-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WxZ/NAphkTOoLHq6bbDaIWyC8g6Qa/aMUOK0Dmn1ruc0I3/wrg9t6IhEtQiUI/c0 IszURfjTv/sweSpXFVKigA== /in/edgar/work/20000815/0000868268-00-000008/0000868268-00-000008.txt : 20000922 0000868268-00-000008.hdr.sgml : 20000921 ACCESSION NUMBER: 0000868268-00-000008 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAMET SYSTEMS INC CENTRAL INDEX KEY: 0000868268 STANDARD INDUSTRIAL CLASSIFICATION: [7373 ] IRS NUMBER: 042985838 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-10623 FILM NUMBER: 702260 BUSINESS ADDRESS: STREET 1: 1000 MAIN ST CITY: ACTON STATE: MA ZIP: 01720 BUSINESS PHONE: 5082632060 MAIL ADDRESS: STREET 1: 1000 MIN STREET STREET 2: 1000 MIN STREET CITY: ACTON STATE: MA ZIP: 01720 10QSB 1 0001.txt PAMET SYSTEMS 10-QSB FOR Q2 2000 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________ FORM 10-QSB Mark one [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from _________ to _________ Commission File No. 1-10623 Pamet Systems, Inc. ___________________________________________________________________________ (exact name of small business issuer as specified in its charter) Massachusetts 04-2985838 ___________________________________________________________________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1000 Main Street, Acton, Massachusetts 01720 ___________________________________________________________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (978) 263-2060 ________________________ Check whether the issurer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes_X___ No_____ State the number of shares outstanding of each of the issuer's classes of common equity, as of the close of the period covered by this report: Title of each class Number of shares outstanding Common stock 3,855,860 ($.01 par value) Transitional Small Business Disclosure Format YES________ NO__X___ PAMET SYSTEMS, INC. FORM 10-QSB TABLE OF CONTENTS Part I Financial Information Item 1 Financial Statements Condensed Balance Sheets June 30, 2000 and December 31, 1999 Condensed Statements of Operations for the quarter ended June 30, 2000 and 1999 and six month period ended June 30, 2000 and 1999 Condensed Statement of Cash Flows for the six months ended June 30, 2000 and 1999 Item 2 Management's Discussion and Analysis of Financial Condition or Plan of Operations Part II Other Information Item 1 Legal Proceedings Item 2 Changes in Securities Item 3 Defaults Upon Senior Securities Item 4 Submission of Matters to a Vote of Security Holders Item 5 Other Information Item 6 Exhibits and Reports on Form 8-K Signature(s) PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements PAMET SYSTEMS, INC. Condensed Balance Sheets June 30, December 31, 2000 1999 --------- ------------ CURRENT ASSETS (unaudited) Cash $ 21,480 $ 40,207 Accounts receivable, net of allowance for doubtful accounts of $60,000 and factored receivables 285,430 619,066 Accounts receivable, factored 41,011 53,931 Inventory, net of reserve of $15,000 11,067 11,745 Prepaid expenses and other current assets 47,629 94,243 TOTAL CURRENT ASSETS 406,617 819,192 PROPERTY AND EQUIPMENT, net 100,264 110,590 OTHER ASSETS 4,190 4,190 BUILDING LEASE DEPOSIT 80,000 80,000 CAPITALIZED SOFTWARE DEVELOPMENT COSTS 97,832 130,442 TOTAL ASSETS $ 688,903 $ 1,144,414 ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Current portion of long-term debt 760,000 450,000 Notes payable to related party 335,000 175,000 Due to factor ---- 57,496 Accounts payable, trade 910,352 688,292 Accounts payable, related party 42,812 32,241 Current portion of accrued interest payable on long-term debt 97,487 54,894 Current portion of deferred gain on sale of land and building 42,614 42,614 Accrued expenses 647,601 436,625 Deferred software maintenance revenue 107,431 383,930 TOTAL CURRENT LIABILITIES 2,943,297 2,321,092 ACCRUED INTEREST PAYABLE on long-term debt, less current portion ---- 86,511 DERERRED GAIN on sale of land and building, net of current portion 217,195 238,502 LONG TERM DEBT, less current portion 75,000 1,185,000 TOTAL LIABILITIES 3,235,492 3,831,105 STOCKHOLDERS' EQUITY Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued Common Stock, $.01 par value, 7,500,000 shares authorized; 3,855,860 issued and outstanding 38,559 32,852 Additional paid-in Capital 7,938,395 6,688,504 Accumulated deficit (10,523,543) (9,408,047) TOTAL STOCKHOLDERS EQUITY (2,546,589) (2,686,691) TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 688,903 $ 1,144,414 ========== ==========
See accompanying "Notes to Financial Statements (Unaudited)" Item 1 - Financial Statements PAMET SYSTEMS, INC.
