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 30,1999
[ ] 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 2,896,613
($.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, 1999 and December 31, 1998
Condensed Statements of Operations
for the quarter ended September 30, 1999
and 1998 and nine months ended
September 30, 1999 and 1998
Condensed Statement of Cash Flows
for the nine months ended September 30,
1999 and 1998
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,
1999 1998
------------- ------------
<S> <C> <C>
CURRENT ASSETS (unaudited)
Cash $ 32,101 $ 54,817
Accounts receivable, net of allowance for
doubtful accounts of $60,434 and factored
receivables of $378,497 430,709 418,229
Accounts receivable, factored 83,608 119,176
Inventory, net of reserve of $15,000 56,882 50,254
Prepaid expenses and other current assets 70,618 81,421
TOTAL CURRENT ASSETS 673,918 723,897
PROPERTY AND EQUIPMENT, net 142,519 947,188
OTHER ASSETS 4,190 4,190
RESTRICTED CASH 80,000 28,534
NT DEVELOPMENT-NET 885,617 195,665
TOTAL ASSETS $1,786,244 $1,899,474
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Line of credit, vendor 90,235 $ 169,934
Mortgage note payable --- 479,743
Due to factor --- 65,980
Accounts payable, trade 686,403 787,764
Accounts payable, related party 6,320 20,513
Accrued expenses 393,107 265,267
Notes payable-related party 175,000 ---
Deferred software maintenance revenue 621,498 295,669
TOTAL CURRENT LIABILITIES 1,972,563 2,084,870
LONG TERM DEBT, less current portion 1,560,000 1,050,000
UNEARNED SUPPORT REVENUE --- 3,802
DEFERRED GAIN, sale of 1000 Main Street 289,597 ---
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued
Common Stock, $.01 par value, 7,500,000 shares
authorized; 2,896,613 issued and outstanding 28,966 25,455
Additional paid-in Capital 5,959,352 5,306,924
Accumulated deficit (8,024,234) (6,571,577)
TOTAL STOCKHOLDERS EQUITY (2,035,916) (1,239,198)
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $1,786,244 $1,899,474
========== ==========
</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> <C> <C>
1999 1998 1999 1998
Net sales $530,907 $597,429 $1,503,291 $2,098,896
Cost of product 184,628 220,475 568,465 937,875
------- ------- --------- ---------
346,279 376,954 934,826 1,161,021
Operating expenses:
Personnel costs 344,766 317,688 1,024,904 1,039,361
Rent, utilities & telephone 46,061 39,287 92,813 103,602
Travel and entertainment 37,169 22,575 99,255 124,203
Professional fees 26,162 61,705 135,869 201,944
Depreciation 20,398 20,703 61,456 57,936
Research and development 110,571 71,116 557,619 446,932
Other operating expenses 63,140 78,568 216,712 263,231
------- ------- --------- ---------
Total operating expenses 648,267 611,642 2,188,628 2,237,209
------- ------- --------- ---------
Income(loss) from operations (301,988) (234,688) (1,253,802) (1,076,188)
Interest income(expense), net (75,623) (48,458) (198,854) (108,319)
Net income (loss) $(377,611) $(283,146) $(1,452,656) $(1,184,507)
======= ======= ========= =======
Earnings(loss) per
common share $(.13) $(.11) $(.50) $(.47)
===== ===== ===== =====
Shares used in computing 2,896,613 2,545,500 2,896,613 2,545,500
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 30,1999 September 30,1998
----------------- -----------------
<S> <C> <C>
Cash flows provided by (used in)
operating activities:
Net income/(loss) $(1,452,656) $(1,184,507)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 61,456 57,936
Capitalized software development costs (689,952) (112,326)
Gain on sale of 1000 Main (6,481) ---
Change in assets and liabilities:
(Increase) Decrease in accounts receivable (12,480) 40,687
(Increase) Decrease in accounts receivable,
factored 35,568 (67,963)
(Increase) Decrease in inventory (6,628) 60,876
(Increase) Decrease in prepaids and
other current assets 10,803 (67,820)
(Increase) in other assets and restricted
cash (51,466) (4,715)
(Decrease) in due to factor (65,980) ---
Increase (Decrease)in accounts payable (101,361) 172,400
(Decrease) in accounts payable,
related party (14,193) ---
Increase in deferred software
maintenance revenue 322,027 125,980
Increase in accrued expenses
and other current liabilities 127,840 27,711
--------- ---------
Total adjustments (390,847) 232,766
Net cash provided by (used
in) operating activities (1,843,503) (951,741)
Cash flows from investing
activities:
Expenditures for property and equipment (47,555) (80,241)
Proceeds from sale of 1000 Main 1,086,845 ---
--------- ---------
Net cash used in investing activities 1,039,290 (80,241)
</TABLE>
(continued on following page)
<PAGE>
<TABLE>
<CAPTION>
Item 1 - Financial Statements
PAMET SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,1999 September 30,1998
