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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED MARCH 31, 2001,
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.
d/b/a AMX Corporation
(Exact name of registrant as specified in its charter)
Texas 75-1815822
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01
par value
(Title of Class)
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 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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock (which consists solely of
shares of Common Stock) held by non-affiliates of the registrant as of May 31,
2001, computed by reference to the closing sales price of the registrant's
Common Stock on the Nasdaq National Market on such date, was approximately
$39,417,000.
The number of shares of the registrant's Common Stock outstanding as of May
31, 2001 was 10,994,108.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 2001 Annual Meeting of
Shareholders are incorporated by reference into Part III hereof.
1
PART I
ITEM 1. BUSINESS.
Overview
Panja Inc. d/b/a AMX Corporation ("AMX", "Panja" or the "Company"),
which was incorporated in Texas in March 1982, is a leading developer,
manufacturer, and marketer of integrated remote control systems. These systems
enable end users to operate as a single system a broad range of electronic
equipment in a variety of corporate, educational, industrial, entertainment,
governmental, and residential settings. The Company's hardware and software
products provide the operating system, machine control, and user interface
necessary to operate, as an integrated network, electronic devices from
different manufacturers through easy-to-use control panels. The Company's
systems provide centralized control for over 20,000 different electronic devices
including video components, audio components, teleconferencing devices, lighting
equipment, educational media, environmental control systems, and security
systems.
The Company's systems accommodate evolving technologies. Recently, the
Company integrated its control systems with the Internet. The Company's
technology allows end users to communicate with their control systems through
the Internet, as well as send and receive commands, content or information.
Applications in the commercial market for the Company's remote control
systems include: use for presentations in corporate board rooms; business
training centers; controls for hotels, meeting and convention facilities;
security camera control, video distribution, and public address systems for
stadiums and theme parks; multimedia and teleconferencing support for government
and educational facilities; and decision support centers for industrial
applications. In the residential market, the Company's products enable
individuals to create an integrated home automation system which can control
audio, video and home theater systems, lighting, motorized drapes, heating and
air conditioning units, closed circuit cameras, security systems, and other home
electronic equipment.
The Company's system sales are made through dealers and distributors
who are supported by Company sales and support offices in various geographic
areas. In addition, the Company utilizes independent manufacturers'
representatives in areas not served by Company offices. The Company principally
relies on approximately 1,500 specialized third-party dealers of electronic and
audio-visual equipment to sell, install, support, and service its products in
the United States. In addition to maintaining customer training, technical
support and sales offices in the United Kingdom, Canada, Mexico, China and
Singapore, the Company relies on an international network of 21 exclusive
distributors serving 24 countries and over 190 dealers serving 27 additional
countries to distribute its products. Dealers and distributors can use the AMX
software to tailor the Company's control system for each installation. The
Company also sells various customized products, primarily user interface
devices, to OEMs and other large customers.
The Company believes that the market for its products has expanded due
to the greater affordability, increased functionality, and more widespread use
of a diverse array of electronic devices, particularly sophisticated audio,
video, and presentation equipment. Many of these devices have separate control
systems that are incompatible due to the absence of any one widely accepted
control standard. In many settings, devices from several manufacturers are used,
resulting in the presence of multiple control units that can be confusing and
cumbersome to the user. This creates a need for integrated control systems such
as those produced by the Company.
The Company's strategy is to take advantage of the growth in the market
for its products by bringing the power and flexibility of remote control
technology to a wide variety of settings. Elements of the Company's strategy
include:
. developing alliances with key electronic industry companies;
. developing new software to simplify system programming in order to
expand system sales;
. continuing to emphasize customer support and service in order to
maintain and enhance market share;
. expanding international distribution;
. providing flexible systems to accommodate emerging technologies; and
. commitment to dealer training.
2
Market and Industry Overview
Garage door openers were one of the first widespread uses of wireless
remote control technology. From this particular application, a number of
companies developed technologies for the wireless operation of slide projectors.
The widespread adoption of microprocessors enabled the development of embedded
systems that were easier to use and made possible the operation of sophisticated
electronic devices using a control command system. The widespread adoption of
products using microprocessors has also increased the availability and the use
of other electronic and programmable equipment over the past decade. This growth
has been fueled by increased affordability and performance of this equipment and
has created a demand for integrated remote control systems in the commercial and
residential markets.
In addition to active marketing and educational efforts by
manufacturers, the industry is supported by several trade associations, notably
ICIA (International Communications Industries Association), CEDIA (Custom
Electronic Design and Installation Association), and NAB (National Association
of Broadcasters). The key associations hold trade shows, provide training
programs, and actively develop their respective markets within the industry.
There are numerous manufacturers that provide a wide variety of
products to the residential market. The products range from very simple lighting
controls sold in a retail store, to very complex and very expensive systems
designed for a single application.
The Company's products are currently used most commonly in the
following markets:
Commercial
Corporate. In the corporate setting, the Company's systems are used in
board rooms, conference and meeting rooms, convention centers, auditoriums,
training centers, and teleconferencing facilities. Typical applications include
integrated control of a wide variety of audio and visual presentation equipment,
such as video projectors, VCRs, DVD players, computers, and sound systems, as
well as lighting and temperature controls and window coverings. The Company
believes that an increasing portion of the board, conference, meeting, and
training rooms constructed or remodeled are being designed to include integrated
remote control systems. The Company also believes that it is one of the largest
providers of integrated control systems to this market and that this market
represents a significant opportunity for its products. AMX estimates that its
control systems are used in the facilities of over 80% of the Fortune 100
companies, including Intel, Enron, AT&T, Exxon Mobil, Coca Cola, Lucent
Technologies, and Motorola.
Sports. The Company's systems are currently being used in stadiums and
other sports facilities across the United States, including BankOne Ballpark,
Camden Yards, The Ballpark in Arlington, the Georgia Dome, and the United Center
in Chicago. Applications typically include controlling audio and video systems,
switchers and routers, and surveillance cameras.
Entertainment. The Company's systems are used in various museums and
amusement parks across the United States, including Disney World, EPCOT Center,
Sea World, Virginia Air and Space Museum, JFK Museum, Universal Studios, Busch
Gardens, and the Rock and Roll Hall of Fame. Applications typically include
controlling audio and visual systems and electronic and mechanical equipment
used in exhibits and special effects.
Industrial. The Company's systems are currently being used in decision
support centers in industrial settings such as the Network Emergency Response
Assistance Center of Bell South Services, Inc., the Decision Command Center of
Burlington Northern Railroad, and the Network Operations Center of EDS. Typical
applications include control of large screen video displays and video routing
equipment.
Government. The Company's systems are being used by federal, state, and
local government entities such as the State of Maryland Intelligent Highway
Vehicle Control System, the California Senate, the Louisiana House of
Representatives, the Library of Congress in Washington, D.C., and war rooms at
the U.S. Army War College. Typical applications include audio visual equipment
control, video routing and distribution, video teleconferencing, and voting and
request-to-speak systems.
Education. In this market, the Company provides audio-visual and multimedia
controls for lecture halls, auditoriums and classrooms. The Company's systems
can be found around the world in such schools as the Singapore American School,
the University of Notre Dame, the University of Texas at Dallas, the Dallas
Independent School District, and the Edina School District of Minnesota located
in the Minneapolis metropolitan area.
3
Residential
The residential market remains a very fragmented marketplace with
numerous providers and a wide range of products and services. The Company's
products enable individuals to create an integrated home automation system which
can control such items as audio, video, home theater systems, lighting,
motorized drapes, heating and air conditioning units, closed circuit cameras,
security systems, and other home electronic equipment. The Company has developed
standardized control products designed to increase its penetration of the
residential market. The Company believes that the residential market for its
products is significant and growing. According to Frost & Sullivan, the
residential custom installation market for audio control systems is expected to
grow by more than 40% in 2001.
Business Strategy
The Company's strategy is to take advantage of the growth in the
markets for its main products by bringing the power and flexibility of remote
control technology to a wide variety of settings. Elements of the Company's
strategy include:
Developing alliances with key electronic industry companies. Through
alliances with key electronics industry companies, the Company created the
Protocol Partner Program ("P3"). With our P3 partners the Company is
creating a common ground to standardize connectivity throughout the
electronics industry. Once an electronic device from a P3 partner is
connected to the network, the system server can adapt to the device's
specific control properties and control the device through the system.
Developing new software to simplify system programming in order to expand
system sales. The Company believes that enhanced software investment can
increase system sales by simplifying programming requirements for its
dealers. For example, the Company developed tools that enable dealers to
more easily program the Company's systems by employing graphical user
interfaces. The Company believes that these enhancements can provide its
dealers with simplified customization techniques, reduce programming time,
and enhance sales of the Company's products.
Continuing to emphasize customer support and service in order to maintain
and enhance market share. The Company believes that the support, service
and training it provides to its customers are key competitive advantages.
The Company provides technical support, on-site repair and support, as
needed, and on-line software support to its dealers and end users. The
Company's customer support and service originates from its new headquarters
in Richardson, Texas. However, in order to provide quality and timely
customer support, the Company has also established offices in Philadelphia,
Los Angeles, Tampa, Denver, Toronto, York (U.K.), Mexico City, Shanghai,
Brussels and Singapore.
Expanding international distribution. The Company currently markets its
products outside the United States through a network of international
distributors with exclusive rights to sell AMX products. The Company
believes that the international market presents a significant opportunity
for the Company, and continues to expand its distribution presence overseas
to take advantage of this opportunity. In June 1993, the Company purchased
AXCESS Technology, Ltd., a distributor of electronic equipment based in the
United Kingdom. In August 1995 the Company established its Singapore
subsidiary to provide technical support and training for Asia and the
Pacific Rim. The Company has representative offices in Canada, Mexico,
Belgium, and Shanghai.
Providing flexible systems to accommodate emerging technologies. The
Company believes that an important competitive advantage is the flexible,
modular design of its systems, which are expandable and which can
accommodate a wide variety of control formats. This design maximizes the
ability of the Company's products to accommodate new technologies in
electronic devices as they are developed. Netlinx, the Company's latest
product platform, represents a significant enhancement increasing both
speed and functionality. NetLinx is compatible with our existing AXCESS and
Landmark systems and will expand their functionality by allowing them to
utilize Internet Control System Protocol.
4
Commitment to dealer training. The Company has its primary training
facility at its headquarters in Richardson, Texas, where dealers and
distributors are provided training to program, install, and service the
Company's systems. The Company also provides training at its other regional
and international locations to accommodate clusters of its dealers, thereby
reducing the dealer's cost of travel. We believe that our commitment to
dealer training has resulted in a growing, increasingly well-trained group
of dealers who are serving a range of discrete vertical markets. In
addition, we review the capabilities and performance of our dealers on an
annual basis. We believe that this is critical because our dealers have the
relationship with the end user, and a well-trained and monitored dealer
network will provide a quality installation that will result in a greater
level of customer satisfaction. The success of our dealer network has
allowed us to minimize our need to service end users.
Product Components
The Company's current systems and products are offered in a variety of
configurations designed to meet the changing needs of individual end users. A
typical AMX system consists of a central controller, a series of device
interfaces, and one or more control panels or other user interfaces that enable
the user to manipulate those devices. Prices for a complete system vary
substantially depending upon the configuration of the system. The Company also
develops software to operate its systems, to serve as dealer development tools,
to simplify system design and programming, and to provide specific applications
for maintenance needs the Company has identified.
AMX systems interface with virtually any electronically controlled
equipment and include a variety of simple-to-operate, custom-designed user
interfaces. There are four general categories of systems components produced by
AMX: controllers, peripherals, user interfaces, and software.
Controllers are components that perform the direct "handshake" to the
-----------
various elements of a user's system, such as video projectors and switchers,
tape and disc players, audio components, computers, and lighting. The
controllers tie together a variety of often dissimilar parts into a unified
network for control.
