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 December 31, 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 9,521,725
(Title of Each Class) (Number of Shares Outstanding at January 31,
2001)
1
PANJA INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
INDEX
Page Number
Part I. Financial Information (Unaudited)
Item 1. Consolidated Balance Sheets at December 31, 2000 and March 3
31, 2000
Consolidated Statements of Operations for the Three and 5
Nine Months Ended December 31, 2000 and 1999
Consolidated Statements of Cash Flows for the Nine Months 6
Ended December 31, 2000 and 1999
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
PANJA INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, March 31,
2000 2000
------------ -----------
Current assets:
Cash and cash equivalents....................................... $ 1,792,556 $ 986,648
Receivables - trade and other, less allowance for doubtful
accounts of $230,000 at December 31, 2000 and $382,000 at 14,461,141 9,555,649
March 31, 2000.................................................
Inventories..................................................... 15,730,345 11,927,737
Prepaid expenses................................................ 1,798,946 1,577,535
Income tax receivable........................................... -- 948,548
Deferred income tax............................................. 1,107,484 1,107,484
------------ -----------
Total current assets............................................... 34,890,472 26,103,601
Property and equipment, at cost, net............................... 8,996,838 6,239,467
Capitalized software............................................... 494,927 779,212
Deferred income tax................................................ 3,260,119 2,265,019
Deposits and other................................................. 734,153 1,230,244
Goodwill, less accumulated amortization of $804,000 at December
31, 2000 and $618,000 at March 31, 2000........................... 322,791 508,589
------------ -----------
Total assets....................................................... $48,699,300 $37,126,132
=========== ===========
3
PANJA INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, March 31,
2000 2000
------------ -----------
Current liabilities:
Accounts payable............................................. $ 8,711,840 $ 4,792,793
Current portion of long-term debt............................ 972,456 948,050
Revolving bank debt.......................................... 9,050,000 --
Accrued compensation......................................... 1,830,888 2,009,219
Accrued restructuring costs.................................. 484,316 1,917,342
Accrued sales commissions.................................... 855,901 730,457
Accrued dealer incentives.................................... 731,325 356,373
Other accrued expenses....................................... 746,292 368,386
Income tax payable........................................... 306,194 --
------------ -----------
Total current liabilities....................................... 23,689,212 11,122,620
Long-term debt, net of current portion.......................... 2,379,138 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 -- 9,966,478 for December 31, 2000 and 98,607
9,860,650 for March 31, 2000............................ 99,665
Additional paid-in capital................................... 18,492,208 17,920,112
Accumulated other comprehensive income (loss)................ (34,355) 14,799
Retained earnings............................................ 8,541,716 9,392,533
Less treasury stock (496,476 shares)......................... (4,468,284) (4,468,284)
------------ -----------
Total shareholders' equity...................................... 22,630,950 22,957,767
------------ -----------
Total liabilities and shareholders' equity...................... $48,699,300 $37,126,132
=========== ===========
See accompanying notes.
4
PANJA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
December 31, December 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Enterprise system sales............. $18,927,450 $15,050,895 $54,771,045 $44,610,890
Residential system sales............ 5,302,628 4,442,024 16,527,630 14,110,506
----------- ----------- ----------- -----------
Net sales........................ 24,230,078 19,492,919 71,298,675 58,721,396
Cost of sales....................... 11,872,718 9,800,571 34,432,789 27,300,200
----------- ----------- ----------- -----------
Gross profit..................... 12,357,360 9,692,348 36,865,886 31,421,196
Selling and marketing expenses...... 8,637,047 7,923,341 24,205,628 22,231,101
Research and development expenses... 2,640,676 2,246,884 7,318,740 5,116,055
Restructuring charges............... (224,187) 3,436,095 (445,561) 3,436,095
General and administrative expenses. 1,621,028 2,141,693 6,238,604 5,466,932
----------- ----------- ----------- -----------
Operating loss................... (317,204) (6,055,665) (451,525) (4,828,987)
Interest expense.................... 295,462 175,661 650,006 460,982
Other income (expense), net......... 30,716 8,395 (185,617) 56,464
----------- ----------- ----------- -----------
Loss before income taxes............ (581,950) (6,222,931) (1,287,148) (5,233,505)
Income tax benefit.................. (196,631) (2,147,466) (436,331) (1,835,978)
----------- ----------- ----------- -----------
Net loss............................ $ (385,319) $(4,075,465) $ (850,817) $(3,397,527)
=========== =========== =========== ===========
Basic and diluted loss per share.... $(0.04) $(0.47) $(0.09) $(0.40)
=========== =========== =========== ===========
See accompanying notes.
