U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Under Section 13 Or 15(D) Of The Securities Exchange
Act Of 1934 For The Fiscal Year Ended December 31, 1995
[ ] Transition Report Under Section 13 Or 15(D) Of The Securities Exchange
Act Of 1934 For The Transition Period from to
Commission File No. 0-14937
PMC INTERNATIONAL, INC.
(Name of small business issuer in its charter)
COLORADO 84-0627374
(State of Incorporation) (IRS Employer Identification No.)
555 17th Street, 14th Floor, Denver, Colorado 80202
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (303) 292-1177
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Issuer's revenues for the most recent fiscal year were
$9,172,479.
The aggregate market value of the voting stock held by non-
affiliates of the registrant, 1,102,500 shares based upon the
average bid and asked prices of the Registrant's Common Stock on
February 29, 1996, as quoted in the National Quotation Bureau was
approximately $930,200.
As of March 31, 1996, the Registrant had 5,555,713 shares of
common stock issued and outstanding.
Documents Incorporated by Reference: NONE
Transitional Small Business Disclosure Format: Yes No X
PAGE 1 OF 36 PAGES
EXHIBIT INDEX BEGINS ON PAGE 34
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FORM 10-KSB
YEAR ENDED DECEMBER 31, 1995
Table of Contents
Page
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. DESCRIPTION OF PROPERTIES 3
ITEM 3. LEGAL PROCEEDINGS 3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 3
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER 3
MATTERS
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 4
CONDITION AND RESULTS OF OPERATIONS
ITEM 7. FINANCIAL STATEMENTS 10
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 10
ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL 10
PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
ITEM 10. EXECUTIVE COMPENSATION 12
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 15
MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 16
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
PMC International, Inc. ("PMCI" or the "Company") is a financial
products, consulting and software company that builds investment
management products that assist individual investors in the
diversification, management and monitoring of their investment
portfolios. Through its wholly owned subsidiary Portfolio
Management Consultants, Inc. ("PMC"), the Company directly
markets its institutional services, although its individual
wealth management services are distributed through financial
companies such as banks and insurance companies that offer, among
other services, "fee based" asset management. Not a money
manager itself, PMC's products utilize and/or support the
selection of unaffiliated money managers, using various
investment vehicles ranging from mutual funds to private
portfolio managers, depending upon the size, sophistication and
requirements of the investor. PMC's services include investment
suitability analysis, portfolio modeling and asset allocation,
manager and/or fund selection, portfolio rebalancing, portfolio
accounting and performance reporting. The Company's revenues are
primarily derived from a percentage of the assets under
management, and most software applications utilized by the
Company have been developed internally and are proprietary.
The Company's products and services are designed to support
financial services companies and their retail sales people in
their efforts to market high quality, fully diversified portfolio
management programs. Additionally, PMCI's systems fully support
the ongoing servicing of these clients, providing them with
comprehensive and detailed reporting and monitoring, at
competitive fees. The Company's products are structured to
attain increased sales productivity, higher client retention and
increased profit margins for the firms using its technologies and
products. For additional information on the Company's products,
see "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Founded in 1986 in Boulder, Colorado, PMCI and its subsidiaries
employ a staff of 45 occupying two floors of the Anaconda Tower
in downtown Denver, Colorado USA.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company leases approximately 20,000 square feet of office
space in the Anaconda Tower at 555 17th Street, Denver, Colorado
pursuant to a lease which expires in 2001. The Company pays
approximately $20,000 per month for its office space.
ITEM 3. LEGAL PROCEEDINGS.
As reported in prior filings, PMC has since April of 1994 been in
discussions with the Central Regional Office of the U.S.
Securities and Exchange Commission (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.
As with any such matter, there is always the possibility that
settlement discussions could terminate without the matter
reaching acceptable mutual resolution.
PMCI, its subsidiaries, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to the vote of security holders during
1995.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Prior to February 1995, the Company's Common Stock was traded on
the NASDAQ system. The Company's Common Stock (symbol: PMCI)
and Series A Preferred Stock (symbol: PMCIP) are currently
traded in the over-the-counter market in the National Quotation
<PAGE>
Bureau's Listing, also known as the Bulletin Board. The
following table shows the high and low bid prices of these
securities for the periods indicated.
Common Stock
High Bid Low Bid
Fiscal 1994
First Quarter $2.125 $0.875
Second Quarter $1.625 $1.00
Third Quarter $1.00 $1.00
Fourth Quarter $1.00 $1.00
Fiscal 1995
First Quarter $1.25 $0.6875
Second Quarter $0.6875 $0.50
Third Quarter $1.3125 $0.5625
Fourth Quarter $1.625 $0.75
Series A Preferred Stock
High Bid Low Bid
Fiscal 1994
First Quarter $0.625 $0.625
Second Quarter $0.50 $0.50
Third Quarter $0.313 $0.25
Fourth Quarter $0.313 $0.25
Fiscal 1995
First Quarter $0.50 $0.50
Second Quarter $0.75 $0.31
Third Quarter $1.50 $0.31
Fourth Quarter $1.06 $0.75
As of February 29, 1996, the Company had approximately 375 record
holders of its Common Stock, and 18 record holders of its Series
A Preferred Stock. On July 15, 1992 the Company paid a dividend
to the holders of its Series A Preferred Stock. The dividend
paid was $.1625 per preferred share for a total dividend paid of
approximately $69,000. The Company has not paid preferred
dividends since July 15, 1992 and as a result, the preferred
dividends cumulated. As of February 29, 1996 cumulated preferred
dividends in arrears were $526,862. No dividends may be paid on
Common Stock unless dividends payable on the Series A Preferred
Stock are current and the Company obtains the consent of Bedford
Capital Financial Corporation. No dividends have been paid to
date by the Company on its Common Stock and the Company does not
anticipate declaring a dividend on the Common Stock in the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Selected Financial Data.
The selected financial data presented below has been derived from
the Company's financial statements. This financial information
should be read in conjunction with the consolidated financial
statements and notes thereto appearing elsewhere herein.
<PAGE>
Balance Sheet Data
Year Ended December 31,
1995 1994 1993
Total Assets $2,940,000 $2,580,000 $3,258,000
Total Liabilities $4,856,000 $2,068,000 $1,515,000
Shareholders' Equity $(1,916,000) $ 512,000 $1,743,000
Statement of Operations Data
Year Ended December 31,
1995 1994 1993
Revenues $9,172,000 $9,281,000 $8,385,000
Expenses $11,616,000 $10,511,000 $8,482,000
Net Income (Loss) $(2,444,000) $(1,230,000) $(97,000)
Financial Analysis
PMC International, Inc.'s (PMCI) consolidated revenues are
generated through its subsidiaries Portfolio Management
Consultants, Inc. (PMC), and Portfolio Brokerage Services, Inc.
(PBS). These 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
are collected as a percentage of 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. In fiscal 1996 PMCI will begin recognizing
revenues from sales, customization, and maintenance of the
software products developed by Portfolio Technology Services,
Inc. (PTS), a wholly owned subsidiary.
Investment Management Fees for the year 1995 increased to
$8,632,888 from $8,556,518 in 1994. The Company's consolidated
revenues for the same period were $9,172,479 versus $9,280,650
for 1994, a decline of 1.2%. This decrease is largely the result
of discontinuation of principal trading activities in April of
1994. Revenues generated from principal trading in the first
quarter of that year were approximately $200,000. The portion of
the Investment Management Fees paid to investment advisers who
make specific investment decisions on a discretionary basis
("Portfolio Manager") for the client and broker-dealer,
investment adviser agents who service the client ("Financial
Adviser") and custodial fees for these periods accounted for
$5,139,613 versus $4,967,557 for 1994, representing an increase
of 3.5%. PMC's lower margins were a result of several factors
including 1) a shift in asset growth from higher margin sales
channels to lower margin channels, and 2) larger average new
client relationships which pay lower gross fees to PMC.
