U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-QSB
Mark one
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition period from _________to _________
Commission File No. 1-10623
Pamet Systems, Inc.
____________________________________________________________________
(exact name of small business issuer as specified in its charter)
Massachusetts 04-2985838
____________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Main Street, Acton, Massachusetts 01720
____________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (978) 263-2060
--------------
Check whether the issurer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the close of the period covered by this report:
Title of each class Number of share outstanding
------------------- ---------------------------
Common stock 2,536,250
($.01 par value)
Transitional Small Business Disclosure Format
YES NO X
------ ------
PAMET SYSTEMS, INC.
FORM 10-QSB TABLE OF CONTENTS
Part I - Financial Information
Item 1 - Financial Statements
Condensed Balance Sheets
June 30, 1998 and December 31, 1997
Condensed Statements of Operations
for the quarter ended June 30, 1998
and 1997 and six month period ended
June 30, 1998 and 1997
Condensed Statement of Cash Flows
for the six months ended June 30,
1998 and 1997
Item 2 - Management's Discussion and Analysis of
Financial Condition or Plan of Operations
Part II - Other Information
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 3 - Defaults Upon Senior Securities
Item 4 - Submission of Matters to a Vote of
Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
Signature(s)
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Condensed Balance Sheets June 30, December 31,
1998 1997
--------- ------------
CURRENT ASSETS (unaudited)
Cash $104,414 $ 40,522
Accounts receivable, net of allowance for
doubtful accounts of $60,000 573,847 661,260
Inventory 56,453 89,811
Prepaid expenses and other current assets 135,963 39,594
Receivables from Silicon Bank 87,485 --
TOTAL CURRENT ASSETS 958,162 831,187
PROPERTY AND EQUIPMENT, net 938,116 945,970
OTHER ASSETS 4,190 --
RESTRICTED CASH 28,217 27,860
TOTAL ASSETS $1,928,685 $1,805,017
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 933,284 $ 627,227
Accrued expenses 214,087 144,178
Loan payable-American Express 25,000 --
Notes payable-related party 500,000 192,439
Deferred software maintenance revenue 72,960 279,823
Current portion of long-term debt 20,484 17,642
TOTAL CURRENT LIABILITIES 1,765,815 1,261,309
LONG TERM DEBT, less current portion 467,569 478,317
UNEARNED SUPPORT REVENUE 28,962 28,962
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; 2,536,250 issued and outstanding 25,363 24,103
Additional paid-in Capital 5,306,831 4,776,821
Accumulated deficit (5,665,855) (4,764,495)
TOTAL STOCKHOLDERS EQUITY (333,661) 36,429
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $1,928,685 $1,805,017
========== ==========
See accompanying "Notes to Financial Statements (Unaudited)"
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
Net sales $897,304 $432,105 $1,501,467 $1,039,611
Cost of product 423,269 249,937 717,400 508,154
-------- -------- --------- ---------
474,035 182,168 784,067 531,457
Operating expenses:
Personnel costs 385,264 220,979 721,673 427,794
Rent, utilities & telephone 35,597 16,143 64,314 35,611
Travel and entertainment 48,134 33,838 101,628 52,640
Professional fees 77,669 46,843 140,239 65,857
Depreciation 19,191 14,237 37,233 27,567
Research and development 196,679 -- 375,817 --
Other operating expenses 135,588 63,757 184,662 105,349
-------- -------- -------- --------
Total operating expenses 898,122 395,798 1,625,566 714,818
-------- -------- --------- --------
Income (loss) from operations (424,087) (213,630) (841,499) (183,361)
Interest income (expense), net (36,213) (17,544) (59,862) (35,585)
Gain on insurance settlement -- 40,000 -- 40,000
Net income (loss) $(460,300) $(191,174) $(901,361) $(178,946)
======== ======== ========= ========
Earnings (loss) per common share $(.18) $(.08) $(.36) $(.08)
===== ===== ===== =====
Shares used in computing 2,536,250 2,320,050 2,536,250 2,320,050
earnings per share
See accompanying "Notes to Financial Statements (unaudited)"
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30, 1998 June 30, 1997
-------------- --------------
Cash flows provided by (used in)
operating activities:
Net income/(loss) $ (901,361) $ (178,946)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 37,233 27,567
Gain on insurance settlement -- (40,000)
Change in assets and liabilities:
(Increase) Decrease in accounts receivable 87,413 (168,328)
Decrease in inventory 33,358 19,884
(Increase) Decrease in prepaids and
other current assets (96,369) 849
(Increase in receivable from Silicon Bank (87,485) --
(Increase) in other assets and restricted
cash (4,547) (352)
Increase in accounts payable 306,057 54,078
(Decrease) in deferred software
maintenance revenue (206,863) (145,060)
Increase in accrued expenses
and other current liabilities 69,909 6,160
--------- ---------
Total adjustments 138,706 (245,202)
Net cash provided by (used
in) operating activities (762,655) (424,148)
Cash flows from investing
activities:
Expenditures for software development -- --
Expenditures for property and equipment (29.378) (33,444)
Proceeds from insurance settlement
for property and equipment -- --
--------- ---------
Net cash used in investing activities ( 29,378) (33,444)
(continued on following page)
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30, 1998 June 30, 1997
-------------- --------------
Cash flows from financing activities:
Payment of mortgage ( 7,906) (6,989)
Net change note payable
related party 307,561 100,660
Issuance of capital stock 531,270 555,856
Net change loan payable American Express 25,000 --
--------- --------
Net cash provided by
financing activities 855,925 448,207
Net increase (decrease) in cash 63,892 ( 9,385)
Cash and cash equivalents at 40,522 55,353
beginning of period
Cash and cash equivalents at
end of period $ 104,414 $ 45,968
$27,808
======= ======
Supplemental disclosure of cash
flow information:
Cash paid for interest: $31,965 $40,695
Supplemental disclosure of non-cash
operating activities:
Inventory lost on insurance settlement -- $17,500
Net book value of fixed assets lost on
insurance settlement -- $26,465
See accompanying "Notes to Financial Statements (Unaudited)"
PAMET SYSTEMS, INC.
Notes to Condensed Financial Statements
(Unaudited)
Note (1) Statement Presentation
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of
June 30, 1998 and the results of operations for the three and six 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 and six month periods ended
June 30, 1998 are not necessarily indicative of the results of operations
which may be expected for the entire year.
Note (2) Mortgage on Corporate Training, Development and Headquarters
Facility
On April 21, 1992 the Company consummated an agreement with the
Lexington Savings Bank of Lexington, MA. to mortgage the Company's
development, training and headquarters facility, located at 1000 Main
Street, Acton, Massachusetts. The original principal amount of the
mortgage was $560,000. In October 1997 the note was extended for a one
year term through October 21, 1998 with monthly payments $5,423.00
determined according to a twenty-year amortization period including
interest at 10.0%. The remaining balance at June 30, 1998 was $488,053.
The bank has required an interest bearing compensating balance account.
On June 30, 1998 this account equaled $28,217.
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Overview
Pamet Systems, Inc. (the Company or Pamet Systems), founded in
1987, designs and implements broad-based information technology
solutions for public safety agencies enabling them to realize cost
efficiencies and provide better service. The Company's suite of products
is composed of four major components: PoliceServer, FireServer,
MobileServer, and ImageServer. The Company's revenues consist primarily
of sales of these software applications, the associated hardware and
systems integration, and support and update service fees.
Management believes that revenues for the second quarter of 1998 (the
1998 period) more than doubled from the 1997 levels as a result of
customers' spending funds from grant awards under the "COPS MORE 96"
portion of the "Violent Crime Control and Law Enforcement Act of 1994"
(the 1994 Crime Bill). The grant applications for "COPS MORE 96" were
submitted in October 1996 and the Company has seen many prospects and
customers receive grant awards and proceed through the procurement process
during 1997 and the first half 1998. Also during the 1998 period, the
Company has seen the continuation of a market shift to the MobileServer
product. As a result of this market shift to mobile products, the Company
joined forces with Cerulean Technology, Inc. in November 1997 to offer
Cerulean PacketCluster PatrolTM wireless client/server software under a
three-year private branding agreement as its exclusive mobile information
solution. Since a significant portion of the MobileServer sales in the
1998 period were the result of the "COPS MORE 96" federal grant awards, the
pricing on these sales reflected previous commitments made to customers
during the grant application process nearly two years prior to shipment and
before the Cerulean agreement. Although the Company was successful in
renegotiating a significant number of these sales, the earlier pricing
commitments and the high hardware component of MobileServer sales continue
to adversely affect product margins.
