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 June 30, 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 of (IRS Employer Identification
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 June 30, 1999.
Common stock, par value $.10 7,588,050 shares
This report consists of 15 pages.
<PAGE>
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets - 3 - 4
June 30, 1999 and December 31, 1998
Condensed Statements of Operations - 5
Three and Six Months Ended June 30, 1999 and 1998
Condensed Statements of Cash Flows - 6
Six Months Ended June 30, 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>
JUNE 30, DECEMBER 31,
ASSETS 1999 1998*
<S> <C> <C>
CURRENT ASSETS: (Unaudited)
Cash and Cash Equivalents $ 804,689 $ 371,209
Investments 4,617,916 4,718,694
Accounts Receivable, trade (net of
allowance for doubtful accounts of
$118,000 and $110,000, respectively) 2,844,971 2,273,705
Inventories 504,122 579,968
Prepaid Expenses 199,885 155,831
------------ ------------
Total Current Assets 8,971,583 8,099,407
PROPERTY AND EQUIPMENT 7,177,675 5,864,469
Less Accumulated Depreciation (4,693,560) (4,455,539)
------------ ------------
Property and Equipment (Net) 2,484,115 1,408,930
OTHER ASSETS:
Software Development Costs
(Net of accumulated amortization of
$995,215 and $1,322,254 respectively) 3,228,312 3,393,542
Pension Assets 1,873,721 1,873,721
Deposits and Other Assets 505,974 406,901
------------ ------------
Total Other Assets 5,608,007 5,674,164
------------ ------------
TOTAL ASSETS $ 17,063,705 $ 15,182,501
============ ============
</TABLE>
See notes to Condensed Financial Statements.
* DERIVED FROM AUDITED FINANCIAL STATEMENTS
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998*
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 616,256 $ 740,576
Accrued Compensation and Related Taxes 1,156,469 891,186
Deferred Revenue 2,285,876 2,061,475
Other Accrued Expenses 779,807 838,713
------------ ------------
Total Current Liabilities 4,838,408 4,531,950
Pension Obligation 3,079,778 2,882,847
------------ ------------
Total Liabilities 7,918,186 7,414,797
STOCKHOLDERS' EQUITY:
Common Stock, par value $.10,
40,000,000 shares authorized; issued and
outstanding, 7,668,275 and 7,607,709,
respectively 766,827 760,771
Additional Paid-in Capital 19,236,225 18,954,579
Retained Earnings (10,471,776) (11,734,431)
Treasury Stock (80,225 and 52,300 shares at cost,
respectively) (385,757) (213,215)
------------ ------------
Total Stockholders' Equity 9,145,519 7,767,704
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,063,705 $ 15,182,501
============ ============
</TABLE>
See notes to Condensed Financial Statements.
* DERIVED FROM AUDITED FINANCIAL STATEMENTS
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
<S> <C> <C> <C> <C> <C>
SALES $ 5,988,740 $ 3,982,773 $ 11,032,107 $ 7,587,150
COSTS AND OPERATING EXPENSES:
Cost of Sales 1,035,165 778,752 1,827,144 1,543,057
Engineering & Software Development 1,101,157 751,851 1,769,124 1,381,996
Selling, General and Administrative 3,176,114 2,312,163 6,246,864 4,457,553
----------- ----------- ------------ -----------
Total Costs and Operating Expenses 5,312,436 3,842,766 9,843,132 7,382,606
INCOME FROM OPERATIONS 676,304 140,007 1,188,975 204,544
INTEREST INCOME 53,774 40,333 118,680 78,868
----------- ----------- ------------ -----------
INCOME BEFORE INCOME TAXES 730,078 180,340 1,307,655 283,412
INCOME TAXES 25,000 - 45,000 -
----------- ----------- ------------ -----------
NET INCOME $ 705,078 $ 180,340 $ 1,262,655 $ 283,412
=========== =========== ============ ===========
INCOME PER SHARE
Basic $ .09 $ .02 $ .17 $ .03
===== ===== ===== =====
Diluted $ .09 $ .02 $ .16 $ .03
===== ===== ===== =====
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 1,262,655 $ 283,412
----------- ----------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 816,825 619,878
Provision for Losses on Accounts Receivable 10,000 2,002
Provision for Inventory Obsolescence 85,000 49,998
Loss on Disposal of Fixed Assets 2,399 -
Changes in Assets and Liabilities
Accounts Receivable (581,266) (712,533)
Inventories (9,154) 264,912
Prepaid Expenses and Other Current Assets (44,054) (67,798)
Deposits and Other Assets (99,073) (98,127)
Accounts Payable (124,320) (126,764)
Accrued Compensation and Related Taxes 265,283 144,884
Deferred Revenue 224,401 309,216
Other Current Liabilities (58,906) (93,143)
----------- ----------
Net Adjustments 487,135 292,525
Net Cash Provided by Operating Activities 1,749,790 575,937
----------- ----------
INVESTING ACTIVITIES:
Investments 100,778 680,125
Additions to Property and Equipment (1,335,272) (451,639)
Software Development Costs (393,907) (437,611)
----------- ----------
Net Cash Flows Used by Investing Activities: (1,628,401) (209,125)
----------- ----------
FINANCING ACTIVITIES:
Increase in Pension Obligation 196,931 (4,235)
Proceeds from Sales of Stock - 143,384
Employee Stock Purchase Plan 66,287 -
Exercise of Stock Options and Warrants 221,415 50,201
Treasury Stock Purchases (172,542) -
Stock Retirements - (8,752)
----------- ----------
Net Cash Flows Provided by Financing Activities 312,091 180,598
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 433,480 547,410
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 371,209 1,106,944
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 804,689 $1,654,354
=========== ==========
</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 June 30, 1999 and the results of its operations
and cash flows for the three and six months ended June 30, 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 and six months ended June 30,
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 June 30, 1999 and December 31, 1998
