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, 2000
or
[ ] 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.)
3000 Research Drive
Richardson, Texas 75082
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (469) 624-8000
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 9,420,002
(Title of Each Class) (Number of Shares Outstanding at
October 31, 2000)
1
PANJA INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
INDEX
Page Number
Part I. Financial Information (Unaudited)
Item 1. Consolidated Balance Sheets at September 30, 2000 and March
31, 2000 3
Consolidated Statements of Operations for the Three and Six
Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows for the Six Months
Ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures 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 17
2
PANJA INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, March 31,
2000 2000
----------- -----------
Current assets:
Cash and cash equivalents....................................... $ 1,280,079 $ 986,648
Receivables - trade and other, less allowance for doubtful
accounts of $892,000 for September 30, 2000 and $382,000 for
March 31, 2000................................................. 13,540,813 9,555,649
Inventories..................................................... 17,066,074 11,927,737
Prepaid expenses................................................ 1,655,613 1,577,535
Income tax receivable........................................... 1,218,344 948,548
Deferred income tax............................................. 1,107,484 1,107,484
----------- -----------
Total current assets............................................... 35,868,407 26,103,601
Property and equipment, at cost, net............................... 8,548,077 6,239,467
Capitalized software............................................... 574,689 779,212
Deferred income tax................................................ 2,503,719 2,265,019
Deposits and other................................................. 953,163 1,230,244
Goodwill, less accumulated amortization of $743,000 for September
30, 2000 and $618,000 for March 31, 2000.......................... 384,725 508,589
----------- -----------
Total assets....................................................... $48,832,780 $37,126,132
=========== ===========
3
PANJA INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, March 31,
2000 2000
------------- -------------
Current liabilities:
Accounts payable............................................. $ 9,819,171 $ 4,792,793
Current portion of long-term debt............................ 972,456 948,050
Revolving bank debt.......................................... 7,650,000 --
Accrued compensation......................................... 1,546,249 2,009,219
Accrued restructuring costs.................................. 1,302,097 1,917,342
Accrued sales commissions.................................... 920,000 730,457
Accrued dealer incentives.................................... 500,000 356,373
Other accrued expenses....................................... 534,742 368,386
------------- -------------
Total current liabilities....................................... 23,244,715 11,122,620
Deferred income taxes........................................... 83,574 --
Long-term debt, net of current portion.......................... 2,545,316 3,045,745
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 -- 9,914,103 for September 30, 2000 and
9,860,650 for March 31, 2000............................. 99,141 98,607
Additional paid-in capital................................... 18,425,469 17,920,112
Accumulated other comprehensive income (loss)................ (24,186) 14,799
Retained earnings............................................ 8,927,035 9,392,533
Less treasury stock (496,476 shares)......................... (4,468,284) (4,468,284)
------------- -------------
Total shareholders' equity...................................... 22,959,175 22,957,767
------------- -------------
Total liabilities and shareholders' equity...................... $ 48,832,780 $ 37,126,132
============= =============
See accompanying notes.
4
PANJA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Enterprise system sales.............. $ 20,102,918 $ 16,044,262 $ 35,843,598 $ 29,559,997
Residential system sales............. 5,761,213 5,152,693 11,225,000 9,668,483
------------ ------------ ------------ ------------
Net sales......................... 25,864,131 21,196,955 47,068,598 39,228,480
Cost of sales........................ 12,746,129 9,515,581 22,560,071 17,499,631
------------ ------------ ------------ ------------
Gross profit...................... 13,118,002 11,681,374 24,508,527 21,728,849
Selling and marketing expenses....... 7,612,806 7,687,664 15,568,581 14,307,760
Research and development expenses.... 2,352,652 1,620,383 4,678,064 2,869,171
Restructuring charges................ (202,872) -- (221,374) --
General and administrative expenses.. 2,594,972 1,809,800 4,617,576 3,325,239
------------ ------------ ------------ ------------
Operating income (loss)........... 760,444 563,527 (134,320) 1,226,679
Interest expense..................... 220,861 173,340 354,544 285,321
Other income (expense), net.......... (235,560) 20,359 (216,333) 48,068
------------ ------------ ------------ ------------
Income (loss) before income taxes.... 304,023 410,546 (705,197) 989,426
Income tax provision (benefit)....... 103,293 123,163 (239,699) 311,488
------------ ------------ ------------ ------------
Net income (loss).................... $ 200,730 $ 287,383 $ (465,498) $ 677,938
============ ============ ============ ============
Basic earnings (loss) per share...... $ 0.02 $ 0.03 $ (0.05) $ 0.08
============ ============ ============ ============
Diluted earnings (loss) per share.... $ 0.02 $ 0.03 $ (0.05) $ 0.07
============ ============ ============ ============
See accompanying notes.
