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 March 31, 2001
[ ] 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 share outstanding
------------------- ---------------------------
Common stock 4,186,110
($.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
March 31, 2001 and December 31, 2000
Condensed Statements of Operations
for the quarter ended March 31, 2001
and 2000
Condensed Statement of Cash Flows
for the three months ended March 31,
2001 and 2000
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 March 31, December 31,
2001 2000
--------- ------------
(unaudited)
CURRENT ASSETS
Cash $ 56,957 $ 1,507
Accounts receivable, net of allowance for
doubtful accounts of $147,198 and $175,000
and factored receivables of $59,395 and
$88,502, respectively 124,300 224,191
Accounts Receivable, factored 15,502 14,770
Inventory, net of reserve of $15,000 11,354 10,151
Prepaid expenses and other current assets 94,556 147,132
------- -------
TOTAL CURRENT ASSETS 302,669 397,751
PROPERTY AND EQUIPMENT, net 89,166 98,312
DEPOSITS 80,000 84,190
CAPITALIZED SOFTWARE DEVELOPMENT COSTS 48,916 65,221
------- -------
TOTAL ASSETS $520,751 $645,474
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $425,000 $425,000
Notes payable to related party 455,000 385,000
Due to Factor 79,048 36,199
Accounts payable, trade 850,008 795,226
Accounts payable, related party 26,024 19,945
Current portion of accrued interest payable
on long-term debt 81,257 143,538
Current portion of deferred gain on sale of
land and building 42,614 42,614
Accrued expenses 821,465 766,192
Deferred software maintenance revenue and
unearned revenue 446,941 601,505
--------- ---------
TOTAL CURRENT LIABILITIES 3,227,357 3,215,219
ACCRUED INTEREST PAYABLE on long-term debt,
net of current portion 84,929 --
DEFERRED GAIN on sale of land and building,
net of current portion 185,234 195,888
LONG TERM DEBT, net current portion 760,000 410,000
--------- ---------
TOTAL LIABILITIES 4,257,520 3,821,107
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued -- --
Common Stock, $.01 par value, 30,000,000
shares authorized; issued and outstanding
4,186,110 shares at March 31, 2001 and
4,085,610 shares at December 31, 2000,
respectively 41,861 40,856
Additional paid-in Capital 8,458,613 8,358,593
Accumulated deficit (12,237,243) (11,575,082)
---------- ---------
TOTAL STOCKHOLDERS DEFICIT (3,736,769) (3,175,633)
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS DEFICIT $520,751 $645,474
======= =======
See accompanying "Notes to Financial Statements (Unaudited)"
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Operations
(Unaudited)
Three Months Ended
March 31
------------------
2001 2000
Net sales $242,329 $395,861
Cost of product 41,305 131,762
------- -------
201,024 264,099
Operating expenses:
Personnel costs 520,739 551,342
Rent, utilities and telephone 54,826 58,220
Travel and entertainment 28,634 31,371
Professional fees 48,429 41,082
Depreciation and Amortization 28,355 28,963
Research and Development 84,731 223,372
Other operating expenses 47,404 79,911
------- --------
Total operating expenses 813,118 1,014,261
------- ---------
Income (loss) from operations (612,094) (750,162)
Interest Income (expense), Net (50,067) (38,154)
Net Income (loss) (662,161) (788,316)
======= =======
Earnings (loss) per weighted
average common share $(.16) $(.24)
=== ===
Weighted average shares used
in computing earnings per
share 4,130,715 3,286,939
See accompanying "Notes to Financial Statements (unaudited)"
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31, 2001 March 31, 2000
-------------- --------------
Net (loss) $(662,161) $(788,316)
Adjustments to reconcile net
loss to net cash used for
operating activities:
Deferred gain on sale of land and building (10,654) (10,654)
Depreciation and amortization 28,355 28,963
Changes in operating assets and liabilities:
Accounts receivable, trade 99,891 404,774
Accounts receivable, factored (732) (3,142)
Inventory (1,203) (2,670)
Prepaid expenses and other current assets 52,576 41,112
Deposits 4,190 --
Due to factor 42,849 (57,496)
Accounts payable, trade 54,782 215,826
Accounts payable,related parties 6,079 (3,878)
Accrued expenses 55,273 149,635
Accrued interest payable on long-term debt 22,648 10,183
Deferred software maintenance revenue and
unearned support revenue (154,564) (124,640)
------- -------
Net cash (used for) operating activities (462,671) (123,997)
------- -------
Investing Activities
Expenditures for property and equipment (2,904) (7,016)
------ ------
Net cash (used for) investing activities (2,904) (7,016)
------ ------
(continued on following page)
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31, 2001 March 31, 2000
-------------- --------------
Financing activities:
Proceeds from long-term debt-convertible
promissory notes 350,000 --
Proceeds from related party notes 70,000 --
Issuance of capital stock 101,025 240,000
-------- -------
Net cash provided by financing
activities 521,025 240,000
------- -------
Net increase in cash 55,450 92,681
Cash at beginning of period 1,507 40,207
------ -------
Cash at end of period 56,957 132,888
====== =======
Supplemental disclosures of cash
flows information:
Cash paid for interest: $15,623 $34,590
Summary of non-cash financing activities
Conversion of convertible promissory notes
to common stock -- $250,000
See accompanying "Notes to Financial Statements (Unaudited)"
PAMET SYSTEMS, INC.