----------------- -----------------
<S> <C> <C>
Cash flows from financing activities:
Payment of first and second mortgage (579,743) (12,009)
Net change note payable
related party 175,000 407,561
Net change line of credit-vendor (79,699) 71,895
Proceeds from second mortgage 100,000 ---
Issuance of capital stock 655,939 531,455
Proceeds from long term convertible
promissory notes 1,110,000 ---
Conversion of convertible promissory notes
to capital stock (600,000) ---
------- --------
Net cash provided by
financing activities 781,497 998,902
Net increase (decrease) in cash (22,716) (33,080)
Cash and cash equivalents at 54,817 40,522
beginning of period
Cash and cash equivalents at
end of period $ 32,101 $ 7,442
======= ======
Supplemental disclosure of cash
flow information:
Cash paid for interest: 49,171 $41,617
Supplemental disclosure of non-cash
operating activities:
Inventory lost on insurance settlement --- ---
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, 1999 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, 1999 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%. Lexington Savings Bank's parent company, Affiliated
Community Bankcorp, was purchased by UST Corp., the parent company of
US Trust, in August 1998. The mortgage was not renewed in October 1998.
The Company entered into a second mortgage agreement on June 16, 1999 with
Area Realty, LLC, the eventual buyer of the building, for $100,000 at 11%
per annum. The principal and accrued interest were to be repaid in one
payment on the earlier of December 31, 1999 or the date upon which the
building was sold by the Company to Area Realty, LLC.
On August 6, 1999 the Company sold the facility to Area Realty, LLC for
$1,150,000 and signed a lease back agreement with the buyer for seven
years. As part of the lease back agreement with the buyer of the facility,
the Company was required to place $80,000 in a restricted savings
account. The balance on the first and second mortgages and all accrued
interest were paid in full at the time of the sale. Subsequent to the sale
of the building, the company received the funds from the first mortgage
compensating balance account from US Trust
<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 NT, FireServer NT, CADServer NT and
JailServer NT. The Company also offers several companion products
including Imaging, Mobile, Query, and Mapping. The Company's revenues
consist primarily of sales of these software applications, the associated
hardware and systems integration, and support and update service fees.
Although revenues for the three month period ended September 30, 1999
and the nine month period ended September 30, 1999 are 11.1% and 28.4% less
than 1998 levels respectively, management believes that the third quarter
shows a shift back to the Company's principal products as a result of the
release of the NT based systems. Systems revenue in the third quarter
represented 30.7 % of total sales compared to 15.2% of sales year to date
and 15.2% and 16.3% for the comparable 1998 periods. In response to the
market demands for a complete Microsoft operating environment, the Company
began rebuilding its products on the NT platform late in 1997 and during
the third quarter completed production releases of PoliceServer NT,
FireServer NT and CADServer NT, which incorporate all of the core
functionality of the older VMS products as well as new enhanced
functionality. Since the introduction of the NT product suite, Pamet has
received awards exceeding $1.1 million from six new customers for the NT
based products, including three large installations which will be phased in
over several months. In addition to the sales of the new customer systems,
four current customers will be "early adopters" of the new NT based
products. The Company has invested over $2,100,000 to date developing what
management believes is one of the only fully integrated native NT suites of
public safety applications available in the market. Pamet's system
architecture offers dispatch and records management which allows for the
integration of tools for query, mapping, imaging, field reporting,
investigation management, 'live scan' fingerprinting, and wireless
communications. Support revenues have continued to increase as the
customer base continues to grow. Revenue from companion products, (MDT's,
ImageServer, QueryStation) has shown some decline as the current customer
base looks to upgrade their dispatch and records systems. The Company
believes that its record management (PoliceServer NT and FireServer NT)
and computer-aided dispatch (CADServer NT) systems will generate a
significant portion of the Company's revenue in the future.