Market expectations for a complete Microsoft operating environment
using Microsoft NT Server and a Windows 95 or NT Desktop graphical user
interface have grown substantially during 1997 and 1998, especially in
the Southeast market. The Company has completed substantial levels of
development on the next generation of PoliceServer and Fireserver
operating on a Microsoft NT platform. The on-time delivery of Phase one
of PoliceServer 2 to test in June allowed a major Massachusetts police
department to select the Company's NT version of PoliceServer as its'
software, and delivery and installation of a Beta version is scheduled for
August 1998. As the modules of the Company's records management system
(RMS) and computer aided dispatch (CAD) operating in the Microsoft NT
environment are released, the Company expects that the product mix may
shift back to the higher margin PoliceServer and FireServer products.
During the 1998 period, the Company incurred $197,000 of Research and
Development expenditures, most of which related to the new NT product.
During 1998 the Company also focused efforts on resolving outstanding
customer support issues and providing enhancements to its current suite
of products. A new release of ImageServer was distributed to customers,
while the final releases of the current PoliceServer and FireServer
products entered testing before their release to customers in the third
quarter of 1998. In addition, Querystation enhancements, MobileServer to
dispatch interface capabilities, and a map display capability for dispatch
were completed. The Company's engineers have performed extensive testing
to ensure that all products are not only compliant but also failsafe with
regard to the year 2000. Pamet software was developed to store and
calculate date related information using 4-digit values, so records dated
December 31, 1999 will be followed by records dated January 1, 2000.
During the quarter, the next round of federal grants associated with
the 1994 Crime Bill, "COPS MORE 98", were announced. The COPS MORE 98
grant program is national in scope and very competitive, with police
departments of all sizes and types competing for a total of $200 million in
funds which must be matched by $66M in local matching share. The grant
applications were submitted in June 1998 and revenues from this round of
grant awards are expected to impact sales in fiscal 1999. Prior to the
submission of the grant applications, the Company held another round of
its successful grant preparation seminars for current and potential
customers to assist them in preparing their grant proposals. This program,
aimed at assisting agencies throughout the grant application process,
reached over 900 attendees at 30 seminars in 27 cities in 15 states. In
addition, the Company extended an offer to provide further support via
telephone or fax to those agencies needing additional assistance with the
complex application. This assistance is especially helpful for smaller
departments that lack experienced grant-writing staff. The special grant
advisory team at Pamet provided aid to more than 130 agencies. The
agencies that have attended the Company's seminars have generally received
grant awards, however, there can be no assurance, as to when, if at all,
these awards will result in sales to the Company. Until the 1994 Crime
Bill grant program expires, a significant portion of the Company's sales
will be reflective of these awards.
Three Months Ended June 30, 1998 vs.
Three Months Ended June 30, 1997
Net sales in the 1998 period increased 107.7% to $897,304 from
$432,105 for the 1997 period. The revenues for the 1998 period showed a
continued trend toward the MobileServer product although the sales
assoicated with the mobile product as a percentage of total revenue is
down slightly from the first quarter of 1998. The delays that were
encountered in the awarding of grants associated with the "COPS MORE 96"
program in the prior periods have resulted in continued sales and backlog
associated with these grant awards in the 1998 period. The revenues for
the 1998 period were comprised of two PoliceServer systems, three hardware
upgrades, two ImageServer systems, and eight MobileServer systems compared
to three ImageServer and two MobileServer systems during the 1997 period.
The MobileServer sales in the 1998 period represented 55.5% of net
hardware and software sales, up from 25.8% of net hardware and software
sales in the 1997 period, although decreasing from the 74.3% of revenue
level in the first quarter of 1998. Support revenues increased 14.4% to
$134,785 for the 1998 period from $117,853 for the 1997 period reflecting
the increase in the customer base from the 1997 period. Cost of product
increased 69.4% or $173,332 to $423,269 for the 1998 period from $249,937
for the 1997. The resulting increase in gross margin from 42.2% in the
1997 period to 52.8% in the 1998 period reflects the significant increase
in MobileServer and ImageServer margins,and an increase in sales of the
higher margin PoliceServer systems.
Operating expenses increased $502,324 or 126.9% to $898,122 for the
1998 period compared to $395,798 for the 1997 period primarily due to
increased spending on infrastructure and customer support capabilities, the
addition of Technology Assemblers, Inc. (TAI) in February 1998, and
continued spending on research and product development. Research and
development expenditures on the NT development of PoliceServer 2 and
Dispatch, a network search product, and enhancements to the ImageServer
product represented $196,679 or 39.2% of the increase in spending. The
Company has used outside contract development resources to accomplish
product development goals to minimize the long term financial commitments
of the Company. The NT product development will continue throughout 1998
and into 1999 until all modules of PoliceServer and FireServer have been
ported to the NT platform consistent with market demands.
Personnel costs increased 74.3% to $385,264 for the 1998 period
compared to $220,979 for the 1997 period. The increase is due to the
continuing addition of resources including a new President and CEO in June
1997, a Vice President of Product Integration and Deployment in November
1997, three former TAI employees in February 1998, a Customer Support
manager in May 1998, and a sales representative in the Northeast region in
April 1998. In addition the Company has restructured the salary levels
for critical resources in line with market salary levels and hired summer
employees to help with testing of new product development and enhancements.
These personnel costs were incurred to support increased revenue growth in
an expanded market and the introduction of an NT-based product. Rent,
utilities and telephone increased 120.5% to $35,597 for the 1998 period
from $16,143 for the 1997 period due primarily to the increased phone
expense associated with the telephone support for the Company's growing
client base outside the Northeast and the rent and associated expenses,
including telephone, of a new Southeast regional sales office in Maitland,
Florida. Travel and entertainment expenses increased 42.2% to $48,134 for
the 1998 period from $33,838 for the 1997 period. This increase primarily
reflects the travel associated with increased sales activity outside the
Northeast, the increased level of marketing activity including trade shows,
and the expenses associated with the grant preparation seminars held in 15
states. Professional fees increased 65.8% to $77,669 for the 1998 period
from $46,843 for the 1997 period, primarily due to the consulting fees
associated with hiring an outside firm to update existing product
documentation and the cost of a financial consultant. Depreciation expense
increased 34.8% to $19,191 for the 1998 period from $14,238 for the 1997
period due to the upgrading of the Company's computer systems in the second
half of 1997 and early 1998. Other operating expenses increased 112.7% to
$135,588 for the 1998 period from $63,757 for the 1997 period primarily due
to increases in internet access and high speed links to remote sites;
significant incrteases in marketing spending on trade shows, marketing
materials including the design of a new logo, and COPS MORE grant seminars;
and increases in office supplies to support the increased level of business;
training expenses associated with the new installations.
Net interest expense for the 1998 period was $36,213 compared to
$17,544 for the 1997 period. This reflects the increased interest
associated the Company's receivables financing agreement with Silicon
Valley Bank and the increased use of working capital loans from directors
The net loss for the 1998 period was $(460,300) or $(.18) per share
compared to net loss of $(191,174) or $(.08) per share for the 1997 period.
The loss is due primarily to increased operating expenses resulting from
product development and the increased infrastructure costs which the
Company believes will position the Company for expected future revenue
growth.
Six Months Ended June 30, 1998 vs.
Six Months Ended June 30, 1997
Net sales for the six month period ended June 30, 1998 (the 1998
period) increased $461,856 or 44.4% to $1,501,467 from $1,039,611 for the
six month period ended June 30, 1997 (the 1997 period). The increase in
sales reflects a 362% increase in the sales of the Company's MobileServer
product and an increase in support revenues offset by a decrease in the
sales of its PoliceServer and FireServer products and revenues from low
margin third-party products sold with a major installation in the Southeast
during the 1997 period. Support revenues increased 16.1% to $257,473 for
the 1998 period from $221,724 for the 1997 period reflecting the increase
in the customer base from the 1997 period. Cost of product increased 41.2%
to $717,400 for the 1998 period from the $508,154 for the 1997 period
reflecting a similar increase in sales for the period. The increase in
sales of the lower margin MobileServer systems was offset by the reduction
in the effectively pass through sales of third party products for a major
installation in the southeast during the 1997 period. Gross margin
increased slightly to 52.2% for the 1998 period from 51.1% for the 1997
period. The slight improvement in margin can be attributed to the decrease
in third party sales and a significant improvement in the MobileServer
margins.
