(Graphic: the Next
generation)
Pamet Systems, Inc.
1995 Annual Report
<PAGE>
DESCRIPTION OF BUSINESS
Pamet Systems, Inc., (the "Company), designs, develops, installs and
supports computer software and turnkey computer systems principally serving
municipalities with populations under 250,000, as well as campus, public
housing, and transit police agencies. The Company's innovative applications
automate the acquisition, storage, processing, retrieval and communication
of information for public safety agencies.
The principal product of the company is PoliceServer, an information
management system for police departments. PoliceServer is an integrated
computer-aided dispatch and records management systems which includes the
clerical and record keeping functions necessary for police department
operation, from electronic dispatch and booking to word processing and
electronic mail as well as Imaging (MugShots and Crime Scenes) and mobile
data terminals (MDTs) for field reporting. The Company also markets
FireServer, a information management and computer-aided dispatch system that
provides fire departments with data on structures, fire suppression plans
and hazardous materials management.
The Company's products are currently being marketed and installed in
New England, the Southeastern states and the lower Midwestern states. Pamet
is headquartered in Massachusetts and maintains offices in South Carolina
and Ohio.
The Company was incorporated on November 24, 1987 by Dr. Joel B.
Searcy, its Chairman of the Board and President.
PoliceServer and FireServer are registered trademarks of the Company.
FORWARD LOOKING STATEMENTS
This annual report contains statements which are not historical
facts. These forward-looking statements reflect management's current views,
are based on many assumptions and factors and may involve risks and
uncertainties. Certain factors and other information contained in this
Annual Report and in the Company's filings with the Securities and Exchange
Commission could cause such views, assumptions and factors and the Company's
results of operations to be materially different.
<PAGE>
To Our Stockholders:
Fiscal 1995 proved to be pivotal for Pamet in a number of ways. Early
in the year, a grant program funded by the Violent Crime Control and Law
Enforcement Act of 1994 presented an exceptional opportunity for police
departments to fund the purchase of computer systems. Pamet conducted a
successful seminar series in the Northeast and the South to assist
departments in applying for grants offered through the U.S. Department of
Justice. The grant awards, expected in the Fall, were repeatedly delayed by
failure of the Congress to pass an appropriations bill and by a series of
government shutdowns. This delay of purchases in anticipation of grant
funding resulted in disappointing revenues for the year.
In spite of this, the second half of the year was marked by the
Company's completion and introduction into the market of two significant new
products. The first was ImageServer, a system for the capture and storage of
photographs in digital form. This product allows instant on-line
availability of color photographs (mug shots, crime scene photos, evidence,
etc.) on the same screen used for normal PoliceServer computer access. The
second was the QueryStation, a system to allow users complete freedom in
extracting, sorting, analyzing and reporting the data contained in their
departmental databases.
Early 1996 saw the introduction of a new Mobile Data Computer (MDT)
product that provides full interactive access to PoliceServer and FireServer
systems by means of a digital adjunct to the cellular telephone system. This
product is faster, more capable, and less costly than competing products, and
has met with an enthusiastic reception by both new customers and our existing
customer base. It also permits easy viewing of photo images from our
ImageServer product in a cruiser, and supports automatic vehicle location
through use of Global Positioning Satellite (GPS) receivers.
The development and introduction of these new products is a key step in
the evolution of the PoliceServer and FireServer product family to the next
generation of public safety information systems. Characterized by the
extension of the data stored from simple text to multimedia files, this new
generation of systems makes information readily available not just inside the
department, but where ever police officers and fire fighters are in
performance of their duty. It also facilitates data sharing among agencies
while providing security safeguards on sensitive information.
Perhaps most significantly, Pamet is, to our knowledge, the first
company in the U.S to offer this complete suite of products fully integrated
with computer aided dispatch and police/fire records management, developed
and supported completely in-house.
As we look to 1996 and beyond, we plan to continue the evolution of
this "next generation" of system as new technologies present themselves in
mature and dependable form. We also look forward to growth in revenues and
profits, spurred by new product sales to our existing customers and by an
expanding customer base, particularly in the South and Midwest.
As always, we welcome your thoughts on our Company and its markets,
and encourage you to call or visit our Acton facility. Input from our
stockholders is valuable to us. Thank you for your confidence as we continue
to grow our Company in the years to come.
Dr. Joel B. Searcy
Chairman of the Board
President
<PAGE>
PAMET'S FOURTH GENERATION
(Paragraph is preceded by small graphic representing: Government Building)
As technology continues to evolve, law enforcement officials and agencies
will need to be more connected to information and each other than ever
before.
Pamet recognizes this need for communication and information sharing and is
leading the industry with the next generation in law enforcement computing
products and services.
