FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2003
Commission File Number 0-13898
Veramark Technologies, Inc.
| Delaware | 16-1192368 | |
|
|
||
| (State or other jurisdiction of Incorporation or Organization) |
(IRS Employer Identification Number) | |
| 3750 Monroe Avenue, Pittsford, NY | 14534 | |
| (Address of principal executive offices) | (Zip Code) | |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirement for the past 90 days.
Yes X No
Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).
Yes No X
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of June 30, 2003
| Common stock, par value $.10 | 8,432,051 shares | |
| This report consists of 22 pages |
1
INDEX
| Page | |||||||||
PART I |
FINANCIAL INFORMATION | ||||||||
Item 1 |
Financial Statements | ||||||||
| Condensed Consolidated Balance Sheets - | |||||||||
| June 30, 2003 and December 31, 2002 | 3 - 4 | ||||||||
| Condensed Consolidated Statements of Operations - | |||||||||
| Three and Six Months Ended June 30, 2003 and 2002 | 5 | ||||||||
| Condensed Consolidated Statements of Cash Flows - | |||||||||
| Six Months Ended June 30, 2003 and 2002 | 6 | ||||||||
| Notes To Condensed Consolidated Financial Statements | 7 - 9 | ||||||||
Item 2 |
Management’s Discussion and Analysis of Financial Condition | ||||||||
| and Results of Operations | 10-14 | ||||||||
Item 3 |
Quantitative and Qualitative Disclosures About Market Risk | 14 | |||||||
Item 4 |
Controls and Procedures | 14-15 | |||||||
PART II |
OTHER INFORMATION | ||||||||
Item 5 |
Certification of Chief Executive Officer and Chief Accounting Officer | 16 | |||||||
Item 6 |
Exhibits and Reports on Form 8-K | 16 | |||||||
2
PART I — FINANCIAL INFORMATION
VERAMARK TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
| June 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
ASSETS |
||||||||||
CURRENT ASSETS: |
||||||||||
Cash and cash equivalents |
$ | 398,687 | $ | 623,194 | ||||||
Investments |
991,807 | 924,682 | ||||||||
Accounts receivable, trade (net
of allowance for doubtful accounts
of $80,000, for both periods) |
1,234,388 | 1,135,776 | ||||||||
Inventories, net |
58,785 | 92,276 | ||||||||
Prepaid expenses |
186,024 | 182,630 | ||||||||
Total Current Assets |
2,869,691 | 2,958,558 | ||||||||
PROPERTY AND EQUIPMENT |
||||||||||
Cost |
5,836,541 | 6,656,249 | ||||||||
Less accumulated depreciation |
(4,701,417 | ) | (5,404,203 | ) | ||||||
Property and Equipment (Net) |
1,135,124 | 1,252,046 | ||||||||
OTHER ASSETS: |
||||||||||
Software development costs (net of
accumulated amortization of $722,493
and $2,985,453, respectively) |
1,341,774 | 1,590,054 | ||||||||
Pension related assets |
2,374,565 | 2,303,580 | ||||||||
Deposits and other assets |
796,452 | 742,474 | ||||||||
Total other assets |
4,512,791 | 4,636,108 | ||||||||
TOTAL ASSETS |
$ | 8,517,606 | $ | 8,846,712 | ||||||
See notes to Condensed Consolidated Financial Statements.