Notes to Condensed Financial Statements
(Unaudited)
Note (1) Statement Presentation
The accompanying unaudited condensed financial statements have been prepared
based upon Securities and Exchange Commission (SEC) rules that permit reduced
disclosure for interim periods and, in the opinion of management, contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position as of March 31, 2001, the results of
operations for the three month period and changes in cash flows for the 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 months ended March 31, 2001 are not
necessarily indicative of the results of operations which may be expected
for the entire year.
Note (2) Nature of Operations
Pamet Systems, Inc. (the Company), a Massachusetts corporation, was formed in
November 1987 to engage in the business of designing , developing, installing
and servicing computer software systems for the municipal market throughout
the United States, principally in the area of public safety. Credit is
granted to certain customers, most of which are municipalities. The Company
generally does not require collateral.
The Company's backlog at May 14, 2001 was approximately $820,000 (unaudited).
Management believes that this level of backlog and its anticipated sales, as
well as the funding described below, are adequate to sustain operations
through the end of fiscal year 2001.
However, the ultimate success of the Company is still dependent upon its
ability to secure financing adequate to meet its working capital and ongoing
product development needs. In addition, in order for the Company's operations
to be maintained and/or expanded, the Company will need to successfully market
its Microsoft Windows NT computing platform applications. If additional funds
are required beyond the related party credit facility that is available, the
current Board members are willing to seek additional equity financing, as
needed. Management believes the Company's current sources of liquidity and
funding are adequate to sustain operations. Management is also seeking to
enhance the Company's financial position by obtaining additional permanent
financing. There can be no assurance, however, that the Company's operations
will be sustained or be profitable in the future, that adequate sources of
financing will be available at all, when needed or on commercially acceptable
terms, or that the Company's product development and marketing efforts will be
successful.
Note (3) Mortgage and Subsequent Sale and Lease Back of Corporate Training,
Development and Headquarters Facility
The Company entered into a second mortgage agreement on its headquarters
facility on June 16, 1999 with Area Realty, LLC, the eventual buyer of the
building, for $100,000 at 11% per annum. 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.
Note (4) Loss Per Common Share
In 2001 and 2000, loss per common share is computed using the weighted average
number of shares of common stock outstanding during the period. Diluted per
share computations are not presented since the effect would be antidilutive.
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 to the public. The foundation of the Company's fully integrated suite
of products is composed of three components: PoliceServer NT, FireServer NT,
and CADServer NT. The Company also offers several companion products
including Imaging, Mobile Access, Advanced Reporting, JailServer NT,
Investigator's Tool Kit and Mapping that are integrated with the police and
fire records management and computer-aided dispatch modules. Pamet Systems
total systems approach to public safety software allows the agency to enter
information once and have it available throughout the product suite. 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 3 month period ended March 31, 2001 (the 2001
period) decreased 38.8% to $242,329 from $395,861 for the 3 month period ended
March 31, 2000 (the 2000 period). In 2001, as in the past, the Company
experienced a slower first quarter due to the availability of municipal funds.
