<PAGE>
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 AUGUST 31, 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.)
1607 WEST COMMERCE STREET DALLAS, TEXAS 75208
------------------------------------------- ----------------------------
(Address of principal executive offices) (City, State and Zip Code)
(214) 698-8330
-------------------------------------------------------------------------------
(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: OCTOBER 6, 2000 - 242,528,244
COMMON SHARES, $0.10 PAR VALUE OF WHICH 43,500,000 ARE OWNED BY A SUBSIDIARY
OF PALWEB.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(CHECK ONE):
Yes / / No /X/
<PAGE>
PALWEB CORPORATION
FORM 10-QSB/A
AMENDMENT NO. 1
FOR THE PERIOD ENDED AUGUST 31, 2000
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
GENERAL TO ALL PERIODS
Sales for the three months ended August 31, 2000 represent isolated
sales of PalWeb Corporation's ("PalWeb" or the "Company") tested product. As
of August 31, 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
modifying its marketing and manufacturing process to produce plastic pallets
for commercial sales.
Production utilizing the prototype equipment began in June 2000
starting at approximately 500 pallets per month. Management anticipates that
it will produce up to 1000 pallets per month during the second quarter of the
fiscal year 2001 using existing personnel, or a total of approximately 3,000
pallets. Actual sales for the second quarter of the fiscal year 2001 are
expected to total approximately 1000 pallets. The hiring of two additional
employees will enable PalWeb to increase production to approximately 2000
pallets per month. Production levels of approximately 4000 pallets per month
can be attained by adding a second shift comprised of approximately 7
additional employees. Management will increase PalWeb's production level as
it receives orders for pallets that justify such an increase. There is no
assurance that the Company will receive orders for pallets that justify any
significant increase to the Company's current production level.
To date, marketing activity has been limited while the Company has
been working to assure that its prototype equipment is capable of producing
marketable pallets. PalWeb has relied on its Web sites, www.ppplastic.com and
www.palweb.net and "word-of-mouth" to disseminate product information to
potential customers. Management believes that its equipment currently has the
capacity to produce pallets and is, therefore, increasing the Company's
marketing efforts. The Company expects to develop ads to be placed in trade
magazines of the materials handling industry during the third quarter of the
fiscal year 2001. In addition, PalWeb has contacted sales and marketing firms
in an effort to develop marketing agreements for a distribution network based
solely on commissions to reduce or limit PalWeb's marketing costs. As of
August 31, no such agreements had been reached and there is no assurance that
such agreements will be reached.
The consolidated statements of PalWeb include its wholly owned
subsidiary, Plastic Pallet Production, Inc. ("PPP"), and its indirect wholly
owned subsidiary, Paceco Financial Services, Inc. ("PFS"). PPP represents the
manufacturing segment of PalWeb and PFS represents the financial and real
estate segments. PFS is an "investment certificate isssuer" and is regulated
by the Oklahoma Department of Securities. As more fully described below, PFS
has ceased sales of investment certificates and is in the process of
repayment of all of its existing investment certificate liabilities through a
supervised plan of liquidation of its assets. PalWeb has not received funds
from PFS since PFS became an indirect wholly owned subsidiary of PalWeb and
will not receive any funds from PFS in the future to finance its
manufacturing operations. PFS is not able to provide funds to PalWeb without
the approval of the Oklahoma Department of Securities.
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
1
<PAGE>
available for each period presented in the consolidated statement of operations.
THREE MONTH PERIOD ENDED AUGUST 31, 2000 TO THREE MONTH PERIOD ENDED
AUGUST 31, 1999
Manufacturing
The general and administrative expenses for the manufacturing segment
for 2000 and 1999 was $300,299 and $732,728, respectively, for a decrease of
$432,429. The reduction is primarily due to consulting fees of $628,000 in
1999 compared to none in 2000, offset by a noncash charge in the amount of
$175,000 in 2000 relating to the value of the shares of PalWeb common stock
required to be issued as a penalty resulting from the Company's failure to
register shares issued as consulting fees in December 1999. The Company
disputes its obligation to issue such shares because the consultants have
failed to perform their obligations.
Interest expense is $64,410 and $38,383 in 2000 and 1999,
respectively. The increase is due to the increase in notes payable and
payables to related parties.
The loss from the manufacturing segment in 2000 and 1999 is $469,974
and $883,035, respectively. The decrease from 1999 to 2000 of $413,061 is
primarily due to the reasons discussed above.
Finance and Real Estate
The net loss represented by the finance and real estate segments for
2000 was $339,521 of which the financial segment had a loss of $355,724
including a non-cash charge for amortization of goodwill in the amount of
$190,274. The real estate segment had income of $16,203 for the period.
These segments relate to operations of PFS, which was acquired in April of
2000 and, accordingly, its results are excluded from the three months ended
August 31, 1999.
Combined
As a result of the above the consolidated net loss for 2000 was
$809,495 while the net loss for 1999 was $883,035. This is a decrease of
$73,540.
