10QSB/A 1 ppnt10qa.htm FORM 10-QSBA FOR PEOPLENET 2002Q2

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB/A

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED JUNE 30, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________ TO _____________

Commission file number 000-33033

PEOPLENET INTERNATIONAL CORPORATION
(Name of small business issuer in its charter)

Delaware	02-0575232
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

1600 Adams Drive
Menlo Park, California 94025
(Address of Principal Executive Offices including Zip Code)

(650) 323-6688
(Registrant's Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if changed since last report)

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 [ ]

Applicable only to issuers involved in bankruptcy proceedings during the past five years:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

Number of shares of common stock, par value $0.0001, outstanding as of August 14, 2002 is 15,749,999.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

PEOPLENET INTERNATIONAL CORPORATION

FORM 10-QSB

For June 30, 2002

TABLE OF CONTENTS


Part I.	Financial Information
Item 1.	Financial Statements
	Balance Sheets as of June 30, 2002 and December 31, 2001	3
	Statements of Operations for the three and six month periods ended June 30, 2002 and 2001	4
	Statements of Cash Flows for the three and six month periods ended June 30, 2002	5
	Notes to Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11

Part II.	Other Information
Item 1.	Legal Proceedings	15
Item 2.	Changes in Securities and Use of Proceeds	15
Item 3.	Defaults Under Senior Securities	15
Item 4.	Submission of Matters to a Vote of Security Holders	15
Item 5.	Other Information	15
Item 6.	Reports on Form 8-K	15

Signatures

PART I

Item 1. Financial Information - (unaudited)

PEOPLENET INTERNATIONAL CORPORATION
BALANCE SHEET

                                           June 30       December 31
                                             2002           2001
                                         ------------   ------------
                                          (unaudited)      (audited)
ASSETS
  Cash                                   $    83,089    $       -
  Accounts receivable                          2,000        133,000
  Due from parent                                -          936,057
  Notes receivable                            11,500            -
                                         ------------   ------------
  Total current assets                        96,589      1,069,057

  Property and equipment, net                 52,408         83,561

  Intangible assets, net                     971,208            -
                                         ------------   ------------
    Total Assets                         $ 1,120,205    $ 1,152,618
                                         ============   ============

LIABILITIES
  Accounts payable and
    accrued expenses                     $   331,248    $   306,742
  Due to parent                                  -       12,805,362
  Other                                       72,628         72,628
  Advances from related parties              145,500         89,000
                                         ------------   ------------
                                             549,376     13,273,732
                                         ------------   ------------
STOCKHOLDERS' EQUITY
  Preferred stock, $0.0001 par value;
    10,000,000 shares authorized         $       -      $       -
  Common stock, $0.0001 par value;
    100,000,000 shares authorized              1,575            201
  Additional paid-in capital              19,033,783        678,680
  Deferred compensation charges           (1,391,643)           -
  Related party receivable                  (334,454)           -
  Accumulated deficit                    (16,738,432)   (12,799,995)
                                         ------------   ------------
    Total Stockholders' Equity               570,829    (12,121,114)
                                         ------------   ------------
                                         $ 1,120,205    $ 1,152,618
                                         ============   ============

The accompanying notes are an integral part of these financial statements.

PEOPLENET INTERNATIONAL CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY

                          Preferred Stock      Common Stock
                         -----------------  ------------------                                Deferred     Related        Total
                          Number              Number              Paid-In     Accumulated   Compensation    Party     Stockholders
                         of Shares  Amount   of Shares  Amount    Capital       Deficit       Charges     Receivable      Equity
                         ---------  ------  ----------  ------  -----------  -------------  ------------  ----------  -------------
Balance at
March 31, 2002                 -    $  -    15,629,999  $1,563  $13,991,393  $(12,901,701)  $       -     $     -     $  1,091,255

Issuance of common stock       -       -       120,000      12      119,988           -             -           -          120,000

Common stock options issued
in lieu of compensation        -       -           -        -     4,484,048           -      (1,391,643)         -       3,092,405

Common stock options issued
for services                   -       -           -        -       438,354           -              -           -         438,354

Related party receivable       -       -           -        -           -             -              -      (334,454)     (334,454)

Net loss                       -       -           -        -           -      (3,836,731)           -           -      (3,836,731)
                         ---------  ------  ----------  ------  -----------  -------------  ------------  ----------  -------------
Balance at
June 30, 2002                  -    $  -    15,749,999  $1,575  $19,033,783  $(16,738,432)  $(1,391,643)  $(334,454)  $    570,829
                         =========  ======  ==========  ======  ===========  =============  ============  ==========  =============

The accompanying notes are an integral part of these financial statements.

