FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1999
Commission File Number 0-13898
VERAMARK TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 16-1192368
(State or other jurisdiction (IRS Employer Identification
of Incorporation or Organization) Number)
3750 MONROE AVENUE, PITTSFORD, NY 14534
(Address of principal executive offices) (Zip Code)
(716) 381-6000
(Registrant's telephone number, including area code)
N.A.
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days.
YES XX NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of March 31, 1999.
Common stock, par value $.10 7,590,909 shares
This report consists of 15 pages.
<PAGE>
<PAGE>
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets - 3 - 4
March 31, 1999 and December 31, 1998
Condensed Statements of Operations - 5
Three Months Ended March 31, 1999 and 1998
Condensed Statements of Cash Flows - 6
Three Months Ended March 31, 1999 and 1998
Notes To Condensed Financial Statements 7 - 8
Item 2 Management's Discussion and Analysis of 9 - 12
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 13 - 14
<PAGE>
PART I - FINANCIAL INFORMATION
VERAMARK TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998*
<S> <C> <C>
ASSETS
CURRENT ASSETS: (Unaudited)
Cash and Cash Equivalents $ 1,306,506 $ 371,209
Investments 4,120,273 4,718,694
Accounts Receivable, trade (net of
allowance for doubtful accounts of
$103,000 and $110,000, respectively) 2,367,117 2,273,705
Inventories 551,904 579,968
Prepaid Expenses 179,458 155,831
----------- -----------
Total Current Assets 8,525,258 8,099,407
PROPERTY AND EQUIPMENT 6,470,055 5,864,469
Less Accumulated Depreciation (4,552,136) (4,455,539)
----------- -----------
Property and Equipment (Net) 1,917,919 1,408,930
OTHER ASSETS:
Software Development Costs
(Net of accumulated amortization of
$1,539,290 and $1,322,254
respectively) 3,570,413 3,393,542
Pension Assets 1,873,721 1,873,721
Deposits and Other Assets 411,774 406,901
----------- -----------
Total Other Assets 5,855,908 5,674,164
----------- -----------
TOTAL ASSETS $16,299,085 $15,182,501
=========== ===========
</TABLE>
See notes to Condensed Financial Statements.
* DERIVED FROM AUDITED FINANCIAL STATEMENTS
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998*
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 844,254 $ 740,576
Accrued Compensation and Related Taxes 993,874 891,186
Deferred Revenue 2,233,838 2,061,475
Other Accrued Expenses 745,705 838,713
----------- -----------
Total Current Liabilities 4,817,671 4,531,950
Pension Obligation 3,006,313 2,882,847
----------- -----------
Total Liabilities 7,823,984 7,414,797
STOCKHOLDERS' EQUITY:
Common Stock, par value $.10, 20,000,000
shares authorized; issued and outstanding,
7,653,209 and 7,607,709, respectively 765,321 760,771
Additional Paid-in Capital 19,162,349 18,954,579
Retained Earnings (11,176,854) (11,734,431)
Treasury Stock (62,300 and 52,300 shares
at cost, Respectively) (275,715) (213,215)
----------- -----------
Total Stockholders Equity 8,475,101 7,767,704
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,299,085 $15,182,501
=========== ===========
</TABLE>
See notes to Condensed Financial Statements.
