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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 28, 2003
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission file number 000-26331
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PALWEB CORPORATION
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(Exact name of small business issuer as specified in its charter)
OKLAHOMA 75-2954680
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1607 WEST COMMERCE STREET DALLAS, TEXAS 75208
------------------------- -------------------
(Address of principal executive offices) (City, State and Zip Code)
(214) 698-8330
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [_]
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: APRIL 9, 2003 - 5,530,751
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(CHECK ONE):
Yes [_] No [X]
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PALWEB CORPORATION
FORM 10-QSB
FOR THE PERIOD ENDED NOVEMBER 30, 2002
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Balance Sheets as of February 28, 1
2003 and May 31, 2002
Statements of Operations 2
For the Nine Month Periods Ended
February 28, 2003 and 2002
Statements of Operations 3
For the Three Month Periods Ended
February 28, 2003 and 2002
Condensed Statements of Cash Flows 4
For the Nine Month Periods Ended
February 28, 2003 and 2002
Notes to Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 7
ITEM 3. CONTROLS AND PROCEDURES 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURE 15
CERTIFICATIONS 16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PALWEB CORPORATION
CONSOLIDATED BALANCE SHEETS
February 28, May 31,
2003 2002
------------ ------------
ASSETS
------
CURRENT ASSETS:
Cash $ 58,691 $ 13,521
Accounts receivable 228,020 43,646
Inventory 469,391 204,446
------------ ------------
TOTAL CURRENT ASSETS 756,102 261,613
PROPERTY, PLANT AND EQUIPMENT, at cost 8,424,875 7,453,529
Accumulated depreciation (652,736) (509,199)
------------ ------------
TOTAL PROPERTY, PLANT AND EQUIPMENT 7,772,139 6,944,330
OTHER ASSETS 157,471 161,396
------------ ------------
TOTAL ASSETS $ 8,685,712 $ 7,367,339
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ -- $ 3,777,700
Note payable-related party 401,952 --
Accounts payable and accrued liabilities 685,193 570,868
Preferred dividends payable -- 211,440
------------ ------------
TOTAL CURRENT LIABILITIES 1,087,145 4,560,008
LONG-TERM DEBT-RELATED PARTY 7,000,000 --
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par, 20,750,000
shares authorized; 750,000 outstanding 75 75
Common stock, $.0001 par value, 5,000,000,000
authorized; outstanding - 5,530,751 and
4,691,625, respectively 553 469
Additional paid-in capital 41,744,782 40,732,767
Deficit (41,146,843) (37,925,980)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 598,567 2,807,331
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,685,712 $ 7,367,339
============ ============
The accompanying notes are an integral part of this consolidated financial statement.
1
PALWEB CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
February 28,
-----------------------------------
2003 2002
------------ ------------
SALES $ 980,933 $ 48,189
COST OF SALES, including depreciation
of $136,890 and $104,639, respectively 1,901,067 399,814
------------ ------------
GROSS PROFIT (LOSS) (920,134) (351,625)
EXPENSES:
General and administrative
expenses 1,051,634 1,059,612
Impairment 310,875 --
Interest expense 262,437 115,943
------------ ------------
Total expenses 1,624,946 1,175,555
------------ ------------
LOSS, BEFORE DISCONTINUED OPERATIONS (2,545,080) (1,527,180)
LOSS FROM DISCONTINUED OPERATION -- (132,224)
------------ ------------
NET LOSS $ (2,545,080) $ (1,659,404)
============ ============
LOSS PER COMMON SHARE:
LOSS BEFORE DISCONTINUED OPERATIONS $ (0.64) $ (0.33)
DISCONTINUED OPERATIONS -- (0.03)
------------ ------------
LOSS PER COMMON SHARE $ (0.64) $ (0.36)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 5,020,000 4,654,000
============ ============
The accompanying notes are an integral part of this consolidated financial statement.