PEOPLENET INTERNATIONAL CORPORATION
STATEMENT OF OPERATIONS

                                        Three-month Periods Ended      Six-month Periods Ended
                                       ---------------------------   ---------------------------
                                         June 30        June 30        June 30        June 30
                                           2002           2001           2002           2001
                                       ------------   ------------   ------------   ------------
                                        (unaudited)    (unaudited)    (unaudited)    (unaudited)
REVENUE
  Licensing income - film              $       -      $   150,000    $       -      $   300,000
  Licensing fee - software                   3,197            -            3,197            -
  Other                                        -            1,500            -            2,550
                                       ------------   ------------   ------------   ------------
    Total revenue                            3,197        151,500          3,197        302,550
                                       ------------   ------------   ------------   ------------

COSTS AND EXPENSES
  Film cost amortization and reserve           -          150,000            -          300,000
  Amortization of intangibles               88,292            -           88,292            -
  Selling                                      -            3,500            -           16,595
  Salaries and payroll taxes               112,683         17,888        128,473        130,761
  Rent                                         -              -              -              -
  General and administrative             3,638,953         34,585      3,724,869         85,285
                                       ------------   ------------   ------------   ------------
    Total costs and expenses             3,839,928        205,973      3,941,634        532,642
                                       ------------   ------------   ------------   ------------

OTHER INCOME (EXPENSES)
  Inter-company interest expense               -              -              -          (30,000)
                                       ------------   ------------   ------------   ------------
    Total other income (expenses)              -              -              -          (30,000)
                                       ------------   ------------   ------------   ------------

LOSS FROM OPERATIONS BEFORE
  PROVISION FOR INCOME TAXES            (3,836,731)       (54,473)    (3,938,437)      (260,092)

PROVISION FOR INCOME TAXES                    -               -              -              100
                                       ------------   ------------   ------------   ------------
NET LOSS                               $(3,836,731)   $   (54,473)   $(3,938,437)   $  (260,192)
                                       ============   ============   ============   ============
Weighted average number of
  shares outstanding                    15,640,548      2,010,000*    15,640,548      2,010,000*
                                       ============   ============   ============   ============
Basic and diluted loss per share           $(0.245)       $(0.027)       $(0.252)       $(0.129)
                                       ============   ============   ============   ============

* As if the 20,100 to 1 forward split of the Company's common stock occurred on January 1, 2001.

The accompanying notes are an integral part of these financial statements.

PEOPLENET INTERNATIONAL CORPORATION
STATEMENT OF CASH FLOWS

                                                       Three Months     Six Months      Six Months
                                                          Ended           Ended           Ended
                                                       -------------   -------------   -------------
                                                       June 30, 2002   June 30, 2002   June 30, 2001
                                                       -------------   -------------   -------------
                                                         (unaudited)     (unaudited)     (unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                             $ (3,836,731)   $ (3,938,437)   $   (289,051)
  Adjustments to reconcile net loss
    to net cash used for operating activities
      Allowance for doubtful accounts                        64,750         129,000             -
      Depreciation and amortization                          16,900          33,801          37,210
      Amortization and reserve of film costs                    -               -           300,000
      Common stock issued in lieu of compensation               -            15,790             -
      Common stock options issued for services              438,354         438,354             -
      Common stock options issued in lieu
        of compensation                                   3,092,405       3,092,405             -
      Amortization of intangibles                            88,292          88,292             -
  (Increase) decrease in
    Accounts receivable                                      (2,000)         (1,000)       (228,612)
    Related party receivable                                 (1,500)         (1,500)            -
    Inventory                                                   -               -               255
  Increase (decrease) in
    Accounts payable and accrued expenses                    29,394          24,506         (13,873)
    Due from related parties                                    -            (2,474)        171,426
                                                       -------------   -------------   -------------
      Net cash used for operating activities               (110,136)       (121,263)        (22,645)
                                                       -------------   -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment                         (2,648)          (2,648)           -
  Payment for film costs                                        -                -            5,000
  Change in notes receivable                                 (8,500)          (8,500)           -
                                                       -------------    -------------   ------------
    Net cash used for investing activities                  (11,148)         (11,148)         5,000
                                                       -------------    -------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of common stock                    120,000          120,000            -
  Proceeds on loans from related parties                     77,500           95,500          3,000
  Proceeds on notes payable                                     -                -           30,000
                                                       -------------    -------------   ------------
    Net cash provided by financing activities               197,500          215,500         33,000
                                                       -------------    -------------   ------------

