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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2000
Commission File Number 0-13898
VERAMARK TECHNOLOGIES, INC.
(Exact Name of Registrant as specified in its Charter)
DELAWARE 16-1192368
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3750 MONROE AVENUE, PITTSFORD, NY 14534
(Address of principal executive offices)
(716) 381-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act
NONE N/A
(Title of Each Class) (Name of each exchange
on which registered)
COMMON STOCK, $.10 PAR VALUE
(Securities registered pursuant to Section 12 (g) of the Act)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
Amendment to this Form 10-K. ____
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15 (d) of the Securities Exchange 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 requirements for the past 90 days.
YES X NO
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of January 31, 2001 was $11,918,981.
The number of shares of Common Stock, $.10 par value, outstanding on
January 31, 2001 was 8,188,909.
DOCUMENTS INCORPORATED BY REFERENCE
PART I - None
PART II - None
PART III - Item 10 Pages 2 - 5 and page 11 of the Company's Proxy
Statement for the Annual Meeting of
Shareholders to be held May 17, 2001, under
"Election of Directors" and "Compliance With
Section 16 (a)."
Item 11 Pages 6 - 8 of the Company's Proxy Statement
for the Annual Meeting of Shareholders to be
held May 17, 2001, under "Executive
Compensation."
Item 12 The tables contained on Pages 8 - 9 and the
information under "Election of Directors" on
Pages 3 - 5 of the Company's Proxy Statement
for the Annual Meeting of Shareholders to be
held May 17, 2001.
PART 1
ITEM 1 BUSINESS
Veramark Technologies ( the "Company") was incorporated (as MOSCOM
Corporation) in New York in January 1983 and reincorporated in Delaware in
1984. The Company's name was changed to Veramark Technologies, Inc. on June
15, 1998. The Company merged with the privately-owned Angeles Group, Inc. on
January 7, 2000.
Veramark Technologies, Inc. produces a broad range of telecommunications
management systems for users of private branch exchange (PBX) based voice
networks, Internet protocol (IP) based voice networks and data networks.
These products are used to track, report and manage telephone usage, equipment
location and maintenance activity, and telecom fraud. Veramark's products
consist primarily of software running under Microsoft Windows 95, Windows 98,
Windows 2000 and Windows NT Systems. Target end user customers range from
small businesses with 25 employees to the largest organizations in industry,
government and health care encompassing hundreds of locations with over
100,000 employees. Veramark's large system products incorporate database
management software from Oracle, Informix or Microsoft.
Veramark is one of the world's leading producers of call accounting
systems and has sold more than 85,000 of these systems, and related products,
to customers in more than 80 countries. Veramark's call accounting systems
are sold through leading manufacturers and resellers of telephone systems
including Avaya, Exp@Nets, SBC/Ameritech, Philips, Siemens, Pinacor,
ScanSource and VodaOne.
Veramark's Enterprise Telemanagement Systems provide to larger
enterprises cable management, asset management, and service records in
addition to call management. Due to their higher levels of complexity and
cost, these more comprehensive systems are sold directly to end users.
Veramark's headquarters, operations, engineering and support staff is
located in a 65,000 square foot leased facility in Pittsford, New York.
Approximately 35 field sales and support personnel are located in cities with
high concentrations of Veramark's products. The Angeles Group Division is
located in a 9,453 square foot leased facility in Westlake Village,
California.
PRODUCTS AND SERVICES
CALL ACCOUNTING
Veramark's most basic products are CALL ACCOUNTING SYSTEMS which connect
to a business telephone system (or PBX) to collect, store, and process
information on every outside telephone call made or received.
Call accounting systems give businesses easy access to complete
information on telephone usage including the dialed number, calling extension,
call duration, time of day, destination, trunk line and cost of each call.
All of Veramark's call accounting products provide this fundamental
information, in graphical summary and detailed report formats, without
monitoring actual phone conversations.
A primary appeal of call accounting systems is that end users save money
on telephone and network equipment bills. Telephone bills can be reduced by
10% - 30% through heightened awareness and management. As a result, the cost
of a call accounting system can generally be recovered in less than one year
through direct expense reduction.
Call accounting systems are purchased and used for many other valuable
reasons as well, including:
Traffic analysis to determine an optimal number of trunks and best long
distance carrier configurations.
Allocating telephone expense to specific cost centers or clients based on
actual use.
Producing revenues by reselling phone services to clients.
Detecting fraudulent use of the phone system by hackers and unauthorized
use of company phones for personal calls or 900 numbers.
Evaluating employee productivity.
Veramark's premier call accounting product, since its release in 1999, is
the Emerald XP software. Emerald XP comes in affordable model sizes ranging
from 25 to 20,000 telephone extensions. The Emerald XP system is able to
collect and process data from up to 100 different remote telephone switches
(PBX's) from one central location. Veramark's economical Pollable Storage
Unit (PSU) collects data from the remote PBX's and stores it until polled by a
central Emerald XP system. Private label versions of Emerald XP are sold by
Avaya and Philips. Emerald XP is designed to be an international product. It
supports worldwide call rating, all world currencies, date schemes and privacy
practices.
Veramark also produces call accounting software products based on the
UNIX operating system. These products are marketed by Avaya and Avaya dealers
as an integrated solution with Avaya's smaller telephone systems and
application processors.
PBX FRAUD DETECTION SYSTEMS address a problem that is estimated to exceed
$1 billion annually - the theft of telephone service through PBX "hacking."
PBX owners use call accounting systems to spot potential fraud and take
corrective measures to minimize the loss. Veramark offers an optional
HackerTracker module with the Emerald XP system to automate the detection of
fraud 24 hours per day and send out alarms by printed report or pager to
initiate preventive measures.
A typical range of end user prices for Veramark's call accounting and
fraud detection systems is from $1,100 to $40,000 per system.
DEFINITY NETWORK TELECOMMUNICATIONS SOFTWARE
Definity Network Telecommunications software ("DNT") is a client/server
based enterprise management system that automates cost control and service
operations in large corporate voice and network environments. DNT runs on
highly scalable single or multi-processor Windows NT computer platforms, the
de facto standard for client/server computing in information technology
departments throughout the world.
Veramark sells DNT to end user customers as a certified Avaya branded
product pursuant to a referral agreement with Avaya.
Target customers for DNT are mid to large size enterprises from all
industries and include multi-national corporations, government agencies, and
medical and educational institutions. Typical users will have 2,000 to 50,000
telephone extensions in multiple facilities. End user prices will typically
range from $45,000 to $235,000 per system.
THE ANGELES GROUP SOLUTIONS
The Quantum Series produced by Veramark's Angeles Group Solution is the
Company's most comprehensive telemanagement software product. It consists of
fully integrated modules that can also be separated as stand-alone products
for Call Accounting, Cable Management, Work Orders, Trouble-Tickets, Phone
Bill Management, Consolidated Billing, Inventory Management Personnel
Directory, and Telecom Fraud.
1. ASSETS & EQUIPMENT INVENTORY manage the allocation and maintenance of
telephones, LAN equipment, videoconferencing systems and other voice, data
and imaging apparatus, along with related warranty cost and vendor
information.
2. PHONE BILL and its associated VENDOR DATA INTERFACE module automate the
electronic receipt of bills from local and long distance service providers
plus CLECs, and OCC's, merges these billing statements and translates them
into an easily-understandable statement of external network charges.
These modules, in conjunction with automated bill verification and
auditing, can eliminate substantial sources of error in communications
bills.
3. CONSOLIDATED BILLING provides internal network users and clients with a
consolidated bill for network usage, trunk charges, special charges, taxes
and other recurring and non-recurring network services. Angeles Group
customers can customize the format of internally generated bills and
provide interfaces to General Ledger and Accounts Payable systems.
4. CALL INTRUDER ALERT (CIA) is a security module that constantly monitors
calling activity looking for potential fraud and provides administrators
with real-time pager alerts.
5. CALL-MASTER is a high-performance call accounting module that tracks
telephone call usage. Of particular interest is the link to Vendor Data
Interface to be able to capture and track detailed call records directly
from vendor bills (from cellular phones, credit card calls, private
lines). Typical clients process up to 20 million calls per month
collected from as many as 35,000 sites.
6. CABLE-MASTER determines the best routing for new network connections,
tracks circuits and network connectivity throughout a building or campus
and determines who is affected by a cable break or failure of network
resources. The AUTOCAD INTERFACE maps network circuit connections to
existing facilities drawings.
7. WORK ORDERS & TROUBLE TICKETS accelerate the provisioning of network
service changes, improve the accuracy of requests for moves, adds and
changes (MACs) and quickly route trouble reports to the appropriate
network technicians.
8. PERSONNEL DIRECTORY links each module to the person who "owns" the part or
circuit and associates proper cost allocation to the department. It can
maintain personal information as well as pictures.
9. DIRECTORY ASSISTANCE assists phone operators, security, reception or the
mail room in rapidly locating employees and services.
10. CUSTOMIZED REPORTS and DATABASE BROWSERS helps administrators plan for
network growth and movement of personnel.
Each Angeles Group system is customized to meet the special requirements
of larger customers with complex voice, data and image networks.
The target for the Quantum series is Fortune 1000 companies and
comparably sized organizations in health care, utilities, financial services
and government sectors. The Quantum series is sold through a direct sales
force and through distributors such as SBC/Ameritech and pursuant to a
referral agreement with Avaya. Typical sales prices range from $75,000 to $1
million.
