<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(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
------------------------------------------------------
PALWEB CORPORATION
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 75-1984048
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
2500 SOUTH MCGEE NORMAN, OKLAHOMA 73072
- ---------------------------------------- --------------------------
(Address of principal executive offices) (City, State and Zip Code)
(405) 360-5047
- --------------------------------------------------------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(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
----- -----
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>
PALWEB CORPORATION
FORM 10-QSB
FOR THE PERIOD ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
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 2. CHANGES IN SECURITIES 8
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 5. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
</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 2,141,968 4,991,879 9,943,795
Depreciation expense 131,943 115,555 541,057
Impairment - - 3,456,231
Interest expense 137,949 199,287 601,140
----------- ----------- ------------
Total expenses 2,411,860 5,306,721 14,949,166
----------- ----------- ------------
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 (2,337,079) (5,213,638) (14,504,506)
Loss from discontinued
operation (7,300) (375,105)
Extraordinary gain - 68,616 68,616
----------- ----------- ------------
Net Loss $(2,337,079) $(5,152,322) $(14,810,995)
=========== =========== ============
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 1,674,099 4,490,278
Depreciation expense 56,243 44,601
Impairment - -
Interest expense 38,809 90,701
----------- -----------
Total expenses 1,769,151 4,625,580
----------- -----------
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 (1,688,033) (4,621,286)
Income from discontinued operation - -
Extraordinary gain - 144,771
----------- -----------
Net Loss $(1,688,033) $(4,476,515)
=========== ===========
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>
Nine Month Period From Inception
Ended February 29/28, (November 20, 1995)
--------------------- 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
retained 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:
<TABLE>
<S> <C>
Deficit, as previously reported $(26,717,493)
Adjustment for effect of accounting
error (673,934)
-------------
Deficit, as adjusted $(27,391,427)
=============
</TABLE>
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.
6
<PAGE>
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 $2,849,911 over February 28, 1999 primarily due to a lower
cost of consulting services. Consulting costs were $1,596,000 for the nine
months ended February 29, 2000 which is a decrease of $2,767,000 from the nine
months ended February 28, 1999.
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
$2,337,079 for the nine months ended February 29, 2000 compared to $5,152,322
for the nine months ended February 28, 1999, a decrease of $2,815,243.
THREE MONTH PERIOD ENDED FEBRUARY 29, 2000 TO THREE MONTH PERIOD ENDED FEBRUARY
28, 1998
General and administrative expenses decreased $2,816,179 from
$4,490,279 for the period ended February 28, 1999 to $1,674,099 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 $144,771 during three
months ended February 28, 1999.
As a result of the above, the net loss $1,688,033 for the three months
ended February 29, 2000 decreased $2,788,482 from the net loss of $4,476,515 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
7
<PAGE>
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.
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 2. CHANGES IN SECURITIES
During the quarter ended February 29, 2000, the registrant has sold the
following securities without registering the securities under the Securities Act
of 1933:
<TABLE>
<CAPTION>
Date Persons or Classes of Persons No. Shares Consideration
---- ----------------------------- ---------- -------------
<S> <C> <C> <C>
12/1/99 Crescent Road Corporation 6,500,000 Public Relations &
Investor Relations
Valued at $650,000
8
<PAGE>
12/1/99 Consolidated Capital Group, Inc. 4,500,000 Public Relations &
Investor Relations
Valued at $450,000
1/10/99 Paul A. Kruger, et al 11,874,790 Satisfaction of debt
in the amount of
$1,187,479
1/10/99 Paul A. Kruger 3,500,210 Equipment valued at
$350,021 contributed
to Plastic Pallet
Production, Inc., a
wholly-owned subsidiary
</TABLE>
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held on January 22, 2000, the
following proposals were adopted by the votes indicated:
1. To elect a Board of Directors to hold office until the next annual meeting of
stockholders.
Paul A. Kruger
Lyle W. Miller
Mark R. Kidd
117,032,783 Votes For; 3,000 Votes Against
2. To approve the actions of the Company's directors, officers, employees,
agents, accountants and attorneys in connection with conducting PalWeb's
business since the last annual meeting.
117,034,873 Votes For; 910 Votes Against
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
9
<PAGE>
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.
PalWeb intends to use PFS as a vehicle to offer financing to buyers of
its plastic pallets and injection molding equipment.
The financial statements of the business acquired and pro forma
financial information will be filed at a later date pursuant to Item 7,
subpart (a)(4) of Form 8-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
11.1 Computation of Loss per Share is in Note 6 in the
Notes to the financial statements.
27.1 Financial Data Schedule, attached.
B. Reports on Form 8-K
No reports on Form 8-K were filed by PalWeb Corporation during
the quarter ended February 29, 2000
10
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be singed on its behalf by the undersigned, thereunto duly
authorized.
PALWEB CORPORATION
------------------------------------
(Registrant)
Date 4/18/00 /s/ PAUL KRUGER
- ------------------------------ ------------------------------------
Chairman of the Board and President
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> FEB-29-2000
<CASH> 322
<SECURITIES> 0
<RECEIVABLES> 3852
<ALLOWANCES> 0
<INVENTORY> 9778
<CURRENT-ASSETS> 13952
<PP&E> 2301677
<DEPRECIATION> 466205
<TOTAL-ASSETS> 1937346
<CURRENT-LIABILITIES> 2131201
<BONDS> 2097958
0
289
<COMMON> 20545663
<OTHER-SE> (22837765)
<TOTAL-LIABILITY-AND-EQUITY> 1937346
<SALES> 6091
<TOTAL-REVENUES> 6091
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2273911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137949
<INCOME-PRETAX> (2337079)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2337079)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2337079)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
