Description of Business
Pamet Systems (the "Company"), designs, develops, installs, and supports
computer software and turnkey computer and data communications systems for
public safety agencies serving municipalities with populations under 250,000,
as well as campus, public housing, and transit authority police agencies. The
Company's innovative applications automate the acquisition, storage,
processing, retrieval, and communication of information for these agencies.
The principal products of the Company comprise an integrated suite of
information management and communications systems, the foundation of which are
the PoliceServer and FireServer products. PoliceServer is an integrated
Computer-Aided Dispatch and records management system, which includes the
clerical and record-keeping functions necessary for police department
operation, from E9-1-1 integrated dispatch and booking to word processing and
electronic mail. FireServer is an information management system and
Computer-Aided Dispatch system that provides fire departments with data on
structures, fire suppression plans, and hazardous materials management.
JailServer is designed to provide corrections facility staff with the ability
to capture, track and report a wide variety of data related to inmates.
Companion products include the ImageServer digital imaging system for
management of mug shots and crime scene photos, and the MobileServer system of
mobile computers for field reporting.
The Company's products are currently marketed and installed in the Northeast,
Southeast, and Midwest states. Pamet is headquartered in Massachusetts and
maintains a sales office in Florida.
The Company was incorporated on November 24, 1987 by Dr. Joel B. Searcy, its
Chairman of the Board.
PoliceServer and FireServer are registered trademarks of the Company.
JailServer, ImageServer and MobileServer are trademarks of the Company.
Certain statements in this Annual Report may constitute "forward looking
statements" within the meaning of the Securities Act of 1933 and the Securities
and Exchange Act of 1934 as amended. Certain, but not necessarily all, of
such forward looking statements can be identified by the use of such words as
"believes," "expects," "may," "will," "should," or "anticipates," or other
variations or by discussions of strategies involving risk and uncertainties.
The actual results of the company or industry results may be materially
different from any future results expressed or implied by such forward-looking
statements. Additional information on factors that could potentially affect
the Company's financial results may be found in the Company's filings with the
Securities and Exchange Commission.
To Our Stockholders:
For Pamet Systems, 1997 was a year of transition. Well established in the
public safety market in ten States with products and services highly regarded
by its customers, the Company faced several challenges. System implementations
moved from relatively simple projects to more complex networked and
multi-jurisdictional solutions. Customer demand for new products expanded to
include mobile data systems, imaging and query capabilities. Technology
platform requirements shifted from traditional operating environments to
Microsoft's NT operating system. Recognizing these market shifts, the Board
asked me to draw on my experience in information technology management and
consulting to implement a strategy to reposition Pamet to successfully exploit
the new opportunities in its markets.
I believe that the future of the Company is dependent upon creating and
servicing state of the art public safety records and communications systems on
which police, fire and EMS departments can rely.Concentrating on quality,
reliability and leadership fuels new sales, while renewals and upgrades create
the foundation for future growth.
In 1997, the first year of a three-year program, we concentrated on product
quality and customer satisfaction in today's products while initiating the
development of redesigned core products on the Microsoft NT platform.
Most of the costs associated with stabilizing existing products were incurred
in 1997 allowing us to concentrate on building our future. The alliance with
Cerulean Technology, a leader in the mobile data market, builds on our
traditional strengths and puts the power of our applications into the police
cruiser. Acquiring Technology Assemblers, who developed our JailServer
product, positions Pamet to expand into the jail management market.
In 1998, our efforts will concentrate on delivering stable quarter over quarter
revenue growth while we invest heavily in new product development. The first
phase of our new "point and click" police records management system should be
installed in customers' systems by July. Improving our overall efficiency and
building a strong sales pipeline of opportunities are critical factors in
achieving our goals. We intend to be well positioned to be the leading vendor
in our markets entering the third year of our program.
I wish to thank everyone, our stockholders, Board of Directors and employees,
for your continued support and confidence during 1997. Please contact me via
phone or email to [email protected] if you have comments, questions or
suggestions regarding Pamet. Working together we are laying the groundwork for
a strong, profitable company providing leading edge technology solutions to
the public safety market.
Sincerely,
David T. McKay
President
1997 Highlights
1997 was a year of repositioning and partnerships at Pamet. New people were
brought in to facilitate change and grow our existing resources. Business
relationships and partnerships were formed to strengthen our position in the
market. And new products were developed to ensure our position as a technology
leader in the public safety market.
At the annual meeting of stockholders, David McKay was named president and CEO
of the company, replacing Joel Searcy, Pamet's founder and former president and
CEO. Joel has remained with the company as it's chief technology officer and
chairman of the board of directors.
As an experienced senior executive with a broad balance of expertise in
corporate leadership and leading edge technology consulting, David brings to
Pamet the expertise and cross-industry reputation needed to exploit the growth
and opportunities expected in the public safety industry. Prior to joining
Pamet, David was global systems manager for Mobil Oil, Fairfax, Va.
Previously, he held senior management positions at Moore Corporation, Gartner
Group Inc., Nolan & Norton & Co., Petro Canada Inc., Manitoba Data Services and
International Business Machines.
In his first eleven months at Pamet, David has concentrated on improving
overall satisfaction with our products and examining opportunities to develop
new markets. By revitalizing existing products and services and initiating the
development of the next generation of applications, David is aggressively
moving Pamet towards a profitable future.
As an investor and information technology industry expert, Bruce Rogow joined
the Company's Board of Directors in June. This marked the first addition to
Pamet's board in seven years. With over thirty years of experience in highly
successful, growth oriented enterprises in the information technology industry,
Bruce brings a practical and in depth business perspective to the Board of
Directors and Pamet.
Bruce is currently an independent executive counselor to corporations who are
major users of information technology. He is affiliated with the Gartner Group
where he focuses on executive information technology management issues. In
addition, Rogow is Chief Executive of Rogow Opportunity Capital (ROC)., a
private investment firm. In this investor role he provides active participation
at the board level in companies such as Pamet.