was as follows:
JUNE 30, DECEMBER 31,
1999 1998
Purchased parts and components $ 379,204 $ 340,350
Work in process 43,151 116,228
Finished goods 81,767 123,390
--------- ---------
$ 504,122 $ 579,968
<PAGE>
(3) PROPERTY AND EQUIPMENT
The major classifications of property and equipment at June 30, 1999,
and December 31, 1998 are:
JUNE 30, DECEMBER 31,
1999 1998
Machinery and equipment $ 1,401,548 $ 1,377,179
Computer hardware and software 3,457,238 3,075,398
Furniture and fixtures 1,080,037 1,064,117
Leasehold improvements 1,238,852 347,775
----------- -----------
$ 7,177,675 $ 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 for the three months ended June 30, 1999 represented a record
second quarter for the Company, totaling $5,988,740, an increase of 50%
over the sales of $3,982,773 achieved for the same three months of 1998.
Sales for the six months ended June 10, 1999 of $11,032,107 are 45% higher
than the sales of $7,587,150 generated for the same six month period of
1998.
Net income for the quarter ended June 30, 1999 was $705,078 or $.09
per share. This compared with net income of $180,340, or $.02 per share
for the three months ended June 30, 1998. Net income for the six months
ended June 30, 1999 was $1,262,655 or $.16 per diluted share, which
compared with net income of $283,412 or $.03 per share for the same six
month period of 1998, represents an increase of 346%.
Sales of the Company's core call accounting products and services to
both domestic and international markets grew by 57% during the first six
months of 1999 versus the first six months of 1998, accounting for 73% of
total sales.
Sales of Verabill, the Company's billing and customer care product for
wireline, wireless and other network service providers, account for 8% of
total sales for the first six months of 1999 and are 63% higher than the
Verabill sales realized during the first six months of 1998.
Sales of INFO/MDR, the company's Centrex and virtual private network
offering for the first six months of 1999 are approximately equal to sales
generated during the first six months of 1998. Sales and new orders for
INFO/MDR were particularly strong during the second quarter of 1999 and the
Company remains confident that sales of INFO/MDR for the current year will
comfortably exceed the levels of sales realized for 1998. INFO/MDR
accounted for 9% of total sales for the three months ended June 30, 1999
and 7% of total sales for the six months ended June 30, 1999.
Sales of TMS, the Company's medium to high-end telemanagement product
have accounted for 4% of the Company's total sales during 1999, increasing
by 81% over TMS sales achieved during the first six months of 1998.
For the six months ended June 30, 1999, 33% of Company sales were
generated from previously deferred billings for a variety of services,
including training, installation, custom rate updates, and implementation
services. This compares with 27% of Company sales being derived from
previously deferred billings for the fist six months of 1998. For the
three months ended June 30, 1999, 12% 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.
<PAGE>
For the three months ended June 30, 1999, the Company earned a gross
margin on sales of $4,953,575 versus a gross margin $3,204,021 for the
three months ended June 30, 1998. For the six months ended June 30, 1999,
gross margins were $9,204,963, an increase of 52% over the gross margin of
$6,044,093 earned for the first six months of 1998. The higher margins
reflect a combination of higher sales volumes and lower direct products
costs as a percentage of sales.
Net engineering and software development expense for the six months
ended June 30, 1999 of $1,769,124 are 28% higher than the net engineering
and development expense of $1,381,996 incurred for the first six months of
1998. There were no development costs capitalized in the second quarter of
1999. The table below summarized the impact on the Company's operations of
its engineering and development expenses on a gross and net of
capitalization basis, and adds back charges included in cost of sales from
the amortization of previously capitalized development costs.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Gross Expenditures for Engineering &
Software Development $1,101,157 $ 958,682 $2,163,031 $1,819,607
Less: Costs Capitalized -0- (206,831) (393,907) (437,611)
Net Engineering & Software
Development Expense $1,101,157 $ 751,851 $1,769,124 $1,381,996
Plus: Amounts Amortized and Charged
to Cost Of Sales 342,101 250,982 559,137 460,110
---------- --------- ---------- ----------
Total Expense Recognized $1,443,258 $1,002,833 $2,328,261 $1,842,106
========== ========== ========== ==========
</TABLE>
Selling, general and administrative expenses for the three months
ended June 30, 1999 of $3,176,114 are 37% higher than the expense levels
incurred during the three month period ended June 30, 1998. For the six
months ended June 30, 1999, selling general and administrative expenses of
$6,246,864 are 40% higher than the same six month period of 1998. The
higher spending levels continue to reflect the significant growth in the
Company employment in all functional areas, a trend that is expected to
continue throughout the balance of 1999. Expense levels for salaries,
benefits, recruiting, training, and travel continue to increase
accordingly. SG&A spending as a percentage of sales however has decreased
from 59% of sales for the first six months of 1998 to 57% of sales for the
six month period ended June 30, 1999. The following table compares
employment at June 30, 1999 to employment at June 30, 1998 on a functional
basis.