5
PANJA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
September 30,
2000 1999
------------ ------------
Operating Activities
Net income (loss).................................................. $ (465,498) $ 677,938
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization................................... 1,777,391 1,538,535
Provision for losses on receivables............................. 510,000 (36,000)
Provision for inventory obsolescence............................ 245,000 (392,342)
Loss on sale of property and equipment.......................... 247,556 --
Deferred income taxes........................................... (112,460) --
Changes in operating assets and liabilities:
Receivables................................................. (4,495,164) (1,765,936)
Inventories................................................. (5,383,337) (957,939)
Prepaid expenses............................................ (78,078) (1,368,301)
Accounts payable............................................ 5,026,378 687,088
Accrued expenses............................................ (578,689) (89,752)
Income taxes................................................ (269,796) (135,085)
------------ ------------
Net cash used in operating activities.............................. (3,576,697) (1,841,794)
Investing Activities
Purchase of property and equipment................................. (4,105,170) (2,275,655)
Proceeds from sale of property and equipment....................... 100,000 --
Capitalized software costs......................................... -- (818,092)
Decrease in other assets........................................... 277,081 429,755
------------ ------------
Net cash used in investing activities.............................. (3,728,089) (2,663,992)
Financing Activities
Sale of common stock -- net proceeds............................... 463,225 790,859
Net increase in line of credit..................................... 7,650,000 3,700,000
Repayments of long-term debt....................................... (476,023) (750,002)
------------ ------------
Net cash provided by financing activities.......................... 7,637,202 3,740,857
Effect of exchange rate changes on cash............................ (38,985) 23,467
------------ ------------
Net increase (decrease) in cash and cash equivalents............... 293,431 (741,462)
Cash and cash equivalents at beginning of period................... 986,648 1,801,756
------------ ------------
Cash and cash equivalents at end of period......................... $ 1,280,079 $ 1,060,294
============ ============
See accompanying notes.
6
PANJA INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying consolidated financial statements, which should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2000, are unaudited (except for the March 31, 2000 consolidated
balance sheet, which was derived from the Company's audited financial
statements), but have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States 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. Certain prior quarter amounts have been
reclassified to conform to the current year presentation.
Operating results for the three and six months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending March 31, 2001.
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,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Numerator:
Net income (loss)........................ $ 200,730 $ 287,383 $ (465,498) $ 677,938
========== ========== ========== ==========
Denominator:
Denominator for basic earnings per share
Weighted-average shares outstanding.... 9,408,865 8,530,104 9,387,934 8,501,833
Effect of dilutive securities:
Employee stock options................... 575,503 1,427,271 -- 1,100,917
---------- ---------- ---------- ----------
Denominator for diluted earnings per
share................................... 9,984,368 9,957,375 9,387,934 9,602,750
========== ========== ========== ==========
Basic earnings (loss) per share.......... $ 0.02 $ 0.03 $ (0.05) $ 0.08
Diluted earnings (loss) per share........ $ 0.02 $ 0.03 $ (0.05) $ 0.07
7
3. Inventories
The components of inventories are as follows:
September 30, March 31,
2000 2000
------------ ------------
Raw materials $ 7,632,889 $ 7,826,200
Work in progress 3,846,107 606,468
Finished goods 6,647,507 4,253,175
Less reserve for obsolescence (1,060,429) (758,106)
------------ ------------
Total $ 17,066,074 $ 11,927,737
============ ============
4. Comprehensive Income
The components of comprehensive income, net of related tax, are as follows:
Three Months Ended Six Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net income (loss) $ 200,730 $ 287,383 $ (465,498) $ 677,938
Foreign currency
translation adjustments (31,942) (29,394) (38,985) 23,467
----------- ----------- ----------- -----------
Comprehensive income
(loss) $ 168,788 $ 257,989 $ (504,483) $ 701,405
=========== =========== =========== ===========
5. Restructuring Costs
During the third quarter of fiscal 2000, the Company announced plans to shut
down its operations located in Salt Lake City and move those operations to its
corporate headquarters in Dallas. The move is expected to be completed by the
end of the third quarter of fiscal 2001. This shutdown impacted approximately 94
employees. In conjunction with this plan, the Company recorded a pretax charge
of $2.6 million, all of which was included in restructuring costs. This charge
included $1.3 million in severance costs, $0.7 million in asset impairment
write-downs, and $0.6 million in leasehold cancellation charges. The asset
impairment charge was recorded in fiscal 2000 to write down the carrying value
of the fixed assets to their estimated fair market value. The Company continued
to depreciate these assets from their fair market value over the remaining
useful life of the Salt Lake City location. The leasehold cancellation charges
represent estimated costs to terminate leasehold agreements for the Company's
Salt Lake City facilities. Through the second quarter of fiscal 2001, payments
have been made to terminated employees, for disposal costs, and for net lease
charges on vacated facilities.
