As filed with the Securities and Exchange Commission November 21,
1997. Registration No: _______________.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
___________________
PMC International, Inc.
(Name of small business issuer in its charter)
---------------------------------------------
Colorado 6282 84-0627374
(State or jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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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
(Address and telephone number of business or
principal executive offices) intended principal place of
business)
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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. [ ] _______
CALCULATION OF REGISTRATION FEE
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Title of each Amount to Proposed Proposed Amount of
class be maximum maximum registration
of securities to registered offering aggregate fee
be price offering
registered per share(1) price
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Common Stock, par 4,882,996 1.65625 $8,087,462 $2,450.75
value $.01
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Common Stock, par 775,000(2) 1.65625 $1,283,594 $388.96
value $.01
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Total 5,657,996 1.65625 $9,371,056 $2,839.71
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(1) Estimated solely for purposes of calculating the
registration fee, based on the average of the high and low bid
and asked prices for the Common Stock for November 19, 1997, as
reported in the over-the-counter market.
(2) Represents shares of Common Stock issuable upon the exercise
of certain options held by a Selling Shareholder.
________________________
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.
<PAGE>
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PROSPECTUS
5,657,996 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 shares (the
"Shares") of Common Stock, par value $.01 (the "Common Stock"),
of PMC International, Inc. (the "Company") 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."
4,882,996 of the Shares were issued in connection with a
private placement transaction undertaken in connection with the
acquisition of ADAM Investment Services, Inc. ("ADAM"). Keefe,
Bruyette & Woods, Inc. acted as the placement agent in connection
with the issuance of those Shares registered hereby. The balance
of the Shares are issuable upon the exercise of certain options
owned by David Andrus, the former Executive Vice President of the
Company.
All Shares offered hereby are shares 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 expenses to be paid by the Company
relating to the registration of the Shares is 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 November 18, 1997 was $1.875, as reported on
the Bloomberg financial markets system. 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 November , 1997.
<PAGE>
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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 world wide 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
Page
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
<PAGE>
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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 that 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
created and has administered since 1987. In addition to its
traditional wrap program, since 1994 the Company has invested in
developing a range 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. With 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.
As of November 18, 1997, the Company had a staff of
approximately 84 people, including approximately 35
professionals, and conducts business in a number of countries.
The Company has four subsidiaries: (i) Portfolio Management
Consultants, Inc. ("PMC"), an investment advisory firm;
(ii) Portfolio Brokerage Services, Inc. ("PBS"), a broker/dealer;
(iii) Portfolio Technology Services, Inc. ("PTS"), which
specializes in developing proprietary software for use in the
financial services industry and (iv) ADAM Investment Services,
Inc. ("ADAM"), an investment advisory firm which specializes in
mutual fund asset allocation products. Unless the context
otherwise requires, references herein to the Company include the
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
Common Stock offered by the Selling Shareholders 5,657,996 shares
Common Stock outstanding before the Offering 19,431,610 shares(1)
Common Stock outstanding after the Offering 20,206,610 shares(2)
Use of Proceeds................................ The Company will receive none
of the proceeds of the sale
of the Shares. See "Use of
Proceeds."
___________________
(1) Does not include 3,816,000 shares of Common Stock reserved
for issuance upon exercise of (i) certain warrants,
(ii) options granted under the Company's prior Stock
Option Plan for Employees, (iii) other options granted
to employees and directors.
(2) Does not include 3,041,000 shares of Common Stock reserved
for issuance upon exercise of (i) certain warrants,
(ii)options granted under the Company's prior Stock
Option Plan for Employees, (iii) other options granted to
employees and directors.
<PAGE>
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 $4,001,000 loss for the year
ended December 31, 1996, a $520,259 loss for the three months
ended September 30, 1997, and a loss of $1,832,383 for the nine
months ended September 30, 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 and equity financings. 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. Through
November 15, 1997, approximately $1.4 million of the net proceeds
was pledged by the Company as collateral for a loan made to a
limited liability company owned and controlled by the Company's
Chief Executive Officer, approximately $1.8 million was used to
pay aged accounts payable of the Company in late 1996 and early
1997 and approximately $1.3 million was used to fund the
Company's other working capital and capital expenditure
requirements during the first three quarters of 1997. See
"Business -- Corporate History -- Phillips & Andrus LLC; KP3, LLC."
In addition, on September 24, 1997, the Company closed a private
placement of its equity securities primarily to facilitate the
purchase of the ADAM business (the "ADAM Private Placement").
The Company anticipates that the balance of the proceeds from the
December 1996 Private Placement and the balance of the proceeds
from the ADAM Private Placement will be used for its working
capital requirements for the fourth quarter of 1997 and the first
quarter of 1998, and thereafter and for future capital
investments by the Company. While the Company believes that the
proceeds of the December 1996 and ADAM Private Placements will be
sufficient to support its working capital requirements through at
least the end of its current year and the first quarter of 1998,
there can be no such assurance. If the proceeds are not
sufficient to satisfy 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, or to reduce operations, or both. 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 bulletin board of the over-the-counter
market (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 affect 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 National Association of Securities
Dealers (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
that 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. On November 19, 1997, the last reported
sale price of the Common Stock was $1.875. At the Company's
Annual Meeting of Shareholders, expected to be held in December
1997, the Company will submit to its shareholders a 1 for 4
reverse stock split proposal. Such proposal must be approved by
two-thirds of the holders of Common Stock
<PAGE>
entitled to vote at the
meeting. If approved and effectuated, the minimum bid for the
Common Stock might exceed $4.00. There can be no assurance that
the shareholders of the Company will approve such a plan.
Moreover, even if such reverse stock split is accomplished and
the common stock has a minimum bid that exceeds $4.00, future
operating losses or acquisitions involving intangibles could
result in reductions of the Company's net tangible assets below
the minimum required for listing on The Nasdaq Small Cap Market.
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 could cause
investors to cease using the products and services offered
through the Company's distribution channels, including the
Company's products and services, and could materially and
adversely affect the revenues of the Company.
ADAM Acquisition Contingent Payments. On September 24,
1997, the Company acquired all of the issued and outstanding
common stock of ADAM in consideration for payment of $5,000,000
in cash at the closing and two earn-out payments on the first and
second anniversary dates of the closing. The first earn-out
payment will equal 1.0% of ADAM's standard fee assets under
management in excess of $500 million, determined on the one-year
anniversary of the closing of the ADAM acquisition, not to exceed
$2.0 million, plus interest thereon at a rate of 8.75%. The
second earn-out payment will equal 1.0% of ADAM's standard fee
assets under management in excess of $700 million, determined on
the two-year anniversary of the closing of the ADAM acquisition,
not to exceed $2.0 million. These future contingent payments
could have a material negative impact on the cash flows of the
Company if anticipated assets under management and income levels
are not achieved and operating costs are not contained at desired
levels.
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 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.
<PAGE>
Failure to Manage Growth Effectively Could Strain Company
Resources. Primarily to permit the Company to build its internal
systems and to service product development for new relationships
being established with Institutional Channels, and as a result of
the ADAM acquisition, the number of persons employed by the
Company increased from approximately 43 on March 31, 1996 to
approximately 84 on November 19, 1997. 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 affect 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 and state governments. New
regulatory changes affecting the securities industry could
adversely affect the Company's business. In addition, as
investment advisers 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.
