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 September 30, 2000
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 September 30, 2000.
Common stock, par value $.10 8,104,713 shares
This report consists of 15 pages.
<PAGE>
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets - 3 - 4
September 30, 2000 and December 31, 1999
Condensed Statements of Operations - 5
Three and Nine Months Ended September 30, 2000 and 1999
Condensed Statements of Cash Flows - 6
Nine Months Ended September 30, 2000 and 1999
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>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
<S> <C> <C>
CURRENT ASSETS: (Unaudited)
Cash and Cash Equivalents $ 803,320 $ 2,894,500
Investments 805,995 5,137,268
Accounts Receivable, trade (net of
allowance for doubtful accounts of
$252,000 and $260,000, respectively) 2,280,150 3,821,244
Net Inventories 401,591 557,123
Prepaid Expenses 272,931 596,574
------------ ------------
Total Current Assets 4,563,987 13,006,709
PROPERTY AND EQUIPMENT 6,703,409 7,664,867
Less Accumulated Depreciation (3,988,463) (4,563,669)
------------ ------------
Property and Equipment (Net) 2,714,946 3,101,198
OTHER ASSETS:
Software Development Costs
(Net of accumulated amortization of
$2,089,717 and $1,531,720,
respectively) 2,338,704 2,691,807
Pension Assets 1,977,710 1,977,710
Deposits and Other Assets 629,677 511,858
------------ ------------
Total Other Assets 4,946,091 5,181,375
TOTAL ASSETS $ 12,225,024 $ 21,289,282
============ ============
</TABLE>
See notes to Condensed Financial Statements.
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 649,852 $ 827,837
Accrued Compensation and Related Taxes 1,812,129 2,021,102
Deferred Revenue 2,292,009 3,515,957
Other Accrued Expenses and Current Liabilities 280,670 438,787
------------ ------------
Total Current Liabilities 5,034,660 6,803,683
Note Payable - 1,100,000
Long Term Portion of Capital Leases 45,167 110,712
Pension Obligation 3,328,255 3,043,771
------------ ------------
Total Liabilities 8,408,082 11,058,166
STOCKHOLDERS' EQUITY:
Common Stock, par value $.10,
40,000,000 shares authorized; issued and
outstanding, 8,184,938 and 8,143,673, respectively 818,494 814,367
Additional Paid-in Capital 20,065,765 20,109,463
Retained Deficit (16,681,560) (10,306,957)
Treasury Stock (80,225 shares at cost) (385,757) (385,757)
------------ ------------
Total Stockholders' Equity 3,816,942 10,231,116
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,225,024 $ 21,289,282
============ ============
</TABLE>
See notes to Condensed Financial Statements.
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C> <C>
SALES $ 4,889,126 $ 7,537,346 $ 12,915,402 $21,281,447
COSTS AND OPERATING EXPENSES:
Cost of Sales 821,037 913,687 2,424,266 2,756,922
Engineering & Software Development 950,090 1,727,938 4,450,325 4,157,884
Selling, General and Administrative 3,351,556 4,044,473 11,850,808 11,982,298
----------- ----------- ------------ -----------
Total Costs and Operating Expenses 5,122,683 6,686,098 18,725,399 18,897,104
INCOME (LOSS) FROM OPERATIONS (233,557) 851,248 (5,809,997) 2,384,343
NET INTEREST INCOME (EXPENSE) 11,507 (15,320) 34,336 43,515
MERGER EXPENSES (Note 4) - - 598,942 -
----------- ----------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES (222,050) 835,928 (6,374,603) 2,427,858
INCOME TAXES - 30,000 - 75,000
----------- ----------- ------------ -----------
NET INCOME (LOSS) $(222,050) $ 805,928 $ (6,374,603) $ 2,352,858
=========== =========== ============ ===========
INCOME (LOSS) PER SHARE:
Basic $ (.03) $ .10 $ (.79) $ .30
======== ===== ====== =====
Diluted $ (.03) $ .09 $ (.79) $ .27
======== ===== ====== =====
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
<TABLE>
<CAPTION>
2000 1999
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $ (6,374,603) $2,352,858
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 1,434,745 1,289,973
Provision for Losses on Accounts Receivable 27,000 (23,000)
Provision for Inventory Obsolescence 114,997 69,500
Loss on Disposal of Fixed Assets 15,991 2,492
Changes in Assets and Liabilities:
Accounts Receivable 1,514,094 (727,538)
Inventories 40,535 (66,419)
Prepaid Expenses 160,054 (213,592)
Deposits and Other Assets (117,819) 73,895
Accounts Payable (177,985) (80,474)
Accrued Compensation and Related Taxes (208,973) 579,379
Deferred Revenue (1,223,948) (312,213)
Other Current Liabilities (158,117) (452,385)
Increase in Pension Obligation 284,484 270,397
----------- ----------
Net Adjustments 1,705,058 410,015
----------- ----------
Net Cash Provided (Used) by Operating Activities (4,669,545) 2,762,873
INVESTING ACTIVITIES:
Sale (Purchase) of Investments 4,331,273 (454,090)
Additions to Property and Equipment (294,978) (1,870,208)
Software Development Costs (416,403) (393,907)
----------- ----------
Net Cash Provided (Used) by Investing Activities 3,619,892 (2,718,205)
FINANCING ACTIVITIES:
Repayment of Note Payable (1,100,000) -
Capital Lease Obligations (Repayment) (65,545) 90,050
Exercise of Stock Options and Warrants 56,843 387,140
Employee Stock Purchase Plan 67,175 66,287
Treasury Stock Purchases - (172,542)
----------- ----------
Net Cash Provided (Used) by Financing Activities (1,041,527) 370,935
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (2,091,180) 415,603
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,894,500 1,497,125
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 803,320 $1,912,728
=========== ==========
</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) GENERAL
The accompanying unaudited financial statements include all
adjustments of a normal and recurring nature which are, in the opinion of
the Company's management, necessary to present fairly the Company's
financial position as of September 30, 2000 and the results of its
operations and cash flows for the three and nine months ended September 30,
2000 and 1999.