Management has taken steps to increase its marketing efforts
relative to its higher margin sales channels. It is also making
adjustments to the pricing of larger relationships to increase
margins on these accounts.
In April 1994, PMCI issued a public announcement regarding an SEC
investigation that began in late 1993. The investigation focused
on the firm's principal trading activities. During 1994 the
Company expended approximately $800,000 in legal fees and other
expenses in connection with this matter. During 1995, legal fees
relating to this matter represented an additional $260,000. The
Company accrued $465,000 in 1995 as a reserve against estimated
settlement expense related to this investigation. Management
believes it is close to reaching a final settlement with the SEC
in connection with this matter, although no assurance of any kind
can be offered. See "Legal Proceedings."
Interest expense, resulting from a bridge loan completed in
March 1995, and subordinated debt amounted to $83,000 while
depreciation and amortization expenses totaled $171,907 for the
period. Non-recurring costs relating to the restructuring of
PMCI in July 1995, including investment banking and legal fees,
were $190,000; and severance costs in connection with the
departure of Mr. Marc Geman, the Company's former Chief Executive
Officer, totaled $180,000. To summarize, $255,000 went towards
<PAGE>
interest, depreciation and amortization while approximately
$1,000,000 went towards non-recurring expenses.
Significant changes in PMCI's balance sheet, which impacted
PMCI's cash flow requirements, included the capitalization of
$419,617 in connection with the development of the Allocation
Manager(Trademark) software program and $316,176 of newly acquired
fixed assets in connection with hardware and software requirements
for PTS and PMC's operations department. The acquisition of
these fixed assets is expected to significantly lower
operating costs in connection with the management and
administration of the Company's managed account products, although
the cost reductions are not expected to be fully realized until
the third quarter of 1996. During the interim period, the Company
can be expected to experience higher than normal expenses due
to the costs of installing new systems while existing systems
are still necessary for operations. Additionally, $179,955 of
other fixed assets and leasehold improvements was capitalized.
Liabilities increased substantially over the prior period. Much
of the increase was the result of the Company's cash flow
difficulties. Accrued expenses, not requiring current cash
payment, totaled $794,000, including $465,000 reserved for the
estimated expense of a settlement with the SEC. Notes payable
increased by $1,600,000 as a result of the Company's financing
efforts during 1995.
During the fourth quarter of fiscal 1995, PBS voluntarily
discontinued the industry-wide practice of receiving payment for
securities trade order flow. Historically, such payments have
totaled approximately $100,000 per year.
Liquidity and Capital Resources
PMCI's significant loss of $2,443,555 in 1995 was the result of
non-recurring expenses of approximately $1,000,000 and operating
loss of approximately $1,400,000. Non-recurring expenses primarily
include the SEC estimated settlement accrual and related legal fees,
severance pay to an executive officer, and debt issuance costs.
In July 1995, the Company borrowed $1.2 million from Bedford
Capital Financial Corporation ("Bedford"). The loan bears
interest at the rate of 8.5% per annum and payments of interest
commence in August 1996. The loan is due and payable in July
2000, and is secured by a first lien on all of the assets of the
Company. In connection with the loan, Bedford received a Warrant
to purchase 1.2 million shares of the Company's Common Stock at
an exercise price of $1.00 per share at any time prior to July
2005, subject to certain conditions. The Warrant can be
exercised by applying the outstanding balance of the loan to the
exercise price of the Warrant. In addition, the Warrant must be
exercised by Bedford within thirty (30) days of the Company's
delivery to Bedford of audited financial statements which show the
Company has earned after-tax profits of at least $1,000,000 for two
consecutive fiscal years. Bedford also obtained an option to
lend an additional $1.8 million to the Company under
substantially the same terms as the original loan, until July 1,
1996, or until thirty days after a settlement is finalized
regarding the pending Securities and Exchange Commission
investigation of the Company, whichever occurs first. In addition,
the Company granted to Bedford certain other rights in connection
with future debt and equity financing. Bedford has a right of
first negotiation regarding future fundings, which includes a 30
day exclusive negotiation period, and a right of first refusal
to match unsolicited offers for financing, which includes a 30 day
notice period.
Also as part of the debt financing, Bedford received certain
"mirror option" rights. Such rights entitle Bedford, at its
option, to purchase an equal number of shares of Common Stock, at
the same price, or in the case of Preferred Stock, at the lower
of the exchange price or the average daily closing price for the
Common Stock for the preceding 30 trading days, when options or
warrants are exercised which were outstanding at the time the
Bedford transaction was completed, or upon the conversion of
outstanding Preferred Stock for Common Stock. The "mirror
option" rights continue until the later of the time the $1.2
million loan is paid in full; the $1.8 million loan, if made, is
paid in full; or Bedford owns any Common Stock in the Company.
Bedford also obtained certain rights with respect to registration
of its stock. So long as Bedford owns any Common Stock, it has
two demand registration rights and has continuing piggyback
registration rights with respect to other Company offerings. The
Company would bear the expense of each registration, exclusive of
discounts and commissions.
In February 1995, the Company borrowed $300,000 in conjunction
with a private placement debt offering. Investors received a
promissory note and a warrant to purchase shares of the Company's
Common Stock in an amount equal to the dollar amount of funds
loaned to the Company. The warrants are exercisable at $1.62 per
share for five years. The promissory notes were repaid in July
1995. In addition, the Company commenced a private placement
debt offering whereby $425,000 was borrowed by the Company as of
<PAGE>
December 31, 1995. Investors received a promissory note payable
in December 1996, bearing interest at 9%. As further
consideration, the lenders received a warrant to purchase one
share of Common Stock for each dollar borrowed, exercisable at a
price of $1.00 per share for a period of five years. Several of
the Company's employees participated in this loan.
The Company anticipates a requirement for additional capital to
fund losses projected for the first two or three quarters of 1996
and for debt service. Management believes the balance of the
Bedford option would largely meet the Company's existing cash
flow requirements, although there can be no assurance that
Bedford will elect to exercise its option or that the Company's
cash requirements would be met if they did. During the first
four months of 1996, Bedford made partial exercises of its loan
option and loaned an additional $681,000 to the Company, $440,000
of which has been placed in reserve in connection with the
proposed SEC settlement. To allow for the possibility that
Bedford may not exercise the balance of its option or that the
Company would need further funding, the Company has extended the
private placement debt offering dated December 14, 1995 and is
currently engaged in discussions with several other funding
sources. There can be no assurance that internal or external
sources of liquidity will be available to meet the Company's cash
flow requirements. In the absence of such 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
audited financial statements.
Company Developments:
1995 was a year of significant restructuring, growth and change
for PMCI and its affiliates. Accomplishments for the year
include 1) the completion and release of three new products,
including Allocation Manager, an asset allocation software
program; Style Manager, a portfolio rebalancing and money
management strategy; and Managed Asset Reporting Services
("MARS"), a performance reporting service; 2) the initiation of a
financial restructuring of the Company, and 3) the successful
recruitment of several key employees including Mr. David Andrus
as President of PTS and Executive Vice President of PMCI and Ms.
Carolyn Kling as Senior Vice President and Managing Director
responsible for new business development at PMC. Additionally,
the Company's former Chairman and Chief Executive Officer left
the firm and PMCI's founder, Kenneth S. Phillips, was elected
Chief Executive Officer, in addition to his continuing duties as
President.