LIQUIDITY AND CAPITAL RESOURCES
PalWeb's immediate goal is to develop the marketing of its plastic
pallets to attain orders to justify maximizing its current production capacity
of 4,000 pallets per month. PalWeb's management projects that the sale of
approximately 4,000 pallets per month will provide revenues of approximately
$200,000 and will provide sufficient cash flow to sustain manufacturing
operations. There is no assurance that this sales level will be achieved.
Until sales reach this level, PalWeb will remain dependent on outside sources
of cash to fund its operations as its sales revenues will be insufficient to
meet current liabilities. Due to its development stage status, PalWeb has
been unsuccessful in obtaining financing from third parties and PalWeb's
attemps for bank financing have all been contingent on personal guarantees
from its Chairman, Chief Executive Officer and principal shareholder, Mr. Paul
Kruger. Accordingly, Mr. Kruger has elected to provide financing direct from
his affiliated entities and has requested and received security equivalent to
that which a bank would require. It is Mr. Kruger's intention to eventually
retire any loans from his affiliates with the proceeds from future bank
financing once PalWeb can qualify on its own merit. PalWeb is dependent upon
Mr. Kruger to provide and/or secure additional financing and there is no
assurance that Mr.
2
<PAGE>
Kruger will do so. As such, there is no assurance that funding will be
available for PalWeb to continue operations.
Management's long term goal is to achieve sales substantially higher
than its current production capacity of 4,000 pallets per month. To
accomplish this goal, PalWeb must acquire a production equipment line at an
estimated initial cost of $2,000,000. PalWeb does not have financing to fund
such costs and there is no assurance that it can be obtained. If the
financing is not obtained, PalWeb will continue to produce and market pallets
on its prototype equipment in an attempt to sustain its operations.
PalWeb has accumulated a working capital deficit of $1,574,059 in
connection with its manufacturing operations. This deficit reflects the
uncertain financial condition of the Company resulting from its inability to
generate revenues sufficient to satisfy current obligations and its inability
to obtain financing to progress beyond the development stage. If PalWeb fails
to reach a sales and production level sufficient to achieve breakeven or
profitable operations or fails to secure the financing necessary to achieve
increased production capacity, PalWeb may have to suspend or terminate its
operations and/or consider bankruptcy.
In connection with an examination of PFS in March 1999, the Oklahoma
Department of Securities determined that certain of PFS's activities,
including the ownership of real estate and the ownership of equity securities,
did not comply with the provisions of the Oklahoma Securities Act relating to
the permissible activities of investment certificate issuers. As a result of
such determination, PFS ceased making any new investments not permissible to
investment certificate issuers. Since that time PFS and the Oklahoma
Securities Department have been negotiating an agreed order for the ultimate
liquidation of the impermissible assets and repayment of the investment
certificates.
Subsequent to the three months ended August 31, 2000, PFS sent a
notice to its depositors stating that, at current market values, the net
assets of PFS were inadequate to redeem 100% of the depositors' passbook
savings accounts and time certificates (collectively referred to herein as
"Deposits") as they come due. Effective October 5, 2000, PFS exercised its
right to suspend redemptions of time certificates and withdrawals of passbook
savings accounts and has ceased accepting any Deposits. A plan to liquidate
assets and partially redeem Deposits has been proposed by PFS and is under
consideration by the Oklahoma Department of Securities. PalWeb anticipates
that the consent of the Department of Securities to the terms of the proposal
is imminent.
PalWeb has not entered into any conditions, commitments or
requirements with the Oklahoma Securities Department that would require it to
fund or otherwise be financially responsible for the liabilities of PFS.
PFS's ability to fund repayment of investment certificates is substantially
dependent on PFS's ability to sell or otherwise receive funding relating to
approximately 40,000,000 shares of PalWeb common stock owned by PFS. PalWeb
estimates that such stock must be sold for a value of at least $0.12 per share
in order for PFS to have sufficient funds to pay the holders of the
outstanding investment certificates. PalWeb is not currently contractually or
otherwise liable to provide funding to PFS for purposes of funding the
repayment of investment certificates. However, because, as of October 13,
2000, PFS was unable to make payment to investment certificate holders as such
investment certificates mature, it is possible that holders of investment
certificates may assert claims against PalWeb that it is liable for the
liabilities of PFS under legal theories relating to piercing the corporate
veil or otherwise. In such event, PalWeb might incur additional costs to
contest such claims and could ultimately be found to be liable. The effect of
any such claims being made against PalWeb could also have an adverse effect on
the value of PalWeb's common stock and make it even more difficult for PFS to
fund the repayment of its investment certificate liability
3
<PAGE>
from liquidation of the PalWeb common stock owned by it. Accordingly, PalWeb
may be adversely affected if PFS is unable to meet its obligations.
For a more information regarding PFS and its plan of redemption, see
Item 5 of PalWeb's Form 10-QSB for the period ended August 31, 2000, which was
filed on October 16, 2000 and PalWeb's Form 8-K, which was filed on November
17, 2000.
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 PalWeb's Form 10-KSB for the period ended May 31, 2000, which was filed on
August 29, 2000.
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 11/17/00 /s/ Paul A. Kruger
------------------------------ ------------------------------
Paul A. Kruger
Chairman of the Board and President
4