* DERIVED FROM AUDITED FINANCIAL STATEMENTS
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Unaudited)
1999 1998
<S> <C> <C>
SALES $ 5,043,367 $ 3,604,377
COSTS AND OPERATING EXPENSES:
Cost of Sales 791,979 764,305
Engineering & Software Development 667,967 630,145
Selling, General and Administrative 3,070,750 2,145,390
----------- -----------
Total Costs and Operating Expenses 4,530,696 3,539,840
INCOME FROM OPERATIONS 512,671 64,537
INTEREST INCOME 64,906 38,535
----------- -----------
INCOME BEFORE INCOME TAXES 577,577 103,072
INCOME TAXES 20,000 -
----------- -----------
NET INCOME $ 557,577 $ 103,072
=========== ===========
INCOME PER SHARE
Basic $ .07 $ .01
===== =====
Diluted $ .07 $ .01
===== =====
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 557,577 $ 103,072
----------- -----------
Adjustments to Reconcile Net Income to Net
Cash Provided (used) by Operating Activities
Depreciation and Amortization 333,300 283,139
Provision for Losses on Accounts Receivable 5,000 12,501
Provision for Inventory Obsolescence 47,500 24,999
Loss on Disposal of Fixed Assets 2,399 -
Changes in Assets and Liabilities
Accounts Receivable (98,412) (737,968)
Inventories (19,436) 220,119
Prepaid Expenses and Other Current Assets (23,627) (7,833)
Deposits and Other Assets (4,873) (7,882)
Accounts Payable 103,678 (205,399)
Accrued Compensation Related Taxes 102,688 69,482
Deferred Revenue 172,363 166,613
Other Current Liabilities (93,008) (118,683)
----------- -----------
Net Adjustments 527,572 (300,912)
----------- -----------
Net Cash Provided (Used) by Operating Activities 1,085,149 (197,840)
----------- -----------
INVESTING ACTIVITIES:
Investments 598,421 626,823
Additions to Property and Equipment (627,652) (177,098)
Software Development Costs (393,907) (230,780)
----------- -----------
Net Cash Flows Provided (Used) by Investing
Activities: (423,138) 218,945
----------- -----------
FINANCING ACTIVITIES:
Increase in Pension Obligation 123,466 (450)
Proceeds from Sales of Stock - -
Exercise of Stock Options and Warrants 212,320 12,850
Treasury Stock Purchases (62,500) -
----------- -----------
Net Cash Flows Provided by Financing Activities 273,286 12,400
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 935,297 33,505
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 371,209 1,106,944
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,306,506 $ 1,140,449
=========== ===========
</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL
The accompanying unaudited financial statements include all
adjustments of a normal and recurring nature which are, in the opinion of
Registrant's management, necessary to present fairly the Registrant's
financial position as of March 31, 1999 and the results of its operations
and cash flows for the three months ended March 31, 1999 and 1998.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These condensed
financial statements should be read in conjunction with the financial
statements and related notes contained in the Annual Report for the fiscal
year ended December 31, 1998.
The results of operations for the three months ended March 31, 1999
are not necessarily indicative of the results to be expected for a full
year's operation.
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements which involve risks
and uncertainties, including but not limited to economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices, and other factors discussed in the
Company's filings with the Securities and Exchange Commission.
(2) INVENTORIES
The composition of inventories at March 31, 1999 and December 31, 1998
was as follows:
MARCH 31, DECEMBER 31,
1999 1998
Purchased parts and components $ 350,302 $ 340,350
Work in process 99,017 116,228
Finished goods 102,585 123,390
--------- ---------
$ 551,904 $ 579,968
========= =========
<PAGE>
(3) PROPERTY AND EQUIPMENT
The major classifications of property and equipment at March 31, 1999,
and December 31, 1998 are:
MARCH 31, DECEMBER 31,
1999 1998
Machinery and equipment $ 1,392,299 $ 1,377,179
Computer hardware and software 3,195,148 3,075,398
Furniture and fixtures 1,064,783 1,064,117
Leasehold improvements 817,825 347,775
----------- -----------
$ 6,470,055 $ 5,864,469
=========== ===========
(4) EARNINGS PER SHARE
Earnings per share have been calculated under SFAS 128, "Earnings Per
Share."
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Sales of $5,043,367 for the first quarter ended March 31, 1999
increased 40% from the sales of $3,604,377 for the first quarter of 1998,
establishing a record first quarter sales volume for the Company. For the
three months ended March 31, 1999, the Company earned net income of
$557,577, or $.07 per share, compared with net income of $103,072, or $.01
per share for the same three month period of 1998. Net income as a
percentage of sales for the three months ended March 31, 1999, was 11.1% of
sales as compared with 2.9% of sales for the three months ended March
31, 1998.
Demand for the Company's core call accounting products and services to
both the domestic and international market remained strong throughout the
quarter. Sales of core products increased by 41% for the quarter ended
March 31, 1999, as compared to the quarter ended March 31, 1998, accounting
for 72% of first quarter 1999 sales.
