UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________

FORM 10-Q

__________

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

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: 000-53896

PANELTECH INTERNATIONAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware		20-4748555
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2999 John Stevens Way

Hoquiam, WA 98550

(Address of Principal Executive Offices, Including ZIP Code)

(360) 538-1480

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting companyx

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x

As of May 10, 2011, the Registrant had 54,481,022 shares of common stock outstanding.

PANELTECH INTERNATIONAL HOLDINGS, INC.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
Signatures		28
Index to Exhibits		29

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PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Item 1. Financial Statements

PANELTECH INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS



ASSETS
	March 31		December 31
	2011		2010
	(Unaudited)
CURRENT ASSETS
Cash	$	29,781	$	19,598
Accounts receivable, net		1,118,582		746,466
Inventories		1,874,350		1,623,016
Prepaid expenses and other current assets		74,847		32,349

Total Current Assets		3,097,560		2,421,429

PROPERTY AND EQUIPMENT, Net		1,781,047		1,839,527

OTHER ASSETS
Deferred loan costs		32,639		37,595
Intangible assets, net		180,000		186,750

Total Other Assets		212,639		224,345

TOTAL ASSETS	$	5,091,246	$	4,485,301

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PANELTECH INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS



LIABILITIES AND STOCKHOLDERS' DEFICIENCY
	March 31			December 31
	2011			2010
	(Unaudited)
CURRENT LIABILITIES
Line of credit	$	746,276		$	570,062
Note payable -shareholder		375,000			375,000
Accounts payable		1,423,268			1,049,575
Accrued expenses and other current liabilities		669,810			452,134
Accrued dividends - Preferred Stock		268,412			215,152
Current maturities of long-term debt		421,291			410,332
Due to shareholders-current		450,961			450,961
Capital lease obligations		18,565			18,195

Total Current Liabilities		4,373,583			3,541,411

OTHER LIABILITIES
Long-term debt, less current maturities		1,486,472			1,599,118
Derivative obligation -warrants		92,913			92,913
Capital lease obligations, less current portion		1,617			6,402

Total Other Liabilities		1,581,002			1,698,433

TOTAL LIABILITIES		5,954,585			5,239,844

REDEEMABLE CONVERTIBLE PREFERRED STOCK
Series A Convertible Preferred Stock, $0.0001 par
value, 5,453,100 shares designated, 5,453,100
and 3,271,860 issued and outstanding respectively,
liquidation preference of $3,600,000.		2,273,608			2,131,053

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
Common Stock, $0.0001 par value, 500,000,000
shares authorized, 54,481,022 and 54,481,022 shares
issued and outstanding respectively		5,448			5,448
Additional paid-in capital		(1,758,787	)		(1,562,972	)
Accumulated deficit		(1,383,608	)		(1,328,072	)

TOTAL STOCKHOLDERS DEFICIENCY		(3,136,947	)		(2,885,596	)

TOTAL LIABILITIES AND EQUITY	$	5,091,246		$	4,485,301


See accompanying notes to Condensed Consolidated Financial Statements

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PANELTECH INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	For the Three Months
	Ended March 31

	2011			2010
	(Unaudited)			(Unaudited)

NET SALES	$	2,431,071		$	1,984,473

COST OF SALES		1,769,609			1,579,373

GROSS PROFIT		661,462			405,100

OPERATING EXPENSES		643,002			988,306

OPERATING PROFIT (LOSS)		18,460			(583,206	)

OTHER EXPENSE
Gain on Sale of Asset		--			10,711
Interest Expense		(73,996	)		(57,456	)

NET LOSS BEFORE INCOME TAXES		(55,536	)		(629,951	)

Income Tax Benefit		--			217,000

NET LOSS		(55,536	)		(412,951	)

Preferred Stock Dividends		(53,260	)		(49,626	)
Preferred Stock Accretion		(142,555	)		(104,747	)

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS	$	(251,351	)	$	(567,324	)

Net loss per share to common
stockholders - basic and diluted	$	(0.00	)	$	(0.01	)

Weighted average shares outstanding
- basic and diluted		54,481,022			54,481,022

See accompanying notes to Condensed Consolidated Financial Statements

-5-

PANELTECH INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Three Months
	Ended March 31
	2011			2010
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(55,536	)	$	(412,951	)
Adjustments to reconcile net loss to net cash
cash provided by operating activities:
(Gain) disposal of property and equipment		--			(10,711	)
Depreciation expense		62,361			76,225
Amortization expense		11,706			9,875
Provision for doubtful accounts		9,450			268
Changes in operating assets and liabilities:
Accounts receivable		(381,566	)		(282,541	)
Inventories		(251,334	)		89,447
Prepaid expenses and other current assets		(42,498	)		(26,060	)
Accounts payable		373,693			567,701
Income taxes		--			(217,000	)
Accrued expenses and other current liabilities		217,676			(79,954	)

TOTAL ADJUSTMENTS		(512	)		127,250

NET CASH USED IN OPERATING ACTIVITIES		(56,048	)		(285,701	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(3,881	)		(78,111	)
Proceeds from sale of property and equipment		--			30,711

NET CASH USED IN INVESTING ACTIVITIES	$	(3,881	)	$	(47,400	)


See accompanying notes to Condensed Consolidated Financial Statements

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PANELTECH INTERNATIONAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued


	For the Three Months
	Ended March 31
	2011			2010
	(Unaudited)			(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit	$	176,214		$	337,642
Repayment of notes payable		(101,687	)		(1,274	)
Payments on capital lease obligations		(4,415	)		(4,075	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		70,112			332,293

NET INCREASE (DECREASE) IN CASH		10,183			(808	)

CASH - Beginning		19,598			4,121

CASH - Ending	$	29,781		$	3,313


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:

Interest	$	57,749		$	57,456
Taxes	$	--		$	--

Non-cash investing and financing activities:

Dividends on redeemable convertible preferred stock	$	53,260		$	49,626

Preferred stock accretion	$	142,555		$	104,747

Retirement of Treasury Stock	$	-		$	750,000

See accompanying notes to Condensed Consolidated Financial Statements

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PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - Organization

Organization and Principal Business Activity

On December 23, 2009, Paneltech Products, Inc. (“Paneltech Products”), a Delaware corporation and wholly-owned subsidiary of the Paneltech International Holdings, Inc. (“Company”), completed a reverse merger (the “Merger”) with Paneltech International, LLC (“Paneltech LLC”) a Washington limited liability company. Following the Merger, the Company, then known as Charleston Basics, Inc. (“Charleston”), sold all of its pre-Merger assets relating to its pre-Merger business to the former CEO and shareholder of Charleston for a nominal value. Prior to consummating the Merger, the Company’s principal business was the sale of outdoor camping goods and tactical gear. Under the terms of the Merger, Paneltech LLC merged with and into Paneltech Products, to become the Company’s principal operating business. Charleston subsequently changed its name to Paneltech International Holdings, Inc.

Immediately following the Merger, the business of Paneltech LLC became the principal operating business of the Company. The Company now manufactures solid surface phenolic resin paper composite products under the brands Paperstone, Rainstone and Stonekast; manufactures overlays; provides ballistics web prepreg branded as Fortrex; and provides transport services for the timber industry. The Company services customers worldwide and operates as one business segment. The Company was incorporated on April 4, 2006 under the laws of the State of Delaware.

