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 September 30,1998
[ ] 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 (978) 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 share outstanding
------------------- ---------------------------
Common stock 2,545,500
($.01 par value)
Transitional Small Business Disclosure Format
YES NO X
------ ------
<PAGE>
PAMET SYSTEMS, INC.
FORM 10-QSB TABLE OF CONTENTS
Part I - Financial Information
Item 1 - Financial Statements
Condensed Balance Sheets
September 30, and December 31, 1997
Condensed Statements of Operations
for the quarter ended September 30, 1998
and 1997 and nine month period ended
September 30, 1998 and 1997
Condensed Statement of Cash Flows
for the nine months ended September 30,
1998 and 1997
Item 2 - Management's Discussion and Analysis of
Financial Condition or Plan of Operations
Part II - Other Information
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 3 - Defaults Upon Senior Securities
Item 4 - Submission of Matters to a Vote of
Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
Signature(s)
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Condensed Balance Sheets September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
CURRENT ASSETS (unaudited)
Cash $ 7,442 $ 40,522
Accounts receivable, net of allowance for
doubtful accounts of $60,000 620,573 661,260
Inventory 28,935 89,811
Prepaid expenses and other current assets 107,414 39,594
Receivables from Silicon Bank 67,963 --
TOTAL CURRENT ASSETS 832,327 831,187
PROPERTY AND EQUIPMENT, net 968,275 945,970
OTHER ASSETS 4,190 --
RESTRICTED CASH 28,385 27,860
NT DEVELOPMENT-NET 112,325 --
TOTAL ASSETS $1,945,502 $1,805,017
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 774,812 $ 627,227
Accrued expenses 171,889 144,178
Loan payable-American Express 24,815 --
Notes payable-related party 600,000 192,439
Notes payable 71,895 --
Deferred software maintenance revenue 430,963 279,823
Current portion of long-term debt 19,010 17,642
TOTAL CURRENT LIABILITIES 2,093,384 1,261,309
LONG TERM DEBT, less current portion 464,940 478,317
UNEARNED SUPPORT REVENUE 3,801 28,962
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; 2,545,500 issued and outstanding 25,455 24,103
Additional paid-in Capital 5,306,924 4,776,821
Accumulated deficit (5,949,002) (4,764,495)
TOTAL STOCKHOLDERS EQUITY (616,623) 36,429
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $1,945,502 $1,805,017
========== ==========
</TABLE>
See accompanying "Notes to Financial Statements (Unaudited)"
<PAGE>
<TABLE>
<CAPTION>
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
<S> <C> <C>
1998 1997 1998 1997
Net sales $597,429 $506,455 $2,098,896 $1,546,067
Cost of product 220,475 224,633 937,875 732,787
-------- -------- --------- ---------
376,954 281,822 1,161,021 813,280
Operating expenses:
Personnel costs 317,688 265,634 1,039,361 693,429
Rent, utilities & telephone 39,287 20,236 103,602 55,847
Travel and entertainment 22,575 27,480 124,203 80,120
Professional fees 61,705 63,030 201,944 128,887
Depreciation 20,703 14,721 57,936 42,288
Research and development 71,116 -- 446,932 --
Other operating expenses 78,568 49,169 263,231 154,518
-------- -------- -------- --------
Total operating expenses 611,642 440,270 2,237,209 1,155,089
-------- -------- --------- --------
Income (loss) from operations (234,688) (158,448) (1,076,188) (341,809)
Interest income (expense), net (48,458) (15,518) (108,319) (51,103)
Gain on insurance settlement -- 17,410 -- 57,410
Net income (loss) $(283,146) $(156,556) $(1,184,507) $(335,502)
======== ======== ========= ========
Earnings (loss) per common share $(.11) $(.07) $(.47) $(.14)
===== ===== ===== =====
Shares used in computing 2,545,500 2,347,550 2,545,500 2,347,550
earnings per share
</TABLE>
See accompanying "Notes to Financial Statements (unaudited)"
<PAGE>
<TABLE>
<CAPTION>
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,1998 September 30,1997
----------------- -----------------
<S> <C> <C>
Cash flows provided by (used in)
operating activities:
Net income/(loss) $ (1,184,507) $ (335,502)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 57,936 42,288
Gain on insurance settlement -- (57,410)
Change in assets and liabilities:
(Increase) Decrease in accounts receivable 40,687 (219,033)
(Increase) Decrease in inventory 60,876 (31,955)
Decrease in inventory on insurance settlement -- 10,167
(Increase) Decrease in prepaids and
other current assets (67,820) (1,981)
(Increase) in receivable from Silicon Bank (67,963) --
(Increase) in other assets and restricted
cash (4,715) (532)
Increase in accounts payable 147,585 204,053
Increase in deferred software
maintenance revenue 125,980 125,499
Increase in accrued expenses
and other current liabilities 27,711 10,860
--------- ---------
Total adjustments 320,277 81,956
Net cash provided by (used
in) operating activities (864,230) (253,546)
Cash flows from investing
activities:
Expenditures for software development (112,326) (98,695)
Expenditures for property and equipment (80,241) (99,445)
Proceeds from insurance settlement
for property and equipment -- 29,833
--------- ---------
Net cash used in investing activities (192,567) (168,307)
</TABLE>
(continued on following page)
<PAGE>
<TABLE>
<CAPTION>
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,1998 September 30,1997
----------------- -----------------
<S> <C> <C>
Cash flows from financing activities:
Payment of mortgage (12,009) (11,850)
Net change note payable
related party 407,561 (100,660)
Net change note payable 71,895 --
Issuance of capital stock 531,455 567,866
Net change loan payable American Express 24,815 --
--------- --------
Net cash provided by
financing activities 1,023,717 455,356
Net increase (decrease) in cash (33,080) 33,503
Cash and cash equivalents at 40,522 55,353
beginning of period
Cash and cash equivalents at
end of period $ 7,442 $ 88,856
======= ======
Supplemental disclosure of cash
flow information:
Cash paid for interest: $41,617 $60,573
Supplemental disclosure of non-cash
operating activities:
Inventory lost on insurance settlement -- $ 7,058
Net book value of fixed assets lost on
insurance settlement -- --
</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
September 30, 1998 and the results of operations for the three and nine
month periods and changes in cash flows for the period then ended. There
were no material unusual charges or credits to operations during the
recently completed fiscal quarter.