In the Northeast where the Company does the largest amount of its business,
the municipal fiscal year generally begins on July 1 which is when municipal
funds become available. In addition, the slowdown in the demand which the
Company began to feel in the second half of 2000 has continued into the first
quarter of 2001. Management believes that public safety agencies are
deferring decisions to replace aging and/or inadequate technology
infrastructure and application software until economic conditions stabilize
and clear leadership emerges in the industry. Taking its cue from advances in
technology, the Company's core products were completely rebuilt using modern
design tools and databases, and the entire suite utilizes the Windows NT 32
bit technology and a GUI interface (graphical user interface). The Company
has spent over $4.9M during the past four years on the development of its
NT-based suite of products. Management believes that the magnitude of funding
required to develop new public safety software applications using state of the
art technologies will trigger a consolidation in the public safety
marketplace, which is dominated by small, privately held companies that will
have difficulty affording the development costs. Pamet System's NT product
development effort during the past four years positions the Company to be a
leader in the marketplace.
The Company's sales and marketing efforts are being focused in several areas.
First, using data gathered from marketing mailings, sales personnel are
actively pursuing public safety agencies using the software of weak
competitors. In most cases, these competitors have product lines employing
aging technology or lacking the ability to provide a complete solution for the
customer. The Company is also broadening the focus of its sales and marketing
efforts to reach new market segments. Pamet Systems is actively marketing to
larger, more technologically demanding agencies. The Company has submitted
several major proposals and has been selected as one of two or three finalists
in most cases. In addition, the NT product is being packaged and aggressively
priced to meet the needs of smaller agencies. These efforts have resulted
in the largest pipeline of active prospects in the Company's history. The
Company includes in the pipeline prospective customers who have seen a product
demonstration, have expressed interest in the product, and expect to have
funding available.
Management continues to believe that significant market opportunities exist
for its suite of NT-based products. Major federal grant programs continue to
be announced that will allow agencies to update their computer systems. In
early 2001, the federal government announced COPSMore 2001, an $81M grant
program earmarked solely for public safety technology. Pamet Systems held
free grant seminars in the Northeast and Midwest to aid agencies in
understanding the grant application process and assisted approximately 200
agencies in preparing their applications, which is estimated to be about 10%
of the applications the Justice Department will receive. Management also
believes that it is possible that additional grant programs will be announced
as federal funding becomes available. In addition, 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 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 has also seen 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.
The primary challenges facing the Company during the year 2001 are to
capitalize on the design efforts that have resulted in a integrated suite of
NT-based products and to acquire adequate financing to fund immediate needs
and future growth. The Company has launched a major financing program with
the goal of raising $10M to $15M. The program is composed of a $1.5M private
placement to meet immediate cash needs with the remainder planned in a
secondary offering later in 2001 or in 2002. To date, the Company has secured
$550,625 of working capital from its private placement offering. However,
there are no assurances that the Company will be successful in completing its
fund raising program, in light of, among other things, the state of the
financial markets and the Company's historical financial performance. During
early 2001, the Company released major product enhancements and extensions
based, in part, on feedback from its NT customers. These releases improve the
product's ease of use and substantially extend its capabilities. As a result,
the Company has received certification from three states for our police
records system's incident-based reporting (NIBRS) capabilities and
certification from the Massachusetts Fire Marshall for the fire records
system's advanced national reporting (NIFRS 5.0) capabilities. The Company has
also developed utilities to convert customer data files from older systems,
which will ease the transition for agencies. As a result of these
improvements, the Company has a long list of current users waiting to migrate
to the NT system.
Despite what the Company believes are numerous growth opportunities, the
Company remains hampered by under capitalization and 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 a consequence, the
Company is pursuing an analysis of complementary markets and adaptations for
its products.
Three Months Ended March 31, 2001 vs. Three Months Ended March 31, 2000
Net sales in the 2001 period declined 38.8% or $153,532 to 242,329 from
$395,861 for the 2000 period. The revenues for the 2001 period were comprised
almost entirely of software support revenues as compared to 2000 revenues
which included one FireServer NT system, one Imaging system, and fourteen
add-on Mobile units in addition to support revenues. Support revenues
increased 27.3% to $230,693 for the 2001 period from $181,269 for the 2000
period reflecting the increase in the customer base from the 2000 period and
the increased rates billed for NT support. The contribution from support will
continue to increase in future periods as new customers, as well as those
existing customers that migrate to the NT product, will be charged higher
support fees. Current customers who migrate to the NT product previously paid
14% of the original VMS purchase price, but will now pay 19% of the current
list price for the new NT products at the time of conversion. Cost of product
decreased 68.7% or $90,457 to $41,305 for the 2001 period from $131,762 for
the 2000. The resulting increase in gross margin from 66.7% in the 2000
period to 83.0% in the 2001 period can be attributed to the consistently high
margins delivered by support revenues.
