U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
Commission file number 0-14937
PMC INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0627374
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
555 17th Street, 14th Floor, Denver, Colorado 80202
(Address of principal executive offices)
(303) 292-1177
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of May 11, 1997.
Common Stock $0.01 Par Value 14,543,614
Class Number of Shares
Transitional Small Business Disclosure Format
Yes No X
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
FORM 10-QS
INDEX
<CAPTION>
Page #
<S> <C>
PART I Financial Information
Item 1 Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheets 3
-- March 31, 1997 & December 31, 1996
Consolidated Statements of Operations 5
-- Three months ended March 31, 1997 & March 31, 1996
Condensed Consolidated Statements of Cash Flow 6
-- Three months ended March 31, 1997 & March 31, 1996
Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2 Management's Discussion & Analysis of Financial Condition & Results
of Operations 10
PART II Other Information
Item 1 Legal Proceedings 14
Item 2 Changes in Securities 14
Item 3 Defaults upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits & Reports on Form 8-K 15
Signatures 15
</TABLE>
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PMC INTERNATIONAL, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (Note 1)
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
ASSETS
<CAPTION>
(Unaudited)
March 31, December 31,
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (See Note 2) $ 4,450,485 $ 6,499,390
Receivables
Investment management fees 540,904 145,714
Other receivables 124,375 160,483
---------- -----------
TOTAL 5,115,764 6,805,587
FURNITURE AND EQUIPMENT, at cost,
net of accumulated depreciation of
$770,490 and $689,227 997,483 936,234
SOFTWARE DEVELOPMENT, at cost,
net of accumulated depreciation of
$267,763 and $203,526 508,068 511,123
PREPAID EXPENSES AND OTHER ASSETS 417,446 340,006
GOODWILL (net of amortization of $81,688
and $75,853) 268,312 274,147
LONG TERM NOTE RECEIVABLE (Note 2) 654,624 570,494
--------- ----------
TOTAL ASSETS $ 7,961,697 $ 9,437,591
========= =========
<FN>
See notes to unaudited condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
(Unaudited)
March 31, December 31,
1997 1996
<S> <C> <C>
LIABILITIES
Accounts payable $ 574,559 $ 839,095
Accrued expenses 538,662 535,520
Other liabilities 123,327 730,909
Deferred revenue 535,781 552,868
Notes payable 12,738 14,694
Obligations under capital lease 209,312 219,821
---------- -----------
TOTAL LIABILITIES 1,994,379 2,892,907
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (Note 3)
Preferred stock, no par value - authorized
5,000,000 shares; issued and outstanding,
138,182 shares and 175,897 shares 345,455 439,742
Common stock, $.01 par value - authorized
50,000,000 shares; issued and outstanding,
14,523,614 shares and 14,471,756 shares 366,395 365,876
Additional paid-in capital 16,531,462 16,482,256
Accumulated deficit (11,275,994) (10,743,190)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 5,967,318 6,544,684
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 7,961,697 $ 9,437,591
========== ==========
<FN>
See notes to unaudited condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
MARCH 31, 1997 AND 1996
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
------------------ ----------------
REVENUE:
Investment management fees $ 2,744,816 $ 2,406,024
Trading income 10,913 30,556
Other income 105,392 179,311
------------------ ----------------
Total revenue 2,861,121 2,615,891
EXPENSES:
Investment manager and other fees $ 1,390,722 $ 1,407,055
Salaries and benefits 936,601 757,735
Clearing charges and user fees 157,207 219,478
Advertising and promotion 162,170 178,857
General and administrative 299,034 231,967
Software development costs 50,630 0
Occupancy and equipment costs 282,080 249,287
Professional fees 115,481 111,310
------------------ ----------------
Total expenses 3,393,925 3,155,689
NET LOSS $ (532,804) $ (539,798)
================== ================
NET LOSS PER COMMON SHARE $(.04) $(.11)
================== ================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 14,511,099 5,555,711
================== ================
</TABLE>
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<CAPTION>
Three Months Ended
March 31
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (532,804) $ (539,798)
Adjustments to reconcile net loss to
net cash used in operating activities:
Accretion of discount on notes receivable (19,234) (21,616)
Depreciation and amortization 151,335 120,835
Changes in operating assets and liabilities
Investment management fees receivable (395,190) (25,787)
Other receivables 36,108 (95,170)
Prepaid expenses and other assets (77,440) (121,438)
