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, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition period from _________to _________
Commission File No. 1-10623
Pamet Systems, Inc.
____________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Massachusetts 04-2985838
____________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Main Street, Acton, Massachusetts 01720
____________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (508) 263-2060
Check whether the issurer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes__X__ No_____
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the close of the period covered by this report:
Title of each class Number of shares outstanding
Common stock 2,060,200
($.01 par value)
Transitional Small Business Disclosure Format
YES______ NO___X___
<PAGE>
PAMET SYSTEMS, INC.
INDEX TO FORM 10-QSB
PAGE
Part I - Financial Information
Item 1 - Financial Statements
Condensed Balance Sheets 1
June 30, 1996 and December 31, 1995
Condensed Statements of Operations 2
for the quarter ended June 30, 1996
and 1995 and six months ended June 30,
1996 and 1995
Condensed Statement of Cash Flows 3-4
for the six months ended June 30,
1996 and 1995
Item 2 - Management's Discussion and Analysis of 6-8
Financial Condition or Plan of Operations
Part II - Other Information
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults Upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of 9
Security Holders
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signature(s) 10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Pamet Systems, Inc.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS June 30, December 31,
1996 1995
(unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 8,941 $ 28,264
Accounts receivable, net of allowance for
doubtful accounts of $36,951 645,549 246,161
Inventory 51,198 26,921
Prepaid expenses and other current assets 32,705 46,644
TOTAL CURRENT ASSETS 738,393 347,990
PROPERTY AND EQUIPMENT, NET 904,030 922,596
OTHER ASSETS 827 1,025
RESTRICTED CASH 26,794 26,450
TOTAL OTHER ASSETS 27,621 27,475
---------- ----------
$1,670,044 $1,298,061
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $345,414 $ 245,516
Accrued expenses 208,290 140,684
Notes payable-related party 304,539 81,099
Deferred software maintenance revenue 92,940 190,034
Current portion of long-term debt 13,805 13,069
--------- ---------
TOTAL CURRENT LIABILITIES 964,988 670,402
LONG TERM DEBT, less current portion 502,851 509,426
UNEARNED SUPPORT REVENUE 54,123 79,283
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; 2,060,200 issued and
outstanding 20,602 20,183
Additional paid-in Capital 4,089,549 4,072,629
Accumulated deficit (3,962,069) (4,053,862)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 148,082 38,950
$1,670,045 $1,298,061
========== ==========
</TABLE>
See accompanying "Notes to Financial Statements (Unaudited)"
<PAGE>
Item 1 - Financial Statements
Pamet Systems, Inc.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $759,321 $335,780 $997,525 $515,907
Cost of product 262,781 115,635 336,572 213,556
-------- -------- -------- --------
496,540 220,145 660,953 302,351
Operating expenses:
Personnel costs 165,748 154,240 336,588 326,033
Rent, utilities and telephone 14,549 19,030 29,783 36,777
Travel and entertainment 12,434 13,536 22,503 25,327
Professional fees 18,964 16,750 28,954 29,596
Depreciation 12,885 19,117 25,332 38,529
Other operating expenses 56,954 25,000 88,819 50,610
-------- -------- -------- --------
Total operating expenses 281,534 247,673 532,079 506,872
-------- -------- -------- --------
Income (loss) from operations 215,006 (27,528) 128,874 (204,521)
Interest Income (expense), Net (21,933) (15,680) (37,081) (28,146)
Net Income (loss) $193,073 $(43,208) $91,793 $(232,667)
======== ========= ========= ==========
Net Income (loss) per share $.08 $ (.02) $.04 $ (.12)
======= ======== ======= ========
Shares used in Computing
Earnings per Share 2,401,742 1,966,250 2,372,742 1,966,250
</TABLE>
See accompanying "Notes to Financial Statements (Unaudited)"
<PAGE>
Item 1 - Financial Statements
Pamet Systems, Inc.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30, 1996 June 30, 1995
<S> <C> <C>
Cash flows provided by (used in)
Operating activities:
Net (loss)/income $91,793 (232,667)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 25,332 63,996
(Increase) decrease in
accounts receivable (399,388) 184,065
(Increase) decrease in inventory (24,277) 21,556
(Increase) decrease in prepaids
and other current assets 13,939 (2,057)
Increase (Decrease) in accounts payable 99,898 (118,685)
(Decrease) in deferred software
maintenance revenue (122,254) (53,237)
Increase (Decrease) in accrued expenses
and other current liabilities 67,606 24
(Increase) Decrease in deposits
and other assets (146) (342)
---------- ----------
Total adjustments (339,290) 95,320
Net cash provided by (used
in) operating activities (247,497) (137,347)
</TABLE>
(continued on following page)
See accompanying "Notes to Financial Statements (Unaudited)"
<PAGE>
Item 1 - Financial Statements
Pamet Systems, Inc.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (cont.)
