<PAGE> 1
As filed with the Securities and Exchange Commission on May 27, 1997
Registration No. 333-21335
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
___________________
PMC International, Inc.
(Name of small business issuer in its charter)
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Colorado 6282 84-0627374
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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555 17th Street, 14th Floor 555 17th Street, 14th Floor
Denver, Colorado 80202 Denver, Colorado 80202
(303) 292-1177 Address of principal place of business or
(Address and telephone number of intended principal place of business)
principal executive offices)
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____________________________________
Kenneth S. Phillips
President and Chief Executive Officer
PMC International, Inc.
555 17th Street, 14th Floor
Denver, Colorado 80202
(303) 292-1177
(Name, address, and telephone number of agent for service)
Copies to:
Francis R. Wheeler, Esq.
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
(303) 861-7000
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED MAY 27, 1997
PROSPECTUS 14,194,206 Shares
PMC International, Inc.
Common Stock
This Prospectus relates to the offer and sale by certain persons (and
the transferees, pledgees, donees and successors thereof) (collectively the
"Selling Shareholders") of up to 12,914,706 shares (the "Shares") of Common
Stock, par value $.01 (the "Common Stock"), of PMC International, Inc. (the
"Company") currently held by the Selling Shareholders and up to 1,279,500
Shares issuable upon the exercise of certain options and warrants currently
held by the Selling Shareholders. The Selling Shareholders may sell the Shares
from time to time in one or more transactions, including one or more
underwritten offerings. The Selling Shareholders may effect such transactions
directly to or through securities broker-dealers in the over-the-counter market
or otherwise, and such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Shareholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom the Selling Shareholder might sell as principal, or both (which
compensation as to a particular broker-dealer may be in excess of customary
commissions). The Shares may also be offered in one or more underwritten
offerings, on a firm commitment or best efforts basis. The underwriters in any
underwritten offering and the terms and conditions of any such offering will be
described in a supplement to this Prospectus. See "Selling Shareholders" and
"Plan of Distribution."
All Shares offered hereby are shares currently held by the Selling
Shareholders or issuable upon the exercise of certain options and warrants
currently held by the Selling Shareholders. The Company will not receive any
of the proceeds from the sale of the Shares offered hereby. The Company has
agreed to bear all expenses in connection with the registration and sale of the
Shares being offered by the Selling Shareholders other than compensation
payable to securities broker-dealers by the Selling Shareholders and/or the
purchasers of the Shares, any securities broker/dealer expense allowances and
transfer taxes. The offering expenses to be paid by the Company are estimated
to be approximately $__________. The Company has agreed to indemnify the
Selling Shareholders against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). See "Plan of
Distribution." It is the view of the Securities and Exchange Commission that
such indemnification is contrary to federal securities laws and unenforceable.
The Common Stock is not traded on an exchange or listed on The Nasdaq
Stock Market. It is traded in the over-the-counter market. As a result, there
may be a limited market for the Shares which could have an adverse effect on
the future sales price and liquidity of the Shares. The last reported sale
price for Common Stock on May 20, 1997 was $2.0625, as reported to the Company
by the principal market maker in the Common Stock. See "Market for the Common
Stock."
No dealer, salesperson or individual has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or in a Prospectus Supplement in connection with the offer made by
this Prospectus and any Prospectus Supplement, and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Selling Shareholders. Neither the delivery of
this Prospectus or any Prospectus Supplement nor any sale made hereunder or
thereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company since the date hereof or thereof
or that the information contained herein is correct as of any time subsequent
to the date hereof or thereof. This Prospectus and any Prospectus Supplement
shall not constitute an offer to sell or a solicitation of an offer to buy any
of the Shares in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.
A PURCHASE OF THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 2 TO 4 FOR A DISCUSSION OF CERTAIN RISK
FACTORS TO BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May ____, 1997.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected without charge at, and copies
thereof may be obtained at prescribed rates from, the public reference
facilities of the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. In addition, the Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov.
The Company has filed with the Commission a registration statement on
Form SB-2 under the Securities Act with respect to the securities offered
hereby (the "Registration Statement"). This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the
securities offered hereby reference is made to the Registration Statement,
including the exhibits thereto, which may be inspected at, and copies thereof
may be obtained at prescribed rates from, the public reference facilities of
the Commission at the addresses set forth above.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Market for the Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . 6
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . 22
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . 23
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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ii
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this
Prospectus. Investors should carefully consider the information under the
heading "Risk Factors." The information set forth below contains "forward
looking statements" within the meaning of the federal securities laws,
including statements regarding opportunities for growth from expanded use of
existing distribution channels and expanded use by existing distribution
channels of the Company's products and services and similar expressions
concerning matters that are not historical facts. These statements are subject
to risks and uncertainties that could cause actual results to differ materially
from those expressed in the statements.
THE COMPANY
PMC International, Inc. (the "Company") develops, markets, and manages
sophisticated investment management products and services. Not a money manager
itself, the Company provides products and services facilitate the selection
and/or monitoring of unaffiliated money managers or mutual funds for customers
of the Company's distribution channels depending upon the size, sophistication
and requirements of such customers. The Company's products and services address
investment suitability and diversification, asset allocation recommendations,
portfolio modeling and rebalancing, comprehensive accounting and portfolio
performance reporting. The Company's revenues are realized primarily from fees
charged to clients based on a percentage of managed assets and to a lesser
extent from consulting fees for certain advisory services and licensing fees
from its software products.
Founded in 1986, the Company is an independent sponsor of privately
managed accounts and asset allocation and wrap programs. The majority of the
Company's revenues are derived from its individually managed wrap program,
which the Company developed and has administered since 1987. In addition to
its traditional wrap program, since 1994 the Company has invested in
developing related technology-based services and has added staff to develop
and support the Company's new products. The Company's products and services
are designed to assist professional financial consultants in their efforts to
market high quality, fully diversified portfolio management products. Through
the use of technology, the Company assists third-party financial advisors such
as banks, insurance companies and brokerage firms (collectively,
"Institutional Channels") and independent financial planners ("Independent
Channels") in allocating and diversifying a customer's investment portfolio
across multiple asset classes and investments. In respect to Institutional
Channels, the Company's products allow for a repeatable sales process which
helps increase sales productivity while ensuring compliance with the
Institutional Channels' corporate and regulatory policies.
The Company has a staff of approximately 73 people, including more
than 30 professionals, and conducts business in a number of countries. The
Company owns three subsidiaries: (i) Portfolio Management Consultants, Inc.
("PMC"), an investment advisory firm; (ii) Portfolio Brokerage Services, Inc.
("PBS"), a broker/dealer; and (iii) Portfolio Technology Services, Inc. ("PTS"),
which specializes in developing proprietary software for use in the financial
services industry. Unless the context otherwise requires, references herein to
the Company include subsidiaries and predecessors of the Company. The Company's
principal executive office is located at 555 17th Street, 14th Floor, Denver,
Colorado 80202 and its telephone number is (303) 292-1177.
THE OFFERING
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Common Stock offered by the Selling Shareholders . . . 14,194,206 shares(1)
Common Stock outstanding before the Offering . . . . . 14,523,614 shares(2)
Common Stock outstanding after the Offering . . . . . . 15,803,114 shares(3)
Use of Proceeds . . . . . . . . . . . . . . . . . . . . The Company will receive none of the proceeds of the sale of the Shares.
See "Use of Proceeds."
- -------------------
</TABLE>
(1) Includes 1,279,500 shares of Common Stock issuable upon exercise of certain
outstanding options and warrants held by Selling Shareholders.
(2) Does not include 3,586,500 shares of Common Stock reserved for issuance
upon exercise of outstanding options and warrants issued by the Company.
(3) Does not include 2,307,000 shares of Common Stock reserved for issuance
upon exercise of options granted under the Stock Option Plan for Employees
and other options granted to employees and directors.
1
<PAGE> 5
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS ARE ADVISED THAT THEY MAY LOSE ALL OR PART OF THEIR
INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE FOLLOWING RISK
FACTORS.
Future Operating Losses May Result in Need for Additional Capital.
The Company has incurred substantial losses since inception. The Company
suffered a $4,025,000 loss for the year ended December 31, 1996, and a $533,000
loss for the quarter ended March 31, 1997. Historically, the Company has not
generated sufficient cash for its operations and has suffered cash flow
shortages. The Company has heretofore derived working capital principally from
borrowings. In December 1996, the Company closed a private placement of its
equity securities that generated approximately $7,500,000 of net proceeds,
after payment of expenses of the offering and the repayment of approximately
$2,500,000 of indebtedness. While the Company believes that such proceeds will
be sufficient to support its working capital needs for the foreseeable future,
there can be no such assurance. If the proceeds are not sufficient for the
Company's working capital requirements, the Company's future liquidity needs
may be dependent upon the Company's ability to borrow funds and complete
additional equity offerings. There can be no assurance that financing will be
available to the Company if and when needed.
Limited Market for the Company's Common Stock May Adversely Affect
Share Price and Liquidity. The Common Stock is not traded on an exchange or
listed on The Nasdaq Stock Market ("Nasdaq"), but is quoted in the OTC
Bulletin Board. Transactions in the Common Stock are subject to Rule 15c2-6
under the Exchange Act, which imposes certain requirements on broker/dealers
who sell such securities to persons other than established customers and
accredited investors. For transactions covered by the rule, broker/dealers
must make a special suitability determination for purchasers of the securities
and receive the purchaser's written agreement to the transaction prior to sale.
Thus, Rule 15c2-6 may affect the ability of broker/dealers to sell Common Stock
and thereby the ability of investors to sell their Shares in the secondary
market. In addition, securities traded in the OTC Bulletin Board may be
subject to more price volatility than securities listed on an exchange or
Nasdaq. Due to the fact that the Common Stock is not listed on an exchange or
on Nasdaq and the application of Rule 15c2-6, the trading volume of the Common
Stock is extremely low. Consequently, there may be only a limited market for
the Shares. In addition, the lack of trading volume may have an adverse effect
on the price at which the Shares may be sold.
The Common Stock was delisted from The Nasdaq Small Cap Market in
February 1995 because the Company failed to satisfy the requirements for
continued listing. Under listing requirements recently adopted by the NASD and
submitted to the Commission, to be included in The Nasdaq Small Cap Market,
among other requirements, (i) an issuer must have net tangible assets of
$4,000,000 and (ii) its common stock must have a minimum bid of at least $4.00
per share. While the Company currently satisfies the net tangible assets
requirement for inclusion on The Nasdaq Small Cap Market, it may not satisfy
the minimum per share bid price within the foreseeable future unless it were to
effect a reverse split of its Common Stock or its price per share were to
appreciate sufficiently.
Company Revenues Would Be Adversely Affected by a Decline in the Stock
Market and by Adverse Economic Conditions. The revenues of the Company are
directly dependent upon the amount of assets managed or administered by
Independent Channels and Institutional Channels using the Company's products
and services. A decline in the market value of such managed assets or a
downturn in general economic conditions which causes investors to cease using
the products and services offered through the Company's distribution channels,
including the Company's products and services, could materially and adversely
affect the revenues of the Company.
The Company and its Customers Operate in a Very Competitive Market.
In offering services through its Institutional and Independent Channels, the
Company competes with other firms that offer wrap and managed account programs.
These distribution channels in turn compete with banks, insurance companies,
large securities brokers and other financial institutions which offer wrap and
managed account programs to the public. The Company believes that firms
compete in this market primarily on the basis of service, since the wrap fees
charged by others are similar to those charged by the Company. Firms that
compete with the Company in providing services to its Independent Channels and
Institutional Channels have more financial resources and greater recognition in
the financial community than the
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Company. Competitors may reduce the fees charged for wrap and managed account
programs or pursue other competitive strategies that could have an adverse
impact on the Company. There are many alternatives to wrap programs that are
being offered to the public, such as life cycle funds, asset allocation funds,
portfolio strategies and third-party asset allocation services, and these
services are competitive with those offered by the Company. As financial
institutions continue to grow and build in-house asset administration service
capabilities, some will be able to provide these services internally rather
than using outsourcing providers. Competitors may succeed in developing
products and services that are more effective than those that have been or may
be developed by the Company and may also prove to be more successful than the
Company in developing these products and marketing these services to
third-party asset managers. See "Business--Competition."
The Company's Customers Are under No Obligation to Use its Products.
Most of the Company's gross revenues currently are generated by fees from the
Company's Private Wealth Management investment advisory programs. The programs
are provided by Institutional Channels and Independent Channels either under
the Company's name or under the "private label" of such channel. These
Institutional Channels and Independent Channels are under no obligation to
continue to utilize the Company's programs. The Company's private-label
relationship with Chase Investment Services Corp. ("CISC") accounted for
approximately 18% of the Company's gross revenues during 1996. CISC recently
restructured its business, which restructuring has materially and adversely
affected the gross revenues derived from that relationship during 1996. While
the Company has no reason to believe that its current investment advisory
relationships will not continue to generate revenues for the Company consistent
with prior years, other than that with CISC as discussed above, there can be no
assurance that such will be the case. Assets under management for CISC and
related revenues have remained stable since completion of the CISC
restructuring.
Failure to Manage Growth Effectively Could Strain Company Resources.
The number of persons employed by the Company increased from approximately 43
on March 31, 1996 to approximately 65 on March 31, 1997, primarily to permit
the Company to build its internal systems and to service product development
for new relationships being established with Institutional Channels. A
continuing period of rapid growth could place a strain on the Company's
management, operations, financial and other resources. The Company's ability
to manage its growth effectively will require it to continue to invest in its
operational and other internal systems, and to retain, motivate and manage its
employees. If the Company's management is unable to manage growth effectively
and new employees are unable to achieve anticipated performance levels, the
Company's results of operations could be adversely affected. Potential
investors should consider the risks, expenses and difficulties frequently
encountered in connection with the operation and development of an expanding
business. There can be no assurance that the Company will be able to manage
effectively any future growth.
There Is No Demonstrated Market for the Company's Software Products.
The Company has spent substantial funds on research and development of software
products, principally Allocation Manager(TM), an asset allocation software
program that supports the sale and service of its asset allocation investment
products and services. While the Company believes such software products will
be effective in supporting its other products and services, there can be no
assurance that such will be the case or that changes to or interpretations of
existing federal and state laws, rules and regulations will not adversely
affect the ability of such software products to do so.
The Company Is Dependent on Third-Party Suppliers. The Company's
products are dependent upon the delivery of timely data updates, typically on a
quarterly basis, from third-party providers. To the extent such updates are
not made available to the Company on a timely basis, it would materially and
adversely affect the Company's ability to deliver its products and related
services.
Loss of Key Personnel Could Adversely Affect Management, Product
Development and Marketing Activities. The success of the Company is dependent
upon the abilities of its executive officers. The loss of the Company's
executive officers may have a material adverse effect on the Company's
management, product development and marketing activities. See "Management."
New Government Regulation Could Reduce Demand for the Company's
Products and Services. The Company's business falls entirely within the
securities industry, an industry which is heavily regulated by the federal
3
<PAGE> 7
and state governments. New regulatory changes affecting the securities
industry could adversely affect the Company's business. In addition, as an
investment adviser and a broker/dealer, the Company's subsidiaries are subject
to regulation by the Commission, the National Association of Securities
Dealers, Inc. (the "NASD") and state regulatory agencies. Consequently, the
Company could become subject to restrictions or sanctions from the Commission,
the NASD or such state regulatory agencies. It is impossible to predict the
direction future regulations will take or the effect of such regulations on the
Company's business.
