================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
------------------------------
WASHINGTON, D.C. 20549
FORM 8-K/A,
Amendment No. 1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
SEPTEMBER 8, 2003
PalWeb Corporation
(Exact name of registrant as specified in its charter)
Oklahoma 000-26331 75-2954680
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
1607 West Commerce Street, Dallas, Texas 75208
(Address of principal executive offices) (Zip Code)
(214) 698-8330
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
================================================================================
The Registrant hereby amends its Form 8-K filed September 23, 2003 to include
the historical financial statements of Greystone Plastics, Inc. and the related
pro forma financial information.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Set forth below are the historical financial statements
of Greystone Plastics, Inc. appearing in this report:
Report of Independent Auditor................................ F-1
Balance Sheets as of June 30, 2003 (Unaudited) and
December 31, 2002............................................ F-2
Statements of Income and Retained Earnings for the Six
Month Periods Ended June 30, 2003 and 2002 (Unaudited)
and for
the Years Ended December 31, 2002 and 2001................... F-3
Statements of Cash Flows for the Six Month Periods Ended
June 30, 2003 and 2002 (Unaudited) and for the
Years Ended December 31, 2002 and 2001....................... F-4
Notes to Financial Statements................................ F-5
(b) Pro Forma Financial Information.
Set forth below is the pro forma financial information
appearing in this report:
Unaudited Pro Forma Consolidated Condensed Balance Sheet
as of August 31, 2003........................................ P-1
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the Three Month Period Ended August 31, 2003.. P-3
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the Year Ended May 31, 2003................... P-4
Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements......................................... P-5
(c) Exhibits.
23.1 Consent of McGladrey Pullen, LLP
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report amendment to be signed on its behalf by
the undersigned hereunto duly authorized.
PALWEB CORPORATION
Date: February 16, 2004 By: /s/ Warren F. Kruger
--------------------------------------
Warren F. Kruger
President and Chief Executive Officer
2
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Greystone Plastics, Inc.
Davenport, Iowa
We have audited the accompanying balance sheet of Greystone Plastics, Inc. as of
December 31, 2002, and the related statements of income and retained earnings
and cash flows for the years ended December 31, 2002 and 2001. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide 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 Greystone Plastics, Inc. as of
December 31, 2002, and the results of its operations and its cash flows for the
years ended December 31, 2002 and 2001 in conformity with accounting principles
generally accepted in the United States of America.
McGladrey Pullen, LLP
Davenport, Iowa
January 9, 2004
F-1
GREYSTONE PLASTICS, INC.
BALANCE SHEETS
June 30, December 31,
2003 2002
----------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash $ 77,806 $ 92,180
Accounts receivable 849,867 353,232
Due from stockholders -- 220,000
Inventory 525,561 615,255
Prepaid expenses 7,500 9,000
Deposit 200,000 --
----------- -----------
Total current assets 1,660,734 1,289,667
----------- -----------
Property and Equipment:
Machinery and equipment 4,362,189 3,139,666
Building and improvements 2,075,227 84,237
Construction in process 22,984 169,016
----------- -----------
6,460,400 3,392,919
Less: Accumulated depreciation (2,010,480) (1,811,787)
----------- -----------
4,449,920 1,581,132
----------- -----------
Total Assets $ 6,110,654 $ 2,870,799
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Stockholder advances $ 3,926,927 $ 1,647,439
Note payable -- 220,000
Current maturities of long-term debt 178,000 --
Accounts payable and accrued expenses 577,739 269,149
----------- -----------
Total current liabilities 4,682,666 2,136,588
----------- -----------
Long-Term Debt, net of current maturities 705,953 --
----------- -----------
Stockholders' Equity:
Common stock, par value $1; authorized
10,000 shares; issued 900 shares 900 900
Additional paid-in capital 346,500 346,500
Retained earnings 374,635 386,811