Statements of Operations (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2000 1999 2000 1999 Net sales $668,518 $576,594 $1,064,379 $972,384 Cost of product 94,734 234,058 226,496 383,836 -------- -------- -------- --------- 573,784 342,536 837,883 588,548 Operating expenses: Personnel costs 577,410 515,436 1,128,752 911,230 Rent, utilities, telephone 61,554 24,780 119,774 46,752 Travel and entertainment 28,822 36,814 60,194 62,086 Professional fees 49,021 41,427 90,103 109,707 Depreciation 29,431 20,723 58,394 41,058 Research and development 71,645 7,157 295,017 215,956 Other operating expenses 101,631 90,936 181,542 153,572 -------- ------- ------- ------- Total operating expenses 919,514 737,273 1,933,776 1,540,361 ------- ------- --------- --------- Income(loss) from operations (345,730) (394,737) $(1,095,893) (951,813) Interest income(expense), net 18,550 (49,171) (19,603) (123,232) Net income(loss) $(327,180) $(443,908) $(1,115,496)$(1,075,045) ======== ======= ========= ========= Earnings(loss) per common share $(.08) $(.15) $(.29) $(.37) === === === === Shares used in computing 3,855,860 $2,891,188 3,855,860 2,891,188 earnings per share
See accompanying "Notes to Financial Statements (unaudited)" Item 1 - Financial Statements PAMET SYSTEMS, INC.
Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2000 June 30, 1999 ------------- ------------- Cash flows provided by (used in) operating activities: Net loss $(1,115,496) $(1,075,045) Adjustments to reconcile net loss to net cash provided by operating activities: Deferred gain on sale of land and building (21,307) ---- Depreciation and amortization 58,394 41,058 Capitalized software development costs ---- (375,991) Changes in operating assets and liabilities: Accounts receivable, trade 324,397 (47,176) Accounts receivable, factored 12,920 54,446 Inventory 678 (15,275) Prepaids and other current assets 55,853 10,664 Restricted cash ---- (284) Deposits ---- ---- Due to factor (57,496) (65,980) Accounts payable, trade 222,060 180,803 Accounts payable, related party 10,571 167 Deferred software maintenance revenue (276,499) (228,179) Accrued expenses and other current liabilities 210,976 205,350 Accrued interest payable on long-term debt (43,918) ---- ------- ------ Total adjustments 496,629 (240,397) Net cash provided by (used in) operating activities (618,867) (1,315,442) Cash flows from investing activities: Expenditures for property & equipment (15,458) (33,565) ------ ------ Net cash used in investing activities (15,458) (33,565)
Item 1 - Financial Statements PAMET SYSTEMS, INC.
Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2000 June 30, 1999 ------------- ------------- Cash flows from financing activities: Proceeds from long-term debt- convertible promissory notes ---- 510,000 Proceeds from related party notes 160,000 175,000 Payment of related party notes ---- ---- Payment of mortgage ---- (7,117) Net change line of credit-vendor ---- (113,289) Issuance of capital stock 455,598 650,094 Proceed from second mortgage ---- 100,000 --------- --------- Net cash provided by financing activities 615,598 1,314,688 Net increase(decrease) in cash (18,727) (34,319) Cash and cash equivalents at beginning of period 40,207 54,817 Cash and cash equivalents at end of period $21,480 $20,498 ====== ======= Supplemental disclosure of cash flow information: Cash paid for interest: $75,015 $70,262 Summary of non-cash financing activities: Conversion of convertible promissory notes to capital stock $800,000 $600,000 Note payable-related party repaid by issuance of capital stock ---- 50,000 Research and development costs financed through line of credit-vendor and accounts payable, trade ---- 180,066 Line of credit-vendor and accounts payable,trade converted to long-term debt-convertible promissory note ---- 350,000
See accompanying "Notes to Financial Statements (Unaudited) PAMET SYSTEMS, INC. Notes to Condensed Financial Statements (Unaudited) Note (1) Statement Presentation In the opinion of the Company, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of June 30, 1999 and the results of operations for the three and six month periods and changes in cash flows for the six month period then ended. There were no material unusual charges or credits to operations during the recently completed fiscal quarter. The results reported for the three and six month periods ended June 30, 2000 are not necessarily indicative of the results of operations which may be expected for the entire year. Note (2) Mortgage on Corporate Training, Development and Headquarters Facility On April 21, 1992 the Company consummated an agreement with the Lexington Savings Bank of Lexington, MA to mortgage the Company's development, training and headquarters facility, located at 1000 Main Street, Acton, Massachusetts. The original principal amount of the mortgage was $560,000. In October 1997 the note was extended for a one-year term through October 21, 1998 with monthly payments $5,423.00 determined according to a twenty-year amortization period including interest at 10.0%. Lexington Savings Bank's parent company, Affiliated Community Bankcorp, Inc. was purchased by UST Corp., the parent company of USTrust, in August 1998. The mortgage was not renewed in October 1998. The Company entered into a second mortgage agreement on June 16, 1999 with Area Realty, LLC, the eventual buyer of the building, for $100,000 at 11% per annum. The principal and accrued interest were to be repaid in one payment on the earlier of December 31, 1999 or the date upon which the building was sold by the Company to Area Realty, LLC. On August 6, 1999, the Company sold the facility to Area Realty, LLC for $1,150,000 and signed a lease back agreement with the buyer for 7 years. As part of the lease back agreement with the buyer of the facility, the Company was required to place $80,000 on deposit with the buyer. The balance on the first and second mortgages and all accrued interest were paid in full at the time of the sale. The sale of the building resulted in a gain of approximately $298,000 that the Company deferred and is recognizing as a reduction to rent expense over the term of the lease. The monthly rent for the first three years is $12,997. For years four through seven the monthly base rent increases to $14,564. For the second through seventh year, rent may be further increased by the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers for the preceding year up to a maximum of three percent per annum. Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Overview Pamet Systems, Inc. (the Company or Pamet Systems), founded in 1987, designs and implements broad-based information technology solutions for public safety agencies enabling them to realize cost efficiencies and provide better service. The Company's suite of products is composed of three major components: PoliceServer NT, FireServer NT, and CADServer NT. The Company also offers several companion products including Imaging, Mobile Access, Advanced Reporting, Mapping, Investigator's Tool Kit and JailServer NT. The Company's revenues consist primarily of sales of these software applications, the associated hardware and systems integration, and support and update service fees. The Company's revenues for the three month period and six month period ended June 30, 2000 increased 15.9% and 9.5% respectively over revenues for the comparable periods in 1999. These revenues reflect the NT system software sales expected with the completion of the NT development program accompanied by sales of the Company's companion products. In addition, the Company's installed customer base is now focusing on using available funding to migrate to the NT platform and moving away from adding companion products to their VMS-based systems. The Company's core products have been completely rebuilt using modern design tools and databases and the entire suite utilizes the Windows NT operating system. The Company believes that its fully integrated suite of NT products is one of only a few on the market today and positions the Company for future revenue growth. During the 2000 period, the Company installed the PoliceServer NT records management system and CADServer NT dispatch system in the Utica, New York police department. This systems is part of the Central New York Law Enforcement Network Demonstration Project that is funded by the Department of Justice. This project will serve as a model of current law enforcement technology for mid-sized departments. The New York project is managed by the National Law Enforcement Corrections Technology Center (NLECTC) in Rome, NY and it is expected that this project will serve as a model within NLECTC's thirteen state jurisdiction. During the first six months of 2000, the Company continued development on the NT product suite focusing on system refinements and added functionality. The knowledge gained from new installations in nine communities and the migration of twelve customers to the NT product has driven the continuing development work. During the first half of 2000, the Company spent approximately $295,000 on external resources and $379,000 of dedicated internal personnel on the development effort. The primary focus of management continues to be in three areas: current revenues and the development of a sales pipeline for the NT product; the completion of the business plan and the acquisition of adequate funding for future growth; and the completion of the development program by adding new functionality and system refinements. The Company continues to believe that significant market opportunities exist for its suite of NT-based products based on the following factors. The continuing growth in the number of E911 centers, heightened emphasis on crime in most communities and the awareness by municipalities that computer systems can improve efficiency and effectiveness of their public safety resouces support the belief that the market for the Company's products will continue to grow. The company continues to see increased emphasis on the coordination of public safety systems between neighboring town, county and state police organizations. The Company's products are designed and marketed with the option to be used in this type of regional application and the Company has the system and networking skill and experience required to support such applications. Despite all of these opportunities for sales growth, the Company remains hampered by the fact that its primary market is the government sector, which is characterized by long lead times and political influence in the decision making process as well as inadequate funding for marketing and additional development. As a consequence, the Company is pursuing an analysis of complementary markets and adaptations for its products. Three Months Ended June 30, 2000 vs. Three Months Ended June 30, 1999 Net sales for the three month period ended June 30, 2000 (the 2000 period) increased 15.9% to $668,518 from $576,594 for the three month period ended June 30, 1999 (the 1999 period). The revenues for the 2000 period reflected increased new system sales that included one or more of the Company's companion products. PoliceServer NT, CADServer NT, and FireServer NT system revenue represents 28.2% of the total as compared to 1.2% in the 1999 period. The revenues for the 2000 period include one PoliceServer NT system including CADServer NT and Mobile, one FireServer NT system including CADServer NT, four Imaging systems, three Advanced Reporting/Query systems, one JailServer NT system, and seven VMS customer migrations to NT. The 1999 period consisted of eight new Mobile systems, one Imaging system, four Query systems, and one Mapping system. Mobile sales dropped to 16.6% of net hardware and software sales in the 2000 period compared to approximately 55.4% in the 1999 period. The Company's VMS customers are earmarking available funds for migration fees to the NT platform rather than adding additonal companion products. These VMS customers receive the NT software at no charge, however, they must pay for installation, training, and data conversion. Support revenues increased 23.3% to $191,050 for the 2000 period from $154,960 for the 1999 period reflecting the increase in the customer base from the 1999 period and the higher support base and rates charged on the NT product. Annual software support and update service for the NT customers is 19% of the price of the software or list price for migrating customers, an increase from the 14% of the system software purchase price that VMS customers have historically paid. Cost of product decreased 59.5% or $139,324 to $94,734 for the 2000 period from $234,058 for the 1999 period. The resulting increase in gross margin from 59.4% in the 1999 period to 85.8% in the 2000 period reflected the trend toward software only sales for all products, the use of state bid list contractors to purchase hardware and the Company's software, and continued favorable margins on support revenues. Agencies are increasingly purchasing systems through state bid list contractors. These contractors partner with the Company and provide off-the-shelf hardware that combined with Pamet Systems software offers a complete solution for the customer. This arrangement reduces total revenues for the Company, but significantly increases margins. Operating expenses reflected an increase of $182,241 or 24.7% to $919,514 for the 2000 period compared to $737,273 for the 1999 period primarily due to the capitalization of $317,749 of NT product development costs during the 1999 period. 