5
PANJA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
December 31,
2000 1999
----------- -----------
Operating Activities
Net loss........................................................... $ (850,817) $(3,397,527)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation.................................................... 2,291,757 1,506,459
Amortization.................................................... 492,583 185,801
Provision for losses on receivables............................. 720,000 149,000
Provision for inventory obsolescence............................ 500,000 (137,342)
Loss on sale of property and equipment.......................... 247,556 --
Write-down of fixed assets for impairment....................... -- 654,807
Deferred income taxes........................................... (949,726) --
Changes in operating assets and liabilities:
Receivables................................................. (5,625,492) (1,299,024)
Inventories................................................. (4,302,608) (1,705,524)
Prepaid expenses............................................ (221,411) (1,138,971)
Accounts payable............................................ 3,919,047 1,308,253
Accrued expenses............................................ (733,055) 4,125,338
Income taxes................................................ 1,254,742 (2,980,993)
----------- -----------
Net cash used in operating activities.............................. (3,257,424) (2,729,723)
Investing Activities
Purchase of property and equipment................................. (5,396,684) (2,479,350)
Proceeds from sale of property and equipment....................... 100,000 --
Investment in capitalized software................................. (22,500) (818,092)
Decrease in other assets........................................... 496,091 54,063
----------- -----------
Net cash used in investing activities.............................. (4,823,093) (3,243,379)
Financing Activities
Sale of common stock -- net proceeds............................... 527,780 6,139,538
Net increase in line of credit..................................... 9,050,000 400,000
Repayments of long-term debt....................................... (642,201) (1,361,935)
----------- -----------
Net cash provided by financing activities.......................... 8,935,579 5,177,603
Effect of exchange rate changes on cash............................ (49,154) 49,455
----------- -----------
Net increase (decrease) in cash and cash equivalents............... 805,908 (746,044)
Cash and cash equivalents at beginning of period................... 986,648 1,801,756
----------- -----------
Cash and cash equivalents at end of period......................... $ 1,792,556 $ 1,055,712
=========== ===========
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, except for the restructuring charge in the
third quarter of fiscal 2000 as discussed in Note 5 below) 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 nine months ended December 31, 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 Nine Months Ended
December 31, December 31,
2000 1999 2000 1999
---------- ----------- ---------- ----------
Numerator:
Net loss................................ $ (385,319) $(4,075,465) $ (850,817) $(3,397,527)
========== =========== ========== ===========
Denominator:
Denominator for basic earnings per share
Weighted-average shares outstanding.... 9,445,350 8,650,720 9,407,142 8,557,953
Effect of dilutive securities:
Employee stock options.................. -- -- -- --
---------- ----------- ---------- -----------
Denominator for diluted earnings per
share.................................. 9,445,350 8,650,720 9,407,142 8,557,953
========== =========== ========== ==========
Basic and diluted loss per share........ $ (0.04) $ (0.47) $ (0.09) $ (0.40)
7
3. Inventories
The components of inventories are as follows:
December 31, March 31,
2000 2000
------------ -----------
Raw materials $ 6,943,604 $ 7,826,200
Work in progress 3,008,288 606,468
Finished goods 6,920,747 4,253,175
Less reserve for obsolescence (1,142,294) (758,106)
----------- -----------
Total $15,730,345 $11,927,737
=========== ===========
4. Comprehensive Loss
The components of comprehensive loss, net of related tax, are as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
2000 1999 2000 1999
--------- ----------- --------- -----------
Net loss $(385,319) $(4,075,465) $(850,817) $(3,397,527)
Foreign currency (10,169) 25,988 (49,154) 49,455
translation adjustments
--------- ----------- --------- -----------
Comprehensive loss $(395,488) $(4,049,477) $(899,971) $(3,348,072)
========= =========== ========= ===========
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 was 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 or perform under the leasehold agreements
for the Company's Salt Lake City facilities through the end of the lease term.