The results reported for the three and nine month periods ended
September 30, 1998 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 Company consummated an agreement with the
Lexington Savings Bank of Lexington, MA. to mortgage the Company's
development, training and headquarters facility, located at 1000 Main
Street, Acton, Massachusetts. The original principal amount of the
mortgage was $560,000. In October 1997 the note was extended for a one
year term through October 21, 1998 with monthly payments $5,423.00
determined according to a twenty-year amortization period including
interest at 10.0%. The remaining balance at September 30, 1998 was
$483,950. The bank has required an interest bearing compensating balance
account. On September 30, 1998 this account equaled $28,385.
<PAGE>
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Overview
Pamet Systems, Inc. (the Company or Pamet Systems), founded in
1987, designs and implements broad-based information technology
solutions for public safety agencies enabling them to realize cost
efficiencies and provide better service. The Company's suite of products
is composed of four major components: PoliceServer, FireServer,
MobileServer, and ImageServer. The Company's revenues consist primarily
of sales of these software applications, the associated hardware and
systems integration, and support and update service fees.
Management believes that year to date revenues at September 30, 1998
increased 35.8% from the 1997 revenue levels as a result of customers
spending funds from grant awards under the "COPS MORE 96" portion of the
"Violent Crime Control and Law Enforcement Act of 1994"(the 1994 Crime
Bill). The grant applications for "COPS MORE 96" were submitted in October
1996 and the Company has seen many prospects and customers receive grant
awards and proceed through the procurement process during 1997 and the
first nine months 1998. During 1998, the Company has seen a
continuation of a market shift to the MobileServer product The
MobileServer product represented 45.4% of sales in the first nine months of
1998 as compared to 24.5% of sales in the equivalent 1997 period. As a
result of this market shift to mobile products, the Company joined forces
with Cerulean Technology, Inc. in November 1997 to offer Cerulean
PacketCluster PatrolTM wireless client/server software under a three-year
private branding agreement as its exclusive mobile information solution.
This move to the Cerulean mobile product has caused the Company to price
systems aggressively and renegotiate prior pricing agreements in order to
realize the improving margins experienced on the MobileServer product
during 1998.
Market expectations for a complete Microsoft operating environment
using Microsoft NT Server and a Windows 95 or NT Desktop graphical user
interface have grown substantially during 1997 and 1998, especially in the
Southeast market. Although the Company has completed substantial levels of
development on the next generation of PoliceServer and Fireserver operating
on a Microsoft NT platform, significant sales and deliveries of these
products will not impact revenues until mid 1999. The Company has been
able to increase revenues during 1998 as a result of MobileServer sales.
PoliceServer and FireServer system revenue has dropped from 22.6% of
revenue in 1997 to 16.2% of revenue in the first nine months of 1998. The
City of Cambridge, Massachusetts police department selected the Company's
NT version of PoliceServer as its' records management system and delivery
and installation of a Beta version was completed in September 1998. As the
modules of the Company's records management system (RMS) and computer aided
dispatch (CAD) operating in the Microsoft NT environment are released, the
Company expects that the product mix may shift back to the higher margin
PoliceServer and FireServer products in 1999. During 1998, the Company
incurred $559,257 of Research and Development expenditures, most of which
related to the new NT products. $112,325 of the research and development
expense which was related to PoliceServer 2 was capitalized as the new
product attained technical feasibility and a Beta version was available.
During 1998 the Company has continued to focus efforts on resolving
outstanding customer support issues and providing enhancements to its
current suite of products. A new release of ImageServer was distributed to
customers during the second quarter and testing of the final releases of
the current PoliceServer and FireServer products was completed during the
third quarter with release to customers scheduled for early in the fourth
quarter of 1998. In addition, QueryStation enhancements, MobileServer to
dispatch interface capabilities, and a map display capability for dispatch
were completed.