Operating expenses decreased $201,143 or 19.8% to $813,118 for the 2001 period
compared to $1,014,261 for the 2000 period primarily due to decreases in
personnel spending and external research and development costs. Personnel
costs decreased 5.6% to $520,739 for the 2001 period from $551,342 for the
2000 period. The decrease in personnel spending is due to attrition and the
retirement of one employee. Due to the working capital constraints facing the
Company, certain non-key positions are not being immediately filled. Rent,
utilities and telephone decreased 5.8% to $54,826 for the 2001 period from
$58,220 for the 2000 period due primarily to decreases in telephone spending
as a result of lower rates. Travel and entertainment expenses decreased
$2,737 or 9.0% to $28,634 for the 2001 period from $30,371 for the 2000 period
reflecting slightly less spending in all areas. Professional fees increased
17.9% to $48,429 for the 2001 period from $41,082 for the 2000 period due to
increased legal fees resulting from an increase in services associated with
the ongoing private placement of debt and equity financing and joint ventures.
Depreciation and amortization expense remained constant at $28,355 for the
2001 period compared to $28,963 for the 2000 period.
External research and development costs during the 2001 period decreased
$138,641 or 62.1% to $84,731 from $223,372 in the 2000 period. However, gross
expenditures on research and development spending including the costs of
outside resources and the deployment of current staff to product development
and testing decreased only 30.1% to $275,691 in the 2001 period from $394,335
for the 2000 period. Due to cash constraints during the final stages of the
development cycle of the NT products, the Company continues to utilize outside
resources and employees hired on short-term contracts only on a selective
basis to accomplish product development goals. The Company is utilizing its
internal team of engineering and support resources to provide product
enhancements and extensions including interfaces to companion products,
utilities to migrate current customers from the VMS-based system to the
NT-based system, and advanced product capabilities.
Other operating expenses decreased 40.7% to $47,404 for the 2001 period from
$79,911 for the 2000 period primarily due to a decrease in the reserve for
doubtful accounts resulting from payment of some old invoices.
Net interest expense for the 2001 period increased to $50,067 from $38,154 in
the 2000 period. The 2000 period included the reversal of accrued interest
expense on $250,000 of convertible promissory notes converted to equity during
the period. As specified in the convertible promissory notes, the accrued
interest was not payable since the note was converted. There were no notes
converted in the 2001 period.
The net loss for the 2001 period was $(662,161) or $(.16) per share compared
to net loss of $(788,316) or $(.24) per share for the 2000 period based on
weighted average shares outstanding for the period. The loss is due primarily
to decreased sales.
Liquidity and Capital Resources
The Company had working capital deficit of $(2,924,688) at March 31, 2001
compared to $(2,817,468) at December 31, 2000. The most significant reason
for this deterioration is the impact on receivables from lower sales in the
first quarter of 2001.
During the 2001 period, the Company secured $100,625 of additional equity
financing and $350,000 of long term debt financing. In addition, the Company
used an additional $70,000 on lines of credit from officers and directors
bringing the total drawn on lines of credit to $455,000 at March 31, 2001. At
March 31, 2001, $1,185,000 of convertible promissory notes and $166,186 of
related interest remained outstanding as liabilities. In general, the
outstanding convertible debt funding accrues interest at either 7% or 11%; has
a two year term; carries the option of conversion of the principal to common
stock by the debt holder at conversion prices ranging from $0.75 to $2.50 per
share, 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 exercise prices ranging from $2.00 to $2.50 per
share. The Company's ability to repay the outstanding convertible promissory
notes with accrued interest on the due dates is at risk, especially the
$425,000 due in the current year. Failure of the Company to repay or
renegotiate the notes due in the current year could have a material adverse
affect on the Company.