2
PALWEB CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
February 28,
-----------------------------------
2003 2002
------------ ------------
SALES $ 407,004 $ 9,401
COST OF SALES, including depreciation
of $27,084 and $46,367, respectively 461,204 84,761
------------ ------------
GROSS PROFIT (LOSS) (54,200) (75,360)
EXPENSES:
General and administrative
expense 299,353 425,094
Impairment -- --
Interest expense 126,604 10,849
------------ ------------
Total expenses 425,957 435,943
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LOSS, BEFORE DISCONTINUED OPERATIONS (480,157) (511,303)
LOSS FROM DISCONTINUED OPERATION -- (27,406)
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NET LOSS $ (480,157) $ (538,709)
============ ============
LOSS PER COMMON SHARE:
LOSS BEFORE DISCONTINUED OPERATIONS $ (0.14) $ (0.11)
DISCONTINUED OPERATIONS -- (0.01)
------------ ------------
LOSS PER COMMON SHARE $ (0.14) $ (0.12)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 5,179,000 4,665,000
============ ============
The accompanying notes are an integral part of this consolidated financial statement.
3
PALWEB CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
February 28,
-----------------------------------
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used by continuing operations $ (2,192,442) $ (2,885,145)
Net cash used by discontinued operations -- (38,254)
------------ ------------
Net cash flow used in operations (2,192,442) (2,923,399)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,282,221) (3,905,567)
Decrease in loans receivable -- 617,124
Proceeds from sale of equipment -- --
Other (132,169) --
------------ ------------
Net cash used in investing activities (1,414,390) (3,288,443)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 7,401,952 6,956,820
Payments on notes payable (3,777,700) (185,091)
Payments on savings certificates -- (1,357,306)
Sale of treasury stock -- 1,000,000
Proceeds from issuance of
common/preferred stock 27,750 522,676
------------ ------------
Net cash provided by financing
activities 3,652,002 6,937,099
------------ ------------
NET INCREASE IN CASH 45,170 725,257
CASH, beginning of period 13,521 80,469
------------ ------------
CASH, end of period $ 58,691 $ 805,726
============ ============
NONCASH ACTIVITIES:
Issuance of common stock for:
Payment of preferred dividends $ 887,223 $ --
Payment of liabilities and claims 97,126 --
Issuance of preferred stock for:
Retirement of debt -- 6,440,579
Acquisition of property -- 725,344
Debt assumed in acquisition of property -- 813,255
Conversion of preferred stock to common -- 55
Amortization of deferred income to
additional paid-in capital -- 82,388
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 November 30, 2002, and the results of its operations and its cash flows for
the nine month and three month periods ended February 28, 2003 and 2002. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements as of and for the year ended May 31, 2002 and
the notes thereto included in the Company's Form 10-KSB.
2. The results of operations for the nine month and three month periods ended
February 28, 2003 are not necessarily indicative of the results to be expected
for the full year.
3. The computation of loss per share is computed by dividing the loss available
to common stockholders by the weighted average shares outstanding for the
periods. For the nine month and three month periods ended February 28, 2003,
loss available to common stockholders is determined by adding preferred
dividends for the periods in the amounts of $675,783 and $226,849, respectively,
to the loss from continuing operations and to net loss. There were no preferred
dividends for the comparable periods ended February 28, 2002. For the nine month
periods ended February 28, 2003 and 2002, the average common shares outstanding
are 5,020,000 and 4,654,000, respectively. For the three month periods ended
February 28, 2003 and 2002, the average common shares outstanding are 5,179,000
and 4,665,000, respectively. Convertible preferred stock is not considered as
its effect is antidilutive.
4. PalWeb incurred an expense of $310,875 in fiscal year 2003 to record the
impairment of certain production equipment. PalWeb wrote down the cost of its
original prototype injection molding machine and related molds to the value of
the expected future cash flows.
5. Effective October 17, 2002, PalWeb's Board of Directors authorized the
issuance of 15,584 shares of common stock at the then market rate of $1.50 per
share to Paul Kruger in payment of $23,376 of accrued interest as of October 31,
2002, on notes payable to Mr. Kruger.
6. During the nine month period ended February 28, 2003, the Board of Directors
authorized dividends on the Series 2001 preferred stock in the total amount of
$675,783. Further, the board authorized payment of unpaid preferred dividends in
the form of restricted common stock at the then market rate as follows:
5
Date of Stock Common
Dividend Amount Price Shares
-------- ------ ----- ------
3/31/02 $211,440 $1.60 132,150
6/31/02 225,000 1.60 140,625
9/30/02 223,934 1.50 148,589
12/31/02 226,849 0.63 360,078
The board also authorized that, until further notice, future dividends on
the Series 2001 preferred stock will be paid in the form of common stock based
on the average stock price as of the date of record.