The Company's engineers have performed extensive testing to
ensure that all products are not only compliant but also failsafe with
regard to the year 2000. Pamet software was developed to store and
calculate date related information using 4-digit values, so records dated
December 31, 1999 will be followed by records dated January 1, 2000. Pamet
products were proven to successfully manage the year 2000 rollover while
maintaining data and system integrity.
During the second quarter, the third round of federal grants associated
with the 1994 Crime Bill, "COPS MORE 98", were announced. The COPS MORE 98
grant program is national in scope and very competitive, with police
departments of all sizes and types competing for a total of $200 million in
funds which must be matched by $66M in local matching share. The grant
applications were submitted in June 1998 and revenues from this round of
grant awards are expected to impact sales in fiscal 1999. Prior to the
submission of the grant applications, the Company held another round of its
successful grant preparation seminars for current and potential customers
to assist them in preparing their grant proposals. This program, aimed at
assisting agencies throughout the grant application process, reached over
900 attendees at 30 seminars in 27 cities in 15 states. In addition, the
Company extended an offer to provide further support via telephone or fax
to those agencies needing additional assistance with the complex
application. This assistance is especially helpful for smaller departments
that lack experienced grant-writing staff. The special grant advisory team
at Pamet provided aid to more than 130 agencies. The agencies that have
attended the Company's prior seminars have generally received grant awards,
however, there can be no assurance, as to when, if at all, these awards
will result in sales to the Company. Until the 1994 Crime Bill grant
program expires, a significant portion of the Company's sales will be
reflective of these awards.
Three Months Ended September 30, 1998 vs.
Three Months Ended September 30, 1997
Net sales for the three month period ended September 30, 1998 (the 1998
period) increased 18.0% to $597,429 from $506,455 for the three month
period ended September 30, 1997 (1997 period). The delays that were
encountered in the awarding of grants associated with the "COPS MORE 96"
program in prior periods have resulted in continued sales associated with
these grant awards in the 1998 period. The revenues for the 1998 period
were comprised of four new ImageServer systems, one new MobileServer
system, and one JailServer system compared to five MobileServer systems,
one PoliceServer system, and one FireServer system in the 1997 period. In
addition, in the 1998 period, customers continued to upgrade their hardware
platforms and increase the number of mobile units being used as funds
became available. Also, the Company installed a Beta version of the new NT
Policeserver 2 records management software in the City of Cambridge,
Massachusetts police department, as well as a one user NT PC-based RMS
system in a small community in central Massachusetts. MobileServer sales
in the 1998 period decreased slightly as a percent of total sales, however
strong Imageserver sales, a Jailserver system, and two GIS systems offset
this decrease. Support revenues increased 5.5% to $144,910 for the 1998
period from $137,334 for the 1997 period reflecting the increase in the
customer base from the 1997 period. Cost of product decreased 1.9% or
$4,158 to $220,475 for the 1998 period from $224,633 for the 1997 period.
The resulting increase in gross margin from 55.6% in the 1997 period to
63.1% in the 1998 period reflects increased sales of higher margin
Imageserver and Jailserver sales and the software only installation of
PoliceServer 2.
Operating expenses increased $171,372 or 38.9% to $611,642 for the 1998
period compared to $440,270 for the 1997 period primarily due to increased
spending on personnel to support future revenue growth, the acquisition of
Technology Assemblers, Inc. in February 1998, continued spending on
research and product development and increased trade show expenses.
Research and development expenditures on the NT development of PoliceServer
2 of $112,325 were capitalized during the 1998 period as the product
reached techological feasibility and a Beta version was installed in the City
of Cambridge, Massachusetts police department who had contracted to purchase
the NT product. The remaining Research and Development expenditures during the
period of $71,116 were expensed. These funds supported development work on
the Computer Aided Dispatch (CAD) NT product. The Company has used outside
contract development resources to accomplish product development goals to
minimize the long term financial commitments of the Company. The NT
product development will continue throughout 1998 and into 1999 until all
modules of PoliceServer and FireServer have been ported to the NT platform
consistent with market demands.
Personnel costs increased 19.6% to $317,688 for the 1998 period
compared to $265,634 for the 1997 period. The increase is due to the
continuing addition of resources including a Vice President of Product
Integration and Deployment in November 1997, three former TAI employees in
February 1998, a Customer Support manager in May 1998, and a sales
representative in the Northeast region in April 1998. In addition the
Company has restructured the salary levels for critical resources in line
with market salary levels. Increases in the company portion of health
insurance costs and the use of contract administrative support were offset
by year to date adjustment of incentive compensation costs. These personnel
costs were incurred to support increased revenue growth in an expanded
market and the introduction of an NT-based product. Rent, utilities and
telephone increased 94.1% to $39,287 for the 1998 period from $20,236 for
the 1997 period due primarily to the increased phone expense associated
with the telephone support for the Company's growing client base outside
the Northeast and the rent and associated expenses, including telephone, of
a new Southeast regional sales office in Maitland, Florida. Travel and
entertainment expenses decreased 17.8% to $22,575 for the 1998 period from
$27,480 for the 1997 period. This decrease reflects a reclassification of
travel expenses to grant expenses on a year to date basis. Professional
fees decreased 2.1% to $61,705 for the 1998 period from $63,030 for the
1997 period, primarily due to the reduction in consulting fees associated
with market research on the Mobileserver product and the classification of
NT development expenses as consulting in the 1997 period. This reduction
in consulting fees was offset by an increase in legal fees associated
associated with the negotiation of equity financing and loan agreements as
well as possible acquisitions and business partnerships Depreciation
expense increased 40.6% to $20,703 for the 1998 period from $14,721 for the
1997 period due to the upgrading of the Company's computer systems in the
second half of 1997 and early 1998. Other operating expenses increased
59.8% to $78,568 for the 1998 period from $49,169 for the 1997 period
primarily due to increases in internet access and high speed links to
remote sites; increases in marketing spending on trade shows, and COPS MORE
grant seminars spending reclassified from travel expenses.