The Company Is Controlled by a Small Group of Shareholders.
As of November 18, 1997, the Company's executive officers,
directors and affiliates of such persons beneficially own
approximately 32.2% 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."
<PAGE>
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 September 30, 1997 the Company was
in default in the payment of dividends on the Preferred Stock in
the amount of $275,964. 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."
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of
the Shares by the Selling Shareholders.
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 on the OTC
Bulletin Board 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.
-------------------------------------------
High Bid Low Bid
-------------------------------------------
1995
-------------------------------------------
-------------------------------------------
First Quarter $1.25 $0.6875
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-------------------------------------------
Second Quarter $0.6875 $0.50
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-------------------------------------------
Third Quarter $1.3125 $0.5625
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-------------------------------------------
Fourth Quarter $1.625 $0.75
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-------------------------------------------
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1996
-------------------------------------------
-------------------------------------------
First Quarter $1.00 $0.625
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-------------------------------------------
Second Quarter $1.8125 $0.9375
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-------------------------------------------
Third Quarter $2.0625 $1.375
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-------------------------------------------
Fourth Quarter (1) $2.00 $1.375
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-------------------------------------------
-------------------------------------------
-------------------------------------------
1997
-------------------------------------------
-------------------------------------------
First Quarter $2.50 $2.00
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-------------------------------------------
Second Quarter $2.50 $1.625
Third Quarter $1.9375 $1.25
Fourth Quarter (2) $1.875 $1.50
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______________________________
(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.
(2) Through November 19, 1997.
As of November 18, 1997 the Company had approximately 410
record holders of its Common Stock.
The Company currently has outstanding a total of 138,182
shares of Preferred Stock. As of September 30, 1997, the Company
was in default in the payment of dividends on the Preferred Stock
in the amount of $275,964. The Company may not pay dividends on
its Common Stock so long as it is in default in the payment of
dividends on the Preferred Stock. The Company has proposed to
its shareholders, including the holders of its Preferred Stock,
an amendment to its Articles of Incorporation to convert the
outstanding Preferred Stock into Common Stock on a basis
comparable to that effected with certain holders of the Preferred
Stock in December 1996. See "Business -- Corporate History -- December
1996 Restructuring." Such amendment will require the approval of
two-thirds of the holders of the outstanding Preferred Stock and
two-thirds of the holders of the outstanding Common Stock voting
as separate classes at the annual meeting of the Company's
shareholders, expected to be held in December, 1997.
<PAGE>
The Company has never paid dividends on the 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.
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 number 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 September 30, 1997, Compared to Three Months
Ended September 30, 1996 and Nine Months Ended September 30,
1997, Compared to Nine Months Ended September 30, 1996
Revenues were $3,454,000 for the quarter ended September 30,
1997, compared to $2,483,000 for the corresponding quarter in
1996, an increase of 39%. Revenues were $9,306,000 for the nine
months ended September 30, 1997, compared to $7,692,000 for the
corresponding nine months in 1996, an increase of 21%. The
increase was attributable primarily to investment management fees
generated from new institutional client relations. In addition,
asset based fees increased in direct proportion to increases in
the stock market. Revenues related to these new relationships are
based upon a percentage of assets under management using the
Company's products and services. Much of the new business is
from distribution channels that pay the Company only its net
portion of the fees, and does not include the fees for third
parties (i.e., portfolio managers, solicitors, brokerage or
custody). Historically, fees paid to the Company through its
primary distribution channels included fees payable for these
other services. When the Company acts in the capacity of vendor,
consultant or sub-advisor to another entity that is either a
registered investment advisor or exempt under the law, the
Company is likely to be paid only its portion of the total client
fee. When the Company acts in the capacity of investment
advisor, it is more likely to collect the gross fee paid by the
client and then pay investment manager and other third party
fees.
<PAGE>
Investment Manager and Other Fees were $1,703,000 for the
quarter ended September 30, 1997, compared to $1,393,000 for the
corresponding quarter in 1996, an increase of 22%. Investment
manager and other third party fees were $4,437,000 for the nine
months ended September 30, 1997, compared to $4,225,000 for the
corresponding nine months in 1996, an increase of 5%. Such
expenses increased as a result of new business and the need to
allocate additional resources to service such new business.
However, as discussed above, direct expenses did not increase in
proportion to revenues as certain of these revenues are
recognized on a net basis to the Company. In addition, asset
based direct expenses increased in direct proportion to increases
in the stock market.
The Net of Investment Manager and Other Fees from Total
Revenues was $1,752,000 for the quarter ended September 30, 1997,
compared to $1,090,000 for the corresponding quarter in 1996, an
increase of 61%. The margin was $4,868,000 for the nine months
ended September 30, 1997, compared to $3,467,000 for the
corresponding period in 1996, an increase of 40%. These
increases are explained above under Revenues and Direct
Expenses.
Operating Expenses were $2,272,000 for the quarter ended
September 30, 1997, compared to $2,021,000 for the corresponding
quarter in 1996, an increase of 12%. Operating expenses were
$6,700,000 for the nine months ended September 30, 1997, compared
to $5,581,000 for the corresponding nine months in 1996, an
increase of 20%. These increases were due primarily to an
increase in salaries and benefits which increased 31% for the
nine month period, and general and administrative costs which
increased 49% for the nine month period. Personnel and the
related operating costs increased to support the expansion of the
Company's products and services, the development of internal
systems and the servicing of several new distribution channels
and customers.
The total number of Company employees at November 12, 1997
was 84 including employees transferred from ADAM, as compared to
50 at September 30, 1996. Clearing charges and user fees
decreased by 30% for the nine month period as a result of the
implementation of a new in-house trading system and termination
of an outside service bureau. Advertising and promotion
increased by 26% for the nine month period as a result of
development and support of new distribution channels. Product
development costs increased by 90% for the nine month period as a
result of implementation on a new portfolio accounting system and
maintenance of proprietary software. Interest costs for the nine
month period decreased by 89% as a result of the repayment of a
note payable. Depreciation and amortization increased by 66% for
the nine month period as a result of a general increase in the
level of fixed assets. The Company believes continued expansion
of its operations is essential. As a consequence, the Company
intends to continue to increase operating expenditures.
Income Taxes Based on current estimates of operating
results, the Company expects its effective tax rate to be -0- for
1997.
Net Loss The Company recorded a net loss of $520,000 for
the quarter ended September 30, 1997 as compared to $931,000 for
the same period in 1996, a decrease of 44%. The net loss was
$1,832,000 for the nine months ended September 30, 1997, compared
to $2,114,000 for the corresponding nine months in 1996, a
decrease of 13%. The Company recorded a net loss of $520,000 for
the quarter ended September 30, 1997 as compared to $734,000 for
the quarter ended June 30, 1997, a decrease of 29%. For the
quarter ended September 30, 1997, the net loss before interest,
taxes, depreciation and amortization was $197,000 as compared to
$685,000 for the corresponding quarter in 1996, an improvement of
71%.
The improvement in earnings was the result of revenues growing at
a faster pace than direct and operating expenses. Also, certain
product development costs that the Company had not previously
incurred, amounting to $594,000, were capitalized during the
quarter ended September 30, 1997. (See Note 1 to the Financial
Statements attached) Capitalizing such costs directly impacts
the earnings of the Company. However, revenues from new business
continue to be less than operating expenses resulting in a net
loss in the current period ended September 30, 1997.