7. See "Management Discussion and Analysis, Liquidity and Capital Resources,"
for discussion regarding a $500,000, 9% interest, unsecured note payable due
March 4, 2003 and a line of credit provided by Paul Kruger through issuance of a
$7,000,000 note payable at 3% above prime rate of interest, due June 4, 2004.
6
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
---------------------
GENERAL TO ALL PERIODS
The consolidated statements include PalWeb and its wholly-owned subsidiary,
Plastic Pallet Production, Inc. ("PPP").
PalWeb has incurred significant losses from operations, and there is no
assurance that it will achieve profitability or obtain funds necessary to
finance operations.
SALES
PalWeb's primary business is the manufacturing and selling of plastic
pallets, which is referred to herein as continuing operations. During the period
ended February 28, 2003, PalWeb has continued to explore the possible marketing
of its patent-pending PIPER 600 equipment to third parties; however generating
pallet sales remain the company's main focus. PalWeb's primary marketing efforts
are the development of distributors in key geographic locations and attendance
at material handling trade shows.
PalWeb has a production capacity of approximately 40,000 pallets per month.
During the nine months ended February 28, 2003, pallet production averaged about
13% of capacity. Future production levels will be maintained as sales dictate.
There is no assurance that PalWeb will receive orders for pallets that will
maintain, or justify any significant increase to, PalWeb's current production
levels.
PRODUCTS
PalWeb currently has three series of plastic pallets: Hawker, Granada and
Tank. The following is a description of each series and its pallet line.
o HAWKER SERIES PalWeb's Hawker Series pallets are all manufactured
using the Company's proprietary fire retardant plastic blend.
o THE HAWKER 4840 PICTURE-FRAME o THE HAWKER 4840 PICTURE-FRAME
interlocking pallet is the first in the Hawker Series. The Hawker
4840 utilizes a patented inter-locking design featuring CJ2TM
fire retardant polymers that are UL 2335 certified. The Hawker
4840 has a static load capacity of 25,000 lbs., a dynamic load of
5,000 lbs., and a rackable load of 2,500 lbs., and weighs
approximately 53 lbs.
o GRANADA SERIES The Granada series of pallets are manufactured using a
blend of recycled plastic developed by the Company. The Granada series
features a picture frame, nestable, stackable and three-runner pallet.
7
o THE GRANADA PICTURE FRAME PALLET utilizes the patented inter-locking
design, and has a dynamic load of 5,000 lbs., a rackable load of 2,800
lbs., and a static load of 25,000 lbs., and weighs approximately 47.5
lbs.
o THE GRANADA STACKABLE PALLET, which consists of the tops of the
Granada Picture Frame, has a dynamic load of 5,000 lbs. and a static
load of 7,000 lbs. The Granada Stackable weighs approximately 32 lbs.
o THE GRANADA NESTABLE PALLET features a dynamic load of 5,000 lbs. and
a static load of 7,000 lbs. The Granada Nestable weighs approximately
30 lbs.
o THE GRANADA THREE-RUNNER PALLET with a free-span racking capacity of
1,200 lbs., features a dynamic load of 5,000 lbs. and a static load of
12,000 lbs. The Granada Three-Runner which weighs approximately 41
lbs., utilizes a design that allows for easier handling by pallet
jacks.
o TANK SERIES PalWeb's Tank Series pallets are manufactured using virgin
materials developed by the Company. The Tank Picture Frame Pallet is the
first in the Tank Series.
o The Tank Picture Frame Pallet which features the patented interlocking
design, has a static load of 30,000 lbs., a rackable load of 3,000
lbs., and a dynamic load of 5,000 lbs., and weighs approximately 50
lbs.
The Hawker 4840, Granada Picture Frame, Granada Three- Runner and Tank
Picture Frame all successfully passed the CONTAINER TECHNOLOGIES LABORATORY
INC., TEST ASTM D1185-98A which included open rack bend, compression, free fall
impact, random vibration and incline impact tests.
