-----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, EQG4Z0D+Hsw9nDfbeVw6b7xC4APkuEvz1RG/tbD7jQfEnUZe6TenXXX9iAmfP0uf E3UMtZVl5z5prq91uIa3Wg== /in/edgar/work/0000868268-00-000009/0000868268-00-000009.txt : 20001115 0000868268-00-000009.hdr.sgml : 20001115 ACCESSION NUMBER: 0000868268-00-000009 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 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: 763284 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 Q3 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 September 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 issuer (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 3,965,610 ($.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 September 30, 2000 and December 31, 1999 Condensed Statements of Operations for the quarter ended September 30, 2000 and 1999 and nine month period ended September 30, 2000 and 1999 Condensed Statement of Cash Flows for the nine months ended September 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 September 30, December 31, 2000 1999 --------- ------------ CURRENT ASSETS (unaudited) Cash $ 8,340 $ 40,207 Accounts receivable, net of allowance for doubtful accounts of $60,000 and factored receivables 327,793 619,066 Accounts receivable, factored 17,146 53,931 Inventory, net of reserve of $15,000 19,616 11,745 Prepaid expenses and other current assets 16,076 94,243 TOTAL CURRENT ASSETS 388,971 819,192 PROPERTY AND EQUIPMENT, net 95,024 110,590 OTHER ASSETS 4,190 4,190 BUILDING LEASE DEPOSIT 80,000 80,000 CAPITALIZED SOFTWARE DEVELOPMENT COSTS 81,527 130,442 TOTAL ASSETS $ 649,712 $ 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 611,117 688,292 Accounts payable, related party 8,667 32,241 Current portion of accrued interest payable on long-term debt 120,638 54,894 Current portion of deferred gain on sale of land and building 42,614 42,614 Accrued expenses 546,605 436,625 Customer deposits 148,115 ---- Deferred software maintenance revenue 628,709 383,930 TOTAL CURRENT LIABILITIES 3,201,465 2,321,092 ACCRUED INTEREST PAYABLE on long-term debt, less current portion ---- 86,511 DEFERRED GAIN on sale of land and building, net of current portion 206,542 238,502 LONG TERM DEBT, less current portion 75,000 1,185,000 TOTAL LIABILITIES 3,483,007 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; 3,965,610 issued and outstanding 39,656 32,852 Additional paid-in Capital 8,137,493 6,688,504 Accumulated deficit (11,010,444) (9,408,047) TOTAL STOCKHOLDERS EQUITY (2,833,295) (2,686,691) TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 649,712 $ 1,144,414 ========== ==========
See accompanying "Notes to Financial Statements (Unaudited)" Item 1 - Financial Statements PAMET SYSTEMS, INC.
Statements of Operations (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ---------------------- 2000 1999 2000 1999 Net sales $439,713 $530,907 $1,504,092 $1,503,291 Cost of product 93,453 184,628 319,949 568,465 ------- ------- --------- --------- 346,260 346,279 $1,184,143 934,826 Operating expenses: Personnel costs 487,061 516,835 1,615,814 $1,428,065 Rent, utilities, telephone 48,717 46,061 168,491 92,813 Travel and entertainment 30,719 37,169 90,913 99,255 Professional fees 30,481 26,162 120,584 135,869 Depreciation 30,277 20,398 88,670 61,456 Research and development 39,540 (61,499) 334,557 154,458 Other operating expenses 122,944 63,141 304,486 216,712 ------- ------- --------- --------- Total operating expenses 789,739 648,267 2,723,515 2,188,628 ------- ------- --------- --------- Income(loss) from operations (443,479) (301,988) (1,539,372) (1,253,802) Interest income(expense), net (43,422) (75,623) (63,025) (198,855) Net income(loss) $(486,901) $(377,611) $(1,602,397)$(1,452,657) ======= ======= ========= ========= Earnings(loss) per common share $(.12) $(.13) $(.40) $(.47) === === === === Shares used in computing 3,965,610 $2,896,613 3,965,610 2,896,613 earnings per share
See accompanying "Notes to Financial Statements (unaudited)" Item 1 - Financial Statements PAMET SYSTEMS, INC.
Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2000 September 30, 1999 ------------------ ------------------ Cash flows provided by (used in) operating activities: Net loss $(1,602,397) $(1,452,656) Adjustments to reconcile net loss to net cash provided by operating activities: Deferred gain on sale of land and building (31,960) (6,481) Depreciation and amortization 88,670 61,456 Capitalized software development costs ---- (689,952) Changes in operating assets and liabilities: Accounts receivable, trade 291,273 (12,480) Accounts receivable, factored 36,785 35,568 Inventory (7,871) (6,628) Prepaids and other current assets 78,167 10,803 Other assets and restricted cash ---- 28,534 Deposits ---- (80,000) Due to factor (57,496) (65,980) Accounts payable, trade (77,175) (101,361) Accounts payable, related party (23,574) (14,193) Deferred software maintenance revenue 244,779 322,027 Accrued expenses and other current liabilities 109,175 45,447 Accrued interest payable on long-term debt (20,767) 82,393 Customer deposits 148,115 ---- ---------- ---------- Total adjustments 778,926 (390,847) Net cash provided by (used in) operating activities (823,471) (1,843,503) Cash flows from investing activities: Expenditures for property & equipment (24,189) (47,555) Proceeds from the sale of 1000 Main ---- 1,086,845 -------- --------- Net cash used in investing activities (24,189) 1,039,290
Item 1 - Financial Statements PAMET SYSTEMS, INC.
Statements of Cash Flows (Unaudited) Six Months Ended September 30, 2000 September 30, 1999 ------------------ ------------------ Cash flows from financing activities: Proceeds from long-term debt- convertible promissory notes ---- 1,110,000 Proceeds from related party notes 160,000 175,000 Payment of related party notes ---- ---- Payment of mortgage ---- (579,743) Net change line of credit-vendor ---- (79,699) Issuance of capital stock 1,455,793 655,939 Proceed from second mortgage ---- 100,000 Conversion of convertible promissory notes to capital stock (800,000) (600,000) ---------- --------- Net cash provided by financing activities 815,793 781,497 Net increase(decrease) in cash 31,867 (22,716) Cash and cash equivalents at beginning of period 40,207 54,817 Cash and cash equivalents at end of period $8,340 $32,101 ====== ======= Supplemental disclosure of cash flow information: Cash paid for interest: $85,943 $49,171 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 September 30, 1999 and the results of operations for the three and nine month periods and changes in cash flows for the nine 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 nine month periods ended September 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. Based on the above provision, the monthly rent was increased to $13,386.63. 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 year-to-date 2000 revenues remained flat with revenues for the comparable period in 1999. Increases in new NT system sales, VMS customer migrations, and software support revenues are being offset by decreases in sales of the Mobile, add on hardware, and Advanced Reporting. The Company's installed customer base continues to be supportive of Pamet's products and is now focusing on using available funding to migrate to the NT platform. This allocation of funding has had an adverse impact on revenues generated from adding companion products to their VMS-based systems. In addition, the Company is experiencing delays in the procurement of new systems by prospective customers as a result of the significant changes taking place in the market. Rapidly changing technology has left many companies in the public safety software business scrambling to stay current. The simplest and least expensive alternative to quickly update an aging system is to add a graphical user interface frontend to an outdated database. Although this solution limits functionality and flexibility, many of the small businesses in the public safety market resorted to this alternative due to financial and time constraints. In addition, the market is beginning to restructure itself as mergers, acquisitions, and partnerships are announced that will help many companies meet the markets demands. The technology issues and market restructuring have injected uncertainty into the marketplace. Pamet'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 that the investment in the NT product suite positions the Company for future revenue growth. During the third quarter of 2000, the Company completed a Business Plan that identified the size of the public safety market, developed a three to five year revenue growth plan for the Company, and pinpointed the necessity of Pamet investing in sales and marketing resources to capitalize on the investment in the suite of NT products and the Company's experienced installation and support team. The Company recently announced the addition of sales resources in the Northeast and is actively recruiting in the Southeast and Midwest regions. During the year 2000, the Company installed the PoliceServer NT records management system and CADServer NT dispatch system in the Utica, New York police department. This system 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 nine months of 2000, the Company continued development on the NT product suite focusing on system refinements and added functionality. The knowledge gained from new NT installations in ten communities and the migration of VMS customers to the NT product has driven the continuing development work. During the first nine months of 2000, the Company spent approximately $335,000 on external resources and $600,000 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 implementation 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. As stated above, the Company recently added new sales resources in the Northeast, and it also has made significant progress implementing the sales and marketing plan through introducing newly designed collateral materials, enhancing the Company's web site, attending trade shows, and implementing a cost and time saving product demonstration capability on the Internet. The focus on the sales and marketing effort has resulted in the largest pipeline the Company has ever had, however, there is no guarantee that any prospective customers in the pipeline will become actual customers of the Company. Pamet is also actively exploring new business relationships and additional sources of funding. The Company continues to believe that significant market opportunities exist for its suite of NT-based products based on the following factors. The continuing emphasis on reducing and preventing crime in most communities and the awareness by municipalities that integrated computer systems can improve the efficiency and effectiveness of their public safety resources 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 among 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. In addition, the industry movement toward systems with a graphical user interface and the beginnings of a market consolidation around companies that have made the investment in newer technologies support the decision by the Company to develop their new NT system with modern design tools and databases. 