During the third quarter of fiscal 2000, the Company also announced its
intention to dispose of its Synergy division. Approximately 26 employees were
affected by this action. A majority of these employees left the Company by
January 31, 2000. In conjunction with this announcement, the Company recorded a
charge of $1.1 million, of which $0.8 million was included in restructuring
costs and $0.3 million was included in cost of sales. This charge included $0.6
million in severance costs for affected employees, $0.3 million to write down
Synergy inventory to net realizable value, and $0.2 million for other disposal
costs. Through the
8
second quarter of fiscal 2001, payments were made to terminated employees and
for disposal costs. However, by the end of the second fiscal quarter, the
Company had reassessed its plans to dispose of the Synergy business. The Company
has eliminated the Synergy division, but will continue to offer Synergy products
through its Enterprise division. Therefore, the remaining restructuring charges
related to the disposal of the division were deemed unecessary and were
reversed.
The following is a reconciliation of the accrued restructuring costs:
Salt Lake
City Synergy Total
----------- ----------- -----------
Restructuring accrual at June 30, 2000:
Severance $ 823,000 $ 95,000 $ 918,000
Leasehold cancellation charges 599,000 -- 599,000
Disposal costs -- 137,000 137,000
----------- ----------- -----------
Subtotal 1,422,000 232,000 1,654,000
----------- ----------- -----------
Dispositions in quarter ended September
30, 2000:
Severance payments (72,000) -- (72,000)
Payment of lease expenses (16,000) -- (16,000)
Recovery of lease expenses (32,000) -- (32,000)
Payment of disposal costs -- (61,000) (61,000)
Reversal of Synergy restructuring charges -- (171,000) (171,000)
----------- ----------- -----------
Subtotal (120,000) (232,000) (352,000)
----------- ----------- -----------
Remaining accrual at September 30, 2000:
Severance 751,000 -- 751,000
Leasehold cancellation charges 551,000 -- 551,000
Disposal costs -- -- --
----------- ----------- -----------
Balance at September 30, 2000 $ 1,302,000 $ -- $ 1,302,000
=========== =========== ===========
6. Line of Credit
The Company's $7.5 million revolving line of credit expired on September
30, 2000. The Company negotiated a new $10 million revolving line of credit with
the same institution which contains various restrictive covenants and financial
covenants which are similar to those contained in the previous agreement. The
revolving line of credit provides for interest at varying rates of the Company's
choice based on the prime lending rate or the London Inter-Bank Offered Rate.
The borrowing base for the new $10 million line of credit now includes a portion
of foreign accounts receivable. At September 30, 2000, $7.65 million was
outstanding under the revolving line of credit agreement. The new $10 million
revolving line of credit expires on September 1, 2001.
9
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
Company's 2000 Annual Report on Form 10-K. 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. These risks, assumptions and
uncertainties include: our strategic alliances; the ability to develop
distribution channels for new products; the ability to obtain compelling
content; our dependence on suppliers, dealers and distributors; domestic and
international economic conditions; the financial condition of our key customers
and suppliers; the complexity of new products; ongoing research and development;
our reliance on third party manufacturers; the ability to realize operating
efficiencies; dependence on key personnel; the lack of an industry standard;
reliance on others for technology; our ability to protect our intellectual
property; the continued growth of the Internet; the market for Internet
appliances; the acceptance of broadband services; the quick product life cycle;
the resources necessary to compete; the possible effect of government
regulations; possible liability for copyright violations on the Internet with
the use of our products and other risks referenced from time to time in the
Company's filings with the Securities and Exchange Commission. 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 on
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 is a leader in the development, manufacturing, and marketing of
device networking equipment as well as innovative equipment designed to take
advantage of the proliferation of broadband communications capabilities. The
Company's products are utilized in both residential and enterprise settings.
