Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30,1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______ to ________
Commission File Number 0-26924
PANJA INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1815822
(State of Incorporation) (I.R.S. Employer Identification No.)
11995 FORESTGATE DRIVE
DALLAS, TEXAS 75243
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 644-3048
AMX CORPORATION
(former name of registrant)
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 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 [ ]
COMMON STOCK, $0.01 PAR VALUE 8,561,612
(Title of Each Class) (Number of Shares Outstanding at October 31, 1999)
1
PANJA INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at September 30, 1999 and March 31, 1999 3
Consolidated Statements of Operations for the Three and Six Months 5
Ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows for the Six Months ended 6
September 30, 1999 and 1998
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results 9
of Operations
Item 3. Quantitative and Qualitative Disclosure about Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 18
2
PANJA INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, MARCH 31,
1999 1999
------------ -----------
Current assets:
Cash and cash equivalents .......................................... $ 1,060,294 $ 1,801,756
Receivables - trade and other, less allowance for doubtful accounts
of $384,000 for September 30, 1999 and $420,000 for March 31, 1999 11,598,197 9,796,261
Inventories ........................................................ 12,340,543 10,990,262
Prepaid expenses ................................................... 2,397,068 1,028,767
Deferred income tax ................................................ 708,805 708,805
----------- -----------
Total current assets .................................................. 28,104,907 24,325,851
Property and equipment, at cost, net .................................. 6,554,823 5,693,836
Capitalized software .................................................. 818,092 --
Deposits and other .................................................... 303,071 732,826
Goodwill, less accumulated amortization of $494,000 for September 30,
1999 and $370,000 for March 31, 1999............................ 632,449 756,316
----------- -----------
Total assets .......................................................... $36,413,342 $31,508,829
=========== ===========
3
PANJA INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
SEPTEMBER 30, MARCH 31,
1999 1999
------------ ------------
Current liabilities:
Accounts payable ................................................. $ 4,763,887 $ 4,076,799
Line of credit and notes payable ................................. 3,700,000 --
Current portion of long-term debt ................................ 1,585,158 1,684,000
Accrued compensation ............................................. 1,097,761 1,504,118
Accrued sales commissions ........................................ 875,143 667,051
Accrued dealer incentives ........................................ 368,000 442,561
Other accrued expenses ........................................... 395,428 212,354
Income taxes payable ............................................. 251,549 386,634
------------ ------------
Total current liabilities ........................................... 13,036,926 8,973,517
Deferred income taxes ............................................... 90,963 90,963
Long-term debt ...................................................... 3,258,124 3,909,284
Commitments and contingencies
Shareholders' equity :
Preferred stock, $0.01 par value
Authorized shares - 10,000,000
Issued shares - none ............................................. -- --
Common stock, $0.01 par value:
Authorized shares-- 40,000,000
Issued shares-- 9,056,168 for September 30, 1999 and
8,961,974 for March 31, 1999 ................................. 90,562 89,620
Additional paid-in capital ....................................... 10,208,984 9,419,066
Retained earnings ................................................ 14,195,933 13,517,996
Less treasury stock (496,476 shares) ............................. (4,468,284) (4,468,284)
Accumulated other comprehensive income (loss) .................... 134 (23,333)
------------ ------------
Total shareholders' equity .......................................... 20,027,329 18,535,065
------------ ------------
Total liabilities and shareholders' equity .......................... $ 36,413,342 $ 31,508,829
============ ============
See accompanying notes.