PERSONNEL
PalWeb had approximately 18 full-time and 18 temporary employees. Temporary
employees are used to supplement the manufacturing process as necessary
TAXES
For all years 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 that offsets the
amount of any tax benefit available for each period presented in the
consolidated statement of operations.
8
NINE MONTH PERIOD ENDED FEBRUARY 28, 2003, COMPARED TO NINE MONTH
PERIOD ENDED FEBRUARY 28, 2002
Sales for the nine month period ended February 28, 2003, were $980,933
compared to $48,189 in fiscal year 2002, an increase of 1,935 %. The increase of
$932,744 represents PalWeb's ongoing efforts to market its products as described
above. However, sales revenues remain insufficient to cover material and
operating costs.
Cost of sales was $1,901,067 in fiscal year 2003 compared to $399,814 in
2002 for an increase of $1,501,253. This increase is primarily due to a
combination of (1) start-up costs primarily in the first quarter of fiscal year
2003 necessary for the operation of the new production line and upgrade the
original prototype equipment to produce nestable pallets and (2) costs related
to the increased production including the addition of another production shift,
materials, depreciation and utilities. Additional personnel may be required as
sales continue to increase.
General and administrative expenses decreased $7,978 from $1,059,612 in
fiscal year 2002 to $1,051,634 in fiscal year 2003. The general and
administrative costs in fiscal year 2003 include an $83,750 settlement of a
claim by Roger Landress through payment of $50,000 cash and the issuance of
15,000 shares of common stock. Additionally, salaries increased approximately
$144,000 as a result of the increase in production and sales activity offset by
a decreases in rent of about $136,000 due to the purchase of the plant and
certain development costs incurred in fiscal year 2002 of about $130,000.
During the period ended February 28, 2003, PalWeb wrote down the cost of
its original prototype injection molding machine and related molds. An expense
of $310,875 was recorded to reduce the cost of this equipment to the expected
future cash flows.
Interest expense increased $146,494 from $115,943 in fiscal year 2002 to
$262,437 in fiscal year 2003. The debt outstanding at November 30, 2001, was
exchanged for preferred stock on January 4, 2002, resulting in essentially no
interest expenses from then through February 28, 2002. Additionally, as
discussed below, effective January 4, 2003, Paul Kruger entered into a loan
agreement providing a $7,000,000 loan at three points above the prime rate of
interest due June 4, 2004.
The loss from continuing operations increased $1,017,900 from $1,527,180
for fiscal year 2002 to $2,545,080 for fiscal year 2003.
After deducting the loss from discontinued operations in fiscal year 2002,
the net loss is $1,659,404, or $0.36 per share, compared to a net loss of
$2,545,080 or $0.64 per share in fiscal year 2003 for an increase of $885,676.
The per share value in fiscal year 2003 includes the effect of preferred
dividends as discussed in note 3 to the financial statements.
9
THREE MONTH PERIOD ENDED FEBRUARY 28, 2003, COMPARED TO THREE MONTH
PERIOD ENDED FEBRUARY 28, 2002
Sales for the three month period ended February 28, 2003 were $407,004
compared to $9,401 in 2002. The increase is $397,603 and represents PalWeb's
ongoing sales efforts as described above. During fiscal 2002, PalWeb's primary
emphasis was completion of its new production line.
General and administrative expenses decreased $125,741 from $425,094 for
fiscal year 2002 to $299,353 for fiscal year 2003. This decrease is principally
due to product development costs incurred in fiscal 2002.
Interest expense increased $115,755 from $10,849 in fiscal year 2002 to
$126,604 in fiscal year 2003. The debt outstanding at November 30, 2001, was
exchanged for preferred stock on January 4, 2002, resulting in essentially no
interest expenses from then through February 28, 2002. Additionally, as
discussed below, effective January 4, 2003, Paul Kruger entered into a loan
agreement providing a $7,000,000 loan at three points above the prime rate of
interest due June 4, 2004.
The loss from continuing operations decreased $31,146 from $511,303 in
fiscal year 2002 to $480,157 in fiscal year 2003.