The Company Is Controlled by a Small Group of Shareholders. As of the
date of this Prospectus, the Company's executive officers, directors and
affiliates of such persons beneficially own approximately 46% of the
outstanding shares of Common Stock. This group of shareholders therefore is in
a position to exercise a substantial influence over matters submitted to the
vote of the Company's shareholders. See "Description of Capital Stock."
Dividends Will Not Be Paid on Common Stock for the Foreseeable Future.
Payment of dividends by the Company on its Common Stock is contingent upon,
among other things, future earnings, if any, the financial condition of the
Company, capital requirements, general business conditions, and other factors
which cannot now be predicted and, subject to the limitations described below,
is in the discretion of the Board of Directors of the Company. In addition, no
dividends may be paid on Common Stock unless dividends payable on Series A
Preferred Stock (the "Preferred Stock") are current. See "Description of
Capital Stock--Preferred Stock." As of March 31, 1997 the Company was in
default in the payment of dividends on the Preferred Stock in the amount of
$253,509. The Company has never paid dividends on the Common Stock and it does
not intend to do so in the foreseeable future. See "Market for the Common
Stock."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Shareholders. To the extent Shares sold hereunder were acquired
by the Selling Shareholders upon the exercise of currently outstanding options
or warrants, the Company will realize proceeds in an amount equal to the
exercise price of such warrants or options. The Company currently intends to
use any such proceeds for general working capital purposes.
4
<PAGE> 8
MARKET FOR THE COMMON STOCK
Prior to February 1995, the Common Stock was traded on The Nasdaq
Small Cap Market. See "Risk Factors--Limited Market for the Company's Common
Stock May Adversely Affect Share Price and Liquidity." The Common Stock
currently trades in the over-the- counter market under the symbol "PMCI." The
following table shows the high and low bid prices and trading volume of the
Common Stock for the periods indicated as reported by the principal market
maker in the Common Stock. These quotations reflect inter- dealer prices
without retail markup, markdown, or commissions and may not necessarily
represent actual transactions.
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High Bid Low Bid
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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
1996
----
First Quarter $1.00 $0.625
Second Quarter $1.8125 $0.9375
Third Quarter $2.0625 $1.375
Fourth Quarter (1) $2.00 $1.375
1997
----
First Quarter $2.50 $2.375
Second Quarter $2.375 $2.0625
(through May 20, 1997)
</TABLE>
______________________________
(1) Does not reflect the private placement of 5,177,000 shares of Common Stock
by the Company in December 1996 at a price of $2.125 per share.
As of May 20, 1997, the Company had approximately 388 record holders
of its Common Stock.
The Company currently has outstanding a total of 138,182 shares of
Preferred Stock. As of March 31, 1997, the Company was in default in the
payment of dividends on the Preferred Stock in the amount of $253,509. No
dividends may be paid on the Common Stock if dividends payable on the Preferred
Stock are in arrears.
The Company has never paid dividends on its Common Stock and currently
intends to retain all future earnings, if any, for the continued growth and
development of its business and has no plans to pay cash dividends in the
future. Any change in the Company's dividend policy will be made in the
discretion of the Company's Board of Directors in light of the Company's future
earnings, financial condition and capital requirements and of general business
conditions and other factors that cannot now be predicted.
5
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information that the Company
believes is relevant to an assessment and understanding of its results of
operations. It should be read in conjunction with the Financial Statements and
Notes included elsewhere herein. This discussion contains "forward looking
statements" within the meaning of the federal securities laws, including
statements regarding opportunities for growth from expanded use of existing
distribution channels and expanded use by existing distribution channels of the
Company's products and services and similar expressions concerning matters that
are not historical facts. These statements are subject to risks and
uncertainties that could cause results to differ materially from those
expressed in the statements. For more information, see "Risk Factors."
GENERAL
The Company develops, markets, and manages sophisticated investment
management products and services. Not a money manager itself, the Company
provides products and services to facilitate the selection and/or monitoring of
unaffiliated money managers or mutual funds for customers of the Company's
distribution channels depending upon the size, sophistication and requirements
of such customers. The Company's products and services address investment
suitability and diversification, asset allocation recommendations, portfolio
modeling and rebalancing, comprehensive accounting and portfolio performance
reporting. The Company's revenues are realized primarily from fees charged to
clients based on a percentage of managed assets and to a lesser extent from
consulting fees for certain advisory services and licensing fees from its
software products. Fees based upon managed assets typically range from 20 to
250 basis points per year, based upon a numbers of factors such as the size of
account and scope of services provided. At the present time, the principal
factors affecting the Company's revenues are whether the Company adds or loses
clients for its investment management services, the performance of equity and
fixed income markets, and the type and size of accounts managed by the Company
and related differences in fees charged.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Revenues. Revenues were $2,861,000 for the quarter ended March 31,
1997 compared to $2,616,000 for the corresponding quarter in 1996, an increase
of 9.4%. The increase was attributable primarily to investment management fees
for start up and conversion services received from new relationships with
Institutional Channels established by the Company during the first quarter.
Future revenues related to these new relationships are expected to be based
upon a percentage of assets under management using the Company's products and
services.
Expenses. Investment manager and other fees (which are primarily a
function of the amount of assets managed) remained constant in absolute dollars
while decreasing relative to total investment management fees (also a function
of the amount of assets managed), primarily because the revenues related to the
new relationships with Institutional Channels had no associated investment
manager and other fees during the first quarter.
Operating expenses (total expenses less investment manager and other
fees) were $2,003,000 for the quarter ended March 31, 1997 compared to
$1,749,000 for the corresponding quarter in 1996, an increase of $254,000 or
14.5%. This increase was due primarily to an increase in salaries and benefits
of $179,000 as the Company added staff to its marketing and sales teams and
technology and operations groups. The balance of the increase resulted
primarily from increased general and administrative expenses and advertising
and promotion expenses corresponding to the Company's increased staffing
levels. The increased staff was added to support the expansion of the Company's
products and services, the enhancements of its internal systems and the
servicing of new distribution channels and customers. Total Company employees
at March 31, 1997 and 1996 were approximately 65 and 43, respectively.
Salaries and benefits are expected to increase throughout 1997 relative to 1996
because of increased staffing and compensation levels. The Company employed
approximately 73 persons at May 20, 1997.
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1996 Compared to 1995
Revenues. Investment management fees for 1996 were $9.63 million,
compared to $8.63 million in 1995. The increase of $1 million or 12% for 1996
over 1995 was due primarily to an increase in assets under management. Trading
income for 1996 decreased approximately 52% from $94,948 in 1995 to $44,787 in
1996, primarily because the Company stopped receiving payments for order flow
in 1996. Other income (which consists primarily of 12b-1 fees and interest
income) decreased approximately 8% from $444,643 in 1995 to $407,102 in 1996,
primarily because the principal balance of the Company's note receivable
decreased and a lower portion of managed assets were held as cash balances
(thereby resulting in lower 12b-1 fees).
Investment Manager and Other Fees. Investment manager and other fees
increased $0.44 million or 9% from $5.14 million in 1995 to $5.58 million in
1996. The increase was due primarily to an increase in assets under management.
Salaries and Benefits; General and Administrative. Salaries and
benefits increased nearly $0.97 million to nearly $3.49 million for 1996 from
$2.52 million for 1995. The increase was due primarily to the increased
staffing requirements associated with the development, release and support of
the Company's new products. At December 31, 1996 the Company employed
approximately 53 employees as compared with approximately 43 employees at
December 31, 1995. New staff was added in the areas of marketing, sales,
software programming and systems support. General and administrative expense
increased $282,114 to $1,200,115 for 1996 from $918,001 for 1995. The increase
was due primarily to the costs related to increased staffing.
Advertising and Promotion. Advertising and promotion expense
increased $200,664 to $830,140 for 1996 from $629,476 for 1995. The increase
was due primarily to increased costs associated with the development, release
and support of the Company's new products, including increased costs in such
areas as telecommunications, printing, reference materials and publications.
The Company also increased its expenses for marketing seminars and conventions,
incurring approximately $306,000 in such expenses during 1996 compared
to $113,000 during the same period in 1995.
Software Development Costs. Software development costs increased
$75,592 to $132,392 for 1996 from $56,800 for 1995. These costs related
primarily to the Company's implementation of a portfolio accounting system and
the customization and maintenance of the Company's proprietary software. The
portfolio accounting system is not expected to be fully operational until the
third quarter of 1997. The Company anticipates that costs paid to outside
venders for portfolio accounting services will decrease upon implementation of
this system and that costs for software development for this purpose will
decrease after this system has been implemented. The Company will continue to
incur software development costs for the customization and maintenance of the
Company's proprietary products and in connection with the amortization of
software development costs previously capitalized by the Company.
Settlement Expense. Settlement expense (which represents the refund of
principal trading profits and related interest due in connection with the
settlement of an investigation of the Company by the Commission) decreased
$310,000 to $155,000 for 1996 from $465,000 for 1995. The Company will not
incur any settlement expense in 1997. See "Business--Corporate History--SEC
Investigation and Settlement."
Other Expense. Occupancy and equipment costs increased $0.52 million
to nearly $1.15 million for 1996 from $0.63 million for 1995. The increase was
due primarily to the increased costs associated with the implementation of a
brokerage trading system, the purchase and development of the portfolio
accounting system referred to above and the development, release and support of
the Company's new products, with approximately 55% of this increase
attributable to the addition of non-capitalized hardware and software. The
Company's expenses also reflect increased equipment leases and an annual
adjustment to the Company's office lease for common operating costs. Clearing
charges and user fees increased $46,724 to $813,239 for 1996 from $766,515 for
1995. The increase resulted from increased trading activity in the Company's
managed assets. Professional fees increased $278,226 to $763,086 for 1996 from
$484,860 for 1995. The increase was due primarily to the completion and release
of the Company's new products, the development of new sales and marketing
agreements, and the regulatory and compliance issues associated with these new
products and relationships. Legal and accounting fees were also incurred in
connection with settlement of the Commission's investigation of the Company,
ensuring regulatory compliance by the Allocation Manager(TM) mutual fund
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software program and in the establishment of complex relationships with several
new clients. The Company expects only minimal fees to be incurred in 1997 in
connection with the Commission's investigation of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating losses incurred over the last several years
resulted in the need for significant funding. During the first three quarters
of 1996, the Company borrowed an aggregate of $1.8 million from Bedford Capital
Financial Corporation ("Bedford") and received an additional $1.0 million from
the private placement of debt securities. These financings were in addition to
$1.2 million borrowed by the Company from Bedford in July 1995 and $482,500
received by the Company from the private placement of debt securities in late
1995 and early 1996. In November 1996, the Company borrowed an additional
$250,000 as bridge financing to fund working capital shortfalls through the
completion of a private placement of Common Stock. See "Business-- Corporate
History." The loans from Bedford, the private placements, and the bridge
financing each involved the issuance of warrants to purchase Common Stock.
Private Placement and Restructuring. In December 1996 the Company
completed a private placement of 5,177,000 shares of Common Stock at a price of
$2.125 per share. Also in December 1996, the Company completed a restructuring
of its debt and a partial restructuring of its outstanding preferred stock.
The restructuring involved (i) the payment of all outstanding interest on the
Bedford loans, the repayment to Bedford of $1,976,250 of outstanding principal
on the Bedford loans, the exercise by Bedford of warrants to purchase 1,023,750
shares of Common Stock and the delivery by Bedford of canceled promissory notes
in the amount of $1,023,750 in satisfaction of the exercise price of the
warrants, the cancellation of Bedford's remaining warrants, and the issuance to
Bedford of new warrants to purchase up to 150,000 shares of Common Stock at an
exercise price of $2.125 per share; (ii) the issuance of 1,500,000 shares of
Common Stock upon the exercise of warrants issued to investors in connection
with the Company's private placement of promissory notes and warrants in
December 1995/January 1996 and May/June 1996 and the delivery of canceled
promissory notes in the aggregate principal amount of $1,500,000 in
satisfaction of the exercise price of such warrants, payment by the Company of
all interest accrued on such notes as of the exercise date, and the issuance of
new warrants to purchase an aggregate of up to 150,000 shares of Common Stock
to such investors; (iii) the repayment of the November 1996 bridge loan, and
(iv) the conversion of 173,120 shares of the Company's Preferred Stock into
238,043 shares of Common Stock, resulting in a reduction in the Company's
cumulative dividend obligation to the holders of Preferred Stock from $583,576
as of September 30, 1996, to $322,700 as of December 31, 1997. The conversion
of additional shares of the Company's Preferred Stock into Common Stock was
effected in January 1997.
As a result of the private placement and restructuring, the Company's
shareholders equity increased from a $4,047,682 deficit at September 30, 1996
to $6,544,684 at December 31, 1996 and cash increased from $701,160 at
September 30, 1996 to $6,499,000 at December 31, 1996.
Uses of Cash. Between December 31, 1996, and March 31, 1997, cash and
cash equivalents decreased from $6,499,000 at December 31, 1996 to $4,450,000
($2,256,000 of which was unrestricted) at March 31, 1997, as other liabilities
and accounts payable were reduced significantly. Investment management fees
receivable increased $395,000 during the period primarily as a result of the
accrual of fees due from the new relationships being established with
Institutional Channels. See "--Results of Operations--Three Months Ended March
31, 1997 Compared to Three Months Ended March 31, 1996."
In January 1997, the Company assisted Kenneth S. Phillips, the
Company's President and Chief Executive Officer, by pledging cash collateral in
the amount of $1,890,000 to a bank in connection with the bank's loan to KP3,
LLC ("KP3"), a company owned and controlled by Mr. Phillips. The loan was made
to KP3 for the purpose of financing payment of the deferred portion of the
purchase price of 1,643,845 shares of the Company's Common Stock owned by KP3
that were purchased from a former officer of the Company at the time of his
departure. The Company has agreed to provide collateral for the loan for up to
two years and to lend funds to KP3 to service interest payments on the loan
during that period. In March 1997, the Company lent $32,000 to KP3 to service
interest payments on the loan. The total amount of loans and pledges of
collateral authorized may not exceed $2.0 million.
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Capitalized Software Development Costs. The Company has incurred
significant costs during the past several years in developing internal
operational systems and in developing, marketing and supporting its proprietary
Allocation Manager(TM) investment advisory software for use by professional
financial consultants and expects to have continuing costs in 1997 relating to
the enhancement of Allocation Manager(TM). Most of the costs incurred to
establish the technological feasibility of Allocation Manager(TM) were borne by
unrelated individuals prior to the product being introduced to the Company.
The Company incurred approximately $50,000 in research and development costs
relating to Allocation Manager(TM) that were expensed in 1995. All subsequent
costs incurred directly that were related to the development of the software
were capitalized. The Company currently intends to capitalize all similar costs
incurred in the future. Capitalized costs are amortized over the economic life
of the software, which in this case is three years. It is the Company's policy
to amortize and evaluate software for net realizable value on a product-by-
product basis. The software became available for sale during 1996, and the
Company plans to generate revenues from this product primarily from a
continuing fee based upon assets under management of the end users of the
software and, to a lesser extent, license fees, customization fees and annual
maintenance fees. Costs of maintenance and customer support are charged to
expense when the related revenue is recognized, or when those costs are
incurred, whichever occurs first.