4
PANJA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Enterprise system sales ............................ $16,044,262 $15,454,340 $29,559,997 $27,671,363
Residential system sales ........................... 5,152,693 3,414,480 9,668,483 6,474,858
----------- ----------- ----------- -----------
Net sales ....................................... 21,196,955 18,868,820 39,228,480 34,146,221
Cost of sales ...................................... 9,515,581 8,816,743 17,499,631 15,655,031
----------- ----------- ----------- -----------
Gross profit .................................... 11,681,374 10,052,077 21,728,849 18,491,190
Selling and marketing expenses ..................... 7,687,664 5,780,481 14,307,760 11,343,910
Research and development expenses .................. 1,620,383 1,037,785 2,869,171 1,903,136
General and administrative expenses ................ 1,809,800 1,426,734 3,325,239 2,629,405
----------- ----------- ----------- -----------
Operating income ................................ 563,527 1,807,077 1,226,679 2,614,739
Interest expense ................................... 173,340 116,605 285,321 195,493
Other income, net .................................. 20,359 -- 48,068 30,344
----------- ----------- ----------- -----------
Income before income taxes ........................ 410,546 1,690,472 989,426 2,449,590
Income tax provision ............................... 123,163 524,607 311,488 772,536
----------- ----------- ----------- -----------
Net income ......................................... $ 287,383 $ 1,165,865 $ 677,938 $ 1,677,054
=========== =========== =========== ===========
Basic earnings per share .......................... $ 0.03 $ 0.14 $ 0.08 $ 0.20
=========== =========== =========== ===========
Diluted earnings per share ........................ $ 0.03 $.0.13 $ 0.07 $ 0.19
=========== =========== =========== ===========
See accompanying notes
5
PANJA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30,
1999 1998
------------ ------------
OPERATING ACTIVITIES
Net income .......................................................... $ 677,938 $ 1,677,054
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .................................... 1,538,535 1,066,280
Provision for losses on receivables .............................. (36,000) 168,213
Provision for inventory obsolescence ............................. (392,342) 30,000
Changes in operating assets and liabilities:
Receivables .................................................. (1,765,936) (1,772,001)
Inventories .................................................. (957,939) (1,516,524)
Prepaid expenses ............................................. (1,368,301) (658,232)
Accounts payable ............................................. 687,088 1,793,040
Accrued expenses ............................................. (89,752) 263,168
Income taxes payable ......................................... (135,085) 257,657
----------- -----------
Net cash provided by (used in) operating activities ................. (1,841,794) 1,308,655
INVESTING ACTIVITIES
Purchase of property and equipment .................................. (2,275,655) (1,228,734)
Investment in capitalized software .................................. (818,092) --
Decrease in other assets ............................................ 429,755 108,233
Minority interest in PHAST .......................................... -- (1,652,000)
----------- -----------
Net cash used in investing activities ............................... (2,663,992) (2,772,501)
FINANCING ACTIVITIES
Sale of common stock, net of expenses and exercise of stock options 790,859 127,392
Net increase in line of credit ...................................... 3,700,000 419,947
Proceeds from long-term debt ........................................ -- 1,500,000
Repayments of long-term debt ........................................ (750,002) (121,908)
----------- -----------
Net cash provided by financing activities ........................... 3,740,857 1,925,431
Effect of exchange rate changes on cash ............................. .23,467 (12,283)
----------- -----------
Net increase (decrease) in cash and cash equivalents ................ (741,462) 449,302
Cash and cash equivalents at beginning of period .................... 1,801,756 178,942
----------- -----------
Cash and cash equivalents at end of period .......................... $ 1,060,294 $ 628,244
=========== ===========
See accompanying notes
6
PANJA INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying condensed consolidated financial statements, which should be
read in conjunction with the consolidated financial statements and footnotes
included in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999, are unaudited (except for the March 31, 1999
consolidated balance sheet, which was derived from the Company's audited
financial statements), but have been prepared in accordance with generally
accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation
have been included.
