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, 1997
[ ] 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 (508) 263-2060
--------------
Check whether the issurer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the close of the period covered by this report:
Title of each class Number of shares outstanding
------------------- ----------------------------
Common stock 2,102,250
($.01 par value)
Transitional Small Business Disclosure Format
YES NO X
------ ------
PAMET SYSTEMS, INC.
INDEX TO FORM 10-QSB
PAGE
Part I - Financial Information
Item 1 - Financial Statements
Condensed Balance Sheets 1
March 31, 1997 and December 31, 1996
Condensed Statements of Operations 2
for the quarter ended March 31, 1997
and 1996.
Condensed Statement of Cash Flows 3-4
for the three months ended March 31,
1997 and 1996
Item 2 - Management's Discussion and Analysis of 6-8
Financial Condition or Plan of Operations
Part II - Other Information
Item 1 - Legal Proceedings 8
Item 2 - Changes in Securities 8
Item 3 - Defaults Upon Senior Securities 8
Item 4 - Submission of Matters to a Vote of 8
Security Holders
Item 5 - Other Information 8
Item 6 - Exhibits and Reports on Form 8-K 8
Signature(s) 9
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Condensed Balance Sheets
March 31, December 31,
1997 1996
--------- ------------
CURRENT ASSETS (unaudited)
Cash $ 27,808 $ 55,353
Accounts receivable, net of allowance for
doubtful accounts of $20,000 606,628 602,672
Inventory 49,468 85,915
Prepaid expenses and other current assets 21,975 20,252
TOTAL CURRENT ASSETS $705,879 764,192
PROPERTY AND EQUIPMENT, net 914,623 918,442
RESTRICTED CASH 27,320 27,146
TOTAL ASSETS $1,647,822 $1,709,780
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 257,820 $ 314,729
Accrued expenses 101,362 107,134
Notes payable-related party 258,099 173,099
Deferred software maintenance revenue 138,863 231,918
Current portion of long-term debt 14,838 15,605
TOTAL CURRENT LIABILITIES $770,982 842,485
LONG TERM DEBT, less current portion 492,042 494,725
UNEARNED SUPPORT REVENUE 54,123 54,123
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued
Common Stock, $.01 par value, 7,500,000 shares
authorized; 2,102,250 issued and outstanding 21,023 21,023
Additional paid-in Capital 4,107,605 4,107,605
Accumulated deficit (3,797,953) (3,810,181)
TOTAL STOCKHOLDERS EQUITY 330,675 318,447
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $1,647,822 $1,709,780
========== ==========
See accompanying "Notes to Financial Statements (Unaudited)"
1
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Operations
(Unaudited)
Three Months Ended
March 31,
1997 1996
--------- ---------
Net sales $ 607,506 $ 238,204
Cost of product 258,216 73,791
--------- ---------
Gross Margin 349,290 164,413
Operating expenses:
Personnel costs 206,815 170,840
Rent, utilities and telephone 19,468 15,234
Travel and entertainment 18,803 10,069
Professional fees 19,014 9,990
Depreciation 13,328 12,447
Other operating expenses 41,592 31,966
--------- ---------
Total operating expenses 319,020 250,546
--------- ---------
Income (loss) from operation 30,270 (86,133)
Interest income (expense) Net (18,042) (15,147)
Net income (loss) 12,228 (101,280)
========= =========
Net income (loss) per share $.01 $(.05)
=== ===
Shares Outstanding 2,373,745 2,043,250
========= =========
See accompanying "Notes to Financial Statements (Unaudited)"
2
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
Cash flows provided by (used in)
operating activities:
Net income/(loss) 12,228 $(101,280)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 13,328 12,447
Change in assets and liabilities:
(Increase) Decrease in accounts receivable (3,956) 111,884
(Increase) Decrease in inventory 36,447 (1,540)
(Increase) in prepaids and other
current assets (1,723) (789)
(Increase) in other assets (174) (171)
(Decrease) in accounts payable (56,909) (43,180)
(Decrease) in deferred software
maintenance revenue (93,055) (77,527)
Increase (Decrease) in accrued expenses (5,772) 27,057
--------- ---------
Total adjustments (111,814) 28,181
Net cash provided by (used
in) operating activities (99,586) (73,099)
Cash flows from investing
activities:
Expenditures for property and equipment (9,509) 0
Sale of computer Equipment 0 0
--------- ---------
Net cash used in investing activities (9,509) 0
(continued on following page)
3
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
Cash flows from financing activities:
Payment of mortgage (3,450) (2,879)
Net Change Note payable
related party 85,000 43,000
Issuance of Capital Stock 0 17,000
--------- ---------
Net cash provided by
financing activities 81,550 57,121
Net increase (decrease) in cash (27,545) (15,978)
Cash and cash equivalents at
beginning of period 55,353 28,264
Cash and cash equivalents at
end of period $27,808 $12,286
========= =========
Supplemental disclosure of cash
flow information:
Cash paid for interest: $13,391 $15,740
See accompanying "Notes to Financial Statements (Unaudited)"
4
PAMET SYSTEMS, INC.