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 by 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 September 30, 2000 vs. Three Months Ended September 30, 1999 Net sales for the three month period ended September 30, 2000 (the 2000 period) decreased 17.2% to $439,713 from $530,907 for the three month period ended September 30, 1999 (the 1999 period). The sales for the 2000 period reflected increased support revenues that were offset by decreases in system sales and companion product revenues. As discussed previously, potential customers are delaying their purchases due to uncertainty in the marketplace regarding mergers and acquisitions as well as the changing technology. Pamet has continued to see steady support from its installed base and most are earmarking available funding for NT migration rather than companion product addons to their VMS systems. These VMS customers receive the NT software at no charge, however, they must pay for installation, training, and data conversion. In addition, two customers that previously had chosen new software over their VMS PoliceServer systems have returned to using Pamet's VMS software and are anticipating moving to NT in 2001. Support revenues increased 23.2% to $220,333 for the 2000 period from $178,869 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 49.4% or $91,175 to $93,453 for the 2000 period from $184,628 for the 1999 period. The resulting increase in gross margin from 65.2% in the 1999 period to 78.7% in the 2000 period reflects 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 $141,472 or 21.8% to $789,739 for the 2000 period compared to $648,267 for the 1999 period. primarily due to the capitalization of $313,961 of NT product development costs during the 1999 period. 1999 gross expenses including capitalized development costs were $962,228. Comparing gross expenditures, the 2000 period shows a decrease of 17.9% 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 and prior to the 1999 capitalization showed a decrease of $212,922 or 84.3% 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 decreased 5.8% or $29,774 to $487,061 for the 2000 period compared to $516,835 for the 1999 period. The costs of additional resources focused on refinement of the NT product and the implementation of a cohesive sales and marketing effort were offset by reduced bonus accruals in 2000. Rent, utilities and telephone increased 5.8% to $48,717 for the 2000 period from $46,061 for the 1999 period due primarily to a full quarter of lease expense for the headquarters facility located in Acton, MA in the 2000 period. The Company has agreed to lease the building for seven years on a triple net lease (See Note 2). Travel and entertainment expenses decreased 17.4% to $30,719 for the 2000 period from $37,169 for the 1999 period The 2000 period reflected significantly less lodging expense as installations during the 2000 period were concentrated in the Northeast. Professional fees increased 16.5% to $30,481 for the 2000 period from $26,162 for the 1999 period primarily due an increase in legal fees associated with the 2000 annual meeting. Depreciation expense increased 48.4% to $30,277 for the 2000 period from $20,398 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 $313,961 during the 1999 period, however, gross research and development actually decreased 84.3% from 1999 levels. Other operating expenses increased 94.7% to $122,944 for the 2000 period from $63,141 for the 1999 period. The most significant portion of the increase was due to the design and printing of new collateral marketing materials. Net interest expense for the 2000 period was $43,422 compared to $75,623 for the 1999 period. Since the third quarter of 1999, $1,400,000 of the outstanding long-term convertible promissory notes have been converted to capital stock reducing the amount of accrued interest expense. The net loss for the 2000 period was $(486,901) or $(.12) per share compared to net loss of $(377,611) or $(.13) 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. Nine Months Ended September 30, 2000 vs. Nine Months Ended September 30, 1999 Net sales for the nine month period ended September 30, 2000 (the 2000 period) of $1,504,092 were approximately the same as net sales for the nine months ended September 30, 1999 (the 1999 period) of $1,503,291. The increases in NT system sales, migration revenues, and software support revenues are offset by decreases in Mobile, Advanced Reporting, and add-on hardware revenues. New system sales increased 25.6% from the 1999 period to the 2000 period and represent 19.1% of sales in the 2000 period. Support revenues increased 20.5% to $592,652 in the 2000 period compared to $491,900 in the 1999 period reflecting the increase in the customer base and rates. Support revenues accounted for 39.4% 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. NT system revenues for the 2000 period were also adversely affected by the uncertainties in the marketplace discussed previously. Cost of product decreased 43.7% to $319,949 for the 2000 period from the $568,465 for the 1999 period. Gross margin increased to 78.7% for the 2000 period from 62.2% 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 margin software component of these sales. Net operating expenses increased $534,887 or 24.4% to $2,723,515 for the 2000 period compared to $2,188,628 for the 