Operating results for the three and six months ended September 30, 1999 are
not necessarily indicative of the results that may be expected for the entire
year ending March 31, 2000.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
Numerator:
Net income $ 287,383 $ 1,165,865 $ 677,938 $ 1,677,054
========= =========== ========= ===========
Denominator:
Denominator for basic earnings per share -
Weighted-average shares outstanding ........ 8,530,104 8,281,677 8,501,833 8,270,862
Effect of dilutive securities:
Employee stock options ........................ 1,427,271 409,946 1,100,917 512,330
--------- ----------- --------- -----------
Denominator for diluted earnings per share..... 9,957,375 8,691,623 9,602,750 8,783,192
========= =========== ========= ===========
Basic earnings per share ..................... $ 0.03 $ 0.14 $ 0.08 $ 0.20
========= =========== ========= ===========
Diluted earnings per share ................... $ 0.03 $ 0.13 $ 0.07 $ 0.19
========= =========== ========= ===========
7
3. Inventories
The components of inventories are as follows:
September 30,1999 March 31, 1999
----------------- --------------
Raw materials $ 5,713,727 $ 5,557,286
Work in progress 1,641,307 788,733
Finished goods 5,307,575 5,358,651
Less reserve for obsolescence (322,066) (714,408)
------------ ------------
Total $ 12,340,543 $ 10,990,262
============= ============
4. Comprehensive Income
The components of comprehensive income, net of related tax, for the six-month
period ended September 30, 1999, and 1998 are as follows:
1999 1998
----------- ------------
Net income $ 677,938 $ 1,677,054
Foreign currency translation adjustments 23,467 (12,290)
----------- ------------
Comprehensive income $ 701,405 $ 1,664,764
----------- ------------
----------- ------------
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included in the
1999 Annual Report on Form 10-K of Panja Inc. (the "Company" or "Panja"). The
Company believes that all necessary adjustments (consisting only of normal
recurring adjustments) have been included in the amounts stated below to
present fairly the following quarterly information. Quarterly operating
results have varied significantly in the past and can be expected to vary in
the future. Results of operations for any particular quarter are not
necessarily indicative of results of operations for a full year.
FORWARD LOOKING INFORMATION
Certain information contained herein contains forward-looking statements
(as defined in the Private Securities Litigation Reform Act of 1995)
regarding future events or the future financial performance of the Company,
and are subject to a number of risks and other factors which could cause the
actual results of the Company to differ materially from those contained in
and anticipated by the forward-looking statements. Among such factors are:
industry concentration and the Company's dependence on major customers,
competition, risks associated with international operations and entry in to
new markets, government regulation, variability in operating results, general
business and economic conditions, customer acceptance of and demand for the
Company's new products, the Company's overall ability to design, test, and
introduce new products on a timely basis, reliance on third parties, the
Company's ability to manage change, dependence on key personnel, dependence
on information systems and changes in technology. The forward-looking
statements contained herein are necessarily dependent upon assumptions,
estimates and data that may be incorrect or imprecise. Accordingly, any
forward-looking statements included herein do not purport to be predictions
of future events or circumstances and may not be realized. Forward-looking
statements contained herein include, but are not limited to, forecasts,
projections and statements relating to inflation, future acquisitions and
anticipated capital expenditures. All forecasts and projections in the report
are based management's current expectations of the Company's near term
results, based on current information available pertaining to the Company,
including the aforementioned risk factors. Actual results could differ
materially.
OVERVIEW
Panja designs, develops, manufactures and markets sophisticated
electronic equipment that distributes Internet information and entertainment
content to non-PC devices. This utilization enables end-users to retrieve,
store, and narrowcast Internet information (or information residing in
corporate databases) to non-PC devices. The principal configuration of the
Company's equipment is a control system, which is comprised of a
microprocessor-based central controller, a user-interface device, and a
control card or cards. The control cards allow the system to communicate with
a variety of devices linked to the system. Principally, a system allows the
end user to operate in a single environment a broad range of electronic and
programmable devices. These numerous devices consist of video equipment,
audio equipment, lighting equipment, heating and air-conditioning equipment,
camera equipment, and security systems. The configuration of a system is
scalable from control of a single room, to control of a whole-home, to
control of multiple systems at multiple locations. The Company's WebLinx
software provides the flexibility of allowing the end user to control a
system via the internet from a remote location using any internet browser.
The Company's control systems have applications in both residential
and enterprise settings. The residential applications are currently primarily
comprised of whole-home automation systems, usually installed in upscale
residences. The enterprise applications are broad in focus, primarily used in
board rooms, training rooms, and auditoriums. However, because of the
flexibility in design and ease of use, these systems are also installed in a
number of sport facilities, theme parks, museums, and other settings which
require the control of a wide variety of electronic equipment. Both the
residential and enterprise systems are sold through the Company's network of
1,600 domestic and 100 international audio/video installers, integrators, and
international distributors.
