0001072613-01-500982.txt : 20011019
0001072613-01-500982.hdr.sgml : 20011019
ACCESSION NUMBER: 0001072613-01-500982
CONFORMED SUBMISSION TYPE: 10QSB
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010831
FILED AS OF DATE: 20011015
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PALWEB CORP
CENTRAL INDEX KEY: 0001088413
STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559]
IRS NUMBER: 751984048
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10QSB
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-26331
FILM NUMBER: 1759269
BUSINESS ADDRESS:
STREET 1: 1607 W COMMERCE ST
CITY: DALLAS
STATE: TX
ZIP: 75208
BUSINESS PHONE: 2146988330
MAIL ADDRESS:
STREET 1: 1607 W. COMMERCE ST
CITY: DALLAS
STATE: TX
ZIP: 75208
10QSB
1
form10q_10856.txt
PALWEB CORPORATION FORM 10-QSB 08/31/2001
================================================================================
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 AUGUST 31, 2001
[_] 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: AUGUST 31, 2001 - 232,473,244
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(CHECK ONE):
Yes [_] No [X]
================================================================================
PALWEB CORPORATION
FORM 10-QSB
FOR THE PERIOD ENDED AUGUST 31, 2001
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Statements of Operations
For the Three Month Periods Ended
August 31, 2001 and 2000 1
Balance Sheets as of August 31,
2001 and May 31, 2001 2
Statements of Cash Flows for the
Three Month Periods Ended August 31,
2001 and 2000 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 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
From Inception
Three Months Ended (November 20,
August 31, 1995) to
2001 2000 Aug.31, 2001
------------- ------------- -------------
MANUFACTURING:
Sales $ 12,241 $ 13,579 $ 208,159
Expenses:
Research and development -- -- 501,943
Salaries and benefits 88,246 64,646 1,746,663
General and administrative
expenses 317,775 300,299 9,983,423
Depreciation expense 30,386 54,198 848,889
Impairment -- -- 3,456,231
Interest expense 54,153 64,410 1,006,617
------------- ------------- -------------
Total expenses 490,560 483,553 17,543,766
------------- ------------- -------------
Other income (expense):
Gain on settlement
of liabilities -- -- 1,599,262
Other -- -- 272,308
------------- ------------- -------------
Total other income (expense) -- -- 1,871,570
------------- ------------- -------------
LOSS FROM MANUFACTURING
OPERATIONS (478,319) (469,974) (15,464,037)
FINANCE:
Revenues -
Interest and fees on loans 25,753 88,211 272,239
Other income -- 1,588 4,992
Gain (loss) on sale of assets -- (240) 17,365
------------- ------------- -------------
Total Revenues 25,753 89,559 294,596
------------- ------------- -------------
Expenses -
Interest on thrift accounts and
time certificates 49,199 112,908 441,094
Interest on notes payable 1,906 4,989 22,565
Salaries and benefits -- 22,131 57,175
Other operating expenses 15,373 108,336 393,038
Provision for credit losses -- -- 353,426
Depreciation and amortization -- 196,919 888,308
------------- ------------- -------------
Total expenses 66,478 445,283 2,155,606
------------- ------------- -------------
LOSS FROM FINANCE OPERATIONS (40,725) (355,724) (1,861,010)
------------- ------------- -------------
LOSS FROM TOTAL OPERATIONS, BEFORE DISCONTINUED
AND EXTRAORDINARY ITEMS (519,044) (825,698) (17,325,047)
LOSS FROM DISCONTINUED OPERATION 16,203 (792,648)
EXTRAORDINARY GAIN -- -- 68,616
------------- ------------- -------------
NET LOSS $ (519,044) $ (809,495) $ (18,049,079)
============= ============= =============
LOSS PER COMMON SHARE $ (0.01) $ (0.01)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 231,928,000 242,528,000
============= =============
The accompanying notes are an integral part of this consolidated financial statement.