----------- -----------
Total Stockholders' Equity 722,035 734,211
----------- -----------
Total Liabilities and Stockholders' Equity $ 6,110,654 $ 2,870,799
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
GREYSTONE PLASTICS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
Six Months Ended Year Ended
June 30, December 31,
-----------------------------------------------------------------
2003 2002 2002 2001
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Sales $ 3,357,282 $ 2,934,126 $ 5,663,788 $ 5,415,561
Cost of sales 2,699,889 2,296,304 4,413,974 4,172,714
----------- ----------- ----------- -----------
Gross profit 657,393 637,822 1,249,814 1,242,847
General, administrative and
selling expenses 59,279 56,936 134,393 105,532
----------- ----------- ----------- -----------
Operating income 598,114 580,886 1,115,421 1,137,315
----------- ----------- ----------- -----------
Other income (expense):
Other income 5,724 5,098 15,932 1,876
Interest expense (153,173) (85,522) (162,977) (200,584)
Loss on abandonment of building
and improvement (146,341) -- -- --
----------- ----------- ----------- -----------
Total other income (expense) (293,790) (80,424) (147,045) (198,708)
----------- ----------- ----------- -----------
Net income 304,324 500,462 968,376 938,607
Retained earnings (deficit),
Beginning 386,811 81,435 81,435 (857,172)
Dividends paid (316,500) (496,500) (663,000) --
----------- ----------- ----------- -----------
Retained earnings, ending $ 374,635 $ 85,397 $ 386,811 $ 81,435
=========== =========== =========== ===========
Basic and diluted, net income
per share $ 338 $ 556 $ 1,076 $ 1,043
=========== =========== =========== ===========
Unaudited pro forma presentation
applicable to conversion from an
S Corporation to C Corporation:
Net income before pro forma
income tax expense $ 304,324 $ 500,462 $ 968,376 $ 938,607
Pro forma income tax expense (118,686) (195,180) (377,667) (366,057)
----------- ----------- ----------- -----------
Pro forma net income $ 185,638 $ 305,282 $ 590,709 $ 572,550
=========== =========== =========== ===========
Pro forma net income per share $ 206 $ 339 $ 656 $ 636
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
GREYSTONE PLASTICS, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended Year Ended
June 30, December 31,
-----------------------------------------------------------------
2003 2002 2002 2001
---------------------------- ----------------------------
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net income $ 304,324 $ 500,462 $ 968,376 $ 938,607
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 198,693 141,045 287,687 370,136
Change in assets and liabilities:
Accounts receivable (496,635) (67,195) 74,445 (111,735)
Inventory 89,694 90,392 (199,105) (112,299)
Prepaid expenses 1,500 (10,500) (9,000) 2,151
Deposit (200,000) -- -- --
Loss on abandonment of building
and improvements 146,341 -- -- --
Accounts payable and accrued
expenses 308,590 94,057 248,642 (485,410)
----------- ----------- ----------- -----------
Cash flows provided by operating
activities 352,507 748,261 1,371,045 601,450
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (3,213,822) (18,999) (314,362) (216,666)
Advances to stockholders -- -- (220,000) --
Repayment of stockholder advances 220,000 -- -- --
----------- ----------- ----------- -----------
Cash flows (used in) investing
activities (2,993,822) (18,999) (534,362) (216,666)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Repayment of stockholder advances (139,404) (195,783) (349,369) (366,409)
Proceeds from stockholder advances 2,418,892 -- -- --
Proceeds from long-term debt 937,710 -- -- --
Repayment of long-term debt (53,757) -- -- --
Net borrowings (payments) on note
payable (220,000) -- 220,000 --
Dividends paid (316,500) (496,500) (663,000) --
----------- ----------- ----------- -----------
Cash flows provided by (used in)
financing activities 2,626,941 (692,283) (792,369) (366,409)
----------- ----------- ----------- -----------
Net increase (decrease) in cash (14,374) 36,979 44,314 18,375
Cash:
Beginning of period 92,180 47,866 47,866 29,491
----------- ----------- ----------- -----------
End of period $ 77,806 $ 84,845 $ 92,180 $ 47,866
=========== =========== =========== ===========
Supplemental Disclosures of Cash Flow Information,
cash payments for interest:
Related parties $ 124,567 $ 86,217 $ 163,848 $ 241,900
Other 17,749 -- -- --
The accompanying notes are an integral part of these financial statements.
