FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 1996
[ ] 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 0-14937
PMC INTERNATIONAL,INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0627374
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
555 17th Street, 14th Floor, Denver, Colorado 80202
(Address of principal executive offices)
(303) 292-1177
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of May 15, 1996.
Common Stock $0.01 Par Value 5,555,713
Class Number of Shares
Transitional Small Business Disclosure Format
Yes [ ] No [X]
Page 1 of 20 Pages
Exhibit Index Begins on Page 19
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PMC INTERNATIONAL, INC.
INDEX
PART I Financial Information Page No.
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
-- March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Income 5
-- Three months ended March 31, 1996
and March 31, 1995
Condensed Consolidated Statements of Cash Flow 6
-- Three months ended March 31, 1996
and March 31, 1995
Note to Unaudited Condensed Consolidated Financial 8
Statements
Item 2 Management's Discussion and Analysis of 16
Financial Condition and Results of
Operations
PART II Other Information
Item 1 Legal Proceedings 19
Item 3 Defaults Upon Senior Securities 19
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 20
Page 2 of 20 Pages
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PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (Note 1)
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
March 31, December 31,
1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 92,069 $ 313,885
Receivables
Investment management fees 65,520 39,733
Other receivables 158,380 63,210
315,969 416,828
FURNITURE AND EQUIPMENT, at cost,
net of accumulated depreciation of
$425,803 and $355,231 (Note 1) 761,056 688,233
SOFTWARE DEVELOPMENT, at cost,
net of accumulated depreciation of
$44,428 and $0 (Note 1) 497,209 419,617
PREPAID EXPENSES AND OTHER ASSETS 342,043 220,605
GOODWILL (net of amortization of $58,348
and $52,513) (Note 1) 291,652 297,487
LONG TERM NOTE RECEIVABLE (Note 2) 800,747 897,167
TOTAL ASSETS $ 3,008,676 $ 2,939,937
See notes to unaudited condensed consolidated financial statements
Page 3 of 20 Pages
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PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
March 31, December 31,
1996 1995
LIABILITIES
Accounts payable $ 1,591,709 $ 1,442,694
Accrued expenses 744,514 707,897
Other liabilities 573,863 571,389
Deferred revenue 485,786 411,347
Notes payable 1,944,120 1,647,470
Obligations under capital lease 124,831 75,490
TOTAL LIABILITIES 5,464,823 4,856,287
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY (Note 3)
Preferred stock, no par value - authorized
5,000,000 shares; issued and outstanding,
349,017 shares and 349,017 shares 872,543 872,543
Common stock, $.01 par value - authorized
50,000,000 shares; issued and outstanding,
5,555,713 shares and 5,555,713 shares 276,716 276,716
Additional paid-in capital 3,652,749 3,652,749
Accumulated deficit (7,258,155) (6,718,358)
TOTAL SHAREHOLDERS' EQUITY (2,456,147) (1,916,350)
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 3,008,676 $ 2,939,937
See notes to unaudited condensed consolidated financial statements.
Page 4 of 20 Pages
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PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
REVENUE:
1996 1995
Investment management fees $ 2,344,321 $ 2,037,768
Trading income 30,556 35,686
Other income 241,014 157,714
Total revenue 2,615,891 2,231,168
EXPENSES:
Investment manager and
other fees 1,407,055 1,157,736
Salaries and benefits 766,007 525,428
Clearing charges and user
fees 208,825 202,535
Advertising and promotion 178,857 94,840
General and administrative 127,811 102,221
Office supplies expense 63,077 43,436
Occupancy and equipment costs 248,117 133,821
Professional fees 111,310 50,062
Interest 44,630 14,278
Total expenses 3,155,689 2,324,357
NET LOSS BEFORE
INCOME TAXES $ (539,798) $ (93,189)
INCOME TAXES - -
NET LOSS $ (539,798) $ (93,189)
NET LOSS
PER COMMON SHARE $ (0.19) $ (0.01)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 5,555,713 5,540,501
See notes to unaudited condensed consolidated financial statements.