Product developments lead the Company's list of important
accomplishments during 1995. These new products are intended to
position PMCI for expansion into different markets and market
segments, both domestically and globally, increasing PMCI's
potential for renewed growth and profitability. These new
products seek to diversify and expand both PMCI's business
opportunities and its revenue sources. Although PMC's commitment
to the development of these products came at a less than perfect
time from a financial perspective, Management considers the
products necessary to position the Company for future
participation in the increasingly competitive global financial
services industry.
PMCI's new products advance the Company from having a single
product line with limited applications into a Company with four
distinct products, each with their own markets and profit
opportunities, serving a broader range of clientele. The ability
to diversify product offerings, as well as sources of revenue,
should improve PMCI's prospects in the years to come.
Additionally, the newly developed products are closely
integrated, leveraging existing areas of PMCI expertise and
exploiting the economies of scale available through the Company's
existing infrastructure.
PMCI has four distinct products serving four distinct market
segments. The products are:
1. Private Wealth Management ("PWM"): Operated by PMCI's
investment advisor subsidiary Portfolio Management Consultants,
Inc. ("PMC"), this privately managed "wrap-fee" program has
traditionally been the Company's primary source of revenue.
Together with its institutional investment consulting practice,
Management believes PWM will continue as the Company's principal
revenue source for the next twelve to twenty-four months.
Although PWM continues to provide PMC with growth potential,
Management now considers this product to be best targeted towards
clients with minimum investments approaching $1 million. This
represents a shift in strategy from several years ago when PMC
encouraged minimum accounts of $100,000.
<PAGE>
A labor-intensive business with significant fixed costs, PMC has
experienced difficulty achieving sustained profitability with
this product alone. Management believes profitability of this
division can and will be achieved and sustained in the near term
as a result of continued asset growth and certain cost reduction
measures. During 1995 PMC both increased its sales and marketing
budgets while implementing several cost reduction strategies in
connection with fixed costs. These changes are not expected to
yield visible results until the third quarter 1996.
Additionally, the Company plans to adjust pricing on certain
portions of its business in order to increase gross margins on
future business. Management believes that by maintaining higher
average sized client relationships and accounts, while directing
smaller relationships to its new products (described below), PWM
will become profitable.
Wrap fee programs have grown significantly in popularity
throughout the U.S. Industry reports estimate assets in wrap
programs to now exceed $100 billion. Under the terms of a wrap
program, the sponsor agrees to provide the client with a package
of advisory, custodial and brokerage services for a single annual
fee, expressed as a percentage of the assets under management.
Under the PWM Program, client's receive the services of
independent money managers and an independent custodian as well
as receiving asset allocation recommendations and comprehensive
quarterly performance reporting from PMC.
Because PMC's fees are based upon a percentage of the assets
under management, performance of U.S. and International stock and
bond markets can affect portfolio values which in turn impact
revenues and profitability. U.S. stock market appreciation
during 1995, for example, contributed to asset growth that year.
A severe or prolonged decline in the U.S. markets could have the
opposite effect. Additionally, competition in the wrap fee
industry has created pricing pressure, although Management
believes these pressures exist more acutely with the smallest of
account relationships, which are typically charged the highest
fees. PMC will continue to emphasize larger client relationships
in its business development efforts.
2. Allocation Manager ("AM"): AM was developed during 1994 and
1995 by PMCI's subsidiary, Portfolio Technology Services, Inc.
("PTS"), with assistance from PMC. Version 1.0 was released in
December of 1995 and Version 2.0 was released during March of 1996.
A comprehensive PC based program, operating in Windows and written
in Visual Basic, AM supports the solicitation, sales and
servicing of diversified asset allocation programs using,
primarily, mutual funds. Additional versions of AM with further
enhancements, are scheduled for release during 1996. The
upcoming versions are expected to include, in addition to mutual
funds, private money manager products, variable annuities, and
other investment products. A comprehensive portfolio
optimization capability is also planned.
Based upon, among other things, the substantial growth in the
mutual funds industry over the last 10 years, investor trends in
mutual fund investment and industry expectations, Management
believes PMC's existing expertise and operations provide for a
smooth integration of this new program while expanding and
diversifying the client base for the Company's products. That
asset allocation program, which assists investors in developing
their investment strategies and selecting appropriate
combinations of mutual funds, is intended to fill an important
place in the investor market place.
Although it was initially projected that AM would be released in
September 1995, and would contribute revenues to the Company
during the fourth quarter, a limited release in December and a
release of Version 2.0 in the first quarter of 1996 resulted in
the product being approximately four to six months behind
schedule. The delay in completing the software was due to the
complexity of the program and time spent developing additional
disclosure and compliance features.
AM is a flexible software program built with the capability of
being customized. As a result, AM supports a broad range of
financial products and programs, both domestically and globally,
and can be customized to the individual requirements of
institutional clients. The software can be used for non-U.S.
applications in addition to traditional domestic asset allocation
programs and variable annuity products.
A version of AM, called Fund Counselor (Servicemark), is also
being marketed by National Financial Correspondent Services Corp.
("NFCS"), the brokerage and securities clearing subsidiary of
Fidelity Management and Research Corp. ("FMR"). Under the Fund
Counselor Program, NFCS will provide brokerage clearing and
custodial services, and will market the program to its more than
225 bank, insurance and financial planning broker/dealers.
Compensation to PTS and PMC in connection with AM and Fund
Counselor is based upon 1) fees received in connection with
investment advisory services provided to institutional clients
pursuant to a support services agreement, 2) software licensing
<PAGE>
and customization fees for use of the product, 3) software
maintenance fees, and 4) a percentage of the assets managed within
the AM product.
Substantial financial and personnel resources were committed to
the development of AM. Direct software development costs, in
addition to hardware and software purchases to support the
program, totaled nearly $1,000,000 during 1995. Additionally,
many of PMC's full-time staff supported contract programmers with
the many aspects of product research, design, planning and
implementation.
3. Managed Asset Reporting Services ("MARS"): Management
believes that as a result of the tremendous growth within the fee-
based financial advisory segment of the industry over the past
ten years, many institutions have been seeking ways to improve
their reporting capabilities in order to provide their clients
with better deliverables and "value added" services. During 1995
PMC entered into an agreement with National Financial
Correspondent Services, Inc. (NFCS), to manage their newly
created performance reporting service called MAPS Tool Box
("MAPS"). MAPS provides NFCS's correspondents with access to
high quality, quarterly performance reports and tax lot, cost
basis, fully accrued account statements. This service is
targeted at high net worth clients managed by financial planners
and financial consultants who use the securities clearing
services of NFCS.
When PMC's reporting services are offered through NFCS, they are
marketed within the MAPS structure. When the reporting is
offered directly by PMC to non-NFCS clients, the service is
called MARS. Through year end 1995 there were several hundred
accounts utilizing either MAPS or MARS, and Management, based
upon industry interest in the product, anticipates healthy growth
in the product. Primarily a "data-processing" type business (PMC
does not act as an investment advisor in connection with this
product), MARS and MAPS are expected to begin contributing to
PMCI earnings during the first quarter of 1996 and could make a
significant contribution by year end 1997. No material costs
were incurred in developing MARS and MAPS.
4. Style Manager Asset Management Products: During 1994 and
1995 PMC began committing resources to researching different
methods of portfolio rebalancing. As a result of this work, the
Company developed a family of asset management products marketed
under the name Style Manager, which recommend strategies for
periodic portfolio rebalancing. Currently, three Style Manager
versions have been developed: Large Style Manager, Fiduciary
Style Manager, and Style Manager 1. These products seek to
enhance investment performance through the rotation of U.S.
equity styles, i.e. growth and value companies and large, mid and
small capitalization companies. Recommended shifts in equity
allocations are designed to move assets away from under-
performing sectors into those likely to perform best. Although
Style Manager recommends shifts within the US equity markets, it
does not recommend shifts between macro asset classes such as
stocks, bonds and cash.
The Style Manager products are being marketed in two ways.