Sales of Verabill, the Company's billing and customer care product for
wireline, wireless and other network service providers, accounted for 8% of
the Company's sales for the first quarter ended March 31, 1999,
representing a four fold increase over the sales realized for the same
three month period of 1998. Additionally, subsequent to the end of the
first quarter the Company announced the receipt of three new orders for
Verabill. The first from a wireless carrier on the island of Bonaire in
the Netherlands Antilles, the second for American Samoa Telecom LLP, a new
GSM operator on the island of American Samoa, and a third order for a
Norwegian carrier that will provide fixed and wireless telephony, data
communications and internet services. During the first quarter the Company
also announced that it has signed an agreement with Kanbay Incorporated of
Rosemont, Illinois, under which Kanbay will provide worldwide
implementation support and customization services for the Company's
Verabill product. With Verabill systems now installed and operating on
five continents, the Company feels that this agreement greatly enhances its
ability to provide professional implementation and support services
simultaneously to multiple customers throughout the world.
Sales of TMS, the Company's mid to high end telemanagement product
rose 97% for the quarter ended March 31, 1999 compared to the same quarter
of 1998. In total, TMS accounted for 6% of total Company sales.
Sales of INFO/MDR, the Company's centrex and virtual private network
offering were down approximately 34% for the first three months of 1999
compared with the first three months of 1998. However, the order rate has
been very favorable and the Company believes that sales of INFO/MDR
realized during 1999 will exceed the sales recognized during 1998.
For the quarter ended March 31, 1999, 31% of Company sales were
generated from previously deferred billings for a variety of services,
including training, installation, custom rate updates, and implementation
services. For the quarter ended March 31, 1998, 26% of Company sales were
derived from previously deferred billings. For the quarter ended March 31,
1999, approximately 10% of sales were from previously deferred billings for
services which have not been, and are not expected to be, utilized by
customers, based on historical experience.
For the three month ended December 31, 1999 the Company earned a gross
margin on sales of $4,251,388. For the same three month period of 1998
the Company realized a gross margin on sales of $2,840,072. The increased
margins are the result of the significantly higher sales volume combined
with lower direct product costs as a percentage of sales for the comparable
periods.
Net engineering expenses, after the effects of the capitalization of
development costs, increased by 6% from $630,145 for the three months ended
March 31, 1998 to $667,967 for the three months ended March 31, 1999. Gross
engineering and development expenses for the three months ended March
31, 1999 were 23% higher than those costs incurred for the same quarter of
1998. The table below summarizes the impact on the Company's operations of
its engineering and development efforts for the three months ended March
31, 1999 and 1998. The table details engineering and development expenses
on both a gross and net of capitalization basis, and adds back charges to
cost of sales resulting from the amortization of previously capitalized
development costs.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998
<S> <C> <C>
Gross Expenditures for Engineering & Software $ 1,061,874 $ 860,925
Development
Less: Costs Capitalized (393,907) (230,780)
----------- ---------
Net Engineering & Software Development Expense $ 667,967 $ 630,145
Plus: Amounts Amortized and Charged to Cost
Of Sales 217,036 209,128
----------- ---------
Total Expense Recognized $ 885,003 $ 839,273
=========== =========
</TABLE>
Selling, general and administrative expenses for the three months
ended March 31, 1999 of $3,070,750 were 43% higher than the $2,145,390 of
selling, general and administrative expenses incurred for the same three
month period of 1998. The increased spending levels reflect the
significant growth in the Company's employment figures from 145 employees
at the end of the first quarter of 1998 to 180 employees at March 31, 1999.
As a result, expenses for salaries, benefits, recruiting, telephone,
training and travel expenses have increased accordingly. The Company
continues to actively recruit in all functional areas and continued
employment growth is expected throughout 1999.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's total cash position (cash on hand plus short-term
investments) at March 31, 1999 was $5,426,779. This compared with a total
cash position of $5,089,903 at December 31, 1998 and $2,869,407 at March
31, 1998.
Accounts receivable increased 4% from the December 31, 1998 figure of
$2,273,705 to $2,367,117 at March 31, 1999. There were no significant
changes in payment trends among major customers during the first quarter.
Capital equipment spending for the first three months of 1999 was
$627,652, of which approximately $470,000 was related to construction costs
and leasehold improvements to an additional 15,000 square feet leased in
the same building that houses the Company's current headquarters in
Pittsford, New York. The additional space was required to meet the needs
of the Company's expanding employment base and to upgrade its customer
training facilities.
