UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 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 000-29459
Pacel Corporation
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(Name of small business issuer in its charter)
VIRGINIA 54-1712558
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8870 Rivlew Lane 20109-3795
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (703) 257-4759
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange
on which registered
-------------------------------- --------------------------------
(Title of class)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock No Par Value Per Share
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(Title of class)
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(Title of class)
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 [_] No
Check if there is no disclosure of delinquent filers in response to is not
contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [_]
State issuer's revenues for its most recent fiscal year. $1,617,552.00
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. [_]Yes [X] No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of April 10, 2002, the aggregate market value of the voting and non-voting
common stock of the registrant held by non affiliates of the registrant,
computed by reference tot he average bid and asked price of such common equity
on that date was $486,351.07
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 6,484,681 as of 4/10/02.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).
Transitional Small Business Disclosure Format (Check one): Yes ____; No ____
TABLE OF CONTENTS
Page No.
PART I
Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 12
Item 6. Management's Discussion and Analysis of Financial Condition and Results of 12
Operations
Item 7. Financial Statements and Supplementary Data 19
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 19
PART III
Item 9. Directors and Executive Officers of the Registrant 19
Item 10. Executive Compensation 19
Item 11. Security Ownership of Certain Beneficial Owners and Management 19
Item 12. Certain Relationships and Related Transactions 20
Item 13. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 20
Signatures 21
Summary of Trademarks 22
Financial Statements 23
Financial Statement Schedule 28
Forward-Looking Statements
In addition to historical information, this Annual Report on Form 10-KSB
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors That May Affect Future Results of
Operations." You should carefully review the risks described in other documents
we file from time to time with the Securities and Exchange Commission, including
the Quarterly Reports on Form 10-QSB to be filed in 2002. When used in this
report, the words "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," and similar expressions are generally intended to identify
forward-looking statements. You should not place undue reliance on the
forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-KSB. We undertake no obligation to publicly release any
revisions to the forward-looking statements or reflect events or circumstances
after the date of this document.
PART I
Item 1. Business
Business Overview
PACEL Corp is a software applications development company and systems
integrator located approximately 30 miles outside of Washington, D.C, in
Manassas, VA. We specialize in providing innovative software products for
clients in the commercial, industrial and government marketplace. We also offer
a full line of Internet services and provide Information Technology consulting
services. PACEL has continued to develop Commercial Off the Shelf (COTS)
software security programs that are setting the "Pace in Internet Security".
These products in conjunction with our Internet business, allow us to provide a
full suite of services and products that include secure connectivity to and from
the Internet, content design and secure transaction services
In September 2001 PACEL Corp acquired Advantage Systems, Inc., as a wholly
owned subsidiary. Advantage Systems, Inc. builds high-quality,
adeptly-configured, leading edge computers for corporate networked environments,
as well as standalone systems for a wide variety of applications. The company
caters to high-growth segments such as small to medium-sized businesses, small
offices/home offices and mainstream corporate information technology providers.
Advantage Systems is located in San Jose, California. Its website address is
www.advv-systems.com.
Fairfax Communications, Limited (FCL) specializes in providing Information
Technology consulting services, hardware and COTS software products to
industrial and government marketplaces throughout Europe and other NATO allied
countries. During fiscal year 2001 the company was reorganized to focus on
marketing and sales, and the technology functions were integrated into PACEL's
home office functions
Pacel, Corp.'s subsidiary E-Business-Stor.com (EBStor), a web site and
e-commerce development and hosting company focuses on clients in the small to
medium business arena that have need for high end back-end web databases and
data management.
During fiscal 2001 PACEL Corp focused on extending those technologies and
capabilities in the production of products to provide secure Internet
connectivity and enhanced desktop security for customers in the home and
business marketplaces. We have also invested heavily in our infrastructure, both
technically and physically and we expect we will need to continue to hire and
retain management, sales, and marketing personnel and other employees. Assuming
we are successful in our growth, there can be no assurances that we will be able
to effectively manage the expansion of our operations, or that our facilities,
systems, procedures or control will be adequate to support our expanded
operations. Our inability to effectively manage our future growth would have a
material adverse effect on our business.
To be successful, we will need to introduce new products and product
enhancements that respond to technology changes or evolving industry standards
in a timely manner and on a cost effective basis. We cannot assure you that we
will successfully develop these types of products and product enhancements or
3
that our products will achieve broad market acceptance. Furthermore, there can
be no assurance that competitors will not introduce products incorporating
technology as advanced or more advanced than ours, thereby rendering our
products or technologies noncompetitive or obsolete. We will attempt to keep
abreast, if not ahead, of new technologies and upgrades in existing
technologies.
Our current areas of focus are to provide software application development,
systems integration, Internet services, and Information Technology services.
However, there is no assurance that we can do so, or even if we can do so, that
we can maintain our technology edge in an economic fashion.
Software Applications Development and Systems Integration
ChildWatch(TM) Family of Security Products. A special security and Internet
filtering program has been developed in support of providing a family safe PC,
including making the Internet a safe and fun place for our children, while also
helping to support various non-profit organizations locate and recover missing
and abducted children. The ChildWatch(TM) family of products allows parents to
block children's access to unsuitable Web sites through connection to a database
of family-unfriendly sites selected by a committee of child experts from
representatives of non-profit organizations and law enforcement agencies from
across the United States. The database of questionable web-sites is updated on a
frequent basis and provides parents with the ability to protect their children
from unwanted web sites, by allowing them to block inappropriate sites. The
software gives parents this ability without the necessity of finding the sites
beforehand or relying on a robotic search engine that can limit full utilization
of the Internet. This add-on service to allow parents to block
non-family-friendly web sites is offered by us for a monthly charge. The program
also monitors and records all activities on the computer, leaving an "electronic
trail" of web sites visited that is independent of the browser's history file,
and cannot be deleted by the user.
"ChildWatch Lite" is the initial component of the ChildWatch family.
ChildWatch Lite is distributed through various retail outlets and is also
available for download from the ChildWatch.com web-site, which was designed by
and is maintained by E-Business-Stor.Com, inc.
JDH(TM) Management Information System. JDH(TM) is a software system that
consolidates intake, demographic, facility, staff, and volunteer information for
juvenile detention facilities, as well as automating mandatory reports. JDH(TM)
software is a flexible, customizable application that was specifically designed
for juvenile facilities to help them save time and funds. JDH(TM) uses familiar
Windows(TM) conventions in all its data entry and access screens, allowing staff
to learn the program quickly and increase their productivity. Users have
immediate access to all information about any detainee, past or present,
including court appearances, incidents, attorney information, and behavioral
flags. PACEL has already been successful with JDH at the local county level,
having been awarded a contract by the County of Prince William for enhancing its
JDH(TM) automated information system for the tracking and administration of
youths under the care of the Juvenile Detention Home.
Data Protector(TM) is our brand new patent pending 3 in 1 security program.
This innovative software protects computer data from attacks by blocking
hackers, preventing malicious access by computer viruses and provides personal
privacy by stopping external attempts to "steal" data. The program works by
associating applications with a specific file or file type and prohibits access
by any other programs. A patent application is currently pending for this
program and its underlying technology, the PACE (Pre-Access Control Element)
Module.
Visual Writer System(TM). Visual Writer System(TM) provides users with the
ability to create, revise, review and run interactive, electronic documents.
Upon completion of the document, users may view and analyze information
collected during implementation. Interactive, electronic documents are
computerized documents that are created, viewed and implemented on-screen. They
may be used for a number of purposes including training, data collection and
4
inventory control. The documents can be designed in a variety of fashions, from
simple checklist to complex multi-page procedures. Automated documents allow
users to enter information such as comments, numerical values, initials and
electronic signatures.
Zoomer(TM). Internet users, who currently number in the tens of millions
and are rapidly growing, enjoy viewing the wide range of images on the countless
numbers of accessible web pages. These users enjoy "capturing," saving and
manipulating images. Unfortunately, the most common method of accomplishing this
task is through an acquisition program which usually requires the launching of
another program, Zoomer(TM) is a resident software program that allows users to
magnify, acquire and save any part of their computer screen. Zoomer(TM) utilizes
click and drag technology to allow the user to enlarge or reduce text or images
on the computer screen, save them as BMP files or paste them on the desktop for
further use in other software applications.
WinSentry(TM). WinSentry(TM) provides workstation security ensuring that
the user's information is secure and protected from unwanted intrusions when the
computer is unattended. Most computer users produce and store sensitive and
valuable information on desktop systems at work, at home and in the home office.