Page 5 of 20 Pages
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PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three Months Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (539,798) $ (93,189)
Adjustments to reconcile net loss to
net cash used in operating activities:
Accretion of discount on notes receivable (21,616) (17,800)
Depreciation and amortization 120,835 26,835
Changes in operating assets and liabilities
Investment management fees receivable (25,787) 39,951
Other receivables (95,170) (74,641)
Prepaid expenses and other assets (121,438) 17,626
Accounts payable 149,015 (66,208)
Accrued expenses 36,617 (147,316)
Other liabilities 2,474 6,268
Deferred revenues 74,439 (21,672)
Net cash used in operating activities (420,429) (330,146)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment
and software development (205,557) (42,532)
Reduction of long-term note receivable 118,036 82,317
Net cash provided by (used in) investing activities (87,521) 39,785
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 298,669 300,000
Principal payments on notes payable (2,019) -
Principal payments on obligations
under capital lease (10,516) -
Net cash provided by financing activities 286,134 300,000
NET INCREASE (DECREASE) IN CASH (221,816) 9,639
CASH, at beginning of period 313,885 139,918
CASH, at end of period $ 92,069 $ 149,557
See notes to unaudited condensed consolidated financial statements.
Page 6 of 20 Pages
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Three Months Ended
March 31,
1996 1995
Cash paid for interest $ 3,672 $ 7,988
See notes to unaudited condensed consolidated financial statements.
Page 7 of 20 Pages
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PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
On September 23, 1993, the shareholders of Schield Management
Company ("Schield") approved an exchange of common stock of
Schield for all of the outstanding common stock of Portfolio
Management Consultants, Inc. ("PMC") and a name change from
Schield to PMC International, Inc. ("PMCI"). The stock exchange
was completed on September 30, 1993 and as a result of this
transaction, PMC is a wholly owned subsidiary of PMCI. The stock
exchange between Schield and PMC has been considered a reverse
acquisition and accounted for under the purchase method of
accounting. Under reverse acquisition accounting, PMC was
considered the acquiror for accounting and financial reporting
purposes, and acquired the assets and assumed the liabilities of
Schield. The Schield assets acquired and liabilities assumed
were recorded at their fair values. The cost of the acquisition
of Schield of $1,741,018 was based on the NASDAQ publicly traded
price of the outstanding Schield common stock prior to the
announcement of the transaction. The excess of the cost of the
acquisition over the fair value of the assets acquired and
liabilities assumed was recorded as goodwill.
PMC was organized in 1986 and its principal business activity is
the administration of private and institutional managed account
programs with its customers located substantially in the United
States. Its services include investment suitability analysis,
portfolio modeling and asset allocation, money manager selection,
portfolio accounting and performance reporting. PMC's revenues
are primarily derived from a percentage of the assets under
management. Assets under management are impacted by both the
extent to which PMC attracts new, or loses existing clients and
the appreciation or depreciation of the U.S. and international
equity and fixed income markets. Assets of customers of two
unrelated organizations constitute approximately 42% and 8% of
the total customer assets in PMC's managed account programs as of
March 31, 1996. PMC is registered as an investment advisor under
the Investment Advisors Act of 1940.
In June, 1994, Portfolio Brokerage Services, Inc. ("PBS) was
capitalized through a series of transactions with PMCI and PMC,
whereby PBS became a wholly owned subsidiary of PMCI by issuing
1,000 shares of its common stock in exchange for certain assets
and liabilities with a book value of $1,532,332. PBS is engaged
in business as a securities broker-dealer. As a broker-dealer it
executes security transactions for PMC's privately managed
account programs, on behalf of its customers through the
customer's custodian bank on a delivery vs. payment basis.
Portfolio Technology Services, Inc. ("PTS") was organized in
June, 1994 but had no operations until 1995. PTS was formed for
the purpose of developing proprietary software for use in the
financial services industry.
Page 8 of 20 Pages
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PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
The accompanying unaudited condensed consolidated financial
statements include the historical accounts of PMC for all periods
and the accounts of PMCI since September 30, 1993, PBS and PTS
since inception and, have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and
Regulation S-B. In the opinion of management, all adjustments
(consisting of normal accruals and elimination of intercompany
accounts and transactions) considered necessary for a fair
presentation have been included. The unaudited condensed
consolidated financial statements should be read in conjunction
with the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the
year ended December 31, 1995.
Significant Accounting Policies
Revenue from investment management services is recorded as such
revenues accrue under the terms of the related investment
management contracts.