Peripherals are intelligent sub-systems designed for specific
-----------
applications, including lighting and robotic camera control. This type of
technology can be used as independent, dedicated systems or linked to another
AMX control system for integrated operation.
User Interfaces are the user's "window" to the system. Ranging from
---------------
small hand-held wireless remotes to color touch panels that can interactively
guide the user through an application, AMX user interfaces come in a variety of
shapes and sizes to match any requirement.
Software is applied in two different ways: design and automation.
--------
Design software is used to layout system architecture, provide control logic for
the system, and create application designs for user interfaces. Automation
software runs inside the system, acting as the central "brain" between the user
and the system components.
Customer Support and Service
The Company believes that the support and service it provides to its
customers are key competitive advantages and, as part of its strategy, will
continue to focus on the development of such support and service. The Company
has established a customer service and support organization that provides order
processing, technical and engineering support, and hardware repair to dealers,
distributors, and end users of its products. Within this organization, the
Company has created sales support teams focused on specific geographic regions
supported by dedicated, trained technicians. The Company believes that the
establishment of sales support teams with specific geographic responsibility
enhances the development of personal relationships between the Company's dealers
and distributors and specific sales and support personnel. The Company will, if
necessary, send technical support to a job site to provide individual attention
as such needs arise. The Company's sales support teams can provide operating
software updates, modifications, and new device interface codes online through
the Internet. The Company provides technical support to customers from its
domestic and international offices.
5
Sales, Distribution, and Marketing
The Company markets and sells its systems products worldwide through
distribution channels that include manufacturer's representatives in the U. S.,
dealers and distributors internationally, as well as OEM and custom product
arrangements. The Company relies on third parties to sell, install, support, and
service its integrated remote control systems, a strategy that it believes is
best suited for broad domestic and international market coverage.
Domestic Markets
The Company has established relationships with approximately 1,500 of
the leading audio-visual system integrators in the United States. Of these,
approximately 1,000 dealers are primarily focused on commercial applications and
approximately 500 dealers are primarily focused on the residential market.
The Company believes that utilizing the sales force of dealers that are
already selling audio-visual systems integration services to potential
purchasers of electronic presentation equipment is the most effective way to
reach a broad range of customers. The Company believes that the inclusion of an
AMX system in the package of electronic equipment sold to end users enhances the
profitability of the dealer's systems sales. The Company's agreements with its
dealers involve non-exclusive arrangements that may be canceled by either party
at will and contain no minimum purchase requirements on the part of the dealers.
The Company's dealers and manufacturers' representatives generally offer
products of several different companies, including products that compete with
the Company's products. Accordingly, there is a risk that these dealers and
manufacturers' representatives may give higher priority to products of other
suppliers and may reduce their efforts to sell the Company's products. A
reduction in the sales efforts by certain of the Company's current dealers,
distributors, or manufacturers' representatives or the loss of certain or all of
such relationships could have a material adverse effect on the Company's results
of operations.
International Markets
The Company relies on a network of 21 exclusive distributors serving 24
countries and over 190 dealers serving an additional 27 countries to distribute
its product internationally. Outside the United States, independent distributors
with exclusive distribution rights market the Company's custom products. The
Company's agreements with its distributors grant exclusive distribution rights
as to a specific geographic area. The distributorship agreements can be
terminated by the Company or the distributors under certain circumstances. There
can be no assurance that any of such dealers and distributors will continue to
offer the Company's products. Furthermore, while the Company's international
distributors generally assume certain support and minimum performance
obligations, there are no obligations on the part of the Company's dealers,
distributors, or manufacturers' representatives to provide any specified level
of support to the Company's products or to devote any specific time, resources,
or efforts in marketing of the Company's products. Sales outside of the United
States, consisting of products sold in Europe, Canada, Mexico, Asia, and
Australia, represented approximately $28.3 million, $20.9 million, and $20.4
million, or 30%, 27%, and 29% of the Company's total sales during the fiscal
years ended March 31, 2001, 2000, and 1999, respectively. See Note 11 in the
audited financial statements for additional information. Since the Company's
international sales are denominated in U.S. dollars, the Company does not
currently engage in hedging activities with respect to fluctuations in currency
values but may elect to do so in the future. These sales are subject to a number
of risks generally associated with international sales, including: the effect of
a strengthening or weakening U.S. dollar on demand for the Company's products in
international markets; other currency fluctuation risks; greater difficulty in
accounts receivable collections and increased credit risk; logistical
difficulties of managing international operations; unexpected restrictions on
the repatriation of funds; and unpredicted changes in regulatory requirements,
tariffs, and other trade barriers. The loss of, or reduction in, international
sales would have a material adverse effect on the Company's results of
operations.
Technology
We have developed AMX's product offerings using a unique combination of
hardware and proprietary software, while incorporating our extensive experience
of working with over 20,000 remote control codes used in a wide range of
electronic components. We believe that our products deliver the most
comprehensive functionality in the marketplace while retaining exceptional
ease-of-use.
6
We have three categories of hardware: AXCESS Systems used in the
commercial and residential marketplaces; Landmark Systems used in the
residential marketplace; and our newly developed NetLinx Systems around which
existing and future hardware will be unified. The development of the Netlinx
product architecture was completed in fiscal 2000. NetLinx represents a
significant enhancement increasing both speed and functionality. NetLinx will be
compatible with our existing AXCESS and Landmark systems and will expand their
functionality by allowing them to utilize Internet Control System Protocol,
which is the protocol that will unify the three systems, and is capable of
running over any network topology including TCP/IP and UDP/IP.
In order to extend the life of our installed hardware systems and to
increase the utility and desirability of our current and future generations of
products, we have developed Internet server products. These products include
WebLinx, which was introduced in early 1999. WebLinx is a network server
application and Hyper Text Transport Protocol Common Gateway Interface
application that provides remote hardware administration and custom web browser
programming interfaces to our new and previously installed hardware systems.
WebLinx permits a user to access the installed AMX system remotely through the
Internet and control the connected devices as if the user were operating such
devices locally.
Research and Development
We believe that the timely development and introduction of new products
and services are essential to maintaining our competitive position. We devote
most of our internal research and development resources to making advances in
audio/video software and control technology, firmware and software and
mechanical design. We are continually involved in the development, enhancement
and expansion of our operating software capabilities. Current areas of focus in
our research and development efforts include:
. Transitioning our AXCESS and Landmark systems to the NetLinx
architecture;
. Furthering technology initiatives with our strategic partners.
We are continuously involved in the refinement, enhancement, and
expansion of our operating and application software capabilities. We believe
that this ongoing software research and development is a key means of increasing
the number of applications for our products and of extending the life of our
hardware systems. As a result, we are investing an increasing proportion of our
research and development effort in software development activities.
Research and development expenses were approximately $9,720,000,
$7,544,000, and $5,368,000 in the fiscal years ended March 31, 2001, 2000 and
1999, which represented 10.3%, 9.6%, and 7.8% of net sales in those periods,
respectively. The Company will continue to focus research and development
efforts in the Company's core product lines. However, the Company has
discontinued research and development related to the consumer broadband
strategy. As a result, the Company expects a slight decline in research and
development spending as a percent of revenue in fiscal 2002.
7
Manufacturing
Going forward, AMX's strategy is to contract with various turnkey
manufacturers in order to take advantage of the expertise and efficiencies these
vendors will offer. This outsourcing will extend from prototyping to volume
manufacturing, and will include activities such as material procurement, final
assembly, test, and quality control. We intend to have all of our turnkey
vendors certified as "Dock to Stock" suppliers during the fiscal year ending
March 31, 2002. This strategy will allow our manufacturers to deliver products
directly to our stockroom with minimal handling by AMX personnel. We believe
that our manufacturing strategy will allow us to:
. minimize our capital expenditures
. realize economies of scale in manufacturing
. conserve the working capital that would be required to fund
inventory
. adjust to manufacturing volumes quickly to meet changes in demand
. benefit from the purchasing power of our turnkey partners to
minimize material cost as well as to ensure the availability of
critical components
. diversify and reduce dependence on key suppliers
The principal components of our products are printed circuit boards,
electronic components (including microprocessors), displays and metal or plastic
housings. Substantially all of our products will be purchased as finished
products from our turnkey vendors. We generally do not have long-term agreements
with our suppliers.
Backlog
We generally ship our standard products promptly following receipt of
an order. Our backlog of orders for our standard products has generally been
less than 45 days at any given time. While our OEM and other large customers
typically place orders for products several months prior to the scheduled
shipment date, these orders are subject to rescheduling and cancellation. As a
result, we do not consider our backlog to be a meaningful indicator of future
sales.
Competition
The principal direct competitor with our custom residential control
systems and custom commercial control systems is Crestron. Crestron is a
privately owned manufacturer of remote control systems for commercial and
residential applications. The residential market is currently extremely diverse
in its product functionality, and as a result, has a variety of manufacturers
that supply products to the residential market. The commercial market also has
several companies that compete in particular sectors of our business, but with
the exception of Crestron, no one else competes in all of them. We assume that
there are other companies with substantial financial, technical, manufacturing,
and marketing resources currently engaged in the development and marketing of
products similar to our products and that such companies may enter one or more
of our markets at any time.
Intellectual Property
We currently rely on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality provisions and other contractual provisions
to protect our intellectual property rights. Despite our efforts to protect our
intellectual property rights, unauthorized parties may misappropriate or
infringe on our patents, trade secrets, copyrights, trademarks, service marks
and similar intellectual property rights. We currently have 22 pending United
States patent applications and 12 pending international patent applications.
Even if we obtain such patents, that does not guarantee that our patent rights
are valuable, create a competitive barrier, or will be free from infringement.
We face additional risk when conducting business in countries that have poorly
developed or inadequately enforced intellectual property laws. In any event,
competitors may independently develop similar or superior technologies or
8
duplicate the technologies we have developed, which could substantially limit
the value of our intellectual property.
Government Regulation
Our domestic business operations are subject to certain federal, state,
and local laws and regulations relating to radio frequency and infrared
emissions generated by our products. Certain of our products must comply with
Federal Communications Commission regulations before the products may be
marketed in the United States. There can be no assurance that our products will
comply with such regulations or that Federal Communications Commission
regulations will remain constant with respect to our current or future products.
Failure to comply with Federal Communications Commission regulations for
products under development or a change in existing regulations by the Federal
Communications Commission that would make products non-compliant could have a
material adverse effect on our results of operations. Because the requirements
imposed by such laws and regulations are frequently changed, we are unable to
predict our ability to comply with, or the ultimate cost of compliance with,
such requirements.
European Community regulations relating to electromagnetic emissions
and immunity testing became effective January 1, 1996. Although most of our
products comply with applicable EC regulations, some of our newest products do
not yet comply with applicable EC regulations and will not be sold in EC member
countries until they comply. Accordingly, failure to receive EC approval on new
products may limit or eliminate our ability to sell our new products in EC
member countries and would have an adverse effect on our results of operations.
Employees
As of March 31, 2001, we employed approximately 418 people of which 41
are located outside the United States in our various international offices. None
of our employees are represented by a labor union or subject to a collective
bargaining agreement. We believe that our relations with our employees are good.
9
ITEM 2. PROPERTIES.
We occupy buildings that contain approximately 170,000 square feet of
floor space. All of this space is leased under agreements that expire at various
dates through May 2012. The principal facilities are located as follows:
Approximate
Location Square Feet Description
-------- ----------- -----------
Richardson, Texas 130,000 Offices, engineering, research and development,
and production
Los Angeles, California 4,000 Offices
Philadelphia, Pennsylvania 13,000 Offices
Tampa, Florida 2,000 Offices
York, England UK 9,000 Offices, engineering, and warehouse
Mexico City, Mexico 2,000 Offices
Belgium 2,000 Offices
Singapore 8,000 Offices and warehouse
All facilities are suitable for our business. Each facility is fully
utilized, with the exception of our headquarters location in Richardson, which
contains approximately 14,000 square feet of additional floorspace which is
available for future expansion. All furniture and equipment owned and leased by
us is well maintained and suitable for our operations.