Thirty years ago, computer systems designed specifically for law enforcement
were virtually non-existent. The only options available were large mainframe
or primitive card oriented systems devoted to the tracking and maintenance of
statistics. Access to these early systems and the information they contained
was restricted to a system administrator. The usefulness of these systems
was further limited by the ability to provide only information based on
sorting and counting of the existing statistics known to that particular
computer.
(Paragraph shows small graphic representing: Police Officer)
During the following decade state and federal law enforcement agencies began
to use mainframe technology to network the government law enforcement
community. These systems revolutionized communications between the state and
federal agencies. However, the average police departments was still limited
in their use of technology. While the introduction of mini-computers in 1975
allowed large to medium sized departments to install records systems to
maintain selected master name information and arrest records, these systems
still only allowed limited access to information on teletype style terminals.
(Paragraph contains small graphic representing: Communications Tower)
The mid-eighties brought the development of new smaller mini- and
micro-computers, as well as the advent of interactive video terminals. At
Pamet, we introduced our first PoliceServer systems making computers
accessible to all members of the department for the first time. Our systems
also included the introduction of computer aided dispatch, and true
interactive records management. Additionally, primitive mobile data
communications began to be used to provide information to cruisers, thus
off-loading some of the workload from the overcrowded voice radio channels.
(Paragraph contains small graphic representing: Judge's Gavel)
Now, in the 90s Pamet is leading the way in the "Next Generation" of law
enforcement computing. By providing fully integrated multifunctional,
multijurisdictional systems based on micro-computing technologies, Pamet
supplies accessible computing to a broad range of departments regardless of
their size or geographic location. With Pamets law enforcement information
systems, officers use mobile data terminals (MDTs) which provide fully
interactive access to records stored within their agency as well as records
stored by other municipal agencies. Officers are also able to send and
receive digital images from remote locations and complete necessary reports
without having to return to the station, allowing them to decrease paperwork
and spend more time on patrol.
<PAGE>
(Paragraph contains small graphic representing: Firefighter)
As we enter the next generation, Pamets philosophy has not changed -- we will
continue to provide public safety organizations with quality products using
the newest in proven technologies, and enhanced by effective training and
support services, so that they are able to concentrate on the real business
of law enforcement and protection which is vital to todays communities.
(Paragraph contains small graphic representing: Laptop Computer)
In our pursuit of that goal, we will continue to grow, and adapt, and work --
to meet the challenge of our competition, to take advantage of new
technologies, and to deliver on the wishes and needs of our customers and
users to the benefit of our stockholders.
GRANT WATCH
In 1994, Pamet launched a national grant writing program to assist law
enforcement agencies in the grant application process for monies made
available through the Crime Control and Law Enforcement Act of 1994.
(Paragraph contains small graphic of Pamet's Grant Watch newsletter)
The program provided free instruction, work books, a Grant Watch newsletter,
and a consultation hot-line with tips on how to successfully apply for grants
to fund computer automation and advanced technology systems.
During 1995, Pamet continued to provide these seminars to assist departments
in obtaining the funds needed to purchase the information systems to support
effective law enforcement. Over the past year, Pamets grant application
seminars have grown to serve more that 150 departments in their application
for federal and state grants. Response to the program has been extremely
positive and seminars continue to be well attended.
"Virtually every department that attends our seminars, has been awarded grant
monies for new public safety systems," said Joel Searcy, president of Pamet
Systems. "In fact, one attendee from the Tarrant City, Alabama police
department, attended our seminar, followed our application guidelines, and
was the only grant recipient in the state of Alabama, although there were
many other applicants. We are convinced we have a winning formula."
As a company dedicated to serving public safety agencies, Pamet will continue
to expand its grant seminars throughout the coming year. Pamets customized,
free seminars will continue to educate departments regarding the latest in
grant writing tips and techniques. And, new programs will be added to
address the critical issues which face departments when identifying,
locating, and applying for the growing number of state and federal grants.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
General
The Company's net sales consist primarily of sales of software and
turnkey computer systems and support and update service fees. Sales
decreased 35.1% during the 12 month period ended December 31, 1995 (the 1995
period) from the 12 month period ended December 31, 1994 (the 1994 period).
Management believes that the lack of profitability for the 1995 period was
due to communities delaying purchases of systems to take advantage of the
grants that they believed would be released from the 1994 Crime Bill. The
Company believes that the delays in purchasing will extend into Q2 1996.
However, in recent weeks the Company has learned of many grants finally
being awarded. The Company continues to believe that the market has
potential based on the continuing improvements in the economy and the
heightened emphasis on crime and the awareness by communities that computer
systems can improve the efficiency and effectiveness of their public safety
resources, although there can be no assurance in the regard.