Securities transactions and related commission income are
recorded on a trade date basis. In the normal course of
business, PBS executes, as agent, transactions on behalf of
customers. If the agency transactions do not settle because of
failure to perform by either the customer or the counter-party,
PBS may be obligated to discharge the obligation of the non-
performing party and, as a result, may incur a loss if the market
value of the security is different from the contract amount of
the transactions.
The majority of costs incurred to establish the technological
feasibility of the Company's software products intended to be
sold or otherwise marketed were borne by unrelated individuals
prior to the products being introduced to the Company. The
Company incurred approximately $50,000 in research and
development costs after receiving the products from the unrelated
individuals. These costs were expensed in 1995. All subsequent
costs incurred after technological feasibility was achieved were
capitalized and are being amortized over three years.
The Company provides for depreciation of furniture and equipment
on the straight line and declining balance methods based on
estimated lives of three to seven years.
Cash and cash equivalents for purposes of the statement of cash
flows includes highly liquid investments with a maturity of three
months or less at date of acquisition.
Page 9 of 20 Pages
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PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Net loss per share of common stock is based on the weighted
average number of shares of common stock outstanding, giving
affect to the reverse stock split discussed in Note 3 and
preferred dividend requirements. Common stock equivalents are
not included in the weighted average calculation since their
effect would be anti-dillutive.
Goodwill is amortized using the straight line method over 15
years.
NOTE 2 - LONG TERM NOTE RECEIVABLE
In connection with the Schield reverse acquisition, the Company
acquired a long term note receivable related to the sale of
Schield's market timing operations to an entity controlled by a
founder of Schield. The note is payable in monthly installments
of $32,000, including interest through August, 1998. The note
was recorded at its estimated fair value as of September 30,
1993. The discount from the face amount of the note receivable
is accreted to interest income over the life of the note using
the interest method. The principal balance of the note as of
March 31, 1996 is $910,416 compared to its carrying amount of
$800,747.
NOTE 3 - SHAREHOLDERS' EQUITY
Reverse Stock Split
All shares and per share amounts in the accompanying financial
statements have been restated to give effect to a one for five
reverse stock split of the Company's common stock which was
effective November 12, 1993.
Preferred Stock
Holders of preferred stock are entitled to receive dividends at a
rate of $0.325 per share per annum (equal to 13% of the purchase
price per share attributable to the preferred stock). Dividends
are payable semi-annually on January 15 and July 15 in each year.
Dividends accrue from the date of the preferred stock issuance
and are cumulative. Upon liquidation or dissolution of the
Company, holders of preferred stock are entitled to a preference
over the holders of common stock in an amount per share equal to
the original purchase price attributed to a share of preferred
stock ($2.50) plus all unpaid cumulative dividends. The
preferred stock is non-participating and the holders of preferred
stock have no preemptive rights and no voting rights except as
may be required by Colorado law. At the option of the Company,
the preferred stock may be redeemed in whole, or in
Page 10 of 20 Pages
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PMC INTERNATIONAL, INC.
AND SUBSIDARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Continued)
NOTE 3 - SHAREHOLDERS' EQUITY (continued)
part, at a price of $2.75 per share, plus unpaid cumulative
dividends. Redemption can only occur if certain conditions
regarding the bid prices of the Company's common stock and the
Company's after-tax earnings are met. As of the date of this
report, cumulative dividends in arrears totaled $526,862.
Stock Options and Warrants
During 1994, the Company adopted a Stock Option Plan. Under this
plan, the Company may grant stock options to officers and
employees. The Stock Option Plan was intended as an Incentive
Stock Option Plan, however shareholder approval of the Plan was
not sought or obtained within one year of Board adoption and
consequently options granted thereunder will not receive
incentive stock option treatment. Outside of this plan, the
Company has granted options to officers, employees, shareholders
and certain other individuals and entities which would allow them
to purchase common stock of the Company. In addition common
stock warrants have been issued in connection with certain
private offerings of debt. At March 31, 1996, options and
warrants to purchase common stock at various prices were
outstanding with expiration as follows:
Expiration Exercise
Date Options Warrants Price
April, 96 100,000 - $3.750
July, Sept. 96 39,000 - 3.100
Nov. 96, Jan. 97 20,000 - 2.500
June, 97, Oct. 97 50,500 - 2.500
February, 98 52,000 - 3.100
February, 98 150,000 - 1.300
December, 98 - 300,000 1.620
September, 99 250,000 - 1.120
September, 99 50,000 - 1.370
December, 98 215,500 - 1.375
December, 2000 - 482,500 1.000
May, 2005 10,000 .844
July, 2005 - 1,441,169 1.000
937,000 2,223,669
At March 31, 1996 there were also 200,000 options granted but not
issued under an employment agreement, subject to performance and
vesting requirements, exercisable at $1.00. In addition, the
shareholder with a $1,441,169 note payable referred to in Note 6,
has an option to acquire 1,558,831 warrants exercisable at $1.00.