NET INCREASE IN CASH                                         76,216           83,089         15,355

CASH, beginning of period                                     6,873              -          (15,201)
                                                       -------------    -------------   ------------
CASH, end of period                                    $     83,089           83,089            154
                                                       =============    =============   ============


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Cash paid during the period for
    Interest                                           $        -       $      1,000            -
                                                       =============    =============   ============
    Foreign and state income taxes                     $        -       $        -              -
                                                       =============    =============   ============


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
  Common stock issued in lieu of compensation          $        -       $     15,790            -
                                                       =============    =============   ============

  Common stock options issued for services             $    438,354     $    438,354            -
                                                       =============    =============   ============

  Common stock options issued in lieu of compensation  $  3,092,405     $  3,092,405            -
                                                       =============    =============   ============

  Distribution of investment in subsidiary to
    shareholders                                       $        -       $ 12,199,785            -
                                                       =============    =============   ============
  Common stock issued in exchange for
    intangible assets                                  $        -       $  1,059,500            -
                                                       =============    =============   ============

The accompanying notes are an integral part of these financial statements.

NOTES TO FINANCIAL STATEMENTS
For the three-month period ended June 30, 2002

Note 1 - Nature of Operations, Going Concern, Stock Split, and Spin-off

Nature of Operations - PeopleNet International Corporation (the "Company") focuses on development and sales of communication software solutions and management of media-related programs. The software solutions include a controlled and safe Internet browser for children and a multiple-module web-based email and office automation bundle. The media-related programs consist of production of educational television programs for children, which emphasize moral values and fun. The Company had been a wholly owned subsidiary of Pacific Systems Control Technology, Inc. ("PSCT") until February 8, 2002 when the Company completed its spin-off transaction from PSCT and became an independent entity.

Going Concern - Management's plans and the ongoing operations of the Company are expected to require additional working capital during 2002. In addition, the Company has experienced losses from continuing operations since inception. These factors cause substantial doubt about the ability of the Company to continue as a going concern. The Company has historically financed operating and capital cash requirements from funds received from the parent company PSCT. The Company is attempting to raise additional capital through a private placement in the amount of $1,000,000. However, there can be no assurance that this placement could be successfully executed due to the current adverse investment climate. During each of the quarters going forward, the Company intends to make smaller private sale of stock to accredited individuals and to obtain loans from ECapital Group, Inc. or other individuals for operational cash needs.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of operations. The continuation of the Company as a going concern is dependent upon the success of obtaining additional capital and, thereafter, on attaining profitability. There can be no assurance that management will be successful in the implementation of its plan. The financial statements do not include any adjustments in the event the Company is unable to continue as a going concern.

Stock Split, Spin-off, and Business Agreements - On July 24, 2001 the Company changed its name from American Champion Media, Inc. to PeopleNet International Corporation. The name change was made to more accurately reflect changes in the Company's core business.

On July 23, 2001 the Company declared a 20,100 for 1 stock split. The accompanying financial statements reflect the effect of this split. The Company also increased the authorized shares of common stock to 100,000,000 and provided for the issuance of up to 10,000,000 shares of preferred stock. The preferred stock can be issued by the Board of Directors and may include voting rights, preferences as to dividends and liquidation, conversion rights, redemption and sinking fund provisions. All share and per share data in the accompanying notes have been adjusted to reflect the effect of this split.

In July 2001 the Company adopted the 2001 Stock Option Plan. The plan provides for the issuances of up to 1,500,000 options to purchase common stock of the company. In April 2002, the Board of Directors increased the plan to 8,000,000 shares. As of June 30, 2002, 6,720,620 stock options have been issued under the plan.

In July 2001 the Company adopted the Non-Employee Directors Stock Option Plan. The plan provides for the issuances of up to 500,000 options to purchase common stock of the company. In April 2002, the Board of Directors increased the plan to 1,000,000 shares. No options have been issued under the plan.

In July 2001 the Company adopted the 2001 Stock Incentive Plan. The plan provides for the issuances of up to 500,000 shares of common stock of the company. No shares have been issued under the plan.