1
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
August 31, May 31,
2001 2001
----------- -----------
ASSETS
------
MANUFACTURING:
Current Assets:
Cash $ 3,480 $ 10,923
Accounts receivable 63,584 72,788
Inventory 164,297 142,689
Prepaid Expenses 95,000 95,000
----------- -----------
Total current assets 326,361 321,400
Property, plant and equipment 6,188,772 2,730,654
Accumulated depreciation (435,557) (405,171)
----------- -----------
Total property, plant and equipment 5,753,215 2,325,483
Other Assets 74,911 76,031
----------- -----------
TOTAL MANUFACTURING ASSETS 6,154,487 2,722,914
----------- -----------
FINANCE:
Cash 176,425 69,546
Loans receivable, net of allowance for
doubtful accounts 707,961 814,349
----------- -----------
TOTAL FINANCE ASSETS 884,386 883,895
----------- -----------
TOTAL ASSETS $ 7,038,873 $ 3,606,809
=========== ===========
The accompanying notes are an integral part of this consolidated financial statement.
2
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
August 31, May 31,
2001 2001
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
MANUFACTURING:
Current Liabilities:
Note payable $ 3,157,870 $ 1,536,559
Notes payable - related party 1,163,435 947,200
Accounts payable and accrued liabilities 3,895,412 1,823,064
------------ ------------
Total current liabilities 8,216,717 4,306,823
Deferred Income 671,691 707,044
------------ ------------
TOTAL MANUFACTURING LIABILITIES 8,888,408 5,013,867
------------ ------------
FINANCE:
Thrift accounts and time certificates 5,107,257 5,107,257
Accrued interest payable
and other liabilities 253,260 204,061
Notes payable 163,851 171,836
------------ ------------
TOTAL FINANCE LIABILITIES 5,524,368 5,483,154
------------ ------------
STOCKHOLDERS' DEFICIENCY:
Preferred stock, $.0001 par, 20,000,000 shares
authorized - outstanding - 1,980,000 and 2,525,000 198 253
Common stock, $.10 par value, 250,000,000
authorized, outstanding - 232,473,244 and 231,928,244 23,247,325 23,192,825
Additional paid-in capital 9,706,594 9,725,686
Deficit accumulated during development stage (35,777,754) (35,258,710)
------------ ------------
(2,823,637) (2,339,946)
Treasury stock, 43,500,000 shares common (4,550,266) (4,550,266)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIENCY (7,373,903) (6,890,212)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 7,038,873 $ 3,606,809
============ ============
The accompanying notes are an integral part of this consolidated financial statement.
3
PALWEB CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
From Inception
Three Months Ended (November 20,
August 31, 1995) to
2001 2000 Aug.31, 2001
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used)
operating activities $ 1,627,968 $ (121,617) $ 1,291,611
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,458,118) (6,074) (8,710,971)
Net liabilities from acquisition
of finance and real estate -- -- 230,724
Proceeds from sale of equipment -- -- 1,456,456
Decrease in loans receivable 100,025 239,379 1,569,887
Proceeds from lease finance obligation -- -- 149,517
----------- ----------- -----------
Net cash provided by (used)
investing activities (3,358,093) 233,305 (5,304,387)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 1,837,546 -- 5,202,612
Payments on notes payable (7,985) (23,262) (1,299,965)
Decrease in savings certificates -- (33,101) (1,551,942)
Proceeds from mortgage payable -
related party -- -- 1,350,000
Proceeds from issuance of common stock -- -- 491,976
----------- ----------- -----------
Net cash provided (used) by
financing activities 1,829,561 (56,363) 4,192,681
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 99,436 55,325 179,905
CASH, beginning of period 80,469 267,882 --
----------- ----------- -----------
CASH, end of period $ 179,905 $ 323,207 $ 179,905
=========== =========== ===========
The accompanying notes are an integral part of this consolidated financial statement.
4
PALWEB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, 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 August 31, 2001, and the results of its
operations and its cash flows for the three month periods ended August
31, 2001 and 2000. These consolidated financial statements should be read
in conjunction with the consolidated financial statements as of and for
the year ended May 31, 2001 and the notes thereto included in the
Company's Form 10-KSB.
2. The results of operations for the three month period ended August 31,
2001 are not necessarily indicative of the results to be expected for the
full year.
3. Segment of Business - The Company's business has two reportable segments
- manufacturing and finance. The manufacturing segment is the production
of plastic pallets and is separately presented in the accompanying
financial statements. The finance segment, also presented separately in
the accompanying financial statements, was acquired on April 3, 1999 and
is in the business of lending money. The accounting policies are the same
as those described in the summary of significant accounting policies.
Intersegment transactions are not significant.
4. Interest expense of $46,273 was capitalized during the three month period
ended August 31, 2001 in connection with the construction of a new
production line.