As a result of the Merger, all of the membership units of Paneltech LLC were exchanged for 61,759,852 shares of Charleston common stock. The former members of Paneltech LLC therefore became the controlling stockholders of Charleston and accordingly, the Merger is a reverse merger that has been accounted for as a recapitalization of Paneltech LLC, which is deemed to be the accounting acquirer. As of the date of the Merger, the Company had 6,543,720 shares of common stock issued and outstanding.

Following consummation of the Merger, the Company entered into Securities Purchase Agreements (the “Offering”) with three investors and raised an aggregate of $1.65 million in an offering of the Company’s preferred stock and warrants. Of the $1.65 million of proceeds raised, $375,000 was used as a partial payment to repurchase certain shares held by a former member of Paneltech LLC.

On April 7, 2010, the Company entered into a Securities Purchase Agreement with another investor and raised $150,000 in an offering of the Company’s Series A Convertible Preferred Stock and warrants to purchase Common Stock (the “April Offering”). The Company issued to the investor 272,655 shares of Preferred Stock and granted 454,425 Warrants. The terms of the April Offering, were substantially the same as the terms of the Offering described above.

NOTE 2 - Liquidity and Financial Condition

The Company has traditionally financed its working capital needs with cash flows from operations and borrowings under a line of credit for which borrowings are based on a portion of eligible accounts receivable and inventory. As described in this Note 2, the Company entered into a new line of credit with Anchor Mutual Savings Bank (“Anchor Bank”) on November 9, 2010, which will expire on November 15, 2011 (the “Anchor Line of Credit”). The line of credit balance outstanding on March 31, 2011 and December 31, 2010 was $746,276 and $570,062, respectively. The Company’s prior line of credit with Shorebank Pacific (“Shorebank”) expired on October 1, 2010 (the “Shorebank Line of Credit”).

The Shorebank Line of Credit consisted of a line of credit that, as a result of various change in terms agreements, was in the amount of $700,000 with an interest rate of 10.5%. The advances under the Shorebank Line of Credit were determined based on rate of 75% of eligible accounts receivable and 25% of eligible inventory. The Shorebank Line of Credit was secured by accounts receivable, inventory, and equipment, and guaranteed by certain officers of the Company. The Company entered into the Anchor Line of Credit on November 9, 2010. The balance of the Shorebank Line of Credit was repaid using funds available under the Anchor Line of Credit on November 10, 2010. After September 30, 2010 and before November 10, 2010, the Company financed its working capital needs with cash flows from operations.

-8-

PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 - Liquidity and Financial Condition, continued

The Anchor Line of Credit, which was entered into on November 9, 2010, is in the amount of $1,000,000 with an initial interest rate of 7% and expires on November 15, 2011. Under the Anchor Line of Credit, borrowing at any point in time is limited to 70% of eligible accounts receivable and 50% of inventory subject to an inventory borrowing sublimit of $400,000. The Anchor Line of Credit is secured by accounts receivable, inventory, and equipment and guaranteed by the Company’s subsidiary, Paneltech Products, and certain officers of the Company. The Company is subject to certain restrictive covenants under Anchor Line of Credit, including restrictions on the Company’s ability to pay dividends.

The Company has traditionally financed capital equipment with term loans and from working capital. On November 18, 2008, Anchor Bank granted the Company a construction loan for $1,819,000 for the purpose of plant expansion (the “Anchor Equipment Loan”). The Anchor Equipment Loan was funded as expenditures were made for the expansion. Because expected product demand did not materialize in 2010, the expansion project was postponed until additional demand developed. On October 1, 2010 the Anchor Equipment Loan was closed to additional borrowing and regular monthly amortization payments began on November 1, 2010. Pursuant to a Change of Terms Agreement dated June 30, 2010, which extended to conversion date for the Anchor Equipment Loan from July 15, 2010 to October 1, 2010, the Anchor Equipment Loan, was converted to a term loan on October 1, 2010. The total amount borrowed under this line of credit was $736,601 and the balance as of March 31, 2011 was $701,703.

On April 7, 2010, the Company entered into a Securities Purchase Agreement with an investor and raised $150,000 in an offering of the Company’s Series A Preferred Stock and warrants to purchase Common Stock (the “April Offering”). The terms of the April Offering were substantially the same as the terms of the Offering, which is described in greater detail in Note 13 below, closed on January 22, 2010. The Securities Purchase Agreement entered into in connection with the April Offering was in substantially the same form as the Securities Purchase Agreements entered into in connection with the Offering, and the Warrants issued in connection with the April Offering were the same as the Warrants issued in connection with the Offering. Under the terms of the April Offering’s Securities Purchase Agreement, the Company issued 272,655 shares of Series A Preferred Stock and granted 454,425 Warrants for a purchase price of $150,000. Under the conversion ratio in effect at the closing of the April Offering, each share of Preferred Stock is convertible into five shares of Common Stock. Each Warrant has an initial exercise price of $0.12 per share of Common Stock. The Warrants may be redeemed under certain circumstances.

Based on the Company’s progress in the execution of its business plan as well as obtaining the new Anchor Line of Credit, the Company believes cash balances on hand, borrowings under the line of credit agreement, and cash flows from operations will be sufficient to fund the Company’s net cash requirements over the next twelve months. In March 2010, the Company began taking certain cost cutting measures and increased the selling price of overlay products. In the event that market conditions are weaker than expected, or the Company is not able to borrow sufficient funds under the Anchor Line of Credit, further cost cutting measures may be necessary.

NOTE 3 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s wholly owned subsidiary, Paneltech Products (including Paneltech Rainscreens, LLC). All significant intercompany balances and transactions have been eliminated in consolidation.

Accounting Standards Codification

The Accounting Standards Codification (“ASC”) has become the source of authoritative U.S. GAAP. The ASC only changes the referencing of financial accounting standards and does not change or alter existing U.S. GAAP.

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PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – Basis of Presentation and Summary of Significant Accounting Policies, continued

Revenue Recognition

The Company applies the revenue recognition principles in accordance with ASC 605, "Revenue Recognition," with respect to recognizing its revenue. Accordingly, the Company records revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured.

Intangible Assets

The Company accounts for intangible assets in accordance with ASC 350 “Intangibles - Goodwill and Other”. ASC 350 requires that goodwill and other intangibles with indefinite lives should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value.

The Company’s amortizable intangible asset consists of a trade name. The asset is being amortized using the straight-line method over its estimated useful life of ten years.

Impairment of Long-Lived Assets

Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment whenever an impairment indicator exists. The Company continually monitors events and changes in circumstances that could indicate carrying amounts of the long-lived assets, including intangible assets may not be recoverable. When such events or changes in circumstances occur, the Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, an impairment loss is recognized based on the excess of the carrying amount over the fair value of the assets. The Company did not recognize any long lived asset impairment charges in the three months ended March 31, 2011.