The Company's device networking equipment allows end users to control a variety
of electronic devices from a centralized location. The Company's WebLinx
software also provides the flexibility of allowing the end user to control these
systems via the Internet from any remote location. The Company's broadband
products stream data, audio and video content from the Internet directly to home
entertainment components.
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. 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 generally experiences higher
selling and marketing expenses during the first two fiscal quarters of each year
due to costs associated with three of the Company's largest trade shows.
10
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 2,000 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 to sell its products. Because of the increase in broadband access
to the home, the Company believes that the potential exists for an increase in
the consumer market for its products. Accordingly, the Company is focusing on
adding new distribution channels 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.
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
universities, government facilities, amusement parks, or corporate training
facilities. 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 five
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 effect on the Company's results of operations.
Residential Systems
The Company's premium line of custom residential integrated control systems
offers consumers the ability to control most electronic aspects of their homes,
such as security systems, lighting systems, heating and air-conditioning
systems, and the components of their home entertainment systems. These systems
have predominantly been installed in upscale homes, and the installation process
involves third party technicians working on-site to maximize the control
systems' interoperability with the home's other electronic devices.
In fiscal 2000, the Company launched its Broadband Consumer Products Group
to leverage its proprietary technology in applications that take advantage of
the surge in residential broadband access. These new products allow the data,
video and audio content brought to the home by broadband access to be
distributed to the entertainment devices contained within the home. This
distribution of information can be contoured by each end user to their
particular needs or wants.
Enterprise Systems
The Company's enterprise products enable users to operate, as a single
system, a broad range of electronic equipment in a variety of settings. These
products are flexible in their design and application, and are easy to use. The
products are used in board rooms, training rooms, auditoriums, sport facilities,
theme parks, museums, and other settings which require the control of a wide
variety of electronic equipment, such as video equipment, audio equipment,
lighting equipment, heating and air-conditioning equipment, camera equipment,
and security systems.
11
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 and six month periods ended September 30, 2000 and 1999:
Three Months Ended Six Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Enterprise system sales 77.7% 75.7% 76.2% 75.4%
Residential system sales 22.3 24.3 23.8 24.6
---------- ---------- ---------- ----------
Net sales 100.0 100.0 100.0 100.0
Cost of sales 49.3 44.9 47.9 44.6
---------- ---------- ---------- ----------
Gross profit 50.7 55.1 52.1 55.4
Selling and marketing expenses 29.4 36.3 33.2 36.5
Research and development expenses 9.1 7.6 9.9 7.3
Restructuring costs (0.7) -- (0.5) --
General and administrative expenses 10.0 8.5 9.8 8.5
---------- ---------- ---------- ----------
Operating income (loss) 2.9 2.7 (0.3) 3.1
Interest expense 0.8 0.8 0.8 0.7
Other income (loss), net (0.9) 0.1 (0.4) 0.1
---------- ---------- ---------- ----------
Income (loss) before income taxes 1.2 2.0 (1.5) 2.5
Income tax provision (benefit) 0.4 0.6 (0.5) 0.8
---------- ---------- ---------- ----------
Net income (loss) 0.8% 1.4% (1.0)% 1.7%
========== ========== ========== ==========
Three Months Ended September 30, 2000 Results Compared to Three Months Ended
September 30, 1999 (all references to years are to fiscal years)
We recorded sales during the three months ended September 30, 2000 and 1999
as follows:
Three Months Ended September 30,
Market 2000 1999 Change
- ------ ---- ---- ------
Enterprise:
Domestic $11,761,580 $ 8,988,895 30.8%
International 7,578,853 5,720,788 32.5%
OEM 435,099 550,833 (21.0)%
Educational 327,386 783,746 (58.2)%
----------- ----------- ---------
Total Enterprise 20,102,918 16,044,262 25.3%
----------- ----------- ---------
Residential 5,761,213 5,152,693 11.8%
----------- ----------- ---------
Total Sales $25,864,131 $21,196,955 22.0%
=========== =========== =========
12
Overall, the Company's revenue increased 22% compared to the same quarter
last year. Enterprise sales grew 25.3% compared to the same quarter of last
year, consisting of growth in domestic sales of 30.8% and growth in
international sales of 32.5%, offset by a decline in OEM sales of 21% and a
decline in Synergy sales of 58%. Domestic enterprise revenue growth reflects the
increasing demand for device networking systems, and the versatility of the
Panja product in enterprise applications. The growth in international sales was
related to a combination of improved market conditions in most global regions,
and the Company's aggressive involvement in sales and marketing activities of
international dealers and distributors. Residential sales grew 11.8% compared to
the same quarter of last year, consisting primarily of an increase in existing
residential applications. The growth in residential sales is related to
continued demand for the Company's home automation and control products, as well
as favorable economic conditions in key markets.