On June 22, 2001, PSCT approved a plan to spin-off the Company to the shareholders as a tax-free distribution. Under the plan, each stockholder of PSCT received one share of PeopleNet stock for every 17 shares of PSCT stock held as of the record date of January 16, 2002. Subsequent to and as part of the spin-off, the Company issued 374,587 shares of common stock, with registration rights to ECapital, in exchange for the worldwide exclusive rights to market and distribute ChiBrow, a safe web browser software for children for three years. The related party note payable was converted to common stock. The spin-off became effective in January 2002 and all shares were distributed to the above parties on February 8, 2002.

As part of this plan, inter-company advances were offset against the amounts due to PSCT and the net amount was converted to additional paid-in-capital.

Note 2 - Summary of Significant Accounting Policies

Revenue Recognition - Revenue from certain licensing programs is recorded when license agreement has been executed, the software has been delivered or shipped, the fee is determined and the customer is invoiced. The Company intends to adopt the provisions of Statements of Position 97-2 and 98-4 and SEC Staff Accounting Bulletin 101. Revenue from licensing agreements is not significant for the quarter ended June 30, 2002.

Revenue from films is recognized on delivery of each master. Film costs are amortized using the individual-film-forecast-computation method, which amortizes costs in the ratio that current gross revenues bear to anticipated total gross revenues from all sources. Management periodically reviews its estimates of future revenues for each master and if necessary a revision is made to amortization rates and a write down to net realizable value may occur.

Concentrations of Risk - Financial instruments which potentially subject the Company to concentrations of credit risk are cash and accounts receivable. The Company places its cash with financial institutions deemed by management to be of high credit quality. The amount on deposit in any one institution that exceeds federally insured limits is subject to credit risk.

Cash and Cash Equivalents - The Company considers certain highly liquid instruments purchased with original maturities of three months or less to be cash equivalents.

Property and Equipment - Property and equipment is stated at cost. Depreciation for property and equipment is computed using the straight-line method over an estimated useful life of five years.

Film Costs - Film costs consist of the capitalized costs related to the production of original film masters for videos and television programs. Film costs are amortized using the individual-film-forecast-computation method. The net film costs are presented on the balance sheet at the net realizable value for each master. During 2001 the Company established a reserve against the capitalized film costs to reduce the carrying amount to the estimated net realizable value, which is zero.

Fair Values of Financial Instruments - The carrying values of cash, receivables, accounts payable and short-term borrowings approximate fair value due to the short maturity of these instruments. The carrying values of long-term obligations approximate fair value since the interest rates either fluctuate with the lending banks' prime rates or approximate market rate. None of the financial instruments are held for trading purposes.

Basic Loss Per Share - Basic loss per share is based on the weighted average outstanding shares issued. Because the Company has a net loss, the common stock equivalents would have an anti-dilutive effect on earnings per share. Accordingly, basic earnings per share and diluted earnings per share are the same.

Income Taxes - Income taxes are accounted for using an asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between financial statement and tax basis of assets and liabilities at the applicable enacted tax rates. Accounting principles generally accepted in the United States of America require a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Use of Estimates, Risks and Uncertainties - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from the estimates. Significant estimates used in these financial statements include the recovery of intangible assets and film costs, which have a direct relationship to the net realizable value of the related asset. It is at least reasonably possible that management's estimate of revenue from licensing and films could change in the near term, which could have a material adverse effect on the Company's financial condition and results of operations.

Note 3 - Basis of Reporting

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the financial position of the Company on June 30, 2002 and the results of operations and its cash flows for the six months periods ended June 30, 2002 and 2001. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes for the year ended December 31, 2001 included in the Company's Form 10-KSB as filed with the SEC on April 15, 2002.

Note 4 - Film Costs

Film costs consist of the capitalized costs related to the production of programs for television and videos as follows:

                                                    2001
                                                 ----------
Television program
  The Adventures With Kanga Roddy, net of
    reserve of $7,032,260 at December 31, 2001   $1,165,557

Less accumulated amortization                     1,165,557
                                                 ----------
                                                 $      -
                                                 ==========

The Adventures With Kanga Roddy has been fully reserved, as management believes this investment would not generate future revenues for the Company.

Note 5 - Intangible Assets

Intangible assets include two intellectual properties: "The Children's Browser" and an office communication program and associates modules. Acquired in March 2002, a total of 13,419,999 shares of common stock were issued for the acquisition. Intangible assets are amortized on a straight-line basis over the estimated economic life which is 36 months. Amortization expenses for the quarter ended June 30, 2002 are $88,292.