Through the third quarter of fiscal 2001, payments have been made to terminated
employees, for disposal costs, and for net lease charges on vacated facilities.
The Company completed all remaining severance actions during the quarter ended
December 31, 2000, and reversed the residual severance accruals of approximately
$0.2 million.
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
8
down Synergy inventory to net realizable value, and $0.2 million for other
disposal costs. Through the 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 of approximately $0.2 million related to the disposal of
the division were deemed unnecessary and were reversed in the second quarter of
fiscal 2001.
The following is a roll forward of the accrued restructuring costs from
September 30, 2000 to December 31, 2000:
Restructuring accrual at September 30, 2000:
Severance $ 751,000
Leasehold cancellation charges 551,000
----------
Subtotal 1,302,000
----------
Dispositions in quarter ended December 31, 2000:
Severance payments (563,000)
Payment of lease expenses (31,000)
Recovery of lease expenses (36,000)
Reversal of severance charges (188,000)
----------
Subtotal (818,000)
----------
Remaining accrual at December 31, 2000:
Leasehold cancellation charges $ 484,000
==========
6. Line of Credit
The Company has a $10 million revolving line of credit with Bank One, Texas,
N.A. ("Bank One") that contains various restrictive and financial covenants
including a covenant that the Company's current ratio be at least 1.5 to 1.0. As
of December 31, 2000, the Company's current ratio was 1.47 to 1.0, however, Bank
One has waived such non-compliance with the covenant at December 31, 2000. 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 line of credit is secured by receivables, inventory and property. At
December 31, 2000, $9.05 million was outstanding under the revolving line of
credit agreement. This revolving line of credit expires on September 1, 2001. In
January 2001, the Company increased the borrowings available under the line of
credit to $12 million through March 31, 2001 to fund short term cash
requirements. Available borrowings under the line of credit were $1.8 million as
of January 31, 2001.
7. Stock Option Grant
On December 21, 2000, the Company granted 551,700 options to employees from
the 1999 Equity Incentive Plan at an exercise price of $3.069, the fair market
value on the date of grant. The options vest 25% per year over four years,
beginning on the first anniversary date of the grant.
8. 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.
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. 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 included 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 by 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.
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 significantly impacted the Company's ability to meet production
and customer delivery deadlines in the past. 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
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 operations for
the three and nine month periods ended December 31, 2000 and 1999:
Three Months Ended Nine Months Ended
December 31, December 31,
2000 1999 2000 1999
--------- ---------- --------- ---------
Enterprise system sales 78.1% 77.2% 76.8% 76.0%
Residential system sales 21.9 22.8 23.2 24.0
--------- ---------- --------- ---------
Net sales 100.0 100.0 100.0 100.0
Cost of sales 49.0 50.3 48.3 46.5
--------- ---------- --------- ---------
Gross profit 51.0 49.7 51.7 53.5
Selling and marketing expenses 35.6 40.6 33.9 37.8
Research and development expenses 10.9 11.5 10.3 8.7
Restructuring charges (0.9) 17.6 (0.6) 5.9
General and administrative expenses 6.7 11.0 8.7 9.3
--------- ---------- --------- ---------
Operating loss (1.3) (31.0) (0.6) (8.2)
Interest expense 1.2 0.9 0.9 0.8
Other income (expense), net 0.1 0.0 (0.3) 0.1
--------- ---------- --------- ---------
Loss before income taxes (2.4) (31.9) (1.8) (8.9)
Income tax benefit (0.8) (11.0) (0.6) (3.1)
--------- ---------- --------- ---------
Net loss (1.6)% (20.9)% (1.2)% (5.8)%
========= ========== ========= =========
Three Months Ended December 31, 2000 Results Compared to Three Months Ended
December 31, 1999 (all references to years are to fiscal years)
We recorded sales during the three months ended December 31, 2000 and 1999
as follows:
Three Months Ended December 31,
Market 2000 1999 Change
- ------ ---- ---- ------
Enterprise:
Domestic $10,559,414 $ 8,673,898 21.7%
International 7,746,523 5,714,222 35.6%
OEM 485,691 272,607 78.2%
Educational 135,822 390,168 (65.2)%
----------- ----------- -------
Total Enterprise 18,927,450 15,050,895 25.8%
----------- ----------- -------
Residential 5,302,628 4,442,024 19.4%
----------- ----------- -------
Total Sales $24,230,078 $19,492,919 24.3%
=========== =========== =======
12
Overall, the Company's revenue increased 24% compared to the same quarter
last year. Enterprise sales grew 26% compared to the same quarter of last year,
consisting primarily of growth in domestic sales of 22% and growth in
international sales of 36%, offset by a reduction of educational sales of 65%.
