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, 2002
[ ] 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 No X
----- -----
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 4,437,976
($.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, 2002 and December 31, 2001
Condensed Statements of Operations
for the quarters ended March 31, 2002
and 2001
Condensed Statement of Cash Flows
for the three months ended March 31,
2002 and 2001
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)
Certifications
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Condensed Balance Sheets March 31, December 31,
2002 2001
--------- ------------
(unaudited)
CURRENT ASSETS
Cash $ 3,291 $ 3,537
Accounts receivable, net of allowance for
doubtful accounts of $170,000
and factored receivables of $46,000 and
$33,500, respectively 128,151 442,803
Accounts Receivable, factored 8,165 6,700
Inventory, net of reserve of $10,662 6,198 4,079
Prepaid expenses and other current assets 80,098 128,438
------- -------
TOTAL CURRENT ASSETS 225,903 585,557
PROPERTY AND EQUIPMENT, net 53,238 61,602
DEPOSITS 82,145 82,145
------- -------
TOTAL ASSETS $361,286 $729,304
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt,
net of discount $829,083 $823,242
Notes payable to related parties 47,500 25,000
Accounts payable, trade 991,050 922,042
Accounts payable, related parties 46,186 41,915
Current portion of accrued interest payable
on long-term debt 258,494 235,388
Current portion of deferred gain on sale of
land and building 42,614 42,614
Accrued expenses 945,280 872,884
Deferred software maintenance revenue and
unearned revenue 448,996 677,028
--------- ---------
TOTAL CURRENT LIABILITIES 3,609,203 3,640,113
ACCRUED INTEREST PAYABLE on long-term debt,
net of current portion 81,885 57,735
DEFERRED GAIN on sale of land and building,
net of current portion 142,620 153,274
LONG TERM DEBT, net current portion and discount 1,358,513 1,344,163
--------- ---------
TOTAL LIABILITIES 5,192,221 5,195,285
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
4,437,976 shares at March 31, 2002 and
December 31, 2001 44,380 44,380
Additional paid-in Capital 8,673,496 8.673,496
Accumulated deficit (13,548,811) (13,183,857)
---------- ---------
TOTAL STOCKHOLDERS DEFICIT (4,830,935) (4,465,981)
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS DEFICIT $361,286 $729,304
======= =======
See accompanying "Notes to Financial Statements (Unaudited)"
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Operations
(Unaudited)
Three Months Ended
March 31
------------------
2002 2001
Net sales $407,364 $242,329
Cost of product 54,825 41,305
------- -------
352,539 201,024
Operating expenses:
Personnel costs 482,635 520,739
Rent, utilities and telephone 47,545 54,826
Travel and entertainment 18,080 28,634
Professional fees 19,682 48,429
Depreciation and Amortization 8,364 28,355
Research and Development 1,842 84,731
Other operating expenses 65,482 47,404
------- --------
Total operating expenses 643,630 813,118
------- ---------
Income (loss) from operations (291,091) (612,094)
Interest Income (expense), Net (73,863) (50,067)
Net Income (loss) (364,954) (662,161)
======= =======
Earnings (loss) per weighted
average common share $(.08) $(.16)
=== ===
Weighted average shares used
in computing earnings per
share 4,437,976 4,130,715
See accompanying "Notes to Financial Statements (unaudited)"
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31, 2002 March 31, 2001
-------------- --------------
Net (loss) $(364,954) $(662,161)
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 8,364 28,355
Amortization of discount on long-term debt 15,191 --
Changes in operating assets and liabilities:
Accounts receivable, trade 314,652 99,891
Accounts receivable, factored (1,465) (732)
Inventory (2,119) (1,203)
Prepaid expenses and other current assets 48,340 52,576
Deposits -- 4,190
Due to factor -- 42,849
Accounts payable, trade 69,008 54,782
Accounts payable,related parties 4,271 6,079
Accrued expenses 72,396 55,273
Accrued interest payable on long-term debt 47,256 22,648
Deferred software maintenance revenue and
unearned support revenue (228,032) (154,564)
------- -------
Net cash (used for) operating activities (27,746) (462,671)
------- -------
Investing Activities
Expenditures for property and equipment -- (2,904)
------ ------
Net cash (used for) investing activities -- (2,904)
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(continued on following page)
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31, 2002 March 31, 2001
-------------- --------------
Financing activities:
Proceeds from long-term debt-convertible
promissory notes 5,000 350,000
Proceeds from related party notes 47,500 70,000
Payment of related party notes (25,000) --
Issuance of capital stock -- 101,025
-------- -------
Net cash provided by financing
activities 27,500 521,025
------- -------
Net increase/(decrease) in cash (246) 55,450
Cash at beginning of period 3,537 1,507
------ -------
Cash at end of period 3,291 56,957
====== =======
Supplemental disclosures of cash
flows information:
Cash paid for interest: $14,236 $15,623
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, 2002, the results of
operations and cash flows for the three-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 months ended March 31, 2002 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.
