UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
/ / TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-12530
-------
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
---------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 95-3615472
- ------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P. O. Box 23160 Albuquerque, NM 87192-1160
(Address of principal executive offices and zip code)
(505) 271-2200
(Registrant's telephone number, including area code)
Check whether the registrant (1) 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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 4, 1996
- ----------------------------- -------------------------------
Common stock, $ .01 par value 3,979,375
1
<PAGE>
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
Sept 30, March 31,
1996 1996
---------- ----------
(unaudited) (derived
Current assets: from audited
statements)
<S> <C> <C>
Cash and cash equivalents $ 3,012,000 $ 3,046,000
Accounts receivable, less
allowances of $144,000 at 9/30/96
and 3/31/96 2,194,000 2,240,000
Inventories:
Raw materials and supplies 1,212,000 989,000
Work-in-process 209,000 166,000
Finished goods 256,000 323,000
--------- ---------
1,677,000 1,478,000
--------- ---------
Prepaid expenses 116,000 136,000
Deferred income tax asset 197,000 197,000
--------- ---------
Total current assets 7,196,000 7,097,000
Property, plant and equipment, at cost 1,699,000 1,623,000
Less: Accumulated depreciation
and amortization (811,000) (710,000)
------- -------
Net property, plant and equipment 888,000 913,000
Covenants not to compete, net - 107,000
Cost of purchased business in excess
of net assets acquired, net 926,000 940,000
Other assets 195,000 177,000
--------- ---------
$ 9,205,000 $ 9,234,000
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
2
<PAGE>
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Sept. 30, March 31,
1996 1996
----------- --------
(unaudited) (derived
Current liabilities from audited
statements)
<S> <C> <C>
Accounts payable $ 146,000 $ 233,000
Accrued payroll and benefits 382,000 662,000
Accrued expenses 303,000 524,000
Income taxes payable 22,000 31,000
--------- ---------
Total current liabilities 853,000 1,450,000
--------- ---------
Stockholders' investment
Common stock, par value $.01 per share -
Authorized - 20,000,000 shares
Outstanding - 3,982,375 shares at
at 9/30/96 and 3,987,175 shares
at 3/31/96 40,000 40,000
Premium paid in on common stock 8,922,000 8,951,000
Accumulated deficit ( 610,000) ( 1,207,000)
--------- ----------
Total stockholders' investment 8,352,000 7,784,000
--------- ---------
$ 9,205,000 $ 9,234,000
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
3
<PAGE>
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
Consolidated Statement of Income
(in thousands of dollars except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $3,158 $ 3,026 $ 5,959 $ 6,281
Costs and expenses -
Cost of sales 1,265 1,295 2,451 2,600
Selling, general,
and administrative 872 854 1,722 1,820
Amortization 60 60 121 121
----- ----- ----- -----
2,197 2,209 4,294 4,541
----- ----- ----- -----
Operating income 961 817 1,665 1,740
Other income (expense):
Interest income 31 30 65 59
Interest expense ( 10) ( 16) ( 20) ( 46)
Other income - - -
----- ----- ----- -----
Income before
income taxes 982 831 1,710 1,753
Income tax provision (409) (337) ( 714) ( 728)
----- ----- ----- -----
Net income $ 572 $ 494 $ 996 $1,025
===== ===== ===== =====
Net income per
common share $ .14 $ .12 $ .25 $ .26
==== ==== ==== ====
Average shares
outstanding 4,061 4,190 4,055 4,005
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial
statements.
4
<PAGE>
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
September 30,
-----------------
1996 1995
------- -------
<S> <C> <C>
Cash from operations:
Net income $ 996,000 $1,025,000
Adjustments to reconcile net income
to net cash from operations
Amortization 121,000 121,000
Depreciation 101,000 77,000
Changes in current assets
and liabilities
Decrease in receivables 46,000 313,000
(Increase) in inventories ( 199,000) ( 156,000)
(Increase) decrease in
prepaid expenses 20,000 ( 89,000)
Increase in accounts payable
and other accrued expenses ( 586,000) 241,000
Increase (decrease) in
income taxes payable ( 9,000) ( 710,000)
Increase in other assets ( 18,000) ( 15,000)
------- -------
Net cash provided by operations 472,000 857,000
Cash flow from investing activities
Capital expenditures ( 76,000) ( 111,000)
Cash flow from financing activities
Payment of notes payable - (1,050,000)
Cash dividends paid ( 399,000) ( 185,000)
Exercise of warrants and options 14,000 1,202,000
Purchase and cancellation of stock ( 45,000) -
--------- --------
Total ( 430,000) ( 33,000)
--------- --------
Net increase (decrease) in cash ( 34,000) 663,000
Beginning balance 3,046,000 2,902,000
--------- ---------
Ending balance $ 3,012,000 $3,565,000
========= =========
Supplemental information
Cash paid during the periods for:
Interest $ - $ 59,000
Taxes $ 727,000 1,439,000
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
5
<PAGE>
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
necessary to present fairly the financial position of Panatech as of
September 30, and March 31, 1996 and the results of operations and
cash flows for the six months ended September 30, 1996 and 1995.