Page 11 of 20 Pages
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PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Continued)
NOTE 4 - INCOME TAXES
The Company has an unused net operating loss carryforward of
approximately $3,000,000 for income tax purposes, $1,200,000
expiring in 2009 and the remainder expiring in 2010. This net
operating loss carryforward may result in future income tax
benefits; however, because realization is uncertain at this time,
a valuation reserve in the same amount has been established.
Temporary differences arise from the deduction of certain accrued
expenses for financial statement purposes and not for income tax
reporting purposes and the recording of depreciation.
NOTE 5 - REGULATORY REQUIREMENTS
PBS is subject to the Securities and Exchange Commission's
Uniform Net Capital Rule (Rule 15c3-1), which requires the
maintenance of minimum net capital. At March 31, 1996, PBS had
net capital and net capital requirements of $132,848 and
$100,000, respectively. The Company's net capital ratio
(aggregate indebtedness to net capital) was .84 to 1. According
to Rule 15c3-1, PBS's net capital ratio shall not exceed 15 to 1.
On a consolidated basis, as a result of the requirement, net
assets of $120,000 are unavailable for any purpose other than
meeting PBS's net capital requirements at March 31, 1996.
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following:
March 31, December 31,
1996 1995
8-1/2% note payable to shareholder, due July
26, 2000 interest payable monthly beginning $ 1,441,169 $ 1,200,000
August 10, 1996, principal and all
accrued and unpaid interest is due at
maturity, secured by all assets of PMCI and
its subsidiaries (except PBS which security
interest is only to its outstanding common
stock owned by PMCI).
11.5% note payable to shareholder(s),
unsecured, due August 1, 1998, payable in
monthly installments of $832 including interest. 20,451 22,470
9% notes payable to employees and unrelated
individuals, due December 29, 1996, principal
and interest payable on or before maturity
date, secured by a second lien on Company
assets. 482,500 425,000
$ 1,944,120 $ 1,647,470
Page 12 of 20 Pages
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PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Continued)
NOTE 6 - NOTES PAYABLE (continued)
The above $1,441,169 shareholder note payable is related to a
financing and stock purchase agreement which encompasses a series
of transactions. In 1995 the shareholder acquired 1,000,000
shares of the Company's common stock in a private transaction
with another individual and loaned the Company $1,200,000. In
connection with this loan, a warrant to purchase 1,200,000 shares
of common stock (see Note 3) was also received. In addition, the
shareholder obtained an option to lend the Company an additional
$1,800,000 and received option rights similar to the initial
loan. In January 1996 the shareholder partially exercised its
$1,800,000 option and loaned the Company $241,169, and received a
warrant to purchase 241,169 shares of common stock at $1.00 per
share. In April, 1996 the Company accepted $440,000 from this
shareholder as partial exercise of its $1,800,000 option to fund
the expected settlement costs with the Securities and Exchange
Commission as mentioned in Note 7. The shareholder received a
warrant to purchase 440,000 shares of common stock at $1.00 per
share. In May, 1996 the Company accepted $200,000 from this
shareholder as a further partial exercise of its loan option,
and the shareholder received a warrant to purchase 200,000 shares
of common stock at $1.00 per share.
On December 14, 1995 the Company commenced a private offering of
units. Each unit consists of a convertible promissory note with
a principal amount of $1,000 and a warrant to purchase 1,000
shares of common stock. Each warrant entitles the holder to
purchase one share of common stock at a per share price equal to
the greater of $1.00 or the market price on the initial closing
date of the offering (see Note 3). A total of 482.5 units were
sold pursuant to this offering. In May 1996, the Company commenced
a further private offering of securities intending to raise up to
an additional $1,067,500.
