<PAGE>
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 December 31, 1995
------------------
/ / 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 the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at January 31, 1996
- ------------------- -------------------------------
Common stock, $ .01 par value 3,917,925
1
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PANATECH RESEARCH AND DEVELOPMENT CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
Dec. 31, March 31,
1995 1995
---------- ----------
(unaudited) (derived
from audited
statements)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,520,000 $ 2,902,000
Accounts receivable, less
allowances of $146,000 at
12/31/95 and $98,000 at 3/31/95 1,800,000 2,343,000
Inventories:
Raw materials and supplies 833,000 719,000
Work-in-process 82,000 63,000
Finished goods 239,000 105,000
--------- ---------
1,154,000 887,000
--------- ---------
Prepaid expenses 157,000 125,000
Deferred income tax asset 126,000 126,000
--------- ---------
Total current assets 6,757,000 6,383,000
Property, plant and equipment, at cost 1,220,000 1,077,000
Less: Accumulated depreciation
and amortization (667,000) (552,000)
------- -------
Net property, plant and equipment 553,000 525,000
Covenants not to compete, net 161,000 321,000
Cost of purchased business in excess
of net assets acquired, net 947,000 969,000
Other assets 176,000 144,000
--------- ---------
$ 8,594,000 $ 8,342,000
========= =========
</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>
Dec. 31, March 31,
1995 1995
----------- --------
(unaudited) (derived
from audited
statements)
<S> <C> <C>
Current liabilities
Notes payable, current portion $ - $ 750,000
Accounts payable 132,000 113,000
Income taxes payable ( 14,000) 796,000
Accrued payroll and benefits 676,000 621,000
Accrued expenses 368,000 321,000
--------- ---------
Total current liabilities 1,162,000 2,601,000
--------- ---------
Notes payable, net of current portion - 300,000
--------- ---------
Stockholders' investment
Common stock, par value $.01 per share -
Authorized - 20,000,000 shares
Outstanding - 3,923,425 shares
at 12/31/95 and 3,692,300
shares at 3/31/95 39,000 37,000
Premium paid in on common stock 8,931,000 7,771,000
Accumulated deficit ( 1,538,000) ( 2,367,000)
--------- ----------
Total stockholders'
investment 7,432,000 5,441,000
--------- ---------
$ 8,594,000 $ 8,342,000
========= =========
</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 Nine Months Ended
December 31 December 31
------------------ ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 2,390 $ 2,389 $ 8,671 $ 7,155
Costs and expenses -
Cost of sales 1,046 1,001 3,646 3,064
Selling, general,
and administrative 834 893 2,654 2,765
Amortization 61 61 182 206
----- ----- ----- -----
1,941 1,955 6,482 6,035
----- ----- ----- -----
Operating income 449 434 2,189 1,120
Other income (expense):
Interest income 40 21 99 57
Interest expense ( 9) ( 29) ( 55) ( 95)
Other income - 39 - 100
----- ----- ----- -----
Income before
income taxes 480 465 2,233 1,182
Income tax provision (195) (207) ( 923) ( 531)
----- ----- ----- -----
Net income $ 285 $ 258 $1,310 $ 651
===== ===== ===== =====
Net income per
common share $ .07 $ .07 $ .33 $ .18
==== ==== ==== ====
Average shares
outstanding 4,073 3,548 4,030 3,547
===== ===== ===== =====
</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>
Nine months ended
December 31,
-----------------
1995 1994
<S> <C> <C>
Cash from operations:
Net income $1,310,000 $ 651,000
Adjustments to reconcile net income
to net cash from operations
Amortization 182,000 206,000
Depreciation 115,000 99,000
Changes in current assets
and liabilities
(Increase) decrease in receivables 543,000 ( 920,000)
(Increase) in inventories ( 267,000) ( 200,000)
(Increase) decrease in
prepaid expenses ( 32,000) 197,000
Increase in accounts payable
and other accrued expenses 119,000 47,000
Increase (decrease) in
income taxes payable ( 810,000) 285,000
Increase in other assets ( 32,000) ( 36,000)
------- -------
Net cash provided by operations 1,128,000 329,000
Cash flow from investing activities
Capital expenditures ( 143,000) ( 131,000)
Cash flow from financing activities
Payment of notes payable (1,050,000) ( 750,000)
Cash dividends paid ( 480,000) -
Exercise of warrants 1,257,000 -
Purchase of treasury stock ( 94,000) ( 23,000)
Exercise of stock options - 11,000
--------- --------
Total ( 367,000) ( 762,000)
--------- --------
Net increase (decrease) in cash 618,000 ( 564,000)
Beginning balance 2,902,000 2,645,000
--------- ---------
Ending balance $ 3,520,000 $2,081,000
========= =========
Supplemental information
Cash paid during the periods for:
Interest $ 33,000 $ 95,000
Taxes $ 1,733,000 209,000
========= =======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
5
<PAGE>
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements - December 31, 1995
(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 December 31 and March 31, 1995 and the results of
operations and cash flows for the three months and nine months
ended December 31, 1995 and 1994.