The Company has also capitalized the acquisition costs of software
acquired from third parties in connection with the development of its internal
systems. See "--Results of Operations--1996 Compared to 1995--Software
Development Costs."
Other Matters. In seeking to capture greater market share, the
Company has introduced restructured and unbundled pricing which in some
instances results in lower pricing for some of its services in certain of its
distribution channels. The Company may make additional adjustments in the
future. As a result of the restructured pricing, gross revenues as a
percentage of assets under management may decrease.
The Company anticipates that it will continue to experience operating
losses until such time, if ever, as investment management fees from managed
assets and consulting and license fees increase sufficiently to cover the
Company's increasing operating expenses. While the Company believes that it
has sufficient capital resources to meet its ongoing funding requirements,
until its products and services can generate sufficient revenues to offset
costs, there can be no assurance that the Company's products and services will
be successful, that they will generate adequate revenue to meet the Company's
capital needs or that the Company will become profitable in the future. See
"Risk Factors--Future Operating Losses May Result in Need for Additional
Capital."
BUSINESS
INDUSTRY OVERVIEW
The financial services industry has been one of the fastest growing
sectors in recent years. As the industry has grown, a substantial shift from
commission and transaction-based products to advisory and fee-based products
has occurred. Evidenced most clearly in the popularity of mutual funds,
consumer demand for investment advice and services in connection with managed
asset products has increased enormously over the past 10 years. The mutual
fund industry has grown from 1,528 funds encompassing $495 billion of assets in
1985 to 5,761 funds encompassing $2.8 trillion of assets in 1995.
Increasingly, investors are looking for expertise to assist them in
understanding the range of investment products that are currently marketed. As
such, managed account programs, such as asset allocation and wrap-fee accounts
which assist investors in developing and implementing appropriate investment
strategies, have grown significantly to service this segment of the
marketplace. Wrap programs, which offer a highly- personalized, fee-based (as
opposed to commission-based) platform for financial management, have grown to
more than $100 billion in assets at year-end 1995.
In recent years, there have been two principal objectives in the
development and marketing of asset allocation and wrap programs. First, to
improve customer service, programs were developed offering asset allocation and
professional money management services that would better position a customer's
investment portfolio. Asset allocation is a significant determinant of
successful long-term investment performance. In addition, by consolidating the
numerous
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investment services, costs of portfolio management can often be reduced as
compared to purchasing individual services in traditional a la carte fashion.
The second reason for developing these programs was to shift customer assets
from dormant custody accounts, which traded periodically and without
predictability, into predictable revenue producing assets for the sponsoring
firm. In developing a "trust building" product, wrap program sponsors provide
the following four basic functions for a customer in addition to money
management, brokerage and custody services; (i) customer evaluation, (ii) asset
allocation and investment policy development; (iii) investment management
evaluation and selection, and (iv) quarterly monitoring and reporting services.
As wrap programs have grown in size and popularity, investment
portfolio managers (those that manage individual accounts consisting of stocks
and bonds) and mutual fund distributors are increasing their involvement within
these programs. These programs give money managers and mutual funds the
ability to market themselves and participate in distribution channels of
financial planners, which in turn provide them with the opportunity to increase
their assets under management. With attention rapidly shifting to long-term
asset allocation strategies, consultant wrap assets, assets managed by
professional money managers, have grown from $60 billion in 1993 to $80 billion
in 1994 to $110 billion in 1995, while mutual fund wrap assets have grown from
$8 billion in 1993 to $12 billion in 1994 to $19 billion in 1995. In 1988,
assets in these wrap programs were estimated at less than $2 billion.
BACKGROUND OF THE COMPANY
Founded in 1986, the Company is an independent sponsor of privately
managed accounts and asset allocation and wrap programs. The majority of the
Company's revenues are derived from its individually managed wrap program,
which the Company created and has administered since 1987. In addition to its
traditional wrap program, since 1994 the Company has invested in developing a
menu of related technology-based services and has added staff to develop and
support the Company's new products. The Company's products and services are
designed to assist professional financial consultants in their efforts to
market high quality, fully diversified portfolio management products. Through
the use of technology, the Company assists third-party financial advisors such
as banks, insurance companies and brokerage firms (collectively, "Institutional
Channels") and independent financial planners ("Independent Channels"), in
allocating and diversifying a customer's investment portfolio across multiple
asset classes and investments. In respect to Institutional Channels, the
Company's products allow for a repeatable sales process which helps increase
sales productivity while ensuring compliance with the Institutional Channels'
corporate and regulatory policies.
The Company has a staff of approximately 73 people, including more
than 30 professionals, and conducts business in a number of countries. The
Company owns three subsidiaries: (i) Portfolio Management Consultants, Inc., an
investment advisory firm that is registered with the Commission and is
registered or exempt from such registration in all U.S. jurisdictions; (ii)
Portfolio Brokerage Services, Inc., a broker/dealer registered with the NASD
and all U.S. jurisdictions; and (iii) Portfolio Technology Services, Inc.,
which specializes in developing proprietary software for use in the financial
services industry.
PRODUCTS AND SERVICES
Portfolio Management Consultants, Inc.
Portfolio Management Consultants, Inc. ("PMC") a wholly owned
subsidiary of the Company, currently has four discrete but vertically
integrated product lines. Each product offered by PMC is designed to assist
professional financial consultants in various aspects of their business. The
four services are (i) Private Wealth Management(TM), PMC's individually managed
asset and wrap account program, (ii) Allocation Manager(TM), a mutual fund
asset allocation program available both on paper and through the Company's
proprietary software that provides comprehensive and detailed investment
suitability analysis, recommended allocation of assets, portfolio modeling and
rebalancing, and comprehensive portfolio performance reporting, (iii) Managed
Account Reporting Services, a portfolio accounting and reporting service that
operates as a service bureau, and (iv) Style Manager(SM), a discretionary money
management program, using style index funds and mutual funds, that offers
equity style rotation. In addition, PMC provides consulting services to
Institutional Channels and high net worth customers.
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Private Wealth Management(TM)
Private Wealth Management(TM), PMC's multi-manager institutional wrap
program, has historically been PMC's largest revenue producer. Targeted toward
customers with high net worth (typically having a portfolio larger than one
million dollars), Private Wealth Management (TM) assists financial planners in
assembling a custom-selected team of professional money managers which
precisely matches an individual investor's personal investment goals, risk
to lerance, and objectives.
Each portion of an individual's portfolio (allocated into asset
classes such as equity, fixed income and cash, and asset sub-classes such as
value, growth, large cap, small cap, and emerging markets) is managed by a
carefully selected institutional money management firm that has been chosen
from PMC's list of recommended managers as best suited to match an investor's
investment philosophy within a specific discipline. An important and
proprietary component of the Private Wealth Management(TM) program involves the
basis of selection of these money managers. PMC currently recommends a number
of independent money managers for its Private Wealth Management(TM)
multi-manager program, representing a diverse range of philosophies and styles.
These managers are chosen based largely on quantitative analysis emphasizing
return-based, multi-factor style benchmarking. High correlation to benchmark
indices, supported by positive alpha, are necessary to meet the "Preferred"
standard for manager recommendations. Also considered in manager evaluations
are historical performance, investment philosophy and style, disciplines,
employee turnover, rate of growth, accounts gained or lost, and industry
reputation. To help a customer choose and understand investment options, PMC
provides detailed profiles on money managers in the context of style and
methodology to achieve maximum investment diversification. Additionally, PMC
will provide guidance on the termination of existing managers and the
rebalancing of the customer's assets. The Company considers periodic portfolio
rebalancing decisions to be an extremely important determinant of long-term
performance. Thus, several rebalancing options are offered within PMC's
private account programs.
Private Wealth Management(TM) is marketed under both the PMC label and
private labels. Institutional Channels currently using private-label versions
of Private Wealth Management(TM) include CISC, National Financial Correspondent
Services ("NFCS"), the wholly-owned brokerage and securities clearing
subsidiary of Fidelity Management and Research, Israel Discount Bank of New
York and Republic Bank of New York. Additionally, PMC distributes Private
Wealth Management(TM) under its own name through thirty financial planning
broker-dealers and investment advisors representing more than 10,000 registered
sales professionals. To support the sales process, the Company employs a staff
of marketing representatives. The Company has a joint marketing agreement with
Schwab Institutional Management, pursuant to which a specialized version of the
Private Wealth Management(TM) program is marketed to independent investment
advisors who utilize the services of Schwab. Currently, PMC is servicing
Institutional Channels in the United States, Canada and seven Latin American
countries with many institutional money managers participating in the Company's
wrap programs.
Allocation Manager(TM)
Allocation Manager(TM), introduced in late 1995 and as an operating
product during the third quarter of 1996, is a Windows- based software program.
The program is designed to aid in the solicitation, sale, and servicing of
mutual funds, variable annuities, offshore investments and other selected
financial products. A highly-flexible program based upon theories of mass
customization, Allocation Manager(TM) has the capability of being tailored for
use by specific financial distribution channels having their own proprietary
product mix. This product assists in guiding a wide range of investors through
the complex process of choosing an appropriate combination of mutual funds.
Allocation Manager(TM) was built with the intention of being
customized by PMC's existing and prospective clients, many of whom have
proprietary families of mutual funds. As a result, Allocation Manager(TM)
supports a broad range of financial products and programs, both domestically
and globally, and can be customized to the individual requirements of
Institutional Channels.
A version of Allocation Manager(TM), called Fund Counselor(SM), is
being marketed by NFCS. Under the Fund Counselor(SM) program, NFCS will
provide brokerage, clearing and custodial services and will make the program
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available to its more than 225 bank, insurance and financial planning
broker/dealers. In addition, PMC is currently pursuing similar relationships
with other substantial distributors and securities clearing firms and will
market the Allocation Manager(TM) platform within the Schwab Institutional
Management system.
Based upon (i) the substantial growth in the mutual funds industry
over the last 15 years, (ii) investor trends in mutual fund investment and
(iii) industry expectations, management believes PMC's existing expertise and
operations will permit a smooth integration of this new program with existing
products and services offered by the Company while expanding and diversifying
the distribution channels for such products and services. Because the program
also provides educational tutorials, training modules and dynamic portfolio
modeling, Allocation Manager(TM) is much more than simply a "front-end" sales
tool. It can be positioned as a technology sale with licensing revenues to PTS
or it can be positioned, subject to applicable regulatory guidelines and
restrictions, as an investment management tool, allowing PMC to receive
asset-based pricing.
Managed Account Reporting Services
Management believes that as a result of the 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. The Company's Managed Account Reporting Service ("MARS") is used
by financial professionals in providing customers with the increasingly
important value-added services of portfolio performance reporting and
cost-based tax accounting. Essentially a service bureau/data processing
service, MARS leverages a PMC core competency, allowing PMC to sell, on a stand
alone basis, its attractive monthly and quarterly reports.
MARS provides detailed statements that include comprehensive
management reporting, account reconciliation and cost-based accounting on a
full-accrual basis. In addition, PMC provides full color, quarterly
performance reports detailing the investor's objectives and performance of each
investment strategy, money manager or mutual fund, as well as the entire
portfolio.
During 1996 PMC entered into an agreement with National Financial
Services Corporation, an affiliate of Fidelity Management and Research
("NFSC"), to manage NFSC's newly created performance reporting service called
MAPS Tool Box ("MAPS"). MAPS provides NFSC's correspondents with access to
high quality, quarterly performance reports and tax lot, cost basis and fully
accrued account statements. This service is targeted at high net worth
investors managed by financial planners and financial consultants who use the
securities clearing services of NFSC. MARS is also being marketed within the
Schwab Institutional Management system to the many investment advisors that use
Schwab's custodial services.
Style Manager(SM) Asset Management Products
Style Manager(SM) is a family of discretionary asset management
products which recommend strategies for the periodic rebalancing of both
institutional and retail investor portfolios. Through the use of Style
Manager(SM), clients portfolios are periodically rebalanced through the
rotation of U.S. equity styles (i.e., growth and value companies and large, mid
and small capitalization companies), with the intention of capturing superior
performance that results from taking advantage of certain cyclical sector
inefficiencies in the U.S. equity markets. Recommended shifts in equity
allocations are designed to move assets away from under-performing sectors into
those likely to perform best. Although Style Manager(SM) recommends shifts
within the U.S. equity markets, it does not recommend shifts between macro
asset classes such as stocks, bonds and cash, thus the program is not a market
timing program as the term is generally used. Currently, three Style
Manager(SM) versions have been developed.
Portfolio Brokerage Services, Inc.
Portfolio Brokerage Services, Inc. ("PBS"), a wholly owned subsidiary
of the Company, is registered as a broker/dealer with the NASD and in all U.S.
jurisdictions. PBS executes security transactions for certain of PMC's
privately managed account programs on behalf of its customers through the
customer's custodian bank on a delivery vs. payment basis. A self-clearing
broker/dealer, substantially all trading activity of PBS is unsolicited and
initiated by
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the independent money managers used in PMC's Private Wealth Management(TM)
program. Managers make all buy and sell decisions and place most orders with
PBS for execution. PBS executes substantially all trades through third-party
market makers. All transactions are effected on an agency basis.
Portfolio Technology Services, Inc.
Portfolio Technology Services, Inc. ("PTS"), a wholly owned subsidiary
of the Company, is a technology company dedicated to assisting the Company in
providing innovative products to the financial services industry. PTS
leverages the product knowledge of PMC to design and build integrated product
solutions to meet the challenge of consolidating products and pricing in
multiple segments of the financial services industry. As its primary
contribution to the Company, PTS has developed the sales workstation platform
used for Allocation Manager(TM) and communication interfaces to multiple
custodial systems. PTS licenses its technology and provides customization
services in support of the Company's relationship with its Institutional
Channels. The Company estimates that it has spent approximately $520,000 for
research and development activities in its last two fiscal years. Customers
bear the cost of such activities directly when software is customized for their
particular requirements. Payments by customers for this purpose during the
last two fiscal years approximated $90,000.
SIGNIFICANT RELATIONSHIPS
Most of the Company's gross revenues are generated by fees from the
Company's Private Wealth Management(TM) investment advisory programs. The
programs are marketed and sold by Institutional Channels and Independent
Channels either under the Company's name or under the "private label" of such
channel. The Company's private-label relationship with CISC accounted for
approximately 18% of the Company's gross revenues during 1996. CISC recently
restructured its business, which restructuring has materially and adversely
affected the gross revenues derived from that relationship during 1996. While
the Company has no reason to believe that its current investment advisory
relationships will not continue to generate revenues for the Company consistent
with prior years, other than that with CISC as discussed above, there can be no
assurance that such will be the case. Assets under management for CISC and
related revenues have remained stable since completion of the CISC
restructuring.