The Company continues to believe that there are significant market
opportunities based on the federal Crime bill funding expected in 1999 and
beyond, the establishment of E911 centers, heightened emphasis on crime
prevention and control 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 among
neighboring towns, county, and state police organizations. The Company's
products are designed and marketed with the option to be used in this type
of regional application.
Three Months Ended September 30, 1999 vs.
Three Months Ended September 30, 1998
Net sales for the three month period ended September 30, 1999 (the 1999
period) decreased 11.1% to $530,907 from $597,429 for the three month
period ended September 30, 1998 (1998 period). However, system revenues
for the 1999 period represented 30.7% of sales as compared to 17.8% of
sales in the 1998 period reflecting a possible shift in the mix of the
Company's product sales with the production release of the NT product line.
During the 1998 period the Company installed a large county wide multi-agency
system in Tennessee which included PoliceServer NT, CADServer NT, Query and
Imaging, as well as a PoliceServer NT and Imaging system in Connecticut.
Revenues for the 1999 period also included three new Mobile systems and one
Imaging system. In addition customers continued to increase the number of
mobile units being used as funds became available. The revenues for the
1998 period were comprised of four new Imaging systems, one new Mobile
system, and one JailServer system. Support revenues increased 23.4% to
$178,669 for the 1999 period from $144,910 for the 1998 period reflecting
the increase in the customer base from the 1998 period. Cost of product
decreased 16.3% or $35,847 to $184,628 for the 1999 period from $220,475
for the 1998 period. The resulting increase in gross margin from 63.1 in
the 1998 period to 65.2% in the 1999 period reflects improved margins on
Mobile sales, the increase in system sales and continued favorable margins
on increasing support revenues. The improved margins also reflect the
increased use of state bid list contractors as a procurement vehicle.
These contractors partner with the Company and provide off the shelf
hardware that combined with Pamet Systems software offers a complete
solution for the customer. Although this arrangement reduces total
revenues to the Company, by not selling the lower margin hardware, it
increases the overall margins for the Company.
Operating expenses, net of capitalized software development costs,
showed a moderate increase of $36,625 or 6.0% to $648,267 for the 1999
period compared to $611,642 for the 1998 period. However gross expenses
including capitalized software development costs increased 32.9% to
$962,228 for the 1999 period from $723,972 for the 1998 period. Gross
research and development expenditures in the 1999 period showed a 131.4%
increase over 1998 levels reflecting the addition of inhouse and contract
engineers, the continued use of outside developers for the NT products, and
the increased deployment of inhouse staff to the NT development program.
During the development cycle of the NT products, the Company has continued
to use outside resources to accomplish product development goals while
minimizing the long-term financial commitments of the Company. As the
products have reached production release, the internal resources of the
Company have been focused on the completion of development and testing and
the smooth installation of the initial NT sites. The Company has also
focused on hiring the internal technical resources necessary for ongoing
support of the NT product suite. NT development will continue through the
remainder of 1999. Amortization of these development costs will begin in
the first beginning of 2000 as the design is completed.
As a result of the increased deployment of internal resources to
research and development, net personnel costs reflected a moderate increase
of 8.5% to $344,766 in the 1999 period from $317,688 in the 1998 period.