<PAGE>
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 $53,117 to $845,767
for 1996 from $792,650 for 1995. The increase was due primarily
to 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
$0.67 million to nearly $1.15 million for 1996 from $0.48 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 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.
<PAGE>
Liquidity and Capital Resources
At September 30, 1997, the Company had cash of $3,465,000, a
substantial portion of which was held in short-term interest
bearing accounts, including restricted cash of $1,890,000. (See
Note 2 to the Company's Financial Statements)
For the nine months ended September 30, 1997, cash used in
operating activities was $3,080,000. This was due primarily to
net operating losses sustained. Also, as a result of the ADAM
acquisition, accounts receivable, prepaid expenses, accounts
payable, accrued expenses and deferred income increased. In
addition, accounts receivable and deferred revenues increased as
a result of new business. Cash used in investing activities was
$6,997,000. Cash used in investing activities was the result of
goodwill generated from the ADAM acquisition and capital
expenditures incurred as a result of business expansion. Cash
provided by financing activities of $7,044,000 was primarily
related to the private placement of common stock.
ADAM Acquisition. On September 24, 1997, the Company
completed the acquisition of ADAM, a financial services and
investment advisory company headquartered in Atlanta, Georgia.
ADAM has provided investment consulting services to institutional
investors since 1980. ADAMS's primary services are based around
mutual funds. ADAM offers 17 model portfolios constructed using
no-load mutual funds and funds available at net asset value.
These "standard" portfolios consist of 5 global tactical asset
allocation portfolios, 5 global strategic asset allocation
portfolios and 7 asset class portfolios that concentrate on
narrow asset class groups. ADAM also has 5 strategic asset
allocation portfolios constructed using mutual funds that invest
in companies that are identified as operating in a socially
responsible manner. ADAM's mutual fund portfolios are also
offered as options for use by 401(k) plans and with several
insurance companies within variable life and variable annuity
contracts. ADAM currently has a staff of approximately 16 people
who are located in its corporate headquarters in Atlanta, Georgia
and in the Company's headquarters in Denver, Colorado. ADAM has
one wholly-owned subsidiary, Optima, which it acquired in 1995.
Optima provides mutual fund wrap services to clients.
The agreement providing for the acquisition of ADAM by the
Company provided that the Company would acquire all of the
outstanding capital stock of ADAM for up to $9.0 million in cash
and up to $200,000 in Common Stock if certain conditions are met
over time. In addition, the Company agreed to assume the normal
operating liabilities of ADAM at closing of the acquisition,
estimated to be approximately $1.6 million. At the closing of
the ADAM transaction, the Company paid $5,000,000 in cash and
agreed to make two earn-out payments on the first and second
anniversary dates of the closing. The first earn-out payment
will equal 1.0% of ADAM's standard fee assets under management
in excess of $500 million, determined on the one-year
anniversary of the closing of the ADAM acquisition, not to exceed
$2.0 million, plus interest thereon at a rate of 8.75%. The
second earn-out payment will equal 1.0% of ADAM's standard fee
assets under management in excess of $700 million, determined on
the two-year anniversary of the closing of the ADAM acquisition,
not to exceed $2.0 million. ADAM is now a wholly owned
subsidiary of the Company, and the Company anticipates that ADAM
will continue to operate as a wholly owned subsidiary of the
Company in the near future.
In connection with the ADAM acquisition, on September 24,
1997, the Company sold 4,882,996 shares of its Common Stock in
the ADAM Private Placement at a price of $1.50 per share. The
proceeds from this transaction, after deducting expenses relating
to the issuance of the Common Stock, were approximately
$6,500,000, of which the Company used $5,000,000 to purchase ADAM
at the ADAM closing. The additional $1,500,000 is currently
being used by the Company for working capital purposes. The
Company anticipates that the balance of the proceeds from the
ADAM Private Placement will be used for its working capital
requirements for the last quarter of 1997, the first quarter of
1998, and thereafter and for future capital investments by the
Company.
Most of the Company's ongoing losses and additional cash
flow requirements relate to its addition of staff and incurrence
of capital expenditures in anticipation of establishing new
distribution relationships and, more recently, the increased
spending in integrating the ADAM business in the Company. The
Company recognizes that there generally is a substantial delay
between when such relationship costs as these are incurred and
when the related revenues are recognized. While there can be no
assurance such will be the case, the Company anticipates that its
use of cash will increase marginally in the fourth quarter of
1997 and the first quarter of 1998 before decreasing in the
second and third quarters of 1998 as cash is received from any
new distribution relationships that are established and the ADAM
business is fully integrated into the Company. Future cash needs
will depend largely upon the Company's success in developing new
customer relationships that result in increased assets managed
using the Company's products and services. See "Risk
Factors -- Future Operating Losses May Result in Need for Additional
Capital."
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 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, 1996. The conversion of additional shares of
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. Through September 30, 1997,
approximately $1.9 million of the net proceeds was pledged by the
Company as collateral for a loan made to a limited liability
company owned and controlled by the Company's Chief Executive
Officer, approximately $1.8 million was used to pay aged accounts
payable of the Company in late 1996 and early 1997 and
approximately $1.3 million was used to fund the Company's other
working capital and capital expenditure requirements during the
first quarter of 1997. See "Business -- Corporate History -- Phillips
& Andrus LLC; KP3, LLC."
Uses of Cash. Between December 31, 1996, and September 30,
1997, cash and cash equivalents decreased from $6,499,000 at
December 31, 1996 to $3,465,000 ($1,575,000 of which was
unrestricted) at September 30, 1997 as the Company made capital
investments into furniture, fixtures and product development and
reduced other liabilities and accounts payable. Investment
management fees receivable increased $1,435,000 during the period
primarily as a result of the accrual of fees due from the new
relationships being established with Institutional Channels.
Other assets and liabilities have increased as a result of the
ADAM acquisition and in conjunction with the increase of sales
volume. See " -- Results of Operations -- Nine Months Ended September
30, 1997 Compared to Nine Months Ended September 30, 1996."
In January 1997, the Company provided assistance to Mr.
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
<PAGE>
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 Mr. Marc Geman, a
former officer of the Company, at the time he terminated his
association with the Company (the "KP3 Shares"). See
"Business -- Corporate History -- SEC Investigation and Settlement."
The Company 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. The pledge by the Company of
collateral for the loan permitted the deferred portion of the
purchase price of the Company's Common Stock to be paid to Mr.
Geman, thereby eliminating the possibility that Mr. Geman could
reacquire a substantial stock ownership in the Company. See
"Business -- Corporate History -- Phillips & Andrus, LLC; KP3, LLC."
To date, the Company has lent $96,000 to KP3 specifically to
service interest payments on the loan. KP3 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 has granted the Company a
security interest in the KP3 Shares. Such loan was restructured
through a different bank on October 1, 1997. In connection
therewith, the collateral pledge by the Company in connection
with the loan was reduced to $1,400,000 and the Company released
350,000 of the KP3 Shares previously held as collateral. The new
loan due date is December 31, 1998.
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). 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. The Company's policy is to
capitalize all software costs incurred in developing computer
software products until such products are available for release
to customers. Subsequent cost incurred to enhance and redesign
existing software products are capitalized and such
capitalization ceases when the enhanced or redesigned products
are released. 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,
subject to enhancement and customization, 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 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."
