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 MARCH 31, 2002 [] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO __________ COMMISSION FILE NUMBER: 000-31909 SCHOOLWEB SYSTEMS, INC. (Exact name of small business issuer as specified in its charter) NEVADA 88-0473897 (State or other jurisdiction of incorporation or (IRS Employer organization Identification No.) #280 - 815 West Hastings Street, Vancouver, British Columbia V6C 1B4 (604) 608-2540 (Registrant's telephone number) North Pacific Capital Corp. Suite 2602 - 1111 Beach Ave Vancouver, BC Canada V6E 1T9 (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 Par Value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 As of March 31, 2002, the Registrant had 15,483,000 shares of common stock issued and outstanding. Transitional Small Business Disclosure Format (check one) Yes [] No [x] TABLE OF CONTENTS PAGE PART I - FINANCIAL INFORMATION 3 ITEM 1. FINANCIAL STATEMENTS 3 BALANCE SHEET AS OF MARCH 31, 2002 3 INTERIM STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 4 INTERIM STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002 6 NOTES TO FINANCIAL STATEMENTS 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II -OTHER INFORMATION 9 ITEM 1. LEGAL PROCEEDINGS 9 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 9 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9 ITEM 5. OTHER INFORMATION 9 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9 SIGNATURE PART I. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SCHOOLWEB SYSTEMS INC. (Formerly North Pacific Capital Corp.) (A Development Stage Company) CONSOLIDATED BALANCE SHEETS MARCH 31 DECEMBER 31 2002 2001 (Unaudited) (NOTE 1) ASSETS CURRENT ASSETS Cash $ 7,781 $ 5,669 Prepaid expenses 4,074 3,758 Inventory 6,057 - 17,912 9,427 LICENSE RIGHTS (Note 4) 22,500 24,000 FIXED ASSETS, net of depreciation 3,145 3,400 43,557 36,827 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 26,989 $ 26,091 Due to related parties (Note 6) 11,433 33,486 38,422 59,577 COMMITMENTS AND CONTINGENCIES (Notes 1 and 4) STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) Capital stock (Note 5) Common stock, $0.00001 par value, 100,000,000 shares authorized 15,343,000 (2001 - 14,733,000) issued and outstanding 153 147 Additional paid-in capital 379,296 242,302 Accumulated comprehensive loss (3,505) (1,950) Deficit accumulated during development stage (370,809) (263,249) 5,135 (22,750) 43,557 36,827 The accompanying notes are an integral part of these interim consolidated financial statements SCHOOLWEB SYSTEMS INC. (Formerly North Pacific Capital Corp.) (A Development Stage Company) INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) October 13 Three Three months 2000 Months ended March (inception) to Ended 31, 2001 March 31, 2002 (Note 1) HARDWARE SALES $ 825 $ - $ 825 EXPENSES Depreciation and amortization 1,755 - 8,355 Consulting 16,955 - 34,255 License fees 60,000 30,000 180,000 Office and general 10,286 6,038 60,816 Marketing 15,846 4,231 55,275 Professional fees 3,543 1,320 32,933 108,385 41,589 371,634 NET LOSS FOR THE PERIOD $ (107,560) $ (41,589) $ (370,809) BASIC NET LOSS PER SHARE $ (0.01) $ 0.00 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 14,910,445 12,343,000 The accompanying notes are an integral part of these interim consolidated financial statements SCHOOLWEB SYSTEMS INC. (Formerly North Pacific Capital Corp.) (A Development Stage Company) INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) October 13 Three Three months 2000 Months ended March (inception) to Ended 31, 2001 March 31, 2002 (Note 1) CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period $ (107,560) $ (41,589) $ (370,809) Adjusted for item not involving cash: Depreciation and amortization 1,755 - 8,355 Changes in inventory (6,057) - (6,057) Changes in prepaid expenses (316) - (4,074) Changes in accounts payable 898 - 22,849 NET CASH FLOWS USED IN OPERATING ACTIVITIES (111,280) (41,589) (349,736) CASH FLOWS FROM FINANCING ACTIVITIES Advances from related parties (22,053) 16,267 7,595 Proceeds on sale of common stock 137,000 31,424 357,353 NET CASH FLOWS FROM FINANCING ACTIVITIES 114,947 47,691 364,948 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of capital assets - (4,000) (4,000) Cash acquired on reverse acquisition of SchoolWeb (Note 3) - - 74 NET CASH FLOWS USED IN INVESTING ACTIVITIES - (4,000) (3,926) EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,555) - (3,505) INCREASE IN CASH 2,112 2,102 7,781 CASH, BEGINNING OF PERIOD 5,669 3 - CASH, END OF PERIOD 7,781 2,105 7,781 The accompanying notes are an integral part of these interim consolidated financial statements SCHOOLWEB SYSTEMS INC. (Formerly North Pacific Capital Corp.) (A Development Stage Company) NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 (Unaudited) NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION The Company was incorporated on June 26, 2000 in the State of Nevada as North Pacific Capital Corp. and was organized for the purpose of creating a corporate vehicle to locate and acquire an operating business. On December 19, 2001 the Company changed its name to Schoolweb Systems Inc. ("SW Systems" or the "Company"). On November 6, 2000, the Company filed a Form 10SB registration with the United States Securities and Exchange Commission and as a result is subject to the regulations governing reporting issuers in the United States. By