Gross margins for the quarter ended September 30, 2000 were 50.7% compared
to 55.1% for the same quarter last year. The decline in gross margins is
primarily related to higher material costs resulting from component availability
issues. The Company is focused on improving its gross margins and as a result is
utilizing more outside manufacturing sources. The Company believes this
outsourcing will allow it to sustain its growth without the need to
significantly expand its current manufacturing space and increase overhead.
The Company has significantly increased its product development efforts in
order to design hardware that allows the distribution of Internet information to
non-PC devices. As a result, the Company incurred an increase in research and
development expenses of 45% over the second quarter of fiscal 2000. Selling and
marketing expenses were $7.6 million or 29.4% of net sales, down slightly
compared to $7.7 million or 36.3% of net sales in the second quarter of fiscal
2000. This improvement is related to the consolidation of the Company's Salt
Lake City operations, as well as a reduction in tradeshow expenses. General and
administrative expenses grew 43% from the second quarter of fiscal 2000,
representing 10% of net sales for the second quarter of fiscal 2001 versus 8.5%
for the second quarter of fiscal 2000. The increase in general and
administrative expenses is primarily related to an increase of $510,000 in the
allowance for doubtful accounts related to a customer who filed for bankruptcy.
The assets of this customer have been acquired by one of our other customers,
and the Company anticipates that it will continue to make sales to the acquiring
entity. The increase is also related to expenses incurred that were attributable
to the Company's move into its new headquarters, as well as increased headcount
and related expenses.
By the end of the second fiscal quarter, the Company had reassessed its
plans to dispose of the Synergy business and reversed the remaining Synergy
restructuring reserves as a result. See Footnote 5 for additional information.
Other expense for the period is primarily a factor of a $247,000 loss
incurred on the sale of furniture from the Company's previous facilities.
The Company's effective tax rate increased from 30% in the quarter ended
September 30, 1999 to 34% in the quarter ended September 30, 2000. This change
is a result of normal fluctuations in permanent differences between book income
and taxable income.
13
Six Months Ended September 30, 2000 Results Compared to Six Months Ended
September 30, 1999 (all references to years are to fiscal years)
We recorded sales during the six months ended September 30, 2000 and 1999
as follows:
Six Months Ended September 30,
Market 2000 1999 Change
- ------ ---- ---- ------
Enterprise:
Domestic $21,168,383 $17,390,409 21.7%
International 13,302,225 9,417,677 41.2%
OEM 674,963 1,218,621 (44.6)%
Educational 698,024 1,533,290 (54.5)%
----------- ----------- ----------
Total Enterprise 35,843,595 29,559,997 21.3%
----------- ----------- ----------
Residential 11,225,003 9,668,483 16.1%
----------- ----------- ----------
Total Sales $47,068,598 $39,228,480 20.0%
=========== =========== ==========
Overall, the Company's revenue increased 20% compared to the same period
last year. Enterprise sales grew 21.3% compared to the same period last year,
consisting of growth in domestic sales of 21.7% and growth in international
sales of 41.2%, offset by a decline in OEM sales of 44.6% and a decline in
Synergy sales of 54.5%. Domestic enterprise revenue growth reflects the
increasing demand for device networking systems, and the versatility of the
Panja product in enterprise applications. The growth in international sales was
related to a combination of improved market conditions in most global regions,
and the Company's aggressive involvement in sales and marketing activities of
international dealers and distributors. Residential sales grew 16.1% compared to
the same period last year, consisting primarily of an increase in existing
residential applications. The growth in residential sales is related to
continued demand for the Company's home automation and control products, as well
as favorable economic conditions in key markets.
Gross margins for the six months ended September 30, 2000 were 52.1%
compared to 55.4% for the same period last year. The decline in gross margins is
primarily related to higher material costs resulting from component availability
issues. The Company is focused on improving its gross margins and as a result is
utilizing more outside manufacturing sources. The Company believes this
outsourcing will allow it to sustain its growth without the need to
significantly expand its current manufacturing space and increase overhead.