<PAGE>
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 over 8,000 funds encompassing $3.2
trillion of assets in 1996. 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
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 nearly $140 billion in assets at year-end 1996.
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 believed to be a
significant determinant of successful long-term investment
performance. In addition, by consolidating the numerous
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 $103 billion at year end 1996, while mutual fund wrap assets have
grown from $8 billion in 1993 to $36 billion by year end 1996. 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 range 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.
<PAGE>
The Company has a staff of approximately 84 people,
including approximately 35 professionals, and conducts business
in a number of countries. The Company has four 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;
(iii) Portfolio Technology Services, Inc., which specializes in
developing proprietary software for use in the financial services
industry; and (iv) ADAM Investment Services, Inc., an investment
advisory firm which specializes in mutual fund asset allocation
products.
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, 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.
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 tolerance, 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
Chase Investment Services Corp., National Financial Correspondent
Services ("NFCS"), the wholly-owned brokerage and securities
clearing subsidiary of Fidelity Management and Research, Israel
Discount Bank of New York, Ernst & Young LLP, Republic National
Bank
<PAGE>
of New York, TO Securities, Inc., an affiliate of Toronto
Dominion Bank and Cowen & Company. The relationship with Ernst &
Young also encompasses institutional consulting, Allocation
Manager(TM) services, and Managed Account Reporting Service
("MARS"). 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 ("Schwab"), 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. Customized versions of Allocation Manager(TM) have been
created for Chase Investment Services Corp., Ernst & Young LLP,
Republic National Bank of New York, MONY Securities Corporation,
Texas Commerce Bank and others.
A version of Allocation Manager(TM), called Fund Counselor, is
being marketed by NFCS. Under the Fund Counselor program, NFCS
will provide brokerage, clearing and custodial services and will
make the program available to its more than 225 bank, insurance
and financial planning broker/dealers. Allocation Manager(TM) is
being distributed through the Schwab system pursuant to a joint
marketing agreement. It is also being made available to
correspondents of EVEREN Clearing Corp. In addition, PMC is
currently pursuing similar relationships with other substantial
distributors and securities clearing firms.
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 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.
<PAGE>
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 system to the many
investment advisors that use Schwab's custodial services.
Effective October 1997, the Company began providing MARS reports
to clients of Scotia McLeod, Inc. through a third party vendor
agreement with Infowise, Inc.
Style Manager Asset Management Products
Style Manager 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 , 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 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 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 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.
<PAGE>
ADAM Investment Services, Inc.
ADAM was formed in 1980 to provide investment consulting
services to institutional investors. ADAM's primary services are
based around mutual funds. ADAM offers 17 model portfolios
constructed using no-load mutual funds and funds available at net
asset value. ADAM's mutual fund portfolios are offered as
options for use by 401(k) plans and with several insurance
companies within variable life and variable annuity contracts.
Today ADAM offers independent financial advisers a variety
of investment services for use in helping their clients reach
their financial goals. With respect to standard fee assets under
management, ADAM's services are typically provided for a fee that
is based on a percentage of assets under management. Fees based
on managed assets typically range from 100 to 185 basis points
per year. Fees are reduced as accounts reach certain
breakpoints. Occasionally fees are established on a negotiated
basis. ADAM collects all fees directly from client accounts and
pays the adviser's portion to the adviser. In certain instances
ADAM does not collect the adviser's portion of the fee and the
adviser invoices the client directly.
The services ADAM provides are described below.
Mutual Fund Portfolios. ADAM offers 17 model portfolios
constructed using no-load mutual funds and funds available at net
asset value. These "standard" portfolios consist of 5 global
tactical asset allocation portfolios, 5 global strategic asset
allocation portfolios and 7 asset class portfolios that
concentrate on narrow asset class groups. ADAM will also
construct customized mutual fund portfolios for larger accounts.
Socially Responsible Portfolios. ADAM offers 5 strategic
asset allocation portfolios constructed using mutual funds that
invest in companies that are identified as operating in a
socially responsible manner. These portfolios are targeted to
individual investors as well as endowments and foundations that
support social or religious causes.
401(k) Services. ADAM offers its mutual fund portfolios as
options for use by 401(k) plans. ADAM has developed marketing,
enrollment and educational material for use in the 401(k)
market. ADAM has also developed relationships with custodial and
record keeping firms that work with advisers using ADAM's 401(k)
services.
Insurance and Annuity Services. ADAM has developed
relationships with several insurance companies under which it
provides asset allocation and portfolio construction services
within variable life and variable annuity contracts. Financial
advisers can use these contracts in conjunction with ADAM's
mutual fund portfolios to manage an investor's assets in a
consistent manner both inside and outside of insurance policies.
Private Label Program. ADAM has developed and is initiating
a "private label" program that will allow advisers to determine
the asset allocation strategy and select the mutual funds used in
constructing client portfolios. This program will give advisers
more involvement in, and influence over, investment strategy and
portfolio construction.
Marketing, Education and Training Services. ADAM provides
advisers with a variety of marketing materials, newsletters,
slide presentations, software and proposal preparation services
that support the advisers' efforts to market ADAM's services.
ADAM also supports advisers' marketing efforts through field
wholesalers and in-house customer service personnel. ADAM
educates advisers in its investment approach and trains advisers
how to market its services through visits to the advisers'
offices and through periodic regional seminars.
Back-Office and Administrative Services. ADAM assists
advisers in opening client accounts and monitors and trades
client portfolios on a discretionary basis. ADAM provides
comprehensive quarterly reports to all clients.
Distribution. ADAM distributes its services through six
marketing representatives who are supported by three account
servicing representatives. Marketing representatives recruit new
advisers to use ADAM's services and provide training and
marketing support to advisers on an ongoing basis. Account
servicing representatives support the efforts of the marketing
representatives and provide customer assistance to advisers. All
marketing representatives and account
<PAGE>
servicing representatives
are employees of ADAM. ADAM terminated its relationship with ACG
Consulting Services, Inc., ADAM's former independent distribution
firm, in August 1996.
In 1995, ADAM acquired Optima Funds Management, Inc.
("Optima"). Optima provides mutual fund wrap services to clients
with assets under management of approximately $120 million.
ADAM's current Chief Investment Officer was the President and
Chief Investment Officer of Optima.
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, 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. 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 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.
In July 1997, the Company and PTS entered into agreements
with Ernst &Young LLP to provide institutional consulting,,
Private Wealth Management(TM), Allocation Manager(TM) and MARS
reporting services. Under the agreement, the Company provides
end to end consulting, advisory and reporting services to Ernst & Young LLP in
support of its advisory and reporting services to clients. Also
in 1997, the Company entered into agreements with Republic
National Bank of New York to provide customized software
and reporting services in connection with both mutual
fund and privately managed accounts. As of October 31, 1997, the
Company was providing services to over 1500 Republic accounts
representing approximately $1.1 billion in assets.
The Company targets 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, Cowen & Company, Texas Commerce Bank and
EVEREN Clearing Corp.
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
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.
<PAGE>
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 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
<PAGE>
payment.
The refund process was completed in May 1997. In addition, Mr.
Phillips agreed to a censure and payment of a $25,000 fine.