Accounts payable (264,536) 149,015
Accrued expenses 3,142 36,617
Other liabilities (4,491) 2,474
SEC Settlement Distribution (603,091) 0
Deferred revenues (17,087) 74,439
---------- -------
Net cash used in operating activities (1,723,288) (420,429)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment
and software development (233,843) (205,557)
Decrease of long-term note receivable 100,283 118,036
Long term notes receivable PMC employees (142,093) -
Long term note receivable KP3, LLC (31,689) -
Principal payments on note receivable 8,603 -
------- ----------
Net cash provided by (used in) investing activities (298,739) (87,521)
------- ------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from notes payable 0 298,669
Principal payments on notes payable (1,956) (2,019)
Principal payments on obligations under capital lease (24,922) (10,516)
----------- -----------
Net cash provided by financing activities (26,878) 286,134
----------- ----------
NET INCREASE (DECREASE) IN CASH (2,048,905) (221,816)
CASH, at beginning of period 6,499,390 313,885
---------- -------
CASH, at end of period $4,450,485 $ 92,069
<FN>
See notes to unaudited condensed consolidated financial statements.
</FN>
</TABLE>
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PMC INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<CAPTION>
Three Months Ended
March 31
1997 1996
---- ----
<S> <C> <C>
Cash paid for interest $ 7,060 $ 3,672
====== ======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF INVESTING ACTIVITIES:
The Company incurred additional capital lease obligations during the three
months ended March 31, 1997 of $20,983 for computer equipment.
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NOTE 1 - SUMMARY OF ACCOUNTING POLICY
The accompanying unaudited condensed consolidated financial statements include
the historical accounts of PMC for all periods, the accounts of PMCI since
September 30, 1993, and PBS and PTS since inception, and have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the informtion and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal accruals and elimination of intercompany accounts and
transactions) considered necessary for a fair presentation have been included.
The unaudited condensed financial statements should be read in conjunction with
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
NOTE 2 - LONG TERM NOTE RECEIVABLE
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. The purpose of the
loan was to finance payment of the deferred portion of the purchase price of
1,643,845 shares of the Company's common stock owned by the LLC that were
purchased from a former officer of the Company at the time of his departure.
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 in
an interest reserve) in the accompanying balance sheet became restricted for
this purpose. Effective March 1997, the Company loaned the LLC $31,689.11
specifically designated to pay the interest on the bank loan. The borrower
(KP3,LLC) has agreed to reimburse the Company for all amounts paid by the
Company toward the loan or for collateral applied to the loan, including
interest at an annual rate of 9% and have granted the Company a security
interest in the 1,643,845 shares of the Company's common stock held by it.
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 $142,093.43. 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 $38,825.57 due from employees.
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(continued)
NOTE 3 - SHAREHOLDERS' EQUITY
Common Stock/Preferred Stock
During January 1997, certain shareholders voluntarily exchanged 37,715 shares of
the Company's Series A Preferred Stock and all accumulated dividends thereon for
51,858 shares of common stock. At March 31, 1997, there were 138,182 shares of
preferred stock outstanding and cumulative dividends in arrears thereon of
$253,509.
Options
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, 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.
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
PMC International, Inc. (the "Company") develops, markets, and manages
sophisticated investment management products and services. Not a money manager
itself, the Company's 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 the investor. 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 based on a percentage of managed assets and to a lesser extent
on consulting fees for certain advisory services and licensing fees from
its software products. At the present time, the principal factors affecting the
Company's revenues are whether the Company adds or loses customers 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.
The following discussion relates to the Company's financial statements included
in this Quarterly Report on Form 10-QSB for the quarter ended March 31, 1997.