However gross personnel costs, including those allocated to research and
development, increased 50.9% to $516,835 for the 1999 period compared to
$342,514 for the 1998 period. These additional resources and the
associated expenses are focused on the development, testing, and
documentation of the NT product and the implementation of a cohesive sales
and marketing effort supporting the introduction and sale of the NT suite
of products. These projects have been completed and the Company is
using internal resources to document the NT suite of products. Also during
the 1999 period, salary increases and bonuses were awarded to employees
based on evaluations of personal performance and incentive compensation
accruals were recorded based on estimates of Company performance versus
plan. In addition, as the Company builds a dedicated sales group,
commission costs will also continue to increase. Rent, utilities and
telephone increased 17.2% to $46,061 for the 1999 period from $39,287 for
the 1998 period due primarily to the increased rent expense associated
with the sale and leaseback of the headquarters building offset by
reduced telephone expenses resulting from negotiating more favorable long
distance rates and the reduction in office space and telephone costs in
the Maitland office. Travel and entertainment expenses increased 64.6%
to $37,169 for the 1999 period from $22,575 for the 1998 period. This
increase reflects the increase in sales and marketing travel coinciding
with the release of the new products and the costs of installation and
support of sites outside the Northeast. Professional fees decreased 57.6%
to $26,162 for the 1999 period from $61,705 for the 1998 period, primarily
due to the reduction in consulting fees associated with updating and
improving existing product documentation and assistance with the equity
funding program. In addition, legal fees incurred during the quarter
were substantially less than the 1998 period as the Company engaged is less
capital raising activities in the 1999 period. Depreciation expense
remained relatively flat at $20,398 for the 1999 period compared to
$20,703 for the 1998 period as decreased building depreciation resulting
from the sale of the headquarters facility was offset by increases in
amortization of application software. Other operating expenses decreased
19.6% to $63,140 for the 1999 period from $78,568 for the 1998 period
primarily due to decreases in COPSMore grant seminar expenses offset
by increases in spending for marketing brochures and tax penalties.
Net interest expense for the 1999 period was $75,623 compared to
$48,458 for the 1998 period. This reflects the increased interest
associated the Company's receivables financing agreement with Silicon
Valley Bank and the accrued interest expense associated with the Company's
convertible debt which was somewhat offset by decreased use of working
capital loans from directors
Nine Months Ended September 30, 1999 vs
Nine Months Ended September 30, 1998
Net sales for the nine month period ended September 30, 1999 (the 1999
period) decreased $595,605 or 28.4% to $1,503,291 from $2,098,896 for the
nine month period ended September 30, 1998 (the 1998 period). The decrease
in sales reflects a significant reduction in sales of the Company's VMS
systems and Mobile and Imaging companion products as current customers
anticipate funding migration to the NT suite of products with available
resources. In addition, a significant number of Mobile customers in
Massachusetts purchased their hardware components of the product directly
from the state bid list which reduces total revenue on these systems.
Partially offsetting these decreases were increases in support revenues
as a result of the increased customer base and in the sale of the Mapping
product. Cost of product decreased 39.4% to $568,465 for the 1999 period
from the $937,875 for the 1998 period resulting in an increase in gross
margin from 55.3% in the 1998 period to 62.2% in the 1999 period. Margins
improved during the 1999 period on the Company's Mobile,Imaging, Query,
and Mapping products. One of the major reasons for the improvement in
Mobile margins is customers purchasing their hardware from the state bid
list thereby increasing the higher margined software component of these
sales, as described above. Offsetting these margin increases were declines
in the margin on software support as the Company purchased support
contracts for its customers for third party software sold as part of the
Company's Mobile and Query products.
Net operating expenses decreased $48,581 or 2.2% to $2,188,628 for the
1999 period compared to $2,237,209 for the 1998 period. However gross
operating expenses, including capitalized development costs of $689,952,
were $2,878,580, an increase of $529,046 or 22.5% over the 1998 level. The
significant increase in gross expenses can be attributed to research and
development expenditures on the NT product suite. Although net personnel
expenditures decreased $14,457 or 1.4% as spending for internal resources
deployed to support the development, testing, documentation, and training
programs for the NT suite of products was allocated to research and
development, gross personnel expenses before transfers to development
increased from $1,114,108 in the 1998 period to $1,428,065 in the 1999
period, an increase of 28.2%. This increase reflects additions in
engineering, technical writing, and sales areas. These resources were
added to support the on time release and ongoing support of the NT
products, their introduction to the marketplace, and the anticipated
increase in the level of business in the future.