(Unaudited)
<S> <C> <C>
Cash flows from investing
activities:
Sale of computer equipment 1,682
Capital expenditures for
property and equipment (6,766) (1,589)
Net Cash from Investing Activities (6,766) 93
Cash Flow from Financing Activities:
Payment of Mortgage (5,839) (6,850)
Proceeds from sale of Capital Stock 17,339
Net Change in Note Payable
Related Party 223,440 138,900
Net Cash from Financing Activities 234,940 132,050
Net increase (decrease) in cash (19,323) (5,204)
Cash at beginning of period 28,264 16,103
Cash at end of period $8,941 $10,899
========= ========
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 35,775 $ 28,491
</TABLE>
See accompanying "Notes to Financial Statements (Unaudited)"
<PAGE>
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, 1996 and the results of operations for the three and six month periods
and changes in cash flows for the periods then ended. There were no
material unusual charges or credits to operations during the recently
completed fiscal quarter.
The results reported for the three month and six month periods ended
June 30, 1996 are not necessarily indicative of the results of operations
which may be expected for the entire year.
Note (2) Mortgage on Corporate Training, Development and Headquarters
Facility
On April 21, 1992 the Registrant consummated an agreement with the
Lexington Savings Bank of Lexington, MA. to mortgage the Registrant's
development, training and headquarters facility, located at 1000 Main
Street, Acton, Massachusetts. The original principal amount of the mortgage
was $560,000. On June 21, 1995 the note was extended for a one year term
with monthly payments determined according to a twenty-year amortization
period. $5,741, including interest at 11%, is payable monthly. The bank has
required an interest bearing compensating balance account. On June 30, 1996
this account equaled $26,794.
Note (3) Earnings Per Share
Earnings per share are computed using the weighted number shares of
common stock and common stock equivalents outstanding during the period
using the treasury stock method.
<PAGE>
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Overview
The Registrant's net sales consist primarily of sales of software and
turnkey computer systems, and support and update service fees. Sales
increased 126.1% for the three month period ended June 30, 1996 (the 1996
period) over the sales for the three month period ended June 30, 1995 (the
1995 period). The increase in sales is primarily due to the sales of the
Registrants' digital imaging product (ImageServer) and to an increase in
FireServer sales. Less than 10% of the increase is represented by sales from
grants associated with the "Violent Crime Control and Law Enforcement Act of
1994" (the Crime Bill). The Registrant expects to recognize more sales from
grants under the Crime Bill during the second half of the year. In addition
to the record sales recorded in the 1996 period, the Registrant has a
significant backlog of over $700,000, the majority of which, it believes,
will be delivered and invoiced during the second half of the year.
Three Months Ended June 30, 1996 vs.