The accounting policies followed by Panatech are set forth in
Note 1 to the financial statements in the 1996 Panatech Annual Report
filed on Form 10-KSB.
The results of operations for the three-month and six-month
periods ended September 30, 1996 and 1995 are not necessarily
indicative of the results to be expected for the full year.
(2) Cash Dividend
In April, 1995, the Board of Directors voted the Company's first
cash dividend. On October 16, 1996, the Board voted a $.10 per share
semi-annual dividend to be paid on November 15, 1996 to shareholders
of record on October 31, 1996.
The Company's dividend history is as follows:
Date Paid Per share amount
--------- ----------------
May 1995 $ .05
Nov 1995 $ .075
May 1996 $ .10
(3) Subsequent Event
On November 5, 1996, the Company entered into a Letter of
Intent with Titan Enterprises, Inc. ("Titan") pursuant to which Titan
proposes to acquire the Company in a cash merger in which the
Company's shareholders would receive $7.00 in cash for each share of
the Company's outstanding Common Stock, including shares issuable
upon the exercise of stock options and Class B Warrants. The
purchase price is subject to reduction if, at closing of the merger,
the Company does not have consolidated quick assets of at least
6
<PAGE>
$4,362,000, less up to $225,000 for merger transaction costs. There
are currently outstanding 3,979,375 shares of Common Stock, 330,750
shares subject to stock options, and 620,175 shares subject to Class
B Warrants.
Consummation of the merger is subject to, among other
conditions, the execution of a definite merger agreement, approval of
the merger by the boards of directors of the Company and Titan,
approval of the merger by the Company's shareholders, completion of
due diligence, receipt of regulatory approvals, and approval of the
transaction by the lenders of Titan.
The Letter of Intent is a preliminary and non-binding
understanding between the parties and is not a binding agreement
except with respect to confidentiality terms and the payment of a fee
to Titan as described below. The Letter of Intent will terminate
automatically if a definitive merger agreement is not executed by the
parties by November 30, 1996 and may be terminated by either party
prior to execution of a definitive agreement.
Titan will be entitled to a cash payment of $994,843.75 if the
Company is sold to a third party unless (i) Titan decides not to
conclude the transaction in accordance with the terms and conditions
of the Letter of Intent; (ii) Titan's lenders do not approve the
transaction; (iii) requisite regulatory approvals are not obtained;
or (iv) the closing of the sale of the Company to a third party
occurs more than six months after the Company advises Titan that it
will not proceed with the proposed merger.
ASM Company, Inc., the Company's wholly-owned subsidiary
("ASM"), has been involved in an arbitration proceeding with Titan
Tool, Inc., a wholly-owned subsidiary of Titan, to resolve a patent
infringement lawsuit brought by ASM against Titan. Prior to the
receipt of the arbitrator's decision on the patent dispute, the
parties entered into settlement discussions which culminated in the
execution of the Letter of Intent. If the merger is not consummated
and the parties do not agree to settle their dispute, the arbitrator
will render his decision.
7
<PAGE>
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
Panatech's resources, in the opinion of management, are adequate
for projected operations and capital spending programs, and the
continuation of semi-annual cash dividends which are presently at a
rate of approximately $796,000 per year.
Results of Operations
For the three months ended September 30, 1996, the Company had
sales of $3,158,000, an increase of $132,000, or 4%, over the same
quarter a year ago, reflecting increased product shipments. Gross
profit was 59.9% of sales compared to 58.5% of sales in last year's
first quarter, largely due to the higher volume. Selling, general,
and administrative expenses were $872,000, or 27.6% of sales,
compared to $854,000, or 28.2% of sales last year. Operating income
was $961,000 compared to $817,000 in the year-earlier quarter, mainly
due to the greater gross profit generated by sales.
Interest income was $31,000 compared to $30,000 last year with
similar interest rates available on about the same amount of
investment. Income before income taxes rose to $982,000 from
$831,000, a gain of 18%. Provision for income taxes was $409,000
compared to $337,000 last year. Therefore, net income was $572,000,
or $.14 per share compared to $494,000, or $.12 per share, last year.
