UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 333-75137
PASW, INC.
Formerly Pacific Softworks, Inc.
(Exact name of registrant as specified in its charter)
California 77-0390628
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
703 Rancho Conejo Boulevard
Newbury Park, California 91320
(Address of principal executive offices) (Zip Code)
(805) 499-7722
Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No____
There were 4,517,400 shares outstanding of the registrant's
Common Stock, par value $.001 per share, as of November 10, 2000.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PASW, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31
2000 1999
(As Restated)
ASSETS
Current assets
Cash and cash equivalents $ 362,854 $1,661,708
Accounts receivable, net of allowance
of $0 and $0 37,505 78,751
Marketable securities 1,884,330
Note receivable 1,000,000
Prepaid expenses and other current assets 75,753
Net assets of discontinued operations 83,128
Total current assets 2,284,689 2,899,340
Property and equipment less accumulated
depreciation and amortization of
$22,981 and $35,794 153,196 105,003
Investments 1,000,000
Other assets 73,965 13,193
Total assets $3,511,850 $3,017,536
PASW, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2000 1999
(As Restated)
LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities
Accounts payable and accrued expenses $ 309,941 $ 390,546
Accrued compensation expense for
exercise of warrants 377,500
Short-term note payable 200,000
Total current liabilities 887,441 390,546
Deferred revenues
Commitments and contingencies
Minority interest in subsidiary 1,600
Stockholders' equity
Preferred stock, par value $.01 per share,
10,000,000 shares authorized; no shares
outstanding
Common stock, par value $.001 per share,
50,000,000 shares authorized; 4,517,400 and
4,402,500 shares issued and
outstanding 4,518 4,403
Additional paid in capital 6,010,159 5,042,624
Retained earnings (deficit) (2,901,691)(2,445,615)
Accumulated other comprehensive
income (490,177) 25,578
Total stockholders' equity 2,622,809 2,626,990
$3,511,850 $3,017,536
See accompanying notes to condensed consolidated financial
statements.
PASW, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(As restated) (As Restated)
Net revenue
Sales $ 205,482 $ 118,360 $ 206,016 $ 427,903
Royalties
and others 187,129 33,435 384,560 130,883
Total 392,611 151,795 590,576 558,786
Cost of revenue
Purchases and
royalty fees 9,253 27,259 47,163 49,847
Gross profit 383,358 124,536 543,413 508,939
Expenses
Selling, general and
administrative 431,083 221,334 1,607,538 381,103
Research and
development 192,424 109,817 574,011 310,560
Depreciation and
amortization 19,008 3,461 22,981 10,381
Former officers
consulting and
administrative
expense 71,500 252,085
Total 642,515 406,112 2,204,530 954,129
Net loss from:
Continuing operations (259,157)(281,576) (1,661,117) (445,190)
Discontinued operations:
Loss from operations (897,104) (590,829) (1,343,395) (741,328)
Gain on sale of assets 2,548,436 2,548,436
Gain (loss) from
discontinued operations 1,651,332 (590,829) 1,205,041 (741,328)
Net gain (loss) $ (1,392,175) $(872,405) $(456,076)$(1,186,518)
Net loss per common share
Basic and diluted:
Continuing operations $ (0.06) $ (0.08) $ (0.36) $ (0.13)
Discontinued
operations $ 0.36 $ (0.17) $ 0.26 $ (0.22)
Net loss $ 0.30 $ (0.25) $ (0.10) $ (0.35)
Weighted average common
stock shares outstanding
Basic and diluted 4,640,900 3,440,000 4,617,900 3,409,613
See accompanying notes to condensed consolidated financial
statements.
PASW, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(As restated) (As Restated)
Net gain (loss) $1,392,175) $(872,405) $(456,076)(1,186,518)
Other comprehensive
income (loss)
Net unrealized
(loss) arising
during the period (704,139) (704,139)
Foreign currency
translation
adjustment 109,454 ( 44,000) 213,962 48,866
Comprehensive
gain (loss) $ 797,490 $(916,405) $( 946,253) (1,137,652)
See accompanying notes to condensed consolidated financial
statements.