Three Months Ended June 30, 1995
Net sales increased $423,542 or 126.1% to $759,321 for the 1996 period
from $335,780 for the 1995 period. The increase is due to sales increases of
all of the Registrant's products. The most significant increases were for
the Registrant's imaging and FireServer product. Sales of turnkey systems
for the 1996 period included 5 ImageServer, 5 PoliceServer and 5 FireServer
Systems compared to 1 ImageServer, 3 PoliceServer and 1 FireServer systems
for the 1995 period. Management believes that the increase in sales is due
to the release of a state grant program that has funded a number of imaging
systems in Massachusetts and the demand for fire systems associated with the
implementation of E-911 in New England. Support revenues increased 20.8% or
$17,719 to $102,746 for the 1996 period from $85,207 for the 1995 period
reflecting the increase in the customer base from the 1995 period. Cost of
product increased to $262,781 for the 1996 period from $115,635 for the 1995
period reflecting the increased sales. Gross margin remained effectively
flat at 65.4% for the 1996 period compared to 65.6% for the 1995 period.
Operating expenses increased $33,851 or 13.7% to $281,534 for the 1996
period from $247,683 for the 1995 period. Personnel costs increased 7.5% to
$165,748 for the 1996 period from $154,240 for the 1995 period. The increase
reflects the additional part-time staffing for administrative and marketing
assistance. Rent, utilities and telephone decreased 23.6% to $14,549 for
the 1996 period from $19,031 for the 1995 period due to decreased utility
costs associated with a cooler spring season and decreased phone charges.
Travel and entertainment expenses decreased 8.1% to $12,434 for the 1996
period from $13,536 for the 1995 period due to the reduced usage of rental
cars. Professional fees increased 13.2% to $18,964 for the 1996 period from
$16,750 for the 1995 period, primarily due to the increased usage of legal
services. Depreciation expense decreased 32.6% to $12,885 for the 1996
period from $19,117 for the 1995 period primarily as a result of the reduced
depreciation on the older computer equipment and office furnishings. Other
operating expenses increased 127.7% to $56,954 for the 1996 period from
$25,000 for the 1995 period primarily due to the write off of questionable
accounts and an increase in tax penalties.
Net interest expense for the 1996 period increased to 21,933 for the
1996 period from $15,680 for the 1995 period reflecting the interest
associated with working capital loans from officers and directors.
The net income increased to $193,073 or $.08 per share for the 1996
period from a loss of $(43,208) or $(.02) per share for the 1995 period.
<PAGE>
This increase is associated with the significant increase in revenues for
the quarter.
Six Months Ended June 30, 1996 vs.
Six Months Ended June 30, 1995
Net sales for the six month period ended June 30, 1996 (the 1996
period) increased $481,618 or 93.4% to $997,525 from $515,907 for the six
month period ended June 30, 1995 (the 1995 period). The increase in sales
reflects an overall increase in the demand for the Registrant's products.
The most significant increases are associated with the ImageServer product
and the FireServer product. Support revenues increased 14.4% to $195,188 for
the 1996 period from $170,684 for the 1995 period reflecting the increase in
the customer base from the 1995 period. Cost of product increased 57.6% to
$336,572 for the 1996 period from $213,556 for the 1995 period reflecting
the increased system sales. Gross margin increased to 66.3% for the 1996
period from 58.6% for the 1995 period. The increase is due primarily to the
higher number of turnkey system sales and a reduction in the number of sales
of lower mark-up hardware upgrades.
Operating expenses increased $25,207 or 5.0% to $532,079 for the 1996
period from $506,872 in the 1995 period. Personnel costs increased 3.2% to
$336,588 for the 1996 period from $326,033 in the 1995 period. This reflects
the part-time staffing increases in the administrative and marketing areas.
Rent, utilities and telephone expenses decreased $6,994 or 19.0% to $29,783
for the 1996 period from $36,777 for the 1995 period. This decrease is
almost entirely associated with reductions in the phone cost and the
significant decreases in utility cost during the 1996 period. Travel and
entertainment expenses decreased 11.1% to $22,503 for the 1996 period from
$25,327 for the 1995 period, reflecting the decrease in travel associated
with training and installations in the Southeast region. Professional fees
decreased 2.2% to $28,954 for the 1996 period from $29,596 for the 1995
period due to the decrease in financial consulting services which were
partially offset by the increased use of the Registrant's legal counsel.