To strengthen the engineering development team, David Askey was hired as
Vice President, Product Integration and Deployment. David leads the design and
development team migrating Pamet's PoliceServer, FireServer and ImageServer
products to the Microsoft NT environment. David plays a key leadership role in
the technologies used in Pamet products while building a team of highly
effective application and technology specialists with strong skills in client
server development, network computing, internet application construction and
product packaging.
Askey has over fifteen years of information technology experience in various
aspects of on-line programming, system programming and implementation, system
design, data communications, operations and management in Mobil Oil and the US
Navy.
To better serve our existing and potential customers, Pamet announced a private
branding agreement under which we will offer Cerulean's PacketCluster
Patrol wireless client/server software as its exclusive mobile information
solution. The system is already installed in more than 20 of the two
companies' joint police department sites and by mid-1998 Pamet will have
installed over 20 additional mobile system customers with close to 100
cruisers. The partnership allows Pamet to continue to design, install
and support state of the art mobile solutions for all its customers, while
concentrating on building the next generation of its core products,
PoliceServer, FireServer and EMServer, on the Microsoft Windows NT platform,
PacketCluster Patrol is a standards-based, open architecture solution that
gives officers instant access to local, state and national law enforcement
databases from patrol car-based laptop computers. The Windows 95-based
software also enables silent communication to enhance officer safety and secure
undercover investigations, and supports reporting software, record management
systems (RMS) and computer aided dispatch (CAD).
In an effort to provide a more complete solution to our customers, Pamet
purchased Technology Assemblers, Inc. (TAI) and all of its assets including
its proprietary application software designed for use by correctional
institutions. TAI's application software is a proven product that includes
applications to support jail management, inmate banking and cashless
canteen including inmate trust accounting and property, property and evidence
tracking and courtroom minute tracking.
In addition to the high quality applications, the merger brings to Pamet an
experienced management and software development team. It allows Pamet to expand
its business into the corrections market through TAI's customer base in
Florida, Pennsylvania and Illinois and quickly integrate TAI's application
portfolio into Pamet's new PoliceServer development initiative.
The most crucial new beginning in 1997 was the first phase development of our
NT based product suite. The new product will use the latest in graphical user
interface design techniques or "point and click technologies" and will be
designed to support the growing networking and external interface requirements
of Law Enforcement agencies.
PoliceServer 2 is one component in the redevelopment of Pamet's Police, Fire,
EMS and CAD products which when complete will retain the robust and easy to use
functional characteristics of the existing products, but will operate on a
Microsoft NT Server platform and use a Windows based graphical user interface.
The new designs will take advantage of today's relational database technology
including Microsoft SQL Server and Oracle and will create a strong platform
capable of supporting the product functional extensions, networking and system
performance that will be required by public safety agencies in the next decade.
Early feedback from customers who have seen the new components late in 1997 was
very enthusiastic and product development is proceeding on schedule. Second
phase development of the PoliceServer 2 is scheduled to deliver functional
components to customers in September, October and December of 1998. The full
PoliceServer 2 system is intended to be integrated with a new Pamet Computer
Aided Dispatch (CAD) system in the first quarter of 1999.
1997 was a year to reposition the company, 1998 will be the year to deliver the
new products and build the momentum. With revitalized and leading edge
services, products and support, Pamet is moving forward towards it's goal of
industry leadership in public safety software solutions.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
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.
The Company's revenues for the 12 month period ended December 31, 1997 (the
1997 period) decreased 15.8% from the 12 month period ending December 31, 1996
(the 1996 period). During the period, the revenues showed a significant shift
to the MobileServer product, which represented 28.4% of sales in the 1997
period, up from 3.2% in the 1996 period. The MobileServer product enables
officers to submit reports and access critical databases from their cruisers
increasing officer productivity. As a result of this market shift to mobile
products, the Company joined forces with Cerulean Technology, Inc. in November
of 1997 to offer Cerulean's PacketCluster Patrol wireless client/server
software under a three-year private branding agreement as its exclusive mobile
information solution. This MobileServer market shift and the subsequent
Cerulean agreement caused the Company to experience substantial one time
product development, implementation engineering and staff training costs which
affected the results of operations during the 1997 period. In addition, a
significant portion of the Company's 1997 MobileServer sales and current
backlog are the result of the "Cops More 96" federal grant awards of the 1994
Crime Bill. The pricing on these MobileServer sales reflects previous
commitments made to customers during the grant application process and prior to
the Cerulean agreement and, combined with the high hardware component of the
MobileServer product, have resulted in lower product margins.
The Company has continued to see increased revenues from software support and
update service fees resulting from increases in the installed base and renewal
rates approaching 100%. The service revenues represented 22.3% of the
Company's total revenues in the 1997 period versus 15.7% in the 1996 period.
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 in 1997, particularly in the Southeast market.
Consequently, the Company has begun rebuilding its products on the NT platform
at considerable expense, which has affected the 1997 results of operation.
During the 1997 period, the Company expended over $234,000 to design and begin
the development of PoliceServer 2 and a network search product. The Company
also expended considerable funds during the 1997 period on product quality
improvements, testing and demonstration platforms, and product documentation to
address competitive requirements and improve customer satisfaction. In
addition, the Company supported these efforts internally by re-deploying
existing resources to address product quality, documentation and customer
satisfaction issues.
The Company continues to believe there are significant market opportunities
based on the federal Crime bill funding expected in 1998 and beyond, the
establishment of E911 centers, heightened emphasis on crime in most communities
and the awareness by municipalities that computer systems can improve the
efficiency and effectiveness of their public safety resources. The Company has
also seen increased emphasis on the coordination of public safety systems
between neighboring towns, county, and state police organizations. The
Registrant's products are designed and marketed with the option to be used in
this type of regional application.