Notes to Condensed Financial Statements
(Unaudited)
Note (1) Statement Presentation
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of
March 31, 1997 and the results of operations for the three month periods
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 month periods ended March 31, 1996
are not necessarily indicative of the results of operations which may be
expected for the entire year.
Note (2) Mortgage on Corporate Training, Development and Headquarters
Facility
On April 21, 1992 the Registrant consummated an agreement with the
Lexington Savings Bank of Lexington, MA. to mortgage the Registrant's
development, training and headquarters facility, located at 1000 Main
Street, Acton, Massachusetts. The original principal amount of the
mortgage was $560,000. On September 21, 1996 the note was extended for a
one year term with monthly payments determined according to a twenty-year
amortization period of $5,499, including interest at 10.25%, is payable
monthly. The remaining balance at March 31, 1997 was $506,880. The bank
has required an interest bearing compensating balance account. On March
31, 1996 this account equaled $27,320.
5
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Overview
The Registrant's net sales consist primarily of sales of software and
turnkey computer systems, and support and update service fees. Revenues
increased 155% to $607,506 for the three month period ended March 31, 1997
(the 1997 period) from $238,204 for the three month period ended March 31,
1996 (the 1996 period). Management believes that the increase in revenues is
due to the increased demand for all of the Registrant's products. Some of
these sales were funded by grants released pursuant to the COPS MORE 95
portion of the "Violent Crime Control and Law Enforcement Act of 1994" (the
1994 Crime Bill). In the third quarter of fiscal 1996 the Registrant
conducted twelve sessions of its grant preparation seminars that assisted
police agencies in preparing grant proposals. The second round of grant
proposals related to the 1994 crime bill, COPS MORE 96, were submitted in
the October 1996. The Department of Justice has informed some of the
Registrant's prospective customers that awards associated with this round of
grants will begin to be announced in June 1997. This round of awards
combined with the 25% local matching funds could infuse up to $266 million
into the Registrant's market. The Registrant's level of sales will continue
to be reflective upon the awards granted under the 1994 Crime Bill. There
can be no assurance as to when, however, if at all, these awards will result
in sales to the Registrant.
Three Months Ended March 31, 1997 vs.
Three Months Ended March 31, 1996
Net sales increased $369,302 or 155% to $607,506 for the 1997 period
from $238,204 for the 1996 period. The increase in total revenues is due to
an increase in sales of all of the Registrant's products including the new
MobileServer. During the 1997 period there were two new police system sales,
one fire system, three imaging systems and two mobile systems compared to
three imaging systems during the 1996 period. Software support revenues
increased 12.9% to $100,070 for the 1997 period from $88,640 for the 1996
period reflecting the increase in the customer base from the 1996 period.
Cost of product increased 250% or $184,425 to $258,216 for the 1997 period
from $73,791 for the 1996 period reflecting the higher sales volume. Gross
margin decreased to 57.5% for the 1997 period from 69.0% for the 1996
period. The reduction in margin is due to the increase in sales of the lower
margin MDT systems and system upgrades delivered in the 1997 period as
compared to the 1996 period.