We consider our current facilities adequate and believe that suitable
additional space will be available, as needed, to accommodate further physical
expansion of our corporate operations and for our additional sales and service.
ITEM 3. LEGAL PROCEEDINGS.
Litigation
The Company is party 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Stock Prices
In November 1995, the Company's common stock, par value $0.01 per share
(the "Common Stock"), was admitted for trading on the Nasdaq National Market
under the symbol "AMXX." In September 1999, the symbol was changed to "PNJA" in
connection with the Company's name change from AMX Corporation to Panja Inc.
Effective June 11, 2001, the Company once again began doing business as AMX
Corporation. Following approval by the Company's shareholders at its annual
meeting on August 22, 2001, the Company will officially change its corporate
name, and its Nasdaq ticker symbol will change from "PNJA" to "AMXC".
The following table sets forth, for the periods indicated, the high and
low closing sale prices for the Common Stock for the fiscal years ended March
31, 2000 and 2001.
Fiscal 2000 High Low
---------------------------------------------------------------------------- ---- ---
First Quarter............................................................... $ 14.06 $ 8.13
Second Quarter.............................................................. 25.06 12.63
Third Quarter............................................................... 21.25 10.88
Fourth Quarter.............................................................. 40.81 14.75
Fiscal 2001
----------------------------------------------------------------------------
First Quarter............................................................... $ 22.13 $ 10.13
Second Quarter.............................................................. 13.44 7.44
Third Quarter............................................................... 9.63 3.06
Fourth Quarter.............................................................. 6.16 2.75
As of May 31, 2001, there were approximately 5,200 beneficial holders
of the Common Stock.
Dividend Policy
We have never paid dividends on our Common Stock and do not anticipate
paying dividends on our Common Stock in the foreseeable future in order to
retain all available earnings generated by operations for the development and
growth of our business. In addition, under the terms of our debt agreements, we
may not pay dividends without the prior consent of the lending bank. Any future
determination as to the payment of dividends will be at the discretion of our
Board of Directors and will depend upon our operating results, financial
condition, capital requirements, general business conditions, and such other
factors that the Board of Directors deems relevant.
Recent Sales of Unregistered Securities
On March 20, 2001, the Company issued 1,161,216 shares of its common
stock for an aggregate purchase price of approximately $5,000,000 to an investor
group, led by Scott Miller, the Company's president, chief executive officer and
chairman. We believe that the issuance of securities in the foregoing
transaction was exempt from registration in reliance on Section 4(2) and/or
Regulation D of the Securities Act of 1933, as amended, as a transaction not
involving a public offering.
11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
(in thousands, except per share amounts)
Fiscal Years Ended March 31,
Income Statement Data: 1997 1998 1999 2000 2001
- ------------------------------------------------------------- -------- -------- -------- --------- --------
Commercial system sales...................................... $ 36,021 $ 48,116 $ 54,387 $ 59,274 $ 72,520
Residential system sales..................................... 5,435 10,649 14,886 18,921 21,460
-------- -------- -------- --------- --------
Net sales.................................................... 41,456 58,765 69,273 78,195 93,980
Cost of sales................................................ 17,243 26,401 32,562 37,277 49,280
-------- -------- -------- --------- --------
Gross profit................................................. 24,213 32,364 36,711 40,918 44,700
Selling and marketing expenses............................... 14,263 18,929 21,823 30,061 33,035
Research and development..................................... 3,422 4,724 5,368 7,544 9,720
General and administrative expenses.......................... 4,571 5,092 5,206 6,637 8,731
Acquired research and development............................ 1,230 -- -- -- --
Restructuring costs (1)...................................... -- -- -- 2,961 675
Costs associated with acquisition of minority interest
and merger of subsidiary.................................. -- 1,694 -- -- --
-------- -------- -------- --------- --------
Operating income (loss)...................................... 727 1,925 4,314 (6,285) (7,461)
Interest expense............................................. 13 194 340 547 1,090
Other income (expense), net.................................. 288 159 55 64 (168)
-------- -------- -------- --------- --------
Income (loss) before income taxes............................ 1,002 1,890 4,029 (6,768) (8,719)
Income tax provision (benefit)............................... 1,371 1,087 1,266 (2,643) (494)
-------- -------- -------- --------- --------
Net income (loss)............................................ $ (369) 803 $ 2,763 $ (4,125) $ (8,225)
======== ======== ========= ========
Preferred stock dividends, including accretion and
redemption................................................ (177)
--------
Net income (loss) applicable to common shareholders.......... $ 626
========
Earnings (loss) per common share - basic..................... $ (0.05) $ 0.08 $ 0.33 $ (0.47) $ (0.87)
======== ======== ======== ========= ========
Earnings (loss) per common share - diluted................... $ (0.04) $ 0.07 $ 0.31 $ (0.47) $ (0.87)
======== ======== ======== ========= ========
Shares used for basic earnings (loss) per share.............. 7,769 8,014 8,386 8,734 9,486
======== ======== ======== ========= ========
Shares used for diluted earnings (loss) per share............ 8,229 8,445 8,988 8,734 9,486
======== ======== ======== ========= ========
At March 31,
Balance Sheet Data: 1997 1998 1999 2000 2001
- --------------------------------------------- -------- ------- ------- ------- -------
Working capital.............................. $ 8,182 $10,420 $15,352 $14,981 $ 9,226
Total assets................................. 19,741 26,328 31,509 37,126 46,162
Long-term debt; including current portion,
line of credit, and notes payable............ 279 2,449 5,593 3,994 8,568
Shareholders' equity ........................ 11,996 14,864 18,535 22,958 20,398
_____________
12
(1) The charge for the fiscal year ended March 31, 2001 represents
restructuring costs recorded for the shutdown of the Consumer Broadband
Division and severance actions taken in the fourth quarter, offset by
reversals of severance actions taken for the fiscal year ended March 31,
2000. The charge for the fiscal year ended March 31, 2000 represents
restructuring costs recorded for the shutdown of operations in Salt Lake
City and disposal of the Synergy division. See Note 9 in the audited
financial statements for further information.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following commentary should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included in the Company's
2001 Annual Report to Shareholders.
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; our dependence on suppliers, dealers and
distributors; reliance on the functionality of systems or equipment, whether our
own systems and equipment or those of our customers, dealers, distributors, or
manufacturers; 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 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
AMX designs, develops, manufactures and markets integrated control
systems that enable end users to operate as a single system a broad range of
electronic and programmable equipment in a variety of corporate, educational,
industrial, entertainment, governmental, and residential settings. The Company's
hardware and software products provide the operating system, machine control,
and user interface necessary to operate, as an integrated network, electronic
devices from different manufacturers through easy-to-use control panels. The
Company's systems provide centralized control for over 20,000 different
electronic devices, including video systems, audio systems, teleconferencing
equipment, educational media, lighting equipment, environmental control systems,
and security systems. The Company's systems have readily accommodated evolving
technologies. In particular, the Company is currently integrating its control
systems with the Internet. The Company's technology will allow end users to
communicate with their control system through the Internet, as well as send and
receive commands or information.
History
Our company was formed in 1982 as AMX Corporation. We established our
business by designing, manufacturing and marketing integrated control systems
into a broad range of commercial settings. These settings include corporate
boardrooms, training centers, conference rooms, stadiums, schools and theme
parks. Our systems are generally comprised of a central controller and a user
interface device, such as a touch panel. Our control systems are linked to other
electronic devices such as video systems, audio systems, teleconferencing
equipment, lighting equipment, security systems, and environmental control
systems. As a result, the end-user has one easy-to-use, programmable user
interface with which to access and control a broad array of electronic
components. For much of our history, we have installed these same systems in
upscale residential homes. As the demand for these installations grew, we
decided to develop a complete home automation system which provided a more
affordable option to the end user than those sold in our commercial settings. We
formed a new subsidiary in 1995, named PHAST (Practical Home Automation Systems
Technology) which has now been merged into the Company, and by 1997 we were
14
shipping our Landmark product line. Our residential sales have achieved
tremendous growth and by fiscal year end March 31, 2001, reached $21.5 million,
or 23% of our total sales.
In mid-1999, the Company changed its name from AMX Corporation to Panja
Inc. In conjunction with this change, the Company established its Consumer
Broadband Division and began investing in the development and the retail
distribution of several Internet appliance products designed specifically for
residential use. In February 2000, Panja introduced the Panja 1000, an internet
home entertainment gateway system. In January 2001, the Company launched the
BMP-100, a streaming music player, into the consumer retail marketplace.
During the third quarter of fiscal 2000, the Company announced plans to
shutdown its operations located in Salt Lake City and move those operations to
its corporate headquarters in Dallas. The move was completed during the third
quarter of fiscal year 2001 and impacted approximately 94 employees. During the
third quarter of fiscal year 2000, the Company also announced its intention to
dispose of its Synergy division. Approximately 26 employees were terminated by
this action.
In the fourth quarter of fiscal 2001, the Board of Directors and the
Company's new president, chief executive officer, and chairman decided on a
corporate-wide restructuring plan which included the decision to discontinue the
Consumer Broadband Division and its retail distribution strategy. In conjunction
with the Company's return to its core business strategy, and as a result of
customer feedback, the Company returned to doing business as AMX Corporation and
will seek to formally change its name at its 2001 shareholder meeting.
Sales and Marketing
The Company's system sales are made through dealers and distributors.
The Company principally relies on over 1,500 specialized third-party 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 21 exclusive distributors serving 24 countries and over 190 dealers serving
an additional 27 countries to distribute its products.
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 a
university, government facility, amusement park, or corporate training facility.
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.
We recognize sales when the products are shipped net of a provision for
estimated returns. Our commercial and residential products are sold to
audio-visual integrators who must meet high qualification standards to become an
AMX dealer. These dealers are managed and supported within territories by
manufacturer's representatives and direct sales offices. Internationally, where
we generate approximately 30% of our sales, we sell our products to an extensive
network of 21 distributors in 24 countries and over 190 dealers in 27 different
countries. As a result of the broad diversification of our revenue base, we do
not have any single distributor or dealer that accounts for more than 5% of our
sales.
The Company's selling and marketing expenses category includes customer
service, training and technical support. Additionally, the Company has created
sales support teams focused on specific geographic regions. These teams include
sales personnel, system designers, and technical support personnel, all of whom
indirectly participate in research and development activities by establishing
close relationships with the Company's customers and by individually responding
to customer-expressed needs.
15
Operations
Going forward, AMX's strategy is to contract with various turnkey
manufacturers in order to take advantage of the expertise and efficiencies these
vendors will offer. This outsourcing will extend from prototyping to volume
manufacturing, and will include activities such as material procurement, final
assembly, test, and quality control. We intend to have all of our turnkey
vendors certified as "Dock to Stock" suppliers during the fiscal year ending
March 31, 2002. This strategy will allow our manufacturers to deliver products
directly to our stockroom with minimal handling by AMX personnel. We believe
that our manufacturing strategy will allow us to:
. minimize our capital expenditures
. realize economies of scale in manufacturing
. conserve the working capital that would be required to fund
inventory
. adjust to manufacturing volumes quickly to meet changes in demand
. benefit from the purchasing power of our turnkey partners to
minimize material cost as well as to ensure the availability of
critical components
. diversify and reduce dependence on key suppliers
The principal components of our products are printed circuit boards,
electronic components (including microprocessors), displays and metal or plastic
housings. Substantially all of our products will be purchased as finished
products from our turnkey vendors. We generally do not have long-term agreements
with our suppliers.
The Company purchases components that comprise over 40% of its cost of
sales from foreign vendors, such as 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 four 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.