Results of Operations
Year Ended December 31, 1997 vs. Year Ended December 31, 1996.
During 1997, the Company's net sales decreased 15.8% to $2,077,896 from
$2,468,073 in the 1996. The decrease in sales of turnkey systems and hardware
upgrades of $1,101,970 or 70.0% to $470,432 for the 1997 period from $1,572,402
for the 1996 period had the most significant impact on the Company's total
revenues. The number of system sales decreased from 27 in the 1996 period to 6
in the 1997 period. Hardware upgrades decreased to 5 in the 1997 period from 10
in the 1996 period. This decrease in the total revenue and total number of
systems sold can be partially attributed to communities delaying purchases of
systems while they await more vendors offering products on a Microsoft
operating environment using Microsoft NT Server and a Windows 95 or NT Desktop
graphical user interface, particularly in the Southeast market. In addition,
the Company believes that some business was lost in 1997 as a result of the
Company not offering a PC-based police or fire system further highlighting
importance of the migration to NT. System revenues resulting from the "COPS
MORE 96" portion of the 1994 Crime bill were approximately $270,500 or 57.5% of
turnkey system and hardware upgrade sales, representing 4 new system sales and
2 system upgrades. "COPS MORE 96" grants will continue to impact revenue in
1998.
Sales of the MobileServer product increased 653.0% to $591,030 in the 1997
period from $78,490 in the 1996 period. Revenue from the ImageServer product
decreased 11.8% to $217,501 for the 1997 period from $246,737 in the 1996
period. Support revenues increased $77,491 or 19.3% to $479,498 for the 1997
period from $402,007 for the 1996 period. This increase in the support revenues
reflects the increasing customer base.
Cost of sales increased $107,610 or 11.5% to $1,043,293 for the 1997 period
from $935,683 for the 1996 period. Cost of sales increased despite the decrease
in revenue due to a less profitable product mix and new product startup costs.
Gross margins decreased from 62.1% in the 1996 period to 49.8% in the 1997
period. Margins on system sales and hardware upgrades remained relatively
flat. However systems sales and hardware upgrades represented only 22.6% of
revenues in the 1997 period versus 63.7% in the 1996 period significantly
reducing their contribution to gross margin.
The MobileServer product had the most significant unfavorable impact on gross
margins as a result of a 653.0% increase in sales combined with the fact that
1997 margins were less than half of the margins earned on the Company's
PoliceServer and FireServer systems. The MobileServer margins were unfavorably
impacted by startup costs associated with the Cerulean private branding
agreement including upgrading existing customers to the Cerulean system,
first-in-state discounts, and prior pricing commitments to customers for mobile
systems funded by grants. It is expected that margins on the MobileServer
product will improve significantly during the second half of 1998 as a result
of the implementation of more efficient implementation processes and pricing
analysis tools.
In contrast, software support and update service revenues delivered
traditionally high margins which increased from 95.5% in the 1996 period to
96.0 in the 1997 period.
The Company's operating expenses increased $768,343 or 63.3% to $1,981,539 for
the 1997 period from $1,213,196 for the 1996 period. The Company's commitments
in several areas including the MobileServer product, overall product quality
and customer satisfaction, and other new product development contributed
significantly to the increases in spending. Of the increases, $317,612 or
41.3% is attributable to research and development spending on the mobile
product interface to the state information system, a network search product
(LENS), and NT product development of PoliceServer 2. In all cases, the
Company used outside resources to design and develop these projects creating
minimal impact on the long-term financial commitments of the company. NT
product development will continue throughout 1998 until all modules of
PoliceServer and FireServer have been ported to the NT platform, consistent
with market demands. During 1997, a significant number of the requests for
proposals (RFP's) received by Pamet Systems have required either a functioning
NT system or a transition plan to the NT platform.
Personnel costs increased 34.2% or $252,676 to $990,897 for the 1997 period
from $738,221 for the 1996 period. The most significant portion of the
increased expense results from hiring David McKay as President and Chief
Executive Officer while Dr. Joel Searcy, the Company's former President and
Chief Executive officer, remains as Chairman of the Board. In addition,
employee salary increases and incentive plans were implemented to bring
employee compensation more in line with market rates. The other significant
impact on personnel costs was a 19.5% increase in employee health insurance
costs.
Rent, utilities and telephone increased 21.8% to $76,228 for the 1997 period
from $62,574 for the 1996 period as a result of increased telephone usage. The
most significant reason for this increase is telephone support for the
Company's growing client base located outside of the Northeast.
Travel and entertainment expenses increased $47,247 or 80.8% to $105,706 for
the 1997 period from $58,459 for the 1996 period due to the increased travel
associated with the customer satisfaction, program management and training
activities in the Southeast region. The complex nature of the installation at
Cherokee County, GA from a program management and technological standpoint
stretched the Company's resources and required numerous site visits. This
incremental spending was not planned and was not billable to the customer. The
Company has taken steps to insure that travel, project management, bid and
performance bond interest costs and conversion and interface costs are included
in all future pricing decisions.
Spending on professional fees increased $100,199 or 149% to $167,381 for the
1997 period from $67,182 for the 1996 period. Consulting fees contributed
$34,834 of the increase. The most significant expenditures resulted from an
outside marketing survey to determine the mobile product market demand and the
cost of an outside firm hired to update existing product documentation. These
expenditures supported the ongoing mobile data terminal and product quality
projects. Legal fees increased 226.2% to $90,550 for the 1997 period from
$27,758 for the 1996 period as a result of the services that were required to
complete a private placement of 200,000 shares of Company stock, to negotiate
employment agreements with the Company's officers, and to support the
acquisition of Technology Assembles Inc. in February 1998.