Use of Estimates in the Financial Statements

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities and derivative financial instruments issued in financing transactions, accounts receivable reserves, inventory reserves, deferred taxes and related valuation allowances, and estimating the fair values of long lived assets to assess whether impairment charges may be necessary. The Company intends to re-evaluate all of its accounting estimates at least quarterly and record adjustments, when necessary.

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet for cash, lines of credit and other liabilities approximate fair value based on the short-term maturity of these instruments. The carrying amounts reported in the balance sheet for long-term obligations approximate fair value as such instruments feature contractual interest rates that are consistent with current market rates of interest or have effective yields that are consistent with instruments of similar risk.

Effective January 1, 2008, the Company adopted ASC Topic 820, “Fair Value Measurements and Disclosures.” ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: Other inputs that are directly or indirectly observable in the marketplace.

Level 3: Unobservable inputs supported by little or no market activity.

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PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – Basis of Presentation and Summary of Significant Accounting Policies, continued

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The adoption of this pronouncement did not have any material impact on the Company’s financial position, results of operations and cash flows.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains our cash accounts at high quality financial institutions with balances, at times, in excess of federally insured limits. As of March 31, 2011, we had no deposits in excess of federally insured limits. The Company believes that the financial institutions that hold our deposits are financially secure and therefore pose minimal credit risk.

Preferred Stock/Convertible Instruments

The Company applies the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity” when determining the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as temporary equity.

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC Topic 815, “Derivatives and Hedging.”

ASC Topic 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments in accordance with ASC Topic 815. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC Topic 815. ASC Topic 815 also provides an exception to this rule when the host instrument is deemed to be conventional (as that term is described in the implementation guidance to ASC Topic 815).

Net Loss Per Share

Basic net loss per share is computed by dividing net loss per share available to common stockholders by the weighted average shares of common stock outstanding for the period and excludes any potentially dilutive securities. Diluted earnings per share reflect the potential dilution that would occur upon the exercise or conversion of all dilutive securities into common stock. The computation of loss per share for the three months ended March 31, 2011 and 2010 excludes potentially dilutive securities, including warrants of 8,232,182 and 4,998,675 respectively, and Series A Preferred Stock of 3,271,860 and 2,999,205 shares respectively (each share of Series A Preferred Stock is currently convertible into 5,500 shares of Common Stock) outstanding as of March 31, 2011 because their inclusion would be anti-dilutive.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on the term of the underlying derivative instrument.

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PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - Summary of Significant Accounting Policies, continued

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

Reclassifications

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. These reclassifications have no effect on previously reported income.

NOTE 4 - Accounts Receivable

Accounts receivable consist of the following:

	March 31, 2011 (Unaudited)			December 31, 2010
Trade receivables		1,175,287		$	793,720
Allowance for doubtful accounts		(56,705	)		(47,254	)

Accounts Receivable	$	1,118,582		$	746,466

The Company performs ongoing credit evaluations of its customers' financial conditions but does not require collateral to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

NOTE 5 - Inventories

Inventories consist of the following:

	March 31, 2011 (Unaudited)		December 31, 2010
Raw materials	$	954,236	$	982,983
Finished goods		920,114		640,033

	$	1,874,350	$	1,623,016

NOTE 6 - Property and Equipment

Property and equipment consists of the following:

	March 31, 2011 (Unaudited)			December 31, 2010
Manufacturing equipment	$	4,513,899		$	4,510,019
Furniture and fixtures		95,450			95,450
Mobile equipment		293,081			293,081
		4,902,430			4,898,550
Less: accumulated depreciation and amortization		(3,121,383	)		(3,059,023	)

	$	1,781,047		$	1,839,527

Property and equipment, at March 31, 2011 and December 31, 2010, includes $80,450 of assets acquired under capital lease obligations. Depreciation and amortization expense for the three months ended March 31, 2011 and 2010 amounted to $62,360 and $76,225, respectively.

-12-

PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 7 - Intangible Assets

Below is a summary of intangible assets at March 31, 2011 and December 31, 2010:

	March 31, 2011 (Unaudited)							December 31, 2010
	Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net

Trade name
(10 year life)	$	270,000	$	(90,000	)	$	180,000	$	270,000	$	(83,250	)	$	186,750

Total amortization expense was $6,750 and $6,750 for the three months ended March 31, 2011 and 2010, respectively.

NOTE 8 - Line of Credit

The Company’s Shorebank Line of Credit expired on October 1, 2010. On November 9, 2010, the Company entered into the Anchor Line of Credit, which will expire on November 15, 2011. The balance outstanding on the Anchor Line of Credit on March 31, 2011 and December 31, 2010 was $746,276 and $570,062, respectively.

On November 10, 2010, the balance of the Shorebank Line of Credit was repaid using funds available under the Anchor Line of Credit. After September 30, 2010 and before November 10, 2010, the Company financed its working capital needs with cash flows from operations.

Interest expense on the lines of credit was $16,757 and $19,696 for the years ended March 31, 2011 and 2010, respectively.

NOTE 9 - Notes Payable-Shareholder

On December 23, 2009 the Company issued a promissory note (the “Collins Note”) in the amount of $375,000 in connection with the repurchase of shares of the Company from a former member of Paneltech LLC. Prior to amendment on August 31, 2010, the Collins Note interest accrued at prime per annum (3.25% at December 31, 2010) and, prior to amendment on July 26, 2010, was due on or before July 31, 2010 with an outside maturity date of August 1, 2010. On July 26, 2010, Collins and the Company amended the terms of the Collins Note to extend the due date to August 30, 2010 and the outside maturity date to August 31, 2010. The Collins Note was again amended on September 16, 2010, at which time the terms of the Collins Note were amended to (a) extend the due date to December 31, 2011 and the outside maturity date to January 1, 2012; (b) change the interest rate to 7% effective as of July 1, 2010, require monthly minimum payments equal to the monthly interest starting in January, 2011; (c) grant Collins a security interest in the assets of the Company pursuant to a security agreement subordinate only to existing bank loans or a new line of credit not exceeding $1,000,000; and (d) require principle repayments equal to $187,500 in the case of a funding or asset sale event of less than $1,500,000 or $375,000 in the case of a funding or asset sale event of $1,500,000 or greater. The security agreement contemplated by the September amendment was entered into on November 12, 2010. Under the terms of the Collins Note, as amended, if the unpaid principal and accrued interest is not paid on or before December 31, 2011, the outstanding principal and accrued interest will be adjusted (as a penalty) to cause the principal amount of the note to be equal to $625,000 due and payable on January 1, 2012. Prior to most recent amendment, if the unpaid principal and accrued interest was not paid on or before August 30, 2010, the outstanding principal and accrued interest would have been adjusted (as a penalty) to cause the principal amount of the note to be equal to $625,000 due and payable on August 31, 2010.

Interest expense on the Collins Note was $6,473 and $3,306 for the three months ended March 31, 2011 and 2010, respectively.

-13-

PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10 - Due to Shareholder

On December 18, 2009, Paneltech LLC issued promissory notes (the “Member Notes”) to six of its members in the aggregate of $450,961 in consideration for certain membership distributions that were owed to the members. The Member Notes bear interest at 12% per annum and were due on February 23, 2011. The Member Notes are payable in twelve monthly installments including interest beginning March 23, 2010. Management has elected to delay payments on these notes until the results of operations have improved enough to afford repayment.

