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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2000
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ________
Commission file number 000-26331
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PALWEB CORPORATION
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(Exact name of small business issuer as specified in its charter)
DELAWARE 75-1984048
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
1607 WEST COMMERCE STREET DALLAS, TEXAS 75208
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(Address of principal executive offices) (City, State and Zip Code)
(214) 698-8330
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: February 29, 2000 -
205,456,628 common shares, $0.10 par value.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(CHECK ONE):
Yes No X
----- -----
<PAGE>
THIS AMENDMENT NO. 1 IS FILED TO AMEND PART I, ITEMS 1 AND 2 AND PART II,
ITEMS 5 AND 6.
PALWEB CORPORATION
FORM 10-QSB/A
FOR THE PERIOD ENDED FEBRUARY 29, 2000
AMENDMENT NO. 1
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
<S> <C>
Statements of Operations
For the Nine Month Periods Ended
February 29/28, 2000 and 1999 1
Statements of Operations
For the Three Month Periods Ended
February 29/28, 2000 and 1999 2
Balance Sheets as of February 29,
2000 and May 31, 1999 3
Statements of Cash Flows for the
Nine Month Periods Ended February
29/28, 2000 and 1999 4
Notes to Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 6
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PalWeb Corporation
(a development stage company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
From Inception
Nine Month Period (November 20, 1995)
Ended February 29/28, To February 29,
------------------------------ ---------------
2000 1999 2000
------------ ------------ ---------------
<S> <C> <C> <C>
Sales $ 6,091 $ 41,510 $ 98,785
Expenses:
Research and development -- -- 406,943
General and administrative
expenses 2,050,117 4,957,639 9,851,944
Depreciation expense 131,943 115,555 541,057
Impairment -- -- 3,456,231
Interest expense 137,949 199,287 601,140
------------ ------------ ---------------
Total expenses 2,320,009 5,272,481 14,857,315
------------ ------------ ---------------
Other income (expense):
Gain on settlement of
liabilities 75,027 -- 75,027
Other (6,337) 51,573 270,848
------------ ------------ ---------------
Total other 68,690 51,573 345,875
------------ ------------ ---------------
Loss before discontinued
operations and
extraordinary items (2,245,228) (5,179,398) (14,412,655)
Loss from discontinued
operation (7,300) (857,061)
Extraordinary gain -- 46,266 68,616
------------ ------------ ---------------
Net Loss $ (2,245,228) $ (5,140,432) $ (15,201,100)
============ ============ ===============
Loss Per Common Share:
Loss before discontinued
operations & extraordinary
loss $ (0.01) $ (0.03)
Loss from discontinued
operation -- --
Extraordinary loss -- --
------------ ------------
Loss per common share $ (0.01) $ (0.03)
============ ============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
PalWeb Corporation
(a development stage company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period
Ended February 29/28,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Sales $ 6,091 $ --
Expenses:
Research and development -- --
General and administrative
expenses 1,661,598 4,456,038
Depreciation expense 56,243 44,601
Impairment -- --
Interest expense 38,809 90,701
----------- -----------
Total expenses 1,756,650 4,591,340
----------- -----------
Other income (expense):
Gain on settlement of liabilities 75,027 --
Other -- 4,294
----------- -----------
Total other 75,027 4,294
----------- -----------
Loss before discontinued operations
and extraordinary items (1,675,532) (4,587,046)
Income from discontinued operation -- --
Extraordinary gain -- 122,421
----------- -----------
Net Loss $(1,675,532) $(4,464,625)
=========== ===========
Loss Per Common Share:
Loss before discontinued
operations and extraordinary
loss $ (0.01) $ (0.02)
Loss from discontinued operation -- --
Extraordinary loss -- --
----------- -----------
Loss per common share $ (0.01) $ (0.02)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
PalWeb Corporation
(a development stage company)
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
February 29, May 31,
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 322 $ 710
Accounts receivable 3,852 --
Inventory 9,778 9,938
------------ ------------
Total current assets 13,952 10,648
Property, Plant and Equipment, at cost 2,301,677 2,192,982
Accumulated depreciation (466,205) (373,766)
------------ ------------
Total Property, Plant and Equipment 1,835,472 1,819,216
Other Assets:
Intangible assets 67,964 67,964
Accumulated Amortization (10,215) (7,215)
Other 30,173 30,173
------------ ------------
Total other assets 87,922 90,922
------------ ------------
Total Assets $ 1,937,346 $ 1,920,786
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Notes and mortgages payable $ 50,000 $ 50,000
Accounts payable and accrued expenses 461,779 1,146,605
Payable to related parties 1,619,422 2,222,992
Customer deposits -- 300,000
------------ ------------
Total current liabilities 2,131,201 3,719,597
Long-term Debt 340,000 --
Lease Finance Obligation 1,757,958 1,766,958
Stockholders' Deficiency:
Preferred stock, $.0001 par, 20,000,000
shares authorized - outstanding 2,885,000
and 880,000, respectively 289 88
Common stock, $.10 par value,
250,000,000 authorized, outstanding -
205,456,628, and 217,981,046, respectively 20,545,663 21,798,105
Additional paid-in capital 6,798,890 2,027,465
Deficit accumulated during
development stage (29,636,655) (27,391,427)
------------ ------------
Total stockholders' deficiency (2,291,813) (3,565,769)
------------ ------------
Total Liabilities and
Stockholders Deficiency $ 1,937,346 $ 1,920,786
============ ============
</TABLE>
See notes to consolidated financial statement.