Depreciation expense increased 18.9% to $72,472 for the 1997 period from
$60,963 for the 1996 period reflecting the increased first year depreciation on
the new computer equipment purchased as a result of the theft of nearly all the
corporate computer equipment in June 1997.
Other operating expenses increased 11.3% or $25,446 to $251,243 for the 1997
period from $225,797 for the 1996 period. The most significant components of
the increase were the replacement purchases of a substantial amount of
non-capitalizable assets, the upgrade of the corporate Internet access line,
and the increased costs of officers' life insurance. This increased spending
was partially offset by a reduction in grant related marketing expenses.
Net interest expense decreased to $69,027 for the 1997 period compared to the
net expense of $80,013 for the 1996 period. This decrease reflects the lower
average balance on working capital loans obtained from Directors and Officers
as well as the decreased balance and interest rate on the Company's mortgage
note. During 1997, the Company completed a private placement of 200,000
shares of common stock at $2.75 per share reducing the need for Director and
Officer debt financing.
As stated above, the Company experienced a theft of essentially all of its
computer equipment in June 1997. The Company's commercial insurance policy
provided for replacement cost of the stolen equipment. This theft generated
other income of $61,649 for the Company because the majority of the equipment
that was stolen was fully depreciated.
The loss for the 1997 period was $954,314 or $(.42) per share compared to a
profit of $243,681 or $.10 per share for the 1996 period assuming fully diluted
shares outstanding.
Liquidity and Capital Resources
The Company's working capital was a deficit of $430,122 at December 31, 1997
compared to a deficit of $78,293 at December 31, 1996. Cash decreased to
$40,522 at December 31, 1997 from $55,353 at December 31, 1996. The
deterioration in working capital reflects the investments in the business as
well as the reduced gross margins generated from revenues for the year.
Accounts receivable increased to $661,260 at December 31, 1997 from $600,672 at
December 31, 1996, reflecting the increase in days sales outstanding.
The Company's backlog exclusive of support revenues was in excess of $600,000
at December 31, 1997. On March 27, 1998 the backlog was approximately $490,000.
The trend that was exhibited in 1997 towards increased sales in the
MobileServer product is anticipated to continue into 1998. MobileServer
represents over $386,000 or 79% of the backlog at March 27, 1998. The remaining
awards from the "Cops More 96" grant submissions combined with sales of the
Company's suite of products should help sustain sales growth in 1998. In
addition, the Company is continuing to consider projects to increase its cash
position such as activities to raise capital, mergers, acquisitions or other
business combinations. Subsequent to year-end, the Company completed a stock
sale to a Director of 125,000 shares of stock at $4.25 per share raising
$531,250. Included with this sale of stock, the Director received 31,250
warrants exercisable at 4.25 per share. The Company has also secured an
additional line of credit for $300,000 from a Director, increasing the total
available lines of credit to $600,000 from Directors. The Company believes its
existing backlog, the loan commitments, additional securities offerings and its
current market position will be sufficient to ensure the continued operations
through the end of the year.
As of December 31, 1997, the Registrant had accumulated approximately
$4,700,000 and $2,800,000 in net operating loss carryforwards for federal and
state income tax purposes respectively. The loss carryforwards expire in the
year 2011. Under the Internal Revenue Code of 1986, as amended, the rate at
which a corporation may utilize its net operating losses to offset its income
for federal tax purposes is subject to specified limitations during periods
after the corporation has undergone an "ownership change". It has been
determined that an ownership change did take place at the time of the
Registrant's initial public offering. However, the limitations on the loss
carryforward exceed the accumulated loss at the time of the "ownership change".
Thus there is no restriction on its use.
Seasonality
The majority of the Company's installed base has a fiscal year that commences
on July 1 and, therefore, the Company bills its customers for their annual
software support and update service on July 1 of each year. Consequently, cash
flow representing software support revenues has tended to be higher in the
second half of the Registrant's fiscal year, although software support revenues
are recognized ratably throughout the fiscal year.
Revenue Recognition
Revenues from software license fees are recognized when a contract has been
executed, the product has been delivered, all significant contractual
obligations have been satisfied and collection of the related receivable is
probable. Maintenance revenues, including those bundled with the initial
license fee, are deferred and recognized ratably over the service period.
Consulting and training service revenues are recognized as the services are
performed.
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position 97-2 "Software Revenue Recognition," (the "SOP"). This
SOP is effective for transactions entered into in fiscal years beginning after
December 15, 1997. This Company will adopt this SOP in its fiscal year 1998.
The application of this SOP is not expected to have a material effect on the
Company's results of operations as reported herein as the revenue recognition
rules utilized by the Company are substantially consistent with the provisions
of the SOP. Accordingly, adoption of this SOP will not have a material effect
on future results of operations.
Recently Issued Accounting Standards
In July 1997, the FASB issued SFAS 130 "Reporting Comprehensive Income." This
statement is effective for fiscal years beginning after December 15, 1997. The
Company will implement this statement as required in fiscal year 1998. The
future adoption of SFAS 130 is not expected to have a material effect on the
Company's financial position or results of operations.
Inflation
Inflation has not had a significant impact on the Registrant's operations to
date.
<TABLE>
<CAPTION>
BALANCE SHEET
PAMET SYSTEMS, INC.
ASSETS December 31,1997
<S> <C>
_________________
CURRENT ASSETS
Cash..........................................................$40,522
Accounts receivable, net of allowance
for doubtful accounts of $60,000..............................661,260
Inventory, net of reserve of $15,000...........................89,811
Prepaid expenses and other current assets......................39,594
------------
TOTAL CURRENT ASSETS..................................831,187
PROPERTY AND EQUIPMENT, NET...........................................945,970
RESTRICTED CASH........................................................27,860
------------
TOTAL ASSETS.......................................$1,805,017
_________________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.............................................$627,227
Accrued expenses..............................................144,178
Notes payable-related party...................................192,439
Deferred software maintenance revenue.........................279,823
Current portion of long-term debt..............................17,642
-----------------
TOTAL CURRENT LIABILITIES...........................1,261,309
LONG TERM DEBT, less current portion..................................478,317
UNEARNED SUPPORT
REVENUE................................................................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, 2,410,250 issued and outstanding...................24,103
Additional paid-in capital..................................4,776,821
Accumulated deficit.......................................(4,764,495)
-----------------
TOTAL STOCKHOLDERS' EQUITY.............................36,429
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.........................$1,805,017
=================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
PAMET SYSTEMS, INC.