On January 7, 2000, Veramark Technologies, Inc. (the "Company") issued
360,850 shares of common stock in exchange for all of the outstanding
shares of The Angeles Group, Inc. This business combination was accounted
for as a pooling of interests, and accordingly, the historical financial
statements of the Company have been restated to include the consolidated
financial statements of Veramark Technologies, Inc. and The Angeles Group,
Inc. for all periods presented.
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 for interim
reporting. These condensed financial statements should be read in
conjunction with the supplemental financial statements and related notes
contained in the Company's annual 10-K report to the Securities and
Exchange Commission for the year ended December 31, 1999.
The results of operations for the three and nine months ended
September 30, 2000 are not necessarily indicative of the results to be
expected for a full year's operation.
(2) NET INVENTORIES
The composition of net inventories at September 30, 2000 and December
31, 1999 was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
<S> <C> <C>
Purchased parts and components $ 268,987 $ 423,460
Work in process 66,532 94,991
Finished goods 66,072 38,672
--------- ---------
$ 401,591 $ 557,123
========= =========
</TABLE>
<PAGE>
(3) PROPERTY AND EQUIPMENT
The major classifications of property and equipment, net, at September
30, 2000, and December 31, 1999 are:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
<S> <C> <C>
Machinery and equipment $ 802,356 $ 1,241,036
Computer hardware and software 2,754,513 3,679,595
Furniture and fixtures 1,763,981 1,376,024
Leasehold improvements 1,382,559 1,368,212
----------- -----------
$ 6,703,409 $ 7,664,867
=========== ===========
</TABLE>
(4) ACQUISITION
On January 7, 2000, the Company acquired all of the outstanding shares
of The Angeles Group in a stock-for-stock merger accounted for as a
pooling-of-interests. In connection with the merger, the Company
issued 360,850 shares of common stock with an aggregate value of
$4,059,562. In connection with the acquisition, the Company paid the
debt of The Angeles Group of $1.1 million and incurred transaction
costs of approximately $600,000.
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
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, as well as
other factors discussed in the Company's filings with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS
Sales for the third quarter ended September 30, 2000 were $4,889,126,
representing an increase of 57% from the sales achieved for the second
quarter of 2000 of $3,111,859, but 35% lower than sales of $7,537,346 for
the third quarter 1999. Sales for the nine months ended September 30, 2000
of $12,915,402 compared with sales of $21,281,447 for the nine months ended
September 30, 1999, a decline of 39%. Sales for both the three and nine
months ended September 30, 2000, as compared with the same three and nine
month periods of 1999, were adversely impacted by Lucent Technologies
(formerly the Company's largest customer) decision to exit the PBX business
through the sale of one business unit to Exp@nets and the spin-off of
another (now known as Avaya Communications). Primarily due to this
disruption in the Company's major channel for the sale of its call
accounting software, sales of core call accounting products and related
services for the nine months ended September 30, 2000, declined 55% from
the sales generated for the first nine months of 1999. Both of those
transactions are now complete and the Company has begun to see an increase
in the order rate from these two new customers, with sales to this channel
increasing by 23% during the third quarter of this year versus the second
quarter.
Sales of the Company's enterprise products, DNT and Quantum, increased
significantly from the same quarter of 1999 and the second quarter of 2000.
DNT sales were up 43% from the same quarter of 1999 and 86% from the second
quarter of this year. Quantum sales increased 25% as compared with the
third quarter of 1999 and 94% from the second quarter of 2000.