Pursuant to a joint marketing agreement between the Company and Schwab
Institutional Management, a specialized version of the Private Wealth
Management(TM) program is being marketed as an optional additional service to
independent registered investment advisors ("RIAs") who utilize the services of
Schwab Institutional Management. Schwab provides custody and clearing services
for independent RIAs. With respect to Schwab Institutional Management's RIA
customers who determine to use the Company's products and services, Schwab
Institutional Management will provide brokerage, custody and securities
clearing services while PMC will provide asset allocation, money manager due
diligence, monthly and quarterly reporting, sales support and training.
The Company is continuing to target other means of distribution, and
has executed selling agreements with new Institutional Channels for its
products. Examples of the new relationships include MONY Securities
Corporation and Farwest Advisory Services, Inc., the investment advisory
affiliate of Investment Centers of America. MONY Securities Corporation will
use Allocation Manager(TM) to sell its proprietary fund family, The Enterprise
Funds, while Farwest will market PMC's "off-the-shelf" program to sell mutual
funds selected by PMC.
COMPETITION
In offering services through its Institutional and Independent
Channels, the Company competes with other firms that offer wrap and managed
account programs. These distribution channels in turn compete with banks,
insurance companies, large securities brokers and other financial institutions
which offer wrap or managed account programs to the public. The Company
believes that firms compete in this market primarily on the basis of service,
since the wrap fees charged by others are similar to those charged by the
Company. While a number of firms each provide a portion of the services
provided by the Company through its Institutional Channels, the Company
believes it is one of a few firms offering integrated services to customers.
Firms that compete with the Company in providing services to its Independent
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Channels and Institutional Channels have more financial resources and greater
recognition in the financial community than the Company. Competitors may
reduce the fees charged for wrap or managed account programs or pursue other
competitive strategies that could have an adverse impact on the Company.
The Company's success is in large part a function of the Independent
Channels and Institutional Channels through which its services are offered to
others. There are many alternatives to wrap programs that are being offered to
the public, such as life cycle funds, asset allocation funds, portfolio
strategies and third-party asset allocation services, and these services are
competitive with those offered by the Company. As financial institutions
continue to grow and build in-house asset administration service capabilities,
some will be able to provide these services internally rather than using
outsourcing providers. Competitors may succeed in developing products and
services that are more effective than those that have been or may be developed
by the Company and may also prove to be more successful than the Company in
developing these products and marketing these services to third-party asset
managers. The Company does not offer its products online because its does not
believe the nature of its products and services are compatible with that method
of distribution.
GOVERNMENT REGULATION
The Company's business falls entirely within the securities industry,
an industry which is heavily regulated by the federal and state governments.
New regulatory changes affecting the securities industry could adversely affect
the Company's business. In addition, as an investment adviser and a
broker/dealer, the Company's subsidiaries are subject to regulation by the
Commission, the NASD and state regulatory agencies. Consequently, the Company
could become subject to restrictions or sanctions from the Commission, the NASD
or such state regulatory agencies. It is impossible to predict the direction
future regulations will take or the effect of such regulations on the Company's
business.
CORPORATE HISTORY
Acquisition of Schield Management Company
In September 1993 Portfolio Management Consultants, Inc. ("PMC")
merged with Schield Management Company ("Schield"), a publicly traded market
timing firm, in a share exchange. In that transaction, all operating assets of
Schield were divested prior to the merger and it was treated as a reverse
acquisition of Schield by PMC. Schield's name was changed to PMC
International, Inc. and PMC became a wholly owned subsidiary of the Company,
with PMC's shareholders receiving shares in the publicly held company.
SEC Investigation and Settlement
During November 1993, the staff of the Commission began an examination
of PMC and in January 1994, the Commission issued a "Formal Order of
Investigation." In April 1994, the staff of the Commission made a formal
enforcement recommendation against PMC, its President Mr. Kenneth S. Phillips
and its former Chief Executive Officer, Mr. Marc Geman. Mr. Geman terminated
his association with the Company to pursue other interests at the closing of
the initial Bedford Loan (as hereinafter defined) in July, 1995. The
recommendation alleged that PMC and such officers had violated anti-fraud
provisions of the Securities Act, the Exchange Act and the Investment Adviser's
Act of 1940 and the record keeping requirements of the Exchange Act.
Over the course of the following two years the Company committed
significant resources to its defense and the defense of its officers. The case
addressed issues associated with disclosures and standards of "best execution"
in advisory and wrap programs. The investigation adversely affected the
Company's new business development activities
14
<PAGE> 18
during the period, as very few firms were willing to develop relationships with
the Company while an enforcement recommendation was pending.
On June 27, 1996, PMC and Mr. Phillips announced that they had reached
a settlement agreement with the Commission. Pursuant to the settlement
agreement, PMC and Mr. Phillips, without admitting or denying the Commission's
allegations, consented to an Order whereby PMC agreed to engage a compliance
executive and to refund net principal trading profits together with prejudgment
interest thereon, in an amount to be determined by an independent accountant.
The net trading profits were determined to be $457,000, plus $146,000 of
interest through the date of payment. The refund process was completed in May
1997. In addition, Mr. Phillips agreed to a censure and payment of a $25,000
fine.
Bedford
In July 1995, the Company entered into a transaction with Bedford
pursuant to which Bedford loaned $1.2 million to the Company and received an
option to loan up to an additional $1.8 million to the Company for a specified
period of time and pursuant to certain call provisions. Each dollar loaned
carried a ten-year warrant to purchase one share of the Common Stock at an
exercise price of $1.00 per share. In connection with this funding and the
related shareholder and investment agreements, Bedford received certain rights
including, but not limited to, the right to elect two of the Company's five
directors, the right to receive options that mirrored certain issuances or
option grants by the Company, and a security interest in all assets of the
Company and its subsidiaries. Contemporaneously with the closing of the July
1995 transaction with the Company, Bedford also purchased 1.0 million shares of
the Common Stock from Mr. Geman, the former chief executive officer of the
Company who was a subject of the investigation by the staff of the Commission.
Between July 1995 and July 1996, the Company obtained the full $3.0 million
financing from Bedford and certain assignees of Bedford (the "Bedford Loans").
In addition, the Company granted to Bedford certain other rights in
connection with future debt and equity financings which included a right of
first negotiation regarding future fundings, a 30-day exclusive negotiation
period, and a right of first refusal to match unsolicited offers for financing.
The Company also agreed to pay a $100,000 annual monitoring fee to Nevcorp
Inc., which is owned by J.W. Nevil Thomas, who has been designated by Bedford
to serve on the Company's Board of Directors.
The Company's relationship with Bedford was restructured in December
1996. See "--December 1996 Restructuring."
December 1995 and June 1996 Offerings
In December 1995 and January 1996, the Company issued a total of 482.5
units through a private offering (the "December 1995 Offering"), with each unit
consisting of a convertible promissory note with a principal amount of $1,000
and a warrant to purchase 1,000 shares of common stock at an exercise price of
$1.00 per share. During June 1996 the Company issued an additional 1,017.5
units through another private offering (the "June 1996 Offering") under
substantially the same terms. These private offerings were issued primarily to
employees, business associates and affiliates of the Company or Bedford. The
purchasers of units in the December 1995 and June 1996 Offerings received
registration rights with respect to the shares of Common Stock underlying the
warrants.
Phillips & Andrus, LLC; KP3, LLC
Phillips & Andrus, LLC, a Colorado limited liability company ("P&A"),
was formed in July 1995 to acquire 1,643,845 shares of Common Stock from Mr.
Geman in exchange for a promissory note issued to Mr. Geman in the amount of
$2,015,000. The promissory note was secured by the Common Stock acquired.
While Mr. Phillips, President and Chief Executive Officer of the Company, and
David L. Andrus, Executive Vice President of the Company, were the members of
P&A, substantially all of the membership interests in P&A were owned by Mr.
Phillips. In October 1996, affiliates of Bedford loaned P&A funds to make
the initial interest payments on the note owed to Mr. Geman.
15
<PAGE> 19
In December 1996, after notifying its shareholders of the proposal to do so,
the Company loaned a total of $250,000 to P&A to repay principal owed under the
promissory note to Mr. Geman.
In January 1997 P&A was liquidated and the assets of P&A, consisting
of the 1,643,945 shares of Common Stock, were transferred, subject to certain
liabilities, to KP3, LLC, a Colorado limited company ("KP3"), the members of
which are Mr. Phillips and a custodian for Mr. Phillips' son. Mr. Phillips
owns substantially all of the membership interests in KP3. Also in January
1997, KP3 obtained a bank loan in the amount of $1,750,000 for a term of
approximately 12 months (the "KP3 Loan"), the proceeds of which were used (i)
to repay the loans made to P&A by the Company and certain affiliates of
Bedford, and (ii) to prepay the balance of the principal and all interest owing
under the promissory note to Mr. Geman. The Company pledged certain collateral
for the KP3 Loan, currently valued at approximately $1,900,000, and KP3 agreed
to reimburse the Company for any amount paid by it toward the KP3 Loan. KP3's
reimbursement obligation is secured by a pledge of all 1,643,845 shares of
Common Stock held by KP3.
Bedford and certain of its affiliates have an option, exercisable
through July 26, 2000, to acquire a total of 335,000 shares of Common Stock
currently owned by KP3 for an aggregate purchase price of $410,637.85,
increasing at a rate of 9% per annum subsequent to July 27, 1995.
November 1996 Bridge Loan
In November 1996, the Company borrowed $250,000 (the "November 1996
Loan") to fund its working capital requirements pending closing of the December
1996 Offering (as defined below). Half of the loan was provided by Keefe,
Bruyette & Woods, Inc. ("KBW"), placement agent in the December 1996 Offering,
and the balance by certain members of management of the Company and a
subsidiary of Bedford. The lenders received five-year warrants to purchase an
aggregate of 25,000 shares of the Common Stock. The warrants have an exercise
price of $1.625 per share. The lenders received registration rights with
respect to the Common Stock to be issued upon exercise of the warrants. The
November 1996 Loan was repaid in December 1996 from the proceeds of the
December 1996 Offering.
December 1996 Offering
In December 1996 the Company completed a private placement of
5,177,000 shares of Common Stock at a price of $2.125 per share (the "December
1996 Offering"). A portion of the proceeds of the December 1996 Offering were
used (i) to repay interest due and owing on the promissory notes issued in
connection with the December 1995 and June 1996 Offerings, including the notes
held by the father and brother of Mr. Phillips, the Company's Chief Executive
Officer, Mr. Andrus, the Company's Executive Vice President, and certain
employees of the Company, (ii) to repay interest due and owing under the
Bedford Loans, (iii) to repay a portion of the principal on the Bedford Loans
and (iv) to repay the November 1996 Loan (including the notes held by Mr.
Phillips, Mr. Andrus and certain other members of the Company's management).
December 1996 Restructuring
Simultaneous with the closing of the December 1996 Offering, the
Company completed a restructuring of its debt and a partial restructuring of
its outstanding Preferred Stock. The restructuring involved (i) the payment of
all outstanding interest on the Bedford Loans, the repayment to Bedford and its
assignees of $1,976,250 of outstanding principal on the Bedford Loans, the
exercise by Bedford and its assignees of warrants to purchase 1,023,750 shares
of Common Stock and the delivery by Bedford and its assignees of canceled
promissory notes in the amount of $1,023,750 in satisfaction of the exercise
price of the warrants, the cancellation of the remaining warrants to Bedford
and its assignees, and the issuance to Bedford and its assignees of new
warrants to purchase up to 150,000 shares of Common Stock at an exercise price
of $2.125 per share; (ii) the issuance of 1,500,000 shares of Common Stock upon
the exercise of warrants issued to investors in connection with the Company's
private placement of promissory notes and warrants in the December 1995 and
June 1996 Offerings, the delivery of canceled promissory notes in the aggregate
principal amount of $1,500,000 in satisfaction of the exercise price of such
warrants, the payment by the Company of all outstanding interest due and owing
on such notes as of the exercise date and the issuance to the holders of such
warrants of new warrants to purchase up to 150,000 shares of Common Stock;
(iii) the repayment of the November 1996 Loan, and (iv) the conversion
16
<PAGE> 20
of 173,120 shares of the Company's Preferred Stock into 238,043 shares of
Common Stock, resulting in a reduction in the Company's cumulative dividend
obligation to the holders of Preferred Stock from $583,576 as of September 30,
1996 to $322,700 as of as of January 31, 1997. A portion of the conversion of
shares of the Company's Preferred Stock into Common Stock was effected in
January 1997. The new warrants issued by the Company to Bedford and others
pursuant to clauses (i) and (ii) are referred to hereafter as the "New
Warrants."
The New Warrants are exercisable over a period of five years, at an
exercise price of $2.125 per share. Registration rights were granted with
respect to the Common Stock received upon the exercise of the old warrants and
the shares of Common Stock underlying the New Warrants. The New Warrants
contain adjustment provisions relating to the exercise price per share and the
number of shares of Common Stock to be issued upon their exercise in the event
of issuances of additional shares of Common Stock (including through the
issuance of options, rights or warrants to purchase Common Stock or securities
convertible into Common Stock) by the Company at a price below market price,
certain extraordinary dividends and distributions on the Common Stock, stock
splits or other reclassifications of the outstanding shares of Common Stock,
and any merger, consolidation or reorganization involving the Company or a
transfer by the Company of substantially all of its assets or properties.
PROPERTIES
The Company leases approximately 20,000 square feet of office space
for its corporate headquarters 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 this office space. The Company also leases
approximately 1800 square feet of office space in Boulder, Colorado, primarily
for its subsidiary PTS. The Company pays approximately $2,500 per month for
this office space. The lease for the Company's Boulder office expires in 1998.
EMPLOYEES
The Company and its subsidiaries has a staff of approximately 73
persons as of May 20, 1997, including more than 30 professionals. None of the
Company's employees are subject to a collective bargaining agreement. The
Company's management believes that the Company's relationship with its
employees is good.
LEGAL PROCEEDINGS
In June 1996, the Company reached a settlement with the Commission in
connection with an investigation of certain trading practices of PMC. See
"Business--Corporate History--SEC Investigation and Settlement." The Company
is not aware of any material legal proceedings or investigations currently
pending or threatened against the Company.
17
<PAGE> 21
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
Company's directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Kenneth S. Phillips 45 President, Chief Executive Officer and Director
David L. Andrus 44 Executive Vice President and Director
Vali Nasr 42 Chief Financial Officer and Treasurer
J. W. Nevil Thomas 58 Chairman of the Board of Directors
D. Porter Bibb 59 Director
Emmett J. Daly 31 Director
</TABLE>
Kenneth S. Phillips--President and CEO, Director. Mr. Phillips
founded PMC in 1986 and serves as the President and Chief Executive Officer of
the Company. Mr. Phillips is responsible for corporate direction, product
development and strategic planning. He was co-founding participant in the
Wilshire cooperative in 1986 (associated with the institutional consulting firm
Wilshire Associates). He served as Chairman of the Publications Committee of
the Investment Management Consultants Association ("IMCA") in 1994 and 1995, as
a member of IMCA's officer and director Nominating Committee in 1994 and 1996,
and has recently been elected to serve as a member of IMCA's Advisory Council.
IMCA is the investment consulting industry's principal trade organization with
more than 1,200 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,
the Investment Management Institute and the Institute for International
Research. Mr. Phillips received his education at Colorado State University and
holds numerous NASD license designations.