<S> <C> <C>
Year Ended December 31,
--------------------------
1997 1996
==========================
Net hardware and software sales........................$1,598,398 $2,066,066
Support revenues..........................................479,498 402,007
_________________________
TOTAL REVENUES..........................2,077,896 2,468,073
Cost of sales...........................................1,043,293 935,683
_________________________
GROSS PROFITS...........................1,034,603 1,532,390
Operating expenses
Personnel costs...................................990,897 738,221
Rent, utilities and telephone......................76,228 62,574
Travel and entertainment..........................105,706 58,459
Professional fees.................................167,381 67,182
Depreciation...............................................72,472 60,963
Research and development..........................317,612 --
Other operating expenses..........................251,243 225,797
_________________________
TOTAL OPERATING EXPENSES................1,981,539 1,213,196
=========================
Income (loss) from operations............................(946,936) 319,194
Interest income..............................................1,265 1,243
Interest expense...........................................(70,292) (81,256)
Gain on sale of property and equipment.........................-- 4,500
Gain on insurance settlement...............................61,649 --
_________________________
NET INCOME (LOSS).......................$(954,314) $243,681
=========================
Earnings (loss) per common share............................$(.42) $.11
=========================
Earnings (loss) per common share- assuming dilution............-- $.10
=========================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
PAMET SYSTEMS, INC.
<S> <C> <C> <C> <C> <C>
Additional Total
COMMON STOCK Paid-In Accumulated Stockholders'
. Shares Amount Capital Deficit Equity
________________________________________________________
BALANCE AT
JANUARY 1, 1996......2,018,250 $20,183 $4,072,629 $(4,053,862) $38,950
NET INCOME...............................................243,681 243,681
CONVERSION OF
STOCK OPTIONS...........84,000 840 34,976 35,816
_________________________________________________________
BALANCE AT
DECEMBER 31, 1996 2,102,250 $21,023 4,107,605 (3,810,181) 318,447
_________________________________________________________
NET LOSS (954,314) (954,314)
CONVERSION OF
STOCK OPTIONS..........108,000 1,080 121,216 122,296
PRIVATE PLACE-
MENT OF STOCK..........200,000 2,000 548,000 550,000
_________________________________________________________
BALANCE AT
DECEMBER 31, 1997....2,410,250 $24,103 $4,776,821 $(4,764,495) $36,429
_________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes to financial statements.
STATEMENTS OF CASH FLOWS
PAMET SYSTEMS, INC.
<S> <C> <C>
Year Ended December 31,
------------------------
1997 1996
OPERATING ACTIVITIES
Net income (loss)......................................$(954,314) $243,681
Adjustments to reconcile net income
(loss) to net cash used for operating activities:
Depreciation and amortization........................ 72,473 60,963
Gain on sale of property and equipment......................-- (4,500)
Gain on Insurance settlement...........................(61,649) --
Changes in operating assets and liabilities:
Accounts receivable....................................(58,588) (356,511)
Inventory..............................................(21,121) (58,994)
Prepaid expenses and other current assets..............(19,342) 26,392
Other assets................................................-- 1,025
Restricted cash...........................................(714) (696)
Accounts payable.......................................312,498 69,213
Accrued expenses........................................37,044 (33,550)
Deferred software maintenance and
unearned support revenue................................22,744 16,724
________________________
Net cash used for operating activities.............(670,969) (36,253)
________________________
INVESTING ACTIVITIES
Expenditures for property and equipment.................(129,835) (56,809)
Proceeds from sale of property and equipment..................-- 4,500
Proceeds from insurance settlement.......................108,708 --
________________________
Net cash used for investing activities................(21,127) (52,309)
________________________
FINANCING ACTIVITIES
Proceeds from notes payable- related party...............375,000 243,000
Payment of notes payable-related party..................(355,660) (151,000)
Payments of long-term debt...............................(14,371) (12,165)
Issuance of capital stock................................672,296 35,816
_______________________
Net cash provided by financing activities.............677,265 115,651
________________________
NET INCREASE (DECREASE) IN CASH...................(14,831) 27,089
Cash at beginning of period............................55,353 28,264
________________________
CASH AT END OF PERIOD.................................$40,522 $55,353
========================
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for interest................................$74,000 $78,000
========================
</TABLE>
See accompanying notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PAMET SYSTEMS, INC.
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's committed backlog at March 27, 1998 was in excess of $480,000
(unaudited). Management believes that this level of backlog and its anticipated
sales are adequate to sustain operations through the end of fiscal year 1998.
However, the ultimate success of the Company is still dependent upon its
ability to secure financing adequate to meet its working capital and product
development needs and the successful development of a Microsoft Windows NT
computing platform for the Company's current applications that can be
effectively marketed to expand 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. Management believes the
Company's current sources of liquidity and funding are adequate to sustain
operations. 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 be profitable in the future,
that adequate sources of financing will be available at all, when needed or on
commercially acceptable terms, or that the Company's product development
efforts will be successful.
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 mortgagee.
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.
Inventory: Inventory, which consists primarily of computer-related supplies,
is stated at the lower of cost (first-in, first-out) or market value.
.Continued --
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES (continued)
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: The Company generally recognizes product revenue upon
shipment. Revenues for products with extensive installation requirements under
contractual agreements are recognized upon customer acceptance.