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 primarily related to the
Company's continued focus on distributor and dealer network development,
improved market acceptance of Panja's product lines in international markets,
and improved economic conditions in key markets overseas. Although the Company
continues to support its educational products and customers, this market is no
longer a key focus for the Company, and therefore sales in the educational
market have declined. Residential sales grew 19% 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.
Gross margins for the quarter ended December 31, 2000 were 51% compared to
50% for the same quarter last year. The improvement in gross margins is
primarily related to charges recorded in the quarter ended December 31, 1999 to
write-down Synergy inventory and to increase the reserve for obsolescence. 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 continues to focus on product development efforts to expand the
uses and capabilities of device networking equipment in enterprise and
residential applications. During fiscal 2001, the Company has also committed
resources to the design of hardware that allows the distribution of Internet
content to non-PC devices. As a result, the Company incurred an increase in
research and development expenses of 18% over the third quarter of fiscal 2000.
Selling and marketing expenses increased to $8.6 million from $7.9 million in
the year ago quarter, but declined as a percent of revenue to 36% in the fiscal
third quarter ended December 31, 2000 compared to 41% in the year ago quarter.
This improvement is a result of a reduction of trade show spending and other
marketing costs relative to the 24% increase in revenue. General and
administrative expenses declined approximately $500,000 to $1.6 million from
$2.1 million in the third quarter of fiscal 2000, representing 7% of net sales
for the third quarter of fiscal 2001 versus 11% for the third quarter of fiscal
2000. The decrease in general and administrative expenses is primarily related
to management's decision to eliminate cash bonuses in fiscal 2001, and the
resulting reversal of bonuses accrued in previous quarters.
During the third quarter of fiscal 2000, the Company announced its plans to
shut down its operations located in Salt Lake City and move those operations to
its corporate headquarters in Dallas, as well as its intention to dispose of its
Synergy division. As a result, the Company recorded restructuring charges of
$3.7 million during the quarter ended December 31, 1999. During the quarter
ended December 31, 2000, the Company reversed certain severance and lease
cancellation accruals. See Footnote 5 for additional information.
Interest expense increased to approximately $295,000 for the quarter ended
December 31, 2000 compared to approximately $176,000 for the quarter ended
December 31, 1999. This increase is directly attributable to higher average
outstanding balances on the line of credit.
The Company's effective tax rate decreased from 35% in the quarter ended
December 31, 1999 to 34% in the quarter ended December 31, 2000. This change is
a result of normal fluctuations in permanent differences between book income and
taxable income.
13
Nine Months Ended December 31, 2000 Results Compared to Nine Months Ended
December 31, 1999 (all references to years are to fiscal years)
We recorded sales during the nine months ended December 31, 2000 and 1999
as follows:
Nine Months Ended December 31,
Market 2000 1999 Change
- ------ ---- ---- ------
Enterprise:
Domestic $31,727,797 $26,064,306 21.7%
International 21,048,748 15,131,899 39.1%
OEM 1,160,654 1,491,229 (22.2)%
Educational 833,846 1,923,456 (56.6)%
----------- ----------- -------
Total Enterprise 54,771,045 44,610,890 22.8%
----------- ----------- -------
Residential 16,527,630 14,110,506 17.1%
----------- ----------- -------
Total Sales $71,298,675 $58,721,396 21.4%
=========== =========== =======
Overall, the Company's revenue increased 21% compared to the same period
last year. Enterprise sales grew 23% compared to the same period last year,
consisting of growth in domestic sales of 22% and growth in international sales
of 39%, offset by a decline in OEM sales of 22% and a decline in educational
sales of 57%. 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 primarily related
to the Company's continued focus on distributor and dealer network development,
improved market acceptance of Panja's product lines in international markets,
and improved economic conditions in key markets overseas. Although the Company
continues to support its educational products and customers, this market is no
longer a key focus for the Company, and therefore sales in the educational
market have declined. Residential sales grew 17% 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, particularly those of our
Axcess product line.