Results of Operations
Year Ended December 31, 1995 vs. Year Ended December 31, 1994. Net
sales decreased 35.1% to $1,094,735 in the 1995 period from $1,686,537 in
the 1994 period. Sales of turnkey systems and hardware upgrades decreased
$513,189 or 50.8% to $496,993 for the 1995 period from $1,010,182 for the
1994 period. The number of system sales decreased from 17 in the 1994 period
to 7 in the 1995 period. Hardware upgrades increased to 9 in the 1995 period
from 6 in the 1994 period. The decrease in the total revenue and total
number of systems sold can be directly attributed to the delayed purchase of
systems that would have been funded through grants associated with the 94
crime bill had the funding been released. The software portion of the
systems sales decreased significantly to $177,172 for the 1995 period from
$558,030 for the 1994 period reflecting the decreased system sales. Sales of
the new ImageServer product increased to $91,552 for the 1995 period from
$21,355 in the 1994 period. Sales of the mobile computer systems (MDT's)
decreased 91.9% to $12,491 for the 1995 period from $153,951 for the 1994
period. Revenue for the 1995 period consisted of sales of the Company's
software products sold to third party vendors and finders fees from the same
vendor who sold MDT's directly to the Company's customers. During the 1994
period, MDT's had been purchased and resold by the Company using the third
party vendor's hardware and software which resulted in higher total sales
but low overall margins. Support revenues increased $73,330 or 25.7% to
$359,094 for the 1995 period from $285,764 for the 1994 period. This
increase reflects the Company's increasing customer base.
Cost of sales decreased $161,757 or 23.1% to $537,754 for the 1995
period from $699,511 for the 1994 period. The cost of sales decreased due to
the overall decrease in sales. One additional factor was the impact of the
change in the contract with the third party vendor that supplies the MDTs.
Costs for the MDT's for the 1995 period, as described above, were $0
compared to $130,363 for the 1994 period. Gross profit decreased 43.6% or
$430,045 to $ 556,981 for the 1995 period from $987,026 for the 1994 period.
Gross margin as a percentage of net sales decreased to 50.9% for the 1995
period from 58.5% for the 1994 period reflecting the lower percentage of
software system sales partially offset by the elimination of the cost of
sales for the low profit margin MDT systems.
Operating expenses increased $15,511 or 1.5% to $1,064,232 for the
1995 period from $1,048,721 for the 1994 period. The slight increase is the
result of some increases in payroll expense offset by reductions in training
expense and advertising.
Personnel costs increased 6.8% to $635,245 for the 1995 period from
$594,524 for the 1994 period. The increase was due to the hiring of one
contractor as an employee in addition to higher health insurance and Federal
withholding costs. These increases were partially offset by the lower sales
commissions paid during the 1995 period due to the delays in procurements by
our customers.
Rent, utilities and telephone increased 6.7% to $68,585 for the
1995 period from $64,258 for the 1994 period due primarily to increased
phone expense associated with marketing and sales activities. Travel and
entertainment expenses decreased $5,247 or 10.4% to $45,400 for the 1995
period from $50,647 for the 1994 period due to the decreased travel
associated with the program management activities of the MARTA contract.
Professional fees decreased 17.4% to $67,635 for the 1995 period from
$81,835 for the 1994 period. These reductions were due the hiring of an
outside accountant as an employee and the reduced utilization for the
Company's legal counsel during the 1995 period. This reduction was partially
offset by the increased usage of a public relations firm. Depreciation
expense decreased 5.2% to $81,409 for the 1995 period from $85,857 for the
1994 period reflecting the reduced depreciation on the older computer
equipment and office furnishings. Other operating expenses decreased 3.3% or
$5,642 to $165,958 for the 1995 period from $171,600 for the 1994 period.
The most significant components of this decrease were the decreased cost of
the Company's annual report.
Net interest expense increased to $62,092 for the 1995 period
compared to a net expense of $53,238 for the 1994 period. This reflects the
increased interest rate on mortgage and the increased interest expense
associated with working capital loans obtained from Directors and
Shareholders. Other income decreased in the 1995 period due to the
elimination of the income associated with the rental of the second floor of
the Company's Acton facility.
The loss for the 1995 period was $569,202 $(.29) per share compared
to a loss of $111,224 or $(.06) per share for the 1994 period and is the
result of the reduced sales associated with the delays in the procurements
of the Company's products associated with the 1994 Crime Bill.
<PAGE>
Liquidity and Capital Resources
The Company's working capital decreased to a deficit of $322,412
at December 31, 1995 from a deficit of $6,088 at December 31, 1994. Cash
increased to $28,264 at December 31, 1995 from $16,103 at December 31, 1994.
The decrease in working capital is due to the loss in operations for the
year. Accounts receivable decreased to $246,161 at December 31, 1995 from
$464,119 at December 31, 1994, reflecting the decreased level of sales
throughout the 1995 period. The Company is experiencing an accounts
receivable age that averages 60 days sales outstanding.
The Company's backlog is $253,987 at March 26, 1996. The Company
also is continuing its cost improvement program and continues an aggressive
sales effort. Specifically, sales of the Company's ImageServer product are
expected to increase during 1996. The continuing delays in sales as a result
of the delays in awards of grants under the 1994 Crime Bill continue to have
an adverse effect on sales and the Company's resulting cash position.