Management believes that its 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 2002.
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 computing platform applications. Subsequent to the
current period, the Company received $245,000 through the issuance of long-term
convertible promissory notes to three investors with an interest rate of 7%,
secured a new $1,000,000 receivables financing credit facility and entered into
a Commercial Services Agreement with a vendor pursuant to which eight of the
Company's employees became employees of the vendor and were leased back to the
Company. Under the agreement, the vendor will bill the Company quarterly for
the employees who are working exclusively on projects for the Company and will
be repaid in common stock or cash, at management's discretion. The Company also
received $260,000 through the issuance of senior long-term convertible
promissory notes to this vendor with an interest rate of 7% and renegotiated
the Commercial Services Agreement extending its term to July 31, 2003 while
changing repayment options for services provided before October 1, 2002 to cash
or Company stock at the vendor's option and to a senior convertible note for
services provided on or after October 1, 2002, and is presently negotiating to
extend all the Company's existing convertible promissory notes due in 2002 and
2003 to September 30, 2005. The renegotiated Commercial Services Agreement
calls for extending 95% of all existing notes maturing in 2002 and 2003. The
Board members are willing to seek additional funding, as needed. 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, when needed or on commercially
acceptable terms, or that the Company's marketing efforts will be successful.
Note (3) Mortgage and Subsequent Sale and Lease Back of Corporate Training,
Development and Headquarters Facility
On August 6, 1999 the Company sold it headquarters 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 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.
Note (4) Loss Per Common Share
In 2002 and 2001, 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.
Note (5) Stock-based compensation
The Company measures compensation expense relative to employee stock-based
compensation plans using the intrinsic value-based method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". However, the Company will disclose, on an annual basis,
the pro forma amounts of net income and earnings per share as though the fair
value-based method of accounting prescribed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", had
been applied. See the Stockholders' Equity Note for these disclosures in the
Company's annual financial statements included in Form 10-KSB.
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, FireServer, and
CADServer. The Company also offers several companion products including
Imaging, Mobile Access and Advanced Reporting 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, 2002(the 2002
period) increased 68.1% to $407,364 from $242,329 for the 3 month period ended
March 31, 2001 (the 2001 period). Although the Company generally experiences a
slower first quarter due to the reduced availability of municipal funds in the
Northeast where the fiscal year begins on July 1 and the Company does the
largest amount of its business, revenues in the first quarter of 2002 were
bolstered by new system sales in New York and Minnesota and migrations to the
Windows product suite by the VMS customer base. In addition, customer support
revenues increased as a result of the larger customer base and the higher rates
charged for support on the Windows suite of products. However, the economic
downturn that the Company began to feel in the second half of 2000 has
continued throughout 2001 and 2002. Management believes that public safety
agencies will continue to have difficulty securing municipal funds to replace
aging and/or inadequate technology infrastructure and application software
until economic conditions stabilize and improve.
As a result of the current economic and market conditions, the Company
refocused early in 2002 and made changes subsequent to the end of the 2002
period to address these issues. The initial release of the Windows-based
product late in 1999 failed to generate strong market acceptance due to a lack
of robustness and functionality. The Company has focused a great deal of its
resources on product enhancements and improvements since the initial release in
1999, and in 2002 the product suite finally realized its original promise,
gaining acceptance from the Company's legacy customers as well as new
customers. Recent 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 (NFIRS 5.0) capabilities.
The Company has also developed utilities to convert customer data files from
older systems, which will ease the transition for agencies. This newly
competitive product line has allowed the Company to accelerate the rate of
legacy product migrations which increased revenues and improved Pamet's
reputation in the user community.
