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, 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 February 5, 1997
- ----------------------------- -------------------------------
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>
Dec. 31, March 31,
1996 1996
---------- ----------
(unaudited) (derived
Current assets: from audited
statements)
<S> <C> <C>
Cash and cash equivalents $ 3,547,000 $ 3,046,000
Accounts receivable, less
allowances of $144,000 at 12/31/96
and 3/31/96 2,065,000 2,240,000
Inventories:
Raw materials and supplies 1,054,000 989,000
Work-in-process 133,000 166,000
Finished goods 234,000 323,000
--------- ---------
1,421,000 1,478,000
--------- ---------
Prepaid expenses 246,000 136,000
Deferred income tax asset 197,000 197,000
--------- ---------
Total current assets 7,476,000 7,097,000
Property, plant and equipment, at cost 1,642,000 1,623,000
Less: Accumulated depreciation
and amortization (776,000) (710,000)
------- -------
Net property, plant and equipment 866,000 913,000
Covenants not to compete, net - 107,000
Cost of purchased business in excess
of net assets acquired, net 919,000 940,000
Other assets 214,000 177,000
--------- ---------
$ 9,475,000 $ 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>
Dec. 31, March 31,
1996 1996
----------- --------
(unaudited) (derived
Current liabilities from audited
statements)
<S> <C> <C>
Accounts payable $ 156,000 $ 233,000
Accrued payroll and benefits 425,000 662,000
Accrued expenses 319,000 524,000
Income taxes payable 261,000 31,000
--------- ---------
Total current liabilities 1,161,000 1,450,000
--------- ---------
Stockholders' investment
Common stock, par value $.01 per share -
Authorized - 20,000,000 shares
Outstanding - 3,982,375 shares at
at 12/31/96 and 3,987,175 shares
at 3/31/96 40,000 40,000
Premium paid in on common stock 8,908,000 8,951,000
Accumulated deficit ( 634,000) ( 1,207,000)
--------- ----------
Total stockholders' investment 8,314,000 7,784,000
--------- ---------
$ 9,475,000 $ 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 Nine Months Ended
December 31 December 31
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 2,712 $ 2,390 $ 8,671 $ 8,671
Costs and expenses -
Cost of sales 1,251 1,046 3,702 3,646
Selling, general,
and administrative 868 834 2,590 2,654
Amortization 7 61 128 182
----- ----- ----- -----
2,126 1,941 6,420 6,482
----- ----- ----- -----
Operating income 586 449 2,251 2,189
Other income (expense):
Interest income 30 40 95 99
Interest expense ( 6) ( 9) ( 26) ( 55)
----- ----- ----- -----
Income before
income taxes 610 480 2,320 2,233
Income tax provision (238) (195) ( 952) ( 923)
----- ----- ----- -----
Net income $ 372 $ 285 $1,368 $1,310
===== ===== ===== =====
Net income per
common share $ .09 $ .07 $ .34 $ .33
==== ==== ==== ====
Average shares
outstanding 4,114 4,073 4,075 4,030
===== ===== ===== =====
</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,
-----------------
1996 1995
<S> <C> <C>
Cash from operations:
Net income $1,368,000 $1,310,000
Adjustments to reconcile net income
to net cash from operations
Amortization 128,000 182,000
Depreciation 157,000 115,000
Changes in current assets
and liabilities
Decrease in receivables 175,000 543,000
(Increase) decrease in inventories 57,000 ( 267,000)
(Increase) in prepaid expenses ( 110,000) ( 32,000)
Increase (decrease) in accounts payable
and other accrued expenses 516,000) 119,000
Increase (decrease) in
income taxes payable 230,000 ( 810,000)
Increase in other assets ( 37,000) ( 32,000)
--------- ---------
Net cash provided by operations 1,452,000 1,128,000
Cash flow from investing activities
Capital expenditures ( 110,000) ( 143,000)
Cash flow from financing activities
Payment of notes payable - (1,050,000)
Cash dividends paid ( 798,000) ( 480,000)
Exercise of warrants 11,000 1,257,000
Purchase of treasury stock ( 57,000) ( 94,000)
Exercise of stock options 3,000 -
--------- --------
Total ( 841,000) ( 367,000)
--------- --------
Net increase (decrease) in cash 501,000 618,000)
Beginning balance 3,046,000 2,902,000
--------- ---------
Ending balance $ 3,547,000 $3,520,000
========= =========
Supplemental information
Cash paid during the periods for:
Interest $ - $ 33,000
Taxes $ 727,000 1,733,000
========= =========
</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
December 31, and March 31, 1996 and the results of operations and
cash flows for the nine months ended December 31, 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 nine-month
periods ended December 31, 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 which was 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
Nov 1996 $ .10
(3) Merger Agreement
On December 6, 1996, the Company entered into an Agreement and
Plan of Merger with Titan Enterprises, Inc., a Delaware corporation
("Titan") and Panatech Acquisition Corporation, a Nevada corporation
and wholly owned subsidiary of Titan ("Merger Sub") (the Merger
Agreement), pursuant to which, and subject to satisfaction of the
conditions set forth therein, (i) Merger Sub will be merged with and
6
<PAGE>
into the Company (the "Merger"), with the Company continuing as the
surviving corporation, (ii) the Company will become a wholly owned
subsidiary of Titan, and (iii) each outstanding share of the
Company's common stock (other than shares owned by Titan, Merger Sub
or subsidiaries of the Company, if any, which shares will be
canceled) will be converted, upon the effectiveness of the Merger,
into the right to receive $7.00 in cash per share, without interest,
subject to reduction if the Company does not have Quick Assets (Cash,
plus accounts receivable, less current liabilities) of at least
$4,362,000, less up to $225,000 of Merger transaction costs, at the
closing. The Merger Agreement also provides for payment to the
holders of the Company's Class B Warrants of an amount equal to the
consideration payable per share of common stock less the exercise
price per share of the Class B Warrants. Consummation of the Merger
is subject to, among other things, approval of the Merger Agreement
by the Company's shareholders and regulatory approvals. If the
Merger Agreement is terminated under certain circumstances relating
to an acquisition of the Company by a third party, the Company has
agreed to pay Titan a fee equal to $994,844.