5. The computation of earnings per share is based on the weighted average
shares outstanding. For the three month periods ended August 31, 2001 and
2000, the average shares outstanding are 231,928,000 and 242,528,000,
respectively. Convertible preferred stock is not considered as their
effect is antidilutive.
6. During the three month period ended August 31, 2001, 545,000 shares of
preferred stock were converted into common stock on a one-for-one basis.
7. Deferred income is being amortized over sixty months. Since the deferred
income results from a transaction with a related party, the amount of
$35,353 is amortized in fiscal year 2002 to additional paid in capital.
For more information relating to the deferred income, see PalWeb's Form
10-KSB for the period ended May 31, 2001 filed on September 13, 2001.
5
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
---------------------
GENERAL TO ALL PERIODS
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.
PalWeb's primary business is the manufacturing and selling of plastic
pallets referred herein as manufacturing. It also indirectly owns a subsidiary
finance company, Paceco Financial Services, Inc. ("PFS"), acquired in April
2000, which was previously engaged in consumer and small business lending and
real estate activities. As described below, the finance activities have been
curtailed until PFS is able to repay outstanding investment certificate
liabilities and in December 2000, the real estate activities were discontinued.
Currently, production of plastic pallets utilizing prototype
production equipment is approximately 800 pallets per month and the current
production capacity of the prototype machine is approximately 4,000 pallets per
month. As of August 31, 2001, PalWeb had 10 full-time employees and a production
capacity of approximately 2,000 pallets per month. Production levels of
approximately 4,000 pallets per month can be attained by adding approximately
two more shifts. Based on current demand, management anticipates that it will
produce about 800 pallets per month through the fiscal year 2002 using existing
personnel. Management will continue to increase production to achieve capacity
as it receives orders for pallets that justify higher production levels. There
is no assurance that the Company will receive orders for pallets that justify
any significant increase to the Company's current production level.
Sales for fiscal year 2002 using existing production equipment are
expected to total approximately 2,000 pallets per quarter. Inventory levels at
August 31, 2001 include approximately 2,865 stackable and 3,185 rackable
pallets. As of August 31, 2001, PalWeb's sales team consists of one full-time
sales agent who is paid on a commission basis. PalWeb's marketing efforts have
generated several leads with customers who are considering sizable orders of
pallets. There is no assurance that PalWeb will secure any sizable orders of
pallets or, if it does, that PalWeb will be able to manufacture the pallets
necessary to fill such orders.
Management has initiated the construction and installation of a new
production line to manufacture plastic pallets at a cost of approximately
$4,700,000. Substantially all major components have been ordered and
installation is in process. At August 31, 2001, PalWeb had placed orders for
production equipment totaling $4,272,000. PalWeb has financed the construction
through a combination of accounts payable (approximately $2,955,000 at August
31, 2001 relating directly to the construction project) and interim financing
from Yorktown Management and Financial Services, LLC as discussed below in
"Liquidity and Capital Resources." The production line is expected to be in
operation during the third quarter of fiscal year 2002.
6
The new line will have the capacity of approximately 40,000 pallets
per month. Gravity Management, an engineering firm in Tulsa, Oklahoma, has been
engaged to engineer and oversee the construction and installation of the
production line. The United States market for new pallets is, at a minimum,
approximately 400,000,000 annually. Projected sales of 40,000 pallets per month,
or 480,000 pallets per year, is less than 1/10th of 1% of the total new pallet
market, and it appears that the market trend is moving toward the use and
purchase of plastic pallets.
In addition, PalWeb continues to test and improve its pallet with
respect to strength, durability and fire retardency. In August 2001, PalWeb
received its test results from the Virginia Polytech Institute & State
University's ("Virginia Tech") Fastrack Evaluation, which in the opinion of
PalWeb further demonstrates the strength and durability of PalWeb's pallets. The
Virginia Tech Fastrack Evaluation is a private test that was conducted at
PalWeb's request. Although the Virginia Tech Fastrack Evaluation is not an
industry standard, PalWeb believes that its test results will be useful in
marketing PalWeb's pallets. In addition, PalWeb has embarked in developing its
own patented formula for fire retardency. Dr. James Pritchard, a respected
technical advisor in the area of custom polymer formulations, has been engaged
to oversee this project. Preliminary tests are being performed to qualify the
product to meet the requirements of UL 2335, Classification Flammability of
Plastic Pallets.
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.