	March 31, 2011 (Unaudited)			December 31, 2010
Due to shareholder	$	450,961		$	450,961
Less: current portion		(450,961	)		(450,961	)

Long-Term Portion		--			--

Interest expense on the Member Notes was $13,529 and $1,038 for the three months ended March 31, 2011 and 2010, respectively.

NOTE 11 - Long Term Debt

		March 31, 2011 (Unaudited)				December 31, 2010
Note payable, due in monthly installments of $20,545, including interest at prime (3.25% at March 31, 2011), plus 1.5%, through May 2015.		$	898,302			$	943,759

Note payable, due in monthly installments of $4,010, including interest at prime (3.25% at March 31, 2011), plus 1.25%, and is secured by equipment. Matures February 10, 2016.

160,756

170,911

Note payable, due in monthly installments of $1,237, including interest at 8.00%, secured by inventory, equipment, and accounts receivable. Matures February 2012.

11,275

14,716

Note payable due in monthly installments of $8,089 with an imputed interest rate of 9.00%. Matures September 2012.		135,727			156,625

Note payable – the Anchor Equipment Loan, due in monthly installments of $11,258, including interest at 6.75% July 2017.		701,703			723,439

		1,907,763			2,009,450
Less: current portion		(421,291	)		(410,332	)

Long-Term Portion	$	1,486,472		$	1,599,118

-14-

PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 - Long Term Debt, continued

Future maturities of Notes Payable are as follows:

For the Period Ending March 31,	Amount
2012	$	421,291
2013		391,410
2014		367,221
2015		374,237
2016		171,681
Thereafter		181,923
Total	$	1,907,763

Interest expense for long term debt for the three months ended March 31, 2011 and 2010 was $36,723 and $23,898, respectively.

NOTE 12 - Capital Lease Obligations

On May 2, 2007, the Company entered into an equipment lease agreement with a leasing company for monthly installments of $1,628, with an annual interest rate of 8.77% secured by the related equipment. The lease matures May 2012.

Future minimum lease payments under capital leases are as follows:

For the Periods Ending March 31,	Amount
2012	$	18,565
2013		1,617
Total minimum lease payments		20,182
Less amount representing interest		(980	)

Present value of minimum lease payments	$	19,202

NOTE 13 - Redeemable Preferred Stock

Series A Convertible Preferred Stock

The Company is authorized to issue 20,000,000 shares of preferred stock, par value $0.0001 per share, of which 5,453,100 shares have been designated Series A Convertible Preferred Stock ( “Series A Preferred Stock”). There are currently 3,271,860 shares of Series A Preferred Stock issued and outstanding.

On December 23, 2009, December 30, 2009, and April 7, 2010, the Company entered into Securities Purchase Agreements with accredited investors and sold 3,271,860 shares of Series A Preferred Stock for net proceeds of $1,655,917 (gross proceeds of $1,800,000 less offering costs of $144,083). The offering of the Company’s securities pursuant to Securities Purchase Agreements entered into on December 23, 2009 and December 30, 2009 is referred to in this Quarterly Report on Form 10-Q as the “Offering,” and the offering of securities pursuant to the Securities Purchase Agreement entered into on April 7, 2010 is referred to as the “April Offering”. The Series A Preferred Stock is convertible into shares of the Company’s Common Stock at a conversion rate that is subject to adjustment, which initially provides for each share of Series A Preferred Stock being convertible into 5 shares of Common Stock. Proceeds from the sale of Series A Preferred Stock were used for working capital purposes and $375,000 was used to repurchase certain shares held by a former member of Paneltech LLC.

As the Company did not have any preferred stock issued and outstanding prior to closing on the Offering, the Series A Preferred Stock is the Company’s most senior equity security. As of March 31, 2011, there were 3,271,860 shares of Series A Preferred Stock issued and outstanding.

-15-

PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 13 - Redeemable Preferred Stock, continued

Each share of Series A Preferred Stock accrues dividends at the rate of 12% per annum of the original issue price. Dividends are to be paid quarterly at the discretion of the Board, in either cash or stock. Each share of Series A Preferred Stock receives treatment preferential to the common stock in the case of dividends or any liquidation event, which includes any voluntary or involuntary liquidation, dissolution or winding up of the Company, or any significant subsidiary of the Company that results in the termination of the Company’s business. Certain other transactions are also deemed to be a liquidation event. The holders of the Series A Preferred Stock also have the right to elect one director, which right is further governed by the Investor Rights Agreement. The Series A Preferred Stock can be redeemed by the holder at any time after December 30, 2012.

The Series A Preferred Stock is also subject to certain anti-dilution adjustments and carries first refusal rights. The conversion price of the Series A Preferred Stock is adjustable under certain circumstances, whereby when certain earnings targets are not met the conversion price for the Series A Preferred Stock is reset. Under this reset adjustment, if the Company fails to achieve or is otherwise unable to report either or both of the minimum performance thresholds set for forth in the Certificate of Designations, Preferences and Other Rights and Qualifications of Series A Convertible Preferred Stock for fiscal years 2010 and 2011, which are also set forth below, then the then applicable conversion price will reset lower by the percentage difference by which the Company’s earnings before interest, taxes, depreciation and non-cash expense related to financings (“Earnings”) are below the applicable performance threshold. The performance thresholds are $5,000,000 and $14,000,000 for fiscal years 2010 and 2011 respectively.

The actual earnings performance measure for 2010 was a loss of $727,756. Since the difference between the actual performance and the threshold performance is greater than 100%, the calculation of the adjusted conversion price would be less than zero. Delaware state law, which rules in regard to minimum stock values, limits the price of the common stock to no less than its par value. At the conversion price equal to the stated par value of the Company’s common stock of $.0001 and as a result of adjustment provision, the holders of the Series A Preferred Stock may be entitled to receive additional shares in settlement. Such shares if required to be issued, may only be issued if the Company has sufficient number of shares authorized.

As of December 31, 2010 and 2009, the fair value of the embedded conversion option (based on the number of shares expected to be issued upon conversion) was determined to be demininus, given the significant rights, liquidation preference and dividend rights of the holders of the Preferred Stockholders on an unconverted basis.

Subject to the rights of, and the approval of, the holders of Series A Preferred Stock, the Board of Directors has the right, without stockholder approval, to issue preferred shares with rights superior to the rights of the holders of shares of common stock.

The holders of the Series A Preferred stock are (i) entitled to vote, separately as a class (with no other stockholders voting) to approve all matters that affect the rights, value, or ranking of the Series A Preferred Stock, and, (ii) subject to the limitations set forth in the Certificate of Designations (including a 4.99% and 9.99% beneficial ownership limitation that limits conversion and voting rights), cast such number of votes in respect of such shares of Series A Preferred Stock as will equal the largest whole number of shares of Common Stock into which such shares of Series A Preferred Stock are then convertible pursuant to the Certificate of Designations, all matters on which holders of Common Stock are entitled to vote, voting together as one class with, and in the same manner and with the same effect as, such holders of Common Stock.