In April 1995, ASM Company, Inc., the Company's wholly-owned
subsidiary ("ASM"), filed a lawsuit in the United States District
Court for the Central District of California against Titan Tool,
Inc., (a wholly-owned subsidiary of Titan), claiming that a new
product recently introduced into the marketplace by Titan Tool
infringes three patents relating to ASM's primary product, the ZIP-
TIP. Thereafter, Titan Tool 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 was held in February and March
1996. Prior to receipt of the arbitrator's decision on the patent
dispute, the parties entered into settlement discussions which
culminated in the execution of the Merger Agreement.
If the Merger is not consummated and the parties do not agree to
settle their dispute, the arbitrator will render his decision. The
Company believes that an adverse result in this arbitration could
adversely affect its plans to build market share for this product
line over the next three to five years because it will face direct
competition on its primary product line from Titan Tool and others
who have substantially greater market share and resources than does
the Company.
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.
Results of Operations
For the three months ended December 31, 1996, the Company had
sales of $3,158,000, an increase of $322,000, or 13%, over the same
quarter a year ago, reflecting increased product shipments. Gross
profit was 53.9% of sales compared to 56.2% of sales in last year's
first quarter, largely due sales mix. Selling, general, and
administrative expenses were $868,000, or 32% of sales, compared to
$834,000, or 34.9% of sales last year. Operating income was $586,000
compared to $449,000 in the year-earlier quarter, an increase of
$137,000, or 30%, mainly due to the greater gross profit generated by
increased sales. Expenses in the amount of $156,0000 incurred in
connection with the proposed Merger with Titan Industries have been
capitalized as a Prepaid Expense on the Company's Balance Sheet at
December 31, 1996.
Interest income was $30,000 compared to $40,000 last year due to
lower interest rates available for money-market investments. Income
before income taxes rose to $610,000 from $480,000, a gain of 27%.
Provision for income taxes was $238,000 compared to $195,000 last
year. Therefore, net income was $372,000, or $.09 per share compared
to $285,000, or $.07 per share, last year. This was an increase of
28 %. In 1996, average shares outstanding were 4,114,000 shares
compared to 4,073,000 last year.
For the nine months ended December 31, 1996, the Company had
sales of $8,671,000, unchanged from last year. Sales for the first
six months of the present fiscal year had trailed the prior year, but
the increase in third quarter sales over the previous year brought
total FY 1997 sales up to last year's level. Gross profit was 57.3%
of sales compared to 58.4% of sales in last year's first nine months,
largely due to sales mix. Selling, general, and administrative
expenses were $2,590,000, or 29.9% of sales, compared to $2,654,000,
or 30.6% of sales last year. Operating income was $2,251,000
compared to $2,189,000 in the year-earlier period, mainly due to
lower operating expenses in the period.
8
<PAGE>
Interest income was $95,000 compared to $99,000 last year.
Interest expense was $26,000 compared to $55,000 in last year's first
nine months mainly due to the payment last year of the outstanding
balance of long-term debt.
Income before income taxes increased from $2,233,000 to
$2,320,000, a gain of 3.9%. Provision for income taxes was $952,000
compared to $923,000 last year. Therefore, net income was
$1,368,000, or $.34 per share compared to $1,310,000, or $.33 per
share, last year. In 1996, average shares outstanding were 4,075,000
shares compared to 4,030,000 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 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
A Form 8-K dated December 6, 1996 was filed during the
quarter for which this report is filed to report on Item 5.
Other Events.
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: February 6, 1997 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 3,982,375
Average shares purchased during quarter ( 3,000)
---------
Total 3,979,375
Average bid price of stock
during quarter $ 5.574
Options outstanding 330,750
Proceeds if all exercised $ 1,091,563
Shares "purchased" at
average market price ( 195,847)
Additional shares ------- 134,903
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 4,114,278
Rounding ( 278)
---------
Average shares for 3 months ended December 31, 1996 4,114,000
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 9 months ended December 31, 1996 4,075,000
Average shares for 3 months ended December 31, 1995 4,073,000
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 9 months ended December 31, 1995 4,030,000
Fully diluted shares outstanding are not materially different than
shares shown in above calculations.
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 3,547
<SECURITIES> 0
<RECEIVABLES> 2,209
<ALLOWANCES> (144)
<INVENTORY> 1,421
<CURRENT-ASSETS> 7,476
<PP&E> 1,642
<DEPRECIATION> (776)
<TOTAL-ASSETS> 9,475
<CURRENT-LIABILITIES> 1,161
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 8,274
<TOTAL-LIABILITY-AND-EQUITY> 9,475
<SALES> 8,671
<TOTAL-REVENUES> 8,671
<CGS> 3,702
<TOTAL-COSTS> 3,702
<OTHER-EXPENSES> 2,718
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 2,320
<INCOME-TAX> (952)
<INCOME-CONTINUING> 1,368
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,368
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