<PAGE>
<TABLE>
<CAPTION>
EMPLOYMENT AT EMPLOYMENT AT
JUNE 30, JUNE 30,
1999 1998
<S> <C> <C>
Operations 14 12
Engineering/Development/Test 57 42
Sales/marketing 52 44
Customer Support/Service 55 42
Administration 17 15
--- ---
195 155
=== ===
</TABLE>
The second quarter of 1999 represented the company's eighth
consecutive quarter of increased sales and net income. Net income for the
quarter ended June 30, 1999 was 11.8% of sales versus 4.5% of sales for the
quarter ended June 30, 1998, and represents 11.4% of sales for the six
months ended June 30, 1999 versus 3.7% of sales for the six months ended
June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total cash position (cash on hand plus short-term
investments) at June 30, 1999 was $5,422,605 an increase of 6% from the
$5,089,903 of cash and investments at December 31, 1998. This
strengthening in the cash position has been achieved during a period of
significant expenditures in capital equipment and facilities. During the
first half of 1999 the Company has invested $1,335,272 in expanding its
facilities, improving internal networks and information systems and
equipping employers with the latest state of the art tools designed to
enhance productivity. While the rate of capital spending is expected to
slow somewhat during the second half of 1999, capital spending will
continue above prior historical levels given the significant increases in
employment which are expected to continue throughout 1999.
Software development cost capitalized of $3,228,312 representing 19%
of total assets at June 30, 1999 have declined from $3,393,542 or 22% of
total assets at December 31, 1999. There were no development costs
capitalized during the second quarter of 1999.
Total assets have increased by over 12% from December 31, 1998 to
$17,063,705.
Accrued compensation and related taxes have increased from $891,186 at
December 31, 1998 to $1,156,469 at June 30, 1999, reflecting the higher
employment levels.
Deferred revenues at June 30, 1999 were $2,285,876 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. It is expected that the revenue
associated with these services will be recognized over the next twelve
months as the actual services are provided.
<PAGE>
During the first half of 1999 the Company repurchased 27,925 shares of
its common stock on the open market for a total consideration of $172,542.
Since September of 1998 the Company has repurchased a total of 80,225
shares of its common stock at an average price of $4.81. 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 or second quarters of
1999.
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 and six months
ended June 30, 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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
BASIC
Net Income $ 705,078 $ 180,340 $1,262,655 $ 283,412
========== ========== ========== ==========
Weighted Common Shares Outstanding 7,580,182 7,575,444 7,585,160 7,563,157
========== ========== ========== ==========
Income Per Common Share $ .09 $ .02 $ .17 $ .03
===== ===== ===== =====
DILUTED
Net Income $ 705,078 $ 180,340 $1,262,655 $ 283,412
========== ========== ========== ==========
Weighted Average Shares Outstanding 7,580,182 7,575,444 7,585,160 7,563,157
Additional Dilutive Effect of Stock
Options and Warrants after
Application of Treasury Stock Method 417,958 389,745 515,670 400,340
---------- --------- --------- ---------
Weighted Average Shares Outstanding 7,998,140 7,965,189 8,100,830 7,963,497
========== ========= ========= =========
Income per Common Share and Common
Equivalent Share $ .09 $ .02 $ .16 $ .03
===== ===== ===== =====
</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: _________________________
_____________________________________
David G. Mazzella
President and CEO
Date: _________________________
_____________________________________
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> JUN-30-1999
<CASH> 804689
<SECURITIES> 4617916
<RECEIVABLES> 2962971
<ALLOWANCES> 118000
<INVENTORY> 504122
<CURRENT-ASSETS> 8971583
<PP&E> 7177675
<DEPRECIATION> 4693560
<TOTAL-ASSETS> 17063705
<CURRENT-LIABILITIES> 4838408
<BONDS> 0
0
0
<COMMON> 766827
<OTHER-SE> 8378692
<TOTAL-LIABILITY-AND-EQUITY> 17063705
<SALES> 5988740
<TOTAL-REVENUES> 5988740
<CGS> 1035165
<TOTAL-COSTS> 5312436
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 118000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 730078
<INCOME-TAX> 25000
<INCOME-CONTINUING> 705078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 705078
<EPS-BASIC> .09
<EPS-DILUTED> .09
</TABLE>