Gross margins for the nine months ended December 31, 2000 were 52% compared
to 54% for the same period last year. The decline in gross margins is primarily
related to higher material costs resulting from component availability, offset
by certain charges recorded in the quarter ended December 31, 1999 to write-down
Synergy inventory and to increase the reserve for obsolescence. 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 continues to focus on product development efforts to expand the
uses and capabilities of device networking equipment in enterprise and
residential applications. During fiscal 2001, the Company has also committed
resources to the design of hardware that allows the distribution of Internet
content to non-PC devices. As a result, the Company incurred an increase in
research and development expenses of 43% over the nine months ending December
31, 1999. Selling and marketing expenses increased to $24.2 million for the
nine months ended December 31, 2000 from $22.2 million in the year ago period,
but declined as a percent of revenue to 34% from 38%. This improvement is a
result of a reduction of trade show spending and other marketing costs relative
to the 21% increase in revenue. General and
14
administrative expenses increased approximately $700,000 to $6.2 million for the
nine months ended December 31, 2000 from $5.5 million for the nine months ended
December 31, 1999, representing approximately 9% of net sales in each period.
During the nine months ended December 31, 1999, the Company announced its
plans to shut down its operations located in Salt Lake City and move those
operations to its corporate headquarters in Dallas, as well as its intention to
dispose of its Synergy division. As a result, the Company recorded restructuring
charges of $3.7 million during the nine months ended December 31, 1999. During
the nine months ended December 31, 2000, the Company has reversed certain
severance and lease cancellation accruals. See Footnote 5 for additional
information.
Interest expense increased to approximately $650,000 for the nine months
ended December 31, 2000 compared to approximately $461,000 for the nine months
ended December 31, 1999. This increase is directly attributable to higher
average outstanding balances on the line of credit.
The Company incurred approximately $186,000 in other expense for the nine
months ended December 31, 2000 compared to other income of approximately $56,000
for the nine months ended December 31, 1999. This difference is primarily
attributable to a loss on sale of property and equipment of approximately
$248,000 incurred during the nine months ended December 31, 2000.
The Company's effective tax rate decreased from 35% for the nine months
ended December 31, 1999 to 34% for the nine months ended December 31, 2000. This
change is a result of normal fluctuations in permanent differences between book
income and taxable income.
Liquidity and Capital Resources
In the nine months ended December 31, 2000, the Company used $3.3 million of
cash in operations. Capital expenditures amounted to $5.4 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. These
cash requirements were funded through borrowings under the revolving line of
credit.
The Company has a $10 million revolving line of credit with Bank One, Texas,
N.A. ("Bank One") that contains various restrictive and financial covenants
including a covenant that the Company's current ratio be at least 1.5 to 1.0. As
of December 31, 2000, the Company's current ratio was 1.47 to 1.0, however, Bank
One has waived such non-compliance with the covenant at December 31, 2000. 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 line of credit is secured by receivables, inventory and property. At
December 31, 2000, $9.05 million was outstanding under the revolving line of
credit agreement. This revolving line of credit expires on September 1, 2001. In
January 2001, the Company increased the borrowings available under the line of
credit to $12 million through March 31, 2001 to fund short term cash
requirements. Available borrowings under the line of credit were $1.8 million as
of January 31, 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. The Company expects its capital expenditures to be significantly less
in fiscal 2002 than capital expenditures for fiscal 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
From March 31, 2000 until December 31, 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), except
for the increase in the Company's line of credit. The outstanding balance under
the line of credit was $9.05 million at December 31, 2000. There was no
outstanding balance under the line of credit at March 31, 2000.
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 1 - Notes to Consolidated Financial Statements).
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
/1/10.1 Amendment to Fourth Amended and Restated Loan Agreement
dated as of January 5, 2001
b. Reports on Form 8-K
None.
- -----------------------------
/1/ 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: February 14, 2001 By: /s/ Paul D. Fletcher
--------------------
Paul D. Fletcher
Vice President and Chief Financial Officer (Duly
Authorized Officer and Principal Financial
Officer)
17