An unattended computer represents a tremendous liability in terms of both
privacy and financial risk. While standard operating systems provide some
limited protection, even the most casual computer user can circumvent these
safeguards by accident or design. WinSentry(TM) has proven to be invaluable for
professionals in diverse fields such as law, medicine, accounting and real
estate, and anyone else who is concerned with the security of confidential
electronic documents. WinSentry(TM) also keeps track of events such as users'
log-ins and log-outs as well as start-ups and shutdowns that occur while
activated.
PACEL Corp, and it's subsidiary FCL also provides services in all aspects
of system integration from requirements analysis to information systems
development and implementation including:
o Business system planning
o Requirements definition and system specifications
o Software engineering
o System design and development
o System interface functionality
o Systems testing and implementation
o Prototyping
Our employees are well recognized within the systems development community
for their work in large scale configuration management, records management and
engineering database applications. FCL is a ISO-9000 quality software
development company.
Internet Services
Through our othersubsidiary, E-Business-Stor.com, Inc., we offer a full
line of web development services including design, graphics creation, database
development, layout, search engine registration, domain registration, and
hosting and maintenance. We have developed sites for a diverse group of client
needs from small business card sites to large-scale e-commerce solutions. We
offer quality sites with state-of-the-art technology at affordable prices.
During fiscal 2001, EBStor developed web sites for clients that included
e-commerce capabilities for on-line sales of our products. We introduced these
e-commerce capabilities including site design and development, shopping cart
set-up, database creation and maintenance and consulting services to clients
interested in developing an on-line presence. Additionally, we provided
e-commerce workshops for specific niche groups to assist them in expanding their
sales and marketing efforts to a non-traditional client base.
Custom tools developed for in-house use by EBStor:
Custom Shopping Cart. Our custom shopping cart provides our e-commerce
clients a mechanism to display a "catalog" of products and allows online
consumers to select and purchase those products online with real-time credit
card authorization. Our shopping cart handles the interaction between the client
5
web site and the financial network (authorizing gateways and banks). Our
shopping cart also provides email notification to the merchant (our client) and
the consumer so each party is made aware of the transaction that took place.
Image Catalog. Our "Image Catalog" allows a client to upload an image to a
database of products along with descriptions of the product, including price.
The upload process also creates a thumb nail (small) copy of the image for rapid
display on the web site. Users can click on the thumb nail image to see the
original full-sized image that was uploaded along with other descriptive text
entered originally by the client.
Template Builder. Our online Template Builder will allow our customers to
select the design they would like for their web site. This is a completely
customizable design consisting of multiple selections for color, style, text,
and buttons. This tool will greatly reduce the time we spend in the design of a
web site. This saving can be passed on to our customers as well as provide a
greater profit margin for EBStor.Com, Inc. in the area of web design and
development.
Template Builder Plus. A subsequent phase to the Template Builder also
includes real-time text (content) editing of an existing customer web site. This
allows our clients to maintain the content of their web site without having to
task our staff to perform those duties, thus freeing us up to address the more
technical issues of the web site design and maintenance.
Information Technology Consulting Services
Fairfax Communications, Ltd. Located in Plymouth, England, provides
consulting services and solutions to military and government clients worldwide.
It also offers general consulting services in all areas of Information
Technology and systems integration to the general business community. FCL
upgraded their existing quality management program, and successfully passed an
audit by the ISO-9000 Quality Organization to maintain this system. The quality
program complies with the internationally recognized BS EN ISO 9001: 1994 under
the TickiT guidelines, for which the company has received registration. Fairfax
Communications, Ltd. Also established itself as a Microsoft Authorized Education
Reseller, allowing customers to receive academic software quicker, with the
assurance that they are receiving legitimate Microsoft academic edition
products. These accomplishments provide FCL with the recognized credentials to
pursue government and educational contracts.
FCL has an existing Blanket Ordering Agreement with NATO that allows us to
provide hardware, software, and consulting services. We are one of only
approximately 20 companies qualified to provide equipment and services in the
Information Technology area to NATO members. This qualification allows us to
provide products and services without the necessity of going through the
international bidding process. We reorganized FLC's focus toward sales and
marketing efforts to capitalize on existing programs and contracts and to expand
our client base to the commercial and general government community.
Hardware
With the acquisition of Advantage Systems, we are now in a position to
offer high-quality, adeptly-configured, leading edge computers for corporate
networked environments, as well as standalone systems for a wide variety of
applications. The company caters to high-growth segments such as small to
medium-sized businesses, small offices/home offices and mainstream corporate
information technology providers.
Competition
We have historically specialized in the design, development,
implementation, service and support of custom software products for the energy,
aerospace industry, and government agencies. During fiscal 2001 we expanded our
business activities to include off-the-shelf-software products for commercial
and consumer use. Through our subsidiaries we also provide computer hardware
sales, systems integration, and web-based services. Our traditional competition
has been numerous other software development companies in our market areas. We
now expect additional competition from established retail software companies for
distribution capabilities and retail shelf space. Furthermore, our competitors
may combine with each other, and other companies may enter our markets by
acquiring or entering into strategic relationships with our competitors. The
market for PACEL's products and services is subject to rapid technology change
and increased competition from large existing players. Substantially larger
companies that have extensive research and development, marketing, financial,
6
and human resources capable of maintaining a high level of competitiveness
dominate the industry. There are several companies with which PACEL competes in
the software and Internet services industry that have significantly greater
assets and longer operating histories. Some of these companies are extremely
aggressive. They dominate the marketplace by using costly and protective
pricing. If PACEL became a target of focused pricing and counter marketing we
might not be able to afford to devote the resources, time, funding, or
management necessary to maintain profitability. Some competitors have developed
name loyalty, and a following that is international in scope. There is no
assurance that PACEL can penetrate this apparent marketplace dominance.
Furthermore, PACEL expects future consolidation in the Internet professional
services market to create larger, more viable competitors.
Operations
PACEL competes with a variety of software developers and Internet security
firms. To enhance our chances of success in this marketplace the company
continued to build its infrastructure through hiring of key management personnel
and employees with specific technical expertise. Additionally, the company
enhanced its facilities through hardware upgrades and additions, and expansions
to its operational and developmental software. We also established policies and
procedures for software functional and compatibility validation by independent
testing facilities.
We regard our software as proprietary, and protect it with copyrights,
patents, trademarks, trade secret laws, internal and external non-disclosure
precautions and restrictions to disclosure and transfer ability that are
incorporated into our employee and software license agreements. We protect the
source code of our software applications as trade secrets and make source code
available to OEM customers only under limited circumstances and specific
security and confidentiality constraints. Our products are generally licensed to
end users on a "right to use" basis pursuant to a license that is
non-transferable and restricts the use of the products to the customer's
internal purposes on a designated number of computers. We also rely on copyright
laws and on "shrink wrapped" and electronic licenses that are not signed by the
end user. Copyright protection may be unavailable under the laws of certain
countries. The enforceability of "shrink wrap" and electronic licenses has not
been conclusively determined.
In an effort to protect our intellectual properties (trade secrets) of the
ChildWatch suite of retail products we filed copyright and trademark
applications with the Patent and Trademark Office. To protect the newly
conceived Data Protector(TM) security program a patent application, that is
still pending, was also filed with the Patent and Trademark Office.
During its first full year of operation, EBStor implemented procedures for
business practices and developmental methodology for web-related products and
services. Additionally, the company established security measures such as Secure
Socket Layer capabilities for its e-commerce business, and provided a recognized
standard of Internet security for its clients. Upgrades to EBStor's hosting
facilities were accomplished, as well as establishing the capability to provide
email services for its hosting clients. EBStor also established a sales
department for Internet related products and services. Efforts in this area
resulted in establishment of our initial client base as well as a contractual
agreement with a local technology high school to provide educational training
through an Intern Program, and assistance in enhancing their on-line
capabilities.
PACEL Corp and EBStor established a joint strategic plan to provide
customers with a complete package of total security and Internet solutions. The
synergy of the two companies utilize expertise from EBStor to create
customizable "portals" that conform to the needs of the customer base and
include child-friendly, small business, and customized organization
applications, with the security experience and software development strength of
PACEL to provide an integrated desktop to Internet security system.
EMPLOYEES
As of December 31, 2001, We have 30 employees. We have not experienced work
stoppages and believe our employee relations are good. Competition in recruiting
personnel in the software industry, especially highly skilled engineers, is
intense. We believe our future success will depend in part on our continued
ability to recruit and retain highly skilled technical, management and marketing
personnel.