Operating expenses increased $910,748 or 127.4% to $1,625,566 for the
1998 period compared to $714,818 for the 1997 period. Expenditures on
research and development contributed $375,817 or 41.3% of the increase. The
most significant portion of these expenditures was on the porting of the
Company's products to the NT platform, development of a network search
product, developing an interface between PoliceServer and the Cerulean
mobile product, and enhancements to the ImageServer product. Personnel
costs increased 68.7% to $721,673 for the 1998 period from $427,794 for the
1997 period. This reflects the hiring of a new President and Chief
Executive Officer in June 1997, the addition of a Vice President of Product
Integration and Deployment in November 1997, the integration of three
employees of Technology Assemblers, Inc. upon acquisition of that company
in February, 1998, and the realignment of salaries within the company with
market rates. In addition, a Customer Support Manager and a sales
representative in the Northeast were added late in the quarter. All these
resources are focused on new product development and expanding the
Company's infrastructure to handle the anticipated increased level of
business in the future. Rent, utilities and telephone expenses increased
$28,703 or 80.6% to $64,314 for the 1998 period from $35,611 for the 1997
period. This increase is almost entirely associated with the addition of a
regional office in Maitland, FL and the increased sales and support costs
outside the New England area. Travel and entertainment expenses increased
93.1% to $101,628 for the 1998 period from $52,640 for the 1997 period
reflecting the increased travel associated with integrating the employees
from the Southeast region into the corporate organization, the significant
increase in sales and marketing initiatives outside the Northeast including
attendance at trade shows and the COPS MORE 1998 grant seminars.
Professional fees increased 112.9% to $140,239 for the 1998 period from
$65,857 for the 1997 period due to the increase in the Company's use of
legal services associated with establishing a line of credit loan, work
associated with a private placement of the Company's stock, employment
agreements for the officers, and the legal work associated with the
acquisition of Technology Assemblers Inc. Consulting expenses for product
documentation services,the cost of a financial consultant, and installation
of an upgraded financial package.also contributed to the increase.
Depreciation expense increased 35.1% to $37,233 for the 1998 period from
$27,567 for the 1997 period reflecting the depreciation associated with the
upgrades of the Company's computer equipment. Other operating expenses
increased 75.3% to $184,662 for the 1998 period from $105,349 for the 1997
period. These increases reflect spending for high speed internet access
and links to remote corporate locations; marketing programs, trade shows,
and grant seminars; and office and training supplies used to support the
increased level of business.
Net interest expense was $59,862 for the 1998 period compared to
$35,585 for the 1997 period. This increase reflects the interest
associated with the receivable financing agreement with Silicon Valley
Bank and increased usage of working capital loan commitments from
directors.
The net loss for the 1998 period was $(901,361) or $(.36) per share
compared to a net loss of $(178,946) or $(.08) per share for the 1997
period. The loss for the period can be attributed to the significant
spending on research and development and the spending associated with the
commitment to build the Company's infrastructure to meet anticipated
future business.
Liquidity and Capital Resources
The Company's working capital deteriorated to a deficit of
$(807,653) from a deficit of $(430,122) at December 31, 1997 due to
delays in securing equity financing to fund the current level of research
and development spending and the additional expenses associated with the
increased corporate infrastructure. The private placement of 125,000
shares of common stock with Rogow Opportunity Capital, LLC (ROC) which
increased the cash and stockholders' equity by $531,250 during the first
quarter of 1998 represented the first phase in a multi phase project to
secure equity financing to support porting the Company's products to NT
and fund future anticipated growth. Cash increased to $104,414 at June
30, 1998 from $40,522 at December 31, 1997 through the utilization of
loan agreements with directors and the receivables financing agreement
with Silicon Valley Bank. Accounts receivable decreased to $573,847 at
June 30, 1998 from $661,260 at December 31, 1997 in spite of the increase
in sales as a result of the receivables financing agreement signed in the
second quarter of 1998.
The Company's backlog was approximately $400,000 at June 30, 1998. The
Company is using the infusion of cash from the private placement with ROC
in the first quarter and the funds available as a result of the current
loan agreements on developing the NT product, supporting its increased
operational infrastructure to enable it to execute anticipated increased
sales volume and performing maintenance, adding enhancements, and upgrading
the documentation on its current products. It is management's belief that
the next generation of the Company's products should address future public
safety market demands of having a graphical user interface and being
computer platform independent.
The Company is continuing to consider projects to increase its cash
position through business combinations, as well as capital raising
alternatives. In addition, during the 1998 period, the Company entered
into a one-year receivables financing agreement with a credit line of up to
$1.25 million with Silicon Valley Bank. The monthly interest rate on the
average daily balance is 1.6% with a one time .25% administrative fee on
the face amount of the purchased receivable. The financing will cover
receivables outstanding for up to 120 days and Silicon retains a 20%
reserve until the receivable is paid. The funds from this agreement will
be used to fund working capital requirements. The Company continues to
receive short term working capital commitments of up to $600,000 from
Directors to support operations, as needed. The Company is also currently
negotiating a new product partnership and development line of credit. The
Company believes its existing backlog, current loan commitments,
anticipated additional capital infusions and enhanced sales activities will
be sufficient to ensure the continued operations through the year.
As of June 30, 1998, the Company had accumulated approximately
$4,900,000 and $3,100,000 in net operating loss carry forwards for federal
and state income tax purposes respectively. The loss carry forwards 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 Company's initial public offering. However,
the limitations on the loss carry forward 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 Company'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, including
statements regarding the timing of delivery of NT-based products, revenue
expectations and product mix, the effect of grant awards, new product
development and capabilities, capital position and infusion, and ability to
continue operations through the year, that may or may not materialize.
These forward looking statements are subject to certain risks, including
further delays in the grant and funding process which would impact future
revenues, unanticipated development problems relating to new products, the
inability to raise additional capital and the inability to complete and
successfully integrate the TAI acquisition. 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
On June 11, 1998 the Company issued a promissary note for $200,000 to
one entity, which is an accredited investor as defined in Rule 501(a)
under the securities Act of 1933, as amended (the "Act"). Interest to
be paid at a rate of 10% per annum. As further consideration for this
loan by the holder to the Company, the holder may apply unpaid
principal in a subsequent private placement thereof to the
purchase price of the securities offered to outside investors on the
terms stated in the note.
Item 3 - Defaults Upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a vote of Security Holders
The Company held its 1998 Annual Meeting of Stockholders on
June 12, 1998.
At the Annual Meeting, Dr. Stanley J. Robboy and David T. McKay were
elected as directors. The voting results for the election of directors
were as follows:
FOR WITHHELD
Dr. Stanley J. Robboy 2,314,910 2900
David T. McKay 2,316,310 1500
In addition the following other directors continued as such after the
meeting: Richard C. Becker, Arthur V. Josephson, Bruce J. Rogow,
Dr. Joel B. Searcy, and Lee Spelke.
The shareholders also approved the adoption of the 1998 Stock Option
Plan. The number of shares of Common Stock voted for the adoption of
the plan were 1,233,293, against were 42,550, abstaining were 2,200,
not voted were 1,039,767.
Item 5 - Other Information
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits
4 $200,000 Promissary Note dated 6/11/98
10 Silicon Valley Financial Services Agreement
27 Financial Date Schedule
b. Reports on form 8-K
none
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized
Pamet Systems, Inc.
-------------------------
(Registrant)
August 14, 1998 Richard C. Becker
_______________________________ ______________________
Date Richard C. Becker
Vice President
Principal Financial Officer
EXHIBITS
Exhibit 4 Promissory Note
PAMET SYSTEMS, INC.