Net interest expense for the 1998 period was $48,458 compared to
$15,518 for the 1997 period. This reflects the increased interest
associated the Company's receivables financing agreement with Silicon
Valley Bank and the increased use of working capital loans from directors
The net loss for the 1998 period was $(283,146) or $(.12) per share
compared to net loss of $(156,556) or $(.07) per share for the 1997 period.
The loss is due primarily to increased operating expenses resulting from
product development and the increased infrastructure costs which the
Company believes will position the Company for expected future revenue
growth.
Nine Months Ended September 30, 1998 vs.
Nine Months Ended September 30, 1997
Net sales for the nine month period ended September 30, 1998 (the 1998
period) increased $552,829 or 35.8% to $2,098,896 from $1,546,067 for the
nine month period ended September 30, 1997 (the 1997 period). The increase
in sales reflected a 151.4% increase in the sales of the Company's
MobileServer product, which represented 45.4% of total sales, a 12.1%
increase in support revenues reflecting the increased customer base, and a
45.1% increase in ImageServer sales. Partially offseting these increases
in MobileServer, ImageServer and support sales were decreases in
PoliceServer and FireServer system revenues, add-on hardware, and third
party products sold with a major install in the Southeast. Cost of product
increased 28.0% to $937,875 for the 1998 period from the $732,787 for the
1997 period resulting in an increase in gross margin from 52.6% in the 1997
period to 55.3% in the 1998 period. Margins improved on virtually all
products during the first nine months of 1998.
Operating expenses increased $1,082,120 or 93.7% to $2,237,209 for the
1998 period compared to $1,155,089 for the 1997 period. Expenditures on
research and development contributed $446,932 or 41.3% of the increase. In
addition, $112,325 of development expenditures on the NT based PoliceServer
2 were capitalized during the 1998 period as this portion reached technical
feasibility. The most significant portion of these expenditures was on the
porting of the Company's products to the NT platform, development of a
network search product, developing an interface between PoliceServer and
the Cerulean mobile product, and enhancements to the ImageServer product.
Personnel costs increased 49.9% to $1,039,361 for the 1998 period from
$693,429 for the 1997 period. This increase reflects the salary and
associated expenses incurred as a result of hiring a new President and
Chief Executive Officer in June 1997, the addition of a Vice President of
Product Integration and Deployment in November 1997, the integration of
three employees of Technology Assemblers, Inc. upon acquisition of that
company in February, 1998, and the addition of a Customer Support Manager
and a sales representative late in the second quarter of 1998. The
realignment of salaries within the company with market rates also
contributed to the increase in personnel expenses. These additional
resources are focused on new product development and expanding the
Company's infrastructure to handle the anticipated increased level of
business in the future. Rent, utilities and telephone expenses increased
$47,755 or 85.5% to $103,602 for the 1998 period from $55,847 for the 1997
period. This increase is almost entirely associated with the addition of a
regional office in Maitland, FL and the increased sales and support costs
outside the New England area. Travel and entertainment expenses increased
55.0% to $124,203 for the 1998 period from $80,120 for the 1997 period
reflecting the increased travel associated with integrating the employees
from the Southeast region into the corporate organization, the significant
increase in sales and marketing initiatives outside the Northeast including
attendance at trade shows and the COPS MORE 1998 grant seminars.
Professional fees increased 56.7% to $201,944 for the 1998 period from
$128,887 for the 1997 period due to the increase in the Company's use of
legal services associated with establishing a line of credit loan, work
associated with a private placement of the Company's stock, employment
agreements for the officers, the legal work associated with the acquisition
of Technology Assemblers Inc., and the expense associated with researching
additional business partnerships and acquisitions. Consulting expenses for
product documentation services, the cost of a financial consultant, and
installation of an upgraded financial package also contributed to the
increase. Depreciation expense increased 37.0% to $57,936 for the 1998
period from 42,288 for the 1997 period reflecting the depreciation
associated with the upgrades of the Company's computer equipment. Other
operating expenses increased 70.4% to $263,231 for the 1998 period from
$154,518 for the 1997 period. These increases reflect spending for high
speed internet access and links to remote corporate locations; marketing
programs, trade shows, and grant seminars; and office and training supplies
used to support the increased level of business.