agreement dated July 2, 2001 and completed September 10, 2001, SW Systems issued 12,343,000 shares of restricted common stock to the shareholders of Schoolweb Holdings Inc. ("SW Holdings"), a development stage company incorporated October 13, 2000 in the State of Nevada, in exchange for all of the issued and outstanding shares of SW Holdings. The acquisition resulted in the former shareholders of SW Holdings acquiring 90.1% of the outstanding shares of the Company and has been accounted for as a reverse merger with SW Holdings being treated as the accounting parent and SW Systems, the legal parent, being treated as the accounting subsidiary. Accordingly, the consolidated results of operations of the Company include those of SW Holdings for all periods shown and those of the SW Systems since the date of the reverse acquisition. The results of operations of SW Holdings are from its inception, October 13, 2000 and include the results of its wholly-owned subsidiary, SchoolWeb Systems (Canada) Ltd. a company incorporated April 17, 2001 in the Province of British Columbia. The comparative balance sheet as at December 31, 2001 and the comparative results of operations and changes in financial position for the three months ended March 31, 2001 are those of SW Holdings. Refer to Note 3. SW Holdings, through a License Agreement dated January 1, 2001, will distribute, market, sell and license in the United States and Canada, certain proprietary software and hardware systems technology known as "SchoolWeb" used for caching Internet and multimedia files on special servers (refer to Note 4). The consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and further losses are anticipated before the Company reaches a commercial stage raising substantial doubt as to the Company's ability to continue as a going concern. The Company's continued operations are dependent on the successful implementation of its business plan, its ability to obtain additional financing as needed, and ultimately to attain profitable operations. Unaudited Interim Financial Statements The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB of Regulation S-B. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2001 included in the Company's Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-KSB. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, SW Holdings and Schoolweb Systems (Canada) Ltd. All significant intercompany transactions and account balances have been eliminated. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Use of Estimates and Assumptions Preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all liquid investments, with an original maturity of three months or less when purchased, to be cash equivalents. Inventory Inventory consists of computer hardware products held for resale and is carried at the lower of cost and net realizable value. License Rights The Company amortizes the cost of acquiring license rights on a straight-line basis over the term of the license. Fixed Assets Fixed assets are recorded at cost and depreciated on a declining balance basis at a rate of 30% per annum. Revenue recognition The Company distributes computer hardware products in connection with the distribution and licensing of the SchoolWeb technology. Revenue from these sales is recognized at the time products are shipped to customers and is shown net of the costs of acquiring the hardware. Foreign Currency Translation The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation", foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the year. Related translation adjustments are reported as a separate component of stockholders' equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations. Fair Value of Financial Instruments In accordance with the requirements of SFAS No. 107, the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities approximate carrying value due to the short-term maturity of the instruments. Stock-Based Compensation The Company accounts for stock-based compensation in respect to stock options granted to employees and officers using the intrinsic value based method in accordance with APB 25. Stock options granted to non- employees are accounted for using the fair value method in accordance with SFAS No. 123. In addition, with respect to stock options granted to employees, the Company provides pro-forma information as required by SFAS No. 123 showing the results of applying the fair value method using the Black-Scholes option pricing model. The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) The Company has also adopted the provisions of the Financial Accounting Standards Board Interpretation No.44, Accounting for Certain Transactions Involving Stock Compensation - An Interpretation of APB Opinion No. 25 ("FIN 44"), which provides guidance as to certain applications of APB 25. FIN 44 is generally effective July 1, 2000 with the exception of certain events occurring after December 15, 1998. Income taxes The Company follows the liability method of accounting for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. As at March 31, 2002 the Company had net operating loss carryforwards; however, due to the uncertainty of realization the Company has provided a full valuation allowance for the deferred tax assets resulting from these loss carryforwards. Net Loss per Common Share Basic loss per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive earnings per share reflects the potential dilution of securities that could share in the earnings of the Company. The accompanying presentation is only of basic loss per share as the potentially dilutive factors are anti-dilutive to basic loss per share. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), which requires that goodwill not be amortized. SFAS requires that the Company review goodwill at least annually to determine if an impairment has occurred and if so that goodwill should be reduced accordingly. The Company has determined that the implementation of this standard does not have any impact on its financial statements. NOTE 3 - ACQUISITION OF SW HOLDINGS By agreement dated July 2, 2001 and completed September 10, 2001, SW Systems acquired 100 % of the issued and outstanding shares of SW Holdings in exchange for 12,343,000 shares of restricted common stock of SW Systems. At the time of this transaction, the former shareholders of SW Holdings acquired 90.1% of the 13,693,000 total issued and outstanding shares of SW Systems. This acquisition has been accounted for as a recapitalization using accounting principles applicable to reverse acquisitions with SW Holdings being treated as the accounting parent (acquirer) and SW Systems being treated as the accounting subsidiary (acquiree). The value assigned to the capital stock of consolidated SW Systems on acquisition of SW Holdings is equal to the book value of the capital stock of SW Holdings plus the book value of the net assets of SW Systems as at the date of the acquisition. The book value of SW System's capital stock subsequent to the acquisition is calculated and allocated as follows: SW Holdings capital stock $ 153,103 SW Systems net assets (liabilities) (7,904) $ 145,199 Capital stock $ 137 Additional paid-in capital 145,062 $ 145,199 These consolidated financial statements include the results of operations of SW Holdings since October 13, 2000 (inception) and the results of operations of SW Systems since the date of the reverse acquisition on September 10, 2001. SW Systems had no material assets, liabilities or operations for the period from July 1, 2001 to September 10, 2001. NOTE 4 - LICENSE AGREEMENT By agreement dated January 1, 2001, SW Holdings entered into an agreement with Advanced Interactive Inc. ("AII") and Advanced Interactive (Canada) Inc. ("AIC") whereby SW Holdings acquired exclusive and non-exclusive rights and licenses to commercialise, distribute and market SW Holdings related licensed technology, products and services in the United States and Canada for a period of five years. SW Holdings must pay royalties equal to 40% of net revenue received plus $10,000 per month in the first year, $20,000 per month in year two, and increasing by $8,000 per month in each of the subsequent years to a maximum of $84,000 per month. After year three, the monthly payment is reduced by the amount of royalties otherwise payable. In addition SW Holdings issued 2,500,000 shares on June 29, 2001 valued at $.01 per share or $25,000. Effective September 10, 2001 SW Holdings, AII and AIC amended the original agreement such that AI and AIC would receive an additional 500,000 shares valued at $5,000 which SW Systems issued on September 10, 2001. NOTE 5 - CAPITAL STOCK To March 31, 2002, the Company has not granted any stock options and has not recorded any stock-based compensation. During the period, the Company completed a private placement of 510,000 units at a price of $.20 per unit. Each unit consists of one common share and one share purchase warrant entitling the holder to acquire an additional share at a price of $0.50 per share to February 28, 2004. During the period, the Company completed a private placement of 100,000 units at a price of $.35 per unit. Each unit consists of one common share and one share purchase warrant entitling the holder to acquire an additional share at a price of $0.50 per share to March 15, 2004. At March 31, 2002 there were 510,000 warrants outstanding to purchase 510,000 common shares at a price of $0.50 per share to February 28, 2004 and 100,000 warrants outstanding to purchase 100,000 common shares at a price of $0.50 per share to March 15, 2004. NOTE 6 - RELATED PARTY TRANSACTIONS Certain directors have provided cash loans totalling $11,433 at March 31, 2002. These loans are non-interest bearing and have no specific terms of repayment. During the period, two directors of SW Holdings received $14,401 (2000 - $4,231) in marketing fees. The Company also incurred $14,750 in consulting fees to two other directors during the period. During the period, a company controlled by a shareholder of the Company received $6,420 in professional fees. NOTE 7 - INCOME TAXES The Company and its subsidiaries have tax losses which may be available to reduce future year's taxable income, that result in deferred tax assets. Management believes that the realization of the benefits from these deferred tax assets appears uncertain due to the Company's limited operating history and losses to date. Accordingly a full, deferred tax asset valuation allowance has been provided and no deferred tax asset benefit has been recorded. NOTE 8 - SUBSEQUENT EVENT Subsequent to March 31, 2002, the Company received $53,500 towards private placement subscriptions for shares of common stock at a price of $.35 per unit. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS SchoolWeb Holdings Inc., in January of 2000, entered into a software license agreement with Advanced Interactive Inc. ("AII") by which it acquired the North American rights to market and distribute AII's broadcast / caching software ( the SchoolWeb software system it currently markets and distributes). On March 6, 2002, AII and Hewlett Packard (Canada) entered into an agreement (the "Hewlett Packard Agreement") where AII agreed that the broadcast caching software it had licensed to the Company would, be sold in conjunction with Hewlett Packard hardware and with financing provided by a division of Hewlett Packard (Canada), Hewlett Packard's leasing and finance division. Effective March 6, 2002 but executed on April 10, 2002, the Company granted to AII its consent to the Hewlett Packard Agreement. As a result, the Company must only sell broadcast caching server software (including the SchoolWeb software system) in conjunction with Hewlett Packard hardware and with financing provided by Hewlett Packard's leasing and finance division. Management of the Company consented to the Hewlett Packard Agreement because in it Hewlett Packard (Canada) agrees to use its best efforts to provide distribution and marketing of the broadcast caching software products the Company has licensed from AII. The Company hopes that Hewlett Packard (Canada) and its distribution capability will generate sales of the SchoolWeb software system and the HealthWeb software system. In exchange for its consent, the Company also secured rights under the License Agreement to a broader range of products than it previously had rights to. The License Agreement with AII originally entitled the Company only to the SchoolWeb and OfficeServer software products. The License Agreement has now been amended to expand the Company's rights to a North American license of all broadcast caching software products AII has developed. In December 2001, Hewlett Packard began testing the SchoolWeb system in their facilities. In March and April of 2002, Hewlett Packard (Canada) began market-testing the SchoolWeb software system.in 15 school districts across Canada. The Company hopes that these tests will generate revenue from sales of the SchoolWeb software system. (a) Results of Operations With the closing of the SchoolWeb Agreement, the Company's results, on a consolidated basis, reflected its own results consolidated with its subsidiary, SchoolWeb Holdings Inc. For the quarter ended March 31, 2002, the Company had a net loss of $107,560 or $0.01 per share. The net loss for the corresponding period of January 1, 2001, to March 31, 2001 was $41,589 or $0.00 per share. For the quarter ended March 31, 2002, the Company incurred general and administrative expenses of $10,286; marketing expenses of $15,846; consulting fees of $16,955; fees payable under the License Agreement of $60,000; and $3,543 in professional fees. For the corresponding period of January 1, 2001 to March 31, 2001, the Company had general and administrative expenses of $6,038; marketing expenses of $4,231; no consulting fees; fees payable under the License Agreement of $30,000 and professional fees of $1,320. There was depreciation of $1,755 in the quarter ended March 31, 2002. (b) Liquidity and Capital Resources As at March 31, 2002, the Company had $7,781 cash in the bank. The Company hopes to realize cash flow from sales of the SchoolWeb software system in the second quarter of 2002. The Company has received a purchase order from the Heiltsuk aboriginal nation, located at Bella Bella, British Columbia, Canada, for an 1nterlink ISP system, in the amount of $25,900. This system is scheduled to be installed in June 2002. The Company also anticipates that it will realize revenues as a result of the Hewlett Packard Agreement but cannot, at this time, give any reliable indication or prediction of the amount of the revenue. It is likely that the Company will either entirely or partially dependant on raising capital or receiving advances from related parties in order to meet the continuing costs of marketing the Licensed Technology and, possibly, developing products other than the SchoolWeb software system which are based on the Licensed Technology (if available funds permit such development). PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Registrant is not a party to any material pending legal proceedings and, to the best of its knowledge, no such action by or against the Registrant has been threatened. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Reports on Form 8-K. The Registrant filed one report on Form 8-K during the quarterly period ended March 31, 2002 dated March 6, 2002. (b) Exhibits. Exhibits included or incorporated by reference herein: See Exhibit Index. SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SCHOOLWEB SYSTEMS, INC. Dated: May 15, 2002 By: /s/ Michael Dearden Michael Dearden, President and Director EXHIBIT INDEX Number Exhibit Description 3.1 Articles of Incorporation (incorporated by reference to Exhibit 3 of the Registration Statement on Form 10-SB filed on September 28, 2000). 3.2 Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 2 of the Form 10-SB filed on September 28, 2000). 3.3 Certificate of Amendment to Articles of Incorporation dated October 13, 2000. (incorporated by reference to Exhibit 3.3 of the Form 10-QSB filed on November 7, 2000) 3.4 ByLaws (incorporated by reference to Exhibit 3.3 of the Form 10- QSB filed on November 7, 2001)