7
EXECUTIVE OFFICERS
The executive officers of the Company as of February 16, 2001 are as follows:
Term as
Director
Name Age Position(s) with PACEL and its Subsidiaries Expires
------------------- --------- ------------------------------------------------------------ --------------
David E. Calkins 58 Chairman of the Board, President and Chief Executive 2002
Officer of PACEL and Fairfax Communications Limited;
Director of E-Business-Stor.Com
Director of PACEL; Director, President and Chief Executive
F. Kay Calkins 43 Officer of E-Business-Stor.Com; Director of Fairfax 2002
Communications Limited
Kenneth J. Russman 38 Vice President, Chief Operating Officer, Treasurer and
Secretary of E-Business-Stor.Com
Royce Goble
53 President, Chief Operating Officer, of PACEL
Khristina McMahon 33 Corporate Controller PACEL and EBStor.Com, Inc. and FCL:
A biography, including the principal occupations of each of the executive
officers and board members, is provided below.
David E. Calkins founded PACEL in 1994 and is its acting Chairman,
President and Chief Executive Officer. From 1992 until founding PACEL, Mr.
Calkins was the Regional Manager of three divisions of Pacific Nuclear, now
known as Vectra Technologies, Inc., an engineering and information services
company and a NASDAQ Stock Market listed company. Vectra Technologies provides
power plant modifications, maintenance support and nuclear fuel handling to
utility companies and the United States Department of Energy. From 1987 to 1993,
Mr. Calkins served as Project Manager, Program Director, Vice
President-Operations, and Executive Vice President Business Development for PRC
Inc., an information systems development and Services Company. PRC provides
support services to the Federal government and the utility industry. Mr. Calkins
served from 1981 to 1986 as Manager of Engineering and Construction for the Zack
Company, a Chicago, Illinois mechanical contractor to the utility industry. Mr.
Calkins was also a Manager of Quality Engineering, and Startup Engineer for
Westinghouse. From 1972 to 1981, Mr. Calkins served as an Executive Engineer and
Consultant for NUS Corporation, a consulting firm for domestic and international
utilities, The United States Nuclear Regulatory Commission and Department of
Energy. Mr. Calkins is the spouse of F. Kay Calkins.
F. Kay Calkins is currently a Director of PACEL and was Chief Operating
Officer, Treasurer and Secretary until September 1, 2000, positions she held
since 1996. Ms. Calkins is also a Director and the President and Chief Executive
Officer of PACEL's 80 percent-owned subsidiary, E-Business-Stor.Com. Prior to
joining PACEL, Ms. Calkins was the President and Chief Executive Officer of CMC
Services, Inc., a consulting company offering consulting services on marketing,
training, proposal development and information systems analysis to industry and
8(a) firms from 1993 to 1996. Ms. Calkins is the spouse of David E. Calkins.
8
Keith P. Hicks has been a director of PACEL since January 1999. He is a
retired Captain of the U.S. Army with over 20 active years of service. Mr. Hicks
served as an Ordinance Advisor to the British and French Free Army during World
War II. He was a Squadron Commander in Korea in 1955 and 1956, and served in the
Executive Office to the Inspector General and the Office of Special
Investigations in 1960 and 1961. Upon retiring from the military in 1961, Mr.
Hicks started a private investigation business in the Commonwealth of Virginia,
which became one of the top investigative firms in the state with over 60
agents. Mr. Hicks also served as the Chief Deputy Sheriff of Fairfax County from
1962 to 1969. Mr. Hicks has owned and managed Hicks Cattle Company since 1962,
running over 200 head of beef cattle. In 1972 he formed and continues to manage
Hicks Bonding Company and has been the owner/operator of Hick's Auctioning
Company since 1991. Mr. Hicks is also a 25-year co-owner in a successful real
estate company, C&H Properties Investments. He has been on the Board of
Directors of Xybernaut, Inc. a high technology computer manufacturer of body
worn, voice activated computers since July 1994. He is a graduate of the
University of Denver, BA 1954, and LaSalle University School of Law, LL.B. 1969.
Corey M. LaCross is currently an Industrial Engineer Manager for United
Parcel Service. Mr. LaCross joined UPS in 1984 where he has held various
operation assignments. His most recent assignment has been as the Southeast
Region Industrial Engineer Planning Manager. In this position he is in charge of
managing the corporate and region cost initiatives for all production elements.
This job also involves planning, technology training, vehicle management, and
logistics. In 1987, Mr. LaCross received his BS degree in Business from Francis
Marion University. In 1996 he received an A.T. degree from ICS College in
Industrial Engineering Technology. In 1998 he began working on his MBA at
Charleston Southern University. He is also an active member on the Institute of
Industrial Engineers and was recently nominated to the Lexington Who's Who of
executive employees. Mr. LaCross is the grandson of Keith Hicks, a director of
PACEL.
Kenneth J. Russman was appointed Vice President, Chief Operating Officer,
Treasurer and Secretary of E-Business-Stor.Com, an 80%-owned subsidiary of
PACEL, in September 2000. Prior to his position with E-Business-Stor.Com, Mr.
Russman served as Technical Manager for PACEL from April 1999 to September 2000.
Mr. Russman was a software engineer for Interactive Media Corp., a
computer-based training firm located in McLean, Virginia, from November 1996
until April 1999. As a software engineer at Interactive Media Corp., his duties
included computer programming and project management responsibilities. Mr.
Russman also served as a research and design engineer for Analysis and
Technology, Inc., an engineering services firm located in Arlington, Virginia
from May 1993 to November 1996. His responsibilities included the design,
development, implementation, management and documentation of logistics models
and information management systems for the Navy Logistics Office. From June 1985
to May 1993, Mr. Russman worked as a system test software engineer for Martin
Marietta Corporation in Orlando, Florida. His responsibilities at Martin
Marietta included coordinating the buildup, testing and evaluation of
electro-optical and servo systems and software testing. Mr. Russman received his
Bachelors of Science degree in Electrical Engineering from Michigan
Technological University in 1985 and his Masters of Science degree in
information systems from George Washington University in 1998.
Item 2. Properties
PACEL. is located in Manassas, Virginia with offices at 8870 Rixlew Lane,
Suites 201 and 204. We lease approximately 8200 square feet of a stone
constructed office building for a cost of $10,200.00 per month. Our lease is a
full service lease and continues until December of 2004. In the opinion of
management we have adequate property, business liability and optional insurance
coverage provided through the year 2002. In general, all facilities are in good
condition and are operating at capacities that range from 75% to 100%. Pacel
Corp. also has offices in Santa Clara, California at 415 Nelo Street, Santa
Clara, Ca. We lease approximately 5,525 square feet for a cost of $4,696.00 per
month.
9
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Our common stock is traded on over-the-counter Electronic Bulletin Board
under the symbol "PCEL." On December 31, 2001 there were 194 holders of record
of our common stock. Because many of such shares are held by brokers and other
institutions on behalf of stockholders, we are unable to estimate the total
number of stockholders represented by these record holders. The following table
sets forth the high and low sales price per share of our common stock , for the
periods indicated, all of which are adjusted for to give effect to a 4-for-1
stock split, in April of 1998 and a 1-for-4 reverse stock split that became
effective on December 31, 1998. The quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not represent actual
transactions.
Price Range
High Low
2001:
First Quarter $0.1250 $0.0312
Second Quarter 0.0900 0.0300
Third Quarter 0.0200 0.00100
Fourth Quarter 0.0100 0.0021
Year 0.0900 0.0021
2000:
First Quarter $1.0000 $0.0900
Second Quarter 0.6562 0.1260
Third Quarter 0.1800 0.0710
Fourth Quarter 0.1100 0.0260
Year 1.0000 0.0260
1999:
First Quarter $0.6000 $0.0800
Second Quarter 1.4360 0.2500
Third Quarter 1.0300 0.3500
Fourth Quarter 0.3000 0.0625
Year 1.4360 0.0625
10
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's discussion and analysis of results of operations and financial
condition, include a discussion of liquidity and capital resources. The
following discussion (presented in hundreds, except per share amounts) should be
read in conjunction with the consolidated financial statements and notes
thereto.
Overview
PACEL's mission is to provide consumers and businesses with a full suite of
products and services that provide secure connectivity to and from the Internet,
including e-commerce transactions and personnel and company data security. To
that end PACEL. and its subsidiaries have been developing products and methods
that meet that need for both families and companies. The ChildWatch software
suite of programs puts the controls for family computer usage, including
internet filtering, access controls and community support for finding missing
and abducted children in the hands of the parents and is readily available at
Zany Brany and Electronic Boutique stores nationally. "e-Centurion" our latest
technology advancement (patent pending) software product will provide complete
file and data security. This new software is designed to guard both the Inner
Door (full protection on your PC from existing and new viruses), i.e., the Love
Bug, and someone trying to penetrate your PC and by-pass your password, and the
Outer Door (full Intruder protection from Internet data collection devices and
programs or hackers). Our current goal is to utilize and extend these
technologies in the production of derivative products to provide secure Internet
connectivity and enhanced desktop security for customers in the home and
business marketplaces.