On June 27, 1996, administrative proceedings were instituted
against Mr. Geman, as an individual, by the Commission in
connection with the above described investigation. A hearing was
held before an administrative law judge on November 5 and 6,
1996. As of November 19, 1997, the Company was not aware of any
ruling in the matter.
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 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. The Company and
Messrs. Phillips and Andrus believed that it would be in the
Company's interest that Mr. Geman's involvement with the Company
and direct ownership interest in Common Stock be eliminated. In
October 1996, affiliates of Bedford loaned P&A funds to make the
initial interest payments on the note owed to Mr. Geman. 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
<PAGE>
the promissory note to Mr. Geman. These
loans permitted P&A to avoid defaults under the promissory note
owed 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, valued at
approximately $1,890,000, 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. The pledge by the Company to
the bank to secure the KP3 Loan permitted the promissory note to
Mr. Geman to be paid and to eliminate the possibility that Mr.
Geman could reacquire a substantial stock ownership in the
Company. To date, the Company has lent $96,000 to KP3
specifically to service interest payments on the loan. KP3 has
agreed to reimburse the Company for all amounts paid by the
Company toward the loan or for collateral applied to the KP3
Loan, including interest at an annual rate of 9% and has granted
the Company a security interest in the KP3 Shares. Such loan was
restructured through a different broker on October 1, 1997. In
connection therewith, the collateral pledge by the Company in
connection with the KP3 Loan was reduced to $1,400,000 and the
Company released 350,000 of the KP3 Shares previously held as
collateral. The new loan due date is December 31, 1998.
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 Bridge 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
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 Bridge 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 Bridge 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
<PAGE>
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 Bridge
Loan, and (iv) the conversion of 173,120 shares of 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, 1996. The conversion of
additional shares of 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.
<PAGE>
ADAM Acquisition and Financing
On September 24, 1997, the Company completed the acquisition
of ADAM, a financial services and investment advisory company
headquartered in Atlanta, Georgia. ADAM has provided investment
consulting services to institutional investors since 1980.
ADAMS's primary services are based around mutual funds. ADAM
offers 17 model portfolios constructed using no-load mutual funds
and funds available at net asset value. These "standard"
portfolios consist of 5 global tactical asset allocation
portfolios, 5 global strategic asset allocation portfolios and 7
asset class portfolios that concentrate on narrow asset class
groups. ADAM also has 5 strategic asset allocation portfolios
constructed using mutual funds that invest in companies that are
identified as operating in a socially responsible manner. ADAM's
mutual fund portfolios are also offered as options for use by
401(k) plans and with several insurance companies within variable
life and variable annuity contracts. ADAM has a staff of
approximately 37 people, all of whom are located in its corporate
headquarters in Atlanta Georgia. ADAM has one wholly-owned
subsidiary, Optima, which it acquired in 1995. Optima provides
mutual fund wrap services to clients.
The agreement providing for the acquisition of ADAM by the
Company provided that the Company would acquire all of the
outstanding capital stock of ADAM for up to $9.0 million in cash
and up to $200,000 in Common Stock if certain conditions are met
over time. In addition, the Company agreed to assume the normal
operating liabilities of ADAM at closing of the acquisition,
estimated to be approximately $1.6 million. At the closing of
the ADAM transaction, the Company paid $5,000,000 in cash and
agreed to make two earn-out payments on the first and second
anniversary dates of the closing. The first earn-out payment
will equal 1.0% of ADAM's standard fee assets under management
in excess of $500 million, determined on the one-year
anniversary of the closing of the ADAM acquisition, not to exceed
$2.0 million, plus interest thereon at a rate of 8.75%. The
second earn-out payment will equal 1.0% of ADAM's standard fee
assets under management in excess of $700 million, determined on
the two-year anniversary of the closing of the ADAM acquisition,
not to exceed $2.0 million. ADAM is now a wholly owned
subsidiary of the Company, and the Company anticipates that ADAM
will continue to operate as a wholly owned subsidiary of the
Company in the near future.
In connection with the ADAM acquisition, on September 24,
1997, the Company sold 4,882,996 shares of its Common Stock in
the ADAM Private Placement at a price of $1.50 per share. The
proceeds from this transaction, after deducting expenses relating
to the issuance of the Common Stock, were approximately
$6,500,000, of which the Company used $5,000,000 to purchase ADAM
at the ADAM closing. The additional $1,500,,000 is currently
being used by the Company for working capital purposes. The
Company anticipates that the balance of the proceeds from the
ADAM Private Placement will be used for its working capital
requirements for the last quarter of 1997, the first quarter of
1998, and thereafter and for future capital investments by the
Company.
Properties
The Company leases approximately 20,000 square feet of
office space for its corporate headquarters in the Qwest 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 December 1997. ADAM
subleases approximately 17,000 square feet of office space in the
Galleria Plaza, 100 Galleria Parkway, Suite 1200, Atlanta,
Georgia, pursuant to a sublease which expires May, 1999.
ADAM pays approximately $34,000 per month for this office space.
Employees
The Company and its subsidiaries has a staff of
approximately 84 persons as of September 30, 1997, including
approximately 35 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.
<PAGE>
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.
In early June 1997, the Company received a letter from an
attorney representing a former employee which threatened
litigation relating to a dispute over such former employee's
remuneration by the Company unless the Company agreed to settle
with him by a specified date. The former employee alleged
damages totaling $645,000. The Company has responded to the
letter and stated its position that no amounts are owed.
Subsequently, the Company was advised by the former employee's
attorney that the matter would be submitted to the NASD for
arbitration. The Company has not been served or otherwise been
made subject to litigation in connection with the matter. The
Company believes that the claims described in the letter are
without basis and intends to defend the matter vigorously if any
proceeding is commenced.
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding
the Company's directors and executive officers:
- --------------------------------------------------------------------
Name Age Position
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Kenneth S. Phillips 46 President, Chief Executive
Officer and Director
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Scott A. MacKillop 46 Executive Vice President and
Director
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Vali Nasr 43 Chief Financial Officer and
Treasurer
- --------------------------------------------------------------------
- --------------------------------------------------------------------
J. W. Nevil Thomas 58 Chairman of the Board of
Directors
- --------------------------------------------------------------------
- --------------------------------------------------------------------
D. Porter Bibb 59 Director
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Emmett J. Daly 37 Director
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Richard C. Hyde 52 Director
- --------------------------------------------------------------------
Kenneth S. Phillips -- President and Chief Executive Officer,
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.
Scott A. MacKillop -- Executive Vice President, Chief Operating
Officer, Director. Mr. MacKillop joined the Company in September
1997 as a Director, Executive Vice President and the Chief
Operating Officer of the Company, and as President of ADAM, the
Company's wholly owned subsidiary, as Chief Operating Officer of
Optima Funds Management, Inc. ("Optima"), a wholly owned
subsidiary of ADAM, and as a member of the Boards of Directors of
both ADAM and Optima. Mr. MacKillop was appointed to the Board
of Directors on October 27, 1997. Mr. MacKillop has been
employed by ADAM since 1992. From 1991 until 1992 Mr. MacKillop
served as outside general counsel to ADAM. Mr. MacKillop
received a B.A. degree from Stanford University in 1972 and a
J.D. degree from George Washington University Law School in 1976.