OUTSOURCED TELEMANAGEMENT SOLUTIONS
For companies that recognize the benefits of telemanagement, but lack the
means or desire to utilize internal staff and equipment to perform it,
Veramark offers a completely outsourced solution. Using the same
telemanagement tools developed by Veramark for software customers, Veramark
can remotely poll, process and report on telecommunications activity and data.
Outsource customers can access standard as well as customized reports by
email, fax or CD-ROM. Outsource customers sign multi-year contracts and pay
for services monthly based on the number of call records processed.
CENTRAL OFFICES TELEMANAGEMENT
Veramark's INFO/MDR products capture, at the central office, vital
information in the form of Message Detail Records on every call handled by
that particular central office switch. These raw detail records are then
processed into meaningful formats and distributed to a central telephone
company billing processor or to business subscribers.
Telephone companies use INFO/MDR to enhance the appeal of Centrex and
Virtual Private Network service. With Centrex service, business customers
utilize the telephone company's central office switch to route calls to
individual extensions rather than a PBX. INFO/MDR gives telephone companies
the ability to provide complete, timely and accurate call detail information
to customers, economically and efficiently. Telephone companies are also
using INFO/MDR to provide message accounting for virtual private networks,
another rapidly growing segment of the telecommunications market. Virtual
private networks utilize customized software design to provide private network
functionality over the common carrier public network.
Telephone companies with multiple INFO/MDR systems installed include
AT&T, Alltel, Bell Atlantic, Century Telephone, Citizens Utilities, Cable &
Wireless, SBC/Ameritech and Sprint. End user prices for INFO/MDR range from
$26,000 to $80,000 per system.
PROFESSIONAL SERVICES AND MAINTENANCE
To varying degrees all of the Company's products afford an opportunity to
provide professional services to customers on a fee basis. The vast majority
of active users of Veramark's products pay an annual maintenance fee, which
entitles the user to post warranty support via telephone or modem, and new
software service pack releases. Annual fees for maintenance range from 10% to
22.5% of the original software license fee, depending upon the hours and
priority of support and whether a distributor plays an intermediary support
role.
The licensing of Veramark's more complex products, including The Angeles
Group Solution, DNT and some Emerald XP systems, include the provision of
professional services on a fee basis. These sales typically include
installation, implementation and training services and often include software
customization and data conversion services.
MARKETING AND SALES
Veramark's marketing and sales personnel are located at its headquarters
in Pittsford, New York and 18 locations throughout the United States.
Veramark's marketing and distribution strategy is founded on building
mutually beneficial relationships with companies with large, established
distribution networks for telecommunications and computer products. The
nature of the relationships varies depending on the product and market. For
some, Veramark develops and manufactures customized products under a private
label while other purchase and resell Veramark's standard products. The
Angeles Group Solution is sold through a direct sales force as well as through
SBC/Ameritech.
Veramark's marketing strategy is focused upon telephone switch
manufacturers and sellers and providers of telephone services. A partial
listing of companies using or selling Veramark products follows:
TELECOMMUNICATIONS EQUIPMENT MANUFACTURERS
Avaya
Philips
Siemens
TELEPHONE SERVICE PROVIDERS
SBC/Ameritech
AT&T
Sprint
NEW PRODUCT DEVELOPMENT
Veramark is currently pursuing several opportunities to expand its
telemanagement and billing product lines and to offer products for related
markets.
Software development costs, meeting recoverability tests, are capitalized
in accordance with Statement of Financial Accounting Standard No. 86 when
technological feasibility has been established for the software. The costs
capitalized are amortized on a product-by-product basis over its estimated
life, or the ratio of current revenues to current and anticipated revenues
from such software, whichever provides the greater amortization. The Company
periodically records adjustments to write down certain capitalized costs to
their net realizable value.
BACKLOG
At December 31, 2000, Veramark had a backlog of $3,878,070. Backlog as
of December 31, 1999 was $2,428,377. Backlog is not deemed to be a material
indicator of 2001 revenues.
The Company's policy is to recognize orders only upon receipt of firm
purchase orders.
COMPETITION
The telecommunications management industry is highly competitive and
highly fragmented. The number of domestic suppliers of telemanagement systems
for business users is estimated to exceed 100 companies. The vast majority of
those are regional firms with limited product lines and limited sales and
development resources. Several competitors are established companies that are
able to compete with Veramark on a national and international basis.
There are fewer competitors in the market for large scale telemanagement
systems for telephone service providers, although several existing competitors
are substantially larger than Veramark and may be able to devote significantly
more resources to product development and marketing.
With respect to all of Veramark's products, some competing firms have
greater name recognition and more financial, marketing and technological
resources than Veramark. Competition in the industry is based on price,
product performance, depth of product line and customer service. Veramark
believes it products are priced competitively based upon their performance and
functionality. However, Veramark does not strive to be consistently the
lowest priced supplier in its markets. Historically, prices for application
software have declined rapidly in the face of competition. Increased
competition for the Company's software products could adversely affect the
Company's sales volume and profits.
MANUFACTURING
Veramark assembles its products from components purchased from a large
variety of suppliers both domestic and international. Wherever feasible, the
Company secures multiple sources, but in some cases it is not possible.
Veramark offers warranty coverage on all products for 90 days or one year
on parts and 90 days on labor. Customer support services are offered at the
Pittsford, New York and Westlake Village, California facilities and by some of
the Company's larger customers.
EMPLOYEES
As of December 31, 2000, Veramark employed 174 full-time personnel.
Veramark's employees are not represented by any labor unions.
ITEM 2 FACILITIES
The Company's principal administrative office and manufacturing facility
is located in a one-story building in Pittsford, New York. Veramark presently
leases approximately 65,000 square feet of the building of which approximately
5,000 square feet is devoted to manufacturing. The term of the lease expires
on October 31, 2007.
The Angeles Group Division occupies 9,453 square feet of a building in
Westlake Village, California, pursuant to a lease that expires on February 28,
2004.
ITEM 3 LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company or to
which the Company is a party or of which any of its property is the subject.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Veramark Technologies, Inc. Common Stock, $0.10 par value, is traded on
the NASDAQ National Market System (symbol: VERA). The following quotations
are furnished by NASDAQ for the periods indicated. The quotations reflect
inter-dealer quotations that do not include retail markups, markdowns or
commissions and may not represent actual transactions. (See Note 15 to the
financial statements for disclosure regarding the cessation of trading on the
NASDAQ National Market System).
COMMON STOCK PRICE RANGE
Quarters Ended
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
2000 $12.25-4.38 $5.00-3.50 $4.13-2.75 $3.19- 0.63
1999 $8.75-5.75 $7.75-5.88 $11.88-7.50 $14.75-11.00
As of December 31, 2000, there were 609 holders of record of the
Company's common Stock and approximately 3,247 additional beneficial holders.
The Company paid a dividend of $0.02 per share in January 1996. No dividends
have been paid in subsequent years and no dividend is planned for 2001.
ITEM 6 SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
2000 1999 1998 1997 1996
Net Sales $16,525,357 $29,396,688 $22,329,113 $16,395,988 $16,614,987
Net Income (Loss) $(6,858,645) $2,398,586 $1,989,005 $(5,186,131) $(6,256,547)
Net Income (Loss) per
Diluted Share $(0.85) $0.27 $0.24 $(0.67) $(0.87)
Weighted Average Diluted
Shares Outstanding 8,079,281 8,800,662 8,272,609 7,692,210 7,227,004
Cash Dividends paid per
share $0.00 $0.00 $0.00 $0.00 $0.02
Total Assets $11,859,330 $21,289,282 $17,522,034 $12,724,178 $14,312,218
Long Term Obligations $3,373,399 $4,254,483 $3,982,847 $1,983,348 $1,320,682
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements, which involve risks
and uncertainties including, but not limited to, economic, competitive,
governmental and technological factors, affecting the Company's operations,
markets, products, services and prices, as well as other factors discussed in
the Company's filings with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
2000 COMPARED WITH 1999
The year 2000 was a very difficult one for the Company. Early in 2000
the Company's largest customer, Lucent Technologies announced that they were
exiting the PBX switch business via the sale of one business unit to Exp@nets
and the spin-off of another (now known as Avaya Communications). The resulting
disruption and turmoil within the Company's major distribution channel
negatively impacted financial results for the year. However, by the end of
the year, the Company had reacted to these events, significantly reducing its
expense base, streamlining it operations, and most importantly, retaining the
business of the resulting successors to the PBX market. On December 20, 2000,
the Company announced a new three-year distribution contract, with Avaya
Communications, covering the Company's complete line of Telemanagement
products.
Primarily as a result of this disruption in the Company's major
distribution channel, sales for the year decreased from $29,396,688 for the
year ended December 31, 1999, to $16,525,357 for the year ended December 31,
2000, a decline of 44%. Hardest hit by the changes in the former Lucent
channel were sales of the Company's core call accounting software products,
which declined by 57% from 1999 sales. For the year ended December 31, 2000,
call accounting products and services accounted for 46% of total Company
sales, versus 60% of total sales for the year ended December 31, 1999.
Sales of the Company's enterprise products, DNT and Quantum, were down 3%
from 1999 results and represented 37% of total sales for 2000 versus 22% of
total sales for 1999. The Company sells DNT to end-user customers as a
certified Avaya branded product, pursuant to a referral agreement with Avaya.
Quantum is the Company's most comprehensive telemanagement product and is sold
and marketed by The Angeles Group Division of the Company. The Company's
acquisition of The Angeles Group was successfully completed in January 2000,
and the Quantum product line has become a major component of the Company's
total telemanagement and network management solutions offering. During 2000,
the Company signed major contracts for the Quantum product with San Francisco
Airport, M & I Data Systems and K-Mart.