SELECTED CONSOLIDATED FINANCIAL DATA
For the Years Ended
December 31,
2001 2000
Consolidated Statement of Operations Data:
Net Sales............................................... $1,617,552 $ 244,971
Operating Costs and Expenses............................ 4,367,524 3,355,223
Net Income (loss)....................................... (3,580,546) (3,337,285)
Basic and Diluted net income (loss)
per common share....................................... (.04) (0.14)
Weighted average common shares outstanding- basic and
diluted................................................. 865,034 246,097
At At
December 31, December 31,
2001 2000
Consolidated Balance Sheet Data:
Cash and Cash Equivalents............................... $ 65,761 $ 36,356
Working capital (deficit)............................... (2,772,718) (547,057)
Total assets............................................ 1,118,960 360,758
Stockholders' equity (deficit).......................... (2,855,874) (848,369)
11
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the relative
composition of revenue and selected statements of operations data as a
percentage of revenue:
At and For Twelve Months
Ended December 31,
2001 2000
------------------------------------
Consolidated Statement of Operations
Data:
Revenues............................................ 100.00% 100.00%
Operating expenses:
Research and development............................ 27% 396%
Depreciation........................................ 2% 12%
Interest Expense.................................... 20% 25%
Financing
Expenses............................................ 16% 100%
Sales & Marketing................................... 19% -0-%
General and administrative.......................... 186% 836%
Total operating costs and expenses.................. 270% 1,370%
Net (loss).......................................... (221)% (1,362)%
Twelve Months Ended December 31, 2001 Compared to Twelve Months Ended December
31, 2000
Revenues increased 660% to $1,617,552 in 2001 compared to $244,971 in 2000.
The increase in revenues is directly attributed to the sales generated from
existing NATO contracts of Fairfax Communication Limited (FCL) and the sales
generated from Advantage Systems. FCL accounted for 50% of sales. Advantage 42%
of Sales and E-Bstore 8% of sales. E-Bstore continue to look for it's nitch in a
very competitive market. The Company is focusing it's efforts on expanding it's
hardware sales in the United States as well as through existing NATO contracts.
The Company continues to believe that the Child Watch software has sales
potential when we can obtain adequate financing for the marketing.
Cost of Goods Sold increased 359% to $834,302 in 2001 compared to $232,126
in 2000. The increase is directly attributed to the Advantage division. The sale
of hardware generates a smaller gross profit than our other services.
Research and Development expenses consist principally of salaries for
software developers, outside consulting, related facilities costs, and expenses
associated with computer equipment used in software development. Research and
development expenses decreased 54% to $443,369 in 2001 compared to $969,971
2000. Our lack of funding through the year has forced us to cut further research
and development on E-Centurion and as well as development of new products and
enhancements. The Company believes that research and development activities are
crucial to maintaining a competitive edge in markets characterized by rapid
rates of technological advancements. Without adequate financing we may not be
able to stay on the cutting edge of technology.
Sales and marketing expenses include salaries and benefits, sales
commissions, travel expenses, and related facilities costs for our sales,
marketing, customer support, and distribution consultants. Sales and marketing
expenses also include the costs of programs aimed at increasing revenue, such as
12
advertising, trade shows, public relations, and other market development
programs. Sales and marketing expenses increased 7% to $261,750 in 2001 compared
to $244,524 in 2000. The increase is attributed to the normal increases in
salaries
General and administrative expenses consist principally of salaries and
benefits, travel expenses, and related facilities costs for finance and
administration, human resources, legal, information services, and executive
personnel of E-Business-Stor.Com, Inc. and PACEL. General and administrative
expenses also include outside legal and accounting fees, and expenses associated
with computer equipment and software used in the administration of the business.
General and administrative expenses increased 46% to $3,006,409 in 2001 compared
to $2,048,731, in 2000. The increase in administrative expenses is directly
related to the acquisition of Advantage Systems administrative salaries and
overhead expenses.
Interest Expense and Financing costs
Interest expense Increased 514% to $316,220 in 2001 Compared to $61,467 in
2000. Interest For the year ended December 31, 2001 we recognized $316,220 in
2001 which includes $232,272 related to the recognition of debt discount
resulting from a beneficial conversion feature embedded in the $816,666
convertible notes issued in 2001. Per Emerging Issues Task Force (EITF) Number
98-5, "Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Rations", this beneficial conversion
feature was assigned an intrinsic value of $232,272, as calculated under the
provisions of the EITF. This amount was immediately expensed, as the Notes were
convertible into common shares of the Company at the time of the signing of the
Agreement. The remaining interest expense is interest paid and accrued on the
Convertible Notes and Notes payable.
Financing costs were $311,417 compared to -0- in 2000. The costs were
related to fees related to obtaining various loans through the year.
LIQUIDITY AND CAPITAL RESOURCES
2001 2000
---- ----
Total % Change Total
--------------------------------------------------
Cash, cash equivalents, and short-term investments $65,761 181% 36,356
Working capital ($2,772,718) (507%) ($547,057)
Total assets $1,118,960 310% $360,758
Stockholders' equity ($2,855,874) (337%) ($848,369)
Twelve Months Ended December 31, 2001 Compared to Twelve Months Ended December
31, 2000
Net cash used from operating activities for the year ended December 31,
2001 and 2000 $1,415,763 and $2,989,979 respectively. The use of cash in
operating activities for the year ended December 31, 2001 resulted primarily
from the short fall in sales.
Net cash used in investing activities for the year ended December 31, 2001
and 2000 was $13,622 and $120,704 respectively. This decrease was due to lack of
funds available for investing activities.
Net cash provided by financing activities for the year ended December 31,
2001 and 2000 was $1,458,957 and 3,057,434. respectively. The decrease in
financing activities was attributable to inability to file an SB-2 in 2001.
At December 31, 2001, we had $65,761 in cash and cash equivalents compared
to $36,356 at December 31, 2000. We will continue to have significant capital
requirements due to expected increases in our capital expenditures and sales and
marketing commitments consistent with our anticipated growth in operations,
infrastructure and personnel. We currently anticipate that we will continue to
experience significant growth in our operating expenses for the foreseeable
future and that our operating expenses will be a material use of our cash.
In February 2001 we secured a $50,000 line of credit with the bank, an
interest rate of Wall Street Journal Prime Rate plus 1.00% to be renewed yearly.
To date we have used the entire line.
The Company also entered into a $250,000 convertible debenture. The notes
bear an interest rate of 5% and are payable quarterly. In December, 2001 these
convertible debentures were converted into a short term loan at an interest rate
of 9% and is due 120 days after the approval from the $5,000,000 equity line
agreement.
In September, 2001 in connection with the acquisition of Advantage Systems
Inc. We Issued two convertible debentures, in the amount of $666,666 and
$300,000. We have used $666,666 and $150,000 respectively, for the working
capital necessary to make this a profitable division of Pacel. These notes bear
an interest rate of 8%. The conversion rate of the $300,000 debenture is 70% of
the average 5 trading days prior to conversion. The conversion rate of the
13
$666,666 debenture is 40% of average 5 trading days prior to conversion for the
first $450,000 and 70% of average 5 trading days prior to conversion for the
balance of $216,666.
We have also entered into a short-term note collateralized by NATO
receivables in the amount of $133,750. This was a one time financing
arrangement.
We also entered into a $5,000,000 Equity line of Credit arrangement. Under
the terms of the equity line agreement, the Company will have the right to sell
up to $5 million of its common stock. The Company has sole discretion, subject
to certain volume limitations and conditions, to draw down upon such funds, as
its capital needs dictate. We are in the process of filing an SB-2 to register
the stock. There are no guarantees that the $5,000,000 will be available to us
when we need it. The terms and conditions set fourth in the agreement we may not
be able to meet, or the available credit due to those terms and conditions may
not be sufficient to cover our immediate cash flow needs.
Our cash requirements for funding our operations have greatly exceeded cash
flows from operations. We continually satisfy our capital needs through equity
financing. Our liabilities consist of over extended accounts payable, payroll
taxes, loans from officers and officers compensation.
We continually look for strategic relationships that will enhance our
products and services. Due to the present economic conditions in technology and
our lack of available cash flow it is becoming harder to develop these
relationships. If we do not develop these relationships and find additional
sources of financing will hinder our ability to continue as a going concern.