F-4
Note 1. Nature of Business and Significant Accounting Policies
Nature of Business:
Greystone Plastics, Inc. ("Greystone") is an Iowa subchapter-S corporation
engaged in the manufacture and marketing of plastic pallets to one large
customer in the beverage business. The Company began operations in 1996.
Significant accounting policies:
Interim Information
-------------------
The accompanying financial statements and related footnote data as of June 30,
2003 and for the six months ended June 30, 2002 and 2003 are unaudited, but in
the opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation thereof. The results of
operations for the six months ended June 30, 2002 and 2003 are not necessarily
indicative of the results for the full year.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in these financial statements
and accompanying notes. Actual results could differ materially from those
estimates.
Account Receivables
-------------------
Account receivables are carried at original invoice amount less an estimate made
for doubtful receivables based on a review of all outstanding amounts on a
monthly basis. Management determines the allowance for doubtful accounts by
regularly evaluating individual customer receivables and considering a
customer's financial condition, credit history, and current economic conditions.
Account receivables are written off when deemed uncollectible. Recoveries of
account receivables previously written off are recorded when received. There was
no provision for bad debts in any of the periods presented and management
believes no allowance for doubtful accounts is necessary as of December 31,
2002.
Inventory
---------
Inventory consists of finished pallets and raw materials and is stated at the
lower of cost (first-in, first-out) or market value.
F-5
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation expense is computed
primarily by the straight-line method over the estimated useful lives:
Building and improvements 39 years
Production machinery equipment 5-7 years
Depreciation expense for the periods is:
Six months ended -
June 30, 2003 (unaudited) $ 198,693
June 30, 2002 (unaudited) 141,045
Year ended -
December 31, 2002 287,687
December 31, 2001 370,136
Upon sale, retirement or other disposal, the related costs and accumulated
depreciation of items of property or equipment are removed from the related
accounts and any gain or loss is recognized. When events or changes in
circumstances indicate that assets may be impaired, an evaluation is performed
comparing the estimated future undiscounted cash flows associated with the asset
to the assets carrying amount. If the asset carrying amount exceeds the cash
flows, a write-down to market value or discounted cash flow value is required.
Recognition of Revenues
-----------------------
Revenue is recognized when the product is shipped. Shipping and handling charges
to customers are included in revenue. Shipping and handling costs incurred by
the Company are included in cost of sales.
Income Taxes
------------
Greystone, with the consent of its stockholders, has elected to be taxed as an
S-Corporation under Section 1362(a) of the Internal Revenue Code. The taxable
results of operations and tax credits generated are reportable on the individual
income tax returns of the stockholders. Accordingly, no provision for corporate
income taxes has been made in the financial statements. Also no provision has
been made for any amounts, which may be advanced or paid as dividends to the
stockholders to assist them in paying their personal income taxes on the income
of the Company.
F-6
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Pro Forma Income Taxes
----------------------
The operations of the Company are included in the personal income tax returns of
the stockholders under Subchapter S of the Internal Revenue Code. The unaudited
pro forma income tax information assumes that the Company was taxed as a C
Corporation at an effective tax rate of 39%. The transaction described in Note 5
will result in the revocation of the Company's S Corporation election.
Income Per Share
----------------
Basic income per share is computed by dividing the net income by the weighted
average number of common shares outstanding for the year. Since there are no
dilutive securities, diluted earnings per share is the same amount.
Note 2. Inventory
Inventory is as follows:
Raw Materials Finished Goods Total
June 30, 2003 (unaudited) $ 490,053 $ 35,508 $ 525,561
December 31, 2002 539,412 75,843 615,255
Note 3. Note Payable, Stockholder Advances and Related Party Matters
On December 30, 2002, the Company borrowed $220,000 at 6.75%, from a bank and
advanced the proceeds to stockholders. The note and the related advance were
repaid in February 2003. The note was collateralized by real estate owned by the
stockholders.
The stockholders have also advanced funds to the Company under informal
agreements. The advances are due on demand and bear interest at 9%.
A certain officer/stockholder provided trucking services to the Company in the
normal course of business. The amount paid to the individual was $371,600 and
$336,800 for the six months ended June 30, 2003 and 2002, respectively, and
$664,100 and $514,300 for the years ended December 31, 2002 and 2001,
respectively.