1999 gross expenses including capitalized development costs were $1,055,022. Comparing gross expenditures, the 2000 period shows a decrease of 12.8% from the 1999 period which is due to the completion of the major portion of the NT development program. Gross research and development expenditures excluding inhouse personnel in the 2000 period showed a decrease of $253,261 or 77.9% over the 1999 levels. During the development cycle of the NT products, the Company used outside resources to accomplish product development goals while minimizing the long-term financial commitments of the Company. As the NT products moved to a production environment, management has increased internal engineering resources ensuring timely completion of the development and enhancements and ongoing inhouse product support capability. Personnel costs increased 12.0% or $61,974 to $577,410 for the 2000 period compared to $515,436 for the 1999 period. Additional resources are focused on state forms development for the NT product line and the implementation of a cohesive sales and marketing effort. Rent, utilities and telephone increased 148.4% to $61,554 for the 2000 period from $24,780 for the 1999 period due primarily to the sale and lease back of the headquarters facility located in Acton, MA. The Company has agreed to lease the building for seven years on a triple net lease (See Note 2). In addition, telephone expense increased due to the addition of personnel and increased support outside Massachusetts. Travel and entertainment expenses decreased 21.7% to $28,822 for the 2000 period from $36,814 for the 1999 period The 2000 period reflected significantly less airfare as installations during the 2000 period were concentrated in the Northeast. Professional fees increased 18.3% to $49,021 for the 2000 period from $41,427 for the 1999 period primarily due an increase in accounting fees associated with the 1999 audit. Depreciation expense increased 42.0% to $29,431 for the 2000 period from $20,723 for the 1999 period reflecting the amortization of the capitalized PoliceServer NT development expenditures. This increase was partially offset by the decrease in depreciation resulting from the sale of the headquarters building in August 1999. As discussed above, research and development expenditures reflected an increase due to the capitalization of $317,749 during the 1999 period, however, gross research and development actually decreased 77.9% from 1999 levels. Other operating expenses increased 11.8% to $101,631 for the 2000 period from $90,936 for the 1999 period. Increases in tax penalties were offset by decreases in internet access and cleaning and maintenance. Net interest income for the 2000 period was $18,550 compared to net interest expense of $49,171 for the 1999 period. The reversal of accrued interest expense on $550,000 of convertible promissory notes converted to equity during the 2000 period more than offset the interest expense associated with the remaining notes and the receivables financing agreement. As specified in the convertible promissory notes, the accrued interest was not payable since the note was converted. The net loss for the 2000 period was $(327,180) or $(.08) per share compared to net loss of $(443,908) or $(.15) per share for the 1999 period. The loss is due primarily to continuing product development costs and increased personnel costs which will position the Company for expected future revenue growth. Six Months Ended June 30, 2000 vs. Six Months Ended June 30, 1999 Net sales for the six month period ended June 30, 2000 (the 2000 period) increased $91,995 or 9.5% to $1,064,379 from $972,384 for the six month period ended June 30, 1999 (the 1999 period). The increase in sales reflects increased NT system software sales and support revenues offset by decreases in Mobile revenues. New system sales increased 228.7% from the 1999 period to the 2000 period and represent 20.5% of sales in the 2000 period. Support revenues increased 18.9% to $372,319 in the 2000 period compared to $313,031 in the 1999 period reflecting the increase in the customer base and rates. Support revenues accounted for 35.0% of revenues in the 2000 period. Especially in the latter half of the period, VMS customers used available funds to migrate to the NT platform, rather than adding companion products to their VMS systems which adversely affected Mobile revenues. Cost of product decreased 41.0% to $226,496 for the 2000 period from the $383,836 for the 1999 period. Gross margin increased to 78.7% for the 2000 period from 60.5% for the 1999 period. The improvement in margin can be attributed to significant increases in new NT system sales and software only sales. Some customers purchase their hardware directly from the state bid list thereby increasing the higher margined software component of these sales. Net operating expenses increased $393,415 or 25.5% to $1,933,776 for the 2000 period compared to $1,540,361 for the 1999 period. However gross operating expenses for the 1999 period, including capitalized development costs of $375,991, were $1,916,352. On a gross basis, operating expenses reflect a 1.0% increase from the 1999 period to the 2000 period. Gross research and development expenditures excluding inhouse personnel decreased significantly from $591,947 in the 1999 period to $295,017 in the 2000 period reflecting the completion of major portions of the NT development effort. Personnel costs increased 23.9% to $1,128,752 for the 2000 period from $911,230 for the 1999 period. As the Company's development program winds down, the Company has added engineering and support resources for ongoing refinements, testing, documentation, forms and support for the NT suite of products. In addition, the Company added key sales and marketing resources to develop a cohesive sales and marketing effort for the NT product line. These resources have supported a shift in the Company's focus from development to sales and marketing. Rent, utilities and telephone expenses increased $73,022 or 156.2% to $119,774 for the 2000 period from $46,752 for the 1999 period. This increase can be attributed to the sale and lease back of the headquarters facility in August 1999 and increases in telephone expense. Travel and entertainment expenses decreased 3.0% to $60,194 for the 2000 period from $62,086 for the 1999 period. Significant decreases in airfare were the result installations being clustered in the Northeast during the 2000 period. This decrease was partially offset by increases in employee mileage