We expect to continue our investing activities, including expenditures for
computer systems for research and development, sales and marketing, product
support, and administrative staff.
Item 7. Financial Statements and Supplementary Data
Our financial statements required by this item are submitted as a separate
section of this Form 10-K. See Item 13 (a) 1 for a listing of financial
statements provided in the section titled "FINANCIAL STATEMENTS".
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There were no disagreements on any matter of accounting principles,
financial statement disclosure, or auditing scope or procedure to be reported
under this item.
PART III
Item 9. Directors and Executive Officers of the Registrant
DIRECTORS
The table below sets forth information regarding our board of directors,
including their age, position with PACEL and term of office.
Age as
of the Elected Term
Name Record Date Position(s) Held Director Expires
---------------------------------------------------------------------------------------------------
Nominees
---------------------------------------------------------------------------------------------------
David E. Calkins 58 Chief Executive Officer 1994 2002
F. Kay Calkins 43 President EBStor 1998 2002
Keith P. Hicks 76 Director 1998 2002
Corey Michael LaCross 36 Director 2000 2002
You will find additional information regarding our Directors in "Item 1."
Business of this report in the section titled "Executive officers".
14
EXECUTIVE OFFICERS
You will find information with respect to executive officers in "Item 1."
Business of this report.
Item 10. Executive Compensation
Annual Compensation Long Term
Compensation
-------------------------------------------------------------------------------- ----------------- --------------------
Securities
Underlying All Other
Fiscal Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (#) ($)
----------------------------- ---------------- ---------------- ---------------- ----------------- --------------------
DAVID E. CALKINS 2001 $ 0 $ --- --- $ ---
Chief Executive Officer 2000 124,996 $ --- 13,991 ---
1999 94,250 --- 6,250 ---
F. KAY CALKINS
President 2001 $ 40,000 $ --- --- $ ---
E-Business-Stor.Com, Inc. 2000 115,415 --- 13,991 ---
1999 90,500 --- 6,250 ---
Item 11. Security Ownership of Certain Beneficial Owners and Management
Amount and Nature of
Common Stock
Beneficially Owned
---------------------------------
Number of
Shares Percent
Beneficially of
Name of Beneficial Owner Owned(1) Class
----------------- --------------
Directors:
David E. Calkins(1) 40,241 1%
F. Kay Calkins(1) 40,241 1%
Keith P. Hicks(2) 3,201
Corey M. LaCross 290
(1) David E. Calkins and F. Kay Calkins are husband and wife. In the aggregate
they beneficially own 80,482 shares of PACEL common stock. Included in
their individual amounts is the right of each of Mr. and Ms. Calkins to
acquire 5,000 shares of common stock upon conversion of their 5,000 shares
of 1997 Class A preferred stock and the right to acquire 20,241 shares upon
exercise of outstanding stock options.
(2) Includes 44 shares held solely by Mr. Hick's spouse.
15
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report
1 Financial statements
* Management's Report
* Independent Auditors' Report
* Consolidated Balance Sheets December 31, 2001 and December 31, 2000
Consolidated Statements of Income Years Ended December 31, 2001, 2000,
and 1999
* Consolidated Statements of Stockholders' Equity December 31, 2001,
2000, and 1999
* Consolidated Statements of Cash Flows Years Ended December 31, 2001,
2000, 1999
* Notes to Consolidated Financial Statements 2 Exhibits
(b) Index to Exhibits
16
SIGNATURES
-------------
In accordance with Section 13 or 15(d) of the Securities Exhcange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PACEL, CORP.
BY: /s/ David F. Calkins
---------------------------
CEO/Chairman of the Board
DATED: April 15, 2002
In accordance with the Securities Exchange Act, this report has been signed
below byt the following persons on be half of the registrant and in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
BY: /s/ David F. Calkins
--------------------------- CEO April 15, 2002
David F. Calkins Chairman of the Board
17
Item 13(a)1:
As required under Item 7. Financial Statements and Supplementary Data, the
consolidated financial statements of the Company are provided in this separate
section. The consolidated financial statements included in this section are as
follows:
Financial Statement Description
PAGE
Management's Report II
Independent Auditors' Report III
Consolidated Balance Sheets December 31, 2001 and December 31, 2000 IV
Consolidated Statements of Operations Years Ended December 31, 2001, and 2000 V
Consolidated Statements of Stockholders' Equity (Deficit) December 31, 2001, and 2000 VI
Consolidated Statements of Cash Flows Years Ended December 31, 2001, and 2000 VII
Notes to Consolidated Financial Statements VIII
MANAGEMENT'S REPORT
Management is responsible for all the information and representations
contained in the consolidated financial statements and other sections of this
Form 10-KSB. Management believes that the consolidated financial statements have
been prepared in conformity with generally accepted accounting principles
appropriate in the circumstances to reflect, in all material respects, the
substance of events and transactions that should be included, and that the other
information in this Form 10-KSB is consistent with those statements. In
preparing the consolidated financial statements, management makes informed
judgments and estimates of the expected effects of events and transactions that
are currently being accounted for.
In meeting its responsibility for the reliability of the consolidated
financial statements, management depends on the Company's system of internal
accounting controls. This system is designed to provide reasonable assurance
that assets are safeguarded and transactions are executed in accordance with
management's authorization, and are recorded properly to permit the preparation
of consolidated financial statements in accordance with generally accepted
accounting principles. In designing control procedures, management recognizes
that errors or irregularities may nevertheless occur. Also, estimates and
judgments are required to assess and balance the relative cost and expected
benefits of the controls. Management believes that the Company's accounting
controls provide reasonable assurance that errors or irregularities that could
be material to the consolidated financial statements are prevented or would be
detected within a timely period by employees in the normal course of performing
their assigned functions.
The Board of Directors pursues its oversight role for these consolidated
financial statements through the Audit Committee, which is comprised, solely of
Directors who are not officers or employees of the Company. The Audit Committee
meets with management periodically to review their work and to monitor the
discharge of each of their responsibilities. The Audit Committee also meets
periodically with Peter C. Cosmas Co., CPAs, the independent auditors, who have
free access to the Audit Committee or the Board of Directors, without management
present, to discuss internal accounting control, auditing, and financial
reporting matters.
Peter C. Cosmas Co., CPAs is engaged to express an opinion on our
consolidated financial statements. Their opinion is based on procedures believed
by them to be sufficient to provide reasonable assurance that the consolidated
financial statements are not materially misleading and do not contain material
errors.
By /s/ DAVID CALKINS CFO
-----------------------------
DAVID CALKINS CFO, PRESIDENT
(Principal Financial and Accounting Officer)
April 15, 2002
II
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
PACEL Corp.
We have audited the accompanying consolidated balance sheet of Pacel Corp.
and Subsidiaries as of December 31, 2001 and 2000 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pacel Corp. and subsidiaries
as of December 31, 2001 and 2000, and results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1(p) to the financial statements, the Company has had minimal revenues since
inception and requires additional capital to continue operations. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1(p). The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Peter C. Cosmas Co., CPAs
/s/Peter C. Cosmas Co., CPAs
370 Lexington Ave.
New York, NY 10017
April 5, 2002
III
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
December 31, December 31,
2001 2000
---------------- ---------------
Current assets:
Cash and cash equivalents $ 65,761 $ 36,356
Accounts receivable, net of allowance for doubtful accounts of
$4,326 and $5,155 respectively 336,006 9,883
Inventory 63,029 17,213
Other receivables 36,684 64,760
Escrow Deposits - -
Prepaid expenses - 2,469
---------------- ---------------
Total current assets 501,480 130,681
---------------- ---------------
Property and equipment, net of accumulated depreciation
of $91,726 and $65,531 respectively 129,309 141,882
---------------- ---------------
Non-current assets:
Note receivable 71,000 71,000
Goodwill 407,049 8,106
Security deposits 10,122 9,089
---------------- ---------------
Total non-current assets 488,171 88,195
---------------- ---------------
Total assets $ 1,118,960 $ 360,758
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,596,581 $ 491,926
Accrued expense 185,588 73,071
Loans payable officers-Stockholders 259,686 62,741
Notes payable 1,182,343 -
Notes payable bank 50,000 50,000
---------------- ---------------
Total current liabilities 3,274,198 677,738
---------------- ---------------
Long Term liabilities:
Convertible debentures 700,636 531,389
---------------- ---------------
Total long term liabilities 700,636 531,389
---------------- ---------------
Total liabilities 3,974,834 1,209,127
================ ===============
Minority interest
Commitments:
Stockholders' equity (deficit)
Preferred stock, no par value,
no liquidation value, 5,000,000 shares authorized,
issued 1,000,000 shares 1997 class A convertible preferred stock 11,320 11,320
Common stock - no par value,
650,000,000 and 150,000,000 shares authorized in 2001 and 2000,
respectively. 2,470,644 and 393,485 shares outstanding 6,729,122 5,155,914
in 2001 and 2000, respectively
Cumulative currency translation adjustment (11,000) (10,833)
Deficit (9,585,316) (6,004,770)
---------------- ---------------
Total stockholders' equity (deficit) (2,855,874) (848,369)
---------------- ---------------
Total liabilities and stockholders' equity $ 1,118,960 $ 360,758
================ ===============
See accompanying notes to consolidated financial statements.