Note 4. Long-Term Debt (Unaudited)
At June 30, 2003 the Company had two notes with banks that were collateralized
by equipment and personally guaranteed by an officer/stockholder. The notes bear
interest at 6% and are due in monthly installments of $16,230 and $1,894
including interest.
F-7
Note 5. Subsequent Event
On September 8, 2003 the Company sold substantially all of its assets to the
newly formed wholly-owned subsidiary of PalWeb Corporation for $12,500,000.
F-8
PALWEB CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AUGUST 31, 2003
PalWeb Greystone Pro Forma
Corporation Plastics, Inc. Adjustments Pro Forma
----------- ------------- ----------- -----------
Assets
Current assets:
Cash $ 6,209 $ 77,806 $ 721,648 (a) $ 805,663
Accounts receivable 207,820 849,867 (849,867)(a) 207,820
Inventory 322,598 525,561 (25,690)(a) 822,469
Other - 207,500 (207,500)(a) -
----------- ------------ ----------- -----------
Total current assets 536,627 1,660,734 (361,409) 1,835,952
Property and equipment 8,617,678 6,460,400 (7,824,455)(b) 7,253,623
Less: Accumulated depreciation (752,358) (2,010,480) 2,153,281 (b) (609,557)
----------- ------------ ----------- -----------
Total property and equipment 7,865,320 4,449,920 (5,671,174) 6,644,066
Other assets:
Goodwill - - 6,164,435 (b) 6,164,435
Other 114,768 - 21,250 (b) 136,018
----------- ------------ ----------- -----------
Total other assets 114,768 - 6,185,685 6,300,453
----------- ------------ ----------- -----------
Total Assets $ 8,516,715 $ 6,110,654 $ 153,102 $14,780,471
=========== ============ =========== ===========
Liabilities and Stockholders Equity
Current liabilities:
Current portion of long-term debt $ - $ 178,000 $ 1,180,531 (c) $ 1,358,531
Notes payable 7,245,098 - (7,035,698)(d) 209,400
Stockholder advances - 3,926,927 (3,926,927)(a) -
Accounts payable and
accrued liabilities 1,043,708 577,739 (577,739)(a) 1,043,708
----------- ------------ ----------- -----------
Total current liabilities 8,288,806 4,682,666 (10,359,833) 2,611,639
Long-term debt 900,000 705,953 6,234,970 (c) 7,840,923
Stockholders equity:
Preferred stock, $0.0001 par value,
20,750,000 shares authorized -
Series 2001, 750,000 shares
outstanding 75 - - 75
Series 2003, 50,000 shares
Outstanding - - 50 (a) 50
P-1
Common stock, $0.0001 par value,
5,000,000,000 shares authorized,
6,499,681 shares outstanding 650 900 (900)(a) 650
Additional paid-in capital 42,193,452 346,500 4,653,450 (a) 47,193,402
Retained earnings (deficit) (42,866,268) 374,635 (374,635)(a) (42,866,268)
----------- ------------ ----------- -----------
Total stockholders equity (deficit) (672,091) 722,035 4,277,965 4,327,909
----------- ------------ ----------- -----------
Total Liabilities and Stockholders
Equity $ 8,516,715 $ 6,110,654 $ 153,102 $14,780,471
=========== ============ =========== ===========
P-2
PALWEB CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED AUGUST 31, 2003
PalWeb Greystone
Corporation Plastics, Inc. Adjustments Pro Forma
----------- ------------- ----------- -----------
Sales $ 193,219 $ 1,806,304 $ - $ 1,999,523
Cost of sales 385,915 1,490,126 (25,249)(e) 1,850,792
----------- ------------ ----------- -----------
Gross profit (loss) (192,696) 316,178 25,249 148,731
General and administrative
expenses 235,912 29,281 - 265,193
----------- ------------ ----------- -----------
Operating profit (loss) (428,608) 286,897 25,249 (116,462)
Other income (expense):
Other income 3,656 2,595 - 6,251
Interest expense (175,934) (105,624) (36,822)(f) (318,380)
Loss on abandonment of
building and improvements - (146,341) 146,341 (g) -
----------- ------------ ----------- -----------
Total other income
(expense (172,278) (249,370) 109,519 (312,129)
----------- ------------ ----------- -----------