Financings
In December 1999 AMX entered into a transaction with Intel Corporation
in which Intel purchased both 423,212 shares of our common stock and vested
warrants to purchase another 238,057 shares of our stock for $5.0 million. In
addition to the stock purchase, AMX entered into a Business Agreement to explore
opportunities to partner with Intel's Home Products Group. There are 79,352
warrants associated with the Business Agreement that vest upon occurrence of
certain events.
On March 20, 2001, the Company issued 1,161,116 shares of its common
stock for an aggregate purchase price of approximately $5,000,000 to an investor
group, led by Scott Miller, the Company's president, chief executive officer and
chairman.
16
Results of Operations
The following table contains certain amounts, expressed as a percentage of
net sales, reflected in our consolidated statements of operations for each of
the three years in the period ended March 31, 2001:
Fiscal Year Ended March 31,
2001 2000 1999
----- ----- ----
Commercial system sales......................... 77.2% 75.8% 78.5%
Residential system sales........................ 22.8 24.2 21.5
----- ----- ----
Net sales....................................... 100.0 100.0 100.0
Cost of sales................................... 52.4 47.7 47.0
----- ----- ----
Gross profit.................................... 47.6 52.3 53.0
Selling and marketing expenses.................. 35.2 38.4 31.5
Research and development expenses............... 10.3 9.6 7.8
Restructuring costs............................. 0.7 3.8 --
General and administrative expenses............. 9.3 8.5 7.5
----- ----- ----
Operating income (loss)......................... (7.9) (8.0) 6.2
Interest expense................................ 1.2 0.8 0.5
Other income (expense), net..................... (0.2) 0.1 0.1
----- ----- ----
Income (loss) before income taxes............... (9.3) (8.7) 5.8
Income tax provision (benefit).................. (0.5) (3.4) 1.8
----- ----- ----
Net income (loss)............................... (8.8)% (5.3)% 4.0%
===== ===== ====
17
2001 Results Compared to 2000 (All References are to Fiscal Years)
The Company recorded sales during the fiscal years ended March 31, 2001 and
2000 as follows:
Market March 31, 2001 March 31, 2000 Change
------ -------------- -------------- ------
Commercial:
Domestic $41,717,748 $34,368,522 21.4%
International 28,273,719 20,858,306 35.6%
OEM 1,672,529 1,831,101 (8.7)%
Synergy 856,051 2,215,801 (61.4)%
----------- ----------- -----
Total Commercial 72,520,047 59,273,730 22.3%
----------- ----------- -----
Residential 21,459,480 18,920,671 13.4%
----------- ----------- -----
Total Sales $93,979,527 $78,194,401 20.2%
=========== =========== =====
The growth in domestic commercial revenue is primarily attributable to the
continued expansion of complex commercial systems and the need for integrated
control of these systems. The growth in the international market reflects the
Company's continued focus on international distributor and dealer network
development, and improved market acceptance of the Company's products in
international markets. OEM sales declined primarily as a result of lower
activity from the Company's largest OEM customer. Synergy sales have declined as
a result of the Company's fiscal 2000 decision to wind down the Synergy
division. The Synergy product line had been used in the educational market.
Going forward, the Company will serve this market using its standard commercial
products. Residential sales continue to benefit from the expansion of the market
for home automation.
Gross profit for the year ended March 31, 2001 was 48% compared to 52% for
the year ended March 31, 2000. The decline in gross margins was primarily
related to inventory reserves of approximately $3.0 million taken for
discontinued products, excess inventory, and the exit from the broadband
consumer product strategy. Gross margins were also slightly impacted during
fiscal 2001 by component shortages in the industry.
Selling and marketing expenses decreased as a percentage of net sales to
35% for fiscal 2001 compared to 38% for fiscal 2000. This decrease is a result
of efficiencies gained by consolidating the selling and marketing activities of
our residential operations in Salt Lake City into our corporate selling and
marketing function and cost savings achieved by winding down our Synergy product
line. These efficiencies were offset by increased selling and marketing
activities of approximately $2.7 million related to the now discontinued
broadband consumer product division, compared to approximately $1 million in
fiscal 2000.
Research and development expenses were approximately 10% of net sales for
both fiscal 2001 and fiscal 2000, including approximately $1.3 million and $1.1
million, respectively, for research and development related to the now
discontinued broadband consumer product line. Going forward, the Company's
resources will be utilized to design and develop new products and services that
will supplement the Company's core product line. However, the Company expects a
slight decline in research and development spending as a percent of revenue in
fiscal 2002 as a result of the discontinuation of the consumer broadband
research and development.
The Company recorded net restructuring costs of $0.7 million during the
year ended March 31, 2001. This net restructuring charge consists of
approximately $1.2 million related to the phase-out of the consumer broadband
product line and a reduction in workforce, offset by approximately $0.5 million
of reversals of certain restructuring costs recorded in the fiscal year ended
March 31, 2000. An additional $0.8 million charge related to the disposal of
consumer broadband inventory was charged to cost of goods sold, and a charge of
$0.2 million was recorded to reverse revenue. In the year ended March 31, 2000,
the Company recorded net restructuring costs of $3.0 million as
18
a result of the decision to close the manufacturing facility and offices in Salt
Lake City and move these operations to Dallas, Texas, and as a result of the
decision to dispose of the Synergy division. See Note 9 in the audited financial
statements for additional information.
General and administrative expenses increased slightly to 9% of net sales
for fiscal 2001. This increase is primarily related to charges taken during the
year to increase the allowance for doubtful accounts by approximately $0.7
million for a customer who filed for bankruptcy and approximately $0.6 million
of expenses incurred during the move from the Salt Lake City and Dallas
locations into the new corporate headquarters in Richardson, Texas.
Interest expense increased from $0.5 million or 0.8% of total revenue in
fiscal 2000 to $1.1 million or 1.2% of total revenue in fiscal 2001. This
increase is primarily a result of higher average outstanding balances on the
Company's revolving line of credit throughout the fiscal year.
The Company's effective tax rate declined to 6% for fiscal 2001 from 39%
for fiscal 2000. This decline is a result of recording an additional valuation
allowance of approximately $2.5 million against net deferred tax assets during
the fourth quarter of fiscal 2001. Net of the cumulative valuation allowance,
the Company has a net U.S. deferred tax asset of $4.3 million. Utilization of
this deferred tax asset is dependent on the Company's ability to generate future
taxable income in excess of existing taxable temporary differences. A valuation
allowance was not recorded for the remaining deferred tax asset because
management believes that it is more likely than not that the remaining deferred
tax asset will be realized in future years. This conclusion is based on the
belief that current and future levels of taxable income in the near term will be
sufficient to realize the benefits of the net deferred tax asset. Should the
belief regarding the Company's ability to generate such amounts of future
taxable income change, the Company would be required to reduce this asset and
incur a charge against earnings for such reduction.
2000 Results Compared to 1999 (All References are to Fiscal Years)
The Company recorded sales during the fiscal years ended March 31, 2000 and
1999 as follows:
Market March 31, 2000 March 31, 1999 Change
------ -------------- -------------- ------
Commercial:
Domestic $34,368,522 $29,783,943 15.4%
International 20,858,306 20,418,275 2.2%
OEM 1,831,101 1,756,542 4.2%
Synergy 2,215,801 2,428,018 (8.8)%
----------- ----------- ----
Total Commercial 59,273,730 54,386,778 9.0%
----------- ----------- ----
Residential 18,920,671 14,886,632 27.1%
----------- ----------- ----
Total Sales $78,194,401 $69,273,410 12.9%
=========== =========== ====
Domestic sales growth rate for fiscal 2000 is comparable to the sales
growth rate in prior years. International sales have grown approximately 30% in
prior years but have experienced significant reductions in sales to Canada and
Mexico during fiscal 2000. This has more than offset growth in sales into Asia
and the Pacific Rim over fiscal 1999. Our sales into Europe are slightly less
than they were in fiscal 1999. Synergy sales were adversely affected by
competitive factors which resulted in the announcement to wind down this
division. The Synergy product line had been used in the educational market.
Going forward, the Company will begin serving this market using its standard
commercial products. The growth in residential sales is lower than the prior
year's growth, but remains constant in terms of actual sales dollars. These
sales continue to benefit from the expansion of the market for home automation.
19
Gross profit declined slightly from fiscal 1999. Gross margins in the PHAST
product line have improved as a percent of sales by 40% from the same period
last year. The increase in PHAST gross margins is due to increased production
efficiencies, the elimination of the AudioEase product line, the reduction of
overhead costs as a result of the consolidation of purchasing with our Dallas
operations, and the write off of inventory in the same period last year
resulting from our decision to discontinue the AudioEase product line. However,
gross margins in other product lines decreased from fiscal 1999 as a result of
the increased sales of the Viewpoint product, as well as from increased
competitive pricing pressures.
Operating expenses, exclusive of restructuring costs, were 56.5% of total
sales, which represents an increase of approximately 10% over fiscal 1999.
Selling and marketing expenses accounted for 6.9% of the total 10% increase. In
fiscal 2000, the Company expended significant efforts and costs to create market
recognition for the Panja brand and for the Company's consumer broadband
products. These additional efforts included attending several trade shows
focusing on Internet content, infrastructure and distribution.
Research and development expenses increased 1.8% as a percent of sales over
fiscal 1999. The Company incurred increased expenses due to efforts in
developing the new NetLinx operating platform that provides AMX products with
Internet functionality and connectivity. The Company also incurred an additional
$818,000 in costs for the development of its WebLinx software, which was
capitalized.
The Company recorded net restructuring costs of $3.0 million during fiscal
2000 as a result of the decision to close the manufacturing facility and offices
in Salt Lake City and move these operations to Dallas, Texas, and as a result of
the decision to dispose of the Synergy division. Restructuring costs associated
with employees' severance packages, leases associated with the Salt Lake City
facilities, a write-down of fixed assets to their estimated fair market value,
and shut down costs were included in the $3.0 million charge included in
operating expenses. Another $318,000 associated with Synergy related inventory
was charged to cost of goods sold in conjunction with this announcement. See
Note 9 in the audited financial statements for additional information.
General and administrative expenses increased slightly to 8% of net sales
for fiscal 2000. This increase is primarily a result of costs incurred related
to the stock purchase agreement with Intel.
The effective tax rate for fiscal 2000 was 39%, compared to 31% in fiscal
1999. As of March 31, 2000, the Company had a net U.S. deferred tax asset of
$3.4 million. Utilization of this deferred tax asset is dependent on the
Company's ability to generate future taxable income in excess of existing
taxable temporary differences. The Company recognized this asset because
management believes that it is more likely than not that the deferred tax asset
will be utilized in future years. This conclusion is based on the belief that
current and future levels of taxable income will be sufficient to realize the
benefits of the deferred tax asset. Should the belief regarding the Company's
ability to generate such amounts of future taxable income change, the Company
would be required to reduce this asset and incur a charge against earnings for
such reduction.
Liquidity and Capital Resources
In the year ended March 31, 2001, the Company used $1.8 million of cash in
operations. Capital expenditures amounted to $7.9 million, compared to $3.5
million and $3.2 million for the years ended March 31, 2000 and 1999,
respectively. The increase in capital expenditures was primarily related to
capital additions related to the Company's new corporate headquarters of
approximately $3.3 million and capital additions related to the Company's new
Enterprise Resource Planning ("ERP") system of approximately $1.7 million. The
ERP system is an integrated, enterprise-wide application that will help manage
data and optimize resources across manufacturing, distribution, logistics,
engineering, and finance. These cash requirements were funded through borrowings
under the revolving line of credit and proceeds from a private equity placement.
The Company has a $10 million revolving line of credit from Bank One,
Texas, N.A. ("Bank One") that contains various restrictive and financial
covenants, including a covenant that the Company's tangible net worth be no less
than $21,075,000 at March 31, 2001 and $19,250,000 thereafter. As of March 31,
2001, the Company's tangible net worth was approximately $19,800,000. However,
the Company and Bank One executed an amendment
20
to the loan agreement between the parties in which Bank One waived such
noncompliance with the tangible net worth covenant for the period ended March
31, 2001 and in which amendments were made to other financial covenants. 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
("LIBOR"). At March 31, 2001, the interest rate was 7.3%. The line of credit is
secured by receivables, inventory and property. At March 31, 2001, $5.55 million
was outstanding under the revolving line of credit agreement. This revolving
line of credit expires on September 1, 2001, and is expected to be renewed at
that time.