IV
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATMENT OF OPERATIONS
Twelve months Twelve months Three months Three months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2001 2000 2001 2000
---------------- ---------------- ---------------- ---------------
Sales $ 1,617,552 $ 244,971 $ 1,100,293 $ 60,608
Direct Cost of Goods Sold 834,302 232,126 507,573 175,459
---------------- ----------------
Gross Profit 783,250 12,845 592,720 (114,851)
---------------- ---------------- ---------------- ---------------
Operating costs and expenses:
Research and development 443,369 969,971 138,221 43,589
Depreciation & Amortization 28,359 30,530 15,318 9,070
Interest expense 316,220 61,467 316,576 14,274
Sales and Marketing 261,750 244,524 142,589 (145,761)
Financing Expenses 311,417 - 218,894 -
General and Administrative 3,006,409 2,048,731 1,729,418 792,758
---------------- ---------------- ---------------- ---------------
Total operating costs and expenses 4,367,524 3,355,223 2,561,016 713,930
---------------- ---------------- ---------------- ---------------
Other Income 3,728 5,093 932 913
Net (loss) $ (3,580,546) $ (3,337,285) $ (1,967,364) $ (827,868)
================ ================ ================ ===============
Net (loss) per common share
Basic (4.14) (13.56) (0.02) (0.03)
Diluted (4.14) (13.56) (0.02) (0.03)
Weighted Average shares outstanding
Basic 865,034 246,097 86,503,351 24,609,704
Diluted 865,034 246,097 86,503,351 24,609,704
See accompanying notes to consolidated financial statements.
V
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TWO YEARS ENDED DECEMBER 31, 2001
Preferred Stock Common Stock
Retained Currency Total
Earnings Translation Stockholders
Shares Amount Shares Amount (Deficit) Adjustment Equity
--------- --------------------- ------------------------------------------------------
Balance, December 31, 1999 1,000,000 $ 11,320 139,903 2,394,129 (2,667,485) (4,807) (266,843)
--------- --------- ----------- ------------ -------------- ---------- -------------
Issuance of common stock and
warrants net of expenses 215,065 2,527,721 2,527,721
Issuance of restricted common stock
for Professional Services 14,500 116,629 116,629
Issuance of common stock of
professional services 23,667 110,435 110,435
Conversion of Employee common
stock options 350 7,000 7,000
Effect of currency translation (6,026) (6,026)
Net loss (3,337,285) (3,337,285)
Balance, December 31, 2000 1,000,000 $ 11,320 393,485 $ 5,155,914 $ (6,004,770) $ (10,833) $ (848,369)
--------- --------- ----------- ------------ -------------- ---------- -------------
Issuance of common stock, options and
warrants net of expenses 1,343,282 584,950 584,950
Issuance of restricted common stock for
professional services 136,822 368,738 368,738
Issuance of restricted common stock
Held In Escrow 55,556 - -
Issuance of common stock for
professional services 541,500 619,520 619,520
Effect of currency translation (167) (167)
Net loss (3,580,546) (3,580,546)
Balance, December 31, 2001 1,000,000 $ 11,320 2,470,644 6,729,122 $ (9,585,316) $ (11,000) (2,855,874)
========= ========= =========== ============ ============== ========== =============
See accompanying notes to consolidated financial statements.
VI
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 31,
2001 2000
------------- ---------------
Cash flows from operating activities:
Net (loss) $ (3,580,546) $ (3,337,285)
Adjustments to reconcile net (loss) to net cash
(used in) provided by operating activities:
Depreciation 28,359 27,702
Provision for Bad Debts (829) 2,819
Other non cash items 1,064,741 237,904
Increase (Decrease) in Cash from changes in:
Accounts receivable (325,301) 28,875
Other receivables 28,076 (64,760)
Inventory (45,816) (3,533)
Other assets 0 0
Security deposits (1,033) (1,104)
Prepaid expenses 2,469 9,398
Accounts payable 1,104,655 200,114
Accrued expense 112,517 (138,850)
Loans Payable Officers-Stockholders 196,945 48,741
------------- ---------------
Net cash (used in) operating activities (1,415,763) (2,989,979)
------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (13,622) (120,704)
Net cash used in investing activities (13,622) (120,704)
------------- ---------------
Cash flows from financing activities:
Notes payable convertible debenture 777,985 481,389
Notes payable 350,000 50,000
Proceeds from sale of common stock 330,972 2,526,045
Net cash provided by financing activities 1,458,957 3,057,434
------------- ---------------
Effect of exchange rates on cash (167) (6,026)
------------- ---------------
Net increase (Decrease) in cash and cash equivalents 29,405 (59,275)
Cash and cash equivalents at beginning of year 36,356 95,631
------------- ---------------
Cash and cash equivalents at end of period $ 65,761 $ 36,356
============= ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest 2,380 4,835
------------- ---------------
See accompanying notes to consolidated financial statements.
VII
PACEL CORP. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
DECEMBER 31, 2001 AND 2000
1. Summary of Significant Accounting Policies:
a) Nature of the business
PACEL Corp. (the "Company") was incorporated on May 3, 1994 under the laws
of the State of Virginia. The Company was formed for the purpose of
developing and marketing its own computer software programs. To date, the
Company has developed and is marketing several versions of its interactive
electronic procedure software to be used with Microsoft Windows. These
products include the "Visual Writer System", "Win Sentry","Zoomer" and the
latest software product family suites of " ChildWatch" and now
"e-Centurion" are preparing to come to the market.
The Company has completed research and development and testing activities
on the ChildWatch Suite of Programs, including " ChildWatch Lite (a
freeware program) and ChildWatch (a retail program to be released in the
second quarter of 2001) and has funded the development of these software
programs through management contributions of money, time and materials,
investor financing and limited sales of software. It has hired personnel
and developed consulting relationships to position itself with the move
into retail marketing and sales of it software programs.
b) Principles of consolidation
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries in which a controlling interest is maintained.
All significant inter-company accounts and transactions have been
eliminated in consolidation. For those consolidated subsidiaries where
Company ownership is less than 100%, the minority stockholders' interest
are shown as a minority interest. Investments in affiliates over which the
Company has significant influence but not a controlling interest are
carried on the equity basis.
c) Cash and cash equivalents
Cash equivalents consist of liquid investments, with a maturity of three
months or less at the time of purchase. Cash equivalents are stated at
cost, which approximate market value.
d) Inventories
Inventories are stated at the lower of cost or market, which approximates
actual cost, using the first in, first out method.
e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is determined using the straight-line method
over the estimated useful lives of the assets. Estimated useful lives of 24
to 36 months are used on computer equipment and related software, five
years for office equipment, furniture, and fixtures. Depreciation and
amortization of leasehold improvements is computed using the shorter of the
remaining lease term or five years. Maintenance and repairs are charged
against income and betterments are capitalized.
f) Reclassification
Certain prior year amounts have been reclassified to conform to current
year's presentation.
VIII
g) Revenue recognition
Revenue is recognized when earned. The Company's revenue recognition
policies are in compliance with American Institute of Certified Public
Accountants Statement of Position 97-2. Software Revenue Recognition.
Revenue from products licensed to original equipment manufacturers is
recorded when the manufacturers ship licensed products while revenue from
organization license programs are recorded when the software has been
delivered and the customer is invoiced. Revenue from packaged product sales
to distributors and resellers is recorded when related products are
shipped. Maintenance and subscription revenue is recognized ratably over
the contract period. Revenue attributable to significant support is based
on the price charged or derived value of the undelivered elements and is
recognized ratably on a straight-line basis over the producer's life cycle.
Costs related to insignificant obligations, which include telephone support
for certain products, are accrued. Provisions are recorded from returns and
bad debts.
h) Advertising Costs
The Company expenses all advertising costs as incurred.
i) Research and Development Expenses
Costs incurred in the product development of new software products are
expensed as incurred until technological feasibility has been established.