While the suite of products will continue to be enhanced and maintained, the
resources required to do so are substantially less than those needed to create
the product initially. In keeping with the general shift from product creation
to product enhancement and sales and marketing, the Company's Board of
Directors decided early in 2002 to bring in a new CEO experienced in growing
small technology companies. The new CEO came on board during the second
quarter of 2002 and has initially focused on reducing expenses and increasing
revenues, while realigning resources to support a more aggressive sales and
marketing program. During 2002, the new CEO worked to stabilize the Company's
financial picture and is currently negotiating to extend and restructure the
long-term debt while improving cash flow with a new $1,000,000 receivables
financing credit facility. Also in the second quarter of 2002, the company
entered into a commercial services contract with a vendor under which eight of
the Company's employees became employees of the vendor and are leased back to
the Company. This vendor will invoice the Company quarterly for the cost of the
employees who are working on projects exclusively for the Company. The amounts
due to the vendor under the contract will be settled in Pamet Systems common
stock or cash, at the vendor's option, for serviced provided prior to October
1, 2002 and by a senior convertible note for services provided from October 1,
2002 to July 31, 2003. Terms of the renegotiated commercial services contract
call for extension of 95% of the Company's existing convertible promissory
notes that mature in 2002 and 2003. In addition to the value of the commercial
services contract which has been renegotiated and extended through July 31,
2003, the Company received an additional $260,000 from the vendor in return for
a senior, long-term convertible promissory note of like principal amount.
At the beginning of the third quarter of 2002, the Company reorganized its
Sales Department to more effectively pursue and close business in states where
it has existing reference accounts. In those states it is putting particular
emphasis on its competitive strengths including joint police/fire dispatch,
multi-position dispatch, and comprehensive reporting. The Company has also
broadened the focus of its sales and marketing efforts to reach new market
segments. Pamet Systems is actively marketing to larger, more technologically
demanding agencies, as well as packaging and aggressively pricing the product
to meet the needs of smaller agencies. Management believes a significant
market opportunity exists for its suite of products as these efforts have
resulted in a growing pipeline of active prospects which includes prospective
customers who have seen a product demonstration, have expressed interest in the
product, and expect to have funding available. No assurance, however, can be
given that such prospective customers will actually purchase the products.
Management believes the Company's product development effort during the past
five years positions the Company to expand its business as more and more
prospective customers retire legacy systems (e.g., ones built on MS-DOS, IBM
AS/400, DEC VAX/Alpha, etc.). Management also believes that it is possible
that grant programs will be announced as Homeland Security funding expands to
encompass the technology needs of first responders. In addition, the
continuing growth in the number of E911 centers, heightened emphasis on crime
prevention in most communities and the awareness by municipalities that
computer systems can improve the efficiency and effectiveness of their public
safety resources support management's 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.
Nevertheless, there can be no assurance that the Company will benefit from or
be able to take advantage of these benefits.
Despite additional funding, the commercial services contract, and cost cutting
measures, the Company is continuing to face a shortage of working capital.
There are no assurances that the Company will be successful in its future
fundraising program, in light of, among other things, the state of the
financial markets and the Company's historical financial performance. 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.
Three Months Ended March 31, 2002 vs. Three Months Ended March 31, 2001
Net sales in the 2002 period increased 68.1% or $165,035 to $407,364 from
$242,329 for the 2001 period. The revenues for the 2001 period were comprised
almost entirely of software support revenues as compared to 2002 sales which
included one new PoliceServer system, one Advanced Reporting system, add-on
mobile units and the revenues from several customer migrations in addition to
support revenues. Support revenues increased 18.6% to
$273,707 for the 2002 period from $230,693 for the 2001 period reflecting the
increase in the customer base from the 2001 period and the increased rates
billed for Windows support. The contribution from support should continue to
increase in future periods as new customers, as well as those existing
customers that migrate to the Windows product, will be charged higher support
fees. Current customers who migrate to the Windows product previously paid 14%
of the original VMS purchase price, but will now typically pay 19% of the
current list price for the new Windows products at the time of conversion.
Cost of product increased 32.7% or $13,520 to $54,825 for the 2002 period from
$41,305 for the 2001 period. The resulting increase in gross margin from 83.0%
in the 2001 period to 86.5% in the 2002 period can be attributed to the
consistently high margins delivered by support revenues being bolstered by
software only system sales and customer migration revenues.
Operating expenses decreased $169,488 or 20.8% to $643,630 for the 2002 period
from $813,118 for the 2001 period primarily due to decreases in personnel
spending, external research and development costs and professional fees.
Personnel costs decreased 7.3% to $482,635 for the 2002 period from $520,739
for the 2001 period. The decrease in personnel spending is due to attrition,
retirement and the elimination of all bonus accruals except those specified in
employment contracts or Board resolutions. Rent, utilities and telephone
decreased 13.3% to $47,545 for the 2002 period from $54,826 for the 2001 period
due primarily to decreases in rent expense due to the move of the Florida
office to smaller quarters. Travel and entertainment expenses decreased
$10,554 or 36.9% to $18,090 for the 2002 period from $28,634 for the 2001
period reflecting reductions in all areas. Due to cash constraints, non-
essential travel has been restricted. The 2001 period also included
considerable travel associated with the CopsMore 2001 grant seminars.