Maturities of notes payable are as follows:
Year ending
December 31,
1996 $486,484
1997 8,535
1998 7,932
1999 -
2000 1,441,169
$1,647,470
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company has leases for office space and equipment under
various operating and capital leases. Included in furniture and
equipment is $149,974 of equipment under capital leases at March
31, 1996 and accumulated depreciation relating to these leases of
approximately $17,865. Future minimum lease payments under
noncancelable leases as of March 31, 1996 are as follows:
Page 13 of 20 Pages
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PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Continued)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)
Principal
Year ending due
December 31, Operating Capital Capital Lease
1996 $ 280,815 $ 52,303 $ 35,523
1997 343,847 59,318 47,077
1998 351,672 47,814 40,875
1999 298,658 1,379 1,356
2000 293,567 - -
Thereafter 24,000 - -
$1,592,559 $ 160,814 $ 124,831
Less amount
representing interest 35,983
Present value of net
minimum lease payments $ 124,831
The Company also leases certain equipment from a shareholder and
a prior shareholder on a month-to-month basis. During each of
the three month periods ended March 31, 1996 and March 31, 1995,
PMC paid $1,529 under this lease. Total rent expense for
facilities and equipment for the three months ended March 31,
1996 and 1995, was $106,225 and $102,589 respectively.
PMC is under a formal order of private investigation by the
Securities and Exchange Commission relating to certain aspects of
PMC's practices with respect to the purchase and sale of
securities for its customer accounts. PMC discontinued this
practice in April, 1994 and has submitted a written statement to
the staff of the Commission. The Company has submitted
settlement proposals to the Commission, without admitting or
denying liability, on behalf of PMC under which PMC would
disgorge its trading profits realized from principal trading in
the approximate amount of $465,000, together with prejudgment
interest. This amount has been included in other liabilities in
the accompanying financial statements. Although no assurances can
be given, Management believes that a settlement is close to being
reached. However, the $465,000 is only an estimate of the settlement
amount; the actual settlement amount could be in excess of the
amount recorded in the accompanying financial statements. In
addition, the Company has agreed to indemnify a prior officer and
shareholder for expenses incurred in his defense of this
investigation.
Page 14 of 20 Pages
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PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Concluded)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)
The Company has suffered significant losses from operations and
has a working capital deficiency as of March 31, 1996 of
approximately $3,200,000. The Company needs additional sources of
liquidity to fund its operations, however there is no assurance
that such liquidity will be available to the Company. The
financial statements do not include any adjustments relating to
the recovery and classification of recorded asset amounts or the
amount and classification of liabilities that might be necessary
should the Company discontinue operations.
NOTE 8 - EMPLOYEE BENEFIT PLAN
Salary deferral "401(k)" plan
The plan allows employees, who have completed one year of
employment and at least 1,000 hours service, to defer up to 15%
of their salary. The Company may match employee contributions by
an amount determined annually by the board of directors. Only
contributions up to the first 6% of an employee's salary will be
considered for the match. On February 15, 1995 PMCI's Board of
Directors approved the issuance of 15,212 shares of PMCI common
stock (valued at the market price at the date of grant of $1.00
per share) to match participant's contributions for the year
ended December 31, 1994. The Board did not approve a matching
contribution for the year ended December 31, 1995
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Financial Analysis
PMC International, Inc.'s ("PMCI" or "the Company") consolidated
revenues are currently generated through its subsidiaries
Portfolio Management Consultants, Inc. ("PMC"), Portfolio
Brokerage Services, Inc. ("PBS"), and Portfolio Technology
Services, Inc. ("PTS"). Currently, the Company's revenues are
primarily derived from fees charged to clients for certain
investment advisory, broker-dealer, portfolio administration and
reporting services ("Investment Management Fees") which generally
are collected in advance on a quarterly basis from each of its
clients. PMC's Investment Management Fees, which are collected
as a percentage of client assets under management, are determined
by the net assets under management. Fees are impacted by the
extent to which the Company attracts new, or loses existing
Clients, the appreciation or depreciation of the U.S. and
International equity and fixed income markets, and the type
and size of accounts and the corresponding difference in fee
schedules.