The Company anticipates generating positive cash flow from operations in
fiscal 2002. The Company believes that the 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. In addition, the Company's has eliminated expenditures related
to the consumer broadband market.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company had outstanding debt of $8.6 million and $4.0 million at March
31, 2001 and 2000, respectively. This debt represents 18.6% and 10.7% of total
assets at those respective dates. The Company's long-term debt currently has an
average maturity of 1.1 years and interest rates averaging 8.8%.
Interest Rate Risk
The Company does have an exposure to changing interest rates as the
interest rates on its debt instruments are variable. A hypothetical 10% increase
or decrease in market interest rates would have impacted the Company's interest
expense approximately $93,000 and $72,000 in fiscal 2001 and 2000, respectively.
However, changing interest rates do not materially impact the fair value of the
Company's debt instruments due to the variability of the interest rates on these
instruments.
Additionally, the Company does not have significant exposure to changing
interest rates on invested cash, which was approximately $1.6 million and $1.0
million at March 31, 2001 and 2000 respectively. The Company invests its cash
mainly in short term investments with an initial maturity of three months or
less.
To date, the Company has not entered into any derivative financial
instruments to manage interest rate risk and is currently not evaluating the
future use of any such financial instruments.
Foreign Currency Exchange Rate Risk
The Company transacts business in various foreign currencies through its
wholly owned subsidiaries in York, England and Singapore. Accordingly, the
Company is subject to exposure from adverse movements in foreign currency
exchange rates. The Company generally mitigates this risk by transacting
business in the functional currency of each of its subsidiaries, thus creating a
natural hedge by paying expenses incurred in the local currency. To date, the
Company has not entered into any derivative financial instruments to manage
foreign currency risk and is currently not evaluating the future use of any such
financial instruments. A hypothetical 10% plus or minus fluctuation in non-U.S.
exchange rates would have an earnings impact of approximately $175,000 and
$15,000 for fiscal 2001 and 2000, respectively, based on fiscal year end
balances and rates.
ITEM 8. FINANCIAL STATEMENTS.
Information called for by this item is set forth in the Company's
Consolidated Financial Statements contained in this report. The Company's
Consolidated Financial Statements begin at page F-1 hereunder.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The presentation of Directors and Executive Officers of the Registrant
appears in the Registrant's Proxy Statement for the 2001 Annual Meeting of
Shareholders ("Proxy Statement") which is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION.
The presentation of Executive Compensation of the Registrant appears in the
Proxy Statement which is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The presentation of the Security Ownership of Certain Beneficial Owners and
Management of the Registrant appears in the Proxy Statement which is
incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The presentation of Certain Relationships and Related Transactions of the
Registrant appears in the Proxy Statement which is incorporated by reference
herein.
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements.
The financial statements filed as a part of this Annual Report on
Form 10-K are listed in the "Index to Consolidated Financial
Statements" on page F-1 hereof.
(2) Financial Statement Schedules.
The financial statement schedules for which provision is made in
the applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been omitted.
(3) Exhibits.
The following exhibits are filed as a part of this Annual Report
on Form 10-K.
2.1 Agreement and Plan of Merger dated March 31, 2000 between PHAST
Corporation and the Registrant (Incorporated by reference from
Exhibit 2.1 to the Registrant's Form 10-K for the fiscal year
ending March 31, 2000, filed June 22, 2000, File no. 0-26924).
3.1 Amended and Restated Articles of Incorporation of the Registrant
(Incorporated by reference from Exhibit 3.1 to the Company's Form
S-8 filed March 11, 1996, File no. 333-2202).
3.2 Amended and Restated Bylaws of the Registrant, as amended
(Incorporated by reference from Exhibit 3.1 to the Company's Form
8-K filed May 31, 2001, File no. 0-26924).
4.1 Specimen Certificate for Common Stock of Registrant (Incorporated
by reference from Exhibit 4.1 to the Company's Form S-1 filed
September 13, 1995, as amended, File no. 33-96886).
4.2 Registration Rights Agreement dated as of March 30, 1995 by and
among Registrant, the persons listed on Schedule 1.1 thereto,
Scott D. Miller, Peter D. York, Joe Hardt and Billie I.
Williamson (Incorporated by reference from Exhibit 4.2 to the
Company's Form S-1 filed September 13, 1995, as amended, File no.
33-96886).
4.3 First Amendment dated September 12, 1995 to Registration Rights
Agreement dated as of March 30, 1995 by and among Registrant, the
persons listed on Schedule 1.1 thereto, Scott D. Miller, Peter D.
York, Joe Hardt, and Billie I. Williamson (Incorporated by
reference from Exhibit 4.3 to the Company's Form S-1 filed
September 13, 1995, as amended, File no. 33-96886).
+4.4 Second Amendment dated February 22, 2001 to Registration Rights
Agreement dated as of March 30, 1995 by and among Registrant, J.
Joseph Hardt, Scott D. Miller and Peter D. York.
4.5 Declaration of Registration Rights made October 14, 1997, by the
Registrant for the benefit of certain shareholders and employees of
PHAST Corporation pursuant to the Stock Purchase Agreement, as
hereinafter defined (Incorporated by reference from Exhibit 4.2 to
the Registrant's Form 10-Q, for the period ending December 31,
1997, File no. 0-26924).
+4.6 Registration Rights Agreement dated February 22, 2001 between the
Registrant and Scott Miller.
4.7 Common Stock Warrant No. 001 issued to Intel Corporation to
purchase 238,057 shares of Common Stock (Incorporated by reference
from Exhibit 4.2 to the Registrant's Form 10-Q, for the period
ending December 31, 1999, File no. 0-26924).
4.8 Common Stock Warrant No. 002 issued to Intel Corporation to
purchase 79,352 shares of Common Stock (Incorporated by reference
from Exhibit 4.2 to the Registrant's Form 10-Q, for the period
ending December 31, 1999, File no. 0-26924).
4.9 Securities Purchase and Investor Rights Agreement dated December
15, 1999 (Incorporated by reference from Exhibit 4.2 to the
Registrant's Form 10-Q, for the period ending December 31, 1999,
File no. 0-26924).
10.1 Panja Inc. 1993 Stock Option Plan, accompanied by forms of
Incentive Stock Option and Non-qualified Stock Option Agreements
(Incorporated by reference from Exhibit 10.1 to the Registrant's
Form S-1 filed September 13, 1995, as amended, File no. 33-96886).
10.2 Panja Inc. 1995 Stock Option Plan, accompanied by form of Stock
Option Agreement and form of Exercise Notice (Incorporated by
reference from Exhibit 10.2 to the Registrant's Form S-1 filed
September 13, 1995, as amended, File no. 33-96886).
10.3 1995 Director Stock Option Plan, accompanied by form of Director
Stock Option Agreement and form of Exercise Notice (Incorporated by
reference from Exhibit 10.3 to the Registrant's Form S-1 filed
September
23
13, 1995, as amended, File no. 33-96886).
10.4 1996 Employee Stock Purchase Plan, accompanied by forms of
Enrollment/Change Form, Section 16b Participation Form and Stock
Purchase Agreement (Incorporated by reference from Exhibit 10.4 to
the Registrant's Form S-1 filed September 13, 1995, as amended,
File no. 33-96886).
10.5 Panja Inc. 1999 Equity Incentive Plan (Incorporated by reference
from Exhibit 10.25 to the Registrant's Form 10-K for the fiscal
year ending March 31, 1999, File no. 0-26924).
10.6 Promissory Note dated January 5, 2000, from Peter York to
Registrant in the original principal amount of $100,000
(Incorporated by reference from Exhibit 10.17 to the Registrant's
Form 10-K for the fiscal year ending March 31, 2000, File no.
0-26924).
10.7 Fourth Amended and Restated Loan Agreement dated September 1, 2000
by and between the Registrant and Bank One, Texas, National
Association (Incorporated by reference from Exhibit 10.1 to the
Registrant's Form 10-Q, for the period ending September 30, 2000,
File no. 0-26924).
10.8 Amendment to Fourth Amended and Restated Loan Agreement dated
January 5, 2001 by and between the Registrant and Bank One, Texas,
National Association (Incorporated by reference from Exhibit 10.1
to the Registrant's Form 10-Q, for the period ending December 31,
2000, File no. 0-26924).
+10.9 Second Amendment to Fourth Amended and Restated Loan Agreement
dated March 31, 2001 by and between the Registrant and Bank One,
NA.
+10.10 Lease Agreement dated November 22, 1999 by and between the
Registrant and DalMac/GoldCor Real Estate Venture, Ltd.
+10.11 First Amendment to Lease Agreement dated January 10, 2000 by and
between the Registrant and DalMac/GoldCor Real Estate Venture, Ltd.
+10.12 Option Agreement dated October 1, 2000 by and between the
Registrant and DalMac/GoldCor Real Estate Venture, Ltd.
+10.13 Second Amendment to Lease Agreement dated May 1, 2001 by and
between the Registrant and DalMac/GoldCor Real Estate Venture, Ltd.
+10.14 Employment Agreement dated March 20, 2001 between the Registrant
and Joe Hardt.
+10.15 Agreement Regarding Employment And In Lieu of Severance dated
January 1, 2001 between the Registrant and Tom Hite.
+10.16 Promissory Note dated June 15, 1999, from Michael Olinger to
Registrant in the original principal amount of $20,000.
+21.1 Schedule of Subsidiaries
+23.1 Consent of Independent Auditors.
- -----------
+ Filed herewith.
(b) Reports on Form 8-K.
Current report on Form 8-K dated as of January 2, 2001, and filed on
January 9, 2001, regarding the election of Robert Carroll as a member of
the Registrant's board of directors.
Current report on Form 8-K dated as of February 23, 2001, and filed on
February 26, 2001, regarding the sale of shares of the Registrant's
common stock to Scott Miller and other unrelated investors and regarding
the election of Richard L. Smith as a member of the Registrant's board
of directors.
Current report on Form 8-K dated as of March 30, 2001, and filed on
April 5, 2001, regarding the election of Scott Miller as Chairman of the
Registrant's board of directors.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
d/b/a AMX Corporation
By: /s/ Scott Miller
--------------------------
Scott Miller, Chairman, Chief Executive
Officer, and President
June 29, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated below.