Net interest expense was $108,319 for the 1998 period compared to
$51,103 for the 1997 period. This increase reflects the interest associated
with the receivable financing agreement with Silicon Valley Bank and
increased usage of working capital loan commitments from directors.
The net loss for the 1998 period was $(1,184,507) or $(.47) per share
compared to a net loss of $(335,502) or $(.14) per share for the 1997
period. The loss for the period can be attributed to the significant
spending on research and development and the spending associated with the
commitment to build the Company's infrastructure to meet anticipated future
business.
Liquidity and Capital Resources
The Company's working capital deteriorated to a deficit of $(1,261,057)
from a deficit of $(430,122) at December 31, 1997 due to delays in securing
equity financing to fund the current level of research and development
spending and the additional expenses associated with the increased
corporate infrastructure. The private placement of 125,000 shares of
common stock with Rogow Opportunity Capital, LLC (ROC) which increased the
cash and stockholders' equity by $531,250 during the first quarter of 1998
represented the first phase in a multi phase project to secure equity
financing to support porting the Company's products to NT and fund future
anticipated growth. Cash decreased to $7,442 at September 30, 1998 from
$40,522 at December 31, 1997 although the Company has utilizated loans with
directors and the receivables financing agreement with Silicon Valley Bank.
Accounts receivable decreased to $620,573 at September 30, 1998 from
$661,260 at December 31, 1997 in spite of the increase in sales as a result
of the receivables financing agreement signed in the second quarter of
1998.
The Company's backlog was approximately $300,000 at September 30, 1998.
The Company used the infusion of cash from the private placement with
ROC in the first quarter and the funds available as a result of the current
loan agreements on developing the NT product, supporting its increased
operational infrastructure to enable it to execute anticipated increased
sales volume and performing maintenance, adding enhancements, and upgrading
the documentation on its current products.
The Company is continuing to consider projects to increase its cash
position through business combinations, as well as capital raising
alternatives. The Company continues to utilize the the one-year
receivables financing agreement with a credit line of up to $1.25 million
with Silicon Valley Bank signed in the second quarter of 1998. The monthly
interest rate on the average daily balance is 1.6% with a one time .25%
administrative fee on the face amount of the purchased receivable. The
financing will cover receivables outstanding for up to 120 days and Silicon
retains a 20% reserve until the receivable is paid. In addition, during
the third quarter of 1998, the Company negotiated a development line of
credit with Sumaria Systems, Inc. for $250,000 at 12% per annum to fund the
development of the Company's NT based Computer Aided Dispatch (CAD) system.
Subsequent to the end of the 1998 period, the Company renegotiated its
short term working capital loans from Directors to long term convertible
debt agreements. These two agreements, for $300,000 each, carry interest
rates of 11% and terms expiring in February and June of 2001. One note is
convertible in common stock at $2.75 per share and was issued with 30,000
five year warrants exercisable at $2.75 per share and the other note is
convertible into common stock at $1.45 per share and was issued with
120,000 five year warrants exercisable at $2.50 per share. Also subsequent
to the end of the 1998 period, the Company signed a $500,000 convertible
debt agreement with a new investor. $250,000 is to be paid to the Company
by November 15, 1998 which is convertible into common stock at $1.45 per
share and was issued with 172,414 five year warrants exercisable at $1.45.
The second segment of $250,000 is to be paid by January 15, 1999 and will
convert into common stock at up to $2.50 per share. Payment of this segment
is contingent on the Company securing an additional $300,000 in financing
by January 15, 1999.
This new convertible debt represents 50% of the second phase of the
Company's private placement program. The Company continues to actively
seek investors to raise the necessary debt and/or equity financing to
support its NT development project through completion. (Any such securites
will not be or have not been registered under the Securities Act of 1933,
as amended, and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements)
The Company believes its existing backlog and current loan commitments must
be supplemented by anticipated additional capital and/or debt infusions and
enhanced sales activities to complete the current development programs.
However, the current backlog and financing commitments should sustain
operations through the end of 1998.
As of September 30, 1998, the Company had accumulated approximately
$5,200,000 and $3,400,000 in net operating loss carry forwards for federal
and state income tax purposes respectively. The loss carry forwards 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 carry forward exceed 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 Company'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, including
statements regarding the timing of delivery of NT-based products, revenue
expectations and product mix, the effect of grant awards, new product
development and capabilities, capital position and infusion, and ability to
continue operations through the year, that may or may not materialize.