Rent, utilities and telephone expenses decreased $10,789 or 10.4% to
$92,813 for the 1999 period from $103,602 for the 1998 period. This
increase is associated with the sale and leaseback of the headquarters
building during the third quarter of 1999. Offsetting the increase in rent
was a significant decrease in telephone expense resulting from the
renegotiation of long distance telephone rates. Travel and entertainment
expenses decreased 20.1% to $99,255 for the 1999 period from $124,203 for
the 1998 period. During the 1998 period, the Company experienced
considerable travel associated with integrating the employees from the
Southeast region into the corporate organization and a significant increase
in sales and marketing initiatives outside the Northeast including
attendance at trade shows and the COPS MORE 1998 grant seminars. As the
dedicated resources in the Southeast region have been trimmed during 1999,
travel expenses have been significantly been reduced.. Professional fees
decreased 32.7% to $135,869 for the 1999 period from $201,944 for the 1998
period due to the decreases in the Company's consulting and legal expenses.
One time consulting expenses were included in the 1998 period for product
documentation services, financial consulting, and implementation of a new
financial systems. In addition, legal fees for the 1999 period were
reduced due to the curtailment of capital raising activities commencing
early in the year. Depreciation expense increased $3,520 or 6.1% in the
1999 period to $61,456 from $57,936 for the 1998 period reflecting upgrades
of the Company's computer equipment and the purchase of utility software
Other operating expenses decreased 17.7% to $216,712 for the 1999 period
from $263,231 for the 1998 period. This decrease can be attributed to a
reduction in spending for COPSMore grant seminars and office supplies that
was somewhat offset by increases in marketing brochures and tax penalties.
Net interest expense was $198,854 for the 1999 period compared to
$108,319 for the 1998 period. This increase reflects the interest and fees
associated with the receivable financing agreement with Silicon Valley
Bank, the accrued interest associated with the convertible debt financing
acquired in during the fourth quarter of 1998 and the first half of 1999
and the usage of working capital loan commitments from directors.
Liquidity and Capital Resources
The Company's working capital improved to a deficit of $(1,298,645) at
September 30, 1999 from a deficit of $(1,360,973) at December 31, 1998.
Although the working capital position should have improved considerably
during the third quarter of 1999 as a result of the sale of the
headquarters facility, this improvement was offset by the reduced sales
volume and the continued high level of investment in the NT product and its
production release during the quarter. On August 6, 1999 the Company sold
the headquarters building for $1,150,000 and entered into a 7-year
leaseback agreement with the buyer. The triple net lease on the building
is at $13.46 per gross square foot of the building (12,984 square feet) or
$174,764.64 per year. The lease includes a provision for the second
through seventh for rent increases based on the Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W) Boston, Mass not to exceed
a cap of three percent compounded per annum from the base rent. During the
first three years of the lease, the base rent will be reduced by $1,567 per
month or $18,804 per year. The net cash generated after all expenses
including legal fees and commissions was $512,026, of which $80,000 is
being held by the buyer in a restricted savings account.
During the first nine months of 1999, the Company also secured
$760,000 of additional financing in the form of long-term convertible debt,
converted $600,000 of long-term convertible debt to equity, increased and
extended a short-term $250,000 vendor line of credit to a two-year $350,000
convertible promissory note, and received $300,000 in loan commitments from
directors of which $175,000 is currently outstanding. In general, the
outstanding long-term convertible debt funding accrues interest at 11%, has
a two year term, carries the option of conversion of the principal to
common stock by the debt holder at conversion prices ranging from $1.45 to
$2.75, and has 100% warrant coverage attached that allows for the purchase
of additional shares of common stock at an exercise price of $2.50.