Sales of Info/MDR for 2000, decreased by 34% from 1999 sales, accounting
for 6% of total 2000 revenues. Despite the drop in 2000 sales, the Company
feels that there is sufficient activity in the Centrex and Virtual Private
Network market to warrant continued sales efforts and investment.
During 2000, the Company announced that it was seeking a strategic buyer
for Verabill, its billing and customer care product. The Company's management
made the decision that the Company's long-term interests were best served by
focusing on marketing, sales and development within its core telemanagement
and network management markets. The Company completed the sale of Verabill on
March 26, 2001 (See Note 15 to the Financial Statements). The Company
continued to sell and support the Verabill product as negotiations continued
with potential buyers of the product line. For 2000, Verabill sales and
services accounted for 9% of the Company's total sales, versus 12% of total
sales for 1999.
For the year ended December 31, 2000, product sales accounted for 54% of
total sales, with services, consisting of maintenance and support, training
and installation, accounting for the remaining 46% of total sales. For the
year ended December 31, 1999, product sales accounted for 65% of total sales,
and services 35% of sales.
The gross profit margin earned on sales for the year ended December 31,
2000 was 81% of sales or $13,396,481 versus 87% of sales, or $25,600,480 for
the year ended December 31, 1999. The lower percentage gross margin for 2000,
as compared to 1999, reflects overhead and amortization expenses, both of
which are relatively fixed in nature, being applied to lower sales volumes
recognized in 2000, versus those recognized in 1999.
In reaction to lower sales volumes, the Company sharply reduced its
operating expenses, primarily through staff reductions beginning in the second
quarter of 2000 and continuing through the end of the year. As of December
31, 2000, the Company employed 174 full-time personnel, compared with an
employment level of 266 as late as March 31, 2000. The result of these
expense reductions was a 14% decrease in overall operating expenses for the
year ended December 31, 2000, versus the year ended December 31, 1999. The
reductions are more evident when comparing operating expense for the Company's
quarter ended December 31, 2000, for which operating expenses totaled
$3,997,487, and the quarter ended December 31, 1999, for which operating
expenses were $7,011,384, representing a decrease of 43%. Since March 31,
2000, the Company has been able to reduce its quarterly breakeven point from
approximately $7.7 million, to approximately $4.4 million at December 31,
2000.
Net engineering and software development expenses for the year ended
December 31, 2000 were $5,145,352 as compared to $5,942,262 for the year ended
December 31, 1999, a decrease of 13%. Engineering and development efforts in
2000 included an upgrade to the Company's CAS/Emerald call management product
line to include e-mail and Internet capabilities, and the release of
CAS/Emerald Lite, a shrink-wrapped, user-installable, telemanagement software
solution.
The table below details gross engineering and development expenses, costs
capitalized, net engineering and development expense, and the amount of
previously capitalized expenditures amortized and charged to cost of sales,
for the years ended December 31, 2000 and 1999.
2000 1999
GROSS EXPENDITURES FOR ENGINEERING AND
Software Development
$6,047,731 $6,336,169
LESS: COSTS CAPITALIZED (902,379) (393,907)
---------- ----------
NET EXPENDITURES FOR ENGINEERING AND
Software Development 5,145,352 5,942,262
PLUS: AMOUNTS AMORTIZED AND CHARGED
to Cost of Sales 1,020,134 1,095,642
---------- ----------
TOTAL EXPENSE RECOGNIZED $6,165,486 $7,037,904
========== ==========
Selling, general and administrative expenses for the year ended December
31, 2000 were $14,667,292 as compared to $17,209,308 for the year ended
December 31, 1999, a decrease of 15%. The reduction in expense levels
reflects a combination of the staffing reductions across all functional areas
referred to above, plus the consolidation of certain functions, particularly
in the administration and marketing areas, subsequent to the acquisition of
The Angeles Group. A comparison of the selling, general and administrative
expense by functional area for the year ended December 31, 2000 and 1999, is
as follows:
2000 1999
Marketing/Product Management $2,670,988 $2,775,031
Sales 3,477,004 4,230,159
Sales Support and Service 5,171,576 5,574,735
Administration 3,347,724 4,629,383
----------- -----------
$14,667,292 $17,209,308
=========== ===========
The Company recognized $156,460 of other income for the year ended
December 31, 2000 versus other income recognized of $47,883 for the year ended
December 31, 1999. Other income primarily consists of interest income
generated from the investment of excess cash balances, reduced by associated
management fees, and interest expense. In 2000, other income included $55,000
of capital gain recognized on the sale of securities.
For the year ended December 31, 2000, the Company recognized a net loss
of $6,858,645, or $0.85 per diluted share. This compared with a net profit of
$2,398,586, or $.27 per diluted share for the year ended December 31, 1999.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
Sales of $29,396,688 for the year ended December 31, 1999 established a
Company record for annual sales achievement and represents an increase of 32%
from the $22,329,113 of sales achieved for the year ended December 31, 1998.
The Company's fourth quarter 1999 sales of $8,115,242, set a new quarterly
sales record, and was the eleventh consecutive quarterly sales increase.
The Company's record sales were attained as a result of gains in all
major product categories for 1999 as compared to 1998. Sales of the Company's
core telemanagement products and services, which accounted for approximately
60% of total 1999 revenues, increased 24% from 1998 results. Telemanagement
products are used by organizations to optimize the usage of telecommunications
services and equipment, and to control telephone expenses. The Company's
telemanagement products are sold through leading manufacturers and resellers
of telephone systems, including Lucent Technologies, SBC/Ameritech, Philips
and Siemens.
Sales of VeraBill, the Company's billing and customer care offering,
increased 144% from 1998 levels and accounted for 12% of the Company's total
1999 sales, versus 7% of the Company's 1998 sales. VeraBill is sold through
distributors including Alcatel, and Ericsson Telecom, as well as on a direct
sale basis. For 1999, approximately 48% of VeraBill revenues were generated
from distributor relationships.
Sales of INFO/MDR, the Company's central office telemanagement product,
increased by 43% from 1998 levels, accounting for 5% of 1999 total sales.
Telephone companies use INFO/MDR to enhance the appeal of centrex and virtual
private network services.
Sales of DNT (formerly called TMS for Windows), the Company's
client/server enterprise product, increased by 63% from 1998 sales and
accounted for 4% of the Company's total sales for 1999. During
the fourth quarter of 1999, the Company completed a new release of DNT, which
significantly enhances the product's reliability and functionality. As a
result of this new release, the Company expects sales of DNT to increase
significantly again in 2000.
Sales of Quantum, the Company's comprehensive telemanagement system for
1999 were nearly identical to 1998 sales, accounting for 18% of the Company's
total 1999 revenues.
For the year ended December 31, 1999, shipment of product accounted for
65% of total sales, with the remaining 35% of sales being derived from
services such as maintenance and support, training, and installation services.
During 1998 product sales accounted for 67% of sales, and services accounted
for 33% of the total. Overall product sales for 1999 increased 29% from 1998
levels and 1999 service revenues increased 38% over 1998.
In 1999, the Company generated a gross margin of $25,600,480 or 87% of
sales versus a gross margin of $19,010,915 or 85% of sales for the year ended
December 31, 1998. The higher margins reflect a combination of lower direct
product costs associated with the increasing content of software based
applications in the Company's product mix, and a reduction in the amortization
of previously capitalized development costs as a percentage of total sales.
For the year ended December 31, 1999, the Company incurred $5,942,262 of
engineering and development expenses, net of costs capitalized. This
represented a 63% increase from the net engineering and development costs
incurred for the year ended December 31, 1998. Gross expenditures for
research and development, before the effects of capitalization, were
$6,336,169 for 1999, an increase 29% from the 1998 expense level of
$4,913,882.
The following table depicts the overall financial impact of engineering
and development efforts on the Company's results, for 1999 and 1998, by
highlighting gross expenditures, amounts capitalized, net engineering and
development expense, and the amount of previously capitalized expenditures
charged to cost of sales:
1999 1998
GROSS EXPENDITURES FOR ENGINEERING AND
Software Development $6,336,169 $4,913,882
LESS: COSTS CAPITALIZED (393,907) (1,269,019)
---------- ----------
NET EXPENDITURES FOR ENGINEERING AND
Software Development 5,942,262 3,644,863
PLUS: AMOUNTS AMORTIZED AND CHARGED
to Cost of Sales 1,095,642 983,945
---------- ----------
TOTAL EXPENSE RECOGNIZED $7,037,904 $4,628,808
========== ==========
During 1999 the Company's development efforts resulted in a number of
notable accomplishments including:
a) New releases of VeraBill and DNT, both of which contained upgrades in
features and functionality, allowing the Company to expand the addressable
markets available.
b) A significant upgrade to Emerald, the Company's flagship telemanagement
product, designed, not only to broaden the appeal of this product to
existing channels, but also to open new potential areas of distribution.
Private label versions of Emerald XP are now being sold by Lucent
Technologies and Philips. Emerald XP is also designed to be an
international product, supporting worldwide call rating, all world
currencies, date schemes and privacy practices.
c) Development of the Company's new Internet accounting product (VeraWeb) and
the integration of that product into a number of the Company's existing
call management offerings. These network products will allow businesses to
easily track, manage and allocate costs for use of the Internet and other
network resources.