PASW, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine
Months Ended
September 30,
2000 1999
(As restated)
Cash flows from operating activities
Net loss from continuing operations $(1,661,117) $(445,190)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 2,981 10,382
(Increase) decrease in assets:
Accounts receivable 41,246 30,091
Related party receivable 43,000
Prepaid expenses 75,753 ( 26,601)
Other assets (60,772)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses ( 80,605) 15,266
Related party payable (103,705)
Accrued taxes payable (20,323)
Customer deposits (23,100)
Accrued compensation expense 377,500
Deferred revenue 44,000
(1,285,014) (476,180)
Net effect of discontinued operations (1,300,300) (861,200)
Net cash used in
operating activities (2,585,314) (1,337,380)
Cash flows from investing activities
Acquisition of fixed assets ( 71,174) (153,761)
Disposition of assets, net 13,461
Net cash used in investing activities ( 71,174) (140,300)
Cash flows from financing activities:
Proceeds from initial public offering 4,651,131
Exercise of warrants 569,250
Private placement of preferred stock
in subsidiary 400,000
Proceeds from borrowings 200,000 459,295
Repayment of borrowings (563,000)
Private placement of common stock 500,000
Net cash provided by financing
activities 1,169,250 5,047,426
Effect of exchange rate changes on cash 188,384 45,624
Net increase (decrease)in cash (1,298,854) 3,615,370
Cash - Beginning 1,661,708 224,031
Cash - Ending $ 362,854 $3,839,401
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest:
Continuing operations $9,814
Discontinued operations $0
Income taxes:
Continuing operations $0
Discontinued operations $0
During the period ended September 30, 1999
Warrants valued at $200,000 were issued in
connection with the public offering.
During the period ended September 30, 2000
The Company sold certain assets to a listed
company for 90,000 shares of common stock
valued at $1,884,330 at September 30, 2000.
The market value of the stock at September 30,2000 was
$1,884,330 resulting in an unrealized loss of $704,139.
See accompanying notes to condensed consolidated financial
statements.
PASW, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of presentation
The accompanying unaudited consolidated financial
statements of PASW, Inc. ("PASW", or the "Company") have been
prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions
to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation
of the Company's financial position at September 30, 2000, the
results of operations for the three and nine months ended
September 30, 2000 and September 30, 1999, and the cash flows for
the nine months ended September 30, 2000 and September 30, 1999
are included. Operating results for the three and nine month
periods ended September 30, 2000 are not necessarily indicative
of the results that may be expected for the year ending December
31, 2000.
The information contained in this Form 10-QSB should be
read in conjunction with audited financial statements and related
notes for the year ended December 31, 1999 which are contained in
the Company's Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission (the "SEC") on March 29, 2000
and the unaudited financial statements as of March 31, 1999 filed
as a part of the Company's Registration Statement on Form SB-2
filed with the Securities and Exchange Commission on July 29,
1999. (File 333-75137).
(2) Earnings per share
The Company adopted SFAS No. 128, "Earnings Per Share",
during 1998. SFAS No. 128 requires presentation of basic and
diluted earnings per share. Basic earnings per share is computed
by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the
reporting period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other
contracts, such as stock options, to issue common stock were
exercised or converted into common stock. All prior period
weighted average and per share information has been restated in
accordance with SFAS No. 128.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Cautionary Note Regarding Forward-Looking Statements
Except for historical information contained herein, the
statements in this report (including without limitation,
statements indicating that the Company "expects," "estimates,"
anticipates," or "believes" and all other statements concerning
future financial results, product offerings, proposed
acquisitions or combinations or other events that have not yet
occurred) are forward-looking statements that are made pursuant
to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. Forward-looking statements
involve known and unknown factors, risks and uncertainties, which
may cause the Company's actual results in future periods to
differ materially from forecasted results. Those factors, risks
and uncertainties include, but are not limited to: the
positioning of the Company's products in the Company's market
segments; the Company's ability to effectively manage its various
businesses in a rapidly changing environment; the timing of new
product introductions; sell-through of the Company's products;
the continued emergence of the internet resulting in new
competition and changing customer demands; the Company's ability
to adapt and expand its product offerings in light of changes to
and developments in the internet environment; growth rates of the
Company's market segments; variations in the cost of, and demand
for, customer service and technical support; price pressures and
competitive environment; the possibility of programming errors or
other "bugs' in the Company's software; the timing and customer
acceptance of new product releases and services (including
current users' willingness to upgrade from older versions of the
Company's products); the consummation of possible acquisitions or
combinations; and the Company's ability to integrate acquired or
combined operations with its existing business and otherwise
manage growth; and the Company's ability to generate or obtain
additional capital resources to fund its operations and growth.