and meals. Professional fees decreased 17.9% to $90,103 for the 2000 period from $109,707 for the 1999 period due to the decreases in consulting expenses for product documentation services, the cost of a financial consultant, and in legal fees associated with the ongoing private placement of debt and equity financing and joint ventures. These decreases were partially offset by increase in accounting fees in conjunction with the 1999 year end audit. Depreciation expense increased 42.2% to $58,394 for the 2000 period from $41,058 for the 1999 period reflecting the amortization of capitalized PoliceServer NT development. A reduction in depreciation resulting from the sale of headquarters building partially offset the software amotization. As discussed above, net research and development expenses reflected a decrease of $79,061 due to the capitalization of development spending in the 1999 period. On a gross basis, research and development decreased significantly in the 2000 period as the NT program nears completion. Other operating expenses increased 18.2% to $181,542 for the 2000 period from $153,572 for the 1999 period. Increases in tax penalties are offset by decreases in internet access and cleaning and maintenace. Net interest expense was $19,603 for the 2000 period compared to $123,232 for the 1999 period. This decrease reflects the reversal of accrued interest associated with the conversion of $800,000 convertible promissory notes to equity in the 2000 period. The net loss for the 2000 period was $(1,115,496) or $(.29) per share compared to a net loss of $(1,075,045) or $(.37) per share for the 1999 period. The loss for the period was attributable to the significant spending associated with the commitment to build the Company's infrastructure to meet anticipated future business. Liquidity and Capital Resources The Company's working capital deficit deteriorated to $(2,536,680) at June 30, 2000 from a deficit of $(1,501,900) at December 31, 1999 due to the impact of convertible promissory notes reclassified to current liabilities and continued spending to build the corporate infrastructure and complete the NT refinements and enhancements. During the first six months of 2000, the Company secured $350,000 of additional equity financing and received $90,000 from an investor who exercised the warrants issued with his convertible note. In addition, five investors converted $800,000 of long-term convertible promissory notes to equity. During the first half of 2000, loan commitments from directors were increased to $450,000 from $300,000 and the Company used $335,000 of the available loan commitments. At June 30, 2000 $760,000 of convertible promissory notes remain outstanding as current liabilities and $75,000 remain as long term debt.. In general, the outstanding convertible debt funding accrues interest at 11%, has a two year term, carries the option of conversion of the principal to common stock by the debt holder, or repayment of principal and accrued interest by the Company, and has 100% warrant coverage attached that allows for the purchase of additional shares of common stock at the conversion price of $2.50. Cash decreased to $21,480 at June 30, 2000 from $40,207 at December 31, 1999. Accounts receivable decreased to $285,430 at June 30, 2000 from $619,066 at December 31, 1999 due to lower sales in the first half of 2000 and the continued use of the receivables financing agreement with Silicon Bank. While the resources necessary to complete enhancements and refinements to the NT suite of products and to build a corporate infrastructure to support anticipated future growth remain a focus and concern for Company management, the Company believes that additonal funding which has been committed combined with sales of the NT-based suite of products should ensure continued operations through end of the year. The Company is continuing to consider projects to increase its cash position such as, mergers, acquisitions or other business combinations. Currently the Company is completing a business plan and to support this process. Backlog at June 30, 2000 was $764,000. As of June 30, 2000, the Company had accumulated approximately $10,200,000 of federal net operating loss carryforwards that expire beginning in the year 2005. In addition, the Company has state net operating losses to carryforward of approximately $7,000,000 which expire between the years 2000 and 2004. Under the Internal Revenue Code of 1986, as amended, the rate at which a corporation may utilize its net operating losses to offsets income for federal tax purposes is subject to specified limitations during periods after the corporation has undergone an "ownership change". It has been determined that an ownership change did take place at the time of the Registrant's initial public offering. However, the limitations on the loss carryforward exceed the accumulated loss at the time of the "ownership change". Thus there is no restriction on its use. Seasonality The majority of the Company's installed base has a fiscal year that commences on July 1 and, therefore, the Company bills its customers for their annual software support and update service on July 1 of each year. Consequently, cash flow representing software support revenues has tended to be higher in the second half of the Company's fiscal year, although software support revenues are recognized ratably throughout the fiscal year. Revenue Recognition Revenues from software license fees are recognized when a contract has been executed, the product has been delivered, all significant contractual obligations have been satisfied and collection of the related receivable is probable. Maintenance revenues, including those bundled with the initial license fee, are deferred and recognized ratably over the service period. Consulting and training service revenues are recognized as the services are performed. Year 2000 The Company had no major problems reported from any of its customers at the beginning of year 2000. Other than some minor list orientation issues, the application functioned to specification and handled the transitions from 1999 to 2000. Internally no problems were experienced with any of the administrative systems that the Company depends on for its operations. Inflation Inflation has not had a significant impact on the Company's operations to date. Forward Looking Statements This Form 10-QSB contains statements, which are not historical facts. These statements may constitute "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities and Exchange Act of 1934 as amended. Certain, but not necessarily all, of such forward looking statements can be identified by the use of such words as "believes", "expects", "may", "will", "should", or "anticipates" or the negative thereof or other variations thereon of similar terminology, and/or which include, without limitation, statements regarding the following: adequacy of the funding for the completion of the NT enhancements and refinements and to operate the Company;plans for raising capital, market expectation for the NT operating environment; customer acceptance of the NT products and the related anticipated sales growth; building a sales and marketing initiative; Utica, NY project being the model for NLECTC; law enforcement trends regarding E911 and multijurisdiction systems; economic and competitive factors affecting market growth; and discussions of strategies involving risk and uncertainties that reflect management's current views. These statements are based on many assumptions and factors and may involve risks and uncertainties. The actual results of the Company or industry results may be materially different from any future results expressed or implied by such forward looking statements because of factors such as insufficient capital resources to complete development and operate the Company; inability to successfully market and sell the NT product; changes in the marketplace including variations in the demand for public safety software; and changes in the economic and competitive environment. These factors and other information contained in this Form 10 Q could cause such views, assumptions and factors and the Company's results of operations to be materially different. PART II - OTHER INFORMATION Item 1 - Legal Proceedings None Item 2 - Changes in Securities c. Sales of Securities The Company issued the following securities in transactions that were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to the exemptions afforded by Sections 4(2) or 3(a)(9) thereof or Regulation S thereunder, because they did not constitute sales under the Securities Act: On April 4, 2000, 272,414 shares of Pamet Systems Common Stock were issued to an investor in exchange for the surrender of two $250,000 convertible promissory notes. On April 5, 2000, 20,000 shares of Pamet Systems Common Stock were issued to an investor in exchange for the surrender of a $50,000 convertible promissory note. On April 11, 2000, the Company sold 66,667 shares of Pamet Systems Common Stock for an aggregate price of $200,000 or $3.00 per share. In connection with this agreement, the investor was granted a five year warrant to purchase 66,667 shares of common stock at a price of $3.50 per share. Item 3 - Defaults Upon Senior Securities Not applicable. Item 4 - Submission of Matters to a vote of Security Holders None Item 5 - Other Information Not applicable. Item 6 - Exhibits and Reports on Form 8-K a. Exhibits 4.27 Warrant issued to BSI SA dated April 10, 2000 27 Financial Date Schedule b. Reports on form 8-K None 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 Pamet Systems, Inc. ------------------- (Registrant) August 15, 2000 Richard C. Becker _______________________________ ______________________ Date Richard C. Becker Vice President Principal Financial Officer EXHIBIT 4.27 WARRANT NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY (WHICH ACCEPTANCE SHALL NOT BE UNREASONABLY WITHHELD) THAT SUCH REGISTRATION IS NOT REQUIRED. Void after 5:00 p.m. Eastern Standard Time, on April 10, 2005. WARRANT TO PURCHASE COMMON STOCK OF PAMET SYSTEMS, INC. FOR VALUE RECEIVED, PAMET SYSTEMS, INC. (the "Company"), a Massachusetts corporation, hereby certifies that BSI SA, a financial institution with its address at Via Magatti 2, 6900 Lugano, Switzerland, or its permitted assigns, is entitled to purchase from the Company, at any time or from time to time commencing April 11, 2000, and prior to 5:00 P.M., Eastern Standard Time, on April 10, 2005, a total of Sixty Six Thousand Six Hundred Sixty Seven (66,667) fully paid and nonassessable shares of common stock, par value $.01 per share ("Common Stock"), of the Company for an aggregate purchase price of Two Hundred Thirty Three Thousand Three Hundred Thirty Five Dollars ($233,335) (computed on the basis of $3.50 per share). (Hereinafter, (i) said Common Stock, together with any other equity securities which may be issued by the Company with respect thereto or in substitution therefor, is referred to as the "Common Stock," (ii) the shares of the Common Stock purchasable hereunder are referred to as the "Warrant Shares," (iii) the aggregate purchase price payable hereunder for the Warrant Shares is referred to as the "Aggregate Warrant Price," (iv) the price payable hereunder for each of the Warrant Shares is referred to as the "Per Share Warrant Price," (v) this Warrant, and all warrants hereafter issued in exchange or substitution for this Warrant are referred to as the "Warrant" and (vi) the holder of this Warrant is referred to as the "Holder.") The number of Warrant Shares for which this Warrant is exercisable is subject to adjustment as hereinafter provided. This Warrant is issued by the Company pursuant to the Securities Purchase Agreement, dated as of the date hereof, among the Company and BSI SA (the "Securities Purchase Agreement"). Capitalized terms used but not defined shall have the respective meanings ascribed to them in the Securities Purchase Agreement. 1. Exercise of Warrant. (a) This Warrant may be exercised, in whole at any time or in part from time to time, commencing April 11, 2000, and prior to 5:00 P.M., Eastern Standard Time, on April 10, 2005, by the Holder of this Warrant by the surrender of this Warrant (with the subscription form at the end hereof duly executed) at the address set forth in Subsection 9(a) hereof, together with proper payment of the Aggregate Warrant Price, or the proportionate part thereof if this Warrant is exercised in part. (b) The Aggregate Warrant Price or Per Share Warrant Price shall be paid in cash by certified or official bank check payable to the order of the Company. (c) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which the Warrant shall have been surrendered to the Company as provided in subsection 1(a) above (an "Exercise Date"). At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (d) If this Warrant is exercised in part, the Holder shall be entitled to receive a new Warrant covering the number of Warrant Shares in respect of which this Warrant has not been exercised and setting forth the proportionate part of the Aggregate Warrant Price applicable to such Warrant Shares. Upon such surrender of this Warrant, the Company will (a) issue a certificate or certificates in the name of the Holder for the shares of the Common Stock to which the Holder shall be entitled, and (b) deliver the proportionate part thereof if this Warrant is exercised in part, pursuant to the provisions of the Warrant. (e) No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the fair value of a share. 