(Continued)
3
VERAMARK TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
| June 30, | December 31, | ||||||||||||
| 2003 | 2002 | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||||||||
CURRENT LIABILITIES: |
|||||||||||||
Accounts payable |
$ | 340,359 | $ | 265,184 | |||||||||
Accrued compensation and related taxes |
397,299 | 392,808 | |||||||||||
Deferred revenue |
2,892,148 | 3,200,145 | |||||||||||
Capital lease obligation — current |
15,204 | 17,334 | |||||||||||
Other accrued liabilities |
123,955 | 167,808 | |||||||||||
Total Current Liabilities |
3,768,965 | 4,043,279 | |||||||||||
Long term portion of capital leases |
— | 7,400 | |||||||||||
Pension obligation |
3,785,431 | 3,625,000 | |||||||||||
Total Liabilities |
7,554,396 | 7,675,679 | |||||||||||
STOCKHOLDERS’ EQUITY: |
|||||||||||||
Common Stock, par value $.10; shares authorized,
40,000,000; shares issued and outstanding
8,512,276 and 8,470,959, respectively |
851,228 | 847,096 | |||||||||||
Additional paid-in capital |
21,737,965 | 21,686,196 | |||||||||||
Retained deficit |
(21,257,031 | ) | (20,976,502 | ) | |||||||||
Accumulated other comprehensive income |
16,805 | — | |||||||||||
Treasury stock (80,225 shares, at cost) |
(385,757 | ) | (385,757 | ) | |||||||||
Total Stockholders’ Equity |
963,210 | 1,171,033 | |||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 8,517,606 | $ | 8,846,712 | |||||||||
See notes to Condensed Consolidated Financial Statements.
(Continued)
4
VERAMARK TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| THREE MONTHS ENDED | SIX MONTHS ENDED | |||||||||||||||||||
| JUNE 30, | JUNE 30, | |||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||||
NET SALES |
||||||||||||||||||||
Product Sales |
$ | 1,161,349 | $ | 1,355,135 | $ | 2,125,737 | $ | 2,326,047 | ||||||||||||
Service Sales |
1,791,165 | 1,712,970 | 3,576,798 | 3,380,898 | ||||||||||||||||
Total Net Sales |
2,952,514 | 3,068,105 | 5,702,535 | 5,706,945 | ||||||||||||||||
COSTS AND OPERATING EXPENSES: |
||||||||||||||||||||
Cost of sales |
429,245 | 624,539 | 889,822 | 1,164,399 | ||||||||||||||||
Engineering and software development |
630,659 | 718,907 | 1,250,657 | 1,443,338 | ||||||||||||||||
Selling, general and administrative |
1,973,819 | 2,048,781 | 3,851,351 | 4,067,766 | ||||||||||||||||
Total Costs and Operating Expenses |
3,033,723 | 3,392,227 | 5,991,830 | 6,675,503 | ||||||||||||||||
LOSS FROM OPERATIONS |
(81,209 | ) | (324,122 | ) | (289,295 | ) | (968,558 | ) | ||||||||||||
OTHER INCOME (EXPENSE) |
5,758 | (9,971 | ) | 8,766 | 1,336 | |||||||||||||||
LOSS BEFORE INCOME TAXES |
(75,451 | ) | (334,093 | ) | (280,529 | ) | (967,222 | ) | ||||||||||||
INCOME TAXES |
— | — | — | — | ||||||||||||||||
NET LOSS |
$ | (75,451 | ) | $ | (334,093 | ) | $ | (280,529 | ) | $ | (967,222 | ) | ||||||||
NET LOSS PER SHARE |
||||||||||||||||||||
Basic |
$ | (0.01 | ) | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.12 | ) | ||||||||
Diluted |
$ | (0.01 | ) | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.12 | ) | ||||||||
See notes to Condensed Consolidated Financial Statements.