PROMISSORY NOTE
$200,000 June 11, 1998
FOR VALUE RECEIVED, PAMET SYSTEMS, INC., a Massachusetts corporation (the
"Company"), with its principal office at 1000 Main Street, Acton,
Massachusetts 01720, promises to pay to the order of Rogow Opportunity
Capital LLC, a Massachusetts limited liability company (the "Holder"), with
its principal office at 220 Ocean Avenue, Marblehead, Massachusetts 01945,
or its assigns, on June 1, 1999 (the "Maturity Date"), the principal amount
of TWO HUNDRED THOUSAND DOLLARS ($200,000), in such coin or currency of the
United States of America as at the time of payment shall be legal tender
for the payment of public or private debts, together with interest on the
unpaid balance of said principal amount from time to time outstanding at
the rate of ten (10 %) percent per annum. Notwithstanding the foregoing,
this Note may be prepaid or called by the Company at any time in whole or
in part without penalty or premium, but with at least five days notice to
the Holder. Interest shall accrue to and include the date on which
prepayment is made. Payments of principal and interest are to be made at
the address of the Holder designated in Section 5.4 or at such other place
as the Holder shall have notified the Company in writing at least five days
before such payment is due.
1. Events of Default. (a) Upon the occurrence of any of the following
events (herein called "Events of Default"):
(i) The Company shall fail to pay the principal of or interest on this
Note on the Maturity Date;
(ii) (A) The Company shall commence any proceeding or other action
relating to it in bankruptcy or seek reorganization, arrangement,
readjustment of its debts, receivership, dissolution, liquidation,
winding-up, composition or any other relief under any bankruptcy law, or
under any other insolvency, reorganization, liquidation, dissolution,
arrangement, composition, readjustment of debt or any other similar act or
law, of any jurisdiction, domestic or foreign, now or hereafter existing;
or (B) the Company shall admit the material allegations of any petition or
pleading in connection with any such proceeding; or (C) the Company shall
apply for, or consent or acquiesce to, the appointment of a receiver,
conservator, trustee or similar officer for it or for all or a substantial
part of its property; or (D) the Company shall make a general assignment
for the benefit of creditors;
(iii) (A) The commencement of any proceedings or the taking of any other
action against the Company in bankruptcy or seeking reorganization,
arrangement, readjustment of its debts, liquidation, dissolution,
arrangement, composition, or any other relief under any bankruptcy law or
any other similar act or law of any jurisdiction, domestic or foreign, now
or hereafter existing and the continuance of any of such events for sixty
(60) days undismissed, unbonded or undischarged; or (B) the appointment of
a receiver, conservator, trustee or similar officer for the Company for any
of its property and the continuance of any of such events for sixty (60)
days undismissed, unbonded or undischarged; or (C) the issuance of a
warrant of attachment, execution or similar process against any of the
property of the Company and the continuance of such event for sixty (60)
days undismissed, unbonded and undischarged;
then, and in any such event, the Holder, at its option and without written
notice to the Company, may declare the entire principal amount of this Note
then outstanding together with accrued unpaid interest thereon immediately
due and payable, and the same shall forthwith become immediately due and
payable without presentment, demand protest, or other notice of any kind,
all of which are expressly waived. The Events of Default listed herein are
solely for the purpose of protecting the interests of the Holder of this
Note.
(b) Collection Costs; Attorney's Fees. In the event this Note is turned
over to an attorney for collection upon the occurrence of an Event of
Default, the Company agrees to pay all reasonable costs of collection,
including reasonable attorney's fees and expenses and all out of pocket
expenses incurred in connection with such collection efforts, which amounts
may, at the Holder's option, be added to the principal hereof.
2. Purchase Option. As further consideration for this loan by the Holder
to the Company, at its election, the Holder may apply up to One Hundred
Thousand Dollars ($100,000) of the unpaid principal hereof and accrued and
unpaid interest hereon to the purchase price of the securities offered for
sale in the next occurring private placement of securities offered to
outside investors (anticipated to occur prior to December 31, 1998), at
51.6% of the lowest purchase price paid by outside investors in such
placement, and the remaining unpaid principal and accrued and unpaid
interest may be applied, at the lowest purchase price paid by outside
investors in such placement, to the purchase such securities on the same
terms and conditions on which other investors invest.
3. Obligation to Pay Principal and Interest; Covenants. No provision of
this Note shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Note at the place, at the respective times, at the rates, and in the
currency herein prescribed.
4. Repayment. Page one of this Note defines the Maturity Date.
4.1 Interest. Subject to Section 2, interest payments shall be made by
the Company to the Holder on March 31, June 30, September 30, and December
31 of each year beginning on September 30, 1998, until such time as the
outstanding principal and interest on this note have been paid in full. In
no event shall the interest rate payable hereunder be higher than the
maximum amount payable under applicable law.
4.2 Principal. Subject to Section 2, the Company shall pay the
outstanding principal amount of the Note on the Maturity Date.
5. Miscellaneous.
5.1 Required Consent. The Company may not modify any of the terms of this
Note without the prior written consent of the Holder.
5.2 Lost Documents. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note or any
Note exchanged for it, and (in the case of loss, theft or destruction) of
indemnity satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation
of such Note, if mutilated, the Company will make and deliver in lieu of
such Note a new Note of like tenor and unpaid principal amount and dated as
of the original date of the Note.
5.3 Benefit. This Note shall be binding upon and inure to the benefit of
the parties hereto and their legal representatives, successors and assigns.
5.4 Notices and Addresses. All notices, offers, acceptances and any other
acts under this Note (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressee in person, by Federal
Express or similar receipted delivery, by facsimile delivery or, if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
To the Holder: 220 Ocean Avenue
Marblehead, Massachusetts 01945
Attn: Bruce Rogow
Fax: (781) 639-2862
To the Company: 1000 Main Street
Acton, Massachusetts 01720
Attn: Richard C. Becker
Fax: (978) 263-4158
In either case with copies to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Attn: David S. Rosenthal, Esq.
Fax: (212) 758-9526
or to such other address as any of them, by notice to the others may
designate from time to time. Time shall be counted to, or from, as the case
may be, the delivery in person or five (5) business days after mailing.
5.5 Governing Law; Jurisdiction. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts
without giving effect to the principles of conflicts of laws thereof. The
Company and the Holder hereby consent to the jurisdiction of the state and
federal courts of the Commonwealth of Massachusetts for all disputes
arising under this Agreement.
5.6 Section Headings. Section headings herein have been inserted for
reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part any of the terms or
provisions of this Note.
5.7 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements contained herein shall survive
the delivery of this Note.
IN WITNESS WHEREOF, this Note has been executed and delivered on the date
specified above by the duly authorized representative of the Company.
PAMET SYSTEMS, INC.
By:_______________________
Name: Richard C. Becker
Title: Vice President
Exhibit 10
Silicon Valley Financial Services
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, Ca. 95054
(408) 654-1000 - Fax (408) 980-6410
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT
This Accounts Receivable Purchase Agreement (the "Agreement") is made on
this Fourteenth day of April, 1998, by and between Silicon Valley Financial
Services (a division of Silicon Valley Bank) ("Buyer") having a place of
business at the address specified above and Pamet Systems, Inc., a
Massachusetts corporation, ("Seller") having its principal place of
business and chief executive office at
Street Address: 1000 Main Street
City: Acton
County: Middlesex
State: Massachusetts
Zip code: 01720
Telephone: 978/263-2060
1. Definitions. When used herein, the following terms shall have the
following meanings.
1.1. "Account Balance" shall mean, on any given day, the gross amount
of all Purchased Receivables unpaid on that day.
1.2. "Account Debtor" shall have the meaning set forth in the
California Uniform Commercial Code and shall include any person liable on
any Purchased Receivable, including without limitation, any guarantor of
the Purchased Receivable and any issuer of a letter of credit or banker's
acceptance.
1.3. "Adjustments" shall mean all discounts, allowances, returns,
disputes, counterclaims, offsets, defenses, rights of recoupment, rights of
return, warranty claims, or short payments, asserted by or on behalf of any
Account Debtor with respect to any Purchased Receivable.
1.4. "Administrative Fee" shall have the meaning as set forth in
Section 3.3 hereof.
1.5. "Advance" shall have the meaning set forth in Section 2.2
hereof.
1.6. "Collateral" shall have the meaning set forth in Section 8
hereof.
1.7. "Collections" shall mean all good funds received by Buyer from
or on behalf of an Account Debtor with respect to Purchased
Receivables.
1.8 "Compliance Certificate" shall mean a certificate, in a form
provided by Buyer to Seller, which contains the certification of the
chief financial officer of Seller that, among other things, the
representations and warranties set forth in this Agreement are true and
correct as of the date such certificate is delivered.
1.9. "Event of Default" shall have the meaning set forth in Section 9
hereof.
