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____________________________