9
The Company has recently introduced several new products that
utilize the same system approach, but are limited to single room automation,
which focus on an entertainment venue. These systems will allow the data,
video and audio content provided by the broadband services to be distributed
to the entertainment devices contained within the home, or to the Company's
user interface device. This distribution of information will include news,
sports, weather, e-mail, MP3 files and other similar data. This distribution
will be available through the Company's BroadBand Blast monthly subscription
service. These consumer-focused systems can currently be ordered through the
Company's e-commerce site, www.buyapanja.com. Initial shipments are expected
to commence in these products by the end of 1999. The Company has begun its
efforts to find additional distribution channels for these consumer products.
These efforts are currently focused on securing agreements with the telephone
companies and cable companies that are providing the broadband access to the
consumer.
The Company's quarterly operating results have varied significantly
in the past, and can be expected to vary in the future. These quarterly
fluctuations have been the result of a number of factors and will continue to
change as the Company pursues its consumer opportunities. These factors
include seasonal purchasing of the Company's dealers and distributors,
particularly from international distributors, OEMs, and other large
customers; sales and marketing expenses related to entering new markets; the
timing of new product introductions by the Company and its competitors;
fluctuations in commercial and residential construction and remodeling
activity; and changes in product or distribution channel mix. In addition,
the Company has experiences higher selling and marketing expenses while
introducing its new consumer strategy.
The Company's current products are sold to dealers (typically
audio/visual installer and integrators) or to distributors in the
international market. The Company principally relies on these 1,600 dealers
of electronic and audiovisual equipment to sell, install, support and service
its products in the United States. Internationally, the Company relies on a
network of exclusive distributors dealers to distribute its products. Because
of the increase in broadband access to the home, the Company has recognized
the potential of the increase in the consumer market for its products.
Accordingly, the Company will focus on adding a new distribution channel
which will provide its equipment in an easy to install configuration that
will parallel the increase of the distribution of information to the home via
broadband access. Also, in conjunction with the Company's focus on its
Internet applications and service, the Company put before the shareholders
for vote to change the Company name to Panja Incorporated. This vote took
place at the annual shareholders' meeting on September 3, 1999, and was
approved at that time.
The Company's U. S. dealers pursue a wide variety of projects that
can range from small conference rooms/boardrooms to very large projects in a
university, government facility, amusement park, or corporate training
facility. The Company's international distributors tend to order in large
quantities to take advantage of volume discounts the Company offers and to
economize on shipping costs. These international orders are not received at
the same time each year. Notwithstanding the difficulty in forecasting future
sales and the relatively small level of backlog at any given time, the
Company generally must plan production, order components, and undertake its
development, selling and marketing activities, and other commitments months
in advance. Accordingly, any shortfall in revenues in a given quarter may
impact the Company's results of operations .
The Company purchases components that comprise approximately 28% to
32% of its cost of sales from foreign vendors. The primary components
purchased are standard power supplies and displays for touch panels.
Historically, the Company has not had any significant cost issues related to
price changes due to purchasing from foreign vendors. However, there can be
no assurance that this will be the case in the future. The Company has
experienced delays of up to three weeks in receiving materials from foreign
vendors. However, the Company takes this issue into consideration when orders
are placed and, therefore, this concern has not, in the past, significantly
impacted the Company's ability to meet production and customer delivery
deadlines. However, a significant shortage of or interruption in the supply
of foreign components could have a material adverse affect on the Company's
results of operations.
10
The Company's selling and marketing expenses category also includes
customer service and support and engineering. The engineering department of
the Company is involved in research and development as well as customer
support and service. Additionally, the Company has created sales support
teams, which are focused on specific geographic regions or customer
categories. These teams include sales personnel, system designers, and
technical support personnel, all of whom indirectly participate in research
and development activities by establishing close relationships with the
Company's customers and by individually responding to customer-expressed
needs.