Net income (loss) (600,886) 37,527 134,768 (428,591)
Preferred dividends 224,384 - 90,625 (h) 315,009
----------- ------------ ----------- -----------
Net income (loss) to common
shareholders $ (825,270) $ 37,527 $ 44,143 $ (743,600)
=========== ============ =========== ===========
Per share of common $ (0.13) $ (0.12)
=========== ===========
Weighted average shares 6,317,000 6,317,000
=========== ===========
P-3
PALWEB CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 2003
PalWeb Greystone
Corporation Plastics, Inc. Adjustments Pro Forma
----------- ------------- ----------- -----------
Sales $ 1,280,945 $ 5,919,143 $ - $ 7,200,088
Cost of sales 2,438,342 4,613,151 101,497 (e) 7,152,990
----------- ------------ ----------- -----------
Gross profit (loss) (1,157,397) 1,305,992 (101,497) 47,098
General and administrative
Expenses 1,623,699 136,347 - 1,760,046
----------- ------------ ----------- -----------
Operating profit (loss) (2,781,096) 1,169,645 (101,497) (1,712,948)
Other income (expense):
Other income - 18,424 - 18,424
Interest expense (433,756) (168,342) (401,442)(f) (1,003,540)
----------- ------------ ----------- -----------
Total other income
(expense) (433,756) (149,918) (401,442) (985,116)
----------- ------------ ----------- -----------
Net income (loss) (3,214,852) 1,019,727 (502,939) (2,698,064)
Preferred dividends 900,166 - 362,500 (h) 1,262,666
----------- ------------ ----------- -----------
Net income (loss) to common
shareholders $(4,115,018) $ 1,019,727 $ (865,439) $(3,960,730)
=========== ============ =========== ===========
Per share of common $ (0.79) $ (0.76)
=========== ===========
Weighted average shares 5,201,000 5,201,000
=========== ===========
P-4
PALWEB CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 - Description of Acquisition
Effective September 8, 2003, PalWeb completed the acquisition of
substantially all of the assets of Greystone Plastics, Inc., an Iowa corporation
("Greystone Plastics") through the purchase of such assets by a newly formed,
wholly-owned subsidiary of PalWeb, Greystone Manufacturing, L.L.C., an Oklahoma
limited liability company. The purchase price for the assets was $12,500,000, of
which $4,200,546 was paid in cash and $8,299,454 was paid by issuing the
following notes: a $5,000,000 note payable by Greystone Manufacturing, L.L.C. to
Greystone Plastics, Inc. at 7.5% interest, due October 1, 2008; a $2,500,000
note payable by Greystone Manufacturing, L.L.C. to Greystone Plastics, Inc. at
7.5% interest, due October 1, 2018; and an $799,454 note payable by Greystone
Manufacturing, L.L.C. to Bill Hamilton, one of the owners of Greystone Plastics,
Inc, at 6% interest, due October 26, 2007. The cash payment was financed through
the issuance of the preferred stock discussed below. The acquisition is
described further in a Form 8-K filed by PalWeb on September 23, 2003.
Simultaneously with the acquisition of Greystone and in order to
partially finance such acquisition, PalWeb sold 50,000 shares of preferred
stock, Series 2003 Cumulative Convertible Senior Preferred Stock ("Series 2003
preferred stock"), to Paul Kruger, a major shareholder of PalWeb, at $100 per
share for a total of $5,000,000. The Series 2003 preferred stock has a dividend
rate equal to the prime rate of interest plus 3.25% (7.25% at August 31, 2003)
and may be converted into common stock at the conversion rate of $1.50 per share
for an aggregate amount of 3,333,333 shares of common stock. In addition, the
holder of the Series 2003 preferred stock has been granted certain voting rights
so that such holder has the right to elect a majority of the Board of Directors
of PalWeb. For more information relating to the Series 2003 preferred stock, see
PalWeb's Form 8-K filed on September 23, 2003.