Subsequent to the year-end, however, the Company began to be notified by
potential customers who had participated in the Company's grant writing
seminars that they had received awards. Many of these customers will still
have to proceed with a competitive bidding process as required by their
respective state laws. In addition, the Company is continuing to consider
projects to increase its cash position such as mergers, acquisitions or
other business combinations, as well as capital raising alternatives. To
date there have been no agreements or arrangements. The Company has also
received short term financing commitments from Directors and Officers to
support operations, if needed. The Company believes its existing backlog,
combined with working capital loans from directors and shareholders and
sales resulting from the grants associated with the 1994 Crime Bill will be
sufficient to ensure the continued operations through the year.
As of December 31, 1995, the Company had accumulated approximately
$3,900,000 and $3,100,000 in net operating loss carryforwards for federal
and state income tax purposes respectively. The loss carryforwards 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 carryforward exceed the accumulated loss at the time of the "ownership
change". Thus there is no restriction on its use.
Seasonality
For the majority of the municipalities in the states in which the
Company has sold its products through the Company's fiscal 1995, the fiscal
year commences July 1. The Company bills the majority of its customers for
annual software maintenance charges on July 1 of each year. Consequently,
cash flow representing software support revenues has tended to be higher in
the second half of the Company's fiscal year, although software support
revenues are recognized ratably over the fiscal year.
Inflation
Inflation has not had a significant impact on the Company's
operations to date.
Market for the Company's Common Equity and Related Stockholder Matters
The Company's Common Stock is available for trading in the
over-the-counter market. The Common Stock is quoted under the symbol PAMT.
The following table sets forth the high and low bid prices of the Common
Stock as listed on the Boston Stock Exchange and (after July 1994) in the
over the counter market for the fiscal periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31 COMMON STOCK
High Low
<S> <C> <C>
1994
First Quarter .02 .02
Second Quarter .02 .02
Third Quarter 1.12 .02
Fourth Quarter 2.50 .47
1995
First Quarter 1.75 .75
Second Quarter 1.56 .75
Third Quarter 1.92 .84
Fourth Quarter 1.75 .62
</TABLE>
The Company had 73 holders of record of Common Stock on March 26,
1996. The Company has not paid any dividends to date. For the foreseeable
future, it is anticipated that earnings, if any, will be used to finance the
growth of the Company and that cash dividends will not be paid to
stockholders.
<PAGE>
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been
omitted.
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET
PAMET SYSTEMS, INC.
ASSETS December 31,
1995
<S> <C>
CURRENT ASSETS
Cash $ 28,264
Accounts receivable, net of allowance for
doubtful accounts of $20,000 246,161
Inventory 26,921
Prepaid expenses and other current assets 46,644
----------
TOTAL CURRENT ASSETS 347,990
PROPERTY AND EQUIPMENT, NET 922,596
OTHER ASSETS 1,025
RESTRICTED CASH 26,450
----------
TOTAL OTHER ASSETS 27,475
$1,298,061
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 245,516
Accrued expenses 140,684
Notes payable-related party 81,099
Deferred software maintenance revenue 190,034
Current portion of long-term debt 13,069
----------
TOTAL CURRENT LIABILITIES 670,402
LONG TERM DEBT, less current portion 509,426
UNEARNED SUPPORT REVENUE 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; 2,018,250 issued and outstanding 20,183
Additional paid-in Capital 4,072,629
Accumulated deficit (4,053,862)
-----------
TOTAL STOCKHOLDERS' EQUITY 38,950
$1,298,061
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
PAMET SYSTEMS, INC.
Year Ended December 31,
1995 1994
--------- --------
<S> <C> <C>
Net hardware and software sales $735,641 $1,400,773
Software support revenues 359,094 285,764
_________ _________
NET REVENUES 1,094,735 1,686,537
Cost of sales 537,754 699,511
_________ _________
556,981 987,026
Operating expenses
Personnel costs 635,245 594,524
Rent, utilities and telephone 68,585 64,258
Travel and entertainment 45,400 50,647
Professional fees 67,635 81,835
Depreciation 81,409 85,857
Other operating expenses 165,958 171,600
--------- ---------
TOTAL OPERATING EXPENSES 1,064,232 1,048,721
Loss from operations (507,251) (61,695)
Interest income 3,213 4,584
Interest expense (65,305) (57,822)
Other income 141 3,709
--------- ---------
NET LOSS $(569,202) $(111,224)
========= =========
Net loss per common share $(.29) $(.06)
===== =====
Weighted average common shares outstanding 1,971,459 1,966,250
========= =========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
PAMET SYSTEMS, INC.