RESULTS OF OPERATIONS
The following table contains certain amounts, expressed as a percentage of
net sales, reflected in the Company's consolidated statements of income for
the three month and six month periods ended September 30, 1999 and 1998:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------------- ----------- ------------- -------------
Enterprise system sales 75.7% 81.9% 75.4% 81.0%
Residential system sales 24.3 18.1 24.6 19.0
-------------- ----------- ------------- -------------
Net sales 100.0 100.0 100.0 100.0
Cost of sales 44.9 46.7 44.6 45.8
-------------- ----------- ------------- -------------
Gross profit 55.1 53.3 55.4 54.2
Selling and marketing expenses 36.3 30.6 36.5 33.2
Research and development expenses 7.6 5.5 7.3 5.6
General and administrative expenses 8.5 7.6 8.5 7.7
--------------- ------------ ------------- -------------
Operating income 2.7 9.6 3.1 7.7
Interest expense 0.8 0.6 0.7 0.6
Other income 0.1 -- 0.1 0.1
--------------- ------------ ------------- -------------
Income before income taxes 2.0 9.0 2.5 7.2
Income taxes 0.6 2.8 0.8 2.3
-------------- ----------- ------------- -------------
Net income 1.4 6.2 1.7 4.9
============== =========== ============= =============
THREE MONTHS ENDED SEPTEMBER 30, 1999 RESULTS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998 (ALL REFERENCES ARE TO FISCAL YEARS)
The Company's revenues continued to increase, growing 12% compared
to the same quarter last year. The Company currently recognizes its revenues
in two categories, enterprise and residential. Both categories of revenue are
sold through the Company's integrator channel. The enterprise category
includes the Company's OEM sales, and the sales of its Synergy product. The
residential category includes systems sales into the residential market place
from both PANJA, the parent company, and PHAST Corporation. Sales into the
International market from PANJA are all considered enterprise sales, while
all sales from PHAST are considered to be residential sales.
While Enterprise sales grew 4% during fiscal year 2000, the growth
of the markets comprising this category was drastically different. OEM sales
increased 12% over last year, Commercial sales grew 4%, and International
sales increased 6% from last year. Synergy sales decreased 14% from last
year. OEM sales growth continued, as they were in the first quarter, to be
aided by large orders from a new customer. Commercial sales were adversely
affected by the inability to ship $600,000 of orders because of
11
delivery issues from the Company's overlay supplier. These overlays provide
the touch screen capabilities to the Company's user-interface devices.
International sales rebounded after a decline in the first quarter, with
increases in all international regions. Synergy sales were adversely affected
by competitive factors. Residential system sales grew 51% during fiscal year
2000. This growth occurred evenly at both Panja and at PHAST. Residential
sales continue to benefit from the expansion of the market for home
automation.
The Company's future revenue growth faces a challenge due to the
Company's continued introduction of lower-priced user-interface devices and
lower-priced system designs. The Company introduced the Viewpoint Touch Panel
last year, which provides greater functionality to the user in a hand-held,
wireless device. Although the screen on this device is approximately half the
size of most of the Company's touch screen devices, the lower price point has
gained greater acceptance in the market place. Likewise, the Company has
introduced lower-priced system designs at PHAST, which provide control for
in-room device control, rather than the whole-home, multi-system control
provided by its Landmark system. As evidence of this, PHAST has increased its
sale of total systems 110% over last year, while total revenue has grown 52%.
Gross margins continued to improve from the previous year. This
improvement was significant at PHAST, where margins improved as a percent of
revenue by 26% from the previous year. This increase is due to increased
production efficiencies, elimination of the Audio Ease product line, and a
reduction of costs due to consolidation of purchasing with Panja. Gross
margins at the parent company have decreased from last year as a result of
the increased sales of the Viewpoint product previously mentioned. Not only
does this product have a lower selling price, but it also has a lower gross
margin percentage than the Company's traditional products.