Additional information on these and other risk factors are
included in the "Factors That May Affect Future Results" section
in the Company's Annual Report on Form 10-KSB filed with the SEC
on March 29, 2000 and the risks discussed in the Company's other
filings with the SEC. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect
management's analysis, judgement, belief and expectations only as
of the date hereof. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect
events or circumstances that arise after the date hereof.
General
The Company completed an initial public offering of 950,000
units consisting of one share of common stock and one warrant on
July 29, 1999. An additional 142,500 units representing the
underwriter's overallotment was sold on September 13, 1999. The
Company develops and licenses software which enables internet and
web based communications. The software products are embedded into
systems and "information appliances" developed or manufactured by
others. Information appliances are internet-connected versions of
every day products such as telephones, fax machines, personal
digital assistants and other digitally based devices. The Company
has developed a new proprietary internet browser for use within
independent, "non Windowsr" information appliances. The browser
may be effectively placed in use without an operating system and
does not require substantial amounts of memory. The Company began
marketing the initial version of this browser during the first
quarter of 2000.
The Company refined its strategic focus in the Fourth
Quarter of 1999 in order to enhance its positioning and
flexibility in the rapidly growing market for Internetworking
technology and to improve the utilization of its assets and
competencies. Key elements of the business strategy involve the
segregation of the Company's core technology into separate
business units and identifying strategic investment opportunities
and/or associations with other operating companies. In
conjunction with this strategy at the annual meeting on May 26,
2000 the Company changed its name to PASW, Inc.
Establishing separate business units for the core
technology will facilitate the ability to develop and
commercialize the underlying technology and will also allow for
either private or public investment, joint ventures or mergers
that are beneficial to such development and commercialization.
Accordingly, the Company transferred the operating assets and
technology that represented the historical business of the
Company into two wholly owned subsidiaries. The technology and
personnel responsible for the Internet and Web related software
and software development tools now operate as Pacific Softworks.
The technology and personnel responsible for the embedded Web
browser and server now operate as PSI Web Technologies, Inc.
During 1999 the Company also established Alera Systems, Inc.,
formerly iApplianceNet.com, a development stage company and a
wholly owned subsidiary, to provide Internet-active merchandise
and service store displays and the infrastructure that supports
them.
The Company also commenced a program of identifying
strategic investment opportunities and/or associations with
operating companies that are compatible and complementary to the
plan of operations. In accordance with this program, the Company
made an investment in Combio, formerly FSPNetwork, Inc.
("Combio") in the fourth quarter of 1999 and signed a letter of intent to
invest in RedFlag, Inc. ("RedFlag") in early 2000. The goal of
this strategy is to both increase shareholder value and to create
an operating group of companies that have mutually beneficial
technology and businesses. Future investments and/or
associations, if any, will focus on companies that:
- - have a strong Internet/Web presence that are synergistic with
the Company's core businesses and that can utilize the
Company's Internet and web technology in the implementation of
their internet strategies;
- - have a strong Internet/Web presence that are synergistic with
the businesses of companies in which the Company has an
investment/and or affiliation ("PSI network companies") and
that can utilize the technology of the PSI network companies
in the implementation of their internet strategies;
- - present cross licensing opportunities for the Company's
technology;
- - are past the start-up phase of operations, have revenues and
earnings and are near term candidates for an initial public
offering; and
- - can benefit from the Company's financial and operational
resources in securing both private and public investment
capital.