First, Fiduciary Style Manager is offered as one of several
rebalancing options within the Allocation Manager (AM) mutual
fund program. Clients using AM can, at their option, elect to
have their portfolios periodically rebalanced pursuant to the
Fiduciary Style Manager recommendations. Secondly, PMC has begun
exposing and marketing Large Style Manager and Fiduciary Style
Manager to the institutional investment industry which includes
retirement trusts, endowments and foundations. Minimum
institutional accounts are anticipated to be approximately $5
million.
Although senior members of PMC's quantitative research group have
worked on this project since 1994, no additional material costs
have been incurred and management of this product can be
effectuated within PMCI's existing infrastructure.
Other Matters.
The Company's business falls entirely within the securities
industry, an industry which is heavily regulated by both the
federal and state governments. The Company has no ability to
prevent and only limited ability to foresee regulatory changes
which could adversely affect its business. As an example, in the
event the federal government imposes a tax on securities
transactions, as has been proposed from time to time by the
executive branch of the federal government, the increased cost
associated therewith could have a direct and substantial adverse
effect on the business of the Company. In addition, as an
investment adviser, the Company's subsidiary is subject to a
variety of different state regulations. Consequently, the
Company could become subject to restrictions or sanctions from a
number of state regulatory agencies. It is impossible to predict
the direction future regulations will take or the effect of such
<PAGE>
regulations on the Company's business. Changes in the law, new
regulation or the interpretations of existing law could have an
adverse effect on the Company's business.
While the Company believes that it is in substantial compliance
with all laws, regulations and licensing requirements applicable
to it, there can be no assurance that the Company will remain in
substantial compliance with all such laws, regulations and
licensing requirements in the future, or that a failure to remain
in substantial compliance will not have a material adverse effect
on the financial condition or results of operations of the
Company.
Most of the Company's gross revenues are generated by fees from
the Company's Private Wealth Management investment advisory
programs. The programs are provided both by the Company under
its own name and marketed through solicitor arrangements with
other registered investment advisors, and through banks,
insurance companies, and financial planning firms under such
companies' "private label". The Company's private label
relationships with Chase Manhattan Investment Services, Inc.
(CMIS) and Israel Discount Bank accounted for approximately 22%
and 10%, respectively, of the Company's gross revenues during
1995. The Company has been advised that CMIS is restructuring
its business, which restructuring could potentially adversely
affect the gross revenues derived from that relationship. The
Company's solicitor relationship with Royal Alliance Associates,
Inc. accounted for approximately 10% of the Company's gross
revenues during 1995. While the Company has no reason to believe
these relationships will not continue, there is no assurance of
that and the loss or impairment of these relationships would
adversely affect the business of the Company
ITEM 7. FINANCIAL STATEMENTS.
See the financial statements attached to this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
The following sets forth certain information concerning the
Company's executive officers and directors.
Position(s) Date First Elected as
Name Age With the Company a Director or Officer
Kenneth S. Phillips 44 Director, President September, 1993
Chief Executive Officer
David L. Andrus 42 Director, September, 1995
Executive Vice President
President, PTS
Vali Nasr 42 Treasurer, September, 1993
Chief Financial Officer
President, PBS
Carolyn Kling 49 Senior Vice President, PMC May, 1995
J.W. Nevil Thomas 57 Chairman of Board of Directors July, 1995
William Atkinson 64 Director July, 1995
Porter Bibb 59 Director September, 1995
The directors of the Company serve in such capacity until the
next annual meeting of the Company's shareholders and until their
successors have been duly elected and qualified. The executive
officers of the Company serve at the discretion of the Board of
<PAGE>
Directors. No family relationship exists between or among any of
the officers and directors named above.
Kenneth S. Phillips. Mr. Phillips founded PMC in 1985 and serves
as the President of PMCI and PMC. He was a co-founding
participant in the Wilshire Cooperative in 1986 (associated with
the institutional consulting firm Wilshire Associates). He
served as the Chairman of the Publications Committee of The
Investment Management Consultants Association ("IMCA") in 1994
and 1995. IMCA is the investment consulting industry's principal
trade organization with more than 1000 members representing
virtually all the major national, regional and independent
consulting firms. Additionally, Mr. Phillips has been a guest
speaker for the International Association of Financial Planners
("IAFP"), the Investment Management Institute ("IMI") and the
Institute for International Research ("IIR"). Mr. Phillips
received his education at Colorado State University and holds
numerous NASD license designations.
David L. Andrus. Mr. Andrus joined PMCI in September 1995, as a
Director. Effective November 1, 1995, he became an Executive
Vice President of the Company and President of Portfolio
Technology Services, Inc. (PTS), the Company's technology and
software applications development subsidiary. For the twelve
years prior to joining PMCI, Mr. Andrus was Chairman of Netwise,
Inc., an international software firm that featured distributed
processing products for local area networks. At Netwise, Inc.,
Mr. Andrus established the general technical direction of the
firm, emphasizing long-term strategy and future product
development. Prior to his tenure with Netwise, Mr. Andrus served
as Director of Systems Architecture for the Advanced Systems
Group at Burroughs Corporation where he was responsible for the
design of a distributed processing system consisting of
integrated voice and data, distributed databases, printer servers
and communication servers on high-speed fiber optic LANs. Mr.
Andrus also served as Manager of the Advanced Development Group
at NBI, Inc. where he was responsible for systems and software
development and testing. Mr. Andrus holds a B.S. in Electrical
Engineering from the University of Colorado.
Vali Nasr. Mr. Nasr is PMCI's Chief Financial Officer, Financial
Principal, Treasurer and President of Portfolio Brokerage
Services Inc. (PBS). Prior to joining the Company, Mr. Nasr was
Vice President of Finance for a large ($150 million sales) retail
broker/dealer. Prior to holding this position for four years,
Mr. Nasr spent four years as Vice President of Accounting with
Sutro & Company, Inc. in San Francisco. Prior to joining Sutro,
Mr. Nasr spent four years with Charles Schwab and Company as
Accounting Manager. Mr. Nasr began his career with Merrill Lynch
in their operations department. He received his B.A. in
Accounting from the University of California, Berkeley and his
M.B.A. in Finance from Golden Gate University.
Carolyn E. Kling. Ms. Kling joined PMC in May 1995, as a Senior
Vice President and Managing Director to direct the Company's new
business development, sales and marketing efforts. Prior to
joining PMC, Ms. Kling was President of the Financial Institution
Division of Transamerica Fund Management Company, where she spent
four years developing their bank distribution channels. Prior to
that position, Ms. Kling spent two years as Senior Vice President
of the Financial Institutions Division for Putnam Companies where
her duties included the initial development of their bank
distribution channels. Before joining Putnam, she was Senior
Vice President and National Sales Manager for Continental
Equities, a subsidiary of Continental Insurance Corporation of
New York. Ms. Kling holds a B.A. in Foreign Languages and
Business Administration from The University of The Americas,
Mexico City and engaged in graduate studies in Finance and
Economics at The University of Colorado.
J.W. Nevil Thomas. Mr. Thomas has been a Director of the Company
since July 1995. Since 1970 Mr. Thomas has served as President
of Nevcorp, Inc., a financial and management consulting firm..
In addition, Mr. Thomas is a Director of Bedford Capital
Financial Corporation ("Bedford") and is Chairman of Bedford
Capital Corporation, a subsidiary of Bedford, whose principal
business is merchant banking. In addition to being a Director of
the Company, Mr. Thomas is a Director of Simcoe Erie Investors
Limited, Reliable Life Insurance Company, Pet Valu Inc., French
Fragrances, Inc., Old Republic Insurance and several other private
Canadian and American companies. Mr. Thomas holds a M.A. in
Economics from Queens University and is a Certified Financial
Analyst.