After deducting the loss from discontinued operations in fiscal year 2002,
the net loss is $538,709, or $0.12 per share, compared to a net loss of $480,157
or $0.14 per share in fiscal year 2003 for an decrease of $58,522. The per share
value in fiscal year 2003 includes the effect of preferred dividends as
discussed in note 3 to the financial statements.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
GENERAL
Currently, PalWeb's management projects that sales of approximately 15,000
pallets per month will generate revenue of approximately $450,000 which should
provide sufficient cash flow to sustain its operations including cash operating
expenses for labor, recurring overhead and interest and material costs. Although
significant sales orders have been executed, 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.
PalWeb has had difficulty in obtaining financing from traditional financing
sources. As described below, substantially all of the financing that PalWeb has
received through February 28, 2003, has been provided by loans from entities
controlled by Mr. Paul Kruger and entities affiliated with Warren Kruger,
President and a director of PalWeb, and through the offering of 2001 Preferred
Stock described below to the same persons. PalWeb is currently reliant on loans
provided by Paul
10
Kruger and Warren Kruger. There is no assurance that Paul Kruger or Warren
Kruger will continue to provide loans or loan guarantees in the future. Further,
Paul Kruger maintains his position as a primary stockholder of PalWeb but is no
longer an officer or director.
LINE OF CREDIT
Effective December 31, 2002, an affiliated company of Warren Kruger entered
into a loan agreement with PalWeb to provide a $500,000 line of credit at 9% due
March 4, 2003, with automatic 30-day extensions until lender shall have given
notice at least ten days prior to any scheduled maturity. At February 28, 2003,
the outstanding balance due on the note is $401,952.
Effective January 10, 2003, PalWeb and its subsidiary, PPP, entered into a
loan agreement with Paul Kruger providing a line of credit of $7,000,000 at 3%
above the prime rate of interest due June 4, 2004. Proceeds of the loan were
used to pay the outstanding debt of F&M Bank and Trust Company ("F&M") and the
mortgage loan with Texas Capital Bank. Pursuant to the loan agreement, PalWeb
and PPP granted to Mr. Kruger a lien on all PPP assets, and PalWeb has granted
to Mr. Kruger a pledge of its stock in PPP. In addition, Mr. Paul Kruger, along
with an officer and two employees associated with him, and Lyle Miller, a
director, resigned their employment and director positions with PalWeb as of
January 10, 2003 and:
(1) Those resigning received extensions on employee common stock
options for a period of five years at the same exercise price.
(2) Mr. Kruger received a distributor agreement to acquire pallets
at PPP's F.O.B. price at PPP's plant, less the greatest
discounts or concessions made to any of PPP's other
distributors for similar kinds and quantities of products. The
agreement may be terminated by either party upon thirty (30)
days notice.
(3) Mr. Kruger received an assignment of a $20,000,000 default
judgement that PalWeb holds in its favor against Ullrich
Wolfgang, a German citizen. PalWeb has the option to
participate in any or all of the assignment by electing to pay
its pro rata share of the costs associated with pursuit of
collection.
OTHER
PalWeb has accumulated a working capital deficit of approximately $331,000
at February 28, 2003, which includes $402,000 due to Warren Kruger and $685,000
in accounts payable and accrued liabilities. The working capital deficit
reflects the uncertain financial condition of PalWeb resulting from its
inability to obtain long term financing. There is no assurance that PalWeb will
secure such financing.
Because of its need to secure additional funding to sustain its operations,
PalWeb has inquired among the holders of PalWeb's outstanding Series 2001 12%
Cumulative Convertible
11
Senior Preferred Stock ("Series 2001 Preferred Stock") to assess such holders'
interest in participating in a new private preferred stock offering of up to
$5,000,000. The terms of any such offering would be negotiated and established
by PalWeb and any prospective purchasers of the securities if PalWeb receives
positive expressions of interest from holders of the 2001 Preferred Stock, which
PalWeb hopes to obtain within the next thirty to sixty days. In addition, PalWeb
has engaged the services of Stonegate Securities, Inc., as investment advisor,
to assist PalWeb to seek additional sources of private equity financing. PalWeb
hopes to receive a report from Stonegate within the next thirty to sixty days.