These forward looking statements are subject to certain risks, including
further delays in the grant and funding process which would impact future
revenues, unanticipated development problems relating to new products, the
inability to raise additional capital and the inability to complete and
successfully integrate the TAI acquisition. Additional information of
factors that could potentially affect the Company's financial results may
be found in the Company's filings with the Securities and Exchange
Commission.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
On July 31, 1998 the Company issued a promissary note for $100,000 to
one entity, which is an accredited investor as defined in Rule 501(a)
under the securities Act of 1933, as amended (the "Act"). Interest to
be paid at a rate of 12% per annum. As further consideration for this
loan by the holder to the Company, the holder may apply unpaid
principal in a subsequent private placement thereof to the
purchase price of the securities offered to outside investors on the
terms stated in the note. Subsequent to the end of the 1998 period,
this note (together with a previously issued $200,000 note) was
exchanged for a $300,000 convertible note and warrants,
(See "MD&A - Liquidity")
Item 3 - Defaults Upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a vote of Security Holders
Not applicable
Item 5 - Other Information
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits
4.1 $100,000 Promissory Note dated 7/31/98
10.1 $250,000 Promissory Note dated 9/28/98
27 Financial Data Schedule
b. Reports on form 8-K
none
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)
November 13, 1998 Richard C. Becker
_______________________________ ______________________
Date Richard C. Becker
Vice President
Principal Financial Officer
EXHIBITS
Exhibit 4 Promissory Note
PAMET SYSTEMS, INC.
PROMISSORY NOTE
$100,000 July 31, 1998
FOR VALUE RECEIVED, PAMET SYSTEMS, INC., a Massachusetts corporation (the
"Company"), with its principal office at 1000 Main Street, Acton,
Massachusetts 01720, promises to pay to the order of Rogow Opportunity
Capital LLC, a Massachusetts limited liability company (the "Holder"), with
its principal office at 220 Ocean Avenue, Marblehead, Massachusetts 01945,
or its assigns, on June 1, 1999 (the "Maturity Date"), the principal amount
of ONE HUNDRED THOUSAND DOLLARS ($100,000), in such coin or currency of the
United States of America as at the time of payment shall be legal tender
for the payment of public or private debts, together with interest on the
unpaid balance of said principal amount from time to time outstanding at
the rate of twelve (12 %) percent per annum. Notwithstanding the
foregoing, this Note may be prepaid or called by the Company at any time in
whole or in part without penalty or premium, but with at least five days
notice to the Holder. Interest shall accrue to and include the date on
which prepayment is made. Payments of principal and interest are to be
made at the address of the Holder designated in Section 5.4 or at such
other place as the Holder shall have notified the Company in writing at
least five days before such payment is due.
1. Events of Default. (a) Upon the occurrence of any of the following
events (herein called "Events of Default"):
(i) The Company shall fail to pay the principal of or interest on this Note
on the Maturity Date;
(ii) (A) The Company shall commence any proceeding or other action relating
to it in bankruptcy or seek reorganization, arrangement, readjustment of
its debts, receivership, dissolution, liquidation, winding-up, composition
or any other relief under any bankruptcy law, or under any other
insolvency, reorganization, liquidation, dissolution, arrangement,
composition, readjustment of debt or any other similar act or law, of any
jurisdiction, domestic or foreign, now or hereafter existing; or (B) the
Company shall admit the material allegations of any petition or pleading in
connection with any such proceeding; or (C) the Company shall apply for, or
consent or acquiesce to, the appointment of a receiver, conservator,
trustee or similar officer for it or for all or a substantial part of its
property; or (D) the Company shall make a general assignment for the
benefit of creditors;
(iii) (A) The commencement of any proceedings or the taking of any other
action against the Company in bankruptcy or seeking reorganization,
arrangement, readjustment of its debts, liquidation, dissolution,
arrangement, composition, or any other relief under any bankruptcy law or
any other similar act or law of any jurisdiction, domestic or foreign, now
or hereafter existing and the continuance of any of such events for sixty
(60) days undismissed, unbonded or undischarged; or (B) the appointment of
a receiver, conservator, trustee or similar officer for the Company for any
of its property and the continuance of any of such events for sixty (60)
days undismissed, unbonded or undischarged; or (C) the issuance of a
warrant of attachment, execution or similar process against any of the
property of the Company and the continuance of such event for sixty (60)
days undismissed, unbonded and undischarged;
then, and in any such event, the Holder, at its option and without written
notice to the Company, may declare the entire principal amount of this Note
then outstanding together with accrued unpaid interest thereon immediately
due and payable, and the same shall forthwith become immediately due and
payable without presentment, demand protest, or other notice of any kind,
all of which are expressly waived. The Events of Default listed herein are
solely for the purpose of protecting the interests of the Holder of this
Note.
(b) Collection Costs; Attorney's Fees. In the event this Note is turned
over to an attorney for collection upon the occurrence of an Event of
Default, the Company agrees to pay all reasonable costs of collection,
including reasonable attorney's fees and expenses and all out of pocket
expenses incurred in connection with such collection efforts, which amounts
may, at the Holder's option, be added to the principal hereof.
2. Purchase Option. As further consideration for this loan by the Holder
to the Company, at its election, the Holder may apply up to One Hundred
Thousand Dollars ($100,000) of the unpaid principal hereof and accrued and
unpaid interest hereon to the purchase price of the securities offered for
sale in the next occurring private placement of securities offered to
outside investors (anticipated to occur prior to December 31, 1998), at the
lowest purchase price paid by outside investors in such placement, to the
purchase such securities on the same terms and conditions on which other
investors invest.
3. Obligation to Pay Principal and Interest; Covenants. No provision of
this Note shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Note at the place, at the respective times, at the rates, and in the
currency herein prescribed.