William Atkinson. Mr. Atkinson has been a Director of the
Company since July 1995. Mr. Atkinson is currently Vice Chairman
of Bedford Capital Corporation, a subsidiary of Bedford, whose
principal business is merchant banking. From 1967 until 1992,
Mr. Atkinson was employed by The Oshawa Group Limited (Oshawa), a
Canadian corporation, which is a diversified food wholesaler and
retailer. Prior to his retirement in 1992, Mr. Atkinson served
as President of Pharma Plus Drugmart, Ltd., a subsidiary of
<PAGE>
Oshawa, whose primary business is retail drugstores, and as Group
Vice President and Director of Oshawa.
Porter Bibb. Porter Bibb became a Director of the Company in
September 1995. Mr. Bibb is a Principal and Co-Director of
Corporate Finance of Ladenburg, Thalmann & Co., Inc., an
investment banking firm. Prior to joining Ladenburg in 1984, Mr.
Bibb was a Managing Director of Bankers Trust Company, involved
in the start-up of their investment banking operations. Prior to
that time, he was Director of Corporate Development for the New
York Times. Mr. Bibb has a B.A. in History, Economics and
Political Science from Yale University and engaged in graduate
studies at New York University, London School of Economics and
Harvard Business School.
The Company believes that during fiscal year 1995, the following
officers, directors or 10% holders of its Common Stock filed late
reports, failed to report transactions on a timely basis or
failed to file a form required under Section 16 of the Securities
Exchange Act of 1934, as amended:
David L. Andrus - late filing of two required reports
Porter Bibb - late filing of one required report
Carolyn Kling - late filing of one required report
Phillips & Andrus, LLC - late filing of one required report
Item 10. EXECUTIVE COMPENSATION
The following table provides certain summary information
concerning compensation paid by the Company and its subsidiaries
to the Company's Chief Executive Officer and to each executive
officer whose salary and bonus exceeded $100,000 in the fiscal
years ended December 31, 1994 and 1995.
Other All
Annual Other
* Name and Compensa- Options Compensa-
Principal Fiscal Salary tion Granted tion
Position Year (1) (3) (5) (7)
Kenneth S. 1995 $228,124 $8,396
Phillips
President, 1994 $241,774 $8,047
Chief Executive
Officer
Marc N. Geman 1995 $126,558 $4,626 $180,000
Chief
Executive 1994 $241,774 $8,520
Officer
Vali Nasr 1995 $126,475
Chief
Financial 1994 $128,262
Officer & Treasurer
Carolyn E.
Kling 1995 $102,184
Senior Vice 1994
President
J. Gibson
Watson, III 1995 $175,000
Vice 1994 $149,872 165,000 $4,839
President of
Client Services
(1) The dollar value of base salary (cash and non-cash)
received.
(2) The dollar value of bonus (cash and non-cash) received.
*Column omitted from table.
(3) Any other annual compensation not properly categorized as
salary or bonus, including perquisites and other personal
benefits, automobile allowances, life insurance payments,
securities or property. In the case of Mr. Phillips and Mr.
Geman, the amount in the table represents an automobile
allowance.
<PAGE>
(4) During the period covered by the Table, no shares of restricted
stock were issued as compensation for services. As of December
31, 1995, the shares of the Company's restricted Common Stock
owned by the officers named in the table (excluding underlying
options/warrants held), and the value on that date (based upon
the Company's closing bid price) were:
Name Shares Value
Kenneth S. Phillips 3,054,267 $2,290,700
Marc N. Geman -0- -0-
Vali Nasr 70,497 $52,873
Carolyn Kling -0- -0-
Gib Watson 4,839 $3,629
All shares of restricted stock are entitled to share in any
dividends paid by the Company.
*Column omitted from table.
(5) The shares of Common Stock to be received upon the exercise
of all stock options granted during the period covered by the
Table.
(6) "LTIP" is an abbreviation for "Long-Term Incentive Plan."
An LTIP is any plan that is intended to serve as an incentive for
performance to occur over a period longer than one fiscal year.
Amounts reported in this column represent payments received
during the applicable fiscal year by the named officer pursuant
to an LTIP.
*Column omitted from table.
(7) All other compensation received that the Company could not
properly report in any other column of the Table including annual
Company contributions or other allocations to vested and unvested
defined contribution plans, and the dollar value of any insurance
premiums paid by, or on behalf of, the Company with respect to
term life insurance for the benefit of the named executive
officer, and the full dollar value of the remainder of the
premiums paid by, or on behalf of, the Company. Under terms of
an agreement with the Company, Mr. Geman is entitled to severance
payments totaling $180,000.
Long Term Incentive Plans - Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
During 1995, the Board of Directors approved issuance of 15,212
shares of common stock of PMCI to match participants' 1994
contributions up to 6% of salary as provided for by the Plan.
Compensation of Directors
Standard Arrangements. During 1995, the Company did not pay its
directors for attending board meetings. Outside directors are
entitled to receive a $5,000 annual retainer and fees of $500 per
Board Meeting attended.
Stock Option Plans
The Company has a Stock Option Plan. A summary description of
the Plan follows.
Stock Option Plan. The Plan authorizes the issuance of up to
500,000 shares of the Company's Common Stock to persons that
exercise options granted pursuant to the Plan. Only Company
employees may be granted options pursuant to the Stock Option
Plan. 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. The Board of Directors is
currently considering the termination of the existing Stock
Option Plan and the adoption of a 1996 Incentive Stock Option
Plan, which is expected to provide for the issuance of Incentive
Stock Options and Non-qualified Stock Options to eligible
employees, directors, officers, consultants and advisors to the
Company. There is no assurance that the existing Plan will be
terminated and a new plan adopted.
<PAGE>
Options granted pursuant to the Plan not previously exercised
terminate upon the first to occur of the following dates.
(a) The expiration of three months after the date on
which an option holder's employment by the Company is
terminated (except if such termination is due to death
or permanent and total disability);
(b) The expiration of 12 months after the date on
which an option holder's employment by the Company is
terminated, if such termination is due to the
Employee's permanent and total disability;
(c) In the event of an option holder's death while in
the employ of the Company, his executors or
administrators may exercise, within three months
following the date of his death, the option as to any
of the shares not previously exercised;
(d) The expiration of the option.
The total fair market value of the shares of Common Stock
(determined at the time of the grant of the option) for which any
employee may be granted options which are first exercisable in
any calendar year may not exceed $100,000.
Options may not be exercised until one year following the date of
grant. Options granted to an employee then owning more than 10%
of the Common Stock of the Company may not be exercisable by its
terms after five years from the date of grant. Any other option
granted pursuant to the Plan may not be exercisable by its terms
after ten years from the date of grant.
The purchase price per share of Common Stock purchasable under an
option is determined by the Committee administering the Plan, but
cannot be less than the fair market value of the Common Stock on
the date of the grant of the option (or 110% of the fair market
value in the case of a person owning more than 10% of the
Company's outstanding shares).
During 1995, the Board of Directors granted a total of 150,000
options under the Plan.
Other Information Regarding the Plan. The Plan is administered
by a Compensation Committee ("the Committee"), each member of
which is a director of the Company. The members of the Committee
were selected by the Company's Board of Directors and serve for
a one-year tenure and until their successors are elected. A
member of the Committee may be removed at any time by action of
the Board of Directors. Any vacancies which may occur on the
Committee will be filled by the Board of Directors. The
Committee is vested with the authority to interpret the
provisions of the Plans and supervise the administration of the
Plans. In addition, the Committee is empowered to select those
persons to whom options are to be granted, to determine the
number of shares subject to each grant of an option and to
determine when, and upon what conditions, options granted under
the Plan will vest or otherwise be subject to forfeiture and
cancellation.