Cash decreased to $32,101 at September 30, 1999 from $54,817 at
December 31, 1998. Accounts receivable increased to $430,709 at September
30, 1999 from $418,229 at December 31, 1998.
Although the Company believes that it has the resources necessary to
fund the completion of the NT development program, working capital to fund
future growth remains a focus and concern of management. The funding
received in the first half of 1999 coupled with the proceeds from the sale
of the headquarters building during the third quarter of 1999 ensured that
the Company was able to complete the major portions of the NT development
in the third quarter of 1999. The Company believes that sales of the
current products and the newly released NT product suite, unused lines of
credit from directors, the expected conversion of some warrants and the
funds from the sale of the building, and the private placement funding
already received will support continued operations through the end of
the year. Backlog at November 10, 1999 was $1,100,000, which is the ;
highest backlog in the Company's history. The Company is continuing to
consider projects to increase its cash position such as activities to
raise capital, mergers, acquisitions or other business combinations.
As of September 30, 1999, the Company had accumulated approximately
$7,800,000 of federal net operating loss carryforwards that expire
beginning in the year 2004. In addition, the Company has state net
operating losses to carryforward of approximately $4,800,000 which expire
between the years 1999 and 2003. Under the Internal Revenue Code of 1986,
as amended, the rate at which a corporation may utilize its net operating
losses to offsets 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.
Year 2000
Company engineers have performed extensive testing to insure that
all of the Company's supported software products are compliant with the
year 2000 transition. The Company's 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.
Testing has shown that the Company's software successfully manages the year
2000 rollover while maintaining data and system integrity. For the turnkey
systems that the Company sells, the Company continues to monitor the
progress of other third party suppliers on whom it depends, such as
Microsoft and Compaq. Although the Company cannot certify these third party
products, the Company will continue to monitor the published status of
their compliance and notify its supported customers of any findings. The
Company's customers have been informed that year 2000 compliance may not
apply to older computer equipment or non-current versions of system
software.
Internally the Company utilizes some third-party vendor computer
hardware, networking equipment, telecommunication products and software
products that may or may not be year 2000 compliant. However, the Company
has been assured, by third party vendors that the software products that
the Company relies on to manage its internal finance, materials and support
activities are all year 2000 compliant. Internal testing to verify these
assurances will not be completed until July 1999. The Company also relies,
directly or indirectly, on the external systems of suppliers, creditors,
financial organizations and governmental entities for accurate exchange of
data. The impact of year 2000 non-compliance by any of these entities is
being monitored at this time.
Inflation
Inflation has not had a significant impact on the Company's
operations to date.
Forward Looking Statements
This Form 10-QSB contains statements, which are not historical facts.
These statements 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 the
negative thereof or other variations thereon of similar terminology, and/or
which include, without limitation, statements regarding the following: the
timing of the development and release and uniqueness of the NT products,
adequacy of the funding for the completion of the NT development, and
market expectation for the NT operating environment; expected share of the
Company's sales to be NT products; building a sales and marketing
initiative; law enforcement trends regarding E911, mobile systems and
market opportunities; sufficiency of working capital and funding; adequacy
of the corporate infrastructure to support operations and anticipated
growth; economic and competitive factors affecting market growth; year 2000
compliance; and discussions of strategies involving risk and uncertainties
that reflect management's current views. These statements are based on many
assumptions and factors and may involve risks 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
because of factors such as problems in the development of the NT products;
insufficient capital resources to complete development and operate the
Company; inability to successfully market and sell the NT product; changes
in the marketplace including variations in the demand for public safety
software; and changes in the economic and competitive environment. These
factors and other information contained in this Form 10 Q could cause such
views, assumptions and factors and the Company's results of operations to
be materially different.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a vote of Security Holders
None
Item 5 - Other Information
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
Pamet Systems, Inc.
-------------------
(Registrant)
November 12, 1999 Richard C. Becker
_______________________________ ______________________
Date Richard C. Becker
Vice President
Principal Financial Officer
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