The consolidated statements include PalWeb Corporation and its
wholly-owned subsidiaries Plastic Pallet Production, Inc. ("PPP") and PFS. PPP
represents the manufacturing segment of PalWeb and PFS represents the financial
segment.
THREE MONTH PERIOD ENDED AUGUST 31, 2001 COMPARED TO THREE MONTH PERIOD ENDED
-----------------------------------------------------------------------------
AUGUST 31, 2000
---------------
MANUFACTURING
Sales for the three month period ended August 31, 2001 were $12,241
compared to $13,579 in the three month period ended August 31, 2000. Sales of
approximately 500 pallets for the three months ended August 31, 2001 did not
meet management's goal for fiscal year 2002 of 2,000 pallets per quarter.
Management believes the lower than expected sales are attributable to the
diversion of PalWeb's resources and personnel during the building of its fully
functional production line.
Salary and benefits expense of $88,246 in fiscal year 2002 increased
from $64,646 in fiscal year 2001. This increase of $23,600 is primarily due to
the addition of three employees.
7
The general and administrative expenses for the manufacturing segment
for fiscal year 2002 and 2001 were $317,775 and $300,299, respectively, for a
increase of $17,476.
Interest expense is $54,153 and $64,410 in fiscal year 2002 and 2001,
respectively, for a decrease of $10,257. During fiscal year 2002, $46,273 of
interest expense was capitalized in relation to the construction of a new
production line. Total interest costs during fiscal 2002 were $100,426 ($54,153
plus $46,273) for an increase of $36,016 over 2001, reflecting the additional
borrowings primarily for construction.
The loss from the manufacturing segment in fiscal year 2002 and 2001
is $478,319 and $469,974, respectively. The increase from 2001 to 2002 of $8,345
is primarily due to the reasons discussed above.
FINANCE
PalWeb has planned to use its finance operation primarily for pallet
financing activities. However, due to regulatory issues with the Oklahoma
Department of Securities in connection with its investment certificates and the
liquidation thereof, management has not engaged in any new financing activities.
Interest income in fiscal year 2002 is $25,753 compared to $88,211 in
2001. The decrease of $62,458 is due to the reduction of outstanding loans.
Interest income in 2002 is based on cash payments as substantially all loans at
August 31, 2001 are on a nonaccrual status. In addition, as discussed in the
preceding paragraph, management is not making new loans at the present time.
Total expenses in fiscal year 2002 are $66,478 compared to $445,283
in 2001. The decrease of $378,805 is primarily due to (1) no depreciation and
amortization in fiscal year 2002 due to the write-off of good will in 2001, (2)
the liquidation of thrift savings accounts and a reduction of interest on the
accounts to passbook savings rate of 5%, and (3) a general reduction of
operating expenses in connection with the latent activity of the segment.
The net loss of $40,725 in fiscal year 2002 compared to $355,724 in
2001 is a decrease of $314,999 is primarily due to the reasons discussed above.
COMBINED
As a result of the above, the consolidated net loss for fiscal year
2002 was $519,044, or $0.01 per share, compared to a net loss of $809,495, or
$0.01 per share, in 2001 for a decrease of $290,451.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Statement of Cash Flows for the three month period ended August
31, 2001, reflects net cash provided by operations in the amount of $1,627,968.
This is not reflective of ongoing cash flows because it results from PalWeb's
use of accounts payable to finance the construction of its new production line
as discussed in "General to All Periods." The net cash provided by operations
8
resulting from the increase in accounts payable directly related to the
construction is approximately $1,752,000.
As of August 31, 2001, PalWeb's management projects that the sale of
approximately 4,000 pallets per month are necessary to break even. Sales at this
level will provide revenues of approximately $200,000 and will provide
sufficient cash flow to sustain manufacturing operations which includes cash
operating expenses for labor, recurring overhead, and interest of approximately
$100,000 per month and material costs of approximately 50% of sales or $100,000.
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 had difficulty in
obtaining financing from third parties and PalWeb's attempts 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.
As of August 31, 2001, Mr. Kruger's affiliated entities had loaned
PalWeb approximately $1,163,435, pursuant to various notes with face amounts
aggregating a total of $2,000,000. Mr. Kruger is not obligated to make further
advances under these notes. All of these notes are due on October 15, 2001 and
currently bear interest at the rate of 12% per year. These loans are secured by
substantially all of the assets of PalWeb and PPP, including equipment,
furniture, fixtures, inventory, accounts receivables and patents.