David L. Andrus--Executive Vice President, Director. Mr. Andrus
joined PMC in September, 1995 as a Director and Executive Vice President of the
Company and as President of PTS, the Company's technology and software
applications development subsidiary. For the twelve years prior to joining
PMC, Mr. Andrus was chairman of Netwise, Inc., an international software firm
that featured distributed processing products for local area networks.
Netwise's clients included Fortune 500 international firms which sought to
exploit enterprise-wide processing systems seamlessly, through the integration
of P.C. based technology with legacy systems. At Netwise, Mr. Andrus was
responsible for all business development, strategic relationships,
international sales channels and for establishing the general technical
direction of the firm and its products. Netwise was sold to Microsoft Corp. in
1995. With more than 17 years of experience in product development, computer
engineering and consulting, Mr. Andrus served as Director of Systems
Architecture for the Advanced Systems Group at Burroughs Corporation. He was
responsible for the design of a state-of-the-art 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--Chief Financial Officer, Treasurer. Mr. Nasr joined PMC in
1992 as the Company's Chief Financial Officer, financial Principal and
Treasurer. Since September, 1995, Mr. Nasr has been President of PBS, the
Company's wholly owned subsidiary. Prior to joining the Company, Mr. Nasr was
Vice President of Finance for a large, 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 accounting
department. He received his B.A. in Accounting from the University of
California, Berkeley and M.B.A. in finance from Golden Gate University.
J. W. Nevil Thomas--Chairman of the Board of Directors. Mr. Thomas
has been a Director of the Company since July 1995. Since 1970 Mr. Thomas has
served as President of Nevcorp, Inc., an investment and a financial and
18
<PAGE> 22
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 an M.A. in Economics
from Queens University and is a Certified Financial Analyst.
D. Porter Bibb--Director. Mr. Bibb became a Director of the Company
in October 1995. Mr. Bibb is a Managing Director 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. In addition to being a Director
of the Company, Mr. Bibb is a Director of East Wind Group, Inc. 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.
Emmett J. Daly--Director. Mr. Daly became a Director of the Company
in February 1997. Mr. Daly is currently Senior Vice President of Corporate
Finance of Keefe, Bruyette & Woods, Inc., an investment banking firm that Mr.
Daly joined in 1987 as an Associate in the Corporate Finance Department.
Before that time he spent two years as Credit Analyst followed by one year as
an Assistant Treasurer of Manufacturers Hanover Trust Company. Mr. Daly
received a B.A. in Economics from College of the Holy Cross and his M.B.A from
the Kenan Flager School of Business at University of North Carolina, Chapel
Hill.
The Bylaws of the Company were amended in December 1996 to set the
number of members of the Board of Directors at seven. Under subscription
agreements with investors in the December 1996 Offering, those investors are
entitled to designate one director and one additional director is to be
mutually acceptable to the Company and such investors. The mutually acceptable
director is currently Emmett J. Daly, a Senior Vice President of KBW. The
director to be designated by the investors has not yet been appointed.
Under a Shareholders Agreement among Bedford, the Company, Mr.
Phillips, Mr. Andrus and P&A, (i) Bedford is entitled to designate one director
and one additional director is to be reasonably acceptable to Bedford and
Messrs. Phillips and Andrus and (ii) Messrs Phillips and Andrus are entitled to
designate three directors, including one member of senior management designated
after the date of the agreement. Mr. Thomas is currently the director
designated by Bedford and Messrs. Phillips and Andrus are two of the three
directors they are entitled to designate. The director acceptable to Bedford
and Messrs. Phillips and Andrus is currently Mr. Bibb. The remaining director,
who is to be a member of senior management, has not yet been designated by
Messrs. Phillips and Andrus.
19
<PAGE> 23
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 of its other executive officers at the end of
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
------ ---------
COMPENSATION COMPENSATION
------------ ------------
Options Granted(1)
---------------
Name and Principal Position Fiscal Year Salary
--------------------------- ----------- ------
<S> <C> <C> <C>
Kenneth S. Phillips 1996 $252,000 50,000
President, Chief Executive Officer 1995 228,124
1994 241,774
David L. Andrus(2) 1996 $240,000 1,050,000
Executive Vice President 1995 40,000
Vali Nasr 1996 $139,015 50,000
Chief Financial Officer & Treasurer 1995 126,475
1994 128,262
</TABLE>
__________________________
(1) The shares of Common Stock to be received upon the exercise of all stock
options granted during the period covered by the Table.
(2) Mr. Andrus joined the Company in 1995.
During the year ended December 31, 1996, the Company granted to its Chief
Executive Officer and the other executive officers listed in the Summary
Compensation Table options to acquire a total of 1,150,000 shares of Common
Stock as set forth in the following table.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Percentage of Total
Number of Shares Options Granted to
Underlying Options Employees in
Name Granted Fiscal Year Exercise Price Expiration Date
---- ------------------ --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Kenneth S. Phillips 50,000 4.2% $1.00 6/7/2001
David L. Andrus 800,000 87.5% $1.5625 (1)
200,000 $2.125 12/17/2002
50,000 $1.00 6/7/2001
Vali Nasr 50,000 4.2% $1.00 3/31/2001
</TABLE>
_______________________
20
<PAGE> 24
(1) Options expire 24 months after Mr. Andrus leaves the employ of the
Company.
The following table sets forth certain information with respect to
options exercised during the year ended December 31, 1996 by those officers
listed in the Summary Compensation Table.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Acquired on Options at FY End Money Options at FY End
Name Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Kenneth S. Phillips 0 0 20,000/30,000 $22,500/$33,750
David L. Andrus 0 0 295,000/755,000 $168,830/$513,750
Vali Nasr 0 0 50,000/0 $56,250/$0
</TABLE>
COMPENSATION OF DIRECTORS
During 1996, the Company did not pay its employee directors for
attending board meetings. Each of the three outside directors received a
$5,000 annual retainer and a $500 fee for each meeting attended. The Company
reimburses all of its directors for travel and out-of-pocket expenses in
connection with their attendance at meetings of the Board of Directors. On
June 7, 1996, each member of the Board of Directors was granted options to
purchase 50,000 shares of Common Stock at an exercise price of $1.00 per share.
Such options expire five years from the date of grant and vest 20% at such time
as the average bid and offer price for the Common Stock equals $1.00, $2.00,
$3.00, $4.00 and $5.00, respectively, for twenty consecutive trading days.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Mr. Phillips, its President
and Chief Executive Officer, and Mr. Andrus, its Executive Vice President. The
Agreement with Mr. Phillips is dated July 26, 1995 and is for a three
year-term. Either party may terminate the agreement upon 90 days' prior
notice. The agreement provides for a minimum salary of $240,000 ($300,000 if
the Company has pre-tax profits of at least $1,000,000), 40% of the annual
bonus pool (equal to 10% of the Company's pre-tax profits), a car allowance,
and participation in the Company's other benefit plans. If the Company
terminates the agreement without cause, it will be obligated to make severance
payments to Mr. Phillips in an amount equal to two-years' compensation. In
addition, the agreement provides that any options granted to Mr. Phillips vest
immediately upon his death or upon a change in control of the Company.
The Agreement with Mr. Andrus is dated July 26, 1995 and was amended
in December 1996. It provides for a three year-term ending November 1998.
Either party may terminate the agreement upon 90 days' prior notice. The
agreement provides for a minimum salary of $240,000, options to acquire
1,000,000 shares of Common Stock, and participation in the Company's other
benefit plans. If the Company terminates the agreement without cause, it will
be obligated to make severance payments to Mr. Andrus in an amount up to
one-years' compensation. In addition, the agreement provides that all options
granted to Mr. Andrus vest immediately upon a change in control of the Company.
21
<PAGE> 25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and related notes contain information concerning
beneficial ownership of the Company's Common Stock as of December 31, 1996 by
(i) each person known by the Company to own beneficially more than five percent
of the Common Stock, (ii) each director of the Company, (iii) each executive
officer of the Company named in the Summary Compensation Table, and (iv) all
directors and executive officers of the Company as a group. The share amounts
in this table reflect shares of Common Stock issuable upon the exercise of
options and warrants exercisable within the next 60 days. All parties listed
below are also Selling Shareholders. See "Selling Shareholders."
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Class
---------------- ---------------- ----------------
<S> <C> <C>
Kenneth S. Phillips(1) . . . . . . . . . . . . . . . . 3,074,767(8)(9) 21.1 %
David L. Andrus(1) . . . . . . . . . . . . . . . . . . 687,000(9)(10) 4.5
J.W. Nevil Thomas(2) . . . . . . . . . . . . . . . . . 20,000(9)(11) *
D. Porter Bibb(3) . . . . . . . . . . . . . . . . . . . 20,000(9)(12) *
Emmett J. Daly(4) . . . . . . . . . . . . . . . . . . . 16,000 *
Vali Nasr(1) . . . . . . . . . . . . . . . . . . . . . 120,497(13) *
Bedford Capital Financial Corporation(5) . . . . . . . 2,971,250(14) 20.5
KP3, LLC(1) . . . . . . . . . . . . . . . . . . . . . . 1,643,845(15) 11.3
Bay Pond Partners, L.P.(7). . . . . . . . . . . . . . . 1,082,000 7.5
Bay Pond Investors (Bermuda), Ltd.(7) . . . . . . . . . 941,000 6.5
Wheatley Partners, L.P.(6) . . . . . . . . . . . . . . 941,000 6.5
All Officers and Directors as a group (6 persons). . . 3,922,264 25.6
- -----------------------
</TABLE>
* Less than 1%.
(1) The address of Mr. Phillips, Mr. Andrus, Mr. Nasr and KP3, LLC is 555
Seventeenth Street, 14th Floor, Denver, Colorado 80202.
(2) The address of Mr. Thomas is Scotia Plaza, Suite 4712, 40 King Street
West, Toronto, Ontario M5H 3Y2.
(3) The address of Mr. Bibb is 540 Madison Avenue, New York, New York 10022.
(4) The address of Mr. Daly is Two World Trade Center, 85th Floor, New York,
New York 10048.
(5) The address of Bedford Capital Financial Corporation is 2nd Floor,
Charlotte Hs., Shirly Street, Box N964, Nassau, Bahamas.
(6) The address of Wheatley Partners, L.P. is 80 Cutter Mill Road, Suite 311,
Great Neck, New York 11021.
(7) The address of Bay Pond Partners, L.P. and Bay Pond Investors (Bermuda),
Ltd. is c/o Wellington Management Company, L.L.P., 75 State Street,
Boston, Massachusetts 02109.
(8) Includes 1,643,845 shares owned by KP3, of which Mr. Phillips is the
managing member and has the controlling ownership interest and 5,500
shares underlying presently exercisable warrants.
(9) Includes 20,000 shares underlying presently exercisable options.
(10) Includes 567,000 shares underlying presently exercisable options.
(11) Does not include shares owned by Bedford of which Mr. Thomas is a
director and a 5.77% shareholder.
(12) Does not include 200,000 shares underlying presently exercisable options
granted to Ladenburg, Thalmann & Co., Inc., of which Mr. Bibb is a
managing director.
(13) Includes 50,000 shares underlying presently exercisable option.
(14) Includes 136,250 shares underlying presently exercisable options or
warrants issued by the Company and 235,000 shares owned by KP3 and
included in the beneficial ownership of Mr. Phillips that Bedford may
acquire pursuant to a presently exercisable option.
(15) Shares beneficially owned by KP3 are also included in shares beneficially
owned by Mr. Phillips; and 235,000 of such shares also have been included
in the beneficial ownership of Bedford.
22
<PAGE> 26
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. D. 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
Common Stock. Mr. J.W. Nevil Thomas and another affiliate of Bedford were
appointed to the Company's Board of Directors in connection with that
transaction. See "Business--Corporate History--Bedford."
Also in July 1995, the Company's then Chief Executive Officer and a
director, Marc Geman, resigned. In connection with his resignation, Mr. Geman
was entitled to severance payments totaling $180,000, due in monthly payments
of $15,000. As of December 31, 1996, Mr. Geman had received all of the
severance payments to which he was entitled. The Company also entered into an
Indemnification Agreement with Mr. Geman whereby the Company agreed to hold him
harmless, in an amount not to exceed $100,000, for expenses incurred in defense
of the pending investigation by the Commission. As of December 31, 1996, a
total of $50,786 in indemnification payments had been made by the Company under
that agreement.
David L. Andrus, Executive Vice President of the Company, participated
in the June, 1996 offering of debt securities and warrants. See
"Business--Corporate History." Mr. Andrus purchased $100,000 of subordinated
debt and received a promissory note and warrants to purchase 100,000 shares of
Common Stock. In addition, certain employees of PMC participated in the
offering, purchasing a total of $162,500 of subordinated debt and receiving
warrants to purchase 162,500 shares of Common Stock. Mr. Andrus and the other
Company employees participated in the offering on the same terms as all other
investors.
In November 1996 the Company borrowed $250,000 (the "November 1996
Loan") to fund working capital requirements pending the closing of a
private placement of Common Stock in December 1996. The lenders included Mr.
Phillips and Mr. Andrus, the Company's President and CEO and Executive Vice
President, respectively, and certain other employees of the Company. Bedford,
a shareholder affiliate of the Company, and Keefe, Bruyette & Woods, Inc., the
placement agent for the December 1996 Offering, were also lenders. The loans
were evidenced by 12% notes to be repaid on the earlier of the closing of the
December 1996 Offering or March 31, 1997. The lenders also received warrants
to purchase a total of 25,000 shares of Common Stock at a price of $1.625 per
share and registration rights with respect to the shares of Common Stock
underlying the warrants.
In December 1996, the Company completed a restructuring of its
outstanding debt. As part of the restructuring, Bedford and certain of its
assignees were repaid certain of the subordinated debt held by them, exercised
certain of the warrants held by them, were issued certain shares of Common Stock
by the Company in cancellation of their other warrants and were issued new
five-year warrants to purchase 150,000 shares of the Common Stock with an
exercise price equal to the price to investors in the December 1996 Offering.
As a result of these transactions, all $3 million in outstanding debt
previously owed by the Company to Bedford and its assignees has been eliminated
and Bedford now beneficially owns Common Stock representing approximately 26%
of the outstanding Common Stock. Bedford has also relinquished certain rights
held by it and its right to elect directors of the Company has been modified
such that Bedford now has the right to designate one director so long as it
holds at least 10% of the outstanding Common Stock. In addition, at least one
additional director must be acceptable to Bedford and the Company so long as
Bedford owns at least 5% of the outstanding Common Stock. Bedford also
retained demand and piggyback registration rights with respect to restricted
securities acquired by it from the Company. In connection with the
restructuring, the Company's consulting agreement with Nevcorp, Inc., was
terminated. See "Business--Corporate History--December 1996 Restructuring."
23
<PAGE> 27
In connection with the December 1996 restructuring, the investors in
the December 1995 and June 1996 Offerings exercised their warrants to purchase
an aggregate of 1,500,000 shares of Common Stock and surrendered canceled
promissory notes in the aggregate principal amount of $1,500,000 in
satisfaction of the exercise price for the warrants. In connection with the
exercise of warrants and cancellation of debt, the investors also received, pro
rata, five-year warrants to purchase an aggregate of 150,000 shares of Common
Stock at an exercise price of $2.125 per share. The brother and father of
Mr. Phillips, the Company's President and Chief Executive Officer, Mr. Andrus,
Executive Vice President of the Company, and certain other employees of the
Company, participated in the restructuring on the same terms as the other
parties.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock,
$0.01 par value. As of January 31, 1997, the Company had 14,552,614 shares of
Common Stock issued and outstanding with rights, options and warrants
outstanding which could require the Company to issue 3,586,500 additional
shares of Common Stock.