<PAGE>
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. 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 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 and of
Bedford and its subsidiary as described above, Mr. Thomas is a
director of Gan Canada Limited, Reliable Life Insurance Company,
Pet Valu Inc., French Fragrances, Inc., Old Republic Insurance
and several other private Canadian and American companies. Mr.
Thomas holds a B.B. Com. from the University of Toronto, an M.A.
in Economics from Queens University, an M.B.A from York
University and is a Chartered 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.
Richard C. Hyde -- Director. Mr. Hyde became a director of the
Company in July 1997. Mr. Hyde is President of Moreland Capital,
Inc., an asset management and investment consulting firm. He is
also a Principal in Vestor Associates, LLC, the general partner
of Vestor Partners, LP, a private equity investment fund. Prior
to his current affiliations, from 1970 to 1995 Mr. Hyde served in
investment/asset management positions with Ameritrust Company and
its successor organizations, Society Corporation and Key Corp.
From 1984 through 1993, he was Chief Investment officer. From
1993 through 1995, Mr. Hyde was the CEO of Society Asset
Management and Managing Director of Key Asset Management
Holdings. Mr. Hyde holds both a Bachelor of Science and MBA --
Finance from Miami University of Ohio.
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
<PAGE>
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.
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
- ---------------------------------------------------------
- ---------------------------------------------------------
Annual Long-Term
Compensation
- ---------------------------------------------------------
- ---------------------------------------------------------
Name and Principal Fiscal Salary Options
Position Year Granted(1)
- ---------------------------------------------------------
- ---------------------------------------------------------
Kenneth S. Phillips 1996 $252,000 50,000
President, Chief 1995 228,124
Executive Officer 1994 241,774
- ---------------------------------------------------------
- ---------------------------------------------------------
David L. Andrus(2) 1996 $240,000 1,050,000
Executive Vice 1995 40,000
President
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
Vali Nasr 1996 $139,015 50,000
Chief Financial 1995 126,475
Officer & Treasurer 1994 128,262
- ---------------------------------------------------------
(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 and was notified on
October 13, 1997 that his affiliation with the Company as an
employee will cease effective January 11, 1998.
<PAGE>
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
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Percentage
of Total
Number of Options
Shares Granted to
Name Underlying Employees Exercise Expiration
Options in Price Date
Granted Fiscal
Year
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Kenneth S. 50,000 4.2% $1.00 6/7/2001
Phillips
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
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
- ----------------------------------------------------------------------
_______________________
(1) Options will expire 24 months after Mr. Andrus leaves the
employ of the Company, January 11, 1998.
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
- -------------------------------------------------------------------------------
Shares Number of Value of
Acquired Securities Unexercised
on Value Underlying Money
Name Exercise Realized Unexercised Options at
Options at FY End
FY End Exercisable/Unexercisable
Exercisable/Unexercisable
- ---------- -------- -------- ---------------- --------------
- ---------- -------- -------- ---------------- --------------
Kenneth S. 0 0 20,000/30,000 $22,500/$33,750
Phillips
- --------- --------- -------- ---------------- --------------
- --------- --------- -------- ---------------- --------------
David L. 0 0 295,000/755,000 $168,830/$513,750
Andrus
- --------- --------- -------- ---------------- --------------
- --------- --------- -------- ---------------- --------------
Vali Nasr 0 0 50,000/0 $56,250/$0
- --------- --------- -------- ---------------- --------------
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
<PAGE>
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 ADAM has an
employment agreement with Mr. MacKillop, the Executive Vice
President and Chief Operating Officer of the Company. In
addition, the Company has an employment agreement with Mr.
Andrus, its former 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. Effective
January 1, 1997, Mr. Phillips salary was increased to $300,000. 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. MacKillop is dated September 23,
1997, and is for a two-year term. ADAM may terminate the
agreement at any time after the one-year anniversary of the date
of the agreement by giving six months' prior written notice. The
agreement provides for a minimum salary of $240,000, an annual
bonus of up to $50,000, options to acquire 250,000 shares of
Common Stock, and participation in the Company's other benefit
plans.
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.
Effective January 1, 1997, Mr. Andrus salary was increased to
$300,000. 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. On October
13, 1997, the Company notified Mr. Andrus that his affiliation
with the Company as an officer and employee will cease effective
January 11, 1998. Pursuant to his employment agreement, Mr.
Andrus will receive severance payments in an amount equal to his
current salary, payable ratably on a semi-monthly basis for up to
one year after his separation from the Company. Such payments
will cease sooner in the event Mr. Andrus gains employment
affording him comparable compensation.
<PAGE>
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 November 10, 1997 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.
--------------------------------------------------------------
Name and Address Number of Percent of
Shares Class
--------------------------------------------------------------
--------------------------------------------------------------
Kenneth S. Phillips(1)........... 2,999,767(10)(11) 15.4%
--------------------------------------------------------------
--------------------------------------------------------------
Scott A. MacKillop(1)............ 32,000(18) *
--------------------------------------------------------------
--------------------------------------------------------------
J.W. Nevil Thomas(2)............. 40,000(11)(13) *
--------------------------------------------------------------
--------------------------------------------------------------
D. Porter Bibb(3)................ 20,000(11)(14) *
--------------------------------------------------------------
--------------------------------------------------------------
Emmett J. Daly(4)................ 210,000(18)(19) 1.1
--------------------------------------------------------------
--------------------------------------------------------------
Richard C. Hyde(5)............... 10,000(18) *
--------------------------------------------------------------
--------------------------------------------------------------
Vali Nasr(1)..................... 120,497(15) *
--------------------------------------------------------------
--------------------------------------------------------------
David L. Andrus(6)............... 887,000(11)(12) 4.4
--------------------------------------------------------------
--------------------------------------------------------------
Bedford Capital Financial ....... 2,971,250(16) 15.2
Corporation(7)
--------------------------------------------------------------
--------------------------------------------------------------
KP3, LLC(1)...................... 1,643,845(17) 8.5
--------------------------------------------------------------
--------------------------------------------------------------
OCH ZIFF Capital Management(20).. 1,866,666 9.6
--------------------------------------------------------------
--------------------------------------------------------------
Bay Pond Partners, L.P.(8)....... 1,463,333 7.5
--------------------------------------------------------------
--------------------------------------------------------------
Bay Pond Investors (Bermuda), 1,081,000 5.6
Ltd.(8)..........................
--------------------------------------------------------------
--------------------------------------------------------------
Wheatley Partners, L.P.(9)....... 1,607,666 8.3
--------------------------------------------------------------
--------------------------------------------------------------
All Officers and Directors as a 3,422,264 17.4
group (7 persons)
--------------------------------------------------------------
_______________________
* Less than 1%.
(1) The address of Mr. Phillips, Mr. Nasr, Mr. MacKillop, Mr.
Andrus 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 Mr. Hyde is Moreland Capital, Inc., 30050
Chagrin Blvd., Suite 100, Pepper Pike, Ohio 44124.
(6) The address of Mr. Andrus is 2554 Linden Drive, Boulder, CO
80304.
(7) The address of Bedford Capital Financial Corporation is 2nd
Floor, Charlotte Hs., Shirly Street, Box N964, Nassau, Bahamas.
(8) 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.
(9) The address of Wheatley Partners, L.P. is 80 Cutter Mill Road,
Suite 311, Great Neck, New York 11021.
(10)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.