Professional fees decreased 59.4% to $19,682 for the 2002 period from $48,429
for the 2001 period due to a reduction in legal fees resulting from a decreased
usage of services associated with the ongoing private placement of debt, equity
financing and possible joint ventures. Depreciation and amortization expense
decreased $19,991 to $8,364 for the 2002 period from $28,355 for the 2001
period. Capitalized software development costs that were completely amortized
in 2001 comprise $16,305 of the decrease.
External research and development costs during the 2002 period decreased
$82,889 or 97.8% to $1,842 from $84,731 in the 2001 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 39.6% to $166,643 in the 2002 period from $275,691
for the 2001 period. Due to cash constraints during the final stages of the
development cycle of the Windows products, the Company has been 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
Windows-based system, and advanced product capabilities.
Other operating expenses increased 38.1% to $65,482 for the 2002 period from
$47,404 for the 2001 period. The 2001 expenses included a reversal of a
portion of the reserve for doubtful accounts as a result of receiving payment
for some old invoices. No corresponding adjustment was made in 2002.
Net interest expense for the 2002 period increased to $73,863 from $50,067 in
the 2001 period. This increase can be attributed to increased convertible debt
outstanding which accrues interest at 11% or 7% and the amortization of
disounts on convertible debt with detachable warrants.
The net loss for the 2002 period was $(364,954) or $(.08) per share compared to
net loss of $(662,161) or $(.16) per share for the 2001 period based on
weighted average shares outstanding for the period. The decrease in the loss
for the 2002 period can be attributed to the increased revenues and decreased
expenses.
Liquidity and Capital Resources
The Company had a working capital deficit of $(3,383,300) at March 31, 2002
compared to $(3,054,556) at December 31, 2001. The most significant reason for
this deterioration is the impact on receivables from lower sales in the first
quarter of 2002 compared to the last quarter of 2001.
During the 2002 period, the Company received $5,000 from a director in new
long-term convertible debt financing. At March 31, 2002, $2,239,149 of
convertible promissory notes and $340,379 of related accrued interest remained
outstanding as liabilities. The long-term debt is reported net of discounts of
$51,554 associated with notes issued with detachable warrants. In general,
$835,000 of the outstanding current convertible debt at the end of the 2002
period accrues interest at 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 $2.19 to $2.50 per common 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 $2.19 to $2.50 per share. The remaining $1,404,149 of long
term convertible debt at the end of the 2002 period accrues interest at 7%; has
a two year term; carries the option of the conversion of the principal to
common stock by the debt holder at conversion prices ranging from $.20 to
$.6825 per share, or the repayment of the 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 $1.50 per share.
Since the Company was unable to repay the outstanding convertible debt
principal and accrued interest due upon expiration of notes in 2002 and the
availability of funds to repay the notes due in 2003 could not be reasonably
assured, Management is currently in negotiations to extend the terms of all
convertible debt due in 2002 and 2003 to September 30, 2005. The $245,000 of
convertible debt funding received subsequent to March 31, 2002 and
approximately $201,000 in vendor payables converted to a long-term convertible
note carry terms consistent with the prior round of funding accruing interest
at 7%; having a two year term; carrying the option of the conversion of the
principal to common stock by the debt holder at conversion price of $.20 per
share, or the repayment of the principal and accrued interest by the Company;
and having 100% warrant coverage attached that allows for the purchase of
additional shares of common stock at $1.00 per share.