COMMON STOCK
Holders of Common Stock are each entitled to cast one vote for each
share held of record on all matters presented to the shareholders. Cumulative
voting is not allowed; hence, the holders of a majority of the outstanding
Common Stock can elect all directors. Holders of Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors out of
funds legally available therefor and, in the event of liquidation, and subject
to the rights of the holders of Preferred Stock, to share pro-rata in any
distribution of the Company's assets after payment of liabilities. No
dividends may be paid on the Common Stock unless dividends payable on the
Preferred Stock are current. The Board of Directors is not obligated to
declare a dividend and it is not anticipated that dividends will be paid in the
foreseeable future.
Holders of Common Stock do not have preemptive rights to subscribe to
additional shares of capital stock if issued by the Company. There are no
conversion, redemption, sinking fund or similar provisions regarding the Common
Stock. All of the outstanding shares of Common Stock are fully paid and
non-assessable.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred
stock. Under Colorado law, the rights, preferences and limitations of the
preferred stock may be established from time to time by the Company's Board of
Directors. The Company's Articles of Incorporation provide that the Board of
Directors has the authority to divide the preferred stock into series and,
within the limitations provided by Colorado statute, to fix by resolution the
voting power, designation preferences, and relative participation, optional or
other special rights, and the qualifications, limitations or restrictions of
the shares of any series so established.
As of the date of this Prospectus, the only series of preferred stock
to be designated and issued were shares of Series A Preferred Stock, of which
138,182 shares are issued and outstanding.
Holders of the Preferred Stock are entitled to receive dividends at a
rate of $.325 per share per annum. Dividends are payable semi-annually on
January 15 and July 15 in each year, but only when and as authorized by the
Board of Directors of the Company out of assets legally available for
dividends. Dividends accrue from the date of issuance of the shares and are
cumulative. The first dividend due on July 15, 1991, was paid. The preferred
dividends due subsequently have not been paid by the Company, and as a result,
the dividends have cumulated.
Upon liquidation or dissolution of the Company, holders of the
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
24
<PAGE> 28
Preferred Stock ($2.50), plus all unpaid cumulative dividends. As of March
31, 1997, unpaid cumulative dividends in arrears with respect to the Preferred
Stock amounted to $253,509. The Preferred Stock is non-participating and the
holders of the 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 any time at a price of $2.75 per share, plus unpaid
cumulative dividends, upon 45 days prior written notice. Redemption can only
occur if certain conditions, which have not occurred as of the date of this
Prospectus, are satisfied
The Company may, in the future, issue other series of preferred stock
having terms established by the Company's board of directors without requiring
the approval of holders of the Common Stock. Any such issuance of preferred
stock could make removal of the Company's management more difficult than at
present. The provisions relating to preferred stock will make the removal of
management more difficult even if such removal would be considered beneficial
to shareholders generally, and may have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers whether
or not such transactions are favored by incumbent management. Because the
Board of Directors has authority to establish the terms of the preferred stock,
such stock could be issued to defend against an attempted takeover of the
Company.
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
Selling Shareholders and the Shares offered by the Selling Shareholders
pursuant to this Prospectus. Of the 14,194,206 Shares offered hereby for
resale by the Selling Shareholders, 1,279,500 Shares represent shares of Common
Stock to be issued upon the exercise of presently issued and exercisable
warrants and options. See "Description of Capital Stock." As more fully
disclosed in the footnotes to this table, certain of the Selling Shareholders
are currently, or have been within the past three years, officers or directors
of the Company or have had other material relationships with the Company.
Because the Selling Shareholders may offer all or some portion of the Shares
pursuant to this Prospectus, no estimate can be given as to the amount of the
Shares that will be held by the Selling Shareholders upon termination of any
such offering.
<TABLE>
<CAPTION>
Ownership of Ownership of
Ownership of Common Stock Common Stock
shares of after sale of the after sale of the
Common Shares Shares
Stock Prior to Amount of
Selling Shareholders Sale of Shares Shares Offered Number Percent
-------------------- -------------- -------------- ------ -------
<S> <C> <C> <C> <C>
Bay Pond Partners, L.P. . . . . . . . . . 1,082,000 1,082,000 0 0
Bay Pond Investors (Bermuda), L.P. . . . 941,000 941,000 0 0
Wheatley Partners, L.P. . . . . . . . . . 886,000 886,000 0 0
Keefe, Bruyette & Woods, Inc. . . . . . . 588,500 588,500 0 0
Financial Services Hedge Fund, L.P. . . . 141,000 141,000 0 0
Wheatley Foreign Partners L.P. . . . . . 55,000 55,000 0 0
The Common Fund . . . . . . . . . . . . . 188,000 188,000 0 0
(Other Selling Shareholders)
</TABLE>
25
<PAGE> 29
PLAN OF DISTRIBUTION
The Selling Shareholders' Shares may be offered and sold from time to
time in the discretion of the Selling Shareholders in the over-the-counter
market, or otherwise, at prices and terms then prevailing or at prices related
to the then-current market price, or in negotiated transactions. The Selling
Shareholders will act independently of the Company in making decisions with
respect to the timing, manner and size of each sale hereunder. The Selling
Shareholders' Shares may be sold by one or more of the following methods,
without limitation: (a) a block trade in which a broker or dealer so engaged
will attempt to sell the Shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchases; and (d) face-to-face
transactions between sellers and purchasers without a broker/dealer. In
effecting sales, brokers or dealers engaged by the Selling Shareholders may
arrange for other brokers or dealers to participate. Such brokers or dealers
may receive commissions or discounts from Selling Shareholders in amounts to be
negotiated. Such brokers and dealers and any other participating brokers or
dealers may be deemed to be "underwriters'' within the meaning of the
Securities Act, in connection with such sales.
Sales of Selling Shareholders' Shares may also be made pursuant to
Rule 144 under the Securities Act, where applicable. The Shares may also be
offered in one or more underwritten offerings, on a firm commitment or best
efforts basis. The Company will receive no proceeds from the sale of the
Shares by the Selling Shareholders. The Shares may be sold from time to time
in one or more transactions at a fixed offering price, which may be changed, or
at varying prices determined at the time of sale or at negotiated prices. Such
prices will be determined by the Selling Shareholders or by agreement between a
Selling Shareholder and its underwriters, dealers, brokers or agents.
To the extent required under the Securities Act, the aggregate amount
of Shares being offered and the terms of the offering, the names of any such
agents, brokers, dealers or underwriters and any applicable commission with
respect to a particular offer will be set forth in an accompanying Prospectus
Supplement. Any underwriters, dealers, brokers or agents participating in the
distribution of the Shares may receive compensation in the form of underwriting
discounts, concessions, commissions or fees from a Selling Shareholder and/or
purchasers of Shares, for whom they may act. In addition, sellers of Shares
may be deemed to be underwriters under the Securities Act and any profits on
the sale of Shares by them may be deemed to be discount commissions under the
Securities Act. Selling Shareholders may have other business relationships
with the Company and its subsidiaries or affiliates in the ordinary course of
business.
From time to time one or more of the Selling Shareholders may
transfer, pledge, donate or assign Shares to lenders, family members and others
and each of such persons will be deemed to be a "Selling Shareholder" for
purposes of this Prospectus. The number of Shares beneficially owned by those
Selling Shareholders who so transfer, pledge, donate or assign Shares will
decrease as and when they take such actions. The plan of distribution for
Shares sold hereunder will otherwise remain unchanged, except that the
transferees, pledgees, donees or other successors will be Selling Shareholders
hereunder.
LEGAL MATTERS
Certain legal matters in connection with the Shares offered hereby
will be passed upon for the Company by Holme Roberts & Owen LLP, Denver,
Colorado.
EXPERTS
The financial statements of PMC International, Inc. as of December 31,
1996 and 1995, and for the years then ended included herein have been included
herein in reliance upon the report of Spicer, Jeffries & Co., independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
26
<PAGE> 30
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Financial statements for the years ended December 31, 1996 and 1995
and the Three Months ended March 31, 1997 and 1996
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
Notes to Consolidated Financial Statements.............................................................F-8
</TABLE>
F-1
<PAGE> 31
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,
1996 and 1995, 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, 1996
and 1995, and the results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.
SPICER, JEFFRIES & CO.
Denver, Colorado
March 1, 1997
F-2
<PAGE> 32
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995 AND MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31, December 31,
ASSETS 1997 1996 1995
-------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS (See Notes 1 and 7) $ 4,450,485 $ 6,499,390 $ 313,885
RECEIVABLES
Investment management fees 540,904 145,714 39,733
Other receivables (See Note 1) 124,375 160,483 63,210
FURNITURE AND EQUIPMENT, at cost, net of accumulated
depreciation of $770,490, $689,227 and $355,231 997,483 936,234 688,233
SOFTWARE DEVELOPMENT COSTS, at cost, net of
accumulated amortization of $267,763 in 1997 and $203,526
in 1996 (See Note 1) 508,068 511,123 419,617
LONG-TERM NOTE RECEIVABLES (See Note 2) 654,624 570,494 897,167
PREPAID EXPENSES AND OTHER ASSETS 417,446 340,006 220,605
GOODWILL (net of amortization of $81,688, $75,853 and
$ 52,513) 268,312 274,147 297,487
-------------- -------------- --------------
TOTAL ASSETS $ 7,961,697 $ 9,437,591 $ 2,939,937
============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 574,559 $ 839,095 $ 1,442,694
Accrued expenses 538,662 535,520 707,897
Other liabilities (See Note 7) 123,327 730,909 571,389
Deferred revenue 535,781 552,868 411,347
Notes payable (See Note 6) 12,738 14,694 1,647,470
Obligations under capital leases (See Note 7) 209,312 219,821 75,490
-------------- -------------- --------------
TOTAL LIABILITIES 1,994,379 2,892,907 4,856,287
-------------- -------------- --------------
COMMITMENTS AND CONTINGENCIES (See Note 7)
SHAREHOLDERS' EQUITY (DEFICIT) (See Note 3)
Preferred stock - no par value - authorized 5,000,000
shares; issued and outstanding, 138,182 shares,
175,897 shares and 349,017 shares 345,455 439,742 872,543
Common stock, $.01 par value - authorized, 50,000,000
shares, issued and outstanding, 14,523,614 shares,
14,471,756 shares and 5,555,713 shares 366,395 365,876 276,716
Additional paid-in capital 16,531,462 16,482,256 3,652,749
Deficit (11,275,994) (10,743,190) (6,718,358)
-------------- -------------- --------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 5,967,318 6,544,684 (1,916,350)
-------------- -------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,961,697 $ 9,437,591 $ 2,939,937
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 33
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Year Ended Year Ended
March 31, December 31, December 31,
1997 1996 1996 1995
-------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Investment management fees (See Note 1) $ 2,744,816 $ 2,406,024 $ 9,634,992 $ 8,632,888
Trading income 10,913 30,556 44,787 94,948
Other income 105,392 179,311 407,102 444,643
-------------- -------------- -------------- --------------
Total revenue 2,861,121 2,615,891 10,086,881 9,172,479
-------------- -------------- -------------- --------------
EXPENSES:
Investment manager and other fees 1,390,722 1,407,055 5,580,846 5,139,613
Salaries and benefits 936,601 757,735 3,487,811 2,524,936
Clearing charges and user fees 157,207 219,478 813,239 766,515
Advertising and promotion 162,170 178,857 830,140 629,476
General and administrative 299,034 231,967 1,200,115 918,001
Software development costs 50,630 -- 132,392 56,800
Occupancy and equipment costs 282,080 249,287 1,149,084 630,833
Professional fees 115,481 111,310 763,086 484,860
Settlement expense -- -- 155,000 465,000
-------------- -------------- -------------- --------------
Total expenses 3,393,925 3,155,689 14,111,713 11,616,034
-------------- -------------- -------------- --------------
NET LOSS $ (532,804) $ (539,798) $ (4,024,832) $ (2,443,555)
============== ============== ============== ==============
NET LOSS PER COMMON SHARE (See
Note 1) $ (0.04) $ (0.11) $ (.72) $ (.46)
============== ============== ============== ==============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (See Note 1) 14,511,099 5,555,711 5,702,036 5,546,522
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 34
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
DECEMBER 31, 1996 AND 1995 AND MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Total
Common Stock Additional Preferred Stock Shareholders'
-------------------- Paid-In -------------------- Equity
Shares Amount Capital Shares Amount Deficit (Deficit)
---------- -------- ------------ --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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)
Stock options exercised 1,000 10 1,365 -- -- -- 1,375
Notes payable converted to common
stock 3,500,000 34,999 2,488,751 -- -- -- 2,523,750
Preferred stock converted to common
stock 238,043 2,381 430,420 (173,120) (432,801) -- --
Issuance of stock 5,177,000 51,770 10,949,355 -- -- -- 11,001,125
Less stock issuance costs -- -- (1,040,384) -- -- -- (1,040,384)
Net loss -- -- -- -- -- (4,024,832) (4,024,832)
---------- -------- ------------ --------- --------- ------------ ------------
BALANCES, December 31, 1996 14,471,756 365,876 16,482,256 175,897 439,742 (10,743,190) 6,544,684
Preferred stock converted to common
stock 51,858 519 93,768 (37,715) (94,287) -- --
Less stock issuance costs -- -- (44,562) -- -- -- (44,562)
Net loss -- -- -- -- -- (532,804) (532,804)
---------- -------- ------------ --------- --------- ------------ ------------
BALANCES, March 31, 1997 (unaudited) 14,523,614 $366,395 $ 16,531,462 138,182 $ 345,455 $(11,275,994) $ 5,967,318
========== ======== ============ ========= ========= ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 35
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
-------------------------- --------------------------
1997 1996 1996 1995
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING (unaudited)
ACTIVITIES:
<S> <C> <C> <C> <C>
Net loss $ (532,804) $ (539,798) $(4,024,832) $(2,443,555)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 151,335 120,835 560,862 171,907
Accretion of discount on note receivable (19,234) (21,616) (67,181) (69,053)
Common stock issued as compensation
under 401K plan -- -- -- 15,212
Changes in operating assets and
liabilities:
Investment management fees
receivable (395,190) (25,787) (105,981) 32,085
Other receivables 36,108 (95,170) (97,273) 22,196
Prepaid expenses and other assets (77,440) (121,438) (119,401) 9,509
Accrued expenses 3,142 36,617 (172,377) 103,805
Accounts payable (264,536) 149,015 (597,029) 729,837
Other liabilities (4,491) 2,474 159,520 464,399
SEC settlement distribution (603,091) -- -- --
Deferred revenue (17,087) 74,439 141,521 37,346
----------- ----------- ----------- -----------
Net cash used in operating
activities (1,723,288) (420,429) (4,322,171) (926,312)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of furniture and equipment (172,661) (83,547) (376,574) (405,932)
Reduction of long-term note receivable 100,283 118,036 393,854 338,067
Long-term notes receivable PMC
employees (142,093) -- -- --
Long-term note receivable KP3, LLC (31,689) -- -- --
Principal payments on note receivable 8,603 -- -- --
Cost of software (61,182) (122,010) (295,022) (419,617)
Reduction of secured demand note -- -- -- 225,000
----------- ----------- ----------- -----------
Net cash used in investing
activities (298,739) (87,521) (277,742) (262,482)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from notes payable -- 298,669 3,125,000 1,925,000
Principal payments on notes payable (1,956) (2,019) (2,234,026) (322,530)
Principal payments on obligations under
capital lease (24,922) (10,516) (67,672) (14,709)
Sale of common stock, less offering costs -- -- 9,960,741 --
</TABLE>
F-6
<PAGE> 36
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
-------------------------- --------------------------
1997 1996 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Proceeds from exercise of stock options -- -- 1,375 --
Principal payments on subordinated note
payable -- -- -- (225,000)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities (26,878) 286,134 10,785,418 1,362,761
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (2,048,905) (221,816) 6,185,505 173,967
CASH, at beginning of period 6,499,390 313,885 313,885 139,918
----------- ----------- ----------- -----------
CASH, at end of period $ 4,450,485 $ 92,069 $ 6,499,390 $ 313,885
----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 7,060 $ 3,672 $ 367,180 $ 96,969
=========== =========== =========== ===========
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Purchase of equipment via capital lease
obligation $ 20,983 $ 90,199 $ 205,433 $ 90,199
Conversion of preferred stock to common
stock $ 94,287 $ -- $ 432,801 $ --
Conversion of note payable to common stock $ -- $ -- $ 2,523,750 $ --
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 37
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
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 share
exchange was completed on September 30, 1993 and as a result of this
transaction, PMC is a wholly owned subsidiary of PMCI. The share exchange
between Schield and PMC was treated as 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 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"), a wholly owned subsidiary of PMCI,
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.