Software development costs, which are required to be capitalized pursuant
to Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," have
not been material to date. To date, the establishment of technological
feasibility of the Company's products and general release substantially
coincide. As a result, the Company has not capitalized any software
development costs.
j) Use of Estimates
The preparation of financial statements and related disclosures in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts in the Consolidated Financial Statements and accompanying notes.
k) Impairment of long-lived Assets
Effective January 1, 1996, the Company adopted SFAS NO. 121, "Accounting
for the Impairment of long-lived Assets and for long-lived Assets to be
Disposed of." SFAS 121 required the Company to review the recoverability of
the carrying amounts of its long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of the asset might not be
recoverable.
Long-lived assets and certain identifiable intangible assets to be held and
used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Determination of recoverability is based on an estimate of
discounted future cash flows resulting from the use of the asset and its
eventual disposition. Measurement of an impairment loss for long-lived
assets and certain identifiable intangible assets that management expects
to hold and use are based on the fair value of the asset. Long-lived assets
and certain identifiable intangible assets to be disposed of are reported
at the lower of carrying amount or fair value less costs to sell.
l) Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are measured
using the local currency as the functional currency. Assets and liabilities
of these subsidiaries are translated at exchange rates as of the balance
sheet date with the resulting translation adjustments recorded directly to
a separate component of shareholders' equity. Income and expense accounts
are translated at average exchange rates during the year. The resulting
cumulative translation adjustments are included in the consolidated and
combined statements of operations and were not material for any periods
presented herein.
IX
m) Segment Information
SFAS No. 13 1, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about
operating segments in financial statements. Operating segments are defined
as components of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating decision
maker, or chief decision making group, in deciding how to allocate
resources and in assessing performance. The Company operates in one
segment.
n) Fair Value Disclosures
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, inventories, accounts payable and accrued
expenses, approximate fair value because of the immediate or short-term
maturity of these financial instruments.
o) Stock Options
The Company accounts for its stock options in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-based Compensation. Had the Company determined compensation cost
based on fair value at the grant date for stock options under SFAS No. 123
the effect would have been immaterial.
p) Basis of Financial Statement Presentation
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has generated
minimal revenues since inception to December 31, 2001. These factors
indicate that the Company's continuation, as a going concern is dependent
upon its ability to obtain adequate financing. See Note 14 detailing equity
financing arrangements.
q) Impact of Recently Issued Accounting Standards
The financial Accounting Standards Board (FASB) recently issued SFAS 141,
"Business Combinations," FSAS 142, "Goodwill and Intangible Assets,"
SFAS143, "Accounting for Asset Retirement obligations" and SFAS 144,
"Accounting for the impairment or Disposal of Long -Lived Assets." SFAS 141
requires companies to account for acquisitions entered into after June
30,2001 using the purchase method and establishes criteria to be used in
determining whether acquired intangible assets are to be recorded
separately from goodwill. Statement 142 sets forth the accounting for
goodwill and intangible assets after the completion of a business
acquisition and for goodwill and intangible assets already recorded.
Goodwill will no longer be amortized beginning January 1, 2002. Rather,
goodwill will be tested for impairment by comparing the asset's fair value
to its carrying value. The Company will adopt Statement 142 on January 1,
2002.
SFAS 143 requires the fair value of a liability for asset retirement
obligations to be recorded in the period in which it is incurred. The
statement applies to a company's legal or contractual obligation associated
with the retirement of a tangible long-lived asset that resulted from the
acquisiton, construction or development of through the normal operation of
a long-lived asset. The statement is effective for the Company beginning
January 1, 2003. SFAS 144 addresses the accounting and reporting for the
impairment or disposal of long-lived assets. The statement provides a
consistent method to value long-lived assets to be disposed of. New
criteria must be met to classify the asset as a asset held-for-sale. This
statement also changes the rules for reporting the effects of a disposal of
a segment of a business. This statement will be adopted January 1, 2002.
X
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and in June 2000 issued SFAS
138, accounting for certain Derivative Instruments and Certain Hedging
Activities, an amendment of SFAS 133. These new standards require companies
to record derivative financial instruments on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from
changes in the fair value of those derivatives would be accounted for based
on the use of the derivative and whether the instrument qualified for hedge
accounting, as defined in SFAS 133 and 138. The Company is required to
implement these statements in the first quarter of fiscal 2001. The company
has not used derivative instruments and believes the impact of adoption of
this statement will not have a significant effect on the financial
statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101, as amended, summarizes certain of the
SEC's views in applying generally accepted accounting principles to revenue
recognition in financial statements. At this time, management does not
expect the adoption of SAB 101 to have a material effect on the Company's
operations or financial position.
In March 2000, the Financial Accounting standards Board, released FASB
Interpretation No. 44, " Accounting for Certain Transactions involving
Stock Compensation, an interpretation of APB Opinion No. 25," which
provides clarification of Opinion No. 25 for certain issues, such as the
determination of who is an employee, the criteria for determining whether a
plan qualifies as a non-compensatory plan, the accounting consequence of
various modifications to the terms of a previously fixed stock option or
award, and the accounting for an exchange of stock compensation award in a
business combination. The Company believes that its practices are in
conformity with this guidance, and therefore Interpretation No. 44 will
have no impact on its financial statements.
2) Business Combinations:
On September 4, 2001 PLRP Acquisitons Corp. a wholly owned subsidiary
acquired all of the outstanding stock 90,000 shares of Advantage Systems
Inc. a wholly owned subsidiary of Advantage Technologies for $70,000 and
assumption of $739,523 of debt. The acquisition was accounted for as a
purchase under Accounting Principles Board opinion No. 16 (APB no. 16). In
accordance with APB No. 16, the Company allocated the purchase price based
on the fair value of the assets acquired and liabilities assumed. Good will
resulting from the purchase of $541,107 is recognized and is not being
amortized.
On October 22, 1999 PACEL Corp. acquired all of the outstanding stock
29,055 shares of Fairfax Communications Limited for $30,000, which included
$57,774 of assumed debt. The acquisition was accounted for as a purchase
under Accounting Principles Board Opinion No. 16 (APB no. 16). In
accordance with APB No. 16, the Company allocated the purchase price based
on the fair value of the assets acquired and liabilities assumed. Good will
resulting for the purchase of $10,811 was recognized and will be amortized
over a five-year period $2,164 and $541 were charged to amortization
expense respectively in 2000 and 1999.
In July 1999, the Company formed an eighty- percent owned subsidiary,
E-Business Store.Com Inc. for the purpose of expanding its Internet
business. The 20% minority interest is owned equally by David and F. Kay
Calkins. The subsidiary operated at a loss, the minority's 20% share of the
loss of $163,823 is not reflected in the statement of operations.
XI
3) Property and Equipment:
Property and equipment consist of the following:
December 31,
2001 2000
--------- ---------
Computers and office Equipment $210,035 $210,240
Less accumulated depreciation 91,726 68,359
--------- ---------
$129,309 $141,881
4) Notes Receivable
The company extended a long-term note to CTM Automated Systems, Inc. in the
amount of $75,000 at an interest rate of 5.25% payable monthly with a
balloon payment October 2002. 1,000 shares of CTM stock collateralize the
loan. The balance of the loan was $71,000 at December 31, 2001 and December
31, 2000.
5) Short-Term Notes Payable
a) Note payable bank
The Company borrowed $50,000 from the bank in the from of a short-term note
due February 20,2001 at an interest rate of 8.5%.
b) Notes payable - Other
The Company has issued five short term notes payable amounting to $873,750
that bear an interest rate of 9% and are due 180 from the approval of a
$5,000,000 SB-2 filing. See subsequent events for details.
The Company has issued a short-term note in the amount of $133,750 with
interest of $3,750 secured by receivables of FCL.
The Company assumed a note in the amount of $205,548 during the acquisition
of Advantage Systems Inc. This note is being paid through the additional
discount being taken on the $666,666 8% convertible debenture. To date
$30,705 has been paid through conversion of the note. The balance at
December 31, 2001 is $174,843.
c) Convertible Notes payable
The Company had convertible notes of $700,636 and $531,389 December 31,
2001 and 2000 respectively. The notes bear an interest rate of 8% and 11%
in 2001 and 2000 respectively. Two debentures were issued in 2001 in
connection with the acquisition of Advantage Systems Inc. For $666,666 and
$300,000 the conversion price for the $666,666 convertible debentures is
40% of the average of the 5 trading days prior to conversion for the first
$450,000. The remaining $216,666 has a conversion price of 70% of the
average of the 5 trading days prior to conversion. The $300,000 has a
conversion price of 70% of the average of the 5 trading days prior to
conversion.