Accordingly, the Company has classified conditionally redeemable preferred stock, which includes redemption rights, within the control of the holder (solely on the passage of time), as temporary equity. Accordingly, the Company accretes the changes in redemption value of Series A Preferred Stock over the period from the date of issuance to the earliest redemption date of the instrument which is three (3) years using the effective interest method. The Company recorded accretion of $142,555 and $101,741 for the three months ended March 31, 2011 and 2010, respectively.

Warrants Issued with Series A Convertible Preferred Stock

In connection with the Series A Convertible Preferred Stock purchase transaction, the Company issued an aggregate of 5,453,100 to purchase common stock at an exercise price of $0.12.

-16-

PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 13 - Redeemable Preferred Stock, continued

The warrants have an expiration date of seven (7) years. Since the warrants contain certain price protection features, whereby the exercise price may be lowered under certain circumstances, the Company recorded the fair value of these financial instruments as a derivative liability. The fair value of these liabilities shall be re-measured at the end of each reporting period with the change in value reported in the statements of operations. The fair value of the warrants was determined using the Black Scholes model and as of March 31, 2011 and December 31, 2010 was $81,797 and $81,797, respectively.

NOTE 14 – Warrants Issued to Related Parties

On January 23, 2010, the Company granted 694,770 warrants to purchase Common Stock to an individual for nominal consideration and in consideration for future services. On May 14, 2010, the Company granted an aggregate 2,084,312 warrants to purchase Common Stock to two Directors in consideration of service as directors of the Company. The terms of the warrants are substantially the same as the warrants issued in connection with the Offering and the April Offering, except they do not include the adjustment for failure to meet certain performance thresholds.

NOTE 15 - Stockholders’ Equity

Common Stock

The Company is authorized to issue 700,000,000 shares of common stock, par value $0.0001. Each holder of shares of our common stock is entitled to one vote for each share held of record on all matters submitted to the vote of stockholders, including the election of directors. The holders of shares of common stock have no preemptive, conversion, subscription or cumulative voting rights.

Common Stock Repurchase

On December 23, 2009, the Company entered into a stock repurchase agreement with a shareholder pursuant to which the Company purchased from the shareholder 13,772,550 shares of the Company’s Common Stock for a purchase price of $750,000. These shares were reported as Treasury stock as of December 31, 2009, and were cancelled during the three months ended March 31, 2010.

NOTE 16 - Fair Value Measurement

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2011:

			Fair Value Measurements at March 31, 2011
	Total Carrying Value at March 31, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Derivative liabilities	$	92,913	$	--	$	--	$	92,913

The derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors based on historical quoted market prices for the Company’s common stock, and are classified within Level 3 of the valuation hierarchy.

-17-

PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 16 - Fair Value Measurement, continued

The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis:

		March 31, 2011 (unaudited)				December 31, 2010
Beginning Balance		$	(92,913	)		$	(99,974	)

Net unrealized gain/loss on derivative financial Instruments		--			71,731
New derivative liabilities issued		--			(64,670	)

Ending Balance	$	(92,913	)	$	(92,913	)

NOTE 17 - Related-Party Transactions

In 2009, the Company entered into a consulting arrangement with a stockholder of the Company to generate national and international sales. The arrangement initially provided for monthly compensation of $16,666 plus reimbursement for travel expenses. During 2010, the arrangement was changed to include only international sales and compensation was changed to a fixed monthly fee of $1,250 plus travel expenses plus a sales commission equal to 10% of the direct margin of international sales paid each month for sales during the prior month. This arrangement extends from month to month. Expense for this arrangement for the three months ended March 31, 2011 and 2010 was $7,528 and $50,000, respectively.

NOTE 18 – Income Taxes

Due to accumulated losses since the Merger on December 23, 2009, no income tax expense has been accrued to date including for the three months ended March 31, 2011. Company has not recorded an income tax benefit because of uncertainty as to the Company’s ability to use the tax benefit in the future.

NOTE 19 - Commitments

A lawsuit was filed February 6, 2009 at the Superior Court of California, County of Siskiyou on behalf of an unrelated individual. The claim alleges that on February 12, 2007, the individual was injured while working with a Paneltech-leased railcar due to defective equipment. The venue was later moved to the United States District Court for the Eastern District of California. The total of the claim is $1,756,338. The defense of this matter is being managed by Liberty Mutual, Paneltech’s liability carrier at the time of the incident. The general liability policy coverage is $1,000,000 per incident. Excess coverage of $5,000,000 was also provided by Liberty Mutual at that time. A jury trial for this matter is set for January 24, 2012. Although the Company believes they will be successful in their defense, any negative outcome of this matter will be covered by insurance.

Operating Leases

The Company leases certain buildings and equipment under long-term leases. The Company's leases include month-to-month operating leases, as well as leases which expire at various intervals over the next five years.

-18-

PANELTECH INTERNATIONAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 19 – Commitments, continued

During the three months ended March 31, 2011 and 2010, rental expenses under long-term lease obligations were $224,816 and $216,288 respectively. Future obligations over the terms of the Company's long-term leases as of March 31, 2011 are as follows:

For the Periods Ending March 31,	Facility		Equipment		Total
2012	$	132,799	$	685,657	$	818,456
2013		76,544		155,920		232,464
2014		76,380		--		76,380
2015		76,380		--		76,380

Total	$	362,103	$	841,577	$	1,203,680

Leasing Activities

The Company leases railcars to customers under operating leases. These leases expire over the next two years. Currently, there are 201 log cars on lease, with rents ranging between $440 to $525 per car per month. Equipment under operating leases was $75,382 and $75,382 at March 31, 2011 and December 31, 2010, respectively, and is included in property and equipment in the accompanying consolidated balance sheet. Accumulated depreciation on equipment operating leases was $59,980 and $58,999 at March 31, 2011 and December 31, 2010, respectively.

Rent income received for the three months March 31, 2011 and 2010 was $235,423 and $165,041, respectively. Minimum future rental income is as follows:

For the Periods Ending March 31,	Amount
2011		989,400
2012		275,550

Total	$	1,264,950

Concentration

During the three months ended March 31, 2011, the Company had sales to one customer in the amount of $291,455 at 12.0% of total sales. As of March 31, 2011, accounts receivable from the customer were $73,340.

During the three months ended March 31, 2010, the Company had sales to one customer in the amount of $213,092 at 10.7% of total sales. As of March 31, 2010, accounts receivable from the customer were $174,778 and a note receivable from the customer was $134,661 for a total amount owed by the customer of $309,439. The note was non-interest bearing requiring bi-weekly payments of $12,500.

NOTE 20 - Subsequent Events

The Company has evaluated subsequent events through the filing of its condensed consolidated financial statements with the SEC.

-19-

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion is intended to further the reader’s understanding of the consolidated financial statements, financial condition, and results of operations of Paneltech International Holdings, Inc. (the “Company”) and its subsidiaries. This discussion should be read in conjunction with the consolidated financial statements, notes and tables which are included in Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”). This discussion includes forward-looking statements that involve risk and uncertainties. As a result of many factors actual results may differ materially from those anticipated in these forward-looking statements.