Operating expenses were 8.8% more of sales this year than the
previous year. Of this increase, 5.7% was attributable to the Company's
increase in its spending for sales and marketing expenses. During the second
quarter the Company spent approximately $1 million, or 5% of revenue, on
efforts to communicate the nature of its new focus on consumer products, as
well as trade shows to exhibit its new products. Additionally, research and
development expenses increased 2.2% of revenue. Again, this increase was due
to the Company's increased efforts in developing its new internet related
software and products. In addition to the increase in research and
development expenditures, the Company also incurred an additional $350,000 in
costs for the development of the software related to the internet products,
all of which was capitalized. General and administrative expenses, as a
percentage of sales, grew slightly compared to last year as the Company began
classifying expenses from its international subsidiaries' as general and
administrative. Previously, the nominal amount of these expenses were all
classified as selling expenses.
The Company's effective tax rate remained at approximately 30%,
comparable to last year.
SIX MONTHS ENDED SEPTEMBER 30, 1999 RESULTS COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1998 (ALL REFERENCES ARE TO FISCAL YEARS)
The Company's revenues increased 15% compared to the same period
last year. While Enterprise sales grew 7% during 1999, once again the growth
of the markets comprising this category were drastically different. OEM sales
increased 62% over last year and Commercial sales grew 15% over last year.
International sales decreased 7% from last year and Synergy sales decreased
8% from last year. OEM sales growth was the result of large orders from a new
customer. Commercial sales benefited from strong growth in the first quarter.
International sales were less than the previous year in the first quarter,
primarily as a result of very strong shipments in the fourth quarter of the
previous fiscal year. Synergy sales have been adversely affected by
competitive factors. Residential system sales have grown 49% during fiscal
year 2000. This growth has occurred evenly at both Panja and at PHAST. These
sales continue to benefit from the expansion of the market for home
automation.
Gross margins have improved from the previous year. This improvement
was significant at PHAST, where margins improved as a percent of revenue by
21% from the previous year. As discussed
12
above, this increase is due to increased production efficiencies, elimination
of the AudioEase product line, and a reduction of costs due to consolidation
of purchasing with Panja. Gross margins at the parent company have decreased
from last year as a result of the increased sales of the Viewpoint product
discussed above. Not only does this product have a lower selling price, but
it also has a lower gross margin percentage than the Company's traditional
products.
Operating expenses were 5.8% more of sales this year than the
previous year. Of this increase, 3.3% was attributable to the Company's
increase in its spending for sales and marketing expenses. During the second
quarter the Company spent approximately $1 million, or 5% of revenue, on
efforts to communicate the nature of its new focus on consumer products, as
well as trade shows to exhibit its new products. Additionally, research and
development expenses increased 1.7% of revenue. Again, this increase was due
to the Company's increased efforts in developing its new internet related
software and products. In addition to the increase in research and
development expenditures, the Company also incurred an additional $818,000 in
costs for the development of the software related to the internet products,
all of which was capitalized. General and administrative expenses, as a
percentage of sales, grew slightly compared to last year as the Company began
classifying expenses from its international subsidiaries' as general and
administrative. Previously, the nominal amount of these expenses were all
classified as selling expenses.
The Company's effective tax rate remained at approximately 32%,
comparable to last year.
LIQUIDITY AND CAPITAL RESOURCES
For the past three years, the Company has satisfied its operating
cash requirements principally through cash flow from operations and
borrowings from the line of credit. In the six months ended September 30,
1999, the Company used $1.8 million of cash in operations. The Company spent
$2.3 million for equipment, including the purchase of computers and furniture
for new offices and training facilities at PHAST. Additionally, the Company
has capitalized $818,000 in costs associated with the development of its
WebLinx software.
The Company has a $7.5 million revolving line of credit agreement
that expires on September 30, 2000. It is expected that this line of credit
will be renewed at that time. The line of credit provides for interest at the
bank's contract rate, which is expected to approximate prime. At September
30, 1999, $3.7 million was outstanding under the revolving loan agreement.
The Company expects to spend approximately $3.3 million for capital
expenditures in fiscal 2000.
The Company believes that cash flow from operations, the Company's
existing cash resources and funds available under its revolving loan facility
will be adequate to fund its working capital and capital expenditure
requirements for at least the next 12 months. An important element of the
Company's business strategy has been, and continues to be, the acquisition of
similar businesses and complementary products and technology and the
integration of such businesses and products and technology into the Company's
existing operations. Such future acquisitions, if they occur, may require
that the Company seek additional funds.