The accompanying consolidated financial statements include the historical
accounts of PMC for all periods and the accounts of PMCI since September 30,
1993, and PBS and PTS since inception. All intercompany accounts and
transactions have been eliminated in consolidation. The March 31, 1997 and
March 31, 1996 amounts included herein are unaudited. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations, cash
flows and changes in shareholders' equity at March 31, 1997 and March 31, 1996
have been made.
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
F-8
<PAGE> 38
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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 Company has developed a windows-based software program for sale to
financial product distribution entities. The product is designed to guide
clients of these entities through the process of choosing appropriate
combinations of mutual funds for their own portfolios. The majority of costs
incurred to establish the technological feasibility of this product intended to
be sold or otherwise marketed were borne by unrelated individuals prior to the
product being introduced to the Company. Prior to achieving technological
feasibility in 1995, 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 for 1995. All
subsequent costs incurred directly related to the development of the software
were capitalized. Capitalized costs are being amortized over the economic life
of the software, which in this case is three years. It is the Company's policy
to amortize and evaluate software for net realizable value on a
product-by-product basis. The software became available for sale during 1996.
The Company's plans to generate revenues from this product are four-fold:
license fees, customization fees, a continuing fee equal to a percentage of
assets under management of the end users purchasing such software, and annual
maintenance fees. Costs of maintenance and customer support are charged to
expense when the related revenue is recognized, or when those costs are
incurred, whichever occurs first.
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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company follows the intrinsic value based method of accounting as
prescribed by APB 25, Accounting for Stock Issued to Employees, for its
stock-based compensation. Under the Company's stock option plan, the exercise
price is equal to the fair value of the options at the grant date and no
compensation cost is recognized.
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. Common stock equivalents are not included
in the weighted average calculation since their effect would be anti-dilutive.
Dividends on cumulative preferred stock of $22,455, $56,715, $57,166 and
$113,430 for the periods ended March 31, 1997 and 1996, and December 31, 1996
and 1995, respectively, have been added back to the net loss in computing the
net loss per share.
The Company reviews its long-lived assets and goodwill for impairment to
determine if the carrying amount of the asset is recoverable. The goodwill
arising from the transaction in Note 1 is being amortized using the
straight-line method over 15 years. In complying with the provisions of SFAS
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, the Company has determined the fair value of goodwill
to be based on the cost of becoming publicly traded for an entity in similar
circumstances.
F-9
<PAGE> 39
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
NOTE 2 - LONG-TERM NOTE RECEIVABLES
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 a credit to interest
income over the life of the note using the interest method. The principal
balance of the note as of December 31, 1996 is $697,129 compared to its
carrying amount of $570,494. The principal balance of the note as of March 31,
1997 is $539,377 compared to its carrying amount of $489,445 (unaudited).
During January 1997, the Company authorized financing of 154,690 shares of
PMCI's common stock which had been purchased and owned by a number of PMC
employees as part of a private sale of stock by a shareholder of the Company in
1993. This purchase was originally financed through a bank loan which came due
on December 31, 1996. The balloon amount due at the expiration of the loan was
$142,093. PMCI paid off the prior bank loan and financed this amount for its
employees as notes receivable, collateralized by the underlying stock. PMCI is
receiving monthly installments in the amount of $3,435 collected through
payroll deductions. These notes will mature on December 31, 1999, with balloon
payments of $38,825 due from employees.
NOTE 3 - SHAREHOLDERS' EQUITY
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 March 31, 1997, cumulative dividends in arrears totaled $253,509
(unaudited).
Common Stock
During December, 1996, the Company issued 8,916,043 shares of its common stock
through several issuances. First, a private placement was completed whereby
5,177,000 shares were issued for cash of $11,001,125 less offering costs of
$1,040,384. Secondly, convertible promissory notes issued in December, 1995 and
the first half of 1996 in the amount of $1,500,000 were repaid and the proceeds
were used to exercise warrants for 1,500,000 common shares and 150,000 new
warrants were issued to the noteholders in connection therewith (see Note 6).
Thirdly, in connection with the
F-10
<PAGE> 40
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(Continued)
NOTE 3 - SHAREHOLDERS' EQUITY (Continued)
shareholder note payable as described in Note 6, warrants to purchase 1,023,750
shares of common stock were exercised for cash of $1,023,750 and warrants to
purchase 1,976,250 shares of common stock were exchanged for 976,250 shares of
common and 150,000 new warrants. Additionally, certain preferred shareholders
exercised their conversion rights and exchanged 173,120 preferred shares for
238,043 shares of common.
During January 1997, certain shareholders voluntarily exchanged 37,715 shares
of the Company's Preferred Stock for 51,858 shares of common stock. At March 31,
1997, there were 138,182 shares of preferred stock outstanding.
NOTE 4 - INCOME TAXES
The Company has an unused net operating loss carryforward of approximately
$7,000,000 for income tax purposes, $1,200,000 expiring in 2009, $1,800,000 in
2010 and the remainder expiring in 2011. This net operating loss carryforward
may result in future income tax benefits of approximately $2,800,000; however,
because realization is uncertain at this time, a valuation reserve in the same
amount has been established. Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- --------------------
<S> <C> <C>
Deferred tax liabilities $ - $ -
=============== ==============
Deferred tax assets
Net operating loss carry forwards 2,579,000 1,149,500
Legal settlement 233,300 175,000
--------------- --------------
Total deferred tax assets 2,812,300 1,324,500
Valuation allowance for deferred tax assets (2,812,300) (1,324,500)
--------------- --------------
$ - $ -
=============== ==============
</TABLE>
The valuation allowance for deferred tax assets was increased by $1,487,800 and
$855,300 during 1996 and 1995, respectively.
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
December 31, 1996, PBS had net capital and net capital requirements of $233,288
and $100,000, respectively, and the Company's net capital ratio (aggregate
indebtedness to net capital) was .53 to 1. At March 31, 1997, PBS had net
capital and net capital requirements of $425,153 and $100,000, respectively,
and the Company's net capital ratio was .13 to 1 (unaudited). 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, 1996 and March 31, 1997.
F-11
<PAGE> 41
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(Continued)
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 December 31, 1995
---------------- --------------- -------------
(unaudited)
<S> <C> <C> <C>
8-1/2% note payable to shareholder, due $ - $ - $ 1,200,000
July 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), 12,738 14,694 22,470
unsecured, due August 1, 1998, payable in
monthly installments of $832 including interest.
In 1996 and 1995, principal of $7,776 and
$6,159 mature.
9% notes payable to employees and unrelated - - 425,000
individuals, due December 29, 1996, principal
and interest payable on or before maturity
date, secured by a second lien on Company assets. ---------------- --------------- -------------
$ 12,738 $ 14,964 $ 1,647,470
================ =============== =============
</TABLE>
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 at $1.00 per share (see Note 3) was also received. In addition, the
shareholder obtained an option to lend the Company an additional $1,800,000 and
received warrants similar to those issued in connection with the initial loan.
Through July 9, 1996, this shareholder fulfilled its option and loaned the
Company an additional $1,800,000 and received 1,800,000 warrants to purchase
common shares. On December 24, 1996, the shareholder and the Company entered
into an agreement whereby (1) the Company would remit $1,976,250 against the
principal amount of the loan, (2) the shareholder would exercise warrants to
purchase 1,023,750 common shares at $1.00 per share to be used against the
remaining principal balance, and (3) the shareholder would exchange its
remaining warrants for 976,250 shares of common stock and 150,000 warrants to
purchase common stock at $2.125 per share.
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. In addition, in November, 1996, the Company borrowed
$250,000 from unrelated persons on a short-term basis carrying interest at 12%.
In December, 1996 these amounts were repaid through the proceeds of the private
offering (see Note 3).
F-12
<PAGE> 42
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(Continued)
NOTE 6 - NOTES PAYABLE (Continued)
On December 14, 1995, the Company commenced a private offering of units. Each
unit consisted of a promissory note with limited conversion rights in the
principal amount of $1,000 and a warrant to purchase 1,000 shares of common
stock at a price per share equal to the greater of $1.00 or the market price on
the initial closing date of the offering. If the notes were not paid by the due
date, the notes, at the option of the holder, became convertible into shares of
the Company's common stock on the basis of one share for each $1.00 of unpaid
principal and interest. On May 7, 1996 a second private offering of units
commenced with similar terms and after completion $1,500,000 of promissory
notes were outstanding from both offerings. Prior to the due date of the notes,
the Company asked its noteholders to agree to apply their principal balance
against the exercise price of their warrants and, in addition, they would also
receive warrants to purchase 150,000 shares of the Company's stock at an
exercise price of $2.125 per share. Subsequently, the noteholders agreed to
this arrangement.
Interest expense for the periods ended March 31, 1997 and 1996, December 31,
1996 and 1995 was $7,924, $44,630, $331,008 and $102,011 respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
PMC had been under a formal order of private investigation by the Securities
and Exchange Commission relating to certain aspects of PMC's former practice of
principal trading. PMC discontinued this practice in April, 1994. In 1995, the
Company submitted a settlement proposal to the Commission, without admitting or
denying liability, on behalf of PMC under a plan pursuant to which PMC would
disgorge its trading profits realized from principal trading together with
prejudgment interest in an amount estimated to be $465,000. In 1996, the
settlement was accepted by the Commission with the total amount payable,
including accrued interest approximating $620,000. These amounts have been
included in other liabilities in the accompanying financial statements.
In January 1997, KP3, LLC, a limited liability company owned and controlled by
the Company's president and chief executive officer (the "LLC") borrowed
$1,750,000 from a bank with a due date of December 31, 1997. In connection with
this borrowing, the Company agreed to collateralize the loan on behalf of the
LLC. Accordingly, $1,890,000 of cash included in cash and cash equivalents
(representing the initial principal balance and an interest reserve) in the
accompanying balance sheet became restricted for this purpose. The Company has
also agreed to loan the LLC amounts sufficient to pay interest on the loan so
long as the amount of loans made and bank collateral provided would not exceed
$2,000,000. Effective March 31, 1997, the Company loaned the LLC $31,689
specifically designated to pay the interest on the bank loan. The borrower has
agreed to reimburse the Company for any amounts paid by the Company toward the
loan or for collateral applied to the loan, including interest at an annual
rate of 9%, and has granted the Company a security interest in 1,643,845 shares
of the Company's common stock held by it.
The Company has leases for office space and equipment under various operating
and capital leases. Included in furniture and equipment is $295,552 of
equipment under capital leases at December 31, 1996 and accumulated
depreciation
F-13
<PAGE> 43
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(Continued)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
relating to these leases of $30,184. Future minimum lease payments under
noncancelable leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Principal
Year Ending due
December 31, Operating Capital Capital Lease
- ---------------------------------------- ----------------- ----------------- ------------------
<C> <C> <C> <C>
1997 $ 375,824 $ 123,992 $ 103,119
1998 351,672 103,486 95,336
1999 298,658 22,178 21,366
2000 293,567 - -
2001 24,000 - -
------------- ------------ --------------
$ 1,343,721 249,656 $ 219,821
============= ==============
Less amount representing interest 29,835
------------
Present value of net minimum lease
payments $ 219,821
============
</TABLE>
Total rent expense for facilities and equipment for the periods ended March 31,
1997 and 1996, December 31, 1996 and 1995, was $105,826, $106,225, $471,339 and
$410,263, respectively.
NOTE 8 - STOCK OPTIONS AND WARRANTS
The Company has no formal stock option plan, however it has granted options to
officers, employees, shareholders and certain other individuals and entities
allowing them to purchase common stock of the Company generally at the market
value of the stock at date of grant. Options are generally for a five-year term
however, in certain instances the term is longer. In addition common stock
warrants have been issued in connection with certain private offerings of debt.
At December 31, 1996, warrants to purchase common stock at various prices were
outstanding which expire as follows:
<TABLE>
<CAPTION>
Expiration Date Warrants Exercise Price
- ------------------------------------- ------------------ -----------------
<S> <C> <C>
December, 1998 300,000 1.620
June, 2001 200,000 1.000
November, 2001 25,000 1.625
December, 2001 550,000 2.125
---------
1,075,000
=========
</TABLE>
F-14
<PAGE> 44
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(Continued)
NOTE 8 - STOCK OPTIONS AND WARRANTS (Continued)
The following table describes certain information related to the Company's
compensatory stock option activity for the year ending December 31, 1996.
<TABLE>
<CAPTION>
Number of Weighted
Average Options Exercise Price
- ------------------------------------- ------------------ -----------------
<S> <C> <C>
Outstanding, December 31, 1995 1,016,000 $ 1.42
Grants during year:
Exercise price = market price 1,352,500 1.40
Exercise price > market price 200,000 1.56
Exercised during year (1,000) 1.38
Forfeited during year (22,000) 1.13
Expired during year (35,000) 2.79
---------
Outstanding, December 31, 1996 2,510,500 1.45
=========
Exercisable, December 31, 1996 1,400,500 1.45
=========
</TABLE>
The weighted average grant date fair value of the options granted in 1996 was
as follows:
<TABLE>
<S> <C>
Exercise price = market price $ 0.67
Exercise price > market price 1.03
</TABLE>
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following assumptions: risk-free interest rate of
5.88% to 6.50%; dividend yield of 0%; expected lives of five to six years; and
volatility of 44.2%.