Intangible assets and their related accumulated amortization as of June 30, 2002 are as follows:

ChiBrow                        $   300,000
Office Communication               759,500
                               -----------
                                 1,059,500
Less accumulated amortization       88,292
                               -----------
                               $   971,208
                               ===========

ChiBrow is acquired from ECapital Group, Inc., a related party who owns approximately 19% of our Company prior to the acquisitions. The office communication software is acquired from PeopleNet Corporation whose certain owners indirectly own our shares through their ownership of ECapital Group, Inc. The values of the acquisitions were determined by mutually agreed prices of the software products from the sellers and the value of our common stock at $0.08 per share.

Note 6 - Advances from Related Parties

The advances from related parties, ECaptal Group, Inc., in the amount of $145,000 are non-interest bearing and unsecured.

Note 7 - Notes Payable

An amount of $39,000 was converted into common stock and entered as Additional Paid-In Capital.

Note 8 - Commitments and Contingencies

During 1998 the Company entered into a non-exclusive toy licensing agreement with Timeless Toys with respect to The Adventures with Kanga Roddy television program. Under the agreement, the Company is entitled to an 8% royalty. The agreement expired in January 2001.

In September 1999 the Company signed a licensing agreement with Brighter Child of Westerville, Ohio, for the licensing of the Kanga Roddy story and all related characters for use in interactive CD-Rom games. In October 1999, the Company signed a licensing agreement with Prestige Toys of New York, New York, for the licensing of the Kanga Roddy character and all related characters for use and manufacturing of plush toy items in all sizes. The agreement with Brighter Child expires on December 31, 2002.

On December 27, 2000, the Company entered into a worldwide distribution agreement with respect to The Adventures with Kanga Roddy television program with World Channel, Inc. Under the agreement, World Channel will have the exclusive rights for exhibition, distribution, process and reproduction and all commercial exploitation of the program for a period of five years. The agreement requires World Channel to make five annual installments of $600,000 on or before the end of each of the years 2001 through 2005. For the year ended December 31, 2001, the Company recognized $450,000 film income in relation to this distribution agreement, $193,000 of which was collected before year-end. Management did not recognize film income for the fourth quarter of 2001 based on management's evaluation of collectibility of the amounts due under the agreement. A 100% reserve on the remaining receivable was also established as of June 30, 2002. Because collection activity through December 31, 2001 raises substantial doubt with respect to amounts due in future years under this agreement and because there are currently no other agreements in place, the Company has reserved the remaining unamortized film costs for "The Adventures With Kanga Roddy" television program.

In June 2001 the Company signed an agreement with ECapital Group, Inc. ("ECapital") to purchase the exclusive licensing and marketing rights to ChiBrow, a safe web browser software for children. Under the terms of the agreement and upon the effectiveness of the spin-off of the Company from PSCT, the Company issued 374,587 shares of common stock, with registration rights, to ECapital in exchange for the worldwide exclusive rights to market and distribute ChiBrow for three years (see Note 1). The Company intends to file a registration statement for such shares immediately after the effectiveness of the spin-off transaction. Pursuant to the terms of the agreement, the Company shall retain 35% of all revenues generated from such marketing efforts and the balance shall be paid to ECapital. The registration for the 374,587 shares of PeopleNet common stock issued to ECapital has not yet been filed as of June 30, 2002.

As of December 31, 2001, while PeopleNet International Corporation was still a subsidiary of Pacific Systems Control Technology, the following cases were either filed against Pacific Systems naming all of its subsidiaries including PeopleNet as the defendants, or Pacific Systems' initiated complaint resulted in a cross-complaint by the defendant naming Pacific Systems and all of its subsidiaries including PeopleNet as the defendants in the cross-complaint. Pacific Systems has agreed to indemnify all of its subsidiaries including PeopleNet from the liabilities of the following cases including expenses, fees or judgment.

As of December 31, 2001, while still a wholly owned subsidiary of Pacific Systems Control Technology, Inc., the Company accrued approximately $57,000 in payroll taxes payable. Such taxes are still outstanding as of June 30, 2002 and Pacific Systems Control Technology agrees to be responsible for such taxes and will make arrangement for payment with the tax authority.