The accounting policies followed by Panatech are set forth
in Note 1 to the financial statements in the 1995 Panatech Annual
Report filed on Form 10-KSB.
The results of operations for the three-month and nine-month
periods ended December 31, 1995 and 1994 are not necessarily
indicative of the results to be expected for the full year.
(2) Cash Dividend
On April 11, 1995, the Board of Directors voted the
Company's first cash dividend of $.05 per share which was paid on
May 15, 1995 to shareholders of record on April 28, 1995. On
October 5, 1995, the Board voted a $.075 per share semi-annual
dividend which was paid on November 15, 1995 to shareholders of
record on October 30, 1995.
6
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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 $589,000 per year.
During the third quarter ended December 31, 1995, warrants
were exercised to purchase 11,070 shares of common stock of the
Company at $5.00 per share, for a total of $55,350. For the nine
months year to date, warrants for 251,325 shares were exercised
for a total of $1,256,625. On August 15, 1995, the Company
prepaid the remaining balance of $775,000 of its outstanding
long-term debt.
Results of Operations
For the three months ended December 31, 1995, the Company
had sales of $2,390,000, virtually unchanged from the same
quarter a year ago. However, last year, third and fourth quarter
results were increased by large initial stocking orders, or
"pipeline filling", for new products from several major customers.
This year, there was a return to normal seasonal patterns,
and sales included minimal "pipeline filling".
Gross profit was 56.2% of sales compared to
58.1% of sales last year with the decrease in gross profit
percentage largely due to a change in product mix. Selling,
general, and administrative expenses were $834,000, or 34.9% of
sales, compared to $893,000, or 37.4% of sales last year,
therefore operating income was $449,000 compared to $434,000 in
the year-earlier quarter, mainly due to the lower S,G & A
expenses which more than offset the lower gross profit generated.
Interest income was $40,000 compared to $21,000 last year
principally due to higher balances of invested funds. Interest
expense was $9,000 compared to $29,000 in last year's third
quarter mainly due to full repayment of outstanding long-term
debt on August 15, 1995. Last year, other income represented a
$39,000 royalty payment resulting from a 1991 divestiture. The
royalty payments were completed in March 1995.
Income before income taxes rose from $465,000 to $480,000.
Provision for income taxes was $195,000 compared to $207,000 last
year. Net income was $285,000, which was $27,000, or 10%, higher
than the $258,000 recorded last year. In 1995, average common
and common equivalent shares outstanding were 4,073,000 shares
compared to 3,548,000 last year, an increase of 15%. The
increase was mainly due to the exercise of stock options at the
7
<PAGE>
end of the last fiscal year as well as 251,325 warrants in
August- October 1995, plus the potential dilutive effect of
unexercised options and warrants. Despite the 10% increase in
net income, the increase in average shares outstanding resulted
in earnings per share remaining level at $.07 per share.
For the nine months ended December 31, 1995, the Company had
sales of $8,671,000, an increase of $1,516,000, or 21%, from the
same period a year ago, reflecting increased demand for ASM
products. Gross profit was 58.0% of sales compared to 57.2% of
sales in last year's first nine months. The increase in gross
profit was largely due to the greater volume enabling overhead
costs to be spread over greater production, offset in part by a
somewhat different sale mix in 1995. Selling, general, and
administrative expenses were $2,654,000, or 30.6% of sales,
compared to $2,765,000, or 38.6% of sales last year, with the
lower percentage primarily due to the higher sales volume as well
as the expiration, on September 30, 1994, of amortization and
other expenses relating to the acquisition of ASM. Operating
income was $2,189,000 compared to $1,120,000 in the first nine
months of the previous fiscal year, mainly due to the additional
gross profit generated by higher sales.