2. Reservation of Warrant Shares. The Company agrees that, prior to the expiration of this Warrant, the Company will at all times have authorized and in reserve, and will keep available, solely for issuance or delivery upon the exercise of this Warrant, the shares of the Common Stock as from time to time shall be receivable upon the exercise of this Warrant. 3. Adjustments. (a) In case the Company shall hereafter (i) pay a dividend or make a distribution on its capital stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares or (iv) issue by reclassification of its Common Stock any shares of capital stock of the Company, the number of Warrant Shares for which this Warrant may be exercised shall be adjusted so that if the Holder surrendered this Warrant for exercise after such action the Holder would be entitled to receive the number of shares of Common Stock or other capital stock of the Company which he would have been entitled to receive had such Warrant been exercised immediately prior to such action. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this subsection (a), the Holder of this Warrant shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and other capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in a written notice to the Holder of this Warrant promptly after such adjustment) shall determine the allocation of the adjusted Per Share Warrant Price between or among shares of such classes of capital stock or shares of Common Stock and other capital stock. (b) In case of any consolidation or merger to which the Company is a party other than a merger or consolidation in which the Company is the continuing corporation, or in case of any sale or conveyance to another entity of the property of the Company as an entirety or substantially as an entirety, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company), the holder shall have the right thereafter to exercise this Warrant for the kind and amount of securities, cash or other property which he would have owned or have been entitled to receive immediately after such consolidation, merger, statutory exchange, sale or conveyance had such Warrant been exercised immediately prior to the effective date of such consolidation, merger, statutory exchange, sale or conveyance and in any such case, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Section 3 with respect to the rights and interests thereafter of the Holder to the end that the provisions set forth in this Section 3 shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable on the conversion of this Warrant. The above provisions of this subsection (b) shall similarly apply to successive consolidations, mergers, statutory exchanges, sales or conveyances. Notice of any such consolidation, merger, statutory exchange, sale or conveyance and of said provisions so proposed to be made, shall be mailed to the Holder not less than 30 days prior to such event. A sale of all or substantially all of the assets of the Company for a consideration consisting primarily of securities shall be deemed a consolidation or merger for the foregoing purposes. (c) In the event of any adjustment to the number of Warrant Shares issuable upon exercise of this Warrant, the Per Share Warrant Price shall be adjusted by multiplying the Per Share Warrant Price in effect immediately prior to such adjustment by a fraction the numerator of which is the aggregate number of Warrant Shares for which this Warrant may be exercised immediately prior to such adjustment and the denominator of which is the aggregate number of Warrant Shares for which this Warrant may be exercised immediately after such adjustment. (d) Whenever the Per Share Warrant Price is adjusted as provided in this Warrant and upon any modification of the rights of the Holder of this Warrant in accordance with this Section 3, the Company shall promptly prepare a certificate of an officer of the Company, setting forth the Per Share Warrant Price and the number of Warrant Shares after such adjustment or modification, a brief statement of the facts requiring such adjustment or modification and the manner of computing the same and cause a copy of such certificate to be mailed to the Holder. 4. Fully Paid Stock; Taxes. The Company agrees that the shares of the Common Stock represented by each and every certificate for Warrant Shares delivered on the proper exercise of this Warrant shall, at the time of such delivery, be validly issued and outstanding, fully paid and nonassessable, and not subject to preemptive rights, and the Company will take all such actions as may be necessary to assure that the par value or stated value, if any, per share of the Common Stock is at all times equal to or less than the then Per Share Warrant Price. Subject to Section 6(e) hereof, the Company further covenants and agrees that it will pay, when due and payable, any and all Federal and state stamp, original issue or similar taxes that may be payable in respect of the issuance of any Warrant Shares or certificates therefor. The Holder covenants and agrees that it shall pay, when due and payable, any and all federal, state and local income or similar taxes that may be payable in respect of the issuance of any Warrant Shares or certificates therefor. 5. Transfer (a) Securities Laws. Neither this Warrant nor the Warrant Shares issuable upon the exercise hereof have been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any state securities laws and unless so registered may not be transferred, sold, pledged, hypothecated or otherwise disposed of unless an exemption from such registration is available. In the event the Holder desires to transfer this Warrant or any of the Warrant Shares issued, the Holder must give the Company prior written notice of such proposed transfer including the name and address of the proposed transferee. Such transfer may be made only either (i) upon publication by the Securities and Exchange Commission (the "Commission") of a ruling, interpretation, opinion or "no action letter" based upon facts presented to said Commission, or (ii) upon receipt by the Company of an opinion of counsel acceptable to the Company to the effect that the proposed transfer will not violate the provisions of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules and regulations promulgated under either such act, or to the effect that the Warrant or Warrant Shares to be sold or transferred have been registered under the Securities Act of 1933, as amended, and that there is in effect a