The Company continues to sell and support Verabill, its billing and
customer care product, while continuing efforts to either spin-off Verabill
into a separate company or sell the product line to a strategic buyer.
Sales for Verabill for the three months ended September 30, 2000 increased
88% from the prior quarter of 2000, representing 10% of total third quarter
sales. For the nine months ended September 30, 2000, sales of Verabill are
28% lower than sales recognized for the nine months ended September 30,
1999.
Sales of Info/MDR, the Company's centrex product offering, increased
4% for the three months ended September 30, 2000, as compared to the same
quarter of 1999, and were nearly four times the sales level recognized for
the second quarter of 2000.
For the nine months ended September 30, 2000, sales of the Company's
core call accounting products accounted for 47% of the Company's sales,
enterprise products 36% of sales, Verabill 9% of sales and Info/MDR 6%.
For the nine months ended September 30, 1999, call accounting accounted for
63% of sales, enterprise systems 23% of sales, Verabill 7% of sales, and
Info/MDR 6% of sales.
<PAGE>
For the nine months ended September 30, 2000, product sales have
accounted for 54% of total sales, with services, consisting of maintenance
and support, training, and installation, accounting for the remaining 46%
of total sales. For the same nine months of 1999, product sales accounted
for 66% of total sales and services 34% of sales.
Gross margins for the three and nine months ended September 30, 2000
were 83% and 81%, respectively, compared with gross margin percentages of
88% and 87% for the three and nine month periods ended September 30, 1999.
The lower margins in 2000 are due to overhead and amortization expenses,
both of which are relatively fixed, being applied to the lower sales
volumes recognized for the three and nine month period of 2000 as compared
with 1999.
In reaction to the decline in sales and due to the losses incurred
during the first half of 2000, the Company has sharply reduced its
operating expenses, primarily through staff reductions, in order to
position itself for a return to profitable operations as quickly as
possible. As of September 30, 2000, the Company has 182 employees, versus
266 employees as of March 31 of this year. As a result, total
operating expenses of $4,301,646 incurred for the three months ended
September 30, 2000, decreased by 25% from the $5,772,411 of total operating
expenses incurred for the three months ended September 30, 1999.
Net engineering and software development expenses of $950,090 for the
three months ended September 30, 2000 decreased $777,848 or 45% from the
expense level of $1,727,938 incurred for the three months ended September
30, 1999. For the nine months ended September 20, 2000, net engineering
and development expenses of $4,450,325 were 7% higher than for the same
nine month period of 1999. The table below details gross engineering and
development, costs capitalized, and the resulting net engineering and
development expenses for the three and nine months ended September 30, 2000
and 1999.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
GROSS EXPENDITURES FOR ENGINEERING &
DEVELOPMENT $1,260,719 $1,727,938 $4,866,728 $4,551,791
LESS: DEVELOPMENT COSTS CAPITALIZED (310,629) - (416,403) (393,907)
---------- ---------- ---------- ----------
NET EXPENDITURES FOR ENGINEERING &
DEVELOPMENT $950,090 $1,727,938 $4,450,325 $4,157,884
========== ========== ========== ==========
</TABLE>
Selling, general, and administrative expenses of $3,351,556 for the
three months ended September 30, 2000 decreased 17% from the expense level
incurred of $4,044,473 for the same three month period of 1999. Selling
general and administrative expenses were $11,850,808 for the nine months
ended Setpember 30, 2000, versus $11,982,298 for the nine months ended
September 30, 1999, a decrease of 1%.
<PAGE>
For the three months ended September 30, 2000, the Company incurred a net
loss of $222,050, or a loss of $.03 per share. For the three months ended
September 30, 1999, the Company generated net income of $805,928, or $.09
per diluted share. For the nine months ended September 30, 2000, the
Company has incurred a net loss of $6,374,603, or a loss of $.79 per share
versus net income of $2,352,858, or income of $.27 per diluted share for
the same nine month period of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total cash position (cash on hand plus short-term
investments) at September 30, 2000 was $1,609,315, down from $2,576,988 at
June 30, 2000 and $8,031,768 at December 31, 1999. Due to the
significantly lower sales volumes realized for the first nine months of
2000 versus 1999, the Company found it necessary to reduce staffing levels
and reduce certain other operating expenses during the second and third
quarters of 2000. As a result of these actions, the Company was able to
significantly reduce operating losses during the third quarter and
stabilize its cash position. No borrowing under the Company's line of
credit agreement with its bank was necessary during the third quarter and
the Company expects that none will be required during the fourth quarter.
Accounts receivable increased from $1,316,012 at June 30, 2000 to
$2,280,150 at September 30, 2000, reflecting the 57% increase in third
quarter sales, as compared with the sales for the second quarter of 2000.