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
-------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT
January 1, 1994 1,996,250 $19,663 $4,039,009 $(3,373,436) $685,236
NET LOSS (111,224) (111,224)
ISSUANCE OF STOCK
OPTIONS $10,000 $10,000
_________ _______ __________ ____________ ________
BALANCE AT
DECEMBER 31, 1994 1,966,250 $19,663 $4,049,009 $(3,484,660) $584,012
NET LOSS (569,202) (569,202)
CONVERSION OF
STOCK OPTIONS 52,000 520 23,620 -- 24,140
_________ _______ __________ ____________ ________
BALANCE AT
DECEMBER 31, 1995 2,018,250 $20,183 $4,072,629 $(4,053,862) $38,950
========= ======= ========== ============ ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
PAMET SYSTEMS, INC.
Year Ended December 31,
1995 1994
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(569,202) $(111,224)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 163,561 142,057
Issuance of stock options -- 10,000
Changes in operating assets and liabilities:
Accounts receivable 217,958 (159,562)
Inventory 32,333 (8,582)
Prepaid expenses and other current assets (3,042) (5,209)
Other assets 398 25,844
Restricted cash (685) (661)
Accounts payable (75,470) 122,584
Accrued expenses 62,085 (15,494)
Deferred software maintenance and
unearned support revenue 102,776 49,576
Net cash provided by
(used for) operating activities (69,288) 49,329
INVESTING ACTIVITIES
Expenditures for property
and equipment (4,095) (26,263)
Proceeds from sale of equipment 1,783 3,352
------- -------
Net cash used for investing activities (2,312) (22,911)
FINANCING ACTIVITIES
Proceeds from notes payable-related party 211,899 78,000
Payment of notes payable-related party (140,800) (83,144)
Payments of long-term debt (11,478) (10,842)
Issuance of capital stock 24,140 --
------- -------
Net cash provided by (used for)
financing activities 83,761 (15,986)
NET INCREASE IN CASH 12,161 10,432
Cash at beginning of period 16,103 5,671
CASH AT END OF PERIOD $28,264 $16,103
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOWS INFORMATION
Cash paid for interest $65,000 $57,798
======= =======
SUMMARY OF NON-CASH TRANSACTIONS
Stock options issued to a consultant
for the production of an advertising
video -- $10,000
==== =====
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A--NATURE OF OPERATIONS
Pamet Systems, Inc. (the Company), a Massachusetts corporation, was formed in
November 1987 to engage in the business of designing, developing, installing
and servicing computer software systems for the municipal market throughout
the Eastern United States, principally in the area of public safety. Credit
is granted to certain customers, most of which are municipalities. The
Company generally does not require collateral.
The Company continues to suffer recurring losses from operations. However,
through June of 1996, the Company's net sales were approximately $998,000
(unaudited) and net income was approximately $92,000 (unaudited). In
addition, the Company's committed backlog was in excess of $700,000
(unaudited). Management believes that this level of sales and backlog are
adequate to sustain operations through the end of fiscal year 1996. In
addition, the above sales and backlog numbers do not include any estimates of
potential sales with the Company's customers and prospective customers who
have been notified by the Department of Justice that they have received
awards under the 1994 crime bill. Once this Federal funding is released,
these potential customers will proceed with the competitive bidding process
required by State laws. The Company expects to see the results of at least
some of these successful bids in fiscal year 1996.
The ultimate success of the Company is still dependent upon its ability to
secure adequate interim and permanent funding to meet its working capital
needs and the successful marketing of its products and services through
expansion of the Company's operations. Some directors and officers of the
Company, under certain circumstances, have agreed to provide short term
financing on a temporary basis as needed. As a result, management believes
the company's current sources of liquidity and funding are adequate to
sustain operations through the end of fiscal year 1996. Management is also
trying to enhance its financial position by obtaining permanent additional
financing. There can be no assurance, however, that the Company's operations
will be sustained or prove profitable in the future or that adequate sources
of financing will be available at all, when needed or on commercially
acceptable terms.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
Restricted Cash: In connection with its mortgage agreement, the Company is
required to maintain an interest reserve account with the mortgagor.
Withdrawals from the account are restricted to the payment of mortgage
principal or interest.
Property and Equipment: Property and equipment are stated at cost and are
depreciated on the straight line or accelerated methods over their estimated
useful lives, which range from 3 to 31.5 years.
Capitalized Software Development Costs: The Company capitalized certain
software development costs in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Cost of Computer Software to
be Sold, Leased, or Otherwise Marketed." Software development costs were
capitalized at the lower of cost or net realizable value beginning with the
establishment of the technological feasibility of the related products as
defined in the statement, and include costs of porting the Company's products
to the UNIX operating systems, as well as costs associated with purchasing
software used in the Company's products. Other research and development
costs, which are not material, are charged to expense as incurred. In the
current year all of the Company's capitalized software development costs
have been determined to have no net realizable value and have been written
off. Amortization of capitalized software costs amounted to $86,152 and
$56,200 in 1995 and 1994, respectively, and is included in cost of sales.