Operating expenses increased $68,474 or 27.3% to $319,020 for the 1997
period compared to $250,546 for the 1996 period. Personnel costs increased
21.1% to 206,815 for the 1997 period compared to $170,840 for the 1996
period. The increase is due to the addition of resources necessary to
6
execute the increase level of business. Resources were added in the support
and training area as well as marketing. Rent, utilities and telephone
increased 27.8% to $19,468 for the 1997 period from $15,234 for the 1996
period due primarily to the increased phone expense associated with remote
sales and installations. Travel and entertainment expenses increased 86.7%
to $18,803 for the 1997 period from $10,069 for the 1996 period. This
increase reflects the increase in travel associated with a major project in
the southeast. Professional fees increased 90.3% to $19,014 for the 1997
period from $9,990 for the 1996 period, primarily due to the increased use
of legal services associated with the working capital loan and the private
placement. Depreciation expense increased 7.1% to $13,328 for the 1997
period from $12,447 for the 1996 period due to the upgrading of some of the
Registrant's computer systems. Other operating expenses increased 30.1% to
$41,592 for the 1997 period from $31,966 for the 1996 period primarily due
increased postage, training costs associated with increased sales and the
costs associated with the purchase of office software and other minor
hardware purchases associated with the Registrant's demonstration systems
and office systems.
Net interest expense for the 1997 period was $18,042 compared to
$15,147 for the 1996 period. This reflects the increased interest associated
with the working capital loan and is partially offset by the decrease in
interest rate on the mortgage.
The net profit for the 1997 period was $12,228 or $.01 per share
compared to loss of $(101,280) or $(.05) per share for the 1996 period. The
profit is due to this increase in sales.
Liquidity and Capital Resources
The Registrant's working capital improved to a deficit of $65,103 at
March 31, 1997 from a deficit of $78,293 at December 31, 1996 due to the
profit during the quarter. Cash decreased to $27,808 at March 31, 1997 from
$55,353 at December 31, 1996. Accounts receivable increased slightly to
$606,628 at March 31, 1997 from $602,672 at December 31, 1996. The
Registrant is experiencing an accounts receivable level that averages 60
days sales outstanding.
The Registrant's backlog was approximately $450,000 at March 31,
1997. The Registrant has increased its operational infrastructure to enable
it to execute the increase in volume. Future product growth is expected to
be balanced between all four of the Registrant's primary products which
make up a integrated suite of public safety applications. Subsequent to the
1997 period the Registrant began to be notified by potential customers who
had participated in the Registrant's grant writing seminars that the
Department of Justice had informed them that awards associated with COPS
MORE 96 would begin to be announced in June 1997. Many of these prospective
customers will still have to proceed with a competitive bidding process as
required by their respective state laws', consequently there can be no
assurance as to when, if at all, these awards will result in sales to the
Registrant. The Registrant is continuing to consider projects to increase
its cash position through business combinations, as well as capital raising
7
alternatives. The Registrant continues to receive short term working
capital commitments from Directors and Officers to support operations, if
needed. Subsequent to the end of the 1997 period the Registrant completed a
private placement of 200,000 shares of common stock with a major
stockholder. This infusion of $550,000 has significantly improved the
Registrant's working capital position. The Registrant believes its existing
backlog and working capital combined with its current loan commitments from
directors and shareholders and current sales activities will be sufficient
to ensure the continued operations through the year.
As of March 31,1997, the Registrant had accumulated approximately
$3,700,000 and $1,900,000 in net operating loss carryforwards for federal
and state income tax purposes respectively. The loss carryforwards expire
in the year 2009. Under the Internal Revenue Code of 1986, as amended, the
rate at which a corporation may utilize its net operating losses to offset
its income for federal tax purposes is subject to specified limitations
during periods after the corporation has undergone an "ownership change".
It has been determined that an ownership change did take place at the time
of the Registrant's initial public offering. However, the limitations on
the loss carryforward exceed the accumulated loss at the time of the
"ownership change". Thus there is no restriction on its use.
Inflation
Inflation has not had a significant impact on the Registrant's
operations to date.
Forward Looking Statements
This Management's Discussion and Analysis of Financial condition and
Results of Operations may include forward-looking statements that may or
may not materialize. Additional information of factors that could
potentially affect the Company's financial results may be found in the
Company's filings with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
Not applicable.
Item 3 - Defaults Upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a note of Security Holders
None
Item 5 - Other Information
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits - none
b. Reports on form 8-K - none
8
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, 1997 Richard C. Becker
_______________________________ ______________________
Date Richard C. Becker
Vice President
Principal Financial Officer