Capital spending for the first nine months of 2000, as mentioned
above, has been sharply reduced from the levels experienced during 1999.
For the nine months ended September 30, 2000, the Company has paid $294,978
for capital expenditures, as compared to $1,870,208 of capital spending for
the nine months ended September 30, 1999. During 2000, the Company has
disposed of approximately $1,256,000 of capital assets that were no longer
in service and, for the most part, had been fully depreciated. A loss on
the disposition of these assets of approximately $16,000 has been realized
as a result and charged against operations during the year.
Software development costs capitalized and carried as an asset on the
Company's balance sheet total $2,338,704 at September 30, 2000, as compared
with $2,691,807 at December 31, 2000. For the nine months ended September
30, 2000, the Company has capitalized $416,403 of development expenses, and
amortized $769,506 of development expenses capitalized in previous periods.
Total liabilities have declined 24% during the first nine months of
2000, from $11,058,166 at December 31, 1999, to $8,408,082 at September 30,
2000. Mainly as a result of the staff reductions referred to earlier in
this discussion, accounts payable have been reduced by 22%, accrued
compensation and related taxes by 10%, and other accrued expenses by 36% at
September 30, 2000, as compared with the balances at December 31, 1999.
Deferred revenues, which represent services which the Company has billed
customers, but not yet performed the associated service are $2,292,009 at
September 30, 2000, compared with a total of $3,515,957 at December 31,
1999. These services typically include training, installation,
maintenance, and support. The decline in deferred revenues result from
lower sales volumes recognized for the first nine months of 2000 versus the
same nine month period of 1999.
<PAGE>
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 94% (previously 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. On March 29, 2000, the expiration date of
this agreement was extended from August 30, 2000 to August 30, 2001.
Subsequent to end of the third quarter of 2000, the Company sold 8,400
shares of common stock to this investor, realizing proceeds, net of
discount, of $23,688.
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. In August 1999, the Company entered into an agreement with the
same bank for a $7,000,000, three year acquisition revolving credit
facility, in addition to the $3,000,000 demand line of credit agreement
referenced above. There have been no borrowings against either agreement
as of September 30, 2000.
The Company took a number of steps during the first three quarters of
2000 toward maintaining sufficient financial resources to carry out its
operating plans. The most significant of these actions has been a phased
reduction in staffing levels to match the current sales forecast for the
balance of the year. Employment at September 30, 2000 was 182 employees
versus 266 at March 31, 2000. In addition, the Company has deferred non-
essential capital equipment spending and is closely monitoring other
operating expenses, particularly travel and entertainment and outside
professional service expenses.
Given the actions taken above, as well as the credit arrangements
currently in place, the Company believes that it will have sufficient
financial resources available to carry out its operating objectives for 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 nine months
ended September 30, 2000 and 1999 are set forth in Part I, Item 1 of this
Quarterly Report on Form 10-Q.
(2) Calculation of earnings per share.
(3) On April 3, 2000, the Company filed a report on form 8-K announcing a
change in the Company's certifying accountants, effective March 28, 2000.
The Company's Board of Directors approved the engagement of the accounting
firm of PricewaterhouseCoopers LLP as independent accountants for the
Company and its Divisions and subsidiaries for the year ending December
31, 2000, subject to approval of stockholders. The audit relationship
between the Company and its past independent auditors, Arthur Andersen
LLP, was continued through an orderly completion of all matters related to
the year which ended December 31, 1999. During the two most recent fiscal
years and interim period subsequent to December 31, 1999, there were no
disagreements with Arthur Andersen LLP on any matter of accounting
principles or policies, financial statements disclosure, or auditing scope
or procedure.
<PAGE>
EXHIBIT A: (2)
VERAMARK TECHNOLOGIES, INC.
CALCULATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Basic
Net Income (Loss) $(222,050) $ 805,928 $(6,374,603) $2,352,858
========= ========== =========== ==========
Weighted Average Shares Outstanding 8,098,932 7,974,811 8,068,003 7,955,610
========= ========== =========== ==========
Income (Loss) Per Common Share $ (.03) $ .10 $ (.79) $ .30
========= ========== =========== ==========
DILUTED
Net Income (Loss) $(222,050) $ 805,928 $(6,374,603) $2,352,858
========= ========== =========== ==========
Weighted Average Shares Outstanding 8,098,932 7,974,811 8,068,003 7,955,610
Additional Dilutive Effect of Stock
Options and Warrants after
Application of Treasury Stock Method - 980,356 - 670,565
--------- ---------- ----------- ----------
Weighted Average Shares Outstanding 8,098,932 8,955,167 8,068,003 8,626,175
========= ========== =========== ==========
Income (Loss) per Common Share and
Common Equivalent Share $ (.03) $ .09 $ (.79) $ .27
========= ========== =========== ==========
</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>