(11)Includes 20,000 shares underlying presently exercisable
options.
(12)Includes 767,000 shares underlying presently exercisable
options.
(13)Includes 10,000 shares owned by Mr. Thomas' spouse, Suzanne
E. Thomas. Does not include shares owned by Bedford of which
Mr. Thomas is a director and a 6.13% shareholder.
(14)Does not include 200,000 shares underlying presently
exercisable options granted to Ladenburg, Thalmann & Co.,
Inc., of which Mr. Bibb is a managing director.
(15)Includes 50,000 shares underlying a presently exercisable
option.
(16)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.
(17)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.
(18)Includes 10,000 shares underlying presently exercisable
options.
(19)Includes 25,000 shares jointly owned with Regina Daly and
135,000 shares underlying presently exercisable options.
(20)The address of OCH ZIFF Capital Management is 153 E. 53rd
Street, 43rd Floor, New York, NY 10022.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into an agreement with Ladenburg, Thalmann
& Co., Inc., investment bankers ("Ladenburg"), 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, and September 30, 1997,
a total of $50,786 and $72,000, respectively, in indemnification
payments had been made by the Company under that agreement.
David L. Andrus, former 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 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 Chief
Executive Officer and former 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. 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."
<PAGE>
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, former
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 November 18, 1997, the Company had
19,431,610 shares of Common Stock issued and outstanding with
rights, options and warrants outstanding which could require the
Company to issue 3,816,000 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 Company's 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, as amended (the "Articles") 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. The
Articles provide for a series A of preferred stock, no par value
per share (the "Series A Preferred").
As of the date of this Prospectus, the only series of
preferred stock to be designated and issued were shares of Series
A Preferred, of which 138,182 shares are issued and outstanding.
Holders of the Series A Preferred 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
Series A Preferred 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 Series A Preferred
($2.50), plus all unpaid cumulative dividends. As of September
30, 1997, unpaid cumulative dividends in
<PAGE>
arrears with respect to
the Series A Preferred amounted to $275,964. The Series A
Preferred is non-participating and the holders of the Series A
Preferred have no preemptive rights and no voting rights except
as may be required by Colorado law.
At the option of the Company, the Series A Preferred 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 has proposed to its shareholders,
including the holders of its Series A Preferred, an amendment to
its Articles of Incorporation to convert the outstanding Series A
Preferred into Common Stock on a basis comparable to that
effected with certain holders of the Series A Preferred in
December 1996. See "Business -- Corporate History -- December 1996
Restructuring." Such amendment will require the approval of
two-thirds of the holders of the outstanding Series A Preferred
and two-thirds of the holders of the outstanding Common Stock
voting as separate classes at the annual meeting of the Company's
shareholders, expected to be held in December, 1997.
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 5,657,996
Shares offered hereby for resale by the Selling Shareholders,
775,000 Shares represent shares of Common Stock to be issued upon
the exercise of presently issued 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.
The amount of Shares offered hereby may in some instances exceed
the number of Shares of Common Stock owned by a particular
Selling Shareholder prior to the offering. This difference is
due to Shares of Common Stock issuable by the Company to Selling
Shareholders upon their exercise of options.
<PAGE>
- --------------------------------------- ------------- -----------------------
Ownership Amount of Shares
of shares Offered Hereby
Selling Shareholder of Common
Stock
Prior to
Offering
- --------------------------------------- ------------- -----------------------
Acadia Fund I L.P.
Barlow Partners, Inc.
Bay Pond Investors (Bermuda) L.P.
Bay Pond Partners, L.P.
Canmerge Consultants Limited
Emmett J. Daly and Regina Daly JT/TEN (1)
Endicott Partners, L.P.
Euro Credit Investments Ltd.
Financial Services Hedge Fund, L.P.
Michael J. Flinn
Growth Services Inc.
Guernroy Limited
Keefe, Bruyette & Woods, Inc.
Adam J. Lewis
James C. Lott & Mary M. Lott JT/TEN
Scott A. MacKillop
Malta Hedge Fund, L.P.
Malta Partners, L.P.
Thomas B. Michaud
Gary A. Miller
Och-Ziff Capital Management, L.P.
Rainbow Partners
Andrew M. Senchak
Suzanne E. Thomas
J.W. Nevil Thomas
Eric R. Thorpe
Peter L. vander Velden
Wheatley Foreign Partners, L.P.
Wheatley Partners, L.P.
Michael T. Wilkinson
Albert Yanni
David L. Andrus
<PAGE>
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: (i) 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; (ii) purchases by a broker or dealer
as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (iii) ordinary brokerage
transactions and transactions in which the broker solicits
purchases; and (iv) 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.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Financial statements for the years ended December 31, 1996 and 1995
and the Nine Months ended September 30, 1997 and 1996
Independent Auditors' Report..........................................F-2
Consolidated Balance Sheets...........................................F-3
Consolidated Statements of Operations.................................F-5
Consolidated Statements of Changes in Shareholders' Equity (Deficit)..F-6
Consolidated Statements of Cash Flows.................................F-8
Notes to Consolidated Financial Statements...........................F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
PMC International, Inc.
We have audited the accompanying consolidated balance sheets of
PMC International, Inc. and its subsidiaries (the "Company") as
of December 31, 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
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995 AND SEPTEMBER 30, 1997 (UNAUDITED)
<CAPTION>
ASSETS September 30, December 31, December 31,
1997 1996 1995
(Unaudited) (As restated;
Note 1)
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents (See Notes 1 and 7) $3,465,269 $ 6,499,390 $ 313,885
Receivables
Investment management fees 1,580,769 145,714 39,733
Other receivables (See Note 1) 124,141 160,483 63,210
Furniture and Equipment, at cost, net of accumulated 1,389,662 936,234 688,233
depreciation of $1,600,779, $689,227 and $355,231
Software and Product Develpment Costs, at cost, net of 1,101,042 511,123 419,617
accumulated amortization of $411,524 in 1997 and $203,526
in 1996 (See Note 1)
Goodwill, net of amortization of $10,498 5,388,659 -- --
Prepaid Expenses and Other Assets 1,428,493 340,006 220,605
Long-Term Note Receivable (See Note 2) 545,811 570,494 897,167
TOTAL ASSETS $ 15,023,846 $ 9,163,444 $ 2,642,450
See accompanying notes to financial statements.
