== ======== ========
</TABLE>
The note payable in the amount of $339,077 at May 31, 1998 and secured
by land was in default. During 1999 the creditor foreclosed on the land
in satisfaction of the debt. A loss of $76,155 resulted from the
foreclosure which is classified as an extraordinary item.
During 1999, PalWeb negotiated a settlement on the note payable to
individual in the amount of $490,980 at May 31, 1998, plus accrued
interest, by issuance of 2,000,000 shares of its common stock, cash
payment of $110,000 and transfer of title to certain undeveloped land
valued at approximately $193,000. The result is classified as an
extraordinary gain of $22,350.
Page -31-
<PAGE> 32
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS
PalWeb's subsidiary PPP has received substantial funding from certain
investors. The investors advanced operating funds totaling $2,222,922,
$1,812,623 and $1,540,500 as of May 31, 1999, 1998, and 1997. These
advances are non-interest bearing.
As of May 31, 1998, PalWeb had a mortgage payable to the investor of
$1,350,000 which bears interest at 12.35% and is due on demand. This
note is collateralized by a first mortgage on a portion of the plant
and land in Dallas, Texas.
6. EXTRAORDINARY GAIN
During 1999, PalWeb negotiated settlement and incurred foreclosure on
certain notes payable, see note 4. Additionally, PalWeb issued
1,000,000 shares of common stock in settlement of an account payable
totaling $183,993. The net gain from these transactions totaled
$68,616.
7. IMPAIRMENT OF INVESTMENT
In March 1998, PalWeb issued 15,000,000 of common stock for a 20%
investment in Vimonta AG valued at $3,150,000 based on the market value
of the Company's common stock. The transaction was principally to
assist PalWeb in marketing its products in Europe. Management has been
unable to obtain reliable financial information regarding Vimonta AG
and does not believe Vimonta has material assets or net worth.
Accordingly, PalWeb has recorded a charge to income in the amount of
$3,145,000.
PalWeb sold certain plant equipment in June 1998 and recorded the loss
during the year ended May 31, 1998 in the amount of $126,249.
Additionally, certain molds for plastic products were deemed obsolete
and an impairment charge in the amount of $184,982 was recorded in the
year ended May 31,1998.
8. FEDERAL INCOME TAXES
Deferred taxes as of May 31, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss $ 3,093,355 $ 944,407 $ 471,963
Loss on impairment of
investment 1,151,070 1,151,070 --
Accrued liabilities -- 83,852 --
Gain on sale of plant
for tax purposes 160,681 -- --
Loss on equipment -- 46,207 --
----------- ----------- -----------
4,405,106 2,225,536 471,963
Less: Valuation allowance (4,405,106) (2,225,536) (471,963)
----------- ----------- -----------
Total $ -- $ -- $ --
=========== =========== ===========
</TABLE>
Page -32-
<PAGE> 33
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. FEDERAL INCOME TAXES (CONTINUED)
Management has provided a valuation allowance for the full amount of
the deferred tax asset as PalWeb has yet to progress beyond the
development stage of its operations. While management projects that the
products being developed will be profitable and the deferred asset will
ultimately be realized, PalWeb has not yet reached such stage in its
development to place reasonable reliability on product acceptance and
marketability
The net change in deferred taxes is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss $ 2,148,948 $ 472,444 $ 471,963
Loss on impairment of
investment -- 1,151,070 --
Accrued liabilities (83,852) 83,852
Gain on sale of plant
for tax purposes 160,681 -- --
Loss on sale of equipment (46,207) 46,207 --
Change in Valuation
allowance (2,179,570) (1,753,573) (471,963)
----------- ----------- -----------
Tax Benefit $ -- $ -- $ --
=========== =========== ===========
</TABLE>
PalWeb's effective tax rate differs from the federal
statutory rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Tax benefit using statutory
tax rate $ 2,029,599 $ 1,759,496 $ 452,036
Effect of state tax rates 155,015 146,105 34,567
Net change in valuation
allowance (2,179,570) (1,753,573) (471,963)
Other deductions (5,044) (152,028) (14,640)
----------- ----------- -----------
Tax benefit, per financial
statements $ -- $ -- $ --
=========== =========== ===========
</TABLE>
PalWeb has a net operating loss (NOL) for Federal income tax purposes
as of May 31, 1999, 1998, and 1997 of $8,451,791 as follows:
<TABLE>
<CAPTION>
Amount Expiration
- --------- ----------
<C> <C>
$1,289,518 2012
$1,290,830 2018
$5,871,443 2019
</TABLE>
Page -33-
<PAGE> 34
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LEASE FINANCING OBLIGATION
In April 1999, a related party acquired PalWeb'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. PalWeb executed a one year
lease at $12,235 per month to occupy the facility. Management expects
to rent the property on a month to month basis at the same rate after
the expiration of the initial term.
PalWeb also has a three year option to purchase the property for
$2,700,000. Due to the existence of PalWeb's option to repurchase the
property, the transaction has been accounted for as a financing
arrangement whereby the plant with a net book value of $1,049,515 at
May 31, 1999, continues to be maintained as an asset and depreciated
and the related debt in the amount of $1,766,958 at May 31, 1999, is
classified as lease financing obligation in the balance sheet during
the term of the option.
10. STOCKHOLDERS' EQUITY
PalWeb issued 3,000,000 shares of common stock to retire certain
liabilities during the year ended May 31, 1999, as discussed in Notes 4
and 6.