Software development expenses capitalized and carried on the balance
sheet at March 31, 1999 of $3,570,413, or 22% of total assets, compared
with capitalized development costs of $3,393,542, also representing 22% of
assets at December 31, 1998. Virtually all of the current capitalized
costs relate to the Verabill and TMS product lines and are being amortized
over periods ranging from three to five years.
Total assets at March 31, 1999 total $16,299,085 representing an
increase of 7% from the $15,182,501 of total assets at December 31, 1998,
and an increase of 37% from the total assets of $11,937,012 at March 31,
1998.
Accrued compensation and related taxes increased from $891,186 at
December 31, 1998 to $993,874 at March 31, 1999 as a result of increased
employment levels.
Deferred revenues at March 31, 1999 were $2,233,838 versus $2,061,475
at December 31, 1998. Deferred revenues represent the value of unrecognized
revenues related to a variety of services for which the Company has billed
customers, but not yet performed the associated service. These services
typically include training, installation, maintenance and support, and
implementation services.
During the first quarter of 1999 the Company repurchased 10,000 shares
of its common stock on the open market for a total consideration of
$62,500. This continues a policy of repurchasing Company stock as market
conditions, cash requirements and profitability allow.
The Company maintains a private equity line of credit agreement with a
single institutional investor. Under the equity line, the Company has the
right to sell to the investor shares of the Company's common stock at a
price equal to 88% of the average bid price of the stock for the subsequent
ten trading days. During the term of the agreement the Company may sell up
to $6 million to this investor, with no more than $500,000 in any single
month. This agreement expires on August 30, 2000. There were no
transactions under this agreement during the first quarter of 1999.
<PAGE>
The Company also maintains an agreement with a major commercial bank
for a secured demand line of credit arrangement in the amount of
$3,000,000. There have been no borrowings against this agreement.
In light of its current cash position, profitable operations, and the
credit arrangements referred to above, the Company believes that it has
sufficient resources to meet its financial needs and support anticipated
growth over the next twelve months.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(1) Registrant's Condensed Financial Statements for the three months ended
March 31, 1999 and 1998 are set forth in Part I, Item 1 of this Quarterly
Report on Form 10-Q.
(2) Calculation of earnings per share.
<PAGE>
EXHIBIT A: (2)
VERAMARK TECHNOLOGIES, INC.
CALCULATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Basic
Net Income $ 557,577 $ 103,072
=========== ===========
Weighted Common Shares Outstanding 7,590,137 7,550,870
=========== ===========
Income Per Common Share $ .07 $ .01
=========== ===========
DILUTED
Net Income $ 557,577 $ 103,072
=========== ===========
Weighted Average Shares Outstanding 7,590,137 7,550,870
Additional Dilutive Effect of Stock
Options and Warrants after Application
of Treasury Stock Method 613,381 410,935
----------- -----------
Weighted Average Shares Outstanding 8,203,518 7,961,805
=========== ===========
Income per Common Share and Common
Equivalent Share $ .07 $ .01
=========== ===========
</TABLE>
<PAGE>
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.
VERAMARK TECHNOLOGIES, INC.
REGISTRANT
Date: May 11, 1999
------------
_____________________________________
David G. Mazzella
President and CEO
Date: May 11, 1999
------------
_____________________________________
Ronald C. Lundy
Treasurer (Chief Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1306506
<SECURITIES> 4120273
<RECEIVABLES> 2470117
<ALLOWANCES> 103000
<INVENTORY> 551904
<CURRENT-ASSETS> 8525258
<PP&E> 6470055
<DEPRECIATION> 4552136
<TOTAL-ASSETS> 16299085
<CURRENT-LIABILITIES> 4817671
<BONDS> 0
0
0
<COMMON> 765321
<OTHER-SE> 7709780
<TOTAL-LIABILITY-AND-EQUITY> 16299085
<SALES> 5043367
<TOTAL-REVENUES> 5043367
<CGS> 791979
<TOTAL-COSTS> 4530696
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 103000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 577577
<INCOME-TAX> 20000
<INCOME-CONTINUING> 557577
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 557577
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