The unaudited pro forma consolidated condensed balance sheet as of
August 31, 2003, also reflects the effects of a sale and leaseback transaction
also effected on September 8, 2003. As of September 8, 2003, PalWeb had a
$7,000,000 note payable to Paul Kruger at an interest rate of prime plus 3%, due
June 4, 2004, secured by all of PalWeb's assets. Effective September 8, 2003,
PalWeb completed a sale and leaseback transaction whereby it sold for agreed
upon prices its plant for $1,350,000 and certain production equipment for
$5,710,698, including expenses, to 1607 Commerce Limited Partnership, an entity
owned by Paul Kruger, in exchange for the $7,000,000 note payable and accrued
interest of $60,698 to Paul Kruger resulting in no gain or loss on the
transaction. The lease agreement for the plant is a three year triple net lease
with a monthly rental of $17,720. The equipment lease is for 130 months with a
monthly rental of $48,000 beginning March 8, 2004. The total cost of the lease,
$5,952,000 ($48,000 per month for 124 months), will be amortized to cost of
sales using the unit of production method so the cost is allocated pro rata
based on the estimated number of pallets to be produced during the term of the
lease. Both of the leases are accounted for as operating leases.
P-5
Note 2 - Basis of Presentation
The accompanying unaudited pro forma consolidated condensed
financial statements are presented to reflect the acquisition and sale and
leaseback transaction, described in Note 1 above. The unaudited pro forma
consolidated condensed balance sheet is presented as if the acquisition,
accounted for under the purchase method, and the sale and leaseback transaction
occurred on August 31, 2003. The unaudited pro forma consolidated condensed
statements of operations are presented as if the acquisition of Greystone
Plastics occurred on June 1, 2002 and may not be indicative of the results that
would have occurred if the acquisition had been effective on the dates indicated
or of the results that may be obtained in the future. Since Greystone Plastics
has a year end of December 31, its results of operations for the three months
ended June 30, 2003 and the twelve months ended March 31, 2003 were derived from
unaudited information for three months ended June 30, 2003 and the twelve months
ended March 31, 2003, respectively. The accompanying pro forma financial
statements should be read in conjunction with the historical financial
statements and notes to financial statements of both PalWeb Corporation and
Greystone Plastics.
Note 3 - Pro Forma Adjustments
The accompanying unaudited pro forma consolidated condensed
financial statements include the following adjustments:
(a) Adjustments to remove certain assets, liabilities and
stockholders' equity of Greystone Plastics at August 31,
2003, which were not acquired by PalWeb and to reflect the
issuance of $5,000,000 of Series 2003 preferred stock.
(b) Property and equipment was adjusted to fair market value of
$5,735,694 for the assets acquired from Greystone, decreased
by $6,956,948 ($7,099,749 of property and equipment less
accumulated depreciation of $142,801) for the net book value
of assets acquired by Paul Kruger. Other assets increased
$6,164,435 for goodwill and $100,000 for patents acquired
from Greystone Plastics, less $78,750 for unamortized
acquisition costs related to the $7,000,000 note payable to
Paul Kruger.
(c) The increase in long term debt of $8,299,454 reflects the
debt incurred from the acquisition of Greystone Plastics as
described in Note 1.
(d) The decrease in notes payable of $7,035,698 results from the
exchange of debt for assets by Paul Kruger, as described in
Note 1.
(e) Adjustment provides depreciation computed on the $5,735,694
fair market value of the acquired assets from Greystone
Plastics. Depreciation and amortization was calculated on
the straight-line method of depreciation based on useful
lives ranging from seven to ten years for machinery
equipment, thirty-nine years for building and fifteen years
for patents.
(f) Interest expense was adjusted to reflect the interest on the
$8,299,454 in additional long-term debt incurred in the
acquisition of Greystone Plastics, less the interest on the
long-term debt of Greystone Plastics.
P-6
(g) Adjustment to eliminate the loss on abandonment of property
which is attributable only to Greystone Plastics.
(h) Adjustment provides additional dividends on the $5,000,000
Series 2003 preferred stock at the prime rate of interest
plus 3.25%.
Note 4 - Net Loss Per Common Share
The net loss per common share is computed by dividing
the loss available to common stockholders by the weighted average
number of common shares outstanding for the year. Convertible
preferred stock, warrants and stock options are not considered as
their effect is antidilutive.
P-7