Selling, general and administrative expenses of $17,209,308 for the year
ended December 31, 1999 were 27% higher than the expenses incurred for the
year ended December 31, 1998 of $13,528,703. The higher expenses are
attributable to an increase in employment level from 202 employees at December
31, 1998 to 266 employees at December 31, 1999. The chart below breaks down
the increased employment by function:
1999 1998
Manufacturing/Materials 15 12
Engineering/ Development 80 61
Marketing/Project Management 27 17
Support/Service/Implementation 86 61
Sales 34 32
Administration 24 19
--- ---
266 202
=== ===
The increased staffing in the support, service, and implementation areas,
was deemed necessary to enhance the prospects of future sales growth and
opportunity, especially in support of the Company's network products, DNT and
VeraBill, and to provide the proper level of service and trained personnel in
anticipation of the Company's first quarter 2000 launch of its Internet
accounting product offerings.
The Company also invested heavily during 1999 to augment its product and
project management functions. This investment has strengthened the Company's
abilities to gather competitive market data, and more efficiently manage
product releases.
For the year ended December 31, 1999, the Company realized a 21% increase
in net income to $2,398,586 representing 8.2% of sales, from $1,989,005 or
8.9% of sales for the twelve months ended December 31, 1998.
Earnings per share for the year ended December 31, 1999 were $0.27 per
diluted share versus $0.24 per diluted share earned for 1998, an increase of
12.5%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total cash position (cash plus short-term investments) at
December 31, 2000 was $1,466,874. This compared with a total cash position of
$8,031,768 at December 31, 1999. The decline in the Company's cash position
reflects primarily the operating loss incurred for the year 2000, but also
includes the repayment of a $1,100,000 note payable carried by The Angeles
Group Division and approximately $600,000 of expenses incurred to consummate
that merger. As mentioned in the management discussion section of this
report, the Company undertook an aggressive streamlining of its operations
through the year to bring its expense base back into line with expected
revenue streams. As a result of these actions, the Company was able to
stabilize its cash position throughout the last five months of 2000.
Accounts receivable at December 31, 2000 totaled $2,104,505, net of a
$201,000 provision for doubtful accounts, as compared to accounts receivable
of $3,821,244, net of a $260,000 provision at December 31, 1999. The
reduction in accounts receivable is a reflection of the lower sales volumes
recognized for 2000 versus 1999.
Inventories declined to $332,003 at December 31, 2000 from $557,123 at
December 31, 1999. By the end of 2000, the Company's product offerings are
primarily software-based solutions, thereby eliminating the need to stock
significant raw components and finished goods.
Prepaid expenses and other current assets at December 31, 2000 were
$96,336 as compared to $596,574 at December 31, 1999. The decrease reflects
the elimination of prepaid interest associated with the note payable referred
to above and the buy-out portion of a number of capital leases carried by The
Angeles Group at the time of merger.
Capital spending for the year ended December 31, 2000 was $334,038, down
significantly from the capital expenditures of $2,128,008 for the year ended
December 31, 1999. The Company will continue to carefully monitor capital
purchases throughout 2001.
Software development costs capitalized and carried on the Company's
balance sheet total $1,948,728 at December 31, 2000 versus $2,691,807 at
December 31, 1999. During 2000, the Company capitalized $902,379 of
development expenses and amortized $1,020,134 of costs capitalized in previous
years. In addition, as of December 31, 2000, $625,324, representing the
unamortized value of development costs associated with the Company's Verabill
product line, has been reclassified to "Asset Held for Sale," in the current
asset portion of the Company's balance sheet, pending the anticipated sale of
the product line. (See Note 15 to the Financial Statements).
Total current liabilities at December 31, 2000 of $5,019,073 were down
26% from the total current liabilities of $6,803,683 at December 31, 1999, the
result of the staffing reductions undertaken throughout the year and reduced
sales volumes. Accounts payable decreased 53% from $827,837 at December 31,
1999 to $385,779 at December 31, 2000, accrued compensation fell 20% from
$2,021,102 to $1,606,886, and deferred revenue decreased 28% from $3,038,726
to $2,175,986. Deferred revenues represent services for which the Company has
billed customers, but has not yet performed the associated service. These
services typically included training, installation, maintenance and support.
Long term liabilities decreased by $881,084, or 21% from $4,254,483 at
December 31, 1999 to $3,373,399 at December 31, 2000. This was primarily the
result of the repayment in January, 2000, of the $1,100,000 note held by The
Angeles Group Division at December 31, 1999, in accordance with the terms of
the merger agreement.
The Company maintains a private equity line of credit agreement with a
single institutional investor. Under the equity line, the Company has the
right to sell, to the investor, shares of the Company's common stock at a
price equal to 94% of the average bid price of the stock for the subsequent
ten trading days. During the term of the agreement the Company may sell up to
$6 million to this investor with no more than $500,000 in any single month.
During the third quarter of 2000, the Company sold 8,400 shares of common
stock to this investor, recognizing proceeds, net of discount, of $23,688.
This agreement expires August 30, 2001.
The Company maintains an agreement with a major commercial bank for a
secured demand line of credit arrangement in the amount of $3,000,000. There
have been no borrowings against this agreement as of December 31, 2000. From
August 1999 until December 2000, the Company maintained a separate $7,000,000,
three-year, acquisition revolving credit agreement with the same bank. The
Company has decided not to continue this acquisition credit line for 2001.
Despite the significant operating loss incurred in 2000, the Company
believes that with the combination of expense reductions already in place, the
proceeds recognized from the sale of its Verabill product line, and the bank
line of credit agreement referred to above, sufficient resources will be
available to meet the Company's financial obligations and support anticipated
growth over the next twelve months.
ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REQUIRED TO BE INCLUDED HEREIN AS FOLLOWS:
Page
REPORTS OF INDEPENDENT ACCOUNTANTS 19-20
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated balance sheets 21-22
Consolidated statements of operations 23
Consolidated statements of stockholders' equity 24
Consolidated statements of cash flows 25
Notes to consolidated financial statements 26-37
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
Report of Independent Accountants
To the Board of Directors and Stockholders of
Veramark Technologies, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Veramark Technologies, Inc. and its subsidiary at
December 31, 2000, and the results of their operations and their cash flows
for the year ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the index appearing
under Item 14(c) on page 42 present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audit of
these statements in accordance with auditing standards generally accepted in
the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Rochester, New York
February 12, 2001, except for the second paragraph of
Note 15 - Subsequent Event, which is as of March 26, 2001
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated February 4, 2000 included in
Veramark Technologies, Inc.'s Form 10-K for the year ended December 31, 1999.
It should be noted that we have not audited any financial statements of the
company subsequent to December 31, 1999 or preformed any audit procedures
subsequent to the date of the report.
ARTHUR ANDERSEN LLP
Rochester, New York
March 30, 2001
VERAMARK TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS 2000 1999
CURRENT ASSETS:
Cash and cash equivalents $ 1,072,421 $ 2,894,500
Investments 394,453 5,137,268
Accounts receivable, trade (net of allowance
for doubtful accounts of $201,000
and $260,000) 2,104,505 3,821,244
Inventories 332,003 557,123
Prepaid expenses and other current assets 96,336 596,574
Assets held for sale (Note 4) 625,324 -
------------ ------------
Total current assets 4,625,042 13,006,709
============ ============
PROPERTY AND EQUIPMENT:
Cost 6,733,928 7,664,867
Less accumulated depreciation 4,203,173 4,563,669
------------ ------------
Property and equipment, net 2,530,755 3,101,198
Software development costs (net of accumulated
amortization of $1,464,890 and $1,531,720) 1,948,728 2,691,807
Pension assets 2,125,878 1,977,710
Deposits and other assets 628,927 511,858
------------ ------------
Total other assets 4,703,533 5,181,375
------------ ------------
TOTAL ASSETS $ 11,859,330 $ 21,289,282
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
VERAMARK TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
CURRENT LIABILITIES:
Accounts payable $ 385,779 $ 827,837
Accrued compensation and related taxes 1,606,886 2,021,102
Deferred revenue 2,175,986 3,038,726
Capital lease obligation - Current 13,733 70,106
Customer deposits 636,175 477,231
Other accrued liabilities 200,514 368,681
------------ ------------
Total current liabilities 5,019,073 6,803,683
Long-term portion of capital leases 41,582 110,712
Note payable -0- 1,100,000
Pension obligation 3,331,817 3,043,771
------------ ------------
Total liabilities 8,392,472 11,058,166
STOCKHOLDERS' EQUITY:
Common stock, par value, $0.10; shares
authorized, 40,000,000; issued 8,269,134
shares and 8,143,673 shares 826,913 814,367
Additional paid-in capital 20,191,304 20,109,463
Accumulated deficit (17,165,602) (10,306,957)
Treasury stock (80,225 shares at cost) (385,757) (385,757)
------------ ------------
Total stockholders' equity 3,466,858 10,231,116
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,859,330 $ 21,289,282
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
VERAMARK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
NET SALES $16,525,357 $29,396,688 $22,329,113
=========== =========== ===========
COSTS AND OPERATING EXPENSES:
Cost of sales 3,128,876 3,796,208 3,318,198
Engineering and software development 5,145,352 5,942,262 3,644,863
Selling, general and administrative 14,667,292 17,209,308 13,528,703
Other expenses (Note 11) 598,942 - -
----------- =========== ===========
Total costs and operating expenses 23,540,462 26,947,778 20,491,764
INCOME (LOSS) FROM OPERATIONS (7,015,105) 2,448,910 1,837,349
OTHER INCOME 156,460 47,883 167,456
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (6,858,645) 2,496,793 2,004,805
INCOME TAXES - 98,207 15,800
----------- ----------- -----------
NET INCOME (LOSS) $(6,858,645) $ 2,398,586 $ 1,989,005
=========== =========== ===========
NET INCOME (LOSS) PER SHARE
Basic $ (0.85) $ 0.30 $ 0.25
=========== =========== ===========
Diluted $ (0.85) $ 0.27 $ 0.24
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC) 8,079,281 7,973,183 7,926,646
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
(DILUTED) 8,079,281 8,800,662 8,272,609
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
VERAMARK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
COMMON STOCK ADDITIONAL ACCUMULATED TOTAL
SHARES PAR VALUE PAID-IN DEFICIT STOCKHOLDERS'
CAPITAL EQUITY
BALANCE - December 31, 1997 7,910,553 $791,055 $18,670,220 $(13,953,392) $ 5,507,883
Sale of Stock 24,700 2,470 140,914 - 143,384
Fair Value of Warrants Issued with
Debt - - 175,000 - 175,000
Exercise of stock options and
warrants 26,044 2,605 79,951 - 82,556
Stock Purchase Plan 9,981 998 49,905 - 50,903
Stock Retirements (2,719) (272) (17,231) - (17,503)
Treasury Stock (52,300) - (213,215) - (213,215)
Stockholder Distributions - - - (618,500) *(618,500)
Net Income - - - 1,989,005 1,989,005
--------- -------- ----------- ------------ -----------
BALANCE - December 31, 1998 7,916,259 $796,856 $18,885,544 $(12,582,887) $ 7,099,513
========= ======== =========== ============ ===========
Exercise of stock options and
warrants 151,898 15,189 888,247 - 903,436
Stock Purchase Plan 24,099 2,410 134,038 - 136,448
Stock Retirements (883) (88) (11,581) - (11,669)
Treasury Stock (27,925) - (172,542) - (172,542)
Stockholder Distribution - - - (122,656) *(122,656)
Net Income - - - 2,398,586 2,398,586
--------- -------- ----------- ------------ -----------
BALANCE - December 31, 1999 8,063,448 $814,367 $19,723,706 $(10,306,957) $10,231,116
========= ======== =========== ============ ===========
Liquidation of Warrants Issued - - (163,589) - (163,589)
Sale of Stock 8,400 840 22,848 - 23,688
Exercise of stock options and
warrants 20,536 2,054 54,790 - 56,844
Stock Purchase Plan 96,525 9,652 97,792 - 107,444
Fair Value of Warrants Issued - - 70,000 - 70,000
Net loss - - - (6,858,645) (6,858,645)
--------- -------- ----------- ------------ -----------
BALANCE - December 31, 2000 8,188,909 $826,913 $19,805,547 $(17,165,602) $ 3,466,858
========= ======== =========== ============ ===========
*Represents distributions to TAG Division Shareholders
The accompanying notes are an integral part of these consolidated financial
statements.