1.10. "Finance Charges" shall have the meaning set forth in Section
3.2 hereof.
1.11. "Invoice Transmittal" shall mean a writing signed by an
authorized representative of Seller which accurately identifies the
receivables which Buyer, at its election, may purchase, and includes for
each such receivable the correct amount owed by the Account Debtor, the
name and address of the Account Debtor, the invoice number, the invoice
date and the account code.
1.12. "Obligations" shall mean all advances, financial
accommodations, liabilities, obligations, covenants and duties owing,
arising, due or payable by Seller to Buyer of any kind or nature, present
or future, arising under or in connection with this Agreement or under any
other document, instrument or agreement, whether or not evidenced by any
note, guarantee or other instrument, whether arising on account or by
overdraft, whether direct or indirect (including those acquired by
assignment) absolute or contingent, primary or secondary, due or to become
due, now owing or hereafter arising, and however acquired; including,
without limitation, all Advances, Finance Charges, Administrative Fees,
interest, Repurchase Amounts, fees, expenses, professional fees and
attorneys' fees and any other sums chargeable to Seller hereunder or
otherwise.
1.13. "Purchased Receivables" shall mean all those accounts,
receivables, chattel paper, instruments, contract rights, documents,
general intangibles, letters of credit, drafts, bankers acceptances, and
rights to payment, and all proceeds thereof (all of the foregoing being
referred to as "receivables"), arising out of the invoices and other
agreements identified on or delivered with any Invoice Transmittal
delivered by Seller to Buyer which Buyer elects to purchase and for which
Buyer makes an Advance.
1.14. "Refund" shall have the meaning set forth in Section 3.5
hereof.
1.15. "Reserve" shall have the meaning set forth in Section 2.4
hereof.
1.16. "Repurchase Amount" shall have the meaning set forth in Section
4.2 hereof.
1.17. "Reconciliation Date" shall mean the last calendar day of each
Reconciliation Period.
1.18. "Reconciliation Period" shall mean each calendar month of every
year.
2. Purchase and Sale of Receivables.
2.1. Offer to Sell Receivables. During the term hereof, and provided
that there does not then exist any Event of Default or any event that with
notice, lapse of time or otherwise would constitute an Event of Default,
Seller may request that Buyer purchase receivables and Buyer may, in its
sole discretion, elect to purchase receivables. Seller shall deliver to
Buyer an Invoice Transmittal with respect to any receivable for which a
request for purchase is made. An authorized representative of Seller shall
sign each Invoice Transmittal delivered to Buyer. Buyer shall be entitled
to rely on all the information provided by Seller to Buyer on or with the
Invoice Transmittal and to rely on the signature on any Invoice Transmittal
as an authorized signature of Seller.
2.2. Acceptance of Receivables. Buyer shall have no obligation to
purchase any receivable listed on an Invoice Transmittal. Buyer may
exercise its sole discretion in approving the credit of each Account Debtor
before buying any receivable. Upon acceptance by Buyer of all or any of
the receivables described on any Invoice Transmittal, Buyer shall pay to
Seller 80 (%) percent of the face amount of each receivable Buyer desires
to purchase. Such payment shall be the "Advance" with respect to such
receivable. Buyer may, from time to time, in its sole discretion, change
the percentage of the Advance. Upon Buyer's acceptance of the receivable
and payment to Seller of the Advance, the receivable shall become a
"Purchased Receivable." It shall be a condition to each Advance that
(i) all of the representations and warranties set forth in Section 6 of
this Agreement be true and correct on and as of the date of the related
Invoice Transmittal and on and as of the date of such Advance as though
made at and as of each such date, and (ii) no Event of Default or any
event or condition that with notice, lapse of time or otherwise would
constitute an Event of Default shall have occurred and be continuing, or
would result from such Advance. Notwithstanding the foregoing, in no
event shall the aggregate amount of all Purchased Receivables outstanding
at any time exceed One Million Two Hundred Fifty Thousand And No/100*******
Dollars ($1,250,000.00).
2.3. Effectiveness of Sale to Buyer. Effective upon Buyer's payment
of an Advance, and for and in consideration therefor and in consideration
of the covenants of this Agreement, Seller hereby absolutely sells,
transfers and assigns to Buyer, all of Seller's right, title and interest
in and to each Purchased Receivable and all monies due or which may become
due on or with respect to such Purchased Receivable. Buyer shall be the
absolute owner of each Purchased Receivable. Buyer shall have, with
respect to any goods related to the Purchased Receivable, all the rights
and remedies of an unpaid seller under the California Uniform Commercial
Code and other applicable law, including the rights of replevin, claim and
delivery, reclamation and stoppage in transit.
2.4. Establishment of a Reserve. Upon the purchase by Buyer of each
Purchased Receivable, Buyer shall establish a reserve. The reserve shall
be the amount by which the face amount of the Purchased Receivable exceeds
the Advance on that Purchased Receivable (the "Reserve"); provided, the
Reserve with respect to all Purchased Receivables outstanding at any one
time shall be an amount not less than 20 (%) percent of the Account Balance
at that time and may be set at a higher percentage at Buyer's sole
discretion. The reserve shall be a book balance maintained on the records
of Buyer and shall not be a segregated fund.
3. Collections, Charges and Remittances.
3.1. Collections. Upon receipt by Buyer of Collections, Buyer shall
promptly credit such Collections to Seller's Account Balance on a daily
basis; provided, that if Seller is in default under this Agreement, Buyer
shall apply all Collections to Seller's Obligations hereunder in such order
and manner as Buyer may determine. If an item of collection is not honored
or Buyer does not receive good funds for any reason, the amount shall be
included in the Account Balance as if the Collections had not been received
and Finance Charges under Section 3.2 shall accrue thereon.
3.2. Finance Charges. On each Reconciliation Date Seller shall pay
to Buyer a finance charge in an amount equal to 1.6 (%) percent per month
of the average daily Account Balance outstanding during the applicable
Reconciliation Period (the "Finance Charges"). Buyer shall deduct the
accrued Finance Charges from the Reserve as set forth in Section 3.5 below.
3.3. Administrative Fee. On each Reconciliation Date Seller shall
pay to Buyer an Administrative Fee equal to .25 (%) percent of the face
amount of each Purchased Receivable first purchased during that
Reconciliation Period (the "Administrative Fee"). Buyer shall deduct the
Administrative Fee from the Reserve as set forth in Section 3.5 below.
3.4. Accounting. Buyer shall prepare and send to Seller after the
close of business for each Reconciliation Period, an accounting of the
transactions for that Reconciliation Period, including the amount of all
Purchased Receivables, all Collections, Adjustments, Finance Charges, and
the Administrative Fee. The accounting shall be deemed correct and
conclusive unless Seller makes written objection to Buyer within thirty
(30) days after the Buyer mails the accounting to Seller.
3.5. Refund to Seller. Provided that there does not then exist an
Event of Default or any event or condition that with notice, lapse of time
or otherwise would constitute an Event of Default, Buyer shall refund to
Seller by check after the Reconciliation Date, the amount, if any, which
Buyer owes to Seller at the end of the Reconciliation Period according to
the accounting prepared by Buyer for that Reconciliation Period (the
"Refund"). The Refund shall be an amount equal to:
(A) (1) The Reserve as of the beginning of that Reconciliation Period,
plus
(2) the Reserve created for each Purchased Receivable purchased
during that Reconciliation Period, minus
(B) The total for that Reconciliation Period of:
(1) the Administrative Fee;
(2) Finance Charges;
(3) Adjustments;
(4) Repurchase Amounts, to the extent Buyer has agreed to accept
payment thereof by deduction from the Refund;
(5) the Reserve for the Account Balance as of the first day of the
following Reconciliation Period in the minimum
percentage set forth in Section 2.4 hereof; and
(6) all amounts due, including professional fees and expenses, as
set forth in Section 12 for which oral or
written demand has been made by Buyer to Seller during
that Reconciliation Period to the extent Buyer has
agreed to accept payment thereof by deduction from the
Refund.
In the event the formula set forth in this Section 3.5 results in an amount
due to Buyer from Seller, Seller shall make such payment in the same manner
as set forth in Section 4.3 hereof for repurchases. If the formula set
forth in this Section 3.5 results in an amount due to Seller from Buyer,
Buyer shall make such payment by check, subject to Buyer's rights under
Section 4.3 and Buyer's rights of offset and recoupment.