Earnings (loss) per Common Share: In 1997, loss per common share is computed
using the weighted average number of shares of common stock outstanding during
the period. Diluted per share computations are not presented since the effect
would be antidilutive. In 1996, earnings per common share are also computed
using the weighted average number of shares of common stock outstanding during
the period. Diluted per share computations include dilutive common equivalent
shares from stock options, using the treasury stock method.
Stock-Based Compensation: The Company measures compensation expense relative
to employee stock-based compensation plans using the intrinsic value-based
method of accounting as prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees". However, the Company will
disclose the pro forma amounts of net income and earnings per share as if the
fair value-based method of accounting prescribed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" had
been applied. See the Stockholders' Equity footnote for these disclosures.
Research and Development: Research and development costs are charged to
expense as incurred.
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.
Income Taxes: The Company accounts for income taxes according to the liability
method. 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 and tax laws 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, 1997, which is
fully reserved, is net operating loss carryforwards.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE C--RELATED-PARTY TRANSACTIONS
Director Compensation: The Company paid approximately $15,000 in 1997 and
$14,000 in 1996 to a stockholder and director for financial accounting
consulting services.
<TABLE>
<CAPTION>
Notes Payable - Related party consist of the following:
1997
==============
<S> <C>
Notes payable to a director for unsecured advances....................$192,439
==============
</TABLE>
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
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Land...........................$231,283 $231,283
Building........................758,728 ..............................758,728
Furniture and Fixtures..........122,850 122,850
Computer Equipment..............317,287 $129,835 $(76,610) 370,512
Automobiles................... 24,894 24,894
------------------------------------------------
TOTALS.....................$1,455,042 $129,835 $(76,610) $1,508,267
________________________________________________
Year Ended December 31, 1996:
Land...........................$231,283 $231,283
Building........................758,728 758,728
Furniture and Fixtures..........118,049 $ 4,801 122,850
Computer Equipment..............293,960 27,114 $(3,787) 317,287
Automobiles......................22,900 24,894 (22,900) 24,894
------------------------------------------------
TOTALS.....................$1,424,920 $56,809 $(26,687) $1,455,042
________________________________________________
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE D--PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION (Continued)
<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
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Building.......................$135,972 $24,117 $160,089
Furniture and Fixtures..........108,567 8,102 116,669
Computer Equipment..............287,340 32,698 $(46,776) 273,262
Automobiles.......................4,721 7,556 12,277
================================================
TOTALS.......................$536,600 72,473 $(46,776) $562,297
________________________________________________
Year Ended December 31, 1996:
Building.......................$111,849 $24,123 $135,972
Furniture and Fixtures...........98,689 9,878 108,567
Computer Equipment..............268,886 22,241 $(3,787) 287,340
Automobiles......................22,900 4,721 (22,900) 4,721
================================================
TOTALS.......................$502,324 $60,963 $(26,687) $536,600
________________________________________________
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
<TABLE>
<CAPTION>
NOTE E--ACCRUED EXPENSES
Accrued expenses include the following:
December 31,
1997
_____________
<S> <C>
Accrued payroll and vacation.................................$102,245
Accrued and withheld payroll taxes.............................19,895
Other..........................................................22,038
=============
$144,178
_____________
</TABLE>
NOTE F--LONG TERM DEBT
Long term debt represents a note secured by a mortgage on the Company's
facility. On October 21, 1997, the note was extended for a one year term with
monthly payments determined according to a twenty-year amortization period.
$5,423, including interest at 10.00%, is payable monthly. In addition, the
note is subject to several conditions, including:
Four 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 four officers, directors and/or stockholders received $1,500
in 1997 and 1996.
Payment of dividends is restricted, requiring approval of the mortgagee.
Salary increases for officers above base levels are restricted,requiring
approval of the mortgagee.
Subsequent to December 31, 1997, the bank issued a commitment letter that
indicates this mortgage note will be renewed for one year, until October 1999.
Payment terms and interest rates, although not finalized, are expected to
remain consistent with current terms and rates. Maturities reflect these terms
and rates.
<TABLE>
<CAPTION>
Annual principal maturities of long-term debt are as follows:
<S> <C>
Year ending December 31, 1998................................$ 17,642
December 31, 1999.................................478,317
==========
TOTAL............................................$495,959
__________
NOTES TO FINANCIAL STATEMENTS--CONTINUED
</TABLE>
PAMET SYSTEMS, INC.
<TABLE>
<CAPTION>
NOTE G--STOCKHOLDERS' EQUITY
Stock-based compensation expense under the fair value-based method of
accounting would have resulted in pro forma net income and earnings (loss) per
common share approximating the following amounts:
1997 1996
____________________________________________________
As Reported Pro Forma As Reported Pro Forma
<S> <C> <C> <C> <C>
Net Income (loss).........$(954,314) $(1,364,185) $243,681 $186,967
====================================================
Earnings (loss)
per common share..........$ (.40) $ (.60) $ .10 $ .08
The fair value for each option granted during 1997 and 1996, reflecting the
basis for the above pro forma disclosures, was determined on the date of grant
using the Black-Scholes option-pricing model. The following assumptions were
used in determining fair value through the model:
1997 1996
____________________________________________________
Expected Life........................5-8 years* 5-8 years *
Risk-free interest rate..............5.80%-6.68%* 6.23%-6.74% *
Expected Volatility..................128% 136%
____________________________________________________
</TABLE>
*Amounts vary due to graded vesting for options granted to employees and
differences between options granted to employees and granted to directors.
The Company recognizes forfeitures as they occur.
The application of fair value-based accounting in arriving at the pro forma
disclosures above is not an indication of future income statement effects. The
pro forma disclosures do not reflect the effect of fair-value accounting on
stock-based compensation awards granted prior to 1995, if any.