4. Repayment. Page one of this Note defines the Maturity Date.
4.1 Interest. Subject to Section 2, interest payments shall be made by the
Company to the Holder on March 31, June 30, September 30, and December 31
of each year beginning on September 30, 1998, until such time as the
outstanding principal and interest on this note have been paid in full. In
no event shall the interest rate payable hereunder be higher than the
maximum amount payable under applicable law.
4.2 Principal. Subject to Section 2, the Company shall pay the outstanding
principal amount of the Note on the Maturity Date.
5. Miscellaneous.
5.1 Required Consent. The Company may not modify any of the terms of this
Note without the prior written consent of the Holder.
5.2 Lost Documents. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note or any
Note exchanged for it, and (in the case of loss, theft or destruction) of
indemnity satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation
of such Note, if mutilated, the Company will make and deliver in lieu of
such Note a new Note of like tenor and unpaid principal amount and dated as
of the original date of the Note.
5.3 Benefit. This Note shall be binding upon and inure to the benefit of
the parties hereto and their legal representatives, successors and assigns.
5.4 Notices and Addresses. All notices, offers, acceptances and any other
acts under this Note (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressee in person, by Federal
Express or similar receipted delivery, by facsimile delivery or, if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
To the Holder: 220 Ocean Avenue
Marblehead, Massachusetts 01945
Attn: Bruce Rogow
Fax: (781) 639-2862
To the Company: 1000 Main Street
Acton, Massachusetts 01720
Attn: Richard C. Becker
Fax: (978) 263-4158
In either case with copies to: Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Attn: David S. Rosenthal, Esq.
Fax: (212) 758-9526
or to such other address as any of them, by notice to the others may
designate from time to time. Time shall be counted to, or from, as the case
may be, the delivery in person or five (5) business days after mailing.
5.5 Governing Law; Jurisdiction. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts
without giving effect to the principles of conflicts of laws thereof. The
Company and the Holder hereby consent to the jurisdiction of the state and
federal courts of the Commonwealth of Massachusetts for all disputes
arising under this Agreement.
5.6 Section Headings. Section headings herein have been inserted for
reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part any of the terms or
provisions of this Note.
5.7 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements contained herein shall survive
the delivery of this Note.
IN WITNESS WHEREOF, this Note has been executed and delivered on the date
specified above by the duly authorized representative of the Company.
PAMET SYSTEMS, INC.
By:_____________________________
Name: Richard C. Becker
Title: Vice President
Exhibit 10.1
PAMET SYSTEMS, INC.
PROMISSORY NOTE
$250,000 September 28, 1998
FOR VALUE RECEIVED, PAMET SYSTEMS, INC., a Massachusetts corporation (the
"Company"), with its principal office at 1000 Main Street, Acton,
Massachusetts 01720, promises to pay to the order of Sumaria Systems, Inc.,
a Massachusetts corporation (the "Holder"), with its principal office at 99
Rosewood Drive, Suite 140, Danvers, MA 01923, or its assigns, on June 1,
1999 (the "Maturity Date"), the principal amount of TWO HUNDRED FIFTY
THOUSAND DOLLARS ($250,000), or such lesser amount as shall equal the
aggregate unpaid principal then outstanding, in such coin or currency of
the United States of America as at the time of payment shall be legal
tender for the payment of public or private debts, together with interest
on the unpaid balance of said principal amount from time to time
outstanding at the rate of twelve (12 %) percent per annum.
Notwithstanding the foregoing, this Note may be prepaid or called by the
Company at any time in whole or in part without penalty or premium, but
with at least five days notice to the Holder. Interest shall accrue to and
include the date on which prepayment is made. Payments of principal and
interest are to be made at the address of the Holder designated in Section
5.4 or at such other place as the Holder shall have notified the Company in
writing at least five days before such payment is due.
1. Events of Default. (a) Upon the occurrence of any of the following
events (herein called "Events of Default"):
(i) The Company shall fail to pay the principal of or interest on this Note
on the Maturity Date;
(ii) (A) The Company shall commence any proceeding or other action relating
to it in bankruptcy or seek reorganization, arrangement, readjustment of
its debts, receivership, dissolution, liquidation, winding-up, composition
or any other relief under any bankruptcy law, or under any other
insolvency, reorganization, liquidation, dissolution, arrangement,
composition, readjustment of debt or any other similar act or law, of any
jurisdiction, domestic or foreign, now or hereafter existing; or (B) the
Company shall admit the material allegations of any petition or pleading in
connection with any such proceeding; or (C) the Company shall apply for, or
consent or acquiesce to, the appointment of a receiver, conservator,
trustee or similar officer for it or for all or a substantial part of its
property; or (D) the Company shall make a general assignment for the
benefit of creditors;
(iii) (A) The commencement of any proceedings or the taking of any other
action against the Company in bankruptcy or seeking reorganization,
arrangement, readjustment of its debts, liquidation, dissolution,
arrangement, composition, or any other relief under any bankruptcy law or
any other similar act or law of any jurisdiction, domestic or foreign, now
or hereafter existing and the continuance of any of such events for sixty
(60) days undismissed, unbonded or undischarged; or (B) the appointment of
a receiver, conservator, trustee or similar officer for the Company for any
of its property and the continuance of any of such events for sixty (60)
days undismissed, unbonded or undischarged; or (C) the issuance of a
warrant of attachment, execution or similar process against any of the
property of the Company and the continuance of such event for sixty (60)
days undismissed, unbonded and undischarged;
then, and in any such event, the Holder, at its option and without written
notice to the Company, may declare the entire principal amount of this Note
then outstanding together with accrued unpaid interest thereon immediately
due and payable, and the same shall forthwith become immediately due and
payable without presentment, demand, protest, or other notice of any kind,
all of which are expressly waived. The Events of Default listed herein are
solely for the purpose of protecting the interests of the Holder of this
Note.