4. Recourse and Repurchase Obligations.
4.1. Recourse. Buyer's acquisition of Purchased Receivables from
Seller shall be with full recourse against Seller. In the event the
Obligations exceed the amount of Purchased Receivables and Collateral,
Seller shall be liable for any deficiency.
4.2. Seller's Agreement to Repurchase. Seller agrees to pay to Buyer
on demand, the full face amount, or any unpaid portion, of any Purchased
Receivable:
(A) which remains unpaid one hundred twenty (120) calendar days after
the invoice date; or
(B) which is owed by any Account Debtor who has filed, or has had filed
against it, any bankruptcy case, assignment for the benefit of creditors,
receivership, or insolvency proceeding or who has become insolvent (as
defined in the United States Bankruptcy Code) or who is generally not
paying its debts as such debts become due; or
(C) with respect to which there has been any breach of warranty or
representation set forth in Section 6 hereof or any breach of any covenant
contained in this Agreement; or
(D) with respect to which the Account Debtor asserts any discount,
allowance, return, dispute, counterclaim, offset, defense, right of
recoupment, right of return, warranty claim, or short payment;
together with all reasonable attorneys' and professional fees and expenses
and all court costs incurred by Buyer in collecting such Purchased
Receivable and/or enforcing its rights under, or collecting amounts owed by
Seller in connection with, this Agreement (collectively, the "Repurchase
Amount").
4.3. Seller's Payment of the Repurchase Amount or Other Amounts Due
Buyer. When any Repurchase Amount or other amount owing to Buyer becomes
due, Buyer shall inform Seller of the manner of payment which may be any
one or more of the following in Buyer's sole discretion: (a) in cash
immediately upon demand therefor; (b) by delivery of substitute invoices
and an Invoice Transmittal acceptable to Buyer which shall thereupon become
Purchased Receivables; (c) by adjustment to the Reserve pursuant to
Section 3.5 hereof; (d) by deduction from or offset against the Refund
that would otherwise be due and payable to Seller; (e) by deduction from
or offset against the amount that otherwise would be forwarded to Seller
in respect of any further Advances that may be made by Buyer; or (f) by
any combination of the foregoing as Buyer may from time to time choose.
4.4. Seller's Agreement to Repurchase All Purchased Receivables.
Upon and after the occurrence of an Event of Default, Seller shall, upon
Buyer's demand (or, in the case of an Event of Default under Section 9(B),
immediately without notice or demand from Buyer) repurchase all the
Purchased Receivables then outstanding , or such portion thereof as Buyer
may demand. Such demand may, at Buyer's option, include and Seller shall
pay to Buyer immediately upon demand, cash in an amount equal to the
Advance with respect to each Purchased Receivable then outstanding together
with all accrued Finance Charges, Adjustments, Administrative Fees,
attorney's and professional fees, court costs and expenses as provided for
herein, and any other Obligations. Upon receipt of payment in full of the
Obligations, Buyer shall immediately instruct Account Debtors to pay Seller
directly, and return to Seller any Refund due to Seller. For the purpose
of calculating any Refund due under this Section only, the Reconciliation
Date shall be deemed to be the date Buyer receives payment in good funds of
all the Obligations as provided in this Section 4.4.
5. Power of Attorney. Seller does hereby irrevocably appoint Buyer and
its successors and assigns as Seller's true and lawful attorney in fact,
and hereby authorizes Buyer, regardless of whether there has been an Event
of Default, (a) to sell, assign, transfer, pledge, compromise, or
discharge the whole or any part of the Purchased Receivables; (b) to
demand, collect, receive, sue, and give releases to any Account Debtor for
the monies due or which may become due upon or with respect to the
Purchased Receivables and to compromise, prosecute, or defend any action,
claim, case or proceeding relating to the Purchased Receivables, including
the filing of a claim or the voting of such claims in any bankruptcy case,
all in Buyer's name or Seller's name, as Buyer may choose; (c) to prepare,
file and sign Seller's name on any notice, claim, assignment, demand,
draft, or notice of or satisfaction of lien or mechanics' lien or similar
document with respect to Purchased Receivables; (d) to notify all Account
Debtors with respect to the Purchased Receivables to pay Buyer directly;
(e) to receive, open, and dispose of all mail addressed to Seller for the
purpose of collecting the Purchased Receivables; (f) to endorse Seller's
name on any checks or other forms of payment on the Purchased Receivables;
(g) to execute on behalf of Seller any and all instruments, documents,
financing statements and the like to perfect Buyer's interests in the
Purchased Receivables and Collateral; and (h) to do all acts and things
necessary or expedient, in furtherance of any such purposes. If Buyer
receives a check or item which is payment for both a Purchased Receivable
and another receivable, the funds shall first be applied to the Purchased
Receivable and, so long as there does not exist an Event of Default or an
event that with notice, lapse of time or otherwise would constitute an
Event of Default, the excess shall be remitted to Seller. Upon the
occurrence and continuation of an Event of Default, all of the power of
attorney rights granted by Seller to Buyer hereunder shall be applicable
with respect to all Purchased Receivables and all Collateral.
6. Representations, Warranties and Covenants.
6.1. Receivables' Warranties, Representations and Covenants. To
induce Buyer to buy receivables and to render its services to Seller, and
with full knowledge that the truth and accuracy of the following are being
relied upon by the Buyer in determining whether to accept receivables as
Purchased Receivables, Seller represents, warrants, covenants and agrees,
with respect to each Invoice Transmittal delivered to Buyer and each
receivable described therein, that:
(A) Seller is the absolute owner of each receivable set forth in the
Invoice Transmittal and has full legal right to sell, transfer and assign
such receivables;
(B) The correct amount of each receivable is as set forth in the Invoice
Transmittal and is not in dispute;
(C) The payment of each receivable is not contingent upon the
fulfillment of any obligation or contract, past or future and any and all
obligations required of the Seller have been fulfilled as of the date of
the Invoice Transmittal; *(See Attachment 1A)
(D) Each receivable set forth on the Invoice Transmittal is based on an
actual sale and delivery of goods and/or services actually rendered, is
presently due and owing to Seller, is not past due or in default, has not
been previously sold, assigned,transferred, or pledged, and is free of any
and all liens, security interests and encumbrances other than liens,
security interests or encumbrances in favor of Buyer or any other division
or affiliate of Silicon Valley Bank;
(E) There are no defenses, offsets, or counterclaims against any of the
receivables, and no agreement has been made under which the Account Debtor
may claim any deduction or discount, except as otherwise stated in the
Invoice Transmittal;
(F) Each Purchased Receivable shall be the property of the Buyer and
shall be collected by Buyer, but if for any reason it should be paid to
Seller, Seller shall promptly notify Buyer of such payment, shall hold any
checks, drafts, or monies so received in trust for the benefit of Buyer,
and shall promptly transfer and deliver the same to the Buyer;
(G) Buyer shall have the right of endorsement, and also the right to
require endorsement by Seller, on all payments received in connection with
each Purchased Receivable and any proceeds of Collateral;
(H) Seller, and to Seller's best knowledge, each Account Debtor set
forth in the Invoice Transmittal, are and shall remain solvent as that term
is defined in the United States Bankruptcy Code and the California Uniform
Commercial Code, and no such Account Debtor has filed or had filed against
it a voluntary or involuntary petition for relief under the United States
Bankruptcy Code;
(I) Each Account Debtor named on the Invoice Transmittal will not
objectto the payment for, or the quality or the quantity of the subject
matter of, the receivable and is liable for the amount set forth on the
Invoice Transmittal;
(J) Each Account Debtor shall promptly be notified, after acceptance by
Buyer, that the Purchased Receivable has been transferred to and is
payable to Buyer, and Seller shall not take or permit any action to
countermand such notification; and
(K) All receivables forwarded to and accepted by Buyer after the date
hereof, and thereby becoming Purchased Receivables, shall comply with each
and every one of the foregoing representations, warranties, covenants and
agreements referred to above in this Section 6.1.