3
<PAGE>
PalWeb Corporation
(a development stage company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From Inception
Nine Month Period (November 20, 1995)
Ended February 29/28, To February 29,
---------------------------- -----------
2000 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Net cash provided from
Operating activities $ (179,852) $ 184,408 $ 195,886
Cash Flows from Investing Activities:
Purchase of property and equipment (169,536) (115,653) (3,385,109)
Proceeds from sale of equipment 18,000 74,995 92,995
Proceeds from lease finance
obligation -- -- 149,517
----------- ----------- -----------
Net cash used by investing activities (151,536) (40,658) (3,142,597)
Cash Flows from Financing Activities:
Proceeds from notes and mortgage
payable 340,000 -- 2,703,807
Payments on notes payable -- (143,750) (239,750)
Proceeds from issuance of
common stock -- -- 491,976
Other (9,000) -- (9,000)
----------- ----------- -----------
Net cash provided by
financing activities 331,000 (143,750) 2,947,033
----------- ----------- -----------
Net Increase (Decrease) in Cash (388) -- 322
Cash, beginning of period 710 -- --
----------- ----------- -----------
Cash, end of period $ 322 $ -- $ 322
=========== =========== ===========
Supplemental information:
Non-cash investing activities -
Property released in foreclosure $ -- $ 415,232
Net discontinued assets distri-
buted to certain stockholders -- 238,395
Non-cash financing activities -
Common and preferred stock
issued for services & equipment 1,468,771 4,363,000
Common and preferred stock
issued for debt 673,934 100,000
Common stock issued for debt
of related party 1,187,479 --
Common stock issued on con-
version of preferred stock 208,389 --
Debt contributed to additional
paid in capital by related party 189,000 --
Common stock held by related party
cancelled by default judgement 4,144,331 --
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
PALWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the PalWeb Corporation (the "Company" or "PalWeb"),
the accompanying unaudited consolidated financial statements contain
all adjustments and reclassifications, which are of a normal recurring
nature, necessary to present fairly its financial position as of
February 29, 2000, and the results of its operations and its cash flows
for the three month and nine month periods ended February 29/28, 2000
and 1999. These consolidated financial statements should be read in
conjunction with the consolidated financial statements as of and for
the year ended May 31, 1999 and the notes thereto included in the
Company's Form 10-SB.
2. The results of operations for the three month and nine month periods
ended February 29, 2000 are not necessarily indicative of the results
to be expected for the full year.
3. The balance sheet as of May 31, 1999 has been restated to reflect a
prior period adjustment. During the three month period ended May 31,
1999, the Company issued 3,963,890 shares of preferred stock and
460,000 shares of common stock and recorded a charge for consulting
services in the amount of $673,934. Further analysis has determined the
shares were issued to satisfy services and liabilities in connection
with discontinued operations recorded during the year ended May 31,
1998. The prior period adjustment results in an additional accrual of
loss from discontinued operations in the amount of $481,956 for the
year ended May 31, 1998 and an increase of $191,978 in the charge to
deficits for the spin off of the discontinued operations during the
year ended May 31, 1999. The restated deficit account as of May 31,
1999 is as follows:
Deficit, as previously reported $(26,717,493)
Adjustment for effect of accounting
error (673,934)
-------------
Deficit, as adjusted $(27,391,427)
=============
4. During the nine month period ended February 29, 2000, the Company
issued common and preferred stock as follows:
<TABLE>
<CAPTION>
Number
of Shares Value
---------- -----------
<S> <C> <C>
Common stock issued for:
Consulting services 11,000,000 $1,100,000
Equipment 3,500,210 350,021
Exchange of advances due to
related party 11,874,790 1,187,479
Satisfaction of liabilities 460,000 79,350
Conversion of 2,083,890 shares of
preferred stock 2,083,890 N/A
Preferred stock issued for:
Satisfaction of liabilities 3,963,890 594,584
Legal services 125,000 18,750
</TABLE>
5
<PAGE>
5. Effective April 3, 2000, PalWeb acquired Pace Holding, Inc. and its
wholly-owned subsidiary Paceco Financial Services, Inc., from Mr. Paul
Kruger, the Chairman and Chief Executive Officer of PalWeb, in exchange
for 50,000,000 shares of PalWeb common stock.