Cash increased to $56,957 at March 31, 2001 from $1,507 at December 31, 2000.
Accounts receivable decreased to $124,300 at March 31, 2001 from $224,191 at
December 31, 2000 due to the decrease in sales during the first quarter of
2001 as compared to the same period in 2000. The resources necessary to fund
the enhancements and extensions to the NT product and provide working capital
for operations continue to be a major concern for the Company. In the fourth
quarter of 2000, the Company launched a $1.5M private placement financing
program to meet immediate cash needs. The Company received $450,625 during
the 2001 period. Subsequent to the end of the period, the Company received an
additional $100,000 bringing the total received to date to $550,625. Late in
2000, the Company felt the effects of a slowdown in the general economic
conditions and within the public safety marketplace. However, with the newly
announced federal grant program COPSMore 2001 and the strong sales pipeline
resulting from the addition of sales and marketing resources, the Company is
optimistic about revenues in the second half of 2001. If additional funds are
required, the Board of Directors is willing to seek additional financing.
Nevertheless, the Company continues to be hampered by insufficient cash
resources. As noted in the Auditor's Report for 2000 included in the
Company's Annual Report on Form 10K, there can be no assurances that the
Company will be able to generate adequate cash either through operations or
additional financing to continue as a going concern. Failure to acquire the
necessary financing could have a material adverse effect on the Company.
Backlog at May 14, 2001 was approximately $820,000. The Company is continuing
to consider projects to increase its cash position such as activities to raise
capital, mergers, acquisitions or other business combinations.
As of March 31, 2001, the Company had accumulated approximately $11,600,000 of
federal net operating loss carryforwards that expire beginning in the year
2005. In addition, the Company has state net operating losses to carry
forward of $7,900,000 which expire between the years 2002 and 2005. Under the
Internal Revenue Code of 1986, as amended, the rate at which a corporation may
utilize its net operating losses to offset 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 Company'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 Registrant'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 that 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: competition and
consolidation in the public safety marketplace; market expectation for the NT
operating environment and customer acceptance of the Company's NT products;
ability of the NT product to meet market needs; volatility in sales and cash
flow; growth potential in the year 2001; law enforcement trends; availability
of grant funding for customers; adequacy of funding and corporate
infrastructure to support operations and anticipated growth; economic and
competitive factors affecting the public safety market; 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 changes in
the economic and competitive environment. These factors and other information
contained in this Form 10-KSB could cause such views, assumptions and factors
and the Company's results of operations to be materially different. We
undertake no obligation to update publicly any forward-looking statements for
any reason even if new information becomes available or other events occur in
the future.
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 February 21, 2001, the Company sold 80,500 shares of Pamet Systems
Common Stock for an aggregate price of $100,625 or $1.25 per share.
In connection with this agreement, the investor was granted a five
year warrant to purchase 28,175 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
None
Item 5 - Other Information
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits
4.30 Warrant issued to Alexandra O. Bjorklund Trust dated 2/21/01
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)
May 15, 2001 (s) Richard C. Becker
_______________________________ ______________________
Date Richard C. Becker
Vice President
Principal Financial Officer
Exhibit
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 February 20, 2006.
WARRANT TO PURCHASE COMMON STOCK
OF
PAMET SYSTEMS, INC.
FOR VALUE RECEIVED, PAMET SYSTEMS, INC. (the "Company"), a
Massachusetts corporation, hereby certifies that the Alexandra O. Bjorklund
Trust, with its address at 1124 Pioneer Building, 336 North Robert Street, St.
Paul, MN 55101, or its permitted assigns, is entitled to purchase from the
Company, at any time or from time to time commencing February 21, 2001, and
prior to 5:00 P.M., Eastern Standard Time, on February 20, 2006, a total of
Twenty Eight Thousand One Hundred Seventy Five (28,175) fully paid and
nonassessable shares of common stock, par value $.01 per share ("Common
Stock"), of the Company for an aggregate purchase price of Seventy Thousand
Four Hundred Thirty Eight Dollars ($70,438) (computed on the basis of $2.50
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 West
Country Partners (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 February 21, 2001, and prior to 5:00 P.M.,
Eastern Standard Time, on February 20, 2006, 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 21st day of February, 2001.
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____________________________
____________________________