6.2. Additional Warranties, Representations and Covenants. In
addition to the foregoing warranties, representations and covenants, to
induce Buyer to buy receivables and to render its services to Seller,
Seller hereby represents, warrants, covenants and agrees that:
(A) Seller will not assign, transfer, sell, or grant , or permit any
lien or security interest in any Purchased Receivables or Collateral to or
in favor of any other party, without Buyer's prior written consent;
(B) The Seller's name, form of organization, chief executive office, and
the place where the records concerning all Purchased Receivables and
Collateral are kept is set forth at the beginning of this Agreement,
Collateral is located only at the location set forth in the beginning of
this Agreement, or, if located at any additional location, as set forth
on a schedule attached to this Agreement, and Seller will give Buyer at
least thirty (30) days prior written notice if such name, organization,
chief executive office or other locations of Collateral or records
concerning Purchased Receivables or Collateral is changed or added and
shall execute any documents necessary to perfect Buyer's interest in the
Purchased Receivables and the Collateral;
(C) Seller shall (i) pay all of its normal gross payroll for
employees, and all federal and state taxes, as and when due, including
withoutlimitation all payroll and withholding taxes and state sales taxes;
(ii)deliver at any time and from time to time at Buyer's request,
evidence satisfactory to Buyer that all such amounts have been paid to the
proper taxing authorities; and (iii) if requested by Buyer, pay its
payroll and related taxes through a bank or an independent payroll
service acceptable to Buyer.
(D) Seller has not, as of the time Seller delivers to Buyer an Invoice
Transmittal, or as of the time Seller accepts any Advance from Buyer,
filed a voluntary petition for relief under the United States Bankruptcy
Code or had filed against it an involuntary petition for relief;
(E) If Seller owns, holds or has any interest in, any copyrights
(whether registered, or unregistered), patents or trademarks, and
licenses of any of the foregoing, such interest has been disclosed to
Buyer and is specifically listed and identified on a schedule to this
Agreement, and Seller shall immediately notify Buyer if Seller hereafter
obtains any interest in any additional copyrights, patents, trademarks or
licenses that are significant in value or are material to the conduct of
its business; *(See Attachment 1B)
(F) Seller shall provide Buyer with a Compliance Certificate (i) on a
quarterly basis to be received by Buyer no later than the fifth calendar
day following each calendar quarter, and; (ii) on a more frequent or
other basis if and as requested by Buyer.
7. Adjustments. In the event of a breach of any of the representations,
warranties, or covenants set forth in Section 6.1, or in the event any
Adjustment or dispute is asserted by any Account Debtor, Seller shall
promptly advise Buyer and shall, subject to the Buyer's approval, resolve
such disputes and advise Buyer of any adjustments. Unless the disputed
Purchased Receivable is repurchased by Seller and the full Repurchase
Amount is paid, Buyer shall remain the absolute owner of any Purchased
Receivable which is subject to Adjustment or repurchase under Section 4.2
hereof, and any rejected, returned, or recovered personal property, with
the right to take possession thereof at any time. If such possession is
not taken by Buyer, Seller is to resell it for Buyer's account at Seller's
expense with the proceeds made payable to Buyer. While Seller retains
possession of said returned goods, Seller shall segregate said goods and
mark them "property of Silicon Valley Financial Services."
8. Security Interest. To secure the prompt payment and performance to
Buyer of all of the Obligations, Seller hereby grants to Buyer a continuing
lien upon and security interest in all of Seller's now existing or
hereafter arising rights and interest in the following , whether now owned
or existing or hereafter created, acquired, or arising, and wherever
located (collectively, the "Collateral"):
(A) All accounts, receivables, contract rights, chattel paper,
instruments, documents, letters of credit, bankers acceptances, drafts,
checks, cash, securities, and general intangibles (including, without
limitation, all claims, causes of action, deposit accounts, guaranties,
rights in and claims under insurance policies (including rights to premium
refunds), rights to tax refunds, copyrights, patents, trademarks, rights
in and under license agreements, and all other intellectual property);
*(See Attachment 1B)
(B) All inventory, including Seller's rights to any returned or
rejected goods, with respect to which Buyer shall have all the rights
of any unpaid seller, including the rights of replevin, claim and delivery,
reclamation, and stoppage in transit;
(C ) All monies, refunds and other amounts due Seller, including,
without limitation, amounts due Seller under this Agreement
(including Seller's right of offset and recoupment);
(D) All equipment, machinery, furniture, furnishings, fixtures, tools,
supplies and motor vehicles;
(E) All farm products, crops, timber, minerals and the like (including
oil and gas);
(F) All accessions to, substitutions for, and replacements of, all of
the foregoing;
(G) All books and records pertaining to all of the foregoing; and
(H) All proceeds of the foregoing, whether due to voluntary or
involuntary disposition, including insurance proceeds.
Seller is not authorized to sell, assign, transfer or otherwise convey
any Collateral without Buyer's prior written consent, except for the sale
of finished inventory in the Seller's usual course of business. Seller
agrees to sign UCC financing statements, in a form acceptable to Buyer, and
any other instruments and documents requested by Buyer to evidence ,
perfect, or protect the interests of Buyer in the Collateral. Seller
agrees to deliver to Buyer the originals of all instruments, chattel paper
and documents evidencing or related to Purchased Receivables and
Collateral.
9. Default. The occurrence of any one or more of the following shall
constitute an Event of Default hereunder.
(A) Seller fails to pay any amount owed to Buyer as and when due;
(B) There shall be commenced by or against Seller any voluntary or
involuntary case under the United States Bankruptcy Code, or any
assignment for the benefit of creditors, or appointment of a receiver or
custodian for any of its assets;
(C) Seller shall become insolvent in that its debts are greater than the
fair value of its assets, by more than $500,000 or Seller is generally not
paying its debts as they become due or is left with unreasonably small
capital;
(D) Any involuntary lien, garnishment, attachment or the like is issued
against or attaches to the Purchased Receivables or any Collateral;
(E) Seller shall breach any covenant, agreement, warranty, or
representation set forth herein, and the same is not cured to Buyer's
satisfaction within ten (10) days after Buyer has given Seller oral or
written notice thereof; provided, that if such breach is incapable of
being cured it shall constitute an immediate default hereunder;
(F) Seller is not in compliance with, or otherwise is in default under,
any term of any document, instrument or agreement evidencing a
debt, obligation or liability of any kind or character of Seller, now or
hereafter existing, in favor of Buyer or any division or affiliate of
Silicon Valley Bank, regardless of whether such debt, obligation or
liability is direct or indirect, primary or secondary, joint, several or
joint and several, or fixed or contingent, together with any and all
renewals and extensions of such debts, obligations and liabilities, or any
part thereof;
(G) An event of default shall occur under any guaranty executed by any
guarantor of the Obligations of Seller to Buyer under this Agreement,
or any material provision of any such guaranty shall for any reason cease
to be valid or enforceable or any such guaranty shall be repudiated or
terminated, including by operation of law;
(H) A default or event of default shall occur under any agreement
between Seller and any creditor of Seller that has entered into a
subordination agreement with Buyer; or
(I) Any creditor that has entered into a subordination agreement with
Buyer shall breach any of the terms of or not comply with such
subordination agreement.
10. Remedies Upon Default. Upon the occurrence of an Event of Default,
(1)without implying any obligation to buy receivables, Buyer may cease
buying receivables or extending any financial accommodations to Seller;
(2) all or a portion of the Obligations shall be, at the option of and
upon demand by Buyer, or with respect to an Event of Default described in
Section 9(B), automatically and without notice or demand, due and payable
in full; and (3) Buyer shall have and may exercise all the rights and
remedies under this Agreement and under applicable law, including the
rights and remedies of a secured party under the California Uniform
Commercial Code, all the power of attorney rights described in Section 5
with respect to all Collateral, and the right to collect, dispose of, sell,
lease, use, and realize upon all Purchased Receivables and all Collateral
in any commercial reasonable manner. Seller and Buyer agree that any
notice of sale required to be given to Seller shall be deemed to be
reasonable if given Ten (10) days prior to the date on or after which the
sale may be held. In the event that the Obligations are accelerated
hereunder, Seller shall repurchase all of the Purchased Receivables as set
forth in Section 4.4.
11. Accrual of Interest. If any amount owed by Seller hereunder is not
paid when due, including, without limitation, amounts due under Section
3.5, Repurchase Amounts, amounts due under Section 12, and any other
Obligations, such amounts shall bear interest at a per annum rate equal to
the per annum rate of the Finance Charges until the earlier of (i) payment
in good funds or (ii) entry of a final judgment thereof, at which time the
principal amount of any money judgment remaining unsatisfied shall accrue
interest at the highest rate allowed by applicable law.