Continued--
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE G--STOCKHOLDERS' EQUITY (Continued)
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 the 1990 Stock Option Plan is 400,000
shares. These options, of which a total of 109,000 had been exercised at
December 31, 1997, 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
options are not transferrable except by will or domestic relations order. The
option price per share under the Plan is not less than the fair market value of
the shares on the date of grant.
<TABLE>
<CAPTION>
Stock option activity for the 1990 Stock Option Plan for the two year period
ended December 31, 1997 is as follows:
Weighted Average
________________________________________________________________
Number Exercise Price Exercise Fair Value Remain-
Of Options Per Share Price at grant ing Life
________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Outstanding
January 1,1996...320,500 $.02 - $5.50 $ .55 5.71 years
Granted to
Directors..........8,000 $1.12 $1.12 $1.00
Granted to
Employees.........54,500 $3.50 $3.50 $3.27
Exercised........(34,000) $.02 - $1.44 $ .06
________________________________________________________________
Outstanding
December 31,
1996.............349,000 $.02 - $5.50 $1.07 5.08 years
Granted to
Directors..............0 0
Granted to
Employees..............0 0
Exercised........(58,000) $.02 - $3.50 $ .38
________________________________________________________________
Outstanding
December 31,
1997.............291,000 $.02 - $5.50 $1.21 3.49 years
________________________________________________________________
Exercisable at
December 31,
1997.............191,000 $.02 - $5.50 $ .83
________________________________________
Exercisable at
December 31,
1996.............214,800 $.02 - $5.50 $.60
__________________________________________
Available for Grant At
December 31,
1997 and
1996..................-0-
_______________
</TABLE>
<PAGE>
Continued-
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE G--STOCKHOLDERS' EQUITY (Continued)
In addition, the Company also issued stock options outside of any formalized
plan that are exercisable within a ten-year period from the date of grant and
are generally fully exercisable when issued to directors and exercisable 25%
per year and continuing over four years for employees and consultants. The
options are not transferable except by will or domestic relations order. The
option price per share is not less than the fair market value of the shares on
the date of grant.
<TABLE>
<CAPTION>
Stock option activity for stock options issued outside a formalized plan for
the two year period ended December 31, 1997 follows:
Weighted Average
________________________________________________________________
Number Exercise Price Exercise Fair Value Remain-
Of Options Per Share Price at grant ing Life
________________________________________________________________
<S> <C> <C> <C> <C>
Outstanding
January 1,1996 120,000 $.68-$.80 $ .73 9.60 years
Exercised........(50,000) $.68 $ .68
Cancelled.........(5,000) $.68 $ .68
================================================================
Outstanding
December 31,
1996..............65,000 $.68-$.80 $ .77 8.20 years
Granted to Directors and
officers in consideration
of providing short
term financing...120,000 $2.00 $2.00 $1.51
Granted to
Directors..........8,000 $2.75 $2.75 $2.39
Granted to
Employees........230,000 $2.75-$4.25 $3.07 $3.02
Exercised........(50,000) $2.00 $2.00
================================================================
Outstanding
December 31,
1997.............373,000 $.68-$4.25 $2.10 5.94 years
________________________________________________________________
Exercisable at
December 31,
1997.............193,000 $.68-$2.75 $1.81
________________________________________
Exercisable at
December 31,
1996..............65,000 $.68-$ .80 $ .77
________________________________________
On January 1, 1998 options representing 8,000 shares were granted to directors
at an exercise price of $4.25 per share.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE H-EARNINGS PER SHARE DISCLOSURE
<TABLE>
<CAPTION>
Earnings per share disclosures for the two year period ended December 31, 1997
are as follows:
For the Year Ended December 31, 1997
____________________________________________
Weighted-
Average Per Share
Income Shares Amount
============================================
<S> <C> <C> <C>
Basic loss per common share
Income available to common
stockholders.......................$(954,314) 2,265,321 ($.42)
____________________________________________
For the Year Ended December 31, 1996
____________________________________________
Weighted-
Average Per-Share
Income Shares Amount
============================================
Basic earnings per common share
Income available to common
stockholders.........................243,681 2,120,259 $.11
_________
Dilutive stock options........................-- 293,134
____________________________
Diluted earnings per common share
Income available to common
shareholders plus assumed
conversions..........................243,681 2,413,393 $.10
____________________________________________
Options to purchase 64,500 shares of stock at values ranging from $3.50-$5.50
per share were outstanding during 1996 but were not included in the computation
of diluted earnings per common share because the options' exercise price was
greater than the average market price of the common shares.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
PAMET SYSTEMS, INC.
NOTE I--INCOME TAXES
In 1997, there is no current provision for federal or state income taxes due to
the Company's net operating loss. During 1997,the Company recorded deferred tax
assets for the benefit of net operating losses in the amount of $227,000. The
cumulative amount of these assets, which is $937,000 at December 31, 1997 is
fully reserved due to the Company's history of operating losses. Thus,
management has concluded that realization of the benefit is not likely. During
1996 there was no current provision for federal or state income taxes due to
the Company's utilization of past operating loss carryforwards to completely
offset taxable income.
<TABLE>
<CAPTION>
The reconciliation of income tax attributable to operations computed at the
U.S. federal statutory tax rates to income tax expense for 1996 is as follows:
<S> <C> <C>
Tax at U.S. Statutory Rates......................$82,852 34%
State income taxes, net of
Federal tax effect....................................-- --
Other...........................................$(15,403) (34)%
Effect of net operating
Loss carryforwards..............................$(67,449) (34)%
__________________________
TOTALS..........................................$ -- -- %
</TABLE>
The Company has available for federal and state income tax purposes net
operating loss carryforwards of approximately $4,700,000 and $2,800,000,
respectively, which may be used to offset future taxable income. These net
operating loss carryforwards, if unused, expire in 2011.