Combio.
On October 25, 1999 the Company and Combio, formerly
FSPNetwork, Inc. ("Combio") signed a Letter of Intent to enter
into discussions with the purpose of entering a strategic
relationship to jointly develop certain internet applications
with financial institutions. The Company indicated that subject
to entering into a definitive agreement it would invest up to
$1,000,000 in Combio and under certain conditions up to an
additional $2,000,000. On October 25, 1999 the Company loaned
Combio $250,000 through a promissory note bearing interest at ten
(10%) percent due in ninety days. The loan was for general
corporate purposes. On December 3, 1999 the Company loaned Combio
an additional $750,000 and converted the $250,000 note evidenced
by a $1,000,000 convertible promissory note. On April 28, 2000
the note was converted into 713,129 shares of Series A Preferred
Stock of Combio. The stock is equal to 5% of the outstanding
capital stock of Combio concurrent with Combio's closing of an
equity financing on the same time.
Alera Systems, Inc.
In March 2000, the Company's wholly owned subsidiary Alera
Systems, Inc., formerly iApplianceNet ("Alera"), completed a
private placement of 140,000 shares of Series A redeemable
convertible preferred stock for net proceeds of $350,000. On
August 17, 2000 an additional 20,000 shares were issued for net
proceeds of $50,000. The preferred shares carry a 5% dividend
payable semi-annually in common shares of iApplianceNet valued at
$2.50 per share.
Each share of preferred stock shall be convertible, at the
option of the holder, into one fully paid and nonassessable share
of Common Stock, subject to adjustment for stock splits and stock
dividends. Each share of preferred stock will automatically
convert into shares of Common Stock at the time of the earlier of
(i) the closing of a firm commitment underwritten public offering
of not less than $5,000,000, or (ii) the date specified by
written consent or agreement of the holders of 60% percent of the
outstanding shares of such series.
In the event that Alera has not been sold or closed a firm
commitment underwritten public offering of not less than
$5,000,000 within two years following the closing of the private
placement, the preferred stock holders will have the option of
converting their shares into common stock of PASW, Inc., the
majority shareholder of Alera. The preferred shares will receive
shares of PASW common stock based on the ratio of the cost of the
preferred shares over 85% of the average per share closing price
for PASW for 15 consecutive days. The value of the PASW shares
used in the conversion calculation is limited to a range of $1.00
to $15.00.
Sale and Relicensing of Assets.
On August 31, 2000 the Company and NETsilicon, Inc.
("NSIL") entered into an agreement whereby the Company sold the
assets of its PSI Softworks Technology subsidiary ("PSI") to
NSIL. The assets primarily consist of PSI's Internet and Web
software. The purchase price for the assets was 90,000 shares of
NSIL's common stock. In addition NSIL has agreed to grant a non-
exclusive, royalty-free license for the acquired technology, to
PASW and its affiliates, subject to certain limitations. NSIL is
expected to retain substantially all of PSI's personnel as part
of a newly formed operating group. The sale is being accounted
for as discontinued operations for financial reporting purposes.
Management Changes
On October 5, 2000 the Board of Directors of the Company
accepted the resignation of Glenn P. Russell as Chairman and a
Director of the Company. Mr. Russell resigned due to the workload
of outside business activities which had become a significant
impact on the time available for his operations within the
Company. The board regretfully accepted his resignation and
appointed William E. Sliney as the new Chairman and a Director
effective on that date.
The Company operates in one business segment. The Company's
fiscal year ends on December 31.
Results of Operations from Continuing Operations
Three months ended September 30, 2000 and 1999.
Net revenue
For the three months ended September 30, 2000 revenues from
continuing operations increased 258% to $392,611 from $151,795
for the three months ended September 30, 1999. Sales of licenses
increased $87,122, an increase of 74% for the three months ended
September 30, 2000 due to higher sales in North America. Royalty
revenue increased for the three months ended September 30, 2000
to $187,129 from $33,435 for the three months ended September 30,
1999 principally due to higher revenue in Japan.