current prospectus meeting the requirements of Subsection 11(a) of the Securities Act, which is being or will be delivered to the purchaser or transferee at or prior to the time of delivery of the certificates evidencing the Warrant or Warrant Shares to be sold or transferred. (b) Conditions to Transfer. Prior to any such proposed transfer (including, without limitation, a transfer by will or pursuant to the laws of descent and distribution), and as a condition thereto, if such transfer is not made pursuant to an effective registration statement under the Securities Act, the Holder will, if requested by the Company, deliver to the Company (i) an investment covenant, in form and substance equivalent to that signed by the original Holder of this Warrant, signed by the proposed transferee, (ii) an agreement by such transferee to the restrictive investment legend set forth herein on the certificate or certificates representing the securities acquired by such transferee, (iii) an agreement by such transferee that the Company may place a "stop transfer order" with its transfer agent or registrar, and (iv) an agreement by the transferee to indemnify the Company to the same extent as set forth in the next succeeding paragraph. (c) Indemnity. The Holder acknowledges that the Holder understands the meaning and legal consequences of this Section 6, and the Holder hereby agrees to indemnify and hold harmless the Company, its representatives and each officer and director thereof from and against any and all loss, damage or liability (including all attorneys' fees and costs incurred in enforcing this indemnity provision) due to or arising out of (a) the inaccuracy of any representation or the breach of any warranty of the Holder contained in, or any other breach by the Holder of, this Warrant, (b) any transfer of the Warrant or (c) any untrue statement or omission to state any material fact in connection with the investment representations or with respect to the facts and representations supplied by the Holder to counsel to the Company upon which its opinion as to a proposed transfer shall have been based. (d) Transfer. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with assignment documentation duly executed and funds sufficient to pay any transfer tax, and upon compliance with the foregoing provisions, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment, and this Warrant shall promptly be canceled. Any assignment, transfer, pledge, hypothecation or other disposition of this Warrant attempted contrary to the provisions of this Warrant, or any levy of execution, attachment or other process attempted upon the Warrant, shall be null and void and without effect. (e) Legend and Stop Transfer Orders. Unless the Warrant Shares have been registered under the Securities Act, upon exercise of any part of the Warrant and the issuance of any of the Warrant Shares, the Company shall instruct its transfer agent to enter stop transfer orders with respect to such shares, and all certificates representing Warrant Shares shall bear on the face thereof substantially the following legend, insofar as is consistent with Massachusetts law: "The shares of common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, offered for sale, assigned, transferred or otherwise disposed of unless registered pursuant to the provisions of that Act or an opinion of counsel to the Company is obtained stating that such disposition is in compliance with an available exemption from such registration." 6. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like date, tenor and denomination. 7. Warrant Holder Not Shareholder. Except as otherwise provided herein, this Warrant does not confer upon the Holder any right to vote or to consent to or receive notice as a shareholder of the Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof. 8. Communication. No notice or other communication under this Warrant shall be effective unless the same is in writing and is mailed by first-class mail, postage prepaid, addressed to: (a) the Company at 1000 Main Street, Acton, Massachusetts 01720, or such other address as the Company has designated in writing to the Holder, or (b) the Holder at the address contained in the first paragraph of this Warrant, or such other address as the Holder has designated in writing to the Company. 9. Headings. The headings of this Warrant have been inserted as a matter of convenience and shall not affect the construction hereof. 10. Applicable Law. This Warrant shall be governed by and construed in accordance with the law of the Commonwealth of Massachusetts without giving effect to the principles of conflict of laws thereof IN WITNESS WHEREOF, PAMET SYSTEMS, INC., has caused this Warrant to be signed by a duly authorized officer as of this 10th day of April, 2000. ATTEST: PAMET SYSTEMS, INC. _______________________ By:___________________________________ Name: David T. McKay Title: President & CEO SUBSCRIPTION The undersigned, __________________________________________, pursuant to the provisions of the foregoing Warrant, hereby agrees to subscribe for the purchase of _________________________ shares of the Common Stock of PAMET SYSTEMS, INC. covered by said Warrant, and makes payment therefor in full at the price per share provided by said Warrant. Dated __________________ Signature__________________________ Address____________________________ ____________________________ ASSIGNMENT FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers unto _________________________ the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint _________________________, attorney, to transfer said Warrant on the books of PAMET SYSTEMS, INC. Dated __________________ Signature_________________________ Address___________________________ ___________________________ PARTIAL ASSIGNMENT FOR VALUE RECEIVED _________________________ hereby assigns and transfers unto _________________________ the right to purchase _________________________ shares of the Common Stock of PAMET SYSTEMS, INC. by the foregoing Warrant, and a proportionate part of said Warrant and the rights evidenced hereby, and does irrevocably constitute and appoint _________________________, attorney, to transfer that part of said Warrant on the books of PAMET SYSTEMS, INC. Dated ___________________ Signature__________________________ Address____________________________ EX-27 2 0002.txt PAMET SYSTEMS Q2 2000 10-QSB
5 1 3-MOS DEC-31-2000 JUN-30-2000 21,480 0 285,429 60,000 11,067 406,617 656,205 555,941 688,903 2,943,297 0 38,558 0 0 (2,546,589) 688,903 668,518 668,518 94,734 0 919,514 0 (18,550) (327,180) 0 (327,180) 0 0 0 (327,180) (0.08) (0.08)
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