The Company has significantly increased its product development efforts in
order to design hardware that allows the distribution of Internet information to
non-PC devices. As a result, the Company incurred an increase in research and
development expenses in the period of 63% over the six months ended September
30, 1999. Selling and marketing expenses were $15.6 million or 33.2% of net
sales, compared to $14.3 million or 36.5% of net sales in the same period last
year. The improvement in selling and marketing expenses as a percentage of net
sales is primarily related to the consolidation of the Company's Salt Lake City
operations, as well as a reduction in tradeshow expenses. General and
administrative expenses grew 39% from the six months ended September 30, 1999,
representing 9.8% of net sales for the period versus 8.5% for the same period
last year. The increase in general and administrative expenses is primarily
related to an increase of $510,000 in the allowance for doubtful accounts
related to a customer who filed for bankruptcy. The assets of this customer have
been acquired by one of our other customers,
14
and the Company anticipates that it will continue to make sales to the acquiring
entity. The increase is also related to expenses incurred that were attributable
to the Company's move into its new headquarters, as well as increased headcount
and related expenses.
By the end of the second fiscal quarter, the Company had reassessed its
plans to dispose of the Synergy business and reversed the remaining Synergy
restructuring reserves as a result. See Footnote 5 for additional information.
Other expense for the period is primarily a factor of a $247,000 loss
incurred on the sale of furniture from the Company's previous facilities.
The Company's effective tax rate increased from 31.5% for the six months
ended September 30, 1999 to 34% for the six months ended September 30, 2000.
This change is a result of normal fluctuations in permanent differences between
book income and taxable income.
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
its line of credit. In the six months ended September 30, 2000, the Company used
$3.6 million of cash in operations. Capital expenditures amounted to $4.1
million, which were primarily for capital additions related to the Company's new
corporate headquarters, costs incurred related to the Company's Enterprise
Resource Planning system, and for routine purchases of computers and equipment.
The Company's $7.5 million revolving line of credit expired on September
30, 2000. The Company negotiated a new $10 million revolving line of credit with
the same institution which contains various restrictive covenants and financial
covenants which are similar to those contained in the previous agreement. The
revolving line of credit provides for interest at varying rates of the Company's
choice based on the prime lending rate or the London Inter-Bank Offered Rate.
The borrowing base for the new $10 million line of credit now includes a portion
of foreign accounts receivable. At September 30, 2000, $7.65 million was
outstanding under the revolving line of credit agreement. The new $10 million
revolving line of credit expires on September 1, 2001.
We believe that cash flow from operations, our existing cash resources, and
funds available under our revolving loan facility will be adequate to fund our
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, 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 from time to time 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
From March 31, 2000 until September 30, 2000, 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, 2000, as filed with the
Securities and Exchange Commision on June 22, 2000 (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 1.
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 2000 Annual Meeting of Shareholders of Panja Inc. was held on August 21,
2000 to consider two matters of business. The matters brought before the
shareholders and the voting results are as follows:
1. Election of Directors:
FOR AGAINST ABSTAIN
John F. McHale 8,035,728 -0- 12,310
Joe Hardt 7,991,728 -0- 56,310
Harvey B. Cash 8,035,728 -0- 12,310
J. Otis Winters 8,035,728 -0- 12,310
Peter D. York 8,035,728 -0- 12,310
Julie Spicer England 8,035,728 -0- 12,310
2. Ratification of Ernst & Young LLP as auditors:
FOR AGAINST ABSTAIN
8,021,342 21,000 5,696
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Amended and Restated Articles of Incorporation of the Company.
(Incorporated by reference from Exhibit 4.1 to the Company's
Form S-8 filed March 11, 1996, File No. 333-2202).
3.2 Amended and Restated Bylaws of the Company, as amended.
(Incorporated by reference from Exhibit 3.2 to the Company's Form
10-Q, for the period ended September 30, 1997, file No. 0-26924).
+10.1 Fourth Amended and Restated Loan Agreement dated as of September 1,
2000
+27.1 Financial Data Schedule.
b. Reports on Form 8-K
None.
- ------------------------
+ Filed herewith.
16
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 10, 2000 By: /s/ Paul D. Fletcher
---------------------------------------------
Paul D. Fletcher
Vice President and Chief Financial Officer (Duly
Authorized Officer and Principal Financial
Officer)
17