Signature Title Date
- ---------------------------------- -------------------------------------------- --------------------
/s/ Scott Miller Chairman of the Board, Chief Executive June 29, 2001
- ---------------------------------- Officer, President and Director
Scott Miller (Principal Executive Officer)
/s/ Peter D. York Vice Chairman, June 29, 2001
- ---------------------------------- Assistant Secretary, and Director
Peter D. York
/s/ Paul D. Fletcher Chief Financial Officer and Treasurer June 29, 2001
- ---------------------------------- (Principal Financial and Accounting Officer)
Paul D. Fletcher
/s/ Harvey B. Cash Director June 29, 2001
- ----------------------------------
Harvey B. Cash
/s/ J. Otis Winters Director June 29, 2001
- ----------------------------------
J. Otis Winters
/s/ Robert Carroll Director June 29, 2001
- ----------------------------------
Robert Carroll
/s/ Richard Smith Director June 29, 2001
- ----------------------------------
Richard Smith
25
PANJA INC.
d/b/a AMX CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
------
Report of Independent Auditors.............................................................................. F-2
Consolidated Balance Sheets at March 31, 2001 and 2000...................................................... F-3
Consolidated Statements of Operations for the years ended March 31, 2001, 2000 and 1999..................... F-5
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 2001, 2000 and 1999............................................................................ F-6
Consolidated Statements of Cash Flows for the years ended March 31, 2001, 2000 and 1999..................... F-7
Notes to Consolidated Financial Statements.................................................................. F-8
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Panja Inc. d/b/a AMX Corporation
We have audited the accompanying consolidated balance sheets of Panja Inc.
d/b/a AMX Corporation as of March 31, 2001 and 2000, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended March 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Panja Inc.
d/b/a AMX Corporation at March 31, 2001 and 2000, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 31, 2001, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
June 15, 2001
Dallas, Texas
F-2
PANJA INC.
d/b/a AMX CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31,
2001 2000
----------- -----------
Current assets:
Cash and cash equivalents.................................................................. $ 1,607,797 $ 986,648
Receivables, less allowance for doubtful accounts of $363,000 for 2001 and
$382,000 for 2000...................................................................... 12,664,098 9,414,137
Inventories................................................................................ 14,581,767 11,927,737
Prepaid expenses........................................................................... 1,250,449 1,577,535
Other current assets....................................................................... 533,080 1,090,060
Deferred income taxes...................................................................... 2,387,611 1,107,484
----------- -----------
Total current assets.......................................................................... 33,024,802 26,103,601
Property and equipment, at cost, net.......................................................... 10,055,926 6,239,467
Capitalized software, less accumulated amortization of $448,000 for 2001 and
$39,000 for 2000....................................................................... 370,166 779,212
Deposits and other............................................................................ 466,556 1,230,244
Deferred income taxes......................................................................... 1,944,021 2,265,019
Goodwill, less accumulated amortization of $868,000 for 2001 and
$618,000 for 2000 ..................................................................... 300,589 508,589
----------- -----------
Total assets.................................................................................. $46,162,060 $37,126,132
=========== ===========
F-3
PANJA INC.
d/b/a AMX CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31,
2001 2000
------------ ------------
Current liabilities:
Accounts payable................................................ $ 11,422,458 $ 4,792,793
Current portion of long-term debt............................... 1,053,604 948,050
Line of credit.................................................. 5,550,000 --
Accrued compensation............................................ 1,343,862 2,009,219
Accrued restructuring costs..................................... 1,077,917 1,917,342
Accrued sales commissions....................................... 708,347 730,457
Other accrued expenses.......................................... 2,643,051 724,759
------------ ------------
Total current liabilities.......................................... 23,799,239 11,122,620
Long-term debt..................................................... 1,964,845 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-- 11,258,718 for 2001 and 9,860,650 for 2000.. 112,587 98,607
Additional paid-in capital...................................... 23,585,287 17,920,112
Accumulated other comprehensive income.......................... 1,103 14,799
Retained earnings............................................... 1,167,283 9,392,533
Less treasury stock (496,476 shares for 2001 and 2000).......... (4,468,284) (4,468,284)
------------ ------------
Total shareholders' equity......................................... 20,397,976 22,957,767
------------ ------------
Total liabilities and shareholders' equity......................... $ 46,162,060 $ 37,126,132
============ ============
See accompanying notes.
F-4
PANJA INC.
d/b/a AMX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended March 31,
2001 2000 1999
------------ ------------ ------------
Commercial system sales................................ $ 72,520,047 $ 59,273,730 $ 54,386,778
Residential system sales............................... 21,459,480 18,920,671 14,886,632
------------ ------------ ------------
Net sales........................................... 93,979,527 78,194,401 69,273,410
Cost of sales.......................................... 49,279,368 37,276,680 32,562,258
------------ ------------ ------------
Gross profit........................................ 44,700,159 40,917,721 36,711,152
Selling and marketing expenses......................... 33,035,289 30,061,093 21,822,842
Research and development expenses...................... 9,720,275 7,543,617 5,367,838
Restructuring costs.................................... 674,613 2,960,667 --
General and administrative expenses.................... 8,731,060 6,636,925 5,206,021
------------ ------------ ------------
Operating income (loss)............................. (7,461,078) (6,284,581) 4,314,451
Interest expense....................................... 1,090,142 547,524 340,324
Other income (expense), net............................ (168,362) 63,842 55,051
------------ ------------ ------------
Income (loss) before income taxes...................... (8,719,582) (6,768,263) 4,029,178
Income tax provision (benefit)......................... (494,332) (2,642,800) 1,266,286
------------ ------------ ------------
Net income (loss)...................................... $ (8,225,250) $ (4,125,463) $ 2,762,892
============ ============ ============
Basic earnings (loss) per share........................ $ (0.87) $ (0.47) $ 0.33
============ ============ ============
Diluted earnings (loss) per share...................... $ (0.87) $ (0.47) $ 0.31
============ ============ ============
See accompanying notes.
F-5
PANJA INC.
d/b/a AMX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Treasury Stock
------------ --------------
Accumulated
Additional Other Total
Number Paid-in Retained Number Comprehensive Shareholders'
of Shares Amount Capital Earnings of Shares Amount Income (Loss) Equity
---------------------------------------------------------------------------------------------------
Balance at March 31, 1998..... 8,261,158 $ 82,612 $ 4,079,682 $10,755,104 (5,208) $ (46,872) $ (6,921) $14,863,605
Net income.................... -- -- -- 2,762,892 -- -- -- 2,762,892
Equity adjustment from foreign
currency translation........ -- -- -- -- -- -- (16,412) (16,412)
-----------
Total comprehensive income.... 2,746,480
Purchase of treasury stock.... -- -- -- -- (496,476) (4,468,284) -- (4,468,284)
Cancellation of treasury
stock....................... (5,208) (52) (46,820) -- 5,208 46,872 -- --
Exercise of stock
options, including tax
benefit of $34,802,
and purchases under
employee stock
purchase plan............... 58,050 580 254,344 -- -- -- -- 254,924
Sale of common stock.......... 647,974 6,480 5,131,860 -- -- -- -- 5,138,340
---------------------------------------------------------------------------------------------------
Balance at March 31, 1999..... 8,961,974 89,620 9,419,066 13,517,996 (496,476) (4,468,284) (23,333) 18,535,065
Net loss...................... -- -- -- (4,125,463) -- -- -- (4,125,463)
Equity adjustment from
foreign currency
translation................. -- -- -- -- -- -- 38,132 38,132
-----------
Total comprehensive loss...... (4,087,331)
Exercise of stock options,
including tax benefit of
$1,132,905, and purchases
under employee stock
purchase plan............... 475,464 4,755 3,576,847 -- -- -- -- 3,581,602
Sale of common stock.......... 423,212 4,232 4,924,199 -- -- -- -- 4,928,431
---------------------------------------------------------------------------------------------------
Balance at March 31, 2000..... 9,860,650 98,607 17,920,112 9,392,533 (496,476) (4,468,284) 14,799 22,957,767
Net loss...................... -- -- -- (8,225,250) -- -- -- (8,225,250)
Equity adjustment from
foreign currency
translation................. -- -- -- -- -- -- (13,696) (13,696)
-----------
Total comprehensive loss...... (8,238,946)
Exercise of stock
options, including tax
benefit of $45,771,
and purchases under
employee stock
purchase plan............... 162,717 1,627 424,813 -- -- -- -- 426,440
Sale of common stock.......... 1,235,351 12,353 5,240,362 -- -- -- -- 5,252,715
---------------------------------------------------------------------------------------------------
Balance at March 31, 2001..... 11,258,718 $112,587 $23,585,287 $ 1,167,283 (496,476) $(4,468,284) $ 1,103 $20,397,976
===================================================================================================
See accompanying notes.
F-6
PANJA INC.
d/b/a AMX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31,
2001 2000 1999
----------- ------------ -----------
Operating Activities
Net income (loss)................................................... $ (8,225,250) $ (4,125,463) $ 2,762,892
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization.................................... 4,366,416 3,216,872 2,304,063
Provision (credit) for losses on receivables..................... 1,074,000 (38,000) (40,000)
Provision for inventory obsolescence............................. 2,956,598 43,698 584,408
Loss on sale of property and equipment........................... 247,556 -- --
Deferred income taxes............................................ (913,358) (1,621,756) (470,879)
Changes in operating assets and liabilities:
Receivables.................................................. (4,323,961) 278,612 519,964
Inventories.................................................. (5,610,628) (981,173) (2,571,933)
Prepaid expenses and other assets............................ 656,825 (1,046,186) (559,659)
Accounts payable............................................. 6,629,665 715,994 209,942
Accrued expenses............................................. 152,129 2,555,693 73,536
Income taxes................................................. 1,187,819 (1,335,182) (357,234)
------------ ------------ -------------
Net cash provided by (used in) operating activities................. (1,802,189) (2,336,891) 2,455,100
Investing Activities
Purchase of property and equipment.................................. (7,871,004) (3,475,896) (3,233,101)
Proceeds from sale of property and equipment........................ 100,000 -- --
Investment in capitalized software.................................. -- (818,092) --
Purchase of minority interest in PHAST.............................. -- -- (1,652,000)
------------ ------------ -------------
Net cash used in investing activities............................... (7,771,004) (4,293,988) (4,885,101)
Financing Activities
Sale of common stock-- net of expenses, and exercise of stock
options...................................................... 5,633,384 7,377,128 5,393,264
Net purchases of treasury stock..................................... -- -- (4,468,284)
Net increase (decrease) in line of credit........................... 5,550,000 -- (2,403,437)
Proceeds from long-term debt........................................ -- -- 5,970,485
Repayments of long-term debt........................................ (975,346) (1,599,489) (422,801)
------------ ------------ -------------
Net cash provided by financing activities........................... 10,208,038 5,777,639 4,069,227
Effect of exchange rate changes on cash............................. (13,696) 38,132 (16,412)
------------ -------------- -------------
Net increase (decrease) in cash and cash equivalents................ 621,149 (815,108) 1,622,814
Cash and cash equivalents at beginning of period.................... 986,648 1,801,756 178,942
------------ -------------- -------------
Cash and cash equivalents at end of period.......................... $ 1,607,797 $ 986,648 $ 1,801,756
============ ============== =============
See accompanying notes.
F-7
PANJA INC.
d/b/a AMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Panja Inc. d/b/a AMX Corporation ("AMX" or the "Company") was organized in
March 1982. The Company designs, develops, and markets advanced integrated
control systems. The Company sells primarily to dealers and distributors in the
United States, Canada, Mexico, Latin America, Europe, Australia, the Middle
East, and the Far East.
Principles of Consolidation
The Company's financial statements include the accounts of all
majority-owned subsidiaries. All significant inter-company balances have been
eliminated.
Cash Equivalents
Cash equivalents include short term investments with an initial maturity of
three months or less.
Inventories
Inventories are stated at the lower of cost or market.
Depreciation
Depreciation of property and equipment is provided in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives using the straight line depreciation method. The estimated lives used in
determining depreciation range from 3 to 10 years.
Concentration of Credit Risk
During the years ended March 31, 2001, 2000, and 1999, the Company realized
approximately 30%, 27%, and 29%, respectively, of total revenues from foreign
sales and had approximately 21% and 22%, respectively, of trade receivables due
from foreign customers at March 31, 2001 and 2000. The Company has subsidiaries
outside the U.S. in the United Kingdom and Singapore. The net assets of these
locations represented 17% and 14% of consolidated net assets at March 31, 2001
and 2000, respectively.
The Company provides credit in the normal course of business to its dealers
and distributors. The Company generally does not require collateral or a deposit
when providing credit. The Company performs ongoing credit evaluations of its
customers and maintains allowances for possible credit losses.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as
amended, was adopted on April 1, 2001. The adoption of SFAS No. 133 had no
effect on the operating results or financial position of the Company.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
F-8
Revenue Recognition
Revenue is recognized upon shipment of the product and transfer of title to
the customer. Provision is made currently for estimated returns.