CONTINGENCIES
The Company is party to ordinary litigation incidental to its
business, none of which is expected to have a material adverse effect on the
results of operations, financial position or liquidity of the Company.
YEAR 2000
Some computers and other equipment are operated and controlled by
software code in which calendar year data is abbreviated to only two digits.
As a result of this design flaw, some of these systems could fail to produce
correct results beginning on January 1, 2000, if the year indicator "00" is
interpreted to designate the
13
year 1900 rather than the year 2000. This problem with software design as
well as embedded technology such as microcontrollers is commonly referred to
as the "Year 2000" issue. The Company uses a variety of software products to
operate its business, and the Company's products contain software and
embedded technology that are used in the operation of the products, all of
which could be affected by the Year 2000 issue.
STATE OF READINESS
The Company has completed almost all of its plan to address the problems
involved with the Year 2000 issues. The plan is focused on four areas: the
Company's internal software and hardware, the Company's products, the
Company's suppliers, and the equipment that supports the Company's
infrastructure.
In order to assess its issues with internal software, the Company made a
complete inventory of all software located on its computer network and desktop
support systems. The manufacturers of these software programs were contacted in
order to ascertain whether these software programs are year 2000 compliant. The
Company has had an independent review of its information systems department
conducted to confirm its handling of the Year 2000 issues. Additionally, the
Company arranged to have all of its major software programs tested in a lab, at
which time all date indicators were moved forward to the year 2000. As a result
of these efforts, it is the Company's belief that its internal software systems
will be able to support dates on or after January 1, 2000.
The Company has addressed Year 2000 issues in the engineering of its
products. The Company believes that there will be minimal product failures by
the Company's products as a result of the Year 2000 issues and such failures
are not expected to have a material adverse effect on the Company's business,
financial condition, or results of operations. However, many of the Company's
products interface with systems and products of other manufacturers, and, as
a result, a system of which the Company's products comprise a portion may
fail through no fault of the Company's. The Company may be requested to
remedy the issue because of the integration of its equipment in these systems.
The Company relies on over 300 manufacturers and suppliers to provide
parts and equipment that are integrated during the manufacturing of the
Company's products. Because of the reliance on obtaining these products in
order to manufacture the Company's products, it is important for the Company
to ascertain these suppliers' ability to operate their businesses on and
after January 1, 2000. As of September 30, 1999, all of these manufacturers
and suppliers have been contacted by the Company and asked to respond to a
questionnaire that will indicate their readiness to the Year 2000 issues. The
majority of these suppliers have responded and provided assurances that their
systems are compliant with the Year 2000. Based on the relative size and
sophistication of the supplier, and the critical nature of the part to the
Company's products, several on-site visits have been made to certain
suppliers to provide greater assurances of their readiness.
Finally, the Company has inspected the many systems that provide support
to the infrastructure of its operations. These systems include phone systems,
security systems, air conditioning equipment, machinery and other related
equipment that are used in the Company's physical operations, and outside
service contractors that provide payroll processing, claims processing, and
banking services to the Company. Responses and warranties have been received
by the manufacturers of the equipment and by the service providers. Based on
these responses, it is the Company's belief that there will be no material
operational issues with its infrastructure systems.
COSTS
Based on the analysis and efforts completed so far, the Company believes
that the costs it will incur to address Year 2000 issues will not exceed
$50,000. To date, the Company has spent approximately $40,000 on these
efforts and the remaining costs are covered in the normal operating plan of
the Company for the fiscal year 2000. Personnel costs associated with the
implementation and completion of the plan are also covered in the normal
operations of the Company.
RISK OF YEAR 2000 ISSUES AND CONTINGENCY PLANS
The Company believes its products will suffer minimal impact from the Year
2000 issue, and that the Company's software that comprises a portion of the
Company's products is more likely than not free from any Year 2000 issues. It is
the Company's belief that the most reasonably likely worst case scenario is that
14
the Company's critical suppliers will not have adequately addressed Year 2000
issues. The Company's contingency plan for this is to seek new suppliers.