VERAMARK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
OPERATING ACTIVITIES:
Net income (loss) $(6,858,645) $2,398,586 $1,989,005
=========== ========== ==========
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,905,776 1,801,743 1,380,033
Provision for bad debts 4,000 107,000 68,973
Provision for inventory obsolescence 139,996 73,101 274,996
Loss on disposal of fixed assets 18,839 4,497 2,719
Fair value of warrants issued 70,000 - 175,000
Changes in assets and liabilities:
Accounts receivable 1,712,739 (730,656) (844,812)
Inventories 85,124 (50,256) 309,833
Prepaid expenses and other current
assets 336,649 (404,743) (147,993)
License fees and purchased software - - (30,405)
Deposits and other assets (265,237) (30,888) (1,026,649)
Accounts payable (442,058) (8,037) (66,474)
Accrued compensation and related taxes (414,216) 1,021,911 519,302
Deferred revenue (862,740) (230,362) 474,427
Other accrued liabilities (65,596) (489,609) 379,472
Pension obligation 288,046 160,924 899,499
----------- ---------- ----------
Net adjustments 2,511,322 1,224,625 2,367,921
----------- ---------- ----------
Net cash (used in) provided by operating
activities (4,347,323) 3,623,211 4,356,926
----------- ---------- ----------
INVESTING ACTIVITY:
Sale (purchase) of investments 4,742,815 (418,574) (2,362,913)
Additions to property and equipment (334,038) (2,128,008) (790,700)
Capitalized software development costs (902,379) (393,907) (1,269,019)
----------- ---------- ----------
Net cash provided by (used in) investing
activities 3,506,398 (2,940,489) (4,422,632)
----------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from (Repayment of) Note Payable (1,100,000) - 1,100,000
Repayment of Capital Lease obligation (69,130) (18,364) -
Distributions to Shareholders - (122,656) (618,500)
Proceeds from sale of stock 23,688 - 143,384
Decrease in Short-term borrowings - - (100,000)
Exercise of stock options and warrants 56,844 891,767 65,053
Employee stock purchase plan 107,444 136,448 50,903
Treasury stock purchases - (172,542) (213,215)
----------- ---------- ----------
Net cash provided by (used in) financing
activities (981,154) 714,653 427,625
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,822,079) 1,397,375 361,919
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,894,500 1,497,125 1,135,206
----------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,072,421 $2,894,500 $1,497,125
=========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
VERAMARK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts
of Veramark Technologies, Inc. (the Company) and The Angeles Group
Division ("TAG"), reflecting the Company's merger with The Angeles
Group effective January 7, 2000. Veramark Technologies, Inc. issued
360,850 shares of common stock in exchange for all of the outstanding
shares of The Angeles Group, Inc. The business combination was
accounted for as a pooling-of-interests, and accordingly, the
historical financial statements of the Company have been restated to
include the consolidated financial statements of Veramark Technologies,
Inc. and The Angeles Group, Inc. for all periods presented. All
significant intercompany accounts and transactions have been
eliminated. The Company designs and produces telecommunication
management, Internet management and billing systems for users and
providers of telecommunication services in the global market. (See
Note 11)
ESTIMATES - The preparation of consolidated 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 consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The consolidated financial statements include management's best
estimates of the net realizable value of software development costs.
Accordingly, the Company periodically records adjustments to write down
the carrying value of software development costs to their net
realizable value. The amounts the Company will ultimately realize
could differ materially from the carrying value of the software
development costs. (See Note 4)
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards (SFAS) No. 107 "Disclosures about Fair Value of Financial
Instruments," requires disclosures of the fair value of certain
financial instruments. The carrying amount of cash and cash
equivalents, investments, accounts receivable and accounts payable
approximate fair value due to their short-term nature.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments purchased with a maturity of three months or less to be
cash equivalents.
INVESTMENTS - The Company records its investments in accordance with
SFAS No. 115, "Investments in Certain Debt and Equity Securities." As
of December 31, 2000 and 1999, the Company has classified its portfolio
as available-for-sale securities. At December 31, 2000 and 1999 the
carrying value of investments approximated fair market value.
Investments at December 31, 2000 and 1999 consisted of the following:
2000 1999
Commercial Paper $ - $ 550,000
Certificates of Deposit - 483,541
US Government Securities - 662,267
Bond Funds 394,452 3,991,460
Money Market Funds 1,022,886 1,979,695
---------- ----------
$1,417,338 $7,666,963
========== ==========
The contractual maturities of the Company's investments as of December
31, 2000 are primarily due within one year.
CONCENTRATIONS OF CREDIT RISK - Financial instruments, which
potentially subject the Company to concentration of credit risk,
consist principally of investments and accounts receivable. The
Company places its investments with quality financial institutions and,
by policy, limits the amount of investment exposure to any one
financial institution.
The Company's customers are not concentrated in any specific geographic
region, but are concentrated in the telecommunications industry. As of
December 31, 2000 and 1999, one customer in this industry accounted for
approximately $527,101 and $1,100,834, respectively, of the total
accounts receivable balance. The Company performs ongoing credit
evaluations of its customers' financial conditions but does not require
collateral to support customer receivables. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the
credit risk of specific customers, historical trends and other
information.
INVENTORIES are stated at the lower of cost (first-in, first-out) or
market. The Company evaluates the net realizable value of inventory on
hand considering deterioration, obsolescence, replacement costs and
other pertinent factors, and records adjustments as necessary.
PROPERTY AND EQUIPMENT is recorded at cost and depreciated on a
straight-line basis using the following useful lives:
Computer hardware and software 3-5 years
Machinery and equipment 4-7 years
Furniture and fixtures 5-10 years
Leasehold improvements Term of lease
All maintenance and repair costs are charged to operations as incurred.
The cost and accumulated depreciation for property and equipment sold,
retired, or otherwise disposed of are removed from the accounts, and
the resulting gains or losses are reflected in earnings.
LONG-LIVED ASSETS AND INTANGIBLES - In January 1996, the Company
adopted SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable on
an undiscounted cash flow basis. The statement also requires that
long-lived assets and certain identifiable intangibles to be disposed
of be reported at the lower of carrying amount or fair values less cost
to sell. The adoption of SFAS No. 121 did not have a material effect
on the financial statements.
SOFTWARE DEVELOPMENT COSTS meeting recoverability tests are
capitalized, under Statement of Financial Accounting Standard No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," and amortized on a product-by-product basis over
their economic life, ranging from three to five years, or the ratio of
current revenues to current and anticipated revenues from such
software, whichever provides the greater amortization.