Inventory: Inventory, which consists primarily of computer-related supplies,
is stated at the lower of cost (first-in, first-out) or market value.
Deferred Software Maintenance Revenue and Unearned Support Revenue: Deferred
software maintenance revenue and unearned support revenue represent revenue
relating to software support, updates and warranties which the Company has
not yet earned. Software maintenance fees are recognized ratably over the
period of the service contract. The portion of the maintenance fee
associated with the sale of a first time system or software that relates to
the initial maintenance period is also recognized ratably over the period of
the extended service.
Revenue Recognition: Revenues from the sale of products are recognized when
the product is installed. Revenues from the distribution agreement are
recognized upon shipment.
Net Loss Per Common Share: The net loss per common share is computed using
the weighted average number of shares of common stock outstanding during the
period. Fully diluted earnings per common share, assuming conversion of
outstanding stock options and redeemable stock warrants, are not presented
since the effect would be antidilutive.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE>
Income Taxes: The Company accounts for income taxes following the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", which prescribes the use of the liability method of accounting
for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and income tax
bases of assets and liabilities and are measured using enacted tax rates that
will be in effect when the differences are expected to reverse. The primary
component of the Company's deferred tax asset as of December 31, 1995, which
is fully reserved, is net operating loss carryforwards.
NOTE C--RELATED-PARTY TRANSACTIONS
Director Compensation: The Company paid approximately $14,000 and $17,000 in
1995 and 1994 respectively, to a stockholder and director for financial
accounting consulting services.
Notes Payable - Related party consist of the following:
1995 1994
------- -------
Notes payable to directors for unsecured advances. $81,099 $10,000
====== ======
NOTE D--PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Property and equipment at December 31 is as follows:
Balance at
Beginning Balance at
of Additions End of
Classification Period at Cost Retirements Period
Year Ended December 31, 1995:
<S> <C> <C> <C> <C>
Land $ 231,283 $ 231,283
Building 758,728 758,728
Furniture and Fixtures 116,700 $ 1,349 118,049
Computer Equipment 323,982 2,746 $ (32,768) 293,960
Automobiles 22,900 22,900
--------- ------- --------- ---------
TOTALS $1,453,593 $ 4,095 $ (32,768) $1,424,920
========== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994:
<S> <C> <C> <C> <C>
Land $ 231,283 $ 231,283
Building 758,728 758,728
Furniture and Fixtures 113,803 $ 2,897 116,700
Computer Equipment 307,891 23,366 $ (7,275) 323,982
Automobiles 44,698 (21,798) 22,900
--------- -------- -------- ---------
TOTALS $1,456,403 $ 26,263 $ (29,073) $1,453,593
========== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Accumulated depreciation at December 31 is as follows:
Balance at
Beginning Additions Balance at
of Charged End of
Classification Period To Expense Retirements Period
Year Ended December 31, 1995:
<S> <C> <C> <C> <C>
Building $ 87,699 $ 24,150 $ 111,849
Furniture and Fixtures 86,664 12,025 98,689
Computer Equipment 254,636 45,235 $ (30,985) 268,886
Automobiles 22,900 22,900
-------- -------- --------- --------
TOTALS $451,899 $ 81,410 $ (30,985) $502,324
======== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994:
<S> <C> <C> <C> <C>
Building $ 63,536 $ 24,163 $ 87,699
Furniture and Fixtures 72,353 14,311 86,664
Computer Equipment 216,966 44,945 $ (7,275) 254,636
Automobiles _38,906 _2,437 (18,443) _22,900
-------- -------- --------- --------
TOTALS $391,761 $85,856 $ (25,718) $451,899
======== ======== ========= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE E--ACCRUED EXPENSES
Accrued expenses includes the following:
December 31,
1995 1994
-------- --------
<S> <C> <C>
Accrued payroll and vacation $ 44,823 $ 34,122
Accrued and withheld payroll taxes 59,516 8,827
Other 36,345 35,650
-------- --------
$140,684 $ 78,599
======== ========
</TABLE>
NOTE F--COMMITMENTS AND CONTINGENCIES
Lease Obligations: The Company rents office space and office equipment under
operating leases. Rents for its field offices are generally on a
month-to-month basis or with leases having noncancelable terms not longer
than one year. Expenses incurred under operating leases were $4,640 and
$5,430 in 1995 and 1994, respectively.
Financial Advisor Commitments: In November 1990, the Company entered into an
agreement to pay a financial advisor $2,000 per month through October 1993 in
return for assisting the Company in financial matters. At December 31, 1995
and 1994, $28,000 remained unpaid in connection with this agreement and was
included in accounts payable.
Legal Fees: In May of 1992, the Company entered into an agreement with its
present attorney to pursue different financing arrangements, acquisitions or
mergers. Legal work associated with this agreement, which has not yet been
billed to the Company, was to be paid principally out of the proceeds of any
resulting transaction.