Depreciation expense decreased 34.3% to $25,332 for the 1996 period from
$38,529 for the 1995 period reflecting the reduced depreciation associated
with older computer equipment and furnishings. Other operating expenses
increased 75.7% to $88,819 for the 1996 period from $50,610 for the 1995
period. These increases reflect increased reserves and the increase in tax
penalties.
Net interest expense was $37,081 for the 1996 period compared to
interest expense of $28,146 for the 1995 period reflecting the interest
associated with working capital loans from directors and officers.
The net income for the 1996 period was $91,793 or $.04 per share as
compared to a loss of $(232,667) or $(.12) per share for the 1995 period due
primarily to the increased revenues for the period.
Liquidity and Capital Resources
The Registrant's working capital improved to a deficit of $226,595 at
June 30, 1996 from a deficit of $322,412 at December 31, 1995 due to the
higher level of business during the first half of 1996. Cash decreased to
$8,941 at June 30, 1996 from $28,264 at December 31, 1995. Accounts
receivable increased to $645,549 at June 30, 1996 from $246,161 at December
31, 1995. The increased level of accounts receivable reflects the increased
sales. The Registrant is experiencing an accounts receivable level that
averages 60 days sales outstanding.
The Registrant's financial condition was positively impacted during
the 1996 period by increased system sales. Nevertheless the Registrant
continues to experience liquidity problems and cash flow shortages. The
Registrant established a short term financing agreement with a director to
<PAGE>
provide a working capital loan of up to $300,000. At June 30, 1996, $300,000
was outstanding under this loan. In anticipation of the increased working
capital needs associated with the increased sales from the Crime Bill
grants, management is exploring other additional financing alternatives,
such as a line of credit, sales of securities, factoring, mergers,
acquisitions or other business combinations, although, there are no
understandings, arrangements or agreements in this regard. The Registrant is
also continuing to evaluate sources of funding to finance a project to make
the Registrant's products hardware and operating system independent in order
to maintain the competitiveness and attractiveness of the Registrant's
products.
As of June 30, 1995 the Registrant had accumulated approximately
$3,900,000 in net operating loss carryforwards for federal income tax
purposes. Some of the loss carryforwards expire beginning in the year 2002.
Under the Internal Revenue Code of 1986, as amended, the rate at which a
corporation may utilize its net operating losses to offset its income for
federal tax purposes is subject to specified limitations during periods
after the corporation has undergone an "ownership change". It has been
determined that an ownership change did take place at the time of the
Registrant's initial public offering. However, the limitations on the loss
carryforwards exceeded the accumulated loss at the time of the "ownership
change". Thus there is no restriction on its use.
Inflation
Inflation has not had a significant impact on the Registrant's
operations to date.
Forward Looking Statements
This Management's Discussion and Analysis of Financial condition and
Results of Operations may include forward-looking statements that may or
may not materialize. Additional information on factors that could
potentially affect the Company's financial results may be found in the
Company's filings with the Securities and Exchange Commission.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
Not applicable.
Item 3 - Defaults Upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a note of Security Holders
None
Item 5 - Other Information
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits none
b. Reports on form 8-K - none
<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
Pamet Systems, Inc.
(Registrant)
August 9, 1996 Richard C. Becker
_______________________________ ______________________
Date Richard C. Becker
Vice President
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,941
<SECURITIES> 0
<RECEIVABLES> 645,549
<ALLOWANCES> 0
<INVENTORY> 51,198
<CURRENT-ASSETS> 738,393
<PP&E> 1,431,686
<DEPRECIATION> 527,655
<TOTAL-ASSETS> 1,670,044
<CURRENT-LIABILITIES> 964,988
<BONDS> 0
<COMMON> 20,602
0
0
<OTHER-SE> 148,082
<TOTAL-LIABILITY-AND-EQUITY> 1,670,045
<SALES> 997,525
<TOTAL-REVENUES> 997,525
<CGS> 336,572
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 532,079
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,081
<INCOME-PRETAX> 91,793
<INCOME-TAX> 0
<INCOME-CONTINUING> 91,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91,793
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