F-15
<PAGE> 45
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(Continued)
NOTE 8 - STOCK OPTIONS AND WARRANTS (Continued)
A summary of the Company's outstanding and exercisable stock options as of
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Weighted Weighted
verage Exercise Average
Price Remaining
Number of ontractual Life
Range of Exercise Prices Options (months)
- ------------------------------------- ------------------ ----------------- -----------------
<S> <C> <C> <C>
$1.00 - $1.38
Outstanding 1,228,500 $1.14 31(a)
Exercisable 728,500 1.17 39
$1.50 - $1.56
Outstanding 977,500 1.55 63(b)
Exercisable 567,500 1.55 63(c)
$2.13 - $2.50
Outstanding 252,500 2.20 58
Exercisable 52,500 2.50 6
$3.10
Outstanding 52,000 3.10 13
Exercisable 52,000 3.10 13
</TABLE>
(a) Excludes 200,000 options which expire 12 months after employee
termination.
(b) Excludes 800,000 options which expire 12-24 months after employee
termination.
(c) Excludes 480,000 options which expire 12-24 months after employee
termination.
On February 26, 1997, the Board of Directors granted options to purchase a total
of 70,000 shares of the Company's common stock to employees at an exercise price
of $2.50 per share and which expire in six years. The options vest 20% on the
first anniversary of each employees date of hire with the balance vesting in
equal successive quarterly installments over the following four years, provided,
however, that each employee must be employed by the Company at the time any
vesting would occur. The Board of Directors also granted options to purchase
50,000 shares of common stock to Mr. Emmett Daly in connection with his becoming
a director of the Company on February 27, 1997. The options vest at the rate of
20% at each such time as the average of the bid and asked price of the common
stock equals $2.50, $3.50, $4.50, $5.50 and $6.50 respectively, for 20
consecutive trading days. The options are exercisable at $2.50 per share and
expire in five years.
As previously described, the Company applies APB 25 and related Interpretations
in accounting for its stock options. Accordingly, no compensation cost has been
recognized. Had compensation cost for the Company's options been
F-16
<PAGE> 46
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(Continued)
NOTE 8 - STOCK OPTIONS AND WARRANTS (Continued)
determined based on the fair value at the grant dates for awards consistent
with the method of SFAS 123, the Company's net loss and loss per share would
have increased to the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
Net loss $ (610,294) $ (5,135,022) $ (2,541,606)
Net loss per share $ (.04) $ (.91) $ (.48)
</TABLE>
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 of 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.
NOTE 10 - RISKS AND UNCERTAINTIES
PMC's revenues are primarily derived from a percentage of the assets under the
management of its distribution channels. Assets under management are impacted by
both the extent to which PMC adds or loses clients and the appreciation or
depreciation of the U.S. and international equity and fixed income markets.
Assets of customers of an unrelated organization constitute approximately 16% of
the total customer assets in PMC's managed account programs as of December 31,
1996. A downturn in general economic conditions could cause investors to cease
using the products, including its proprietary software products, and services of
the Company or its distribution channels.
The Company has deposits in banks in excess of the FDIC insured amount of
$100,000. The amounts in excess of the $100,000 are subject to loss should the
banks cease business.
NOTE 11 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
financial instruments:
The carrying amount of cash and cash equivalents reported in the balance sheet
approximates fair value.
The carrying amount of receivables, accounts payable, accrued expenses and
other liabilities in the balance sheet approximates fair value.
F-17
<PAGE> 47
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(Concluded)
NOTE 11 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The long-term note receivable was discounted at inception (see Note 2) and
accordingly its carrying amount approximates fair value.
The carrying amount of the obligations under capital leases approximates fair
value.
F-18
<PAGE> 48
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby, all of which
expenses, except for the Commission registration fee, are estimated:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee . . . . . . . . . . . . $10,619
Printing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . *
Blue Sky fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
</TABLE>
_________________
* To be supplied by amendment
All of the above expenses will be borne by the Company.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
February 1995 Private Placement
In February 1995, the Company sold debt securities in an aggregate
principal amount of $300,000. Each dollar loaned carried with it a warrant to
purchase one share of Common Stock at an exercise price of $1.00 per share.
Purchasers received registration rights with respect to shares of Common Stock
issued upon exercise of the warrants. The purchasers were primarily employees,
business associates and affiliates of the Company.
Bedford Loans
In July 1995, the Company entered into a transaction with Bedford
pursuant to which Bedford loaned $1.2 million to the Company and received an
option to loan up to an additional $1.8 million to the Company for a specified
period of time and pursuant to certain call provisions. Between July 1995 and
July 1996, the Company obtained the full $3.0 million financing from Bedford.
Each dollar loaned carried a ten-year warrant to purchase one share of the
Common Stock at an exercise price of $1.00 per share.
December 1995 and June 1996 Private Placements
In December 1995 and January 1996, the Company issued a total of 482.5
units through a private placement, with each unit consisting of a convertible
promissory note with a principal amount of $1,000 and a warrant to purchase
1,000 shares of Common Stock at an exercise price of $1.00 per share. During
June 1996 the Company issued an additional 1,017.5 units through another
private placement under substantially the same terms. The purchasers of these
II-1
<PAGE> 49
units were primarily employees, business associates and affiliates of the
Company. Each purchaser received registration rights with respect to the
shares of Common Stock underlying the warrants.
November 1996 Bridge Loan
In November 1996, the Company borrowed $250,000 to fund its working
capital requirements pending closing of a private placement of Common Stock in
December 1996. Fifty percent of the loan was provided by Keefe, Bruyette &
Woods, Inc., the Placement Agent in the December 1996 private placement, and
the balance equally by certain members of management of the Company, Bedford,
and certain affiliates of Bedford. The lenders received five-year warrants to
purchase an aggregate of 25,000 shares of the Common Stock. The warrants have
an exercise price of $1.625 per share. The lenders received registration
rights with respect to the Common Stock to be issued upon exercise of the
warrants.
December 1996 Private Placement
On December 24, 1996 the Company completed a private placement of
5,177,000 shares of Common Stock at a price of $2.125 per share. The
purchasers of the Shares were all accredited investors.
December 1996 Restructuring
On December 24, 1996, the Company completed a restructuring of its
debt. The restructuring involved the repayment of interest owing under the
notes issued in connection with the December 1996/January 1996 and May/June
1996 private placements and the Bedford loans. In connection with the
restructuring, Bedford exercised warrants to purchase a total of 1,023,750
shares of Common Stock, and received new warrants to purchase 150,000 shares of
Common Stock at an exercise price of $2.125 per share. The holders of warrants
issued in connection with the December 1995 and June 1996 private placements
exercised warrants to purchase an aggregate of 1,500,000 shares of Common
Stock, and received, pro rata, new warrants to purchase an aggregate of 150,000
shares of Common Stock at an exercise price of $2.125 per share.
For each of the above sales of securities, the Company claims
exemption from registration, inter alia, under Section 4(2) of the Securities
Act and Regulation D promulgated thereunder because, to the Company's
knowledge, each of the purchases was made for the purchaser's own investment
purposes and not for further distribution or resale, there were no more than 35
non-accredited investors, each of whom was sophisticated and had substantial
knowledge of and experience in financial and business matters and was capable
of evaluating the risks of the subject investment. In addition, the issuer
satisfied the other applicable requirements of Regulation D in connection with
each such offering and sale.
Preferred Stock Conversion
On December 24, 1996, the Company also effected a voluntary conversion
of 173,120 shares of the Company's Series A Preferred Stock into 238,043 shares
of Common Stock. The Company claimed an exemption from registration under
Section 3(a)(9) of the Securities Act as an exchange of securities of the
Company satisfying the requirements of that section.
II-2
<PAGE> 50
ITEM 27. EXHIBITS
(a) Exhibits
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Company (2)
3.2 Bylaws of the Company (1)
4.1* Specimen Common Stock certificate of the Company
4.2 The Articles of Incorporation and Bylaws of the Company are included as Exhibits 3.1 and 3.2
5.1* Opinion of Holme Roberts & Owen LLP as to the legality of the issuance of the shares
10.1 Employment Agreement between the Company and Kenneth S. Phillips dated as of July 26, 1995 (1)
10.2 Amended and Restated Employment Agreement between the Company and David L. Andrus dated as of December 17,
1996 (1)
10.3 Form of Subscription Agreement between the Company and each of the lenders in the November 1996 bridge
financing (1)
10.4 Form of warrant issued to each of the lenders in the November 1996 bridge financing (1)
10.5 Form of Registration Rights Agreement between the Company, each of the lenders in the November 1996 bridge
financing, each of the investors in the December 1996 private placement, and the placement agent in the
December 1996 private placement (1)
10.6 Form of Subscription Agreement between the Company and each of the investors in the December 1996 private
placement (1)
10.7 Warrant dated December 24, 1996 issued to Keefe, Bruyette & Woods, Inc. (1)
10.8 Form of warrant issued to investors in connection with the December 1996 restructuring (1)
10.9 Restructuring Agreement dated as of December 24, 1996 among the Company, Bedford Capital Financial
Corporation ("Bedford"), Portfolio Management Consultants, Inc. ("PMC"), Portfolio Brokerage Services,
Inc. ("PBS") and Portfolio Technology Services ("PTS") (1)
10.10 Amended and Restated Registration Rights Agreement dated as of December 24, 1996 among the Company and
Bedford (1)
10.11 Shareholders Agreement dated as of December 24, 1996 among the Company, Bedford, Kenneth S. Phillips, David
L. Andrus and Phillips & Andrus LLC (1)
10.12 Form of Warrant dated December 24, 1996 issued to Bedford and certain of its associates (1)
10.13 Advisory Agreement effective as of July 26, 1995, between Nevcorp Inc. and the Company (1)
10.14 Termination of Nevcorp Consulting Agreement (1)
10.15 Stock Option Plan of the Company (1)
10.16 Reimbursement and Pledge Agreement dated January 8, 1997 among the Company, KP3, LLC, and Kenneth S.
Phillips (1)
10.17 Term Loan Agreement dated as of January 8, 1997 among the Company, KP3, LLC and Norwest Bank Colorado N.A.
(1)
10.18 Investment Agreement dated as of July 26, 1995 among the Company, PMC, PBS, PTS, and Bedford (3)
21.1 List of Subsidiaries (2)
23.1 Consent of Spicer, Jeffries & Co., Certified Public Accountants
23.2 Consent of Holme Roberts & Owen LLP is to be included in Exhibit 5.1
24.1 Powers of Attorney (1)
</TABLE>
* To be filed by amendment.
(1) Previously filed.
(2) Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-37800) dated November 15, 1990.
(3) Incorporated by reference from the Company's Annual Report on Form 10-KSB
(File No. 0-14937) for the year ended December 31, 1994.
II-3
<PAGE> 51
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this Amendment
No. 1 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Denver, State of Colorado, on this
27th day of May, 1997.
PMC International, Inc.
a Colorado corporation
By: /s/ Kenneth S. Phillips
------------------------------------
Kenneth S. Phillips
President and Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933,
this Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Title Position Held
Signature With the Registrant Date
--------- ------------------- ----
<S> <C>
/s/ Kenneth S. Phillips President, Chief Executive May 27, 1997
- ------------------------------------------------ Officer and Director
Kenneth S. Phillips
* Executive Vice President and May 27, 1997
- ------------------------------------------------ Director
David L. Andrus
* Treasurer and Chief Financial May 27, 1997
- ------------------------------------------------ Officer (principal accounting
Vali Nasr and financial officer)
* Chairman of the Board and Director May 27, 1997
- ------------------------------------------------
J. W. Nevil Thomas
* Director May 27, 1997
- ------------------------------------------------
D. Porter Bibb
Director
- ------------------------------------------------
Emmett J. Daly
*By: /s/ Kenneth S. Phillips
------------------------------------------
Kenneth S. Phillips, attorney-in-fact
</TABLE>
II-4
<PAGE> 52
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
3.1 Articles of Incorporation of the Company (2)
3.2 Bylaws of the Company (1)
4.1* Specimen Common Stock certificate of the Company
4.2 The Articles of Incorporation and Bylaws of the Company are included as Exhibits 3.1 and 3.2
5.1* Opinion of Holme Roberts & Owen LLP as to the legality of the issuance of the shares
10.1 Employment Agreement between the Company and Kenneth S. Phillips dated as of July 26, 1995 (1)
10.2 Amended and Restated Employment Agreement between the Company and David L. Andrus dated as of
December 17, 1996 (1)
10.3 Form of Subscription Agreement between the Company and each of the lenders in the November
1996 bridge financing (1)
10.4 Form of warrant issued to each of the lenders in the November 1996 bridge financing (1)
10.5 Form of Registration Rights Agreement between the Company, each of the lenders in the November
1996 bridge financing, each of the investors in the December 1996 private placement, and the
placement agent in the December 1996 private placement (1)
10.6 Form of Subscription Agreement between the Company and each of the investors in the December
1996 private placement (1)
10.7 Warrant dated December 24, 1996 issued to Keefe, Bruyette & Woods, Inc. (1)
10.8 Form of warrant issued to investors in connection with the December 1996 restructuring (1)
10.9 Restructuring Agreement dated as of December 24, 1996 among the Company, Bedford Capital
Financial Corporation ("Bedford"), Portfolio Management Consultants, Inc. ("PMC"), Portfolio
Brokerage Services, Inc. ("PBS") and Portfolio Technology Services ("PTS") (1)
10.10 Amended and Restated Registration Rights Agreement dated as of December 24, 1996 among the
Company and Bedford (1)
10.11 Shareholders Agreement dated as of December 24, 1996 among the Company, Bedford, Kenneth S.
Phillips, David L. Andrus and Phillips & Andrus LLC (1)
10.12 Form of Warrant dated December 24, 1996 issued to Bedford and certain of its associates (1)
10.13 Advisory Agreement effective as of July 26, 1995, between Nevcorp Inc. and the Company (1)
</TABLE>
II-5
<PAGE> 53
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
10.14 Termination of Nevcorp Consulting Agreement (1)
10.15 Stock Option Plan of the Company (1)
10.16 Reimbursement and Pledge Agreement dated January 8, 1997 among the Company, KP3, LLC, and
Kenneth S. Phillips (1)
10.17 Term Loan Agreement dated as of January 8, 1997 among the Company, KP3, LLC and Norwest Bank
Colorado N.A. (1)
10.18 Investment Agreement dated as of July 26, 1995 among the Company, PMC, PBS, PTS, and Bedford (3)
21.1 List of Subsidiaries (2)
23.1 Consent of Spicer, Jeffries & Co., Certified Public Accountants
23.2 Consent of Holme Roberts & Owen LLP is to be included in Exhibit 5.1
24.1 Powers of Attorney (1)
</TABLE>
* To be filed by amendment.
(1) Previously filed.
(2) Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-37800) dated November 15, 1990.
(3) Incorporated by reference from the Company's Annual Report on Form 10-KSB
(File No. 0-14937) for the year ended December 31, 1994.
II-6
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the PMC International, Inc. Amendment
No. 1 to the Registration Statement on Form SB-2 of our report dated March 1,
1997 accompanying the consolidated financial statements of PMC International,
Inc. for the years ended December 31, 1996 and 1995 which is part of the
registration statement and to the reference to us under the heading "Experts"
in such registration statement.
Spicer, Jeffries & Co.
May 27, 1997