In February 2001, a complaint was filed by Chuck Nelson in Court of Common Pleas, Mahoning County in Youngstown, Ohio against Pacific Systems for a percentage of the total purse amounts paid to boxers involved in the boxing event in China in April 2000, and for a percentage of the television revenue generated thereof. The plaintiff is claiming for incidental damages in excess of $2,500 and consequential damages in excess of $100,000. Pacific Systems denies all of the rights claimed by Chuck Nelson and will vigorously defend against all of Mr. Nelson's claims. In May 2002 Pacific Systems submitted answers to interrogatories from the plaintiff and such answers demonstrate contradictions to the plaintiff's claims.

In October 2001, Pacific Systems filed a complaint against a former employee in licensing and marketing activities for breach of contract, breach of fiduciary duty and unjust enrichment, among other causes of action, seeking declaratory relief from the court. A counter claim from the employee was filed in April 2002 against Pacific Systems and its subsidiaries. The Labor Commission of California in December 2001 issued a judgment against Pacific Systems and its subsidiaries in the amount of $69,171 in favor of the employee. As of August 10, 2002 Pacific Systems has paid approximately $13,000 towards the judgment from the Labor Commission.

On April 9, 2002, the Company entered into a stock exchange agreement with MarketRoot Corporation where the Company intends to acquire all of the outstanding shares of MarketRoot for 1,740,000 shares of the Company's common stock. MarketRoot has developed and owned an e-commerce software product. The agreement is subject to the submission of audited financial statements of MarketRoot for the years ended December 31, 2001 and 2000 and the acceptance of such financial statements by the Company. As of August 10, 2002 audited financial statements of MarketRoot have not yet been submitted to the Company.

Note 9 - Related Party Transactions

Certain financing transactions of the Company and management oversight duties have been provided by PSCT. Although PeopleNet employees have provided management of the operations of the Company, the ability of the Company to obtain financing has been dependent upon its relationship with PSCT. Had the relationship between the Company and PSCT not been in place, the results of operations and financial position of the Company may have been different.

The Company has received advances from PSCT to fund its operations. It has been the policy of PSCT and the consolidated group to not charge interest on inter-company advances. Interest has been imputed on $1,500,000 of the balance at a rate of 8%. This interest has been accrued as PSCT intends to charge interest on this amount in future periods. At December 31, 2001 accrued interest payable on these advances amounted to $540,000 and is included in the outstanding balance of the note. Upon the effectiveness of the spin-off of the Company, the net principal balance of the note and all accrued interest were converted to additional paid-in-capital (see Note 1).

The Company has also made advances to ABK. These advances are also non-interest bearing. Interest income has not been accrued on these advances as it is not expected that this interest will ever be charge or collected. Upon the effectiveness of the spin-off of the Company, the amounts due under this advance were offset against the amounts due to PSCT (see note 1).

Note 10 - Common Stock / Options

Between April and May 2002, the Company issued a total of 6,680,620 stock options with exercise prices ranging from $0.08 to $0.12 per share. Due to the difference in valuation between certain intangible assets the Company acquired in March 2002 with the Company's common stock at $0.08 per share and common stock the Company sold to an investor in June 2002 at the price of $1.00 per share, the Company recognized $3,530,759 in non-cash expenses for the issuance of the stock options for the quarter ended June 30, 2002. There are also deferred compensation charges of $1,391,643 for the value of stock options that are not yet vested as of June 30, 2002.

Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations

Forward Looking Information

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" from liability for forward-looking statements. Certain information included in this Form 10-QSB and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by or on behalf of the Company) are forward-looking, such as statements relating to operational and financing plans, capital uses and resources, competition, and demands for the Company's products and services. Such forward-looking statements involve important risks and uncertainties, many of which will be beyond the control of the Company. These risks and uncertainties could significantly affect anticipated results in the future, both short-term and long-term, and accordingly, such results may differ from those expressed in forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, changes in external competitive market factors or in the Company's internal budgeting process which might impact trends in the Company's results of operations, unanticipated working capital or other cash requirements, changes in the Company's business strategy or an inability to execute its strategy due to unanticipated change in the industries in which it operates, and various competitive factors that may prevent the Company from competing successfully in the marketplace. The following discussion may contain forward-looking statements that are subject to risks and uncertainties. For a discussion of factors that could cause actual results to differ, please see the discussion contained herein. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequence events or circumstances. Readers are also encouraged to review the Company's publicly available filings with the Securities and Exchange Commission.