The amount, if any, that will be ultimately paid by the Company, and under
what conditions, in connection with this legal work is uncertain at this
time. If the Company never enters into any of the above transactions, the
ultimate billings associated with this legal work will not exceed $15,000;
accordingly this amount is included in accounts payable at December 31, 1995
($8,000 at December 31, 1994).
NOTE G--LONG TERM DEBT
In March 1992, the Company secured a $560,000 mortgage on its facility. 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. In addition, the note is subject to
several conditions, including:
- Five officers, directors and/or stockholders of the Company
are limited guarantors of the note to the extent of $50,000
each. In connection with these guarantees these five officers,
directors and/or shareholders were paid $1,500 each in the
current year.
- Payment of dividends is restricted, requiring approval of the
mortgagor.
- Salary increases for officers are restricted, requiring
approval of the mortgagor.
Subsequent to December 31, 1995, the bank issued a committment letter that
indicates this mortgage will be renewed for one year, until June 1997.
Payment terms and interest rates, although not finalized, are expected to
remain consistent with current terms and rates. Maturities reflect these
terms and rates.
<TABLE>
<CAPTION>
Annual principal maturities of long-term debt are as follows:
<S> <C>
Year ending December 31, 1996 $ 13,069
December 31, 1997 509,426
--------
$522,495
========
</TABLE>
NOTE H--STOCKHOLDERS' EQUITY
In conjunction with the Company's initial public offering in November 1990,
the Company issued 920,000 redeemable warrants for $5 per unit. Each
redeemable warrant entitled the holder to purchase one share of the Company's
$.01 par value common stock at a price of $6.50 per share and expired October
31, 1994. The Company also issued additional rights to purchase up to 80,000
units at a price of $6.75 until October 31, 1995.
Stock Option Plans: In 1990, the Company adopted a Stock Option Plan under
which the Board of Directors may grant incentive or non-qualified stock
options to employees, directors and consultants of the Company. The maximum
number of shares of stock subject to issuance under option arrangements is
400,000 shares. These options, of which a total of 17,000 had been exercised
at December 31, 1995, are exercisable within a ten-year period from the date
of the grant, generally fully exercisable when issued to directors and
exercisable 20% per year and continuing over five years for employees and
consultants. The option price per share under the Plan is not less than the
fair market value of the shares on the date of grant. For the year ended
December 31, 1994.
167,500 options outstanding under the Company's Stock Option Plan ranging in
option price from $3.00 to $5.50 per share, were repriced to $.02 per share
(the average bid price at the time of repricing). All other terms of these
options including the vesting period and the number of shares associated with
each option remained the same. No directors were subject to this option
repricing.
<PAGE>
NOTE H--STOCKHOLDERS' EQUITY (Continued)
<TABLE>
<CAPTION>
Stock option activity for the two year period ended December 31, 1995 is as
follows:
Number Option Price
Of Options Per Share
__________ ____________
<S> <C> <C>
Outstanding January 1, 1994 197,500 $.02 - $5.50
Granted to Directors 33,000 $.02 - $.50
Granted to Employees 62,000 $.02
__________ ____________
Outstanding December 31, 1994 292,500 $.02 - $5.50
Granted to Directors 8,000 $1.00
Granted to Employees 41,000 $1.44
Exercised (17,000) $.02
Cancelled (6,000) $.02
__________ ____________
Outstanding December 31, 1995 318,500 $.02 - $5.50
========= ============
Exercisable at December 31, 1995 207,900 $.02 - $5.50
========= ============
Exercisable at December 31, 1994 190,500 $.02 - $5.50
========= ============
Available for Grant
At December 31, 1995 64,500
======
Available for Grant
At December 31, 1994 107,500
=======
</TABLE>
<TABLE>
<CAPTION>
In addition, The company also issued the following stock options outside
of any formalized plan as follows;
Number Option Price
Of Options Per Share
__________ ____________
<S> <C> <C>
Outstanding January 1, 1994 -- --
Granted to a Vendor in
return for services 50,000 $.80
__________ ____________
Outstanding December 31, 1994 50,000 $.80
Granted to Directors
in consideration for
providing short term financing 105,000 $.68
Exercised (35,000) $.68
__________ ____________
Outstanding December 31, 1995 120,000 $.68 - $.80
========== ============
</TABLE>
On January 1, 1996 options representing 8,000 shares were granted to
directors at an exercise price of $1.12 per share.
NOTE I--INCOME TAXES
There is no current provision for federal income tax due to the Company's net
operating losses to date. During 1995 and 1994, the Company recorded
deferred tax assets from the benefit of net operating losses in the amount of
$118,000 and $16,000, respectively. The cumulative amount of these assets,
which is $959,000 at December 31, 1995, has been fully reserved due to the
Company's history of operating losses. Thus, management has concluded that
realization of the benefit is not likely. The Company has available for
federal and state income tax purposes net operating loss carryforwards of
approximately $3,900,000 and $3,100,000 respectively, which may be used to
offset future taxable income. These net operating loss carryforwards, if
unused, expire in 2009.