6. The computation of earnings per share is based on the weighted average
shares outstanding. For the nine month periods ended February 29/28,
2000 and 1999, the average shares outstanding are 184,316,000 and
174,998,000, respectively. For the three month periods ended February
29/28, 2000 and 1999, the average shares outstanding are 198,640,000
and 188,448,000, respectively. Convertible preferred stock is not
considered as their effect is antidilutive.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
GENERAL TO ALL PERIODS
Sales for the periods ended February 28, 1999 are occasional sales of
prototype plastic pallets of a design which did not meet development
standards. Sales for the periods ended February 29, 2000 represent initial
sales of the Company's tested product. However, PalWeb has not commenced
commercial production of plastic pallets. As of February 29, 2000, PalWeb has
for the most part completed development of its plastic pallet to compete with
wood pallets and is in the final stages of completion of the prototype
injection molding systems to produce plastic pallets for commercial sales.
PalWeb has obtained short-term financing to meet its short term working
capital needs.
PalWeb's new pallet design has been subjected to standard industry
tests known as ASTM (American Society for Testing and Materials) Standard
D1185-98a, a strength test, and D 4728-91, a vibration test, conducted by
Container Technologies Laboratory, Inc., Lenexa, Kansas, an independent
testing facility. Container Technologies Laboratory certified PalWeb's plastic
pallet as having passed the above referenced tests. The testing procedures
found the pallet to be stronger and more versatile than the typical hardwood
pallet.
Production utilizing prototype production equipment is scheduled to
begin about April, 2000, starting at 1,000 pallets per month and increasing to
4,000 per month by about July, 2000 upon completion of a redesign of the
heating system which controls the temperature of the raw material. The Company
hopes to increase commercial production capacity as soon as practical and is
currently seeking funding needed to acquire the necessary production equipment.
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.
NINE MONTH PERIOD ENDED FEBRUARY 29, 2000 COMPARED TO THE NINE MONTH PERIOD
ENDED FEBRUARY 28, 1999
General and administrative expenses for the nine months ended
February 29, 2000 decreased $2,907,522 over February 28, 1999 primarily due to
a lower cost of consulting services. Consulting costs were $4,366,500 for the
nine months ended February 29, 1999 which is $2,898,028 greater than the nine
months ended February 28, 2000.
6
<PAGE>
Interest expense declined $61,338 from $199,287 for the nine months
ended February 28, 1999 to $137,949 for the nine months ended February 29,
2000. The decrease is attributable to the reduction in notes payable.
Management negotiated a settlement of certain delinquent notes payable in the
prior period through foreclosure proceedings, cash payments or part cash, part
common stock.
Other income in the nine months ended February 28, 1999 was primarily
rental income from leasing a portion of its plant facilities. The plant was
sold to a related party in April 1999 and PalWeb leases back only that portion
of the facility it utilizes. Because PalWeb holds an option expiring April
2002 to repurchase the property, the transaction was recorded as a financing
arrangement wherein the plant remains an asset on the balance sheet until such
time as the option expires without being exercised. The significant item in
other income in the nine months ended February 29, 2000, is a gain on
settlement of outstanding liabilities.
Principally as a result of the above, PalWeb had a net loss of
$2,245,228 for the nine months ended February 29, 2000 compared to $5,140,432
for the nine months ended February 28, 1999, a decrease of $2,895,204.
THREE MONTH PERIOD ENDED FEBRUARY 29, 2000 TO THREE MONTH PERIOD ENDED
FEBRUARY 28, 1999
General and administrative expenses decreased $2,794,440 from
$4,456,038 for the period ended February 28, 1999 to $1,661,598 for the period
ended February 29, 2000. This decrease is primarily due to reduced cost of
consulting services, which were $4,160,500 for the three months ended February
28, 1999 compared to $1,441,723 for the three months ended February 29, 2000.
As discussed in the section above comparing the nine months ended
February 29, 2000 to the nine months ended February 28, 1999, certain
delinquent loans were resolved resulting in an extraordinary gain of $122,421
during three months ended February 28, 1999.