Recent Events

Changes in Logistics Assets

In March, May, and June, 2010, consistent with the Company’s strategy and plans to focus on its manufactured product lines, the Company sold its idle wood log carrying railcars and log loader for approximately $259,977. These pieces of equipment have been idle since April 2009 following the downturn in the lumber market. Despite the sale of this equipment, the Company’s railcar leases providing wood log carrying railcars to customers recently increased from 111 cars to approximately 200 cars through the leasing of additional railcars to meet customer demand.

New Line of Credit

On November 9, 2010, the Company entered into a new line of credit with Anchor Bank, in the amount of $1,000,000 with an initial interest rate of 7% (the Anchor Line of Credit). The Anchor Line of Credit, which expires on November 15, 2011, is secured by accounts receivable, inventory, and equipment and guaranteed by the Company’s subsidiary, Paneltech Products, and certain officers of the Company. Borrowing at any point in time is limited to 70% of the Company’s eligible accounts receivable and 50% of inventory subject to an inventory borrowing sublimit of $400,000. On November 10, 2010, the balance of the Shorebank Line of Credit was paid off using funds made available under the Anchor Line of Credit.

Company Overview

Merger

On December 23, 2009, Paneltech LLC merged with and into Paneltech Products, a wholly owned subsidiary of the Company (the “Merger”), to become the Company’s principal operating business, which is referred to in this Quarterly Report on Form 10-Q as the “Paneltech Business.” In order to better reflect the Company’s new principal business, the Company changed its name from Charleston Basics, Inc. to Paneltech International Holdings, Inc. Prior to the Merger, the Company’s principal operating business was the sale of outdoor camping goods, survival products and tactical gear, referred to in this Quarterly Report as the “Pre-Merger Business.” Immediately following the Merger, the Company sold all of its assets relating to this Pre-Merger Business to Cambridge, an entity controlled by Mr. Lieber, a former CEO and current shareholder of the Company.

In connection with the Merger, the former members of Paneltech LLC exchanged their Paneltech LLC membership interests for Common Stock of the Company. As a result of this exchange the former Paneltech LLC members owned approximately 88% of the Company’s outstanding Common Stock following the exchange, before adjusting for any conversion or exercise of any Series A Preferred Stock or the Warrants into Common Stock of the Company. In connection with the Merger, the Company was deemed to be the acquired company for accounting and financial reporting purposes and Paneltech LLC was deemed the acquirer. As such, Paneltech LLC’s historical financial statements became the Company’s historical financial statements.

Securities Purchase Agreements

Following consummation of the Merger, the Company entered into securities purchase agreements (the “Securities Purchase Agreements”) with three investors and raised an aggregate of $1.65 Million in an offering of the Company’s Series A Preferred Stock and Warrants, referred to throughout this Quarterly Report as the “Offering”. The Offering closed on January 22, 2010, and the sale of Series A Preferred Stock pursuant to the Securities Purchase Agreements closed on December 23, 2009 and December 30, 2009. Under the conversion ratio at the closing of the Offering, each share of Series A Preferred Stock is convertible into five shares of Common Stock. Each Warrant has an exercise price of $0.12 per share of Common Stock which is subject to adjustment. The Warrants may be redeemed under certain circumstances. Of the $1.65 million of proceeds raised, $375,000 was used to repurchase 13,772,550 of Common Stock held by Collins Timber Company LLC (“Collins”), a former member of Paneltech LLC (the “Collins Repurchase”, or, the “Repurchase Agreement”). In order to repurchase the 13,772,550 shares of Common Stock from the former Paneltech LLC member, the Company also issued a promissory note (the “Collins Note”) in the amount of $375,000. The Collins Note bears interest at the prime rate from time to time in effect as published in the Wall Street Journal. Under certain circumstances set forth in the Collins Note, the principal amount of the Collins Note will be adjusted to equal $625,000, less the aggregate principal amount previously paid on the Collins Note. Under the terms of the Repurchase Agreement, Collins is entitled to have a representative selected by Collins elected to and serving on the Company’s Board of Directors until the Collins Note is paid in full.

-20-

On April 7, 2010, the Company entered into a Securities Purchase Agreement with an investor and raised $150,000 in an offering of the Company’s Series A Convertible Preferred Stock and warrants to purchase Common Stock (the “April Offering”). The Company issued to the investor 272,655 shares of Preferred Stock and granted 454,425 Warrants. The terms of the April Offering, which is now closed, were substantially the same as the terms of the Offering described above.

The Company

The Company was incorporated under the laws of the State of Delaware on April 4, 2006, primarily for the purpose of engaging in the Pre-Merger Business. Upon consummation of the Merger between the Company’s Paneltech Products subsidiary and Paneltech LLC, an emerging “green” composite producer and ballistic fabric coater founded in 1996, the Paneltech Business became the Company’s principal operating business. As a vertically-integrated manufacturer of innovative “green” building materials, the Company now aims to develop economically feasible and environmentally-friendly manufacturing processes that allow the production of innovative products that are competitively affordable and globally accessible. The Paneltech Business is comprised of four core business units:

Paperstone – Includes the Company’s principal hard surface products, made from recycled paper and petroleum-free resin for architectural use and other applications.

Fortrex – The life protection “Prepreg” (pre-impregnated composite fibers) division of the Company engages in the production of specialized phenolic resins for use in “ballistics” webs such as woven Kevlar and fiberglass mats and other life protection materials used as vehicle armor and blast resistant building panels.

Overlays – Production of resin/paper composites that enhance structural plywood panel surfaces for the end use of concrete forming and miscellaneous other uses.

Logistics – Rail car leasing. Although recent activity has increased, it is the long term plan of the Company to focus on the business units discussed above and phase out of the logistics unit as the leases for the railcars are terminated.

Results of Operations for the three months ended March 31, 2011 compared to the three months ended March 31, 2010

Revenues for the three months ended March 31, 2011 were $2,431,071, representing an increase of $446,598, or 23%, compared to $1,984,473 for the same period in 2010. Fortrex sales for the three months ended March 31, 2011 were $75,986 compared to sales of $111,949 for sales for 2010, representing a decline of $35,963, or 32%. During the three months ended March 31, 2011 and the comparable period in 2010, the Company did not have any large Fortrex project awards and the orders that were received were uneven in terms of timing and amount. Paperstone revenue declined to $795,193 in the three months ended March 31, 2011 from $834,902 for 2010, representing a decline of $39,709, or 5% from the comparable period in 2010. This decline was primarily due to national economic stimulus efforts that stimulated PaperStone sales during three months ended March 31, 2010. Revenue from the Overlays unit grew to $1,320,434 for the three months ended March 31, 2011 compared to revenue of $862,313 for 2010, representing an increase of $458,121, or 53%, from the comparable period in 2010. The increase in Overlays shipments was primarily due to the capture of market share from a competitor who had recently emerged from Chapter 11.

Gross profit increased to $661,462 for the three months ended March 31, 2011 from $405,100 for the same period in 2010, representing an increase of $256,362, or 63%. Gross profit percent for the three months ended March 31, 2011 was 27% and for the comparable period in 2010 was 20%. The increase was caused by higher Overlay sales volume in 2011, an Overlay price increase in April of 2010, and the mid-2010 reduction of costs associated with idle railcars.