Cash was $3,291 at March 31, 2002 and $3,537 at December 31, 2001. Accounts
receivable decreased to $128,151 at March 31, 2002 from $442,803 at December
31, 2001 due to the decrease in sales during the first quarter of 2002 compared
with the last quarter of 2001. Pamet Systems hired a new President and CEO in
April of 2002 and his primary focus has been to alleviate the urgent cash flow
situation which continued subsequent to the end of the 2002 period. In
addition to beginning the negotiations to extend the current convertible notes
as discussed above, the Company negotiated a Commercial Services contract with
a vendor in April, 2002 under which eight of the Company's employees became
employees of the vendor and are leased back to the Company. This vendor
invoices Pamet Systems quarterly for the cost of the employees who are working
on projects exclusively for the Company. In the original contract the value of
services provided under the Commercial Service Contract will be repaid, at the
Company's discretion, in cash or common stock. Subsequently, the same vendor
has made an additional commitment of up to $1,000,000-$260,000 in cash and up
to $740,000 under the extended Commercial Services contract from 10/1/02
through 7/31/03. Under the terms of the extended contract, services under the
contract for Q1 and Q2, 2002 will be paid, at the vendor's discretion, in cash
or Company common stock at a conversion rate of $0.115/share. For services
provided under the contract from October 1, 2002 to July 31, 2003 the Company
will repay the vendor via senior convertible promissory notes. The vendor will
receive senior convertible notes maturing September 30, 2005 with an interest
rate of 7%, a conversion price of $.115 per share, 20% warrant coverage, and a
warrant exercise price of $.45 per share for this investment. Under the terms
of the extended Commercial Services contract, the Company agrees to extend 95%
of the Company's existing convertible promissory notes that expire in 2002 and
2003 to September 30, 2005. Thirdly, the Company signed a new $1,000,000
receivables financing agreement during the second quarter of 2002. Finally,
the Company reduced headcount in the 2002 period by approximately 20% through
layoffs. The Company continued to reduce personnel subsequent to the end of
the 2002 period and realign remaining employees to focus on sales, product
extensions and enhancements, and legacy customer migrations. Despite these new
sources of funding, the continued sluggish economy has perpetuated slow sales
in the public safety sector and the Company continues to tightly control
expenses and seek additional funding. 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. There can be no assurance
about the Company's ability to repay the its indebtedness or other obligations
as they become due. If the Company's financial difficulties continue it could
have a material adverse effect on the Company, its creditors and its
stockholders.
As of March 31, 2002, the Company had accumulated approximately $13,000,000 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 $9,300,000 which expire between the years 2002 and 2006. 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: having backlog sales and funding to support
operations through 2002; enhancement and maintenance of the Company's products;
competition and consolidation in the public safety marketplace; market
expectation for the Windows operating environment and customer acceptance of
the Company's Windows products; ability of the Windows product to meet market
needs; market outlook and opportunities; growth potential in the year 2002 and
beyond; law enforcement trends; availability of Homeland Security and other
grant funding for customers; adequacy of funding and corporate infrastructure
to support operations and anticipated growth; increased contribution from
support fees; 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 obtain extensions of the Company's long term debt; inability to
successfully market and sell the Windows 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-QSB 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
None
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
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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)
March 3,2003 (s) Kirke S. Curtis
_______________________________ ______________________
Date Kirke S. Curtis
President
Chief Executive Officer
CERTIFICATIONS
I, Kirke S. Curtis, as President and CEO of Pamet Systems, Inc. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pamet Systems, Inc.
(the "Company") for the fiscal quarter ended March 31, 2002 (this "Report");
2. Based on my knowledge, this Report does not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Report, fairly present in all material respects
the financial condition and results of operations and cash flows of the Company
as of, and for, the periods presented in this Report;
March 3, 2003
(s) Kirke S. Curtis
______________________
Kirke S. Curtis
Chief Executive Officer
Pamet Systems, Inc
1000 Main Street
Acton, MA 01720
978-263-2060
CERTIFICATIONS
I, Kirke S. Curtis, as Principal Financial Officer of Pamet Systems, Inc.
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pamet Systems, Inc.
(the "Company") for the fiscal quarter ended March 31, 2002 (this "Report");
2. Based on my knowledge, this Report does not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Report, fairly present in all material respects
the financial condition and results of operations and cash flows of the Company
as of, and for, the periods presented in this Report;
March 3, 2003
(s) Kirke S. Curtis
______________________
Kirke S. Curtis
Principal Financial Officer
Pamet Systems, Inc
1000 Main Street
Acton, MA 01720
978-263-2060
Exhibit 99.1 Certification of Chief Executive Officer
PAMET SYSTEMS, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Pamet Systems, Inc. (the "Company")
on Form 10-QSB for the period ended March 31, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
- the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
- the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
March 3, 2003
(s) Kirke S. Curtis
______________________
Kirke S. Curtis
Chief Executive Officer
Exhibit 99.2 Certification of Principal Financial Officer
PAMET SYSTEMS, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Pamet Systems, Inc. (the "Company")
on Form 10-QSB for the period ended March 31, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
- the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
- the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
March 3, 2003
(s) Kirke S. Curtis
______________________
Kirke S. Curtis
Principal Financial Officer