This report should be read in conjunction with the Company's financial
statements and Management's Discussion Analysis of Financial Condition and
Results of Operations contained in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996.
Results of Operations
Revenues for the first quarter of 1997 were $2,861,000 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 received from new
relationships established by the Company during the first quarter. These fees
are in compensation for start up and conversion services performed by the
Company during the quarter ended March 31, 1997. Future revenues related to
these new relationships are expected to be derived as a percentage of assets
under management.
Operating expenses (which are total expenses less investment management 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 $252,000 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 increased staff is to support
the expansion of the Company's products and services, the enhancement of its
internal systems and the servicing of new distribution channels and
customers. Total Company employees at March 31, 1997 and 1996 were 60 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 71 persons at May 15, 1997. Future revenues related to
these new relationships are expected to be derived as a percentage of assets
under management.
Investment manager and other fees (which are primarily a function of the
amount of assets managed) decreased marginally in absolute dollars by 7%
relative to investment management fees (also a function of the amount of
assets managed) primarily because the revenues related to the new customer
relationships described above had no associated investment manager and other
fees during the first quarter.
Liquidity and Capital Resources
Between December 31, 1996 and March 31, 1997, working capital decreased from
$3,913,000 to $3,121,000. This $792,000 decrease resulted primarily from the
use of cash to fund operating losses. 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 customers discussed above.
In January 1997, the Company assisted Kenneth S. Phillips, the Company's Pres-
ident 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 owed 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 the interest
payments on the loan. The total amount of loans and pledges of collateral
authorized does not exceed $2.0 million.
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) ("AM") investment advisory
software for use by professional financial consultants and expects
having continuing costs in 1997 relating to the development of its internal
operating systems and to the development and enhancement of it AM software.
To date, assets under management within the AM programs have grown at a rate
slower than anticipated.
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 fo 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.
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings.
ITEM 2 CHANGES IN SECURITIES
During January 1997, certain holders of the Company's Series A Preferred Stock
voluntarily exchanged a total of 37,715 preferred shares and all accumulated
dividends thereon for a total of 51,858 shares of restricted common stock. The
shareholders received registration rights in connection with the restricted
common stock received. In connection with the transactions, the Company claimed
an exemption from the registration requirements of the Securities Act under
Section 3a-9 of the Securities Act.
ITEM 4 SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------
Not applicable.
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Holders of Preferred Stock are entitled to receive dividends at a rate of $0.325
per share per annum (equal to 13% of the purchase price per share attributable
to the Preferred Stock). Dividends are payable semi-annually on January 15 and
July 15 in each year commencing July 15, 1991. A preferred dividend became
payable on January 15, 1997, which was not declared or paid. As of March 31,
1997, cumulative dividends in arrears were $253,509.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
A. Number Exhibit Page Number
(27) Financial Data Schedule 16
B. No Reports on Form 8-K were filed by the Company during the
first quarter.
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
PMC INTERNATIONAL, INC.
REGISTRANT
Date: May 15, 1997 /S/ Kenneth S. Phillips
----------------------------
Kenneth S. Phillips
President, Chief Executive Officer
Date: May 15, 1997 /S/ Vali Nasr
-----------------------------
Vali Nasr
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,450,485
<SECURITIES> 0
<RECEIVABLES> 1,319,903
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 685,758
<PP&E> 2,543,804
<DEPRECIATION> (1,038,253)
<TOTAL-ASSETS> 7,961,697
<CURRENT-LIABILITIES> 1,994,379
<BONDS> 0
0
345,455
<COMMON> 366,395
<OTHER-SE> 5,255,468
<TOTAL-LIABILITY-AND-EQUITY> 7,961,697
<SALES> 2,861,121
<TOTAL-REVENUES> 2,861,121
<CGS> 1,390,722
<TOTAL-COSTS> 1,390,722
<OTHER-EXPENSES> 1,995,279
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,924
<INCOME-PRETAX> (532,804)
<INCOME-TAX> 0
<INCOME-CONTINUING> (532,804)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (532,804)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