In the discretion of the Committee, any option granted pursuant
to the Plan may include installment exercise terms such that the
option becomes fully exercisable in a series of cumulating
portions. The Committee may also accelerate the date upon which
any option (or any part of any options) is first exercisable.
Any options granted pursuant to the Plan will be forfeited if the
"vesting" schedule established by the Committee administering the
Plan at the time of the grant is not met. For this purpose,
vesting means the period during which the employee must remain an
employee of the Company. At the time an employee ceases working
for the Company, any options not fully vested will be forfeited
and canceled. At the discretion of the Committee payment for the
shares of Common Stock underlying options may be paid through the
delivery of shares of the Company's Common Stock having an
aggregate fair market value equal to the option price, provided
such shares have been owned by the option holder for at least one
year prior to such exercise. A combination of cash and shares of
Common Stock may also be permitted at the discretion of the
Committee. Options are generally non-transferable except upon
death of the option holder.
The Board of Directors of the Company may at any time, and from
time to time, amend, terminate, or suspend the Plan in any manner
it deems appropriate, provided that such amendment, termination
or suspension will not adversely affect rights or obligations
with respect to options previously granted. The Board of
Directors may not, without shareholder approval: make any
<PAGE>
amendment which would materially modify the eligibility
requirements for the Plan; increase or decrease the total number
of shares of Common Stock which may be issued pursuant to the
Plan except in the case of a reclassification of the Company's
capital stock or a consolidation or merger of the Company; reduce
the minimum option price per share; extend the period for
granting options; or materially increase in any other way the
benefits accruing to employees who are eligible to participate in
the Plan.
Any options granted under the Plan must be granted before
December 31, 2003. The Plan is not qualified under Section
401(a) of the Internal Revenue Code, nor is it subject to any
provisions of the Employee Retirement Income Security Act of
1974.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth, as of February 29, 1996, the
number of and percentage of outstanding shares of Common Stock
owned by each officer and director of the Company, by all
officers and directors as a group, and by each person owning five
percent or more of the Company's Common Stock. The beneficial
owners listed have sole voting and investment power with respect
to the shares they own except as specifically noted.
Name and Address Number of Shares Percent of Class (1)
Kenneth S. Phillips 3,054,267 (2) 54.98
555 Seventeenth Street
14th Floor
Denver, CO 80202
David L. Andrus 336,768 (3) 5.98
555 Seventeenth Street
14th Floor
Denver, CO 80202
J.W. Nevil Thomas 0 (4) 0
Scotia Plaza, Suite 4712
40 King Street West
Toronto, Ontario M5H 3Y2
William L. Atkinson 98,537 1.77
190 Robert Speck Parkway,
Suite 122
Mississauga, Ontario L4Z 3K3
Porter Bibb 0 (5) 0
540 Madison Avenue
New York, NY 10022
Carolyn Kling 0 (6) 0
555 Seventeenth Street
14th Floor
Denver, CO 80202
Vali Nasr 70,497 1.27
555 Seventeenth Street
14th Floor
Denver, CO 80202
Bedford Capital Financial 4,335,000 (7) 50.67
Corporation
2nd Floor
Charlotte Hs.
Shirly Street
<PAGE>
Box N964
Nassau, Bahamas
Phillips & Andrus, LLC 1,643,845 (8) 29.59
555 Seventeenth Street
14th Floor
Denver, CO 80202
All Officers and Directors 3,298,301 (9) 58.58 (10)
as a group (7 persons)
(1) The calculation of the percentage share ownership of the
persons named in this table does not give effect to (i) shares
which may be issued upon the exercise of rights, options and
warrants previously issued by the Company (except as expressly
stated otherwise), and (ii) any shares which may be issued by the
Company in the future.
(2) Includes 1,643,845 shares owned by Phillips & Andrus, LLC
("P&A"), a Colorado limited liability company, of which Mr.
Phillips is the managing member and has the controlling ownership
interest.
(3) Includes 75,000 shares underlying presently exercisable
options. Includes 261,768 shares owned by P&A and included in
the beneficial ownership of Mr. Phillips, over which Mr. Andrus
may obtain beneficial ownership pursuant to a presently
exercisable option to acquire a 40% interest in P&A. Does not
include 100,000 shares underlying warrants which are not
presently exercisable.
(4) Does not include shares owned by Bedford Capital Financial
Corporation, ("Bedford") of which Mr. Thomas is a director and a
5.77% shareholder.
(5) Does not include 144,117 shares underlying options granted
to Ladenburg, Thalmann & Co., Inc., of which Mr. Bibb is a
managing director, which are not presently exercisable.
(6) Does not include 250,000 shares underlying options/warrants
which are not presently exercisable.
(7) Includes 1,441,169 shares underlying presently exercisable
warrants. Includes 1,558,831 shares underlying a warrant which
Bedford may obtain pursuant to a presently exercisable option to
loan funds to the Company. Includes 335,000 shares owned by P&A
and included in the beneficial ownership of Mr. Phillips, which
Bedford may acquire pursuant to a presently exercisable option.
Does not include shares which may be issuable to Bedford by the
Company pursuant to certain "mirror option" rights. See,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(8) All shares have been included in the beneficial ownership of
Mr. Phillips; 261,768 shares have been included in the beneficial
ownership of Mr. Andrus; and 335,000 shares have been included in
the beneficial ownership of Bedford.
(9) Shares owned by P&A and attributable to both Messrs.
Phillips and Andrus are included only once.
(10) Based upon total shares outstanding of 5,555,713 plus shares
underlying presently exercisable options in the amount of 75,000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company entered into an agreement with Ladenburg, Thalmann &
Co. Inc., investment bankers, in January 1995, pursuant to which
Ladenburg would assist the Company in financing efforts.
Ladenburg was involved in the Company's transactions with
Bedford. Mr. Porter Bibb, a principal of Ladenburg, was named to
the Company's Board of Directors in September 1995.
In July 1995, the Company borrowed $1.2 million from Bedford. As
a result of this transaction and a simultaneous transaction
wherein Bedford purchased 1 million shares of outstanding Common
Stock of the Company from a former principal of the Company,
Bedford became a greater than 10% shareholder of the Company,
with the right to acquire in excess of 50% of the Company's
stock. Mr. J.W. Nevil Thomas and Mr. William L. Atkinson,
affiliates of Bedford, were appointed to the Company's Board of
Directors in connection with that transaction. See also,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations".
<PAGE>
Also in July 1995, the Company's Chief Executive Officer and a
director, Marc Geman, resigned. In connection with his
resignation, Mr. Geman is entitled to severance payments totaling
$180,000, due in monthly payments of $15,000. The Company also
entered into an Indemnification Agreement with Mr. Geman whereby
PMCI agreed to hold him harmless, in an amount not to exceed
$100,000, for expenses incurred in defense of the pending SEC
investigation.
In connection with the Company's ongoing private placement (see,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations"), David L. Andrus and Carolyn Kling,
insiders of the Company, participated in the offering. Mr.
Andrus purchased $100,000 of subordinated debt and received a
promissory note and warrants to purchase 100,000 shares of Common
Stock and Ms. Kling purchased $50,000 of subordinated debt and
received a promissory note and warrants to purchase 50,000 shares
of Common Stock. In addition, certain employees of PMC
participated in the offering, purchasing a total of $112,500 of
subordinated debt and receiving warrants to purchase 112,500
shares of Common Stock. The related parties all participated in
the offering on the same terms as all other investors.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit Exhibit No.
No. Description Page No.