Effective March 1, 2001, PalWeb entered into a $250,000 line of
credit with Yorktown Management and Financial Services, LLC, for a six month
term at 12% interest and maturing October 15, 2001, of which all $250,000 is
outstanding at August 31, 2001. An additional line of credit was provided on
April 1, 2001 by Yorktown in the amount of $2,750,000, 12% interest and maturing
October 15, 2001, which is fully advanced at August 31, 2001. Yorktown is an
entity principally owned by Mr. Kruger's brother, Warren Kruger. This line of
credit is secured, subordinate to the lien described above, by substantially all
of the assets of PalWeb and PPP, including equipment, furniture, fixtures,
inventory, accounts receivables and patents. PalWeb is using the proceeds
principally for the acquisition of a new production line of manufacturing
equipment and $300,000 to settle certain litigation involving Ralph Curton, Jr.
For more information regarding the litigation with Ralp Curton, Jr. and the
subsequent settlement, see PalWeb's Form 10- KSB for the period ended May 31,
2001 filed on September 13, 2001.
On May 8, 2001, PalWeb announced that it had signed a letter of
intent for a private placement of 500,000 shares of convertible preferred stock
and warrants to purchase 150,000,000 shares of common stock for a total of
$5,500,000. The letter of intent is with Westgate Capital Company, L.L.C., a
Tulsa, Oklahoma based private investment group ("Westgate") and Hidalgo Trading
Company, LLC, which is 100% owned by the Company's Chief Executive Officer, Paul
Kruger. Of the total $5.5 million consideration, $1 million will be provided by
Hidalgo through conversion of existing secured indebtedness of PalWeb and $4.5
million will be provided in cash
9
from an investment fund managed by Westgate. One of the principals of Westgate
is Warren Kruger, the brother of Paul Kruger. Proceeds will be used to construct
pallet production equipment, repay loans made by Yorktown as described above,
repay other current liabilities, and for working capital. Under the terms of the
proposed investment, each share of the convertible preferred stock will be
convertible into 350 shares of common stock of the Company or a total of
175,000,000 shares, which is an effective conversion price of $0.0286 per share.
Holders of the preferred stock will also be entitled to cumulative dividends of
12% per annum, $1.20 per share, or a total of $600,000. The warrants will be
exercisable at a price of $0.10 per share for a period of four years and 25% of
the warrants will be callable by PalWeb if common stock trades at prices of
$0.15, $0.20 and $0.25 per share, respectively. Closing of the proposed
investment is subject to Westgate obtaining the necessary financing agreements
and customary closing conditions and is expected to occur in one or more
tranches during the second or third quarter of fiscal year 2002. Hidalgo is not
required to convert its secured debt unless the entire $4.5 million in cash
equity is raised. There is no assurance that this private placement will close.
The ability to convert the preferred stock and exercise the warrants described
above depends on PalWeb amending its certificate of incorporation to authorize
additional capital and reduce the par value of its common stock.
PalWeb is dependent upon Mr. Kruger and Yorktown to provide and/or
secure additional financing and there is no assurance that either will do so. As
such, there is no assurance that funding will be available for PalWeb to
continue operations.
The Company had accumulated a working capital deficit of $7,858,000
at August 31, 2001 in connection with its manufacturing operations, which
includes $1,163,435 in loans due to Mr. Kruger or his affiliates, $3,000,000 in
notes payable to Yorktown, and $3,862,000 in accounts payable and accrued
liabilities. This deficit reflects the uncertain financial condition of the
Company resulting from its inability to obtain long term financing to progress
beyond the development stage.
There is no assurance that the Company will secure such financing.
PalWeb occupies its facility under a lease with Onward, LLC, an
affiliate of Mr. Paul Kruger. Effective May 1, 2001, the lease provides for a
one year term with four one-year renewal options.
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, 2001,
which was filed on September 13, 2001.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In August 2001, PalWeb issued 545,000 shares of its common stock in a
no-sale transaction upon the conversion of 545,000 shares of preferred stock.
10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
11.1 Computation of Loss per Share is in Note 5 in the
Notes to the financial statements.
B. Reports on Form 8-K
No reports on Form 8-K were filed by PalWeb Corporation
during the three months ended August 31, 2001.
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 10/15/01 /s/ Paul A. Kruger
---------------------------
Paul A. Kruger
Chairman of the Board and President
11