This was an increase of 16 %. In 1996, average shares outstanding
were 4,061,000 shares compared to 4,190,000 last year.
For the six months ended September 30, 1996, the Company had
sales of $5,959,000, a decrease of $322,000, or 5.1%, from the same
period a year ago, partially reflecting large stocking orders for a
new marketing channel opened by a major OEM customer in the first
quarter of the previous fiscal year. Gross profit was 58.9% of sales
compared to 59.2% of sales in last year's first quarter, largely due
to the lower volume. Selling, general, and administrative expenses
were $1,722,000, or 28.9% of sales, compared to $1,820,000, or 29.0%
of sales last year, with reductions being made to compensate for
lower sales. Operating income was $1,665,000 compared to $1,740,000
in the year-earlier period, mainly due to the lower gross profit
generated by sales.
Interest income was $65,000 compared to $59,000 last year
principally due to higher levels of investment in the money markets.
8
<PAGE>
Interest expense was $20,000 compared to $46,000 in last year's first
quarter mainly due to the payment last year of the outstanding
balance of long-term debt.
Income before income taxes declined from $1,753,000 to
$1,710,000, a drop of 2.5%. Provision for income taxes was $714,000
compared to $728,000 last year. Therefore, net income was $996,000,
or $.25 per share compared to $1,025,000, or $.26 per share, last
year. In 1996, average shares outstanding were 4,055,000 shares
compared to 4,005,000 last year.
Note 3 of the Notes to the Consolidated Financial Statements on
pages 6 and 7, is hereby incorporated by reference.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Item 5. Other Information
Note 3 of the Notes to the Consolidated Financial Statements on
pages 6 and 7, is hereby incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Shareholders Meeting held on August 15,
1996, the shareholders voted to re-elect as directors for one year
terms the following persons: Joseph Elmaleh, with 2,868,593 votes
for and 101,130 abstentions; Arthur J. Rosenberg with 2,878,993 votes
for and 90,730 abstentions; Paul B. Rosenberg with 2,879,393 votes
for and 90,330 abstentions; and James Stamas with 2,879,943 votes for
and 90,230 abstentions. The vote for directors represented
approximately 72% of the outstanding shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report.
11 Calculation of income per share
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
There were no reports on Form 8-K during the quarter for
which this report is filed.
9
<PAGE>
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
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.
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
by: /s/ Arthur J. Rosenberg
---------------------------
Date: November 11, 1996 Arthur J. Rosenberg
President and Chief Financial
Officer
10
<PAGE>
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
Exhibit 11
Calculation of Average Shares Outstanding
Three months ended September 30, 1996
Shares issued and outstanding - beginning 3,975,975
Average shares issued during quarter for
exercised options 1,902
Average shares issued during quarter for
exercised Class B warrants 1,126
---------
Total 3,979,003
Average bid price of stock
during quarter $ 4.382
Options outstanding 330,750
Proceeds if all exercised $ 1,091,563
Shares "purchased" at
average market price ( 249,117)
Additional shares ------- 81,663
Warrants outstanding 622,375
Proceeds if all exercised
at $5.00 per share n/a
Shares "purchased" at
average market price n/a)
Additional shares ------- n/a
---------
Average common and common equivalent shares 4,060,636
Rounding 364
---------
Average shares for 3 months ended September 30, 1996 4,061,000
Average shares for 3 months ended June 30, 1996 4,049,000
Average shares for 6 months ended September 30, 1996 4,055,000
Average shares for 3 months ended September 30, 1995 4,190,000
Average shares for 3 months ended June 30, 1995 3,819,000
Average shares for 6 months ended September 30, 1995 4,005,000
Fully diluted shares outstanding are not materially different than
shares shown in above calculations.
11
<PAGE>
1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 3,012
<SECURITIES> 0
<RECEIVABLES> 3,338
<ALLOWANCES> (144)
<INVENTORY> 1,677
<CURRENT-ASSETS> 7,196
<PP&E> 1,699
<DEPRECIATION> (811)
<TOTAL-ASSETS> 9,205
<CURRENT-LIABILITIES> 853
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 8,312
<TOTAL-LIABILITY-AND-EQUITY> 9,205
<SALES> 5,959
<TOTAL-REVENUES> 5,959
<CGS> 2,451
<TOTAL-COSTS> 2,451
<OTHER-EXPENSES> 1,843
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 1,710
<INCOME-TAX> (714)
<INCOME-CONTINUING> 996
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 996
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