REVENUE RECOGNITION - The Company recognizes revenue from product sales
upon shipment to the customer. Revenues from maintenance and extended
warranty agreements are recognized ratably over the term of the
agreements. The Company also enters into license agreements for
certain of its software products. These revenues are recognized in
accordance with the provisions of Statement of Position (SOP) No. 97-2,
"Software Revenue Recognition" as amended by SOP 98-4.
INCOME TAXES are provided on the income earned in the financial
statements. In accordance with SFAS 109, "Accounting for Income
Taxes," the Company applies the liability method of accounting for
income taxes, under which deferred income taxes are provided to reflect
the impact of "temporary differences" between the amounts of assets and
liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. The Angeles Group was treated as
an S-Corporation for Federal Income Tax purposes for all years prior to
2000.
NET INCOME (OR LOSS) PER COMMON SHARE is computed in accordance with
the provisions of SFAS No. 128, "Earnings Per Share." Basic EPS is
computed by dividing reported earnings available to common stockholders
by weighted average shares outstanding. No dilution for common share
equivalents is included. Diluted EPS is computed on a similar basis to
the previously calculated fully diluted EPS. Included in diluted
earnings per share in 1998 and 1999 are 345,963 and 827,479 shares,
respectively, which represents the dilutive effect of stock options and
warrants issued. There is no dilutive effect of stock options and
warrants in 2000 as the effect would be anti-dilutive.
RECLASSIFICATIONS - Certain prior year balances have been reclassified
to conform with current year presentation.
STOCK-BASED COMPENSATION - In October 1995, SFAS No. 123, "Accounting
for Stock-Based Compensation" was issued which sets forth a fair value
method of recognizing stock-based compensation expense. 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," and will disclose the additional
information relative to issued stock options, and pro forma net income
and earnings per share, as if the options granted were expensed at
their estimated fair value at the time of grant.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This standard was
amended by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133," and changed the effective date of SFAS No. 133 to all fiscal
quarters of fiscal years beginning after June 15, 2000. In June 2000,
the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of SFAS No.
133." SFAS requires that all derivative instruments be recorded on the
balance sheet at their respective fair values. Changes in the fair
value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on their designation as a hedge
of a particular exposure. The Company has determined the adoption of
SFAS No. 133 will not have a material impact on the financial
statements.
In December 1999, the Securities and Exchange Commissions ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition
in Financial Statements," which summarizes certain of the SEC's views
in applying generally accepted accounting principles to revenue
recognition in financial statements. The SEC delayed the date by which
registrants must apply the accounting and disclosures described in SAB
No. 101 until the fourth quarter of 2000. The Company's revenue
recognition policies comply with the guidance contained in SAB No. 101
and, therefore, the Company's results of operations were not materially
affected.
2. INVENTORIES
The major classifications of inventories as of December 31, 2000 and 1999
are:
2000 1999
Purchased parts and components $198,995 $423,460
Work in process 65,127 94,991
Finished goods 67,881 38,672
-------- --------
$332,003 $557,123
======== ========
3. PROPERTY AND EQUIPMENT
The major classifications of property and equipment as of December
31, 2000 and 1999 are:
2000 1999
Machinery and equipment $ 802,355 $1,241,036
Computer hardware and software 2,785,033 3,679,595
Furniture and fixtures 1,763,981 1,376,024
Leasehold improvements 1,382,559 1,368,212
---------- ----------
$6,733,928 $7,664,867
========== ==========
Depreciation expense was approximately $886,000, $677,000 and
$366,000 for the years ended December 31, 2000, 1999 and
1998, respectively. The Company recorded a loss of
approximately $19,000, representing the net book value of
assets written-off during 2000.
4. ASSET HELD FOR SALE
During 2000, the Company announced its intention to either
spin-off into a separate Company or sell to a strategic
buyer, Verabill, the billing and customer care product
line. As of December 31, 2000, the unamortized portion of
capitalized software attributable to the Verabill product
was $625,324. The Company continued to sell and support
the Verabill product during the process of negotiation with
interested parties. The Company completed the sale of
this product line on March 26, 2001 (See Note 15 to the
Financial Statements).
5. ENGINEERING AND SOFTWARE DEVELOPMENT EXPENDITURES
Engineering and software development expenditures incurred
during the years ended December 31, 2000, 1999 and 1998
were recorded as follows:
2000 1999 1998
Engineering and software development expense
included in the consolidated statements of
operations $5,145,352 $5,942,262 $3,644,863
Amounts capitalized and included in the
consolidated balance sheets 902,379 393,907 1,269,019
---------- ---------- ----------
Total expenditures for engineering and software
development $6,047,731 $6,336,169 $4,913,882
========== ========== ==========
Additionally, the Company recorded amortization of
capitalized software development costs of
approximately $1,020,000, $1,096,000, and $984,000 for
the years ended December 31, 2000, 1999 and 1998,
respectively. Such amortization is included in cost
of sales in the consolidated statements of operations.
6. BENEFIT PLANS
The Company sponsors an employee incentive savings
plan under section 401(k) for all eligible employees.
The Company's contributions to the plan are
discretionary and totaled $100,000 in 1999 and $50,000
in 1998. There were no contributions in 2000.
The Company also sponsors an unfunded Supplemental
Executive Retirement Program, which is a nonqualified
plan that provides certain key employees defined
pension benefits. Periodic pension expense for the
years ended December 31, 2000, 1999 and 1998 consists
of the following:
2000 1999 1998
Service cost $320,413 $307,637 $279,957
Interest cost 215,210 173,356 120,933
Net amortization and deferral 86,883 86,883 49,444
-------- -------- --------
Pension expense $622,506 $567,876 $450,334
======== ======== ========
A reconciliation of the pension plan's funded
status with amounts recognized in the Company's
balance sheets is as follows:
2000 1999
Actuarial present value of accumulated
benefit obligation $ 3,331,817 $ 3,043,771
============ ============
Actuarial present value of projected
benefit obligation $ 3,331,817 $ 3,043,771
Plan assets - -
------------ ------------
Projected benefit obligation in excess of
plan assets 3,331,817 3,043,771
Prior service cost not yet recognized in
net periodic pension cost (913,655) (1,000,538)
Additional minimum liability 913,655 1,000,538
------------ ------------
Accrued pension obligation $ 3,331,817 $ 3,043,771
============ ============
Included in the pension assets caption in the
consolidated balance sheets as of December
31, 2000 and 1999 is an intangible asset of
$913,655 and $1,000,538, respectively,
related to the minimum liability adjustment
for the unfunded accumulated benefit
obligation.
The discount rate and rate of increase in
future compensation levels used in
determining the actuarial present value of
the projected benefit obligation were 7% and
3% respectively, for all years presented.
The Company maintains life insurance covering
certain key employees under its Supplemental
Executive Retirement Program with the Company
named as beneficiary. The Company intends to
use death benefits as well as loans against
the accumulating cash surrender value of the
policies to fund the pension obligation.
7. STOCKHOLDERS' EQUITY
The Company maintains a private equity line of
credit agreement with a single institutional
investor. Under the equity line, the Company
has the right to sell to the investor shares
of the Company's common stock at a price
equal to 94% of the average bid price of the
stock for the subsequent ten trading days.
During the term of the agreement the Company
may sell up to $6 million of common stock to
the investor with no more than $500,000 in
any single month. During 2000, the Company
sold 8,400 share of common stock to this
investor, realizing net proceeds of $23,688.
There were no shares of common stock sold to
this investor during 1999. During 1998, the
Company sold 24,700 shares of common stock to
this investor realizing net proceeds of
$143,384. This agreement expires August 30,
2001.
The Company has reserved 650,000 shares of
its common stock for issuance under its 1993
Stock Option Plan, the successor plan to the
1983 Stock Option Plan. The Company's Board
of Directors approved a 1998 Stock Option
Plan on December 15, 1997 covering up to
2,500,000 shares of common stock, subject to
shareholder approval, which was obtained in
May, 1998. Both plans provide for options,
which may be issued as nonqualified or
qualified incentive stock options. All
options granted are exercisable in increments
of 20 - 50% per year beginning one year from
the date of grant. All options granted to
employees have a ten year term.
The Company accounts for its stock-based
compensation plans under APB Opinion No. 25.
Accordingly, compensation expense has been
recognized only to the extent the exercise
price was below the fair market value at the
time of the grant. 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
income (loss) per share would have been
adjusted to the pro forma amounts indicated
below:
2000 1999 1998
Net income (loss) As reported $(6,858,645) $2,398,586 $1,989,005
Pro forma $(9,166,081) $1,855,680 $1,359,147
Net income (loss) per common share As reported
Basic $(.85) $.30 $.25
Diluted $(.85) $.27 $.24
Pro forma
Basic $(1.13) $.23 $.17
Diluted $(1.13) $.21 $.16
Compensation expense recognized in the
statement of operations for the years ended
December 31, 2000, 1999 and 1998 was
$448,562, $355,638 and $215,991,
respectively, for options issued at an
exercise price below fair market value at the
time of the grant. The SFAS No. 123 method
of accounting has not been applied to options
granted prior to January 1, 1995, so the
resulting pro forma compensation cost may not
be representative of that to be expected in
future years.
For purposes of the disclosure above, the
fair value of each option grant is estimated
on the date of the grant using the Black-
Scholes option-pricing model with the
following weighted-average assumptions used
for grants in 2000, 1999, and 1998.