Operating expenses for the three months ended March 31, 2011 decreased by $345,304, or 35%, to $643,002, compared to $988,306 for the same period in 2010. Of the decrease, $216,000 was due to higher professional fees in 2010, including accounting, legal and consulting services related to the Merger and changes associated with it. The remainder of the decrease is the result of the reduction of three salaried employees and a reduction of fees associated with our international sales agent.

-21-

As of March 31, 2011, the Company’s line of credit maximum limit under the Anchor Line of Credit was $1,000,000 and was further limited to the eligible accounts receivable and inventory. As of March 31, 2011, the amount available to the Company, over the amount borrowed, was $253,724.

The accounts receivable balance was $1,118,582 as of March 31, 2011and $746,466 on December 31, 2010.

The inventory balance was $1,874,350 on March 31, 2011 and $1,623,016 on December 31, 2010.

Current Operating Plans and Trends

The Company is seeking to increase revenue from its PaperStone product line in fiscal 2011 by expanding its PaperStone marketing effort overseas and by adding new, more promising distribution channels. The Company is seeking to increase revenue from its Fortrex product line by adding new customers that serve new ballistics market segments, and by capitalizing upon the new Fortrex products, processes, and customers that were developed in 2009 and 2010. The Company will seek to continue to grow Overlays in fiscal 2011 by leveraging its customer service advantages, increasing product diversification, and improving end user awareness of its products.

In 2009, military ballistic spending was disrupted by the change in administration following the 2008 elections and the new administration’s efforts to refocus attention from Iraq to Afghanistan. In 2010, new projects were awarded that required significant volumes of hard armor and, while the Company was successful in obtaining a modest order, most of the material was produced by others using material and/or technology that was not available to the Company. A new armor product has been developed by one of the Company’s customers that takes advantage of the Company’s unique production system and one of the Company’s proprietary resin systems. This product is in the final stages of qualification (although there can be no assurances qualification will be achieved) for the MRAP retrofits which are slated to start mid-2011.

The Company continues to receive small Fortrex monthly orders and there is increasing interest in the infrastructure protection panel market. This is a large market but certain of our competitors have process cost advantages. Nevertheless, the demand may exceed the capacity of the lower cost competitors. If the Company is successful in obtaining large contracts (although there can be no assurances), this business may exceed the Company’s ballistics capacity by mid-2011. Should this occur, the Company has the equipment required for an additional treater line but would need to acquire financing to complete installation.

Liquidity and Capital Resources

The Company has traditionally financed its working capital needs with cash flows from operations and borrowings under a line of credit for which borrowings are based on a portion of eligible accounts receivable and inventory. Up until October 1, 2010, the Company had a line of credit with Shorebank which expired on October 1, 2010 (the Shorebank Line of Credit). The balance of the Shorebank Line of Credit was paid off using funds made available under a new line of credit that the Company entered into with Anchor Bank on November 9, 2010 (the Anchor Line of Credit). The Anchor Line of Credit expires on November 15, 2011.

The Anchor Line of Credit, entered into on November 9, 2010, is in the amount of $1,000,000 with an initial interest rate of 7%. Borrowing at any point in time is limited to 70% of eligible accounts receivable and 50% of inventory subject to an inventory borrowing sublimit of $400,000. The Anchor Line of Credit is secured by accounts receivable, inventory, and equipment and guaranteed by the Company’s subsidiary, Paneltech Products, and certain officers of the Company including Messrs. Nott and Olmstead. The Company is subject to certain restrictive covenants under Anchor Line of Credit, including restrictions on the Company’s ability to pay dividends.

-22-

The Company has the following term loan agreements with Anchor Bank including the Anchor Equipment Loan described in Note 2 of the Notes to the Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q:

1.	Loan Agreement entered into on January 22, 2007, having an original principal balance of $61,000. As of March 31, 2011, the outstanding principal balance was $11,275. Interest accrues at a rate of 8.0% per annum.

2.	Loan Agreement entered into on February 2, 2006, having an original principal balance of $320,000. As of March 31, 2011, the outstanding principal balance was $160,756. Interest accrues at a rate per annum of 1.25% above the prime rate.

3.	Anchor Equipment Loan Agreement converted to term on October 1, 2010, having an original principal balance of $736,601. As of March 31, 2011, the outstanding principal balance was $701,703. Interest accrues at a rate of 6.75% per annum.

4.	Loan Agreement entered into on April 22, 2005, having an original principal balance of $1,750,000. As of March 31, 2011, the outstanding principal balance was $898,302. Interest accrues at a rate per annum of 1.5% above the prime rate.

On December 23, 2009 the Company issued the Collins Note in the amount of $375,000 to repurchase of shares of the Company from a former member of Paneltech LLC. The Collins Note bears interest at prime per annum (3.25% at December 31, 2009) and was due on or before July 31, 2010. On July 26, 2010, the Company and Collins amended the Collins Note to extend the due date on the Collins Note to August 30, 2010 and the outside maturity date to August 31, 2010. The Collins Note was again amended on September 16, 2010, at which time the terms of the Collins Note were amended to (a) extend the due date to December 31, 2011 and the outside maturity date to January 1, 2012; (b) change the interest rate to 7% effective as of July 1, 2010, require monthly minimum payments equal to the monthly interest starting in January, 2011; (c) grant Collins a security interest in the assets of the Company pursuant to a security agreement subordinate only to existing bank loans or a new line of credit not exceeding $1,000,000; and (d) require principle repayments equal to $187,500 in the case of a funding or asset sale event of less than $1,500,000 or $375,000 in the case of a funding or asset sale event of $1,500,000 or greater. The security agreement contemplated by the September amendment was entered into on November 12, 2010. Under the terms of the Collins Note, as amended, if the unpaid principal and accrued interest is not paid on or before December 31, 2011, the outstanding principal and accrued interest will be adjusted (as a penalty) to cause the principal amount of the note to be equal to $625,000 due and payable on January 1, 2012. Prior to most recent amendment, if the unpaid principal and accrued interest was not paid on or before August 30, 2010, the outstanding principal and accrued interest would have been adjusted (as a penalty) to cause the principal amount of the note to be equal to $625,000 due and payable on August 31, 2010.

In connection with certain tax distributions owed to Paneltech LLC members, certain promissory notes were issued to those members that as a result of the Merger have become obligations of Paneltech Products (the “Member Notes”). The Member Notes are in the following amounts:

L.D. Nott Company	$	206,347
Collins Timber Company LLC	$	160,292
SORB Management Corporation	$	45,115
Ron Iff	$	34,301
Andrew R.G. Wilson	$	4,028
Chris Wentworth	$	878

The L.D. Nott Company is an entity controlled by Leroy Nott, the Company’s President and CEO. The SORB Management Corporation is an entity controlled by Scott Olmstead, the Company’s CFO and Secretary. Ron Iff and Chris Wentworth are employees of the Company. Andrew R.G. Wilson is currently engaged as a consultant for Paneltech Products. Such promissory notes are payable in 12 monthly installments commencing March 23, 2010, and as of that date, have begun accruing interest at 12% per annum. As of March 31, 2011, no payments have been made on the Member Notes as payments have been deferred until liquidity improves.