5
VERAMARK TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Six Months Ended June 30, | |||||||||
| 2003 | 2002 | ||||||||
OPERATING ACTIVITIES: |
|||||||||
Net loss |
$ | (280,529 | ) | $ | (967,222 | ) | |||
Adjustments to reconcile net loss to net cash flows (used)
provided by operating activities |
|||||||||
Depreciation and amortization |
418,772 | 768,777 | |||||||
Provision for bad debts |
1,254 | 30,000 | |||||||
Provision for inventory obsolescence |
24,996 | 12,500 | |||||||
Loss on disposal of fixed assets |
1,003 | 18 | |||||||
Compensation expense-stock options |
41,699 | 192,000 | |||||||
Repayment of note receivable |
— | 11,171 | |||||||
Changes in assets and liabilities |
|||||||||
Accounts receivable |
(99,866 | ) | 181,830 | ||||||
Inventories |
8,495 | (7,947 | ) | ||||||
Prepaid expenses |
(3,394 | ) | (219,558 | ) | |||||
Deposits and other assets |
(124,963 | ) | (98,809 | ) | |||||
Accounts payable |
75,175 | 136,706 | |||||||
Accrued compensation and related taxes |
4,491 | (122,995 | ) | ||||||
Deferred revenue |
(307,997 | ) | 130,269 | ||||||
Other accrued liabilities |
(43,853 | ) | (90,377 | ) | |||||
Pension obligation |
160,431 | 117,020 | |||||||
Net cash flows (used) provided by operating activities |
(124,286 | ) | 73,383 | ||||||
INVESTING ACTIVITIES: |
|||||||||
Purchase of investments |
(50,320 | ) | (58,263 | ) | |||||
Additions to property and equipment |
(54,573 | ) | (12,109 | ) | |||||
Net cash flows used by investing activities: |
(104,893 | ) | (70,372 | ) | |||||
FINANCING ACTIVITIES: |
|||||||||
Proceeds from exercise of stock options |
5,555 | — | |||||||
Repayment of capital lease obligation |
(9,530 | ) | (7,927 | ) | |||||
Proceeds from employee stock purchase plan |
8,647 | 18,940 | |||||||
Net cash flows provided by financing activities |
4,672 | 11,013 | |||||||
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS |
(224,507 | ) | 14,024 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
623,194 | 633,138 | |||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 398,687 | $ | 647,162 | |||||
See notes to Condensed Consolidated Financial Statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL
The accompanying unaudited consolidated financial statements include all adjustments of a normal and recurring nature which, in the opinion of Company’s management, are necessary to present fairly the Company’s financial position as of June 30, 2003 and the results of its operations and cash flows for the three and six months ended June 30, 2003 and 2002.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s annual report on Form 10-K to the Securities and Exchange Commission for the year ended December 31, 2002.
The results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the full year’s operation.
| (2) | INVENTORIES, NET | |
| The composition of inventories at June 30, 2003 and December 31, 2002 was as follows: |
| June 30, | December 31, | |||||||
| 2003 | 2002 | |||||||
Purchased parts and components |
$ | 47,913 | $ | 75,402 | ||||
Work in process |
992 | 10,344 | ||||||
Finished goods |
9,880 | 6,530 | ||||||
| $ | 58,785 | $ | 92,276 | |||||
| (3) | PROPERTY AND EQUIPMENT | |
| The major classifications of property and equipment at June 30,2003, and December 31, 2002 were: |
| June 30, | December 31, | |||||||
| 2003 | 2002 | |||||||
Machinery and equipment |
$ | 789,131 | $ | 788,131 | ||||
Computer hardware and software |
1,896,039 | 2,715,527 | ||||||
Furniture and fixtures |
1,768,812 | 1,770,032 | ||||||
Leasehold improvements |
1,382,559 | 1,382,559 | ||||||
| $ | 5,836,541 | $ | 6,656,249 | |||||
7
| (4) | STOCK-BASED COMPENSATION | |
| In 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” This standard provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Additionally, the standard also requires prominent disclosures in the Company’s financial statements about the method of accounting used for stock-based employee compensation, and the effect of the method used when reporting financial results. | ||
| The Company accounts for stock-based compensation in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation.” As permitted by SFAS No. 123, the Company continues to measure compensation for such plans using the intrinsic value based method of accounting, prescribed by Accounting Principles Board (APB), Opinion No. 25, “Accounting for Stock Issued to Employees.” Had compensation cost for the Company’s stock-based compensation plans been determined based on the fair value at the grant dates for awards consistent with the method of SFAS No. 123, the Company’s net loss and net loss per common share would have been adjusted to the pro forma amounts indicated below: |