2000 1999 1998
Dividend yield - - -
Expected volatility 66.98% 64.47% 59.00%
Risk-free interest rate 6.24% 4.58% 5.61%
Expected life 7 years 7 years 7 years
A summary of stock option and warrant transactions for the years ended
December 31, 2000, 1999 and 1998 is shown below:
2000 1999 1998
OPTIONS WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
PRICE PRICE PRICE
Shares under option,
beginning of year 2,181,520 $4.76 1,715,475 $4.16 655,746 $2.40
Options granted 1,131,550 4.70 536,537 6.55 1,163,720 5.15
Options exercised (20,536) 2.36 (47,517) 3.14 (22,450) 2.31
Options terminated (592,024) 6.44 (22,975) 5.43 (81,541) 4.61
--------- ----- --------- ----- --------- -----
Shares under option,
end of year 2,700,510 $4.38 2,181,520 $4.76 1,715,475 $4.16
========= ===== ========= ===== ========= =====
Shares exercisable 893,371 $4.05 656,556 $4.15 379,146 $4.11
========= ===== ========= ===== ========= =====
Weighted average fair value of
options granted $4.70 $4.35 $3.33
===== ===== =====
WARRANTS
Warrants outstanding,
beginning of year 78,045 $7.68 185,822 $7.20 194,770 $7.12
Warrants granted 50,000 3.12 5,289 6.38 - -
Warrants exercised - - (104,381) 6.92 (3,594) 4.87
Warrants expired (13,301) 5.74 (8,685) 5.76 (5,354) 5.37
--------- ----- --------- ----- --------- -----
Warrants outstanding,
end of year 114,744 $5.92 78,045 $7.68 185,822 $7.20
========= ========= =========
8. SALES INFORMATION
Sales to one customer were approximately
$7,394,000 or 45% of the Company's total
sales in 2000. Sales to this same customer
were approximately $16,287,000 or 55% of the
Company's total sales in 1999 and
approximately $11,763,000 or 53% of the
Company's total sales in 1998.
Export sales to unaffiliated customers,
primarily in Europe and South America, were
approximately $1,990,414, $5,219,000, and
$3,435,000 in 2000, 1999 and 1998,
respectively.
9. INCOME TAXES
The components of the income (loss) before income
taxes for the years ended December 31, 2000,
1999 and 1998 is presented below:
2000 1999 1998
Net (loss) income $(6,858,645) $2,789,452 $1,034,427
The income tax provision (benefit) includes the following:
2000 1999 1998
Current income tax expense:
Federal - $80,908 $12,775
State - 17,299 3,025
---------- ------- -------
$ - $98,207 $15,800
========== ======= =======
Deferred income tax provision
(benefit):
Federal (2,000,921) 510,123 236,281
State (173,993) 48,660 93,738
Increase (decrease) in valuation
allowance 2,174,914 (558,783) (330,019)
---------- -------- --------
- - -
---------- -------- --------
$ - $ 98,207 $ 15,800
========== ======== ========
The income tax (benefit) provision differs from those computed using the
statutory federal tax rate of 34%, due to the following:
2000 1999 1998
Tax at statutory federal rate $(2,331,939) $948,414 $351,705
US Tax effect of foreign losses - (312,024) -
State taxes, net of federal tax benefit (69,425) 4,857 64,136
Merger costs 209,300 - -
Utilization of tax credits - - (31,977)
(Decrease) increase in valuation
allowance 2,174,914 (558,783) (354,118)
Other 17,150 15,743 (13,946)
----------- -------- --------
$ - $ 98,207 $ 15,800
=========== ======== ========
The deferred income tax asset (liability) recorded in the
consolidated balance sheets results from differences between
financial statement and tax reporting of income and
deductions. A summary of the composition of the deferred income
tax asset (liability) follows:
2000 1999
General business credits 1,451,747 $1,055,314
Net operating losses 2,907,598 1,305,396
Deferred compensation 1,203,943 956,317
Alternative minimum tax credits 322,216 329,273
Inventory 104,762 165,173
Accounts receivable 28,060 35,457
Capitalized software (952,400) (1,004,616)
Fixed assets (78,685) (65,687)
Restructuring - 205,314
Other 145,402 46,264
New York State ITC 70,476 -
---------- ----------
5,203,119 3,028,205
Valuation allowance (5,203,119) (3,028,205)
---------- ----------
Deferred asset (liability) $ - $ -
========== ==========
The Company has $7,858,374 of federal net operating loss
carryforwards available as of December 31, 2000. Of that
total, $682,000 is limited to a utilization of approximately
$100,000 annually. The carryforwards expire in varying
amounts in 2011 through 2020.
The Company's tax credit carryforwards as of December
31, 2000 are as follows:
DESCRIPTION AMOUNT EXPIRATION DATES
General business credits $1,451,747 2000 - 2020
New York State investment tax credits $106,778 2001 - 2015
Alternative minimum tax credits $322,216 No expiration date
Cash paid (received) for income taxes during the years ended December
31, 2000, 1999 and 1998 totaled $2,132, $11,705, and $(87,018)
respectively.
10. COMMITMENTS
LEASE OBLIGATIONS - The Company leases current manufacturing and office
facilities and certain equipment under operating leases, which expire at
various dates. The facility leases provide for extension privileges. Rent
expense under all operating leases (exclusive of real estate taxes and
other expenses payable under the leases) was approximately $621,000,
$453,000, and $534,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
Minimum lease payments as of December 31, 2000 under capital and operating
leases are as follows:
YEAR ENDING DECEMBER 31, CAPITAL LEASES OPERATING LEASES TOTAL
2001 $19,370 $ 617,359 $ 636,729
2002 19,370 629,230 648,600
2003 19,370 647,605 666,975
2004 8,069 468,905 476,974
2005 0 433,165 433,165
Thereafter 0 794,136 794,136
------- ---------- ----------
$66,179 $3,590,400 $3,656,579
Less: Amounts representing interest (10,864)
Present value of minimum
capital lease payments 55,315
Less: Current Portion (13,733)
-------
$41,582
=======
Legal Matters - The Company is subject to litigation from time to time
in the ordinary course of business. Although the amount of any
liability with respect to such litigation cannot be determined,
in the opinion of management, such liability will not have a material
adverse effect on the Company's financial condition or results
of operations.
11. OTHER EXPENSES
On January 7, 2000, the Company completed its
merger with TAG, a supplier of telemanagement software
systems for large enterprises. The transaction
was structured as a stock-for-stock merger with
the shareholders of TAG receiving 360,850 shares
of the Company's common stock, which represented
an aggregate value of approximately $4,060,000,
assuming a per share amount of $11.25. In
addition, Veramark assumed and paid debt of TAG
totaling approximately $1.1 million. Transaction
related broker, accounting, and legal fees of
$598,942 are included in the accompanying
consolidated statements of operations.
12. LONG-TERM DEBT
In November, 1998, TAG entered into a note payable in
the amount of $1,100,000. Interest was payable
monthly at the rate of thirteen percent per
annum, through December 1, 2003, at which time
the principal balance was due. The note was
secured by substantially all the assets and
intellectual property of TAG. This note was
repaid in January, 2000.
13. LINES OF CREDIT
The Company maintains a secured line of credit
agreement with a major commercial bank for up to
$3,000,000, all of which is available as of
December 31, 2000.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the
years ended December 31, 2000 and 1999 is as
follows:
Three Months Ended
March 31 June 30 September 30 December 31
2000
Net sales $4,914,417 $3,111,859 $4,889,126 $3,609,955
Gross profit $4,046,277 $2,376,770 $4,068,089 $2,905,345
Net income (loss) $(2,859,965) $(3,292,588) $(222,050) $(484,042)
Net loss per share
- Basic $ (0.36) $ (0.40) $ (0.03) $ (0.06)
- Diluted $ (0.36) $ (0.40) $ (0.03) $ (0.06)
1999
Net sales $6,434,695 $7,309,406 $7,537,346 $8,115,241
Gross profit $5,630,395 $6,270,471 $6,623,659 $7,075,955
Net income (loss) $676,612 $870,318 $805,928 $45,728
Net loss per share
- Basic $ 0.09 $ 0.11 $ 0.10 $ 0.01
- Diluted $ 0.08 $ 0.10 $ 0.09 $ 0.00
15. SUBSEQUENT EVENTS
On December 28, 2000, the Company announced
that it had received a NASDAQ staff determination
indicating that the Company failed to comply
with net tangible assets requirements for
continued listing on the NASDAQ National
Market. After considering an appeal of the
NASDAQ's determination, the Company announced
on January 26, 2001, that it had decided that
it was not in the Company's best interests to
enter into potentially dilutive transactions
in order to meet NASDAQ's net tangible assets
requirement. As a result, effective March
16, 2001, the listing of the Company's
securities was transferred to the NASDAQ
Smallcap Market.
On March 26, 2001, the Company announced the
completion of the sale of Verabill, its
billing and customer care product line, to
MIND CTI Ltd. of Yokneam, Israel. The sale
price paid in cash at closing was $1,000,000.
The Company will recognize a non-recurring
gain on the sale, in the first quarter of
2001, of approximately $300,000.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to directors of the
Company is incorporated herein by reference
to pages 3 - 5 of the Company's Proxy
Statement for the Annual Meeting of
Shareholders to be held May 17, 2001 {see
"Election of Directors" and "Compliance With
Section 16 (a)".}
The following lists the names and ages
of all executive officers of the Company, all
persons chosen to become executive officers,
all positions and offices with the Company
held by such persons, and the business
experience during the past five years of such
persons. All officers were elected or re-
elected to their present positions for terms
ending on May 17, 2001 and until their
respective successors are elected and
qualified.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The Directors and executive officers of
Veramark are as follows:
NAME AGE POSITION
David G. Mazzella 60 Chairman of the Board, President and CEO
William J. Reilly 52 Director
John E. Gould 56 Director
James R. Scielzo 58 Director
Robert Stubbs 66 Director
Paul T. Babarik 59 Vice President - Telemanagement Sales
Robert L. Boxer 47 Vice President, Secretary, General Counsel
James W. Karr 57 Vice President - Sales, Billing And Customer Care
Ronald C. Lundy 49 Treasurer
Douglas F. Smith 57 Vice President - Operations
All Directors hold office until the next
annual meeting of stockholders, and until their
successors are duly elected and qualified.