Under the terms of the warrant agreements, the exercise price of the
warrants and the number of shares purchasable with each warrant are
adjusted when converted. On the conversion date, the exercise price of the
warrant is 70%-40% of the average market price of the stock for the five
days prior to conversion. Per Emerging Issues Task Force (EITF) Number
98-5, "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios", this beneficial
conversion feature was assigned an intrinsic value of $232,272 and $175,000
as of December 31, 2001 and 2000 respectively, as calculated under the
provisions of the EITF. This amount was immediately expensed, at the time
the Company signs the Agreement.
XII
6) Income Taxes
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due
plus deferred taxes related primarily to differences between the basis of
assets and liabilities for financial and income tax reporting. The deferred
tax assets and liabilities, if any, represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. As of
December 31, 2001 and 2000 the Company had no material current tax
liability, deferred tax assets, or liabilities respectively. The Company
has available a net operating loss carry forward of approximately $6
million for tax purposes to offset future taxable income. The net operating
loss carryforwards expire in 2012-2020.
7) Earning (Loss) Per Share:
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards ("SFAS") No. 128. "Earnings
Per Share" applicable for financial statements issued for periods ending
after December 15, 1997. As required the Company adopted "SFAS" No. 128 for
the year ended December 31, 1997 and restated all prior period earnings per
share figures. The Company has presented basic earnings per share. Basic
earnings per share exclude potential dilution and are calculated by
dividing income available to common stockholders by the weighted average
number of outstanding common shares. Diluted earnings per share incorporate
the potential dilutions from all potentially dilutive securities that would
have reduced earnings per share. Since the potential issuance of additional
shares would reduce loss per share they are considered anti-dilutive and
are excluded from the calculation.
Basic net income per common share is computed using the weighted-average
number of common shares outstanding during the period. Diluted net income
per common share is computed using the weighted-average number of common
and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of stock options. Share and
per-common share data for all periods presented reflect the effect of a
4-for-1 stock split, in April of 1998 and a 1-for-4 reverse stock split
that became effective on December 31, 1998 and April 2002 100 to 1 reverse
stock split.
The weighted average number of shares used to compute basic earnings (loss)
per share was 865,034 and 246,097 at December 31, 2001 and 2000
respectively.
8) Commitments and Contingencies:
Operating Leases
Future annual minimum lease payments under all non-cancelable operating
leases as of December 31, 2001 are as follows:
2002 $213,986
2003 201,021
2004 90,561
2005 67,920
------------------------------------------- -------------
Total Minimum Lease Payments $573,488
------------------------------------------- -------------
Rent expense for December 31, 2001 and 2000 was $160,577 and $143,496
respectively
XIII
9) Stockholders' Equity:
a) Preferred Stock:
The Company's Amended Certificate of Incorporation authorizes 5,000,000
shares of no par, no liquidating value preferred stock, of which 1,000,000
shares have been designated the 1997 class A Convertible Preferred Stock.
The number of shares of the 1997 Class A shall be limited to 1,000,000. The
Board of Directors of the Company has the authority to establish and
designate any shares of stock in series or classes and to fix any
variations in the designations, relative rights, preferences and
limitations between series as it deems appropriate, by a majority vote.
The shares of the 1997 Class A Convertible Preferred Stock shall have no
liquidation value, and shall be entitled to receive, out of any funds of
the Company at the time legally available for the declaration of dividends,
a per share participating dividend equivalent to that declared and or paid
with respect to a share of Common Stock.
At any time after June 30, 2000, the Company, at the option of the Board of
Directors, may redeem the whole of or part of, the 1997, Class A
Convertible Preferred Stock by paying in cash $ .001 per share and in
addition an amount equal to all unpaid dividends.
b) Common Stock:
On November 7, 2001, the shareholders of the Company approved an increase
to the authorized number of shares of common stock from 150 million to 650
million shares, on December 5, 2001; the Board of Directors approved the
increase.
The authorized common stock of the Company consists of 650,000,000 and
150,000,000 shares at December 31, 2001 and 2000 respectively without par
value. In April of 1998 the Company effected a forward recapitalization of
the number of shares of common stock outstanding in a ratio of 4 to 1
restating the number of shares of common stock outstanding from 4,410,000
to 18,825,200 shares of common stock without par value. In May, 1997 the
Company effected a forward recapitalization of the number of shares of
common stock outstanding in a ratio of 30,000 to 1 restating the number of
shares of common stock outstanding from 147 shares, $1.00 par value per
share to 4,410,000 shares of common stock without a value. In October 1999,
the Company effected a one-for-four reverse split restating the number of
common shares as of December 31, 1998 from 23,337,298 to 5,834,325. In
April 2002 , the Company effect a one-for-one hundred reverse split
restating the number of common shares as of December 31, 2000 from
39,348,500 to 393,644 .All references to average number of shares
outstanding and prices per share have been restated retroactively to
reflect the split.
10) Related Party Transactions:
a) Issuance of Common Stock
The Company sold an aggregate of 100 shares to David and F. Kay Calkins for
$2,000. These shares were split in May 1997 in a ratio of 30,000 to 1
restating the number of common shares owned by David and F. Kay Calkins
from 100 to 3,000,000 after adjustment for splits reverse splits.
b) Officers Loans
The Company recorded a liability to David and F. Kay Calking in the amount
of $259,686 and $62,741 at December 31,2001 and 2000 respectively, for
accrued payroll, loans and unreimbersed business expenses.
On September 30, 1999 the Company issued an Option to David and F. Kay
Calkins to purchase 6,250 shares of common stock at $1,600per share in lieu
of $50,000 of compensation owed. The market price of the shares at the
grant date was $32. As a result, additional compensation expenses was
recorded in the amount of $100,000 on September 30, 1999
c) Employment Agreements
In 2000 the Company entered into employment agreements with David and F.
Kay Calkins. At base salaries of $175,000 and $160,000 per year
respectively, effective January 1, 2001 and are eligible for retroactive
increases based on earnings per share of the Company.
XVI
11) Business and Credit Concentrations:
The amount reported in the financial statements for cash, trade accounts
receivable and investments approximates fair market value. Because the
difference between cost and the lower of cost or market is immaterial, no
adjustment has been recognized and investments are recorded at cost.
Financial instruments that potentially subject the company to credit risk
consist principally of trade receivables. Collateral is generally not
required
12) Comprehensive Income:
At December 31, 2001 and 2000 net income and comprehensive income were the
same.
13) Stock Option Plan:
a) Key Employee Stock Option Plan
In June 1998 the Company adopted the Key Employees Stock Option Plan. 2,500
shares were reserved under the Plan. The Board of Directors administers the
Plan. Options are granted at market price the date of the grant and vest
20% per year. Options for 2,150 shares have been issued under the plan,
with an exercisable price between $17 and $20 per share, and a five year
vesting period" Options for 4,000 shares have vested. In 2000 3,500 shares
were exercised at a price of $20. per share.
b) 1999 Stock Option and Incentive Plan
In November 2000 the Company adopted 1999 Stock Option and Incentive Plan.
The maximum number of shares under the 1999 Plan is 50,00 shares of PACEL
common stock.
Although the Board of Directors has the authority to set other terms, The
committee may grant options to directors, advisory directors, officers and
employees of PACEL and its subsidiaries. The committee will select persons
to receive options among the eligible participants and determine the number
of shares underlying the options to be granted. Under the terms of the
stock option plan, the committee may grant options to purchase shares of
PACEL common stock at a price which may not be less than the fair market
value of the common stock, as determined by the mean between the closing
bid and asked quotations on the NASDAQ Stock Market on the date the option
is granted.
Generally, options under the stock option plan may not be exercised later
than 15 years after the grant date. Subject to the limitations imposed by
the provisions of the Internal Revenue Code, certain of the options granted
under the stock option plan may be designated "incentive stock options."
Incentive stock options may not be exercised later than ten years after the
grant date. Options, which are not designated and do not otherwise qualify
as incentive stock options in this document, are referred to as
"non-qualified stock options."
The Company is required under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to
disclose pro forma information regarding option grants made to its
employees based on specified valuation techniques that produce estimated
compensation charges. These amounts have not been reflected in the
Company's Consolidated Statements of Operations because to date no options
have been granted under this plan.
c) Warrants:
On February 14, 2000 the board of directors granted options to David and F.
Kay Calkins to purchase 13,990 shares each of the Company's common stock at
an exercise price of $21.
14) Subsequent Events
On April 5, 2002 the Company effected a one-for-one hundred reverse split
restating the number of common shares as of December 31, 2000 from
39,348,486 to 393,485. All references to average number of shares
outstanding and prices per share have been restated retroactively to
reflect the split.
XV