Cost of revenue
The cost of revenue for the three months ended September
30, 2000 was $9,253 or 2.4% of sales compared to $27,259 or 18%
of sales for the three months ended September 30, 1999. The
decrease in cost of sales related to lower direct and indirect
costs for production and duplication of manuals and media for
software products charged against sales for the three months
ended September 30, 2000 as the Company transitioned out of
production of software products.
Selling, general and administrative
Selling, general and administrative expense increased
$209,749 to $431,083 for the three months ended September 30,
2000 from $221,334 for the three months ended September 30, 1999.
This increase is the result of and an increase in administrative
costs for expenses associated with the Company becoming a public
company after the receipt of funds from the Company's initial
public offering in July, 1999 and expenses associated with the
continuing development of it's Alera subsidiary. Because of the
increase in net revenues the cost of these expenses as a
percentage of revenue increased to 110% of net revenue for the
three months ended September 30, 2000 from 146% for the three
months ended September 30, 1999.
Research and development expense
Research and development expense increased to $192,424 or
75% for the three months ended September 30, 2000 from $109,817
or of revenue for the three months ended September 30, 1999. The
increase is principally attributable to a continuation of
development of the Company's Alera subsidiary.
Depreciation and amortization
Depreciation and amortization increased to $19,008 in the
three months ended September 30, 2000 from $3,461 for the three
months ended September 30, 1999. This increase was attributable
to an increase of capital additions for the Alera subsidiary for
three months ended September 30, 2000 over capital additions in
the three months ended September 30, 1999.
Former officer's consulting and administrative expense
The former officer's consulting and administrative expense
decreased to zero for the three months ended September 30, 2000
from $71,500 for the three months ended September 30, 1999. This
agreement plus an agreement not to compete and a consulting
agreement with the former officer expired in September 1999.
Provision for taxes
Commencing in 1995 the Company elected to be treated as a
subchapter S corporation. Through 1998 all federal tax
liabilities were recognized at the individual stockholder level.
In February 1999 the Company terminated the S election and became
subject to taxation at the corporate level. For the three months
ended September 30, 2000 the Company had no income tax liability.
Nine months ended September 30, 2000 and 1999.
Net revenue
For the nine months ended September 30, 2000 revenues from
continuing operations increased 6% to $590,576 from $558,786 for
the nine months ended September 30, 1999. Sales of licenses
decreased 51% for the nine months ended September 30, 2000 due to
lower sales in the United Kingdom. Royalty revenue increased by
193% for the nine months ended September 30, 2000 to $384,560
from $130,883 for the nine months ended September 30, 1999
principally due to higher royalty revenue in Japan.
Cost of revenue
The cost of revenue for the nine months ended September 30,
2000 was $47,163 or 8% of sales compared to $49,847 or 9% of
sales for the nine months ended September 30, 1999. The decrease
in cost of sales related to lower direct and indirect costs for
production and duplication of manuals and media for software
products charged against sales for the nine months ended
September 30, 2000 as the Company curtailed production of
software products.
Selling, general and administrative
Selling, general and administrative expense increased to
$1,607,538 for the nine months ended September 30, 2000 from
$381,103 for the nine months ended September 30, 1999. This
increase is the result of increases in the sales and marketing
staffs which were expanded after the receipt of funds from the
Company's initial public offering in July, 1999, an increase in
administrative costs for expenses associated with the Company
becoming a public company and the continued funding of expense
associated with the Company's Alera subsidiary. The cost of these
expenses as a percentage of revenue increased to 272% of net
revenue for the nine months ended September 30, 2000 from 68% for
the nine months ended September 30, 1999.
Research and development expense
Research and development expense increased to $574,011 or
97% of revenue for the nine months ended September 30, 2000 from
$310,560 or 56% of revenue for the nine months ended September
30, 1999. The increase is principally attributable to a
continuation of expenses associated with the initial operation of
the Company's Alera subsidiary.