12. Fees, Costs and Expenses; Indemnification. The Seller will pay to
Buyer immediately upon demand all fees, costs and expenses (including
fees of reasonable attorneys and professionals and their costs and
expenses ) that Buyer incurs or may from time to time impose in
connection with any of the following: (a) preparing, negotiating ,
administering, and enforcing this Agreement or any other agreement
executed in connection herewith, including any amendments, waivers or
consents in connection with any of the foregoing, (b) any litigation or
dispute (whether instituted by Buyer, Seller or any other person) in any
way relating to the Purchased Receivables, the Collateral, this Agreement
or any other agreement executed in connection herewith or therewith, (d)
enforcing any rights against Seller or any guarantor, or any Account
Debtor, (e) protecting or enforcing its interest in the Purchased
Receivables or the Collateral, (f) collecting the Purchased Receivables and
the Obligations, and (g) the representation of Buyer in connection with
any bankruptcy case or insolvency proceeding involving Seller, any
Purchased Receivable, the Collateral, any Account Debtor, or any guarantor.
Seller shall indemnify and hold Buyer harmless from and against any and all
claims, actions, damages, costs, expenses, and liabilities of any nature
whatsoever arising in connection with any of the foregoing. (See
Attachment 1C)
13. Severability, Waiver, and Choice of Law. In the event that any
provision of this Agreement is deemed invalid by reason of law, this
Agreement will be construed as not containing such provision and the
remainder of the Agreement shall remain in full force and effect. Buyer
retains all of its rights, even if it makes an Advance after a default. If
Buyer waives a default, it may enforce a later default. Any consent or
waiver under, or amendment of, this Agreement must be in writing. Nothing
contained herein, or any action taken or not taken by Buyer at any time,
shall be construed at any time to be indicative of any obligation or
willingness on the part of Buyer to amend this Agreement or to grant to
Seller any waivers or consents. This Agreement has been transmitted by
Seller to Buyer at Buyer's office in the State of California and has been
executed and accepted by Buyer in the State of California. This Agreement
shall be governed by and interpreted in accordance with the internal laws
of the State of California.
14. Account Collection Services. Certain Account Debtors may require or
prefer that all of Seller's factored receivables be paid to the same
address and/or party, or Seller and Buyer may agree that all receivables
with respect to certain Account Debtors be paid to one party. In such
event Buyer and Seller may agree that Buyer shall collect all receivables
whether owned by Seller or Buyer and (provided that there does not then
exist an Event of Default or event that with notice, lapse or time or
otherwise would constitute an Event of Default, and subject to Buyer's
rights in the Collateral) Buyer agrees to remit to Seller the amount of the
receivables collections it receives with respect to receivables other than
Purchased Receivables. It is understood and agreed by Seller that this
Section does not impose any affirmative duty on Buyer to do any act other
than to turn over such amounts. All such receivables and collections are
Collateral and in the event of Seller's default hereunder, Buyer shall
have no duty to remit collections of Collateral and may apply such
collections to the obligations hereunder and Buyer shall have the rights of
a secured party under the California Uniform Commercial Code.
15. Notices. All notices shall be given to Buyer and Seller at the
addresses or faxes set forth on the first page of this Agreement and shall
be deemed to have been delivered and received: (a) if mailed, five (5)
calendar days after deposited in the United States mail, first class,
postage pre-paid, (b) one (1) calendar day after deposit with an overnight
mail or messenger service; or (c) on the same date of confirmed
transmission if sent by hand delivery, telecopy, telefax or telex.
16. Jury Trial. SELLER AND BUYER EACH HEREBY (a) WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL ON ANY CLAIM OR ACTION ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY; (b) RECOGNIZE AND AGREE THAT
THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO
THIS AGREEMENT; AND (c) REPRESENT AND WARRANT THAT IT HAS REVIEWED THIS
WAIVER, HAS DETERMINED FOR ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS
LEGAL COUNSEL, AND KNOWINGLY AND VOLUNTARILY WAIVES ALL RIGHTS TO A JURY
TRIAL.
17. Term and Termination. The term of this Agreement shall be for one
(1) year from the date hereof, and from year to year thereafter unless
terminated in writing by Buyer or Seller. Seller and Buyer shall each have
the right to terminate this Agreement at any time. Notwithstanding the
foregoing, any termination of this Agreement shall not affect Buyer's
security interest in the Collateral and Buyer's ownership of the Purchased
Receivables, and this Agreement shall continue to be effective, and Buyer's
rights and remedies hereunder shall survive such termination, until all
transactions entered into and Obligations incurred hereunder or in
connection herewith have been completed and satisfied in full.
18. Titles and Section Headings. The titles and section headings used
herein are for convenience only and shall not be used in interpreting this
Agreement.
19. Other Agreements. The terms and provisions of this Agreement shall
not adversely affect the rights of Buyer or any other division or affiliate
of Silicon Valley Bank under any other document, instrument or agreement.
The terms of such other documents, instruments and agreements shall remain
in full force and effect notwithstanding the execution of this Agreement.
In the event of a conflict between any provision of this Agreement and any
provision of any other document, instrument or agreement between Seller on
the one hand, and Buyer or any other division or affiliate of Silicon
Valley Bank on the other hand, Buyer shall determine in its sole discretion
which provision shall apply. Seller acknowledges specifically that any
security agreements, liens and/or security interests currently securing
payment of any obligations of Seller owing to Buyer or any other division
or affiliate of Silicon Valley Bank also secure Seller's obligations under
this Agreement, and are valid and subsisting and are not adversely affected
by execution of this Agreement. Seller further acknowledges that (a) any
collateral under other outstanding security agreements or other documents
between Seller and Buyer or any other division or affiliate of Silicon
Valley Bank secures the obligations of Seller under this Agreement and (b)
a default by Seller under this Agreement constitutes a default under other
outstanding agreements between Seller and Buyer or any other division or
affiliate of Silicon Valley Bank.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on
the day and year above written.
SELLER: Pamet Systems, Inc.
By _______________________________________
Title _____________________________________
BUYER: SILICON VALLEY FINANCIAL SERVICES
A division of Silicon Valley Bank
By________________________________________
Title ______________________________________
Attachment 1
Attachments to Silicon Valley Financial Services April 20, 1998
Accounts Receivable Purchase Agreement
Attachment 1 A
Add the following words "except as specified in Pamet Systems, Inc.
proposal as evidenced in "Obligations of the agency/community" than 90% of
the invoice is due upon delivery, 10% is due upon acceptance which is not
to exceed 60 days."
Attachment 1 B
Add the following words "only to the extent necessary to collect the
purchased receivable"
Attachment 1 C
Add the following words " not withstanding the foregoing if the seller is
adjudicated, all fees, costs and expenses associated with the specific
litigation or dispute become the responsibility of the buyer"
EXHIBIT "A"
TO FINANCING STATEMENT AND SECURITY AGREEMENT
This FINANCING STATEMENT and SECURITY AGREEMENT covers the following types
or items of property (in addition to, and without limiting the types of
property set forth on page 1 hereof):
A) All accounts, receivables, contract rights, chattel paper,
instruments, documents, letters of credit, bankers acceptances, drafts,
checks, cash, securities, deposit accounts, and general intangibles
(including, without limitation, all claims, causes of action,
guaranties, rights in and claims under insurance policies (including rights
to premium refunds), rights to tax refunds, copyrights, patents,
trademarks, rights in and under license agreements, and all other
intellectual property);
B) All inventory, including Seller's rights to any returned or rejected
goods, with respect to which Buyer shall have all the rights of any unpaid
seller, including the rights of replevin, claim and delivery, reclamation,
and stoppage in transit;
C) All monies, refunds and other amounts due Seller, including, without
limitation, amounts due Seller under this Agreement (including Seller's
right of offset and recoupment);
D) All equipment, machinery, furniture, furnishings, fixtures, tools,
supplies and motor vehicles;
E) All farm products, crops, timber, minerals and the like (including oil
and gas);
F) All accessions to, substitutions for, and replacements of, all of the
foregoing;
G) All books and records pertaining to all of the foregoing; and
H) All proceeds of the foregoing, whether due to voluntary or involuntary
disposition, including insurance proceeds.
Intitals _____________________
Silicon Valley Financial Services
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95054
(408) 654-1000 - Fax (408) 980-6410