As a result of the above, the net loss $1,675,532 for the three
months ended February 29, 2000 decreased $2,789,093 from the net loss of
$4,464,625 for the three months ended February 28, 1999.
LIQUIDITY AND CAPITAL RESOURCES
In December 1999, PalWeb secured a line of credit of $500,000 to
provide short term working capital. The credit line is being funded at the
rate of $100,000 per month beginning December 1, 1999 and reflects an
outstanding balance of $340,000 at February 29, 2000.
Reference is made to the section above titled "General to All
Periods" regarding the need for long term financing to acquire production
equipment to attain commercial production levels. As discussed therein, PalWeb
has incurred delays in completing its prototype injection molding system which
has limited its ability to achieve its anticipated production level of 4,000
pallets per month. PalWeb management projects that a production level of 4,000
pallets per month will provide sufficient cash flow to maintain operations.
While this delay has an adverse effect on the cash flows, management feels
that a production level of 1,000 per month will provide sales revenue which
will cover current expenses.
During the three months ended February 29, 2000, Mr. Paul Kruger, the
Chairman and Chief Executive Officer of PalWeb, and his affiliated companies
received 11,874,790 shares of common stock in exchange for advances and
customer deposits as of January 9, 2000, made to PalWeb in the amount of
$1,187,479.
7
<PAGE>
As discussed in Note 5 to the financial statements, PalWeb acquired
all of the outstanding stock of Pace Holding, Inc. and its wholly-owned
subsidiary Paceco Financial Services, Inc. on April 3, 2000. Paceco Financial
Services, Inc. is engaged in the business of making consumer and small
business loans primarily in Oklahoma. PalWeb intends to use Paceco Financial
Services, Inc. as a vehicle to offer financing to buyers of its plastic
pallets and injection molding equipment.
MATERIAL RISKS
PalWeb is in the development stage, it has incurred significant
losses from operations and there is no assurance that it will achieve
profitability or obtain funds to finance continued operations.
For other material risks, see Part I, Item 1 of the company's Form
10-SB/A.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ACQUISITION OF PACECO FINANCIAL
On January 21, 2000, PalWeb entered into an agreement to acquire
Paceco Financial Services, Inc. ("PFS") by means of a merger of PFS's parent
company, Pace Holding, Inc., into a wholly owned subsidiary of PalWeb, PP
Financial, Inc. This acquisition was consummated on April 3, 2000. In the
acquisition, PalWeb issued 50 million shares of its common stock in exchange
for all the outstanding stock of Pace Holding and PFS became an indirect
wholly owned subsidiary of PalWeb. All of the outstanding stock of Pace
Holding was owned by Paul Kruger, the Chairman and Chief Executive Officer of
PalWeb. PFS, in addition to its other assets, owned 43.5 million shares of
PalWeb common stock, which by virtue of the acquisition, are treated as
treasury stock on PalWeb's records and, accordingly, the acquisition resulted
in the issuance of an additional 6.5 million shares of PalWeb common stock.
PFS has been in business since 1952 and is engaged in the business of
making consumer and small business loans primarily in Oklahoma and is
regulated as an "investment certificate issuer" by the Oklahoma Securities
Department. For its last fiscal year ended September 30, 1999, PFS had
revenues of $790,000, net loss of $2,300,000 and total assets and
stockholder's deficiency of $7,000,000 and $1,700,000, respectively. For the
six months ended March 31, 2000, PFS had revenues of $370,000, net loss of
$800,000 and at such date had total assets of $5,500,000 and stockholder's
deficiency of $2,400,000.
PFS expects to enter into an agreement with the Oklahoma Securities
Department pursuant to which the status of PFS as an "investment certificate
issuer" will be terminated within two years. This agreement will require that
during such period PFS find additional sources of funding for its activities
other than the sale of investment certificates. At March 31, 2000, PFS had
$6,700,000 in investment certificates outstanding.
PalWeb intends to use PFS as a vehicle to offer financing to buyers
of its plastic pallets and injection molding equipment.
The historical financial statements of Pace Holding, Inc. and the pro
forma financial information required by Section 310 of Regulation SB were
filed on June 2, 2000 as a part of PalWeb's Amendment No. 4 to Form 10-SB and
are incorporated herein by reference.
8
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. See original filing.
B. No reports on Form 8-K were filed by PalWeb Corporation during
the quarter ended February 29, 2000
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PALWEB CORPORATION
----------------------------------------
(Registrant)
Date 6/02/00 /s/ PAUL KRUGER
------------------ ----------------------------------------
Chairman of the Board and President
9