1999 period. However gross operating expenses for the 1999 period, including capitalized development costs of $689,952, were $2,878,580. On a gross basis, operating expenses reflect a 5.4% decrease from the 1999 period to the 2000 period. Gross research and development expenditures excluding inhouse personnel and before capitalization in 1999 decreased significantly from $844,410 in the 1999 period to $334,557 in the 2000 period reflecting the completion of major portions of the NT development effort. Personnel costs increased 13.1% to $1,615,814 for the 2000 period from $1,428,065 for the 1999 period. As the Company's development program has wound 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 $75,678 or 81.5% to $168,491 for the 2000 period from $92,813 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 8.4% to $90,913 for the 2000 period from $99,255 for the 1999 period. This decrease resulted from installations being clustered in the Northeast during the 2000 period. Professional fees decreased 11.2% to $120,584 for the 2000 period from $135,869 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 private placement of debt and equity financing and joint ventures in the 1999 period. These decreases were partially offset by increase in accounting fees in conjunction with the 1999 year end audit. Depreciation expense increased 44.3% to $88,670 for the 2000 period from $61,456 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 amortization. As discussed above, net research and development expenses reflected a increase of $180,099 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 40.5% to $304,486 for the 2000 period from $216,712 for the 1999 period. Increases in spending on new collateral marketing material and tax penalties are offset by decreases in internet access, minor equipment purchases, and officers life insurance. Net interest expense was $63,025 for the 2000 period compared to $198,855 for the 1999 period. This decrease reflects the reversal of accrued interest associated with the conversion of $800,000 of convertible promissory notes to equity in the 2000 period and $600,000 of convertible promissory notes to equity in the fourth quarter of 1999. The interest accruals on an ongoing basis are also reduced by the promissory note conversions in 1999 and 2000. The net loss for the 2000 period was $(1,602,397) or $(.40) per share compared to a net loss of $(1,452,657) or $(.47) 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 resources to meet anticipated future business. Liquidity and Capital Resources The Company's working capital deficit deteriorated to $(2,812,494) at September 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, increased use of related party notes, and the annual deferred support revenues. During the first nine months of 2000, the Company secured $550,000 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 September 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 $8,340 at September 30, 2000 from $40,207 at December 31, 1999. Accounts receivable decreased to $327,793 at September 30, 2000 from $619,066 at December 31, 1999 due to 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 the additional 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 working with a new business plan that supports this activity. Backlog at September 30, 2000 was approximately $645,000. As of September 30, 2000, the Company had accumulated approximately $10,700,000 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 $7,500,000 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. 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 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; changes in the marketplace including mergers, acquisitions and partnerships; implementation of the sales and marketing plan; Utica, NY project being the model for NLECTC; law enforcement trends including 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 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 consolidation via partnership, mergers, and acquisitions; 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 a transaction that was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to the exemption afforded by Sections 4(2) or thereof or Regulation S thereunder: On September 1, 2000, the Company sold 100,000 shares of Pamet Systems Common Stock to one accredited investor for an aggregate price of $200,000 or $2.00 per share. In connection with this agreement, the investor was granted a five year warrant to purchase 100,000 shares of common stock at a price of $2.50 per share. Item 3 - Defaults Upon Senior Securities Not applicable. Item 4 - Submission of Matters to a vote of Security Holders The Company held its Annual Meeting of Stockholders on July 10, 2000. The following items were voted on by the Stockholders: 1. At the Annual Meeting, Bruce J. Rogow and Richard C. Becker were elected as Directors. The voting results for the election of Directors were as follows: FOR WITHHELD Bruce J. Rogow 2,637,752 35,000 Richard C. Becker 2,637,702 35,050 In addition, the following directors continued as such after the meeting: Dr. Joel B. Searcy, Dr. Davinder Sethi, David T. McKay, and Dr. Stanley J. Robboy. 2. The proposal to approve the Amendment to the Company's Restated and Amended Articles of Organization to increase the authorized number of share of Common Stock from 7,500,000 shares to 30,000.000 shares was approved. The results were as follows: FOR AGAINST ABSTAIN 2,469,938 202,514 300 3. The proposal to approve the Company's 2000 Stock Option Plan was approved. The results were as follows: FOR AGAINST ABSTAIN NOT VOTED 1,495,085 118,300 500 1,058,867 Item 5 - Other Information Not applicable. Item 6 - Exhibits and Reports on Form 8-K a. Exhibits 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) November 15, 2000 Richard C. Becker _______________________________ ______________________ Date Richard C. Becker Vice President Principal Financial Officer EX-27 2 0002.txt PAMET SYSTEMS Q2 2000 10-QSB
5 1 3-MOS DEC-31-2000 SEP-30-2000 8,340 0 327,793 60,000 19,616 388,971 664,936 569,912 649,712 3,201,465 0 39,656 0 0 (2,872,951) 649,712 439,713 439,713 93,453 0 789,739 0 (43,422) (486,901) 0 (486,901) 0 0 0 (486,901) (0.12) (0.12)
-----END PRIVACY-ENHANCED MESSAGE-----