During the first quarter of 1996, the Company's subsidiary PTS
began contributing revenues as two institutional clients
entered into agreements for Allocation Manager(TM), the Company's
new mutual fund asset allocation program. Also during this
period, the Company's new performance reporting service, Managed
Account Reporting Services ("MARS"), began signing new
clients and generating revenue.
PMCI's revenues from Investment Management Fees for the three
months ending March 30, 1996 and 1995 were $2,344,321 and $2,037,768
respectively, representing growth of 15%. The Company's total
revenues for the first quarter of 1996 were $2,615,891 vs
$2,231,168 for the same period in 1995, representing growth in
total revenues of 17%.
PMCI's total expenses for the first quarter of 1996 were
$3,155,689 vs $2,324,357 for the first quarter of 1995. This
caused the Company to experience a loss of $539,798 as compared
with a loss of $93,189 for the first quarter of 1995. Investment
Manager Fees (advisory fees paid to third party money managers)
increased substantially over the same period last year relative
to the increase in Investment Management Fees received by the
Company from clients. This was primarily due to several factors.
First, the Company experienced a shift in asset growth from
high margin sales channels to lower margin channels. Also,
much of the new business growth during the first quarter of 1996
was in connection with larger sized relationships which enjoy
lower pricing, resulting in lower gross fees to PMC. Additionally,
Investment Manager Fees, which are payable out of the Investment
Management Fees received by PMC, are based on a fixed percent of
the client assets managed and are generally not negotiated on an account
by account basis. Consequently, as PMC has obtained lower margin
business, the ratio of such fees being paid out to Investment
Managers has increased. Management is currently making
adjustments to pricing which is intended to improve margins on
its business. Management believes these new pricing guidelines
will not adversely affect its business development efforts.
Substantial costs were incurred as a result of the marketing and
roll-out of the Company's new products. In connection with the
development and release of these products, PMC and PTS have
increased staffing to their sales, marketing and operations
Page 16 of 20 Pages
<PAGE>
departments. The first quarter's financial results reflected
those costs. Primarily related to the new products and increased
staffing, Salaries and Benefits expense increased 46% over the
prior period, Advertising and Promotion, including travel,
seminar and conference costs, increased 88%, and General and
Administrative expenses increased 25%. In addition, Occupancy
and Equipment costs increased 85%, principally as a result of
higher depreciation relating to the development costs of
Allocation Manager and upgrades to operating systems.
Also, as a result of the Company's financing activities to
generate working capital, interest expense increased from $14,278
during the first quarter of 1995 to $44,630 for the same period
in 1996.
Liquidity and Capital Resources
Until the Company begins generating adequate revenues from its
new and existing products to compensate for the increased costs
described above, it anticipates experiencing further losses and
the need for additional liquidity. To provide adequate cash to
fund operations, the Company has been authorized by its Board of
Directors to borrow the monies necessary to cover its projected
cash flow short-falls. In connection with a prior financing, the
Company granted to Bedford Capital Financial Corporation
("Bedford") an option to lend additional funds to the Company.
In January 1996, Bedford loaned the Company $241,169, which funds
were used for working capital purposes. In April 1996, Bedford
loaned the Company $440,000, which funds are being retained by
the Company to fund the expected costs of a settlement with the
SEC. In May 1996, Bedford loaned the Company an additional
$200,000 for working capital purposes. The balance of Bedford's
option to loan funds to the Company is approximately $919,000.
While Bedford has indicated its intention to loan an additional
$300,000 to the Company, there is no assurance that further
loans from Bedford will be made. In addition, at the time of this
filing, PMCI is conducting a private debt offering of securities
for up to $1,067,500. Management believes that the successful
completion of the debt offering coupled with funds expected to
be provided under the Bedford option, will provide the Company
with adequate liquidity to meet its currently projected cash
requirement through fiscal 1996. Management is hopeful that the
Company will be cash flow positive by the end of 1996, although
no assurance can be given that will be attained. In addition,
there can be no assurance that the debt offering will be successful,
that Bedford will exercise all or any portion of its loan
option, or that if such funding is received by the Company,
that it will be sufficient to meet the Company's liquidity
requirements. Also, there is no assurance that other internal
or external sources of liquidity will be available to meet the
Company's cash flow requirements. In the absence of sufficient funds,
PMCI's marketing and sales efforts will be hampered with
an expected corresponding decrease in revenues, and an adverse
impact on the Company's prospects for profitability. See the
accompanying financial statements. Although no assurance can
be given, the Company does not expect to continue generating
losses of this magnitude in the future when its recently
developed products, which are just beginning to be
sold and installed, generate ongoing asset based revenues.