(3) 3.1 Articles of Incorporation, as amended [a]
3.2 Bylaws [b]
(4) Instruments Defining the Rights of Security
Holders, Including Indentures
4.1 Specimen Copy of Common Stock [c]
4.2 Specimen Copy of Series A Preferred Stock [d]
4.3 Statement of Series Shares [c]
4.4 Form of Option for Purchase of Common Stock [a]
(10) Material Contracts
10.1 Investment Agreement with Bedford [e]
(16) Letter re Change in Certifying Accountant [f]
(21) Subsidiaries of the Registrant [g]
(99) Additional Exhibits N/A
___________________________________
(a) Filed under cover of a Report on Form 10-KSB on October 13,
1993, and incorporated herein by reference.
(b) Filed with Registration Statement on Form S-4 on August 6,
1990, as amended, and incorporated herein by reference.
(c) Filed with Registration Statement on Form S-1 on November
15, 1990, and incorporated herein by reference.
(d) Filed with Registration Statement on Form S-1, as amended,
on December 10, 1990, and incorporated herein by reference.
(e) Filed under cover of a Report on Form 8-K on August 11,
1995, and incorporated herein by reference.
(f) Filed under cover of a Report on Form 8-K on January 19,
1995, and incorporated herein by reference.
(g) Filed under cover a Report on Form 10-KSB on April 13, 1995,
and incorporated herein by reference.
___________________________________
(b) The Company did not file any reports on Form 8-K during
the quarter ended December 31, 1995.
<PAGE>
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.
PMC INTERNATIONAL, INC.
By: /s/ Kenneth S. Phillips
Kenneth S. Phillips
President, Chief Executive Officer
By: /s/ Vali Nasr
Vali Nasr, Treasurer, Principal
Financial and Accounting Officer
Date: April 12, 1996
In accordance with the requirements of the Securities and 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/ Kenneth S. Phillips President, Chief April 12, 1996
Kenneth S. Phillips Executive Officer
/s/ David L. Andrus Director April 12, 1996
David L. Andrus
/s/ J.W. Nevil Thomas Director April 12, 1996
J.W. Nevil Thomas
/s/ William L. Atkinson Director April 15, 1996
William L. Atkinson
__________________________ Director April -, 1996
Porter Bibb
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONTENTS
Financial statements for the years ended
December 31, 1995 and 1994
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
PMC International, Inc.
We have audited the accompanying consolidated balance sheets of
PMC International, Inc. and its subsidiaries (the "Company") as
of December 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity (deficit), and
cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the
Company at December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 8 to the financial statements, the Company has suffered
significant losses from operations and has a working capital
deficiency that raise substantial doubt about its ability to
continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
SPICER, JEFFRIES & CO.
Denver, Colorado
April 12, 1996
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994
CASH $313,885 $139,918
RECEIVABLES:
Investment management fees 39,733 71,818
Other receivables 63,210 85,406
SECURED DEMAND NOTE (Note 1) - 225,000
FURNITURE AND EQUIPMENT, at cost, net of
accumulated depreciation of $355,231 and $206,664 688,233 340,669
SOFTWARE DEVELOPMENT COSTS (Note 1) 419,617 -
PREPAID EXPENSES AND OTHER ASSETS 220,605 230,114
LONG TERM NOTE RECEIVABLE (Note 3) 897,167 1,166,181
GOODWILL (net of amortization of $52,513 and
$29,173) 297,487 320,827
_________ _________
$2,939,937 $2,579,933
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $1,442,694 $712,857
Accrued expenses 707,897 604,092
Other liabilities (Note 8) 571,389 106,990
Deferred revenue 411,347 374,001
Notes payable (Note 7) 1,647,470 45,000
Obligations under capital leases (Note 8) 75,490 -
Liabilities subordinated to claims of general
creditors (Note 2) - 225,000
__________ ________
TOTAL LIABILITIES $4,856,287 $2,067,940
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (DEFICIT) (Note 4):
Preferred stock - no par value - authorized
5,000,000 shares; issued and outstanding,
349,017 $872,543 $872,543
Common stock, $.01 par value - authorized,
50,000,000 shares, issued and outstanding,
5,555,713 and 5,540,501 shares 276,716 276,564
Additional paid-in capital 3,652,749 3,637,689
Deficit (6,718,358) (4,274,803
__________ ___________
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) $(1,916,350) $511,993
__________ ___________
$2,939,937 $2,579,933
See accompanying notes to financial statements.
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1995 AND 1994
REVENUE: 1995 1994
Investment management fees (Note 1) $8,632,888 $8,556,518
Trading income 94,948 287,583
Other income 444,643 436,559
_________ __________
Total revenue $9,172,479 $9,280,650
EXPENSES:
Investment manager and other fees 5,139,613 4,967,557
Salaries and benefits 2,524,936 2,348,819
Clearing charges and user fees 766,515 681,328
Advertising and promotion 629,476 559,723
General and administrative 743,901 728,329
Office supplies and expenses 174,100 163,964
Occupancy and equipment costs 630,833 418,252
Professional fees 541,660 643,261
Settlement expense 465,000 -
__________ ___________
Total expenses $11,616,034 $10,511,233
___________ ___________
NET LOSS $(2,443,555) $(1,230,583)
NET LOSS PER COMMON SHARE (Note 1) $ (.46) $ (.24)
___________ ___________
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (Note 1) 5,546,522 5,538,649
See accompanying notes to financial statements.
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
DECEMBER 31, 1995 AND 1994
Total
Additional Shareholders'
Common Stock Paid-In Preferred Stock Equity
Shares Amount Capital Shares Amount Deficit (Deficit)
BALANCES,
December 31,
1993 5,535,314 $276,512 $3,587,866 368,967 $922,418 $(3,044,220) $1,742,576
Conversion
of preferred
stock 5,187 52 49,823 (19,950) (49,875) - -
Net loss - - - - - (1,230,583)(1,230,583)
_________ ________ __________ ________ ________ __________ __________
BALANCES,
December 31,
1994 5,540,501 276,564 3,637,689 349,017 872,543 (4,274,803) 511,993
Issuance of
stock to
401k plan 15,212 152 15,060 - - - 15,212
Net loss - - - - - (2,443,555 (2,443,555)
_________ _______ __________ _______ ________ __________ __________
BALANCES,
December 31,
1995 5,555,713 $276,716 $3,652,749 349,017 $872,543$(6,718,358)$(1,916,350)
See accompanying notes to financial statements.
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1995 AND 1994
INCREASE (DECREASE) IN CASH
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,443,555) $(1,230,583)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 171,907 97,133
Accretion of discount on note receivable (69,053) (67,821)
Stock issued as compensation under 401k plan 15,212 -
Changes in operating assets and liabilities:
Investment management fees receivable 32,085 130,616
Other receivables 22,196 55,430
Prepaid expenses and other assets 9,509 53,306
Accrued expenses 103,805 194,132
Accounts payable 729,837 307,945
Other liabilities 464,399 344
Deferred revenue 37,346 50,022
____________ ___________
Net cash used in operating activities (926,312) (409,476)
____________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment, and
software development (825,549) (198,479)
Reduction of long-term note receivable 338,067 287,966
Reduction of secured demand note 225,000 52,463
____________ ___________
Net cash provided by (used in)
investing activities (262,482) 141,950
____________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 1,925,000 -
Principal payments on notes payable (322,530) -
Principal payments on obligations
under capital lease (14,709) -
Principal payments on subordinated note payable (225,000) -
____________ ___________
Net cash provided by financing activities 1,362,761 -
____________ ___________
NET INCREASE (DECREASE) IN CASH 173,967 (267,526)
CASH, at beginning of year 139,918 407,444
____________ ___________
CASH, at end of year $313,885 $139,918
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $96,969 $28,441
============ ===========
See accompanying notes to financial statements.
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
DECEMBER 31, 1995 AND 1994
INCREASE (DECREASE) IN CASH
(Continued)
1995 1994
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of equipment via capital lease
obligation $90,199 $ -
======== =========
See accompanying notes to financial statements.