PalWeb also issued shares of common stock and preferred during the
years ended May 31, 1999 and 1998 for services. These shares were
valued at market value.
Preferred stock is convertible into common stock at a ratio of one to
one. Preferred stock converted into common stock during the period
ended May 31, 1998 totaled 150,000.
At the time of the reverse acquisition by PPP, there were outstanding
certain options to purchase common stock of PalWeb. At May 31, 1999 and
1998, the outstanding options are as follows (PPP had no options
outstanding as of May 31, 1997):
<TABLE>
<CAPTION>
Price
Number of shares Per Share Expiration Date
- ---------------- --------- ---------------
<S> <C> <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
PalWeb'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 May 31,1999, 1998 and 1997.
Page -34-
<PAGE> 35
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. DISCONTINUED OPERATIONS
Information relating to discontinued operations is as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net sales $ 381,330 $ 542,012
Cost of sales 219,894 268,133
--------- ---------
Gross profit 161,436 273,879
Operating costs 169,854 511,737
Costs of disposal -- 130,688
Nonoperating income 1,118 741
--------- ---------
Net loss $ (7,300) $(367,805)
========= =========
</TABLE>
13. SUPPLEMENTAL INFORMATION OF CASH FLOWS
Non-cash investing and financing activities are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Property and equipment released
in foreclosure or negotiated
settlement of debt $ 608,232 $ -- $ --
Common stock issuances in exchange for:
Reverse acquisition of PalWeb Corporation -- 613,500 --
Consulting services 5,013,000 222,000 --
Retirement of debt through
issuance of common stock 330,000 -- --
Investment in securities -- 3,150,000 --
Conversion of preferred stock -- 15,000 --
Reduction of debt and accrued
interest through foreclosure,
negotiated settlement or
issuance of common stock 1,006,848 -- --
Distribution of energy services
segment to minority stockholders 238,395 -- --
Interest paid -- -- --
</TABLE>
14. SUBSEQUENT EVENTS
The following events occurred subsequent to May 31, 1999 not otherwise
disclosed herein:
In September 1999, PalWeb obtained a $20,000,000 default judgement
against a stockholder/investor. Additionally, the judgement canceled
41,443,308 shares of common stock held by the investor. The investor
has four years from the date of judgement to file an action seeking to
set aside the judgement.
Page -35-
<PAGE> 36
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SUBSEQUENT EVENTS (CONTINUED)
In July 1999, PalWeb issued 4,088,890 shares of preferred stock in
exchange for services.
In July 1999, the outstanding stock options to purchase PalWeb's common
stock were canceled.
PalWeb is named in a lawsuit against Cooper Manufacturing Corporation,
an investment distributed in the spin off as discussed in Note 1,
Organization. The claim is based on product liability and PalWeb is
named based on a contractual indemnity claim. Management is unable to
estimate the amount of any possible loss. Further, management does not
believe that Cooper Manufacturing is entitled to be indemnified from
any loss. In addition, The Union Group, Inc., being the spin off
company for energy services, is contractually obligated to indemnify
PalWeb for any loss of an energy related matter.
Effective December 1, 1999, PalWeb entered into a line of credit with
an individual in the amount of $500,000 with an interest rate of 8.5%,
payable December 1, 2001.
Page -36-
<PAGE> 37
EXHIBITS INDEX
1 Underwriting agreement: None
2. Plan of acquisition, reorganization, arrangement, liquidation, or
succession: None
3.1* Certificate of Incorporation and Amendments
3.2* Bylaws
4 Instruments defining the rights of stockholders: None
9 Voting trust agreement: None
10 Material contracts: None
11 Statement re: computation of per share earnings: See Note 1 to the
Financial Statements
16 Letter on change in certifying accountant: Not applicable
21 Subsidiaries of the registrant
24 Power of attorney: None
27 Financial Data Schedule: Not applicable
99 Additional Exhibits: Press Release
- --------
* Previously Filed
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF PALWEB CORPORATION
----------------------------------
Plastic Pallet Production, Inc., a Texas corporation
Plastic Pallet Support Equipment, 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
<PAGE> 1
EXHIBIT 99
For Immediate Release
PALWEB CORPORATION ANNOUNCES CONTRACT CANCELLATION
Dallas, Texas -- December 9, 1999 -- PalWeb Corporation (NASDAQ-OTC: PAEB)
announced today that a $100,000,000 contract for the manufacture and sale of 44
plastic injection molding systems by PalWeb to a large industrial purchaser,
previously announced by PalWeb management, will not be consummated as the
purchaser was unable to secure financing for the equipment. However, should the
purchaser under the terminated contract obtain the necessary financing, PalWeb
will be ready, willing, and able to provide the equipment originally requested.
PalWeb further reports that all press releases made by the previous management
that relate to a plastic pallet leasing pool are no longer valid as PalWeb's
present management does not plan to form a plastic pallet leasing pool in the
near future. For the moment, PalWeb plans to focus its efforts on outright sales
of pallets.
- --------------------------------------------------------------------------------
For more information, please contact Paul A. Kruger, PalWeb's Chairman, at the
address and telephone number shown below:
Paul A. Kruger, Chairman
PalWeb Corporation
1607 West Commerce Street
Dallas, Texas 75208
(214) 698-8330
(214) 745-4578 - Fax