Officers are elected annually by the Board of
Directors and serve at the discretion of the
Board.
DAVID G. MAZZELLA, JR. was appointed Chief
Executive Officer in June 1997, he previously
served as President and Chief Operating Officer
of the Company from February 1997. He became
Chairman of the Board on December 19, 1998. From
June 1994 to February 1997, he was engaged in
management consulting. From February 1992 to
June 1994, he was the President and CEO of
Scotgroup Enterprises, Inc., which was engaged in
the development and sale of telecommunications
software equipment and the sale of paging and
cellular telephone services. From 1988 - 1991
Mr. Mazzella was Vice President of Glenayre
Electronics, a manufacturer of software based
telecommunications equipment. He was President
and CEO of Multitone Electronics, Inc., a company
engaged in the manufacture, sale and servicing of
telecommunications equipment from 1983 until its
acquisition by Glenayre Electronics in 1988.
WILLIAM J. REILLY has been a Director of
Veramark since June 1997. He is the Executive
Vice President for Checkpoint Systems, Inc., a
manufacturer and distributor of systems for
electronic article surveillance, electronic
access control, closed circuit television and
radio frequency identifications. He has served
in that capacity for more than five years.
JOHN E. GOULD has been a Director of
Veramark since August 1997. For more than five
years Mr. Gould has been a partner in Gould &
Wilkie, a general practice law firm in New York
City. Mr. Gould is also Chairman of the American
Geographical Society.
JAMES R. SCIELZO was appointed to the Board
of Directors of Veramark in March 1998. From
1994, until his retirement in 1999, Mr. Scielzo
held the position of Senior Vice President and
Chief Technology Officer for Young & Rubicam,
Inc., a global corporate communications,
advertising and public relations firm. Prior to
that, he was Senior vice President/Chief
Technology Officer at Wundermann Cajo Johnson,
the direct response advertising subsidiary of
Young & Rubicam, and the Director of systems
Development for Young & Rubicam.
ROBERT W. STUBBS was appointed to the Board
of Directors of Veramark in July 1998. Mr.
Stubbs was President and Chief Executive Officer
of Bell Atlantic Capital Corporation, the
financial services organization of Bell Atlantic
Corporation from 1986 until his retirement in
1993. Prior to that, he was the CEO of
TriContinental Leasing Company which he founded
in 1968 and sold to Bell Atlantic in 1984. Mr.
Stubbs has served on the Board of Directors of
the Equipment Leasing Association, the trade
association of the equipment leasing industry and
was elected its Chairman in 1989. He has been
Director of Corporate Affairs for ELA since 1993.
Presently, Mr. Stubbs is a Director of BMC Credit
Corporation, a Director of Aviation Facilities
Company, Inc., and a Trustee of Manhattan
College.
PAUL T. BABARIK was appointed Vice President
of Sales in April 1996. After joining Veramark
in 1987 as a Regional Sales Manager he held
several sales management positions, the most
recent as Director of AT&T sales from 1989 to
1996. Prior to joining Veramark, Mr. Babarik was
employed by AT&T from 1977 - 1986 in various
sales management positions.
ROBERT L. BOXER became a Vice President of
Veramark in November 1991. Prior to that he had
been Secretary and Corporate Counsel of Veramark
since March 1983. Prior to that he had been
Counsel at Sykes Datatronics, Inc. and an
attorney with the firm of Middleton-Wilson.
JAMES W. KARR has been Vice President -
Sales, Billing and Customer Care since May 1,
1989. After joining Veramark in 1983, he had
held various sales management positions. Prior
to that he held sales management positions with
Sykes Datatronics, Inc., Itel Corporation,
Honeywell Information Systems, and NCR
Corporation.
RONALD C. LUNDY was appointed Treasurer of
Veramark in July 1993. Since joining Veramark in
1984 he has held a variety of financial
management positions, the most recent having been
Corporate Controller since December of 1992.
Prior to that he held various financial positions
with Rochester Instrument Systems from 1974-1983.
DOUGLAS F. SMITH was appointed Vice
President of Operations in December 1998. Mr.
Smith has been an employee of the Company since
1984 as Order Administration Manager and then as
Director of Operations. Prior to joining the
Company, Mr. Smith held various management
positions with Rochester Instruments Systems,
Inc.
ITEM 11 EXECUTIVE COMPENSATION
Information relating to executive
compensation is incorporated by reference on
pages 6 - 8 of the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held May
17, 2001. (See "Executive Compensation" and
"Corporate Governance Information.")
ITEM 12 SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information relating to the security
holdings of more than five percent holders and
directors and officers of the Company is
incorporated herein by reference to pages 3 - 5
of the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held May 17, 2001.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
None.
PART IV
ITEM 14 EXHIBITS, CONSOLIDATED FINANCIAL
STATEMENT SCHEDULE AND REPORTS ON FORM
8-K
(a) REPORTS ON FORM 8-K
1. Registrant filed a Form 8-K with the
Securities and Exchange Commission on January
13, 2000 announcing that the Company on
January 7, 2000 had consummated its
acquisition of The Angeles Group ("TAG"), a
supplier of enterprise software solutions.
TAG has its headquarters located in Westlake
village, California, and will be operated as a
division of Veramark. The transaction was
structured as a stock-for-stock merger with
the shareholders of TAG receiving 360,850
shares of Veramark common stock, which
represents an aggregate value of approximately
$4,059,562, assuming a price per share of
Veramark common stock of $11.25. In addition,
Veramark assumed and paid debt of TAG totaling
approximately $1.1 million and transaction
related broker, accounting, and legal fees of
approximately $600,000 were paid in cash out
of working capital.
TAG was not affiliated with Veramark, any
director or officer of Veramark or any
associate of any such directory or officer
prior to the merger.
2. On March 16, 2000, the Company filed a report
on Form 8-KA providing, on a pro-forma basis,
the consolidated financial statements of
Veramark Technologies, Inc. and The Angeles
Group, Inc. for the years 1997-1999.
3. On April 3, 2000, the Company filed a report
on Form 8-K announcing a change in the
Company's certifying accountants, effective
March 28, 2000. The Company's Board of
Directors approved the engagement of the
accounting firm of PricewaterhouseCoopers LLP
as independent auditors for the Company and
its Divisions and subsidiaries for the year
ending December 31, 2000, subject to approval
of stockholders. The audit relationship
between the Company and its past independent
auditors, Arthur Andersen LLP was continued
through an orderly completion of all matters
related to the year, which ended December 31,
1999. During the two most recent fiscal years
and interim period subsequent to December 31,
1999, there were no disagreements with Arthur
Anderson LLP on any matter of accounting
principles or policies, financial statement
disclosure, or auditing scope or procedure.
(b) Exhibits (numbered in accordance with item
601 of regulation S-K)
(11.1) Page 45 Calculation of earnings per
share
(c) Schedule II Page 43 Valuation and Qualifying
Accounts.
All other schedules are omitted because they
are not applicable or the required information
is shown in the financial statements or notes
thereto.
VERAMARK TECHNOLOGIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ALLOWANCE FOR Balance at Charged to Accounts Balance at
Doubtful Beginning of Year Costs and Written Off End of
Accounts Expenses (Recovered) Year
2000 $260,000 $4,000 $63,000 $201,000
1999 $110,000 $107,000 $(43,000) $260,000
1998 $75,000 $68,973 $33,973 $110,000
SIGNATURES
Pursuant to the requirements of Section 13
or 15 (d) 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.
VERAMARK TECHNOLOGIES, INC.
_________________________________________
David G. Mazzella, President and CEO
Dated: ______________
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has
been signed below by the following persons on
behalf of the registrant and in the capacities
and on the dates indicated.
SIGNATURE CAPACITY DATE
Chairman of the Board, Director March 27, 2001
David G. Mazzella
Director March 27, 2001
John E. Gould
Director March 27, 2001
William J. Reilly
Director March 27, 2001
Robert Stubbs
Director March 27, 2001
James R. Scielzo
Treasurer March 27, 2001
Ronald C. Lundy
Exhibit 11.1
VERAMARK TECHNOLOGIES, INC.
CALCULATION OF EARNINGS PER SHARE
Year Ended December 31,
2000 1999 1998
BASIC
Net Earnings (Loss) $(6,858,645) $2,398,586 $1,989,005
=========== ========== ==========
Weighted average common shares outstanding 8,079,281 7,973,183 7,926,646
=========== ========== ==========
Earnings (Loss) per common & common equivalent
share $(0.85) $0.30 $0.25
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DILUTED
Net Earnings (Loss) $6,858,645 $2,398,586 $1,989,005
========== ========== ==========
Weighted average common shares outstanding 8,079,281 7,973,183 7,926,646
Additional dilutive effect of stock options &
warrants after application of treasury stock
method - 827,479 345,963
---------- ---------- ----------
Weighted average dilutive shares outstanding 8,079,281 8,800,662 8,272,609
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Earnings (Loss) per common share assuming full
dilution $(0.85) $0.27 $0.24
========== ========== ==========