Depreciation and amortization
Depreciation and amortization increased to $22,981 in the
nine months ended September 30, 2000 from $10,381 for the nine
months ended September 30, 1999. This increase was attributable
to expenditures of $71,174 in capital additions for the nine
months ended September 30, 2000 used for continued development of
the Alera subsidiary.
Former officer's consulting and administrative expense
The former officer's consulting and administrative expense
decreased to zero for the nine months ended September 30, 2000
from $252,085 for the nine months ended September 30, 1999. This
agreement plus an agreement not to compete and a consulting
agreement with the former officer expired in September 1999.
Provision for taxes
Commencing in 1995 the Company elected to be treated as a
subchapter S corporation. Through 1998 all federal tax
liabilities were recognized at the individual stockholder level.
In February 1999 the Company terminated the S election and became
subject to taxation at the corporate level. For the nine months
ended September 30, 2000 the Company had no income tax liability.
Liquidity and capital resources
At September 30, 2000 and December 31, 1999 the Company had
working capital of $1,397,248 and $2,508,794 and cash and cash
equivalents of $362,854 and $1,661,708.
The Company used $2,585,314 in cash flow from operating
activities in the nine months ended September 30, 2000 compared
to using $1,337,380 in the nine months ended September 30, 1999.
The increase in use of cash of $1,247,934 for operating
activities was the result of an increase of $11,155 in accounts
receivable, an increase of $102,354 in prepaid expenses, a
decrease in other receivables of $43,000, an increase in other
assets of $60,772, a decrease in accounts payable and other
accrued expenses of $95,871, a decrease of $147,128 in other
liabilities, an increase of $377,500 in accrued compensation
expense, an increase of $203,000 in the effect of discontinued
operations and a decrease of $44,000 in deferred revenue.
Investing activities in the nine months ended September 30,
2000 consisted of purchase of fixed assets of $71,174 compared to
the purchase of assets, net of dispositions, of $140,300 in the
nine months ended September 30, 1999.
The Company provided $1,169,250 from financing activities
in the nine months ended September 30, 2000 through the exercise
of warrants of $569,250 in the Company and the investment of
$400,000 through the private placement of preferred stock and
borrowing through a revolving note of $200,000 in the Company's
Alera subsidiary. Financing activities for the nine months ended
September 30, 1999 consisted of $4,651,131 from the net proceeds
of the Company's initial public offering, $500,000 from a private
placement of common stock, borrowings $459,131 and repayments of
borrowings of $563,000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1999 the Company was notified that a merchant
banker, Golenberg & Co., had asserted rights under a June 1998
letter agreement to purchase 10% of the then outstanding common
stock of the Company for $400,000. In June 1999 counsel for
Golenberg & Co. reiterated this demand and advised the Company
that these claims were being evaluated for possible legal action.
To date no action has been taken by Golenberg & Co.
The Company is not currently involved in any litigation
that is expected to have a material adverse effect on the
Company's business or financial position. There can be no
assurance, however, that third parties will not assert
infringement or other claims against the Company in the future
which, regardless of the outcome, could have an adverse impact on
the Company as a result of defense costs, diversion of management
resources and other factors.
ITEM 2. CHANGES IN SECURITIES.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herewith:
Exhibit 11 - Weighted Average of Common Stock
Shares Outstanding
Exhibit 27 - Financial Data Schedule
(b) The Company filed a report on Form 8-K during the
quarter for which this form is filed detailing
the terms of the transaction between the Company
and Net Silicon, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: November 10, 2000 PASW, INC.
/s/ WILLIAM E. SLINEY
__________________________________
William E. Sliney
Chairman, President and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
EXHIBIT 11
PASW, INC.
COMPUTATION OF WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING
Three Months Nine
Months
Total Number Ended Ended
Of Shares September 30, 2000 September
30, 2000
Outstanding shares
as of January 1, 2000 4,402,500 4,402,500 4,402,500
Options treated as
Common Stock 123,500 123,500
Exercise of warrants 114,900 114,900 91,900
Total weighted average
shares outstanding 4,517,400 4,640,900 4,617,900