Interest income for the nine months was $99,000 compared to
$57,000 last year principally due to higher balances of invested
funds. Interest expense was $55,000 compared to $95,000 last year
mainly due to full repayment of outstanding long-term debt on
August 15, 1995. Last year, other income represented a $100,000
royalty payment resulting from a 1991 divestiture. The royalty
payments were completed in March 1995.
Income before income taxes rose from $1,182,000 to
$2,233,000. Provision for income taxes was $923,000 compared to
$531,000 last year. Therefore, net income was $1,310,000, or
$.33 per share compared to $651,000, or $.18 per share, last
year. In the nine months ended December 31, 1995, average shares
outstanding were 4,030,000 compared to 3,547,000 last year. The
increase was mainly due to the exercise of stock options at the
end of the last fiscal year as well as 251,325 warrants in
August - October 1995, plus the potential dilutive effect of
unexercised options and warrants.
The normal seasonal pattern of the Company's sales has
historically been that the June and September fiscal quarters
show greater activity than the December and March fiscal quarters
due to lower purchases by ultimate users of painting equipment
and supplies in the winter months. The exception to this pattern
was in the December and March quarters of last fiscal year when
the Company received large initial stocking orders or "pipeline
filling" for new products from several major customers. However,
in this year's December quarter, the Company understands that
there was minimal "pipeline filling" and sales reflected normal
seasonal patterns.
8
<PAGE>
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, the Company's wholly owned
subsidiary, ASM Company, Inc. (ASM), filed in April 1995 a
lawsuit in the United States District Court for the Central
District of California against Titan Tool, Inc.(Titan), claiming
that a new product recently introduced into the marketplace by
Titan infringed certain patents held by ASM. Thereafter, Titan
answered and filed certain cross-claims against ASM. In
September 1995, the parties agreed to dismiss all claims against
each other for financial damages and to submit all patent issues
to final and binding arbitration before a single arbitrator. The
arbitration hearing is scheduled for February and March 1996, and
the arbitrator's decision is to be rendered not later than June
1996.
The Company and ASM are not engaged in any other litigation
except for claims incurred in the ordinary course of business.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report.
11 Calculation of earnings per share and
average shares outstanding.
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.
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: February 2, 1996 Arthur J. Rosenberg
President and Chief Financial
Officer
9
<PAGE>
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
Exhibit 11
Calculation of Average Shares Outstanding
<TABLE>
<CAPTION>
Three months ended December 31, 1995
<S> <C>
Shares issued and outstanding - beginning 3,932,555
Average shares issued during quarter for
exercised warrants 9,932
Average shares repurchased ( 9,699)
---------
Total 3,932,788
<C>
Average bid price of stock
during quarter $ 4.998
Options outstanding 205,000
Proceeds if all exercised $ 324,500
Shares "purchased" at
average market price (64,931)
Additional shares ------- 140,069
Warrants outstanding 784,624
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 4,072,857
Rounding 143
---------
Average shares for 3 months ended December 31, 1995 4,073,000
Average shares for 3 months ended June 30, 1995 3,819,000
Average shares for 3 months ended September 30, 1995 4,190,000
---------
Average shares for 9 months ended December 31, 1995 4,027,000
</TABLE>
Fully diluted shares outstanding are not materially different
than shares shown in above calculations.
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 3,520
<SECURITIES> 0
<RECEIVABLES> 1,946
<ALLOWANCES> (146)
<INVENTORY> 1,154
<CURRENT-ASSETS> 6,757
<PP&E> 1,220
<DEPRECIATION> (667)
<TOTAL-ASSETS> 8,594
<CURRENT-LIABILITIES> 1,162
<BONDS> 0
<COMMON> 39
0
0
<OTHER-SE> 7,393
<TOTAL-LIABILITY-AND-EQUITY> 8,594
<SALES> 8,671
<TOTAL-REVENUES> 8,671
<CGS> 3,646
<TOTAL-COSTS> 3,646
<OTHER-EXPENSES> 2,836
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (55)
<INCOME-PRETAX> 2,233
<INCOME-TAX> (923)
<INCOME-CONTINUING> 1,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,310
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