NOTE J--SIGNIFICANT CUSTOMERS
There were no sales to individual customers that were greater than 10% of total
revenues for the years ended December 31, 1997 and 1996.
NOTE K--ECONOMIC DEPENDENCY
The Company obtained approximately 33% of its merchandise from two sources in
1997. Management believes that if these suppliers ceased providing
merchandise, the Company could find alternative suppliers without serious
interruption of business.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
PAMET SYSTEMS, INC
NOTE L--PROFIT SHARING PLAN
During 1997, the Company established a qualified contributory profit sharing
plan [401(k) Plan]. The Plan covers substantially all eligible employees
meeting certain age and service requirements. Employee contributions are
voluntary, based on specific percentages of compensation. The Plan also
provides for contributions by the Company in any amount approved by the Board
of Directors. During 1997, the Board elected to make contributions equal to 15%
of employee contributions. The employees' and employer's contributions may not
exceed maximum amounts established by the Internal Revenue Code. Total Company
contributions to the plan were $4,914 during 1997.
NOTE M-GAIN ON INSURANCE SETTLEMENT
During 1997, the Company was burglarized. The Gain on Insurance Settlement
represents the net gain on the settlement with the insurance company for
equipment and inventories lost in the burglary.
NOTE N-EMPLOYMENT CONTRACT
The Company has entered into employment contracts with three of its officers
through 1999 that provide for minimum annual salaries, adjusted for
cost-of-living changes, and incentives based on the Company's attainment of
specified levels of sales and earnings. At December 31, 1997, the total salary
commitment, excluding incentives, was $385,500.
NOTE O-RESEARCH AND DEVELOPMENT
Research and development costs in the current year represent costs associated
with developing a Microsoft Windows NT computing platform for the Company's
current computer applications as well as developing a mobile product interface
to the state information system.
NOTE P--SUBSEQUENT EVENT
On March 2, 1998, the Company had a private placement in which an investor
purchased 125,000 shares of the Company's common stock at a price of $4.25 per
share.
February 4, 1998, the Company acquired Technology Assemblers, Inc. (TAI). TAI
is a Florida based software company whose customers are correctional
institutions. The acquisition will be accounted for as a purchase and includes
one year employment contracts and 30,000 stock options granted to three key TAI
employees.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
<TABLE>
<CAPTION>
NOTE Q--QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 is as follows:
Quarter Ended
<S> <C> <C> <C> <C>
__________________________________________________
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
==================================================
Revenues....................$607,506 $432,105 $506,455 $531,830
Gross Profits................349,290 182,168 281,822 221,323
Operating Income (loss).......30,270 (213,630) (158,448) (605,128)
Net Income (loss).............12,228 (191,174) (156,556) (618,812)
Income (loss) per share .....$ .01 $ (.08) $ (.07) $ (.28)
--------------------------------------------------
Quarter Ended
__________________________________________________
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
==================================================
Revenues....................$ 238,204 $ 759,321 $788,402 $682,146
Gross Profits.................164,413 496,540 468,604 402,833
Operating Income (loss).......(86,133) 215,006 120,233 70,088
Net Income (loss)............(101,280) 193,073 97,403 54,485
Income (loss) per share.....$ (.05) $ .08 $ .04 $ .03
__________________________________________________
</TABLE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Pamet Systems, Inc.
We have audited the accompanying balance sheet of Pamet System, Inc. as
of December 31, 1997, and the related statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended December
31, 1997. 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 presentation. 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, 1997, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
Carlin,Charron & Rosen LLP
March 27, 1998
Pamet Systems, Inc.
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Shares of the Company's Common Stock are 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 quoted on the OTC Bulletin Board.
<TABLE>
<CAPTION>
Common Stock
____________
Fiscal Year Ended December 31, High Low
_____________________________________________________________
<S> <C> <C>
1996
First Quarter....................................2.12 1.00
Second Quarter...................................6.50 1.75
Third Quarter....................................5.75 3.00
Fourth Quarter...................................4.00 2.50
=============================================================
1997
First Quarter....................................3.38 1.88
Second Quarter...................................5.38 1.62
Third Quarter....................................4.87 2.87
Fourth Quarter...................................5.50 3.12
_____________________________________________________________
</TABLE>
The Company had 58 holders of record of Common Stock on March 27, 1998.
The Company has not paid any dividends to date. For the forseeable 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.
Pamet Systems, Inc.
Corporate Information
Board of Directors
Dr. Joel B. Searcy
Chairman of the Board
David T. McKay
President and Chief Executive Officer
Richard C. Becker
Vice President
Treasurer, Director, and Assistant Clerk
Arthur V. Josephson, Jr.
Clerk and Director
Accounting Consultant
Dr. Stanley J. Robboy
Professor of Pathology, Obstetrics, and Gynecology and Director of Gynecologic
Pathology, Duke University Medical Center
Bruce J. Rogow
Executive Managing Principal, Rogow Opportunity Capital
Lee Spelke
Financial Consultant
Officers
Dr. Joel B. Searcy
Chairman of the Board
David T. McKay
President and Chief Executive Officer
Richard C. Becker
Vice President
Treasurer, Director, and Assistant Clerk
Corporation Information
For a copy of the Company's Form 10-KSB for fiscal 1997 or other information
about the Company contact,
Investor Relations
Pamet Systems, Inc.
1000 Main Street
Acton, MA 01720
(978) 263-2060
Auditors
Carlin, Charron & Rosen LLP
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 June 12, 1998 at
10:00 am at Pamet Systems, 1000 Main Street, Acton, Massachusetts
Pamet Systems, Inc. Offices
Headquarters
1000 Main Street
Acton, MA 01720
(978) 263-2060
101 Southhall Lane
Suite 400
Maitland, FL 32751
(407) 667-4863
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
Stock Listing
Pamet Systems, Inc. stock is traded on the NASDAQ OTC (Symbol:PAMT)