(b) Collection Costs; Attorney's Fees. In the event this Note is turned
over to an attorney for collection upon the occurrence of an Event of
Default, the Company agrees to pay all reasonable costs of collection,
including reasonable attorney's fees and expenses and all out of pocket
expenses incurred in connection with such collection efforts, which amounts
may, at the Holder's option, be added to the principal hereof.
2. Purchase Option. As further consideration for this loan by the Holder
to the Company, at its election, the Holder may apply the unpaid principal
hereof and accrued and unpaid interest hereon to the purchase price of the
securities offered for sale in the next occurring private placement of
securities offered to outside investors (anticipated to occur prior to
December 31, 1998), at the purchase price paid by outside investors in such
placement on the same terms and conditions on which other investors invest.
3. Obligation to Pay Principal and Interest; Covenants. No provision of
this Note shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Note at the place, at the respective times, at the rates, and in the
currency herein prescribed.
4. Repayment. Page one of this Note defines the Maturity Date.
4.1 Interest. Subject to Section 2, interest payments shall be made by the
Company to the Holder on March 31, June 30, September 30, and December 31
of each year beginning on September 30, 1998, until such time as the
outstanding principal and interest on this note have been paid in full. In
no event shall the interest rate payable hereunder be higher than the
maximum amount payable under applicable law.
4.1 Principal. Subject to Section 2, the Company shall pay the outstanding
principal amount of the Note on the Maturity Date.
5. Miscellaneous.
5.1 Required Consent. The Company may not modify any of the terms of this
Note without the prior written consent of the Holder.
5.2 Lost Documents. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note or any
Note exchanged for it, and (in the case of loss, theft or destruction) of
indemnity satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation
of such Note, if mutilated, the Company will make and deliver in lieu of
such Note a new Note of like tenor and unpaid principal amount and dated as
of the original date of the Note.
5.3 Benefit. This Note shall be binding upon and inure to the benefit of
the parties hereto and their legal representatives, successors and assigns.
5.4 Notices and Addresses. All notices, offers, acceptances and any other
acts under this Note (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressee in person, by Federal
Express or similar receipted delivery, by facsimile delivery or, if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
To the Holder: 99 Rosewood Drive, Suite 140,
Danvers, MA 01923
Attn: Venilal Sumaria
Fax: (978) 739-4200
To the Company: 1000 Main Street
Acton, Massachusetts 01720
Attn: Richard C. Becker
Fax: (978) 263-4158
In either case with copies to: Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Attn: David S. Rosenthal, Esq.
Fax: (212) 758-9526
or to such other address as any of them, by notice to the others may
designate from time to time. Time shall be counted to, or from, as the case
may be, the delivery in person or five (5) business days after mailing.
5.5 Governing Law; Jurisdiction. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts
without giving effect to the principles of conflicts of laws thereof. The
Company and the Holder hereby consent to the jurisdiction of the state and
federal courts of the Commonwealth of Massachusetts for all disputes
arising under this Agreement.
5.6 Section Headings. Section headings herein have been inserted for
reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part any of the terms or
provisions of this Note.
IN WITNESS WHEREOF, this Note has been executed and delivered on the date
specified above by the duly authorized representative of the Company.
PAMET SYSTEMS, INC.
By:_____________________________
Name: Richard C. Becker
Title: Vice President
Promissory Note 11/10/98
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEPT-30-1998
<CASH> 7,442
<SECURITIES> 0
<RECEIVABLES> 620,573
<ALLOWANCES> 60,000
<INVENTORY> 28,935
<CURRENT-ASSETS> 832,327
<PP&E> 1,588,507
<DEPRECIATION> 620,232
<TOTAL-ASSETS> 1,945,502
<CURRENT-LIABILITIES> 2,093,384
<BONDS> 0
<COMMON> 25,445
0
0
<OTHER-SE> (642,078)
<TOTAL-LIABILITY-AND-EQUITY> 1,945,502
<SALES> 597,429
<TOTAL-REVENUES> 597,429
<CGS> 220,475
<TOTAL-COSTS> 220,475
<OTHER-EXPENSES> 611,642
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,458
<INCOME-PRETAX> (283,146)
<INCOME-TAX> 0
<INCOME-CONTINUING> (283,146)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (283,146)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