Income Taxes
The Company's income taxes are computed using the asset and liability
method of accounting. Under the asset and liability method, a deferred tax asset
or liability is recognized for estimated future tax effects attributable to
temporary differences and carryforwards. The measurement of deferred income tax
assets is adjusted by a valuation allowance, if necessary, to recognize future
tax benefit only to the extent, based on available evidence, it is more likely
than not such benefit will be realized.
Capitalized Software
The cost (including coding and testing) of producing software is
capitalized once technological feasibility is established. Technological
feasibility is established either upon the completion of a detailed program
design or the completion of a working model. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require judgment by management with respect to certain
external factors, including, but not limited to, anticipated future revenues,
estimated economic life and changes in software and hardware technologies.
Capitalized software costs are amortized on a product-by-product basis using the
greater of the amounts computed on the straight-line method over the remaining
estimated economic life of the product or using the ratio that current gross
revenues bear to the total of current and anticipated future gross revenues for
the product. Amortization of capitalized software begins when the products are
available for general release to customers.
Foreign Currency Translation
Assets and liabilities denominated in foreign currency are translated into
U.S. dollars at the current rate of exchange existing at year-end and historical
rates, as applicable, and revenues and expenses are translated at the average
monthly exchange rates.
Translation gains and losses included in income are immaterial and result
from translating all accounts other than the original inter-company advances to
U.S. dollars.
Shipping and Handling Costs
Shipping and handling costs that the Company incurs related to product
shipments to customers are included in cost of sales.
Stock Based Employee Compensation
The Company accounts for stock-based compensation utilizing the provisions
of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued
to Employees, and related interpretations. The Company accounts for stock-based
compensation for non-employees under the fair value method prescribed by
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation.
Advertising
The Company expenses the costs of advertising when incurred. Advertising
costs were $457,000, $469,000 and $221,000 for the years ended March 31, 2001,
2000, and 1999, respectively.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
F-9
2. Inventories
The components of inventories are as follows:
March 31,
2001 2000
------------ ------------
Raw materials.................................. $ 7,948,025 $ 7,826,200
Work in progress............................... 1,154,669 606,468
Finished goods................................. 8,577,527 4,253,175
Reserve for obsolescence....................... (3,098,454) (758,106)
------------ ------------
$ 14,581,767 $ 11,927,737
============ ============
3. Property and Equipment
The general classes of property and equipment are as follows:
March 31,
2001 2000
------------ ------------
Equipment, including computers.................. $ 16,385,161 $ 11,664,243
Furniture and fixtures.......................... 1,970,698 2,862,986
Leasehold improvements.......................... 1,099,045 576,637
------------ ------------
19,454,904 15,103,866
Less accumulated depreciation................... (9,398,978) (8,864,399)
------------ ------------
$ 10,055,926 $ 6,239,467
============ ============
Depreciation expense was approximately $3,707,000, $2,930,000, and
$1,887,000 for the years ended March 31, 2001, 2000, and 1999, respectively.
4. Debt
At March 31, 2001, the Company had two outstanding debt instruments with
Bank One, Texas, N.A. ("Bank One"). One of these debt instruments was obtained
during fiscal 2001 under a $10 million revolving line of credit (the "revolving
line of credit"). The other debt instrument was obtained on March 31, 1999 under
a $10 million credit facility (the "credit facility").
The $10 million revolving line of credit restricts payment of dividends and
contains various restrictive and financial covenants, including a covenant that
the Company's tangible net worth be no less than $21,075,000 at March 31, 2001
and $19,250,000 thereafter. As of March 31, 2001, the Company's tangible net
worth was approximately $19,800,000. However, the Company and Bank One executed
an amendment to the loan agreement between the parties in which Bank One waived
such noncompliance with the tangible net worth covenant for the period ended
March 31, 2001 and in which amendments were made to other financial covenants.
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 ("LIBOR"). At March 31, 2001, the interest rate was 7.3%, and the
weighted average interest rate for the year ended March 31, 2001 was 9.2%. The
revolving line of credit is secured by receivables, inventory and property. This
revolving line of credit expires on September 1, 2001. As of March 31, 2001,
borrowings available under the revolving line of credit were $4,300,000.
The credit facility was obtained from Bank One on March 31, 1999 to be used
to repurchase common stock of the Company. The Company borrowed $4,468,284
against this facility. The credit facility provides for interest at varying
rates of the Company's choice based on the prime lending rate or LIBOR. As of
March 31, 2001 and 2000, the interest rate on this facility was 7.6% and 8.6%,
respectively. Collateral for the credit facility consists of a security interest
in
F-10
receivables, inventories, and property. Beginning October 31, 1999, principal
payments have been made based on a four-year amortization schedule. Periodic
principal payments will continue until April 2002, at which time the remaining
unpaid principal balance is due. At March 31, 2001, there was no available
borrowing under the credit facility. This facility and the $10 million revolving
line of credit described above have been combined into one loan document, and
therefore are governed by the same restrictive and financial covenants. Based on
current market rates, management believes the carrying value of its debt
approximates fair value.
Interest paid amounted to approximately $923,000, $548,000, and $340,000
for the years ended March 31, 2001, 2000, and 1999, respectively.
Future maturities of long-term debt at March 31, 2001, are as follows:
Year ending March 31:
-----------------------------------------
2002..................................... $1,053,604
2003..................................... 1,964,845
----------
$3,018,449
==========
5. Employee Benefit Plans
The Company has a 401(k) plan available to all U.S. employees who are at
least 21 years of age and meet certain service requirements. Employees can
contribute up to 15% of their salary subject to statutory limitations. Prior to
December 31, 1999, the Company matched the employees' contributions at $0.25 on
every dollar to a maximum of 4% of compensation. Effective January 1, 2000, the
Company matches the employees' contributions at $0.50 on every dollar to a
maximum of 8% of compensation. Company contributions for the years ended March
31, 2001, 2000 and 1999, were $515,000, $252,000, and $77,500 respectively.
The Company's 1996 Employee Stock Purchase Plan permits eligible employees
to purchase common stock through payroll deductions. The price of the common
stock purchased under the 1996 Employee Stock Purchase Plan is 85% of the lower
of the fair market value of the common stock at the beginning or at the end of
each offering period. The Plan provides for two six-month offering periods each
year beginning on the first trading day on or after January 1 and July 1. For
the years ended March 31, 2001, 2000 and 1999, 74,235, 35,728, and 24,454 shares
were issued under this plan. As of March 31, 2001, there were 87,802 remaining
shares available for issuance under the Plan.
6. Income Taxes
The components of the Company's income tax provision (benefit) were as
follows:
Year ended March 31,
2001 2000 1999
----------- ----------- -----------
Federal income taxes:
Current...................... $ 36,211 $ (670,849) $ 1,148,499
Deferred..................... (553,925) (1,802,230) (470,879)
State income taxes................ (404,906) (349,992) 111,000
Foreign income taxes.............. 428,288 180,271 477,666
----------- ----------- -----------
$ (494,332) $(2,642,800) $ 1,266,286
=========== =========== ===========
The income of foreign operations before income taxes for the years ended
March 31, 2001, 2000, and 1999 was $956,000, $547,000, and $1,662,000,
respectively. Undistributed earnings (approximately $3.2 million at March 31,
2001) of non-U.S. subsidiaries have been indefinitely reinvested and,
accordingly, no provision has been made for taxes due upon remittance of these
earnings.
F-11
The income tax provision (benefit) differs from amounts computed by
applying the U.S. federal statutory tax rate to income (loss) before income
taxes as follows:
Year ended March 31,
2001 2000 1999
-------------- ------------- -----------
Federal income tax (benefit) at statutory rate......................... $ (2,964,658) $ (2,301,209) $ 1,369,920
State income tax (benefit), net of federal tax......................... (267,238) (230,995) 71,449
Benefit of income reported through Foreign Sales Corporation and
Extra Territorial Income benefit.................................... (137,005) (335,111) (281,600)
Effect of non-U.S. tax rates........................................... (15,748) (5,849) (78,964)
Change in valuation allowance.......................................... 2,518,560 -- --
Effect of non-deductible goodwill and other intangibles amortization... 78,227 78,226 78,226
Effect of non-deductible meals and entertainment expenses.............. 165,428 168,457 115,428
Recognition of research and development credit......................... (428,000) -- --
Provision for potential assessments.................................... 370,000 -- --
Other.................................................................. 186,102 (16,319) (8,173)
-------------- ------------- -----------
$ (494,332) $ (2,642,800) $ 1,266,286
============== ============= ===========
The Company recorded a valuation allowance of approximately $2.5 million against
net deferred tax assets during the fourth quarter of fiscal 2001. Net of the
cumulative valuation allowance, the Company has a net U.S. deferred tax asset of
$4.3 million. Utilization of this net deferred tax asset is dependent on our
ability to generate future taxable income in excess of our existing taxable
temporary differences. A valuation allowance was not recorded for the remaining
$4.3 million net deferred tax asset because we believe that it is more likely
than not that it will be utilized in future years based on our belief that
current and future levels of taxable income in the near term will be sufficient
to realize the benefits of the net deferred tax asset. Should our belief
regarding our ability to generate such amounts of future taxable income change,
we would be required to reduce this asset by recording an additional valuation
allowance and would incur a charge against earnings as a result.
Significant components of deferred tax assets and liabilities are as
follows:
March 31,
2001 2000
-------------- -------------
Deferred tax assets:
Net operating loss carryforwards.......................................... $ 5,809,462 $ 4,060,846
Inventories............................................................... 1,856,244 392,235
Bad debts................................................................. 220,518 133,200
Accrued restructuring charge.............................................. 398,506 745,658
Tax credit carryforwards.................................................. 375,000 --
Other accrued expenses.................................................... 377,713 325,214
Inter-company profit in inventory......................................... 100,290 128,279
Intangible assets......................................................... 69,189 69,374
-------------- -------------
9,206,922 5,854,806
Valuation allowance....................................................... (3,870,910) (1,352,350)
-------------- -------------
5,336,012 4,502,456
Deferred tax liabilities:
Prepaid expenses.......................................................... (688,393) (511,310)
Capitalized software...................................................... (136,850) (277,470)
Depreciation.............................................................. (108,894) (270,873)
Transaction fees.......................................................... (70,243) (70,300)
-------------- -------------
(1,004,380) (1,129,953)
-------------- -------------
Net deferred tax asset....................................................... $ 4,331,632 $ 3,372,503
============== =============
F-12
Net income tax refunds of approximately $662,000 were received in the year
ended March 31, 2001. Cash paid for income taxes was approximately $963,000 and
$2,070,000 for the years ended March 31, 2000, and 1999, respectively.
Prior year net operating losses totaling $3.6 million of the Company's
PHAST Corporation subsidiary can be carried forward to offset future taxable
income of PHAST through 2012. In addition, the Company has approximately $12
million of federal net operating loss carryforwards which begins to expire in
2020. The Company's tax credit carryforward primarily relates to research and
development credits which begin to expire in 2019.
7. Commitments and Contingencies
The Company leases various real property and equipment. Under certain
leases, the Company is required to pay costs such as taxes, insurance, and
operating expenses in addition to the rental payments. Rental expense under
operating leases for the years ended March 31, 2001, 2000, and 1999, was
$1,387,000, $1,101,000, and $794,000, respectively.
At March 31, 2001 future minimum payments for non-cancelable operating
leases are as follows:
Year ending March 31:
-------------------------------
2002........................... $ 1,722,599
2003........................... 1,714,515
2004........................... 1,694,985
2005........................... 1,541,334
2006........................... 1,583,583
2007 and thereafter............ 7,269,520
-------------
$ 15,526,536
=============
The Company is involved in certain legal activities and disputes arising in
the ordinary course of business. The Company believes that it has adequate legal
defenses and that the ultimate outcome of these matters will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.
8. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Year ended March 31,
2001 2000 1999
--------------- --------------- ---------------
Numerator:
Net income (loss)....................................... $ (8,225,250) $ (4,125,463) $ 2,762,892
Denominator:
Denominator for basic earnings per share -
Weighted-average shares outstanding.................. 9,486,476 8,734,243 8,385,519
Effect of dilutive securities:
Employee stock options.................................. -- -- 602,775
--------------- --------------- ---------------
Denominator for diluted earnings per share.............. $ 9,486,476 $ 8,734,243 $ 8,988,294
=============== =============== ===============
Basic earnings (loss) per share......................... $ (0.87) $ (0.47) $ 0.33
=============== =============== ===============
Diluted earnings (loss) per share....................... $ (0.87) $ (0.47) $ 0.31
=============== =============== ===============
Of the total stock options outstanding, approximately 95,100 shares were
excluded from the computation of diluted earnings per share for fiscal 1999
because the option exercise price was greater than the average market price of
the common shares for the period, and therefore the effect would have been
anti-dilutive. Had the Company reported net
F-13
income for fiscal 2001 and 2000, 1,576,537 and 2,163,381 potentially dilutive
shares would have been included in the computation of diluted earnings per
share, respectively.
9. Restructuring Costs
During the third quarter of 2000, the Company announced plans to shutdown its
operations located in Salt Lake City and move those operations to its corporate
headquarters in Dallas. The move was completed in the third quarter of fiscal
year 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 to
write-down the carrying value of the fixed assets to their estimated fair market
value. The assets were depreciated from their fair market value through October
2000, 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.
During the third quarter of fiscal year 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.
During the fourth quarter of fiscal year 2000, payments were made to terminated
employees and for disposal costs. Employees that ended their employment prior to
their termination date forfeited their termination benefits. Also, employees
that opted to move to Dallas, as offered under the plan, forfeited their
termination benefits. Forfeitures of employee severance totaled $475,000 during
the fourth quarter of fiscal 2000, and were recorded as a reduction of accrued
restructuring costs.
In the fourth quarter of fiscal 2001, the Board of Directors and the Company's
new president, chief executive officer, and chairman decided on a corporate-wide
restructuring plan which included the decision to discontinue its Consumer
Broadband Division and retail distribution strategy and a reduction of the
Company's workforce of approximately 10%. The Company recorded net restructuring
costs of $0.7 million during the year ended March 31, 2001. This net
restructuring charge consists of approximately $1.2 million related to the
phase-out of the consumer broadband product line and reduction in workforce,
offset by approximately $0.5 million of reversals of certain restructuring costs
recorded in the fiscal year ended March 31, 2000. An additional charge of $0.8
million related to the disposal of consumer broadband inventory was recorded in
cost of goods sold, and a charge of $0.2 million was recorded to reverse
revenue.
The following is a summary of the accrued restructuring costs:
Year ended March 31,
Description 2001 2000
----------- ----------------- ------------------
Balance at beginning of fiscal year: $ 1,917,000 $ --
Salt Lake City restructuring charge -- 2,608,000
Synergy restructuring charge -- 1,147,000
Broadband Consumer Division restructuring charge 2,171,000 --
Payments (1,341,000) (390,000)
Reversals (563,000) (475,000)
Non-cash write down of assets (1,106,000) (973,000)
----------------- ------------------
Balance at end of fiscal year: $ 1,078,000 $ 1,917,000
================= ==================
F-14
10. Shareholders' Equity and Stock Options
In January 1999, the Company sold 630,520 shares of common stock to its
then Chairman of the Board in a private placement for $5.0 million in cash. The
share price used for this transaction was obtained from the average closing
price of the Company's common stock for the last ten trading days before and
including the purchase date.
In March 1999, the Company repurchased approximately 496,000 shares of its
common stock from an existing shareholder for $4.5 million. This repurchase was
financed with the proceeds of the $10 million credit facility described in Note
4. The share price used for this transaction was obtained from using the average
closing price of the stock for the ten days prior to the announcement of the
transaction.
On December 15, 1999, the Company and Intel Corporation ("Intel") entered
into an agreement pursuant to which, among other things, the Company issued to
Intel, in consideration of services provided by Intel under such agreement, a
warrant to purchase 79,352 shares of Common Stock ("Business Warrant") which
will vest upon the occurrence of certain events. On December 15, 1999, the
Company and Intel also entered into a Securities Purchase and Investor Rights
Agreement ("Purchase Agreement") pursuant to which Intel purchased 423,212
shares of Common Stock and was issued a vested warrant to purchase 238,057
shares of Common Stock ("Equity Warrant"). The aggregate purchase price under
the Purchase Agreement for the Common Stock and the Equity Warrant was
$5,000,000. The Business Warrant and the Equity Warrant each have an exercise
price of $21.54 per share ("Exercise Price") and a term of five years. The
Company obtained an independent valuation to determine the estimated fair value
of the common stock and the Equity Warrant issued in this transaction. The
resulting valuation yielded an estimated fair value of $5 million for the common
stock and the Equity Warrant.
On March 20, 2001, the Company issued 1,161,116 shares of its common
stock for an aggregate purchase price of approximately $5,000,000 to an investor
group, led by Scott Miller, the Company's president, chief executive officer and
chairman.
The Company has four stock-based compensation plans outstanding, which are
described below. No compensation cost is recognized for its fixed option plans
because the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on the date of the grant. The
1993 Stock Option Plan, as amended, authorized the granting of options for up to
1,452,544 shares of common stock. All options have a term of ten years and vest
over a four year period. There are no options available for grant under this
plan.
In September 1995, the Company approved the 1995 Stock Option Plan and the
1995 Director Stock Option Plan. Under the 1995 Stock Option Plan, the Company
may grant options for up to 1,000,000 shares of common stock. All options have a
term of ten years and vest over a four-year period. The 1995 Director Stock
Option Plan authorized the granting of stock options for up to 250,000 shares to
non-employee directors. All options granted under this plan are fully vested and
have a term of ten years.
In April 1999, the Company and its shareholders approved the 1999 Equity
Incentive Plan. Under this plan, the Company may grant options for up to
3,000,000 shares of common stock. These options have a term of ten years and
generally vest over a four year period.
F-15
A summary of the status of the Company's plans is presented below:
Weighted
Average
Shares Exercise Price
------------ --------------------
Outstanding at March 31, 1998 1,138,180 $ 4.04
Options granted................................................. 489,958 6.10
Options exercised............................................... (58,050) 3.79
Options canceled................................................ (55,653) 6.36
------------
Outstanding at March 31, 1999...................................... 1,514,435 4.63
Options granted................................................. 1,285,600 11.38
Options exercised............................................... (433,844) 4.77
Options canceled................................................ (131,864) 6.78
------------
Outstanding at March 31, 2000...................................... 2,234,327 8.36
Options granted................................................. 938,700 4.06
Options exercised............................................... (162,817) 2.34
Options canceled................................................ (606,458) 9.06
------------
Outstanding at March 31, 2001...................................... 2,403,752 $ 6.87
============
Available for grants in future periods at March 31, 2001........... 1,753,098
============
The following table summarizes information about stock options outstanding under
the plans as of March 31, 2001:
Options Outstanding Options Exercisable
------------------------------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Remaining Average Exercise Exercise Average
Range of Exercise Prices Options Contractual Life Price Options Price
- ----------------------------- ---------------- -------------------- ------------------- ----------- --------------------
$1.10 to $4.25........... 986,886 8.4 years $ 3.21 344,836 $ 2.53
$4.56 to $8.63........... 957,066 7.1 years 7.23 503,196 6.72
$8.75 to $39.63.......... 459,800 8.1 years 14.01 83,950 11.39
----------------- ----------------
2,403,752 7.8 years $ 6.87 931,982 $ 5.59
================= ================
There were 631,781 and 722,719 exercisable options at March 31, 2000 and
1999, respectively, and the weighted-average exercise price of those options was
$3.90 and $3.48, respectively.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock-based compensation plans and other stock
options under the fair value method of that SFAS. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model. The following weighted-average assumptions were used for grants under the
fixed option plans in 2001, 2000 and 1999, respectively: dividend yield of 0%
for all periods; expected volatility of 89.6%, 66.4%, and 54.1%; risk-free
interest rate of 5.15%, 5.94% and 5.90%; and expected lives of 6 years for all
periods.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-16
For purposes of pro forma disclosures the estimated fair value of
stock-based compensation and other options is amortized to expense over the
vesting period. The Company's pro forma net income (loss) and net income (loss)
per share is as follows:
Year ended March 31,
2001 2000 1999
---------------- -------------- ---------------
Net income (loss)...................... As reported $ (8,225,250) $ (4,125,463) $ 2,762,892
Pro forma $ (10,991,844) $ (6,494,857) $ 2,037,459
Basic earnings (loss) per share ....... As reported $ (0.87) $ (0.47) $ 0.33
Pro forma $ (1.16) $ (0.74) $ 0.24
Diluted earnings (loss) per share ..... As reported $ (0.87) $ (0.47) $ 0.31
Pro forma $ (1.16) $ (0.74) $ 0.23
The weighted-average fair value of options granted under the option plans
during 2001, 2000, and 1999 was $3.03, $7.31, and $3.51, respectively.
11. Certain Geographic Information
The Company is engaged in one line of business: the design, manufacture,
and distribution of systems that allow control of electronic equipment and the
distribution of information from the Internet to these devices. International
sales which include export sales and sales from foreign operations account for
a significant portion of the Company's revenues. Approximately 12%, 10%, and 11%
of net sales for the years ended March 31, 2001, 2000 and 1999, respectively,
were from the Company's international locations, consisting of 9%, 8%, and 10%
in Europe and 3%, 2%, and 1% in other foreign locations. Approximately 14%, 13%,
and 13% of identifiable assets for the years ended March 31, 2001, 2000 and
1999, respectively, were located outside of the U.S., with 11%, 11%, and 12%
located in Europe. U.S. export sales totaled $16.7 million, $12.9 million, and
$13.1 million for the years ended March 31, 2001, 2000, and 1999, respectively.
Of such export sales, 49%, 55%, and 49%, respectively, were to Europe.
F-17
12. Unaudited Quarterly Financial Data
The following table sets forth certain unaudited quarterly data for the
eight quarters ended March 31, 2001 and 2000 (in thousands, except per share
amounts):
Three Months Ended
June 30, Sept 30, Dec 31, March 31, June 30, Sept 30, Dec 31, March 31,
1999 1999 1999 2000 2000 2000 2000 2001
---- ---- ---- ---- ---- ---- ---- ----
Net sales................... $18,031 $21,197 $ 19,493 $ 19,473 $ 21,204 $ 25,864 $24,230 $ 22,682
Gross profit................ 10,047 11,681 9,692 9,497 11,391 13,118 12,357 7,834
Operating income (loss)..... 663 564 (1) (6,056) (2) (1,456) (895) (4) 760 (317) (3) (7,009)
Net income (loss)........... 391 287 (4,075) (728) (666) 201 (385) (7,375)
Basic earnings (loss)
per share................ $ 0.05 $ 0.03 $ (0.47) $ (0.08) $ (0.07) $ 0.02 $(0.04) $ (0.76)
Diluted earnings (loss)
per share................ $ 0.04 $ 0.03 $ (0.47) $ (0.08) $ (0.07) $ 0.02 $(0.04) $ (0.76)
(1) Includes approximately $3.8 million in restructuring costs recorded for
the shutdown of operations in Salt Lake City and disposal of the Synergy
division. See Note 9 for further information.
(2) Includes approximately $0.5 million in reversals of accrued
restructuring costs related to the shutdown of operations in Salt Lake City and
disposal of the Synergy division. See Note 9 for further information.
(3) Includes approximately $2.2 million in restructuring costs recorded for
the exit from the consumer broadband product strategy and a reduction in force,
and approximately $1.7 million of inventory reserves recorded for discontinued
products and excess inventory. See Note 9 for further information.
(4) Includes approximately $0.7 million increase in the allowance for
doubtful accounts due to a customer who filed for bankruptcy.
F-18