NOTE J--SIGNIFICANT CUSTOMERS
There were no sales to individual customers that were greater than 10% of
total revenues for the year ended December 31, 1995.
For the period ended December 31, 1994, sales to one customer totaled
approximately $267,000 or 15.8% of total sales.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE K--ECONOMIC DEPENDENCY
The Company obtains approximately 70% of its merchandise from one source.
Management believes that if this supplier ceased providing merchandise, the
Company could find alternative suppliers without serious interruption of
business.
<TABLE>
<CAPTION>
NOTE L--QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1995 and 1994 is as follows:
Quarter Ended
---------------------------------------------------
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 180,127 $ 335,780 $ 267,427 $ 311,401
Gross Profits 82,206 220,145 161,058 93,572
Operating Income
(loss) (176,993) (27,528) (131,256) (171,474)
Net Income
(loss) (189,459) (43,208) (148,323) (188,212)
Income (loss)
per share $ (.10) $ (.02) $ (.07) $ (.10)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------
March 31, June 30, September 30, December 31,
1994 1994 1994 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 393,257 $ 412,145 $473,180 $ 407,955
Gross Profits 206,197 297,419 282,617 200,793
Operating Income
(loss) (25,193) 53,479 18,075 (108,056)
Net Income
(loss) (38,123) 39,739 2,989 (115,829)
Income (loss)
per share $ (.02) $ .02 $ .00 $ (.06)
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Pamet Systems, Inc.
We have audited the accompanying balance sheet of Pamet Systems, Inc. as of
December 31, 1995, and the related statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentations. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pamet Systems, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
GOFF, CARLIN & CAGAN LLP
Worcester, Massachusetts
March 15, 1996, except as to the information presented in
Note A, for which the date is August 26, 1996
CORPORATE INFORMATION
Corporation Information
Board of Directors
For a copy of Company's Form 10-KSB for
Dr. Joel B. Searcy fiscal 1995 or other information about
Chairman of the Board the Company contact,
President Investor Relations
Lauren S. Lampinen
Richard C. Becker Pamet Systems, Inc.
Vice President, Chief Operating 1000 Main Street
Officer, Treasurer, Director and Acton, MA 01720
Assistant Clerk (508) 263-2060
Arthur V. Josephson, Jr. Auditors
Clerk and Director
Accounting Consultant Goff, Carlin & Cagan
446 Main Street
Laurence B. Berger Worcester, MA 01608
Consultant
Transfer Agent
Dr. Stanley J. Robboy
Professor of Pathology, Obstetrics Continental Stock Transfer &
and Gynecology and Director of Trust Company
Gynecologic Pathology, Duke 2 Broadway
University Medical Center New York, NY 10004
Lee Spelke Annual Meeting
Financial Consultant
The annual meeting of Pamet Systems, Inc.
Officers will be held on Friday, October 4, 1996
at 10:00 am at Pamet Systems, 1000 Main
Dr. Joel B. Searcy St., Acton, Massachusetts
Chairman of the Board
President Pamet Systems, Inc. Offices
Richard C. Becker Headquarters
Vice President, Chief Operating 1000 Main Street
Officer, Treasurer, Director and Acton, MA 01720
Assistant Clerk (508)-263-2060
1836 Ashley River Road
Suite 130
Charleston, SC 29407
(803)-766-8111
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Ave.
New York, NY 10022
Stock Listing
Pamet Systems, Inc. stock is traded on
the NASDAQ OTC (Symbol: PAMT)
<PAGE>
Company Information
For a copy of Company's Form 10-KSB for
fiscal 1995 or other information about
the Company contact,
Investor Relations
Lauren S. Lampinen
Pamet Systems, Inc.
1000 Main Street
Acton, MA 01720
(508) 263-2060
Auditors
Goff, Carlin & Cagan
446 Main Street
Worcester, MA 01608
Transfer Agent
Continental Stock Transfer &
Trust Company
2 Broadway
New York, NY 10004
Annual Meeting
The annual meeting of Pamet Systems, Inc.
will be held on Friday, October 4, 1996
at 10:00 am at Pamet Systems, 1000 Main
St., Acton, Massachusetts
Pamet Systems, Inc. Offices
Headquarters
1000 Main Street
Acton, MA 01720
(508)-263-2060
1836 Ashley River Road
Suite 130
Charleston, SC 29407
(803)-766-8111
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Ave.
New York, NY 10022
Stock Listing
Pamet Systems, Inc. stock is traded on
the NASDAQ OTC (Symbol: PAMT)
<PAGE>
(Back Cover)
Pamet Systems, Inc.
1000 Main Street
Acton, MA 01720
(508)-263-2060
FAX (508)-263-4158