The following section discusses the significant operating changes, business trends, financial condition, earnings and liquidity that have occurred in the three-month period ended June 30, 2002. This discussion should be read in conjunction with the Company's financial statements and notes appearing elsewhere in this report.

Critical Accounting Policies

In the ordinary course of business, the company has made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results. The Company constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate. Although historically, actual results have not significantly deviated from those determined using the necessary estimates inherent in the preparation of financial statements, future actual results may vary significantly. Estimates and assumptions include, but are not limited to, customer receivables, long-term asset lives, contingencies and litigation. The Company has also chosen certain accounting policies when options were available, including:

The intrinsic value method, or APB Opinion No. 25, to account for our common stock incentive awards; and

We record an allowance for credit losses based on estimates of customers' ability to pay. If the financial condition of our customers were to deteriorate, additional allowances may be required.

We will adopt SFAS 142, Goodwill and Other Intangible Assets, in fiscal year 2002. We have not yet evaluated the effects of these changes.

The Company expects to apply the provisions of Statement of Position 97-2 and 98-4 as well as SAB 101, to account for the sales of software and related services that may be bundled with the software license.

These accounting policies are applied consistently for all years presented. Our operating results would be affected if other alternatives were used. Information about the impact on our operating results is included in the footnotes to our consolidated financial statements.

Results of Operation

PeopleNet was formed in February 1997, under the name American Champion Media, as a wholly owned subsidiary of Pacific Systems Control Technology ("PSCT"), formerly known as American Champion Entertainment. On February 8, 2002, the Company completed the spin-off from PSCT and became its own entity independent of PSCT. The shareholders of PSCT received one share of the Company's common stock for every 17 shares of PSCT stock held as of the record date of January 16, 2002.

On March 21, 2002, the Company entered into an asset purchase agreement with a company to acquire an intellectual property known as "The Children's Browser" in exchange for 3,799,999 shares of the Company's common stock. The acquisition price included the source codes, trademark, copyright, domain name and website of The Children's Browser.

On March 21, 2002, the Company entered into an asset purchase agreement with a company to acquire an office communication program and associated modules in exchange for 9,620,000 shares of the Company's common stock.

On April 9, 2002, the Company entered into a stock exchange agreement with MarketRoot Corporation where the Company intends to acquire all of the outstanding shares of MarketRoot for 1,740,000 shares of the Company's common stock. MarketRoot has developed and owns an e-commerce software product. The agreement is subject to the submission of audited financial statements of MarketRoot for the years ended December 31, 2001 and 2000 and the acceptance of such financial statements by the Company.

Revenues

During the three-month period ended June 30, 2002, the Company focused on the preparation of its software products for marketing. There was insignificant revenue for this period.

Costs and Expenses

During the three-month period ended June 30, 2002, we incurred $112,683 in salaries and payroll expenses and $122,031 in general and administrative expenses.

Between April and May 2002, the Company issued a total of 6,680,620 shares of stock options with exercise prices ranging from $0.08 to $0.12 per share. Due to the difference in valuation between certain intangible asset the Company acquired in March 2002 with the Company's common stock at $0.08 per share and common stock the Company sold to an investor in June 2002 at the price of $1.00 per share, the Company recognized $3,530,759 in non-cash expenses for the issuance of the stock options for the quarter ended June 30, 2002. There are also deferred compensation charges of $1,391,643 for the value of stock options that are not yet vested as of June 30, 2002.

As a result of foregoing factors, our net loss was ($3,836,731) for the three-month period ended June 30, 2002, as compared to ($54,473) for the same period in 2001. Net loss per share increased to ($0.245) for this second quarter in 2002 as compared to ($0.027) for the same period in 2001, while weighted average number of shares outstanding increased to 15,640,548 from 2,010,000 shares when adjusted for the 20,100 to 1 forward-split of our common stock in July 2001.

Liquidity and Capital Resources

Stockholders' equity, as of June 30, 2002, increased to $570,829 from a negative ($12,121,114) at December 31, 2001. This increase is primarily due to the intercompany balances being converted into additional paid-in capital as a result of the spin-off transaction that took place on February 8, 2002, the Company's acquisition of two intellectual properties in exchange for the Company's common stock in March 2002, the issuance of common stock options in April and May 2002, and the issuance of common stock in June 2002.

Cashflow from operations for the three months ended June 30, 2002 was a negative ($110,136) while loan proceeds from related parties provided $77,500 and proceeds from issuance of common stock provided $120,000.