Management Discussion
The first quarter of 1996 was important for PMCI and its
subsidiaries. Although the Company experienced a substantial
financial loss as a result of increased expenses related to
infrastructure expansion, several financial institutions entered
into agreements to utilize the Company's new mutual fund asset
allocation software, Allocation Manager(TM) ("AM"). In addition,
several other institutions indicated interest in AM and were
negotiating agreements with the Company at the time of this filing.
Page 17 of 20 Pages
<PAGE>
Increased interest in the Company's PWM(TM) (private money manager
wrap program) was experienced and the Company began working with
several new distribution channels. Also, new clients
were established for the Company's Style Manager(SM) portfolio
management services and subscribers to the Company's new Managed
Account Reporting Service ("MARS") grew at a significant rate.
These products were discussed in depth in the Company's 1995
annual filing, Form 10-KSB.
The loss experienced for the first quarter of 1996 was of concern
to Management as it evidenced the cost to the Company of being
approximately two quarters behind on the final release of its AM
software program. On a positive note, however, is the fact
that AM Version 2.1 has been completed and is now being shipped.
Initial installation of fully customized versions of AM for
several institutional clients is scheduled to be completed
during the latter part of the second quarter. Also on a positive
note has been initial industry's general response to AM.
Although no assurances can be offered, Management is
optimistic regarding the prospects for this new product.
Although the Company has experienced substantial losses over the
past two years, Management believes that development of new products
has positioned the Company for renewed growth.
Page 18 of 20 Pages
<PAGE>
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
As reported in prior filings, PMC has since April of 1994 been in
dicussion with the Central Regional Office of the U.S. Securities
and Exchange Commision (SEC) regarding an investigation by that
office of PMC's former practice of principal trading. Although the
matter has not yet been settled with the SEC, Management now believes
it is close to reaching a settlement agreement which, without admitting
or denying certain SEC allegations, would allow the Company to close
this matter. See Notes to the accompanying unaudited financial statements.
As with any such matter, there is always the possiblity that settlement
discussions could terminate without the matter reaching acceptable
mutual resolution.
PMCI, its subsidaries, and its Officers have no other material regulatory
or civil matters pending. The Company is not engaged in any material
litigation, threatened or otherwise, at the time of this filing.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Holders of Preferred Stock are entitled to receive dividends at
a rate of $0.325 per share per annum (equal to 13% of the
purchase price per share attributable to the Preferred Stock).
Dividends are payable semi-annually on January 15 and July 15 in
each year commencing July 15, 1991. Dividends accrue from the
date of the Preferred Stock issuance and are cumulative. Upon
liquidation or dissolution of the Company, holders of Preferred
Stock are entitled to a preference over the holders of Common
Stock in an amount per share equal to the original purchase price
attributed to a share of Preferred Stock ($2.50) plus all unpaid
cumulative dividends. The Preferred Stock is non-participating
and the holders of Preferred Stock have no preemptive rights and
no voting rights except as may be required by Colorado law. At
the option of the Company, the Preferred Stock may be redeemed in
whole, or in part, at a price of $2.75 per share, plus unpaid
cumulative dividends. Redemption can only occur if certain
conditions regarding the bid prices of the Company's common stock
and the Company's after-tax earnings are met. No preferred
dividends have been paid since July 15, 1991, and as of
January 15, 1996, cumulative dividends in arrears totaled $526,862.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
A. Number Exhibit Page Number
(27)Financial Data Schedule 21
B. The Company did not file any reports on Form 8-K
during the three months ended March 31, 1996.
Page 19 of 20 Pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PMC INTERNATIONAL, INC.
REGISTRANT
Date: May 20, 1996 /S/ Kenneth S. Phillips
Kenneth S. Phillips
President, Chief Executive Officer
Date: May 20, 1996 /S/ Vali Nasr
Vali Nasr
Chief Financial Officer
Page 20 of 20 Pages
<PAGE>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 92,069
<SECURITIES> 0
<RECEIVABLES> 1,024,647
<ALLOWANCES> 0
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<PP&E> 1,728,496
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872,543
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<CGS> 1,407,055
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