The terms of any resulting securities offering would be subject to negotiation
with interested investors. There is no certainty that these efforts will result
in the offering and issuance of any additional securities.
PalWeb continues to be dependent upon Paul Kruger and Warren Kruger 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.
MATERIAL RISKS
--------------
PalWeb 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, 2002, which was filed on September 13, 2002.
ITEM 3. CONTROLS AND PROCEDURES
PalWeb's Chief Executive Officer and Chief Financial Officer (collectively,
the "Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures. Such officers have concluded that PalWeb's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by PalWeb in this report is accumulated and
communicated to allow timely decisions regarding required disclosure.
The Certifying Officers also have indicated that there were no significant
changes in PalWeb's internal controls or other factors that could significantly
affect such controls as of the date of this report.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As more fully reported under Item 3, Litigation, in PalWeb's Form 10-KSB
for the fiscal year ended May 31, 2002, which was filed on September 13, 2002,
PalWeb obtained an order directing Vimonta to show cause in writing why default
judgment should not be entered against Vimonta and subsequently obtained an
order granting default judgment against Vimonta and dismissing Vimonta's
counterclaim. PalWeb thereafter sought permission from the court to allow PalWeb
to effect service of both of such orders upon Vimonta pursuant to the provisions
of the Hague Convention on the Service Abroad of Judicial and Extrajudicial
Documents (the "Convention") to make certain that proper service is obtained for
entry of the default judgment. The court granted PalWeb's request, and PalWeb
has accomplished service pursuant to the Convention. Vimonta has submitted
responses to the court, and the matter is pending.
In connection with the January 2003 financing provided to PalWeb by Paul
Kruger, PalWeb's former Chairman and Chief Executive Officer, PalWeb and PPP
agreed to assign to Mr. Kruger any judgment obtained against Vimonta, and Mr.
Kruger agreed to reimburse to PalWeb and PPP any costs incurred by them after
January 10, 2003, in connection with the perfection and enforcement of the
Vimonta judgment. For further discussion of the financing provided by Mr.
Kruger, see "Paul Kruger Financing" under "Liquidity and Capital Resources"
under Item 2 of PalWeb's Form 10-QSB for the quarterly period ended November 30,
2002, filed on January 14, 2003.
ITEM 2. CHANGES IN SECURITIES
Holders of PalWeb's Series 2001 12% Cumulative Convertible Senior Preferred
Stock ("2001 Preferred Stock") are entitled to cumulative dividends of 12% per
annum, $1.20 per share, or a total of $900,000. In lieu of the quarterly payment
of cash dividends of $226,849 due on December 31, 2002, the holders of such 2001
Preferred Stock agreed to accept common stock of PalWeb, and PalWeb's Board of
Directors approved the payment of such dividends in the form of 360,078 shares
of the authorized but unissued shares of the company's common stock at an
effective price of $0.63 per share as of the date such payment of shares was
authorized.
PalWeb relied on the exemption set forth in Section 4(2) of the Securities
Act of 1933, as amended, in connection with the issuance of the stock and the
stock dividend set forth above. All parties listed above are sophisticated
persons or entities. All of the purchasers executed investment letters
representing that they had sufficient access to information to make the
investment and acknowledging the restrictions on transfer of the stock. There
was no underwriting, and no commissions were paid to any party upon the issuance
of such stock.
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
11.1 Computation of Loss per Share is in Note 3 in the Notes to
the financial statements.
99.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C.ss.1350 (submitted herewith).
99.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C.ss.1350 (submitted herewith).
B. Reports on Form 8-K
There were no reports on Form 8-K filed by PalWeb during the three months
ended February 28, 2003.
14
SIGNATURE
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: April 14, 2003 /s/ Warren F. Kruger
-----------------------------------
Warren F. Kruger
President and CEO
15
CERTIFICATIONS
I, Warren F. Kruger, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of PalWeb Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
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6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 14, 2003 /s/ Warren F. Kruger
------------------------------
Warren F. Kruger
President and CEO
(Principal Executive Officer)
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CERTIFICATIONS
I, William W. Rahhal, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of PalWeb Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
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6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 14, 2003 /s/ William W. Rahhal
-------------------------------
William W. Rahhal
Chief Financial Officer
(Principal Financial Officer)
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