Based on the Company’s progress in the execution of its business plan as well as obtaining the new Anchor Line of Credit, the Company believes cash balances on hand, borrowings under the line of credit agreement, and cash flows from operations will be sufficient to fund the Company’s net cash requirements over the next twelve months. In March 2010, the Company began taking certain cost cutting measures and increased the selling price of overlay products. In the event that market conditions are weaker than expected, or the Company is not able to borrow sufficient funds under its line of credit, further cost cutting measures may be necessary.

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Uncertainties

While the Company is anticipating increases in PaperStone, Fortrex, and Overlay revenue in 2011, there are no existing purchase commitments or other assurances that give certainty that these sales increases will occur. The Company has submitted a quote and sample materials for several large projects but cannot be assured of being successful obtaining the corresponding purchase orders. If revenue does not increase over 2010 levels, the Company will continue to operate with a net loss and will need to acquire additional funding and/or significantly reduce costs.

The Company is uncertain about the general direction of economic or political trends that may affect the Company’s growth plans. The Company’s Overlays and Logistics business units are heavily dependent on construction trends which the Company anticipates will strengthen only modestly in 2011. The Company’s Paperstone product is a specialty product that has many applications outside of construction. As Paperstone has a very small market share of the solid surfaces market, the Company believes its new distribution strategies could lead to increased sales, even in a depressed economy. Fortrex revenue can be impacted by military purchasing trends, which could be directed towards other armor solutions that the Company does not currently participate in or could be impacted by political trends, which are beyond the control of the Company.

While the Company does not currently anticipate that demand for its products will exceed its current production capacity during 2011, the Company cannot be certain that it will have the additional funds available to complete the planned installation of second saturator/coater, which have already been acquired, if the Company unexpectedly receives unusually large orders that exceed the Company’s capacity and projections for 2011.

The amount available under the Anchor Line of Credit is limited to a maximum of $1,000,000. The Company cannot be certain that Anchor will renew or extend the line of credit. The increasing activity for PaperStone, Overlays, and Fortrex may require a larger line of credit than is currently available and the Company cannot be certain that Anchor will increase the amount available under the Anchor Line of Credit or extend it beyond its current expiration date of November 15, 2011.

The Company cannot be sure that it will collect all of its accounts receivable. While most of the accounts are current, several customers are liquidity challenged and their accounts are being closely monitored by the Company. One customer sold their assets in January, 2011 and informed the Company that $29,655 of its accounts receivable will not be paid. The reserve for bad debts was increased as of December 31, 2010 to cover this probability. The Company is in discussions with another customer regarding unpaid accounts.

Some prior RainStone coatings have proven unsatisfactory to certain of the Company’s customers in some applications. The Company is researching new coatings and will need to replace the products that are indeed unsatisfactory. The Company cannot be certain of the costs of research and new coating development nor the costs of replacement.

Off-Balance Sheet Arrangements.

With the exception of operating leases, the Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, results of operations or cash flows. The Company enters into operating leases for both equipment and property. See the notes to the consolidated financial statements for additional information on the Company’s operating leases.

Critical Accounting Policies and Estimates

The preparation of financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements.

Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. There are no critical policies or decisions that rely on judgments that are based on assumptions about matters that are highly uncertain at the time the estimate is made. Note 3 to the financial statements, included elsewhere in this Report on Form 10Q, includes a summary of the significant accounting policies and methods used in the preparation of our financial statements.

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Impairment of Long-Lived Assets

Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment whenever an impairment indicator exists. The Company continually monitors events and changes in circumstances that could indicate carrying amounts of the long-lived assets, including intangible assets may not be recoverable. When such events or changes in circumstances occur, the Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, an impairment loss is recognized based on the excess of the carrying amount over the fair value of the assets. The Company did not recognize any intangible asset impairment charges in the three months ended March 31, 2011.

Use of Estimates in the Financial Statements

Fair Value of Financial Instruments

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: Other inputs that are directly or indirectly observable in the marketplace.

Level 3: Unobservable inputs supported by little or no market activity.

In February 2007, the FASB issued ASC Topic 825, “Fair Value Option“, which is effective for fiscal years beginning after November 15, 2007. ASC Topic 825 permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings.

Concentration of Credit Risk

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Preferred Stock/Convertible Instruments

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC Topic 815, “Derivatives and Hedging.”

Net Loss Per Share

Derivative Financial Instruments

Recent Accounting Pronouncements

See Note 3 of the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including the anticipated dates of adoption and the effect on the Company’s Condensed Consolidated Financial Position and Results of Operations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This Quarterly Report includes statements regarding the Company’s plans, goals, strategies, intent, beliefs or current expectations. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished. To the extent that any statements made in this Quarterly Report contain information that is not historical, these statements are essentially forward-looking. Forward-looking statements may be identified by the use of terms and phrases such as “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.). Statements contemplating or making assumptions about, actual or potential future sales, market size, collaborations, and trends or operating results also constitute such forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements are subject to a number of risks and uncertainties discussed under the headings “Risk Factors” in our Annual Report on Form 10-K filed in connection with our most recently completed fiscal year and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report. All forward-looking statements attributable to us are expressly qualified by these and other factors. We cannot assure you that actual results will be consistent with these forward-looking statements.

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Information regarding market and industry statistics contained in this Quarterly Report is included based on information available to us that we believe is accurate. Forecasts and other forward-looking information obtained from this available information are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We do not undertake any obligation to publicly update any forward-looking statements. As a result, you should not place undue reliance on these forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission (the “SEC”) which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in the Exchange Act) Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our first quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

A lawsuit was filed February 6, 2009 at the Superior Court of California, County of Siskiyou on behalf of Eddie Horner. The claim alleges that, on February 12, 2007, Eddie Horner was injured while working with a Paneltech leased railcar due to defective equipment. The venue was later moved to the United States District Court for the Eastern District of California. The total of the claim is $1,756,338. The defense of this matter is being managed by Liberty Mutual, Paneltech’s liability carrier at the time of the incident. The general liability policy coverage is $1,000,000 per incident. Excess coverage of $5,000,000 was also provided by Liberty Mutual at that time. A jury trial for this matter is set for January 24, 2012.

The Company is a defendant in various contract disputes and legal actions arising out of the normal course of business.

Item 1A. Risk Factors

Not Applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

See discussion of the Default under the heading Liquidity and Capital Resources in Item 2 of this Quarterly Report.

Item 5. Other Information

None

Item 6. Exhibits

Exhibit No.	Description
31.1*	Certification of Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

* Filed herewith.

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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.

PANELTECH INTERNATIONAL HOLDINGS, INC.

By:	/s/ Leroy D. Nott
	Name:	Leroy D. Nott
	Title:	Chief Executive Officer
	Date:	May 18, 2011

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 and on the dates indicated.

Signature	Title	Date

/s/ Leroy D. Nott	Chief Executive Officer, President and Director (Principal Executive Officer)	May 18, 2011
Leroy D. Nott

/s/ Scott D. Olmstead	Chief Financial Officer, Secretary and Director (Principal Financial Officer and Chief Accounting Officer)	May 18, 2011
Scott D. Olmstead

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Paneltech International Holdings, Inc. 10-Q