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
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 9% of the total customer assets in PMC's managed account programs as
of December 31, 1995. 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.
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>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
The accompanying consolidated financial statements include the historical
accounts of PMC for all periods and the accounts of PMCI since September 30,
1993, PBS and Portfolio Technology Services, Inc. ("PTS") since inception.
All intercompany accounts and transactions have been eliminated in
consolidation.
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 have been included in the statement of operations.
All subsequent costs incurred after technological feasibility was achieved
were capitalized and will be amortized when the product is available for
general release.
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.
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 4 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.
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
(Continued)
NOTE 2 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
At December 31, 1994, the borrowings under a 9-1/2% subordination agreement
were pursuant to a secured demand note collateral agreement due November 30,
1995. The subordinated borrowings were covered by an agreement approved by
the National Association of Securities Dealers, Inc. and were thus available
in computing net capital under the Securities and Exchange Commission's
uniform net capital rule. Such borrowings could not be repaid to the extent
that such borrowings were required for PBS's continued compliance with
minimum net capital requirements. The agreement required PBS to make monthly
payments of interest. In July 1995, this subordination agreement was repaid.
NOTE 3 - 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 December 31, 1995 is
$1,028,452 compared to its carrying amount of $897,167.
NOTE 4 - 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 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
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
(Continued)
NOTE 4 - SHAREHOLDERS' EQUITY (continued)
January 15, 1996, cumulative dividends in arrears totalled $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 December 31, 1995,
options and warrants to purchase common stock at various prices were
outstanding with expiration as follows:
Expiration Exercise
Date Options Warrants Price
January, 96 1,000 - $ 1.375
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, 99 300,000 - 1.370
December, 98 215,500 - 1.375
December, 2000 - 425,000 1.000
May, 2005 10,000 .844
July, 2005 - 1,200,000 1.000
________ ___________
938,000 1,925,000
======== ===========
At December 31, 1995 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
$1,200,000 note payable referred to in note 7, has an option to acquire
1,800,000 warrants exercisable at $1.00.
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
(Continued)
NOTE 5 - 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 6 - 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 December 31, 1995, PBS had net capital and net capital
requirements of $219,860 and $100,000, respectively. The Company's net
capital ratio (aggregate indebtedness to net capital) was .29 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 December 31, 1995.
NOTE 7 - NOTES PAYABLE
Notes payable consist of the following:
1995 1994
8-1/2% note payable to shareholder, due July $1,200,000 $ -
26, 2000 interest payable monthly beginning
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. 22,470 45,000
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. 425,000 -
_____________ __________
$1,647,470 $45,000
============= ==========
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
(Continued)
NOTE 7 - NOTES PAYABLE (continued)
The above $1,200,000 shareholder note payable is related to a financing and
stock purchase agreement which encompasses a series of transactions, none of
which are considered binding until certain criteria are met. 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 4) 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 December, 1995 the Company accepted
an offer from this shareholder to partially exercise its $1,800,000 option
above, in the amount of $440,000 to fund the expected settlement costs with
the Securities and Exchange Commission as mentioned in note 8. In January
1996 the shareholder partially exercised its $1,800,000 option above and
loaned the Company $241,000, and received a warrant to purchase 241,000
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 4). As of December 31, 1995, 425
units were sold pursuant to this offering.
Maturities of notes payable are as follows:
Year ending
December 31,
1996 $431,003
1997 8,535
1998 7,932
1999 -
2000 1,200,000
__________
$1,647,470
==========
During March, 1995, through a private offering, PMCI issued $300,000 of
convertible promissory notes bearing 15% interest per annum. These notes
were repaid in July 1995.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company has leases for office space and equipment under various operating
and capital leases. Included in furniture and equipment is $90,119 of
equipment under capital leases at December 31, 1995 and accumulated
depreciation relating to these leases of $6,588. Future minimum lease
payments under noncancelable leases as of December 31, 1995 are as follows:
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
(Continued)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued)
Principal
Year ending due
December 31, Operating Capital Capital Lease
1996 $374,419 $ 40,206 $ 28,883
1997 343,847 35,605 27,271
1998 351,672 24,752 19,336
1999 298,658 - -
2000 293,567 - -
Thereafter 24,000 - -
_________ _________ _________
$1,686,163 100,563 $ 75,490
========== =========
Less amount
representing interest 25,073
_________
Present value of net
minimum lease payments $ 75,490
=========
The Company also leases certain equipment from a shareholder and a prior
shareholder on a month-to-month basis. During the year ended December 31,
1995, PMC paid $6,117 under this lease. Total rent expense for facilities
and equipment for the years ended December 31, 1995 and 1994, was $410,263
and $301,964, 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 a plan which PMC would disgorge its trading
profits realized from principal trading together with prejudgment interest in
the amount of $465,000. This amount has been included in other liabilities
in the accompanying financial statements. At the present time, management
and its legal counsel are unable to determine if the proposal will be
accepted by the Commission, or what action, if any, the Commission will take
in regards to this matter. Therefore 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.
The Company is involved in certain litigation arising in the normal course of
business, which is in the preliminary or early stages. Management, after
review and discussion with counsel, believes the resolution of the matters
will not have a material effect on the Company.
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
(Concluded)
The Company has suffered significant losses from operations and has a
working capital deficiency of approximately $2,800,000 that raise
substantial doubt about its ability to continue as a going concern. 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 9 - 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 intends to 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.
<PAGE>
FORM 10-KSB EXHIBITS
PMC International, Inc.
555 Seventeenth Street
14th Floor
Denver, CO 80202
<PAGE>
Exhibits
Number Exhibit Page Number
(3) 3.1 Articles of Incorporated by reference to the
Incorporation, as Company's Report on Form 10-KSB filed on
amended October 13, 1994
3.2 Bylaws Incorporated by reference to the
Company's Registration Statement on Form
S-4, as amended, filed on August 6, 1990
(4) Instruments Defining
the Rights of Security
Holders, Including
Indentures
4.1 Specimen Copy of Incorporated by reference to the
Common Stock Company's Statement on Form S-1 filed on
November 15, 1990
4.2 Specimen Copy of Incorporated by reference to the
Series A Company's Registration Statement on Form
S-1 filed on November 15, 1990
4.3 Statement of Series Incorporated by reference to the
Shares Company's Registration Statement on Form
S-1 filed on November 15, 1990
4.4 Form of Option for Incorporated by reference to the
Purchase of Common Company's Report on Form 10-KSB filed on
Stock October 13, 1993
(10) Material Contracts
10.1 Investment Incorporated by reference to the
Agreement with Bedford Company's Report on Form 8-K filed
August 11, 1995
(16) Letter re Change in Incorporated by reference to the
Certifying Accountant Company's Report on Form 8-K filed on
January 19, 1995
(21) Subsidiaries of the Incorporated by reference to the
Registrant Company's Report on Form 10-KSB filed
April 13, 1995
(99) Additional Exhibits Not applicable
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 313,885
<SECURITIES> 0
<RECEIVABLES> 1,000,110
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 518,092
<PP&E> 1,463,081
<DEPRECIATION> 355,231
<TOTAL-ASSETS> 2,939,937
<CURRENT-LIABILITIES> 4,856,287
<BONDS> 0
0
872,543
<COMMON> 276,716
<OTHER-SE> (3,065,609)
<TOTAL-LIABILITY-AND-EQUITY> 2,939,937
<SALES> 9,172,479
<TOTAL-REVENUES> 9,172,479
<CGS> 5,139,613
<TOTAL-COSTS> 5,139,613
<OTHER-EXPENSES> 6,374,421
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,000
<INCOME-PRETAX> (2,443,555)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,443,555)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,443,555)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