Because of the bidding process the Company currently uses in purchasing its
materials, the Company believes that it will not be difficult to find
additional sources of its raw materials. However, because of the inherent
complexities involved in Year 2000 issues, the Company may find that its
costs of these materials exceeds its current costs, and as a result its
results of operations may be adversely affected by this course of events.
However, it is the Company's belief at this time that any effect on the
Company's costs of doing business and results of operations will not be
material. This belief may change as the Company's analysis continues.
FORWARD-LOOKING STATEMENTS RELATING TO YEAR 2000 ISSUES
The discussion of the Company's efforts and expectations relating to the
Year 2000 issue contain forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the costs associated with such compliance
are based upon management's best estimates, which were derived using numerous
assumptions. These assumptions involve a number of future events, including
the continued availability of certain resources, cooperation by vendors and
customers, and other factors. There can be no assurance that these estimates
will prove to be accurate, and actual results could differ materially from
those currently anticipated. Specific factors that could cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in Year 2000 issues, variability of definitions of
"compliance with Year 2000" and the myriad of different products and
services, and combinations thereof, sold by the Company. No assurance can be
given that the aggregate cost of defending and resolving such claims, if any,
will not materially adversely affect the Company's results of operations.
ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK.
From March 31, 1999, until September 30, 1999 there were no material
changes from the information concerning market risk contained in the
Company's Annual Report on Form 10-K for the year ended March 31, 1999, as
filed with the Securities and Exchange Commision on June 29, 1999 (file no.
0-26924).
15
PANJA INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information pertaining to this item is incorporated herein from Part I.
Financial Information (Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations - Contingencies).
Item 4. Submission of Matters to a Vote of Security Holders
The 1999 Annual Meeting of Shareholders of Panja Inc. was held on September
3, 1999, to consider three matters of business. The matters brought before
the shareholders and the voting results are as follows:
1. Election of Directors:
SHARES
WITHHELD
FROM VOTING
FOR FOR BROKER
NON-VOTES*
John F. McHale 6,484,790 10,057 --
Scott D. Miller 6,485,959 8,888 --
Joe Hardt 6,488,739 6,108 --
Peter York 6,485,959 8,888 --
Harvey B. Cash 6,486,184 8,663 --
J. Otis Winters 6,486,184 8,663 --
Approval of the Company's name change to Panja Inc. from AMX Corporation:
BROKER
FOR AGAINST ABSTAIN NON-VOTES*
6,457,428 14,474 22,995 --
3. Ratification of Ernst & Young LLP as auditors:
BROKER
FOR AGAINST ABSTAIN NON-VOTES*
6,464,562 17,940 12,345 --
* Broker non-votes occur where a broker holding stock in street name does not
vote those shares.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Amended and Restated Articles of Incorporation the Company.
(Incorporated by reference from Exhibit 4.1 to the Company's
Form S-8 filed March 11, 1996, File No. 333-2202).
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3.2 Amended and Restated Bylaws of the Company, as amended.
(Incorporated by reference from Exhibit 3.4 to the Company's
Registration Statement on Form S-1 filed September 13, 1995,
as amended, File No. 33-96886).
3.3 Amendment to Amended and Restated Bylaws of the Company.
(Incorporated by reference from Exhibit 3.5 to the Company's
Registration Statement on Form S-1 filed September 13, 1995,
as amended, File No. 33-96886).
4.1 Specimen certificate for the Common Stock of the Company
(Incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-1 filed September 13, 1995,
as amended, File No. 33-96886).
+27.1 Financial Data Schedule.
b. Reports on Form 8-K
Current Report on Form 8-K dated September 3, 1999, and filed September
10, 1999, regarding the change of the Company's name to Panja Inc. from
AMX Corporation (Item 5).
17
- -------------------
+ Filed herewith.
PANJA INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Panja Inc.
Date: November 15, 1999 By: /s/ David E. Chisum
------------------------------------
David E. Chisum
Chief Financial Officer (Duly Authorized
Officer and Principal Financial Officer)
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