We historically financed our operating and capital outlays from funds received from our parent company. We intend to seek debt or equity funding in the amount of approximately $1 million to fund our operations for the next twelve months, although there can be no assurance that we will be successful in obtaining such funding on terms acceptable to us, or at all. Alternatives to a lump sum $1 million financing include making smaller private sale of our stock to accredited investors during each quarter going forward, as well as obtaining smaller loan amounts from ECapital Group, Inc. or other individuals. Assuming we are successful in obtaining funding, we intend to employ twelve persons including three in management and nine in engineering in technical support. We estimate that our capital requirements for the year should not exceed $1 million. However, there is no assurance that we will be successful in raising capital from a private placement. In the event that a private placement is unsuccessful, we will rely on revenues generated from the ChiBrow project, if any, plus debt financing to fund operations on a short-term basis. ECapital Group, Inc. has expressed the possibility of extending a loan to us for our operational needs if the private placement is not completed. However, there are no assurances that such debt financing from ECapital Group is available to us for our operational needs. Management has a reasonable belief that we can fund our operations through the above mentioned means through the end of year 2002.

Currently, ChiBrow is being marketed through retail and wholesale channels. Negotiations are being made with several direct sales avenues and national-wide retail store chains. Our business model for the exploitation of ChiBrow is based on:

individual subscription at $29.99 retail and $19.99 wholesale;
corporate subscription between $60 to $100 per station per year;
advertising banners;
corporate sponsors; and
paid positioning preference on ChiBrow and CoolNetwork's webpages and searches.

Marketing of our office communication software solutions is targeted towards software sales companies with clients among Fortune 500 companies and governmental agencies. Our iMetro and e-Business products can be sold separately or bundle depending on end user requirements and we are currently discussing with potential customers on OEM license basis. The target prices to our OEM licensees for consumer versions range from $12.95 to $50 per end user per month, and the business versions are priced between $5,000 to $120,000 per year.

Unless a direct positive cashflow can be obtained with the production of addition episodes, we have no current plan to produce more episodes of the Kanga Roddy TV series. We are not obligated to deliver any more shows to KTEH as KTEH understands that these episodes are produced at a steep cash outflow. The average production cost of each half-hour episode is about $220,000 and the distribution fee we receive is only $30,000 per episode for a two-year unlimited broadcast run. We believe that our current inventory of 29 episodes is enough of a library for the property to be distributed as a children's program since just one re-run of each episode will generate over one year's programming supply for a weekly show. Much higher re-run rates are still acceptable for young children programs due to the fact that this audience enjoys repeated programs with familiar songs and characters.

The Company expects to continue to grow by exploring acquisition of other companies. However, given our current financial status and also that our securities are not currently traded on any exchange, there is no assurance that we will be able to make more acquisitions. ECapital Group, Inc. has expressed the ability to extend loans to us for our current operations, but there is no assurance that ECapital will continue to fund our operations in the future.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

In October 2001, Pacific Systems filed a complaint against a former employee in licensing and marketing activities for breach of contract, breach of fiduciary duty and unjust enrichment, among other causes of action, seeking declaratory relief from the court. A counter claim from the employee was filed in April 2002 against Pacific Systems and its subsidiaries. The Labor Commission of California in December 2001 issued a judgment against Pacific Systems and its subsidiaries in the amount of $69,170.58 in favor of the employee. As of August 10, 2002 Pacific Systems has paid approximately $13,000 towards the judgment from the Labor Commission.

With the exception of the foregoing, no lawsuits or proceedings are currently pending against PeopleNet International Corporation.

Item 2. Changes in Securities and Use of Proceeds. None

Item 3. Defaults Under Senior Securities. None

Item 4. Submission of Matters to a Vote of Security Holders

There is no submission of matters to a vote of security holders during the three months ended June 30, 2002.

Item 5. Other Information. None

Item 6. Exhibits and Reports on Form 8-K.

Exhibit 99.1 Certification pursuant to the Sarbanes-Oxley Act of 2002

There were no reports on Form 8-K filed for the period ended June 30, 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf on November 14, 2002 by the undersigned, thereunto duly authorized.

PEOPLENET INTERNATIONAL CORPORATION

(Registrant)

By: /s/ Anthony K. Chan
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Anthony K. Chan
President, Chief Financial Officer and Chief Operating Officer