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 1,163,851 $ 839,095 $ 1,442,694
Accrued expenses 612,386 535,520 707,897
Other liabilities (See Note 7) 139,100 730,909 571,389
Deferred revenue 1,391,999 552,868 411,347
Notes payable (See Note 6) 368,423 14,694 1,647,470
Obligations under capital leases (See Note 7) 382,655 219,821 69,490
TOTAL LIABILITIES 4,058,414 2,892,907 4,856,287
COMMITMENTS AND CONTINGENCIES (See Note 7)
SHAREHOLDERS' EQUITY (DEFICIT) (See Note 3)
Preferred stock - no par value - authorized 5,000,000 345,455 439,742 872,543
shares; issued and outstanding, 138,182 shares, 175,897
shares and 349,017 shares
Common stock, $.01 par value - authorized, 50,000,000 415,475 365,876 276,716
shares, issued and outstanding, 19,431,610 shares,
14,471,756 shares and 5,555,713 shares
Additional paid-in capital 22,704,222 16,132,256 3,302,749
Accumulated Deficit (12,499,720) (10,667,337) (6,665,845)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 10,965,432 6,270,537 (2,213,837)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $15,023,846 $ 9,163,444 $ 2,642,450
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
<CAPTION>
(Unaudited)
Nine Months Ended Year Ended
September 30, December 31,
1997 1996 1996 1995
(As
(As restated;
Note 1)
<S> <C> <C> <C> <C>
REVENUE:
Investment management fees 9,001,181 $ 7,322,124 $9,634,992 $8,632,888
(See Note 1)
Trading income - - 44,787 94,948
Other income 304,392 370,293
Total revenue 9,305,573 7,692,417 10,086,881
EXPENSES:
Investment manager and 4,437,494 4,225,107 5,580,846 5,139,613
other fees
3,467,310
Subtotal 4,868,079 4,506,035 4,032,866
OPERATING EXPENSES:
Salaries and benefits 3,027,800 2,309,941 3,487,811 2,524,936
Clearing charges and user 438,107 630,555 813,239 766,515
fees
Advertising and promotion 661,743 525,436 830,140 629,476
General and administrative 882,038 593,093 845,767 792,650
Product development costs 146,279 76,916 132,392 56,800
Occupancy and equipment 529,275 437,048 1,149,084 482,266
costs
Professional fees 311,452 399,620 763,086 484,860
Interest 26,019 232,528 331,008 102,011
Depreciation and 623,751 376,000 537,522 148,567
amortization
Goodwill amortization 10,498 - -- --
Severance Pay 43,500 -
-- --
Settlement expense
- - 155,000 465,000
Total operating 6,700,462 5,581,137 8,507,527 6,453,081
expenses
NET LOSS $(1,832,383) $(2,113,827) $(4,001,492) $(2,420,215)
NET LOSS PER COMMON SHARE $ (0.13) $(0.40) $ (0.71) $ (0.46)
(See Note 1)
WEIGHTED AVERAGE NUMBER OF 14,639,096 5,555,713 5,702,036 5,546,522
SHARES OUTSTANDING (See
Note 1)
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
DECEMBER 31, 1996 AND 1995 AND SEPTEMBER 30, 1997 (UNAUDITED)
<CAPTION>
Common Stock Additional Preferred Stock Total
Paid-In Shareholders'
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
as previously reported
Adjustment for the cumulative effect on
prior years for the correction of an
error (Note 1) (350,000) 29,173 (320,827)
BALANCES, December 31, 1994, as 5,540,501 276,564 3,287,689 349,017 872,543 (4,245,630) 191,166
restated
Issuance of stock to 401K plan 15,212 152 15,060 - - - 15,212
Net loss - - - - - (2,420,215) (2,420,215)
---------- --------- ----------- -------- -------- ------------ -----------
BALANCES, December 31, 1995 5,555,713 276,716 3,302,749 349,017 872,543 (6,665,845) (2,213,837)
Stock options exercised 1,000 10 1,365 - - - - 1,375
Notes payable converted to common 3,500,000 34,999 2,488,751 - - - - 2,523,750
stock
Preferred stock converted to common 238,043 2,381 430,420 (173,120) (432,801) - -
stock
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 - - - - - (4,001,492) (4,001,492)
---------- -------- ----------- -------- -------- ------------ -----------
BALANCES, December 31, 1996 14,471,756 365,876 16,132,256 175,897 439,742 (10,667,337) 6,270,537
Stock options exercised 25,000 250 26,625 - - - 26,875
Issuance of stock 4,882,996 48,830 7,275,664 - - - 7,324,494
Preferred stock converted to common 51,858 519 93,768 (37,715) (94,287) - -
stock
Less stock issuance costs - - (824,091) - - - (824,091)
Net loss - - - - - (1,832,383) (1,832,383)
---------- --------- ----------- -------- -------- ------------ -----------
BALANCES, September 30, 1997 19,431,610 $415,475 $22,704,222 138,182 $345,455 $(12,499,720) $10,965,432
(unaudited) ========== ========= =========== ======== ======== ============ ===========
See accompanying notes to financial
statements.
</TABLE>
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
INCREASE (DECREASE) IN CASH
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1997 1996 1996 1995
(unaudited) (as restated;
Note 1)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,832,383) $ (2,113,827) $ (4,001,492) $ (2,420,215)
Adjustments to reconcile net loss to net
cash used in operating activities:
Accretion of discount on note (43,777) (52,507) (67,181) (69,053)
receivable
Depreciation and amortization 634,249 376,000 537,522 148,567
Common stock issued as compensation - - - 15,212
under 401K plan
Changes in operating assets and
liabilities:
Investment management fees receivable (1,435,055) 74,174 (105,981) 32,085
Other receivables 36,342 (51,650) (97,273) 22,196
Prepaid expenses and other assets (1,088,487) (201,308) (119,401) 9,509
Accounts payable 324,756 (484,344) (597,029) 729,837
Accrued expenses 76,866 83,209 (172,377) 103,805
Other liabilities 11,630 10,129 159,520 464,399
Income taxes payable 2,152 - - -
SEC settlement distribution (605,591) - - -
Deferred revenue 839,131 99,370 141,521 37,346
Net cash used in operating (3,080,167) (2,260,754) (4,322,171) (926,312)
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (869,180) (479,456) (376,574) (405,932)
Reduction of long-term note receivable 68,460 300,318 393,854 338,067
Cost of product development (797,918) - (295,022) (419,617)
Acquisition of ADAM (5,399,157) - - -
Reduction of secured demand note - 225,000
Net cash used in investing (6,997,795) (179,138) (277,742) (262,482)
activities
See accompanying notes to financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1997 1996 1996 1995
(unaudited) (as restated;
Note 1)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 353,729 2,875,000 3,125,000 1,925,000
Principal payments on notes payable - (5,773) (2,234,026) (322,530)
Changes in obligations under capital lease 162,834 (42,060) (67,672) (14,709)
Sale of common stock, less offering costs 6,527,278 - 9,960,741 -
Proceeds from exercise of stock options - - 1,375 -
Principal payments on subordinated note - - - (225,000)
payable
-------------- -------------- ------------- -------------
Net cash provided by (used in) 7,043,841 2,827,167 10,785,418 1,362,761
financing activities
-------------- -------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH (3,034,121) 387,275 6,185,505 173,967
CASH, at beginning of period 6,499,390 313,885 313,885 139,918
-------------- -------------- ------------- -------------
CASH, at end of period $ 3,465,269 $ 701,160 $ 6,499,390 $ 313,885
-------------- -------------- ------------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 26,019 $ 67,990 $ 367,180 $ 96,969
============== ============== ============= =============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of equipment via capital lease $ 266,980 $ 137,139 $ 205,433 $ 90,199
obligation
Conversion of preferred stock to common stock $ 94,287 $ - $ 432,801 $ -
Conversion of note payable to common stock $ - $ - $ 2,523,750 $ -
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
On September 24, 1997, PMC International, Inc. ("PMCI" or the "Company")
completed its acquisition (the "Acquisition") of ADAM Investment Services,
Inc. ("ADAM"), a Delaware corporation, and its wholly owned subsidiary,
Optima Funds, Inc., ("Optima") a Georgia corporation, pursuant to a Stock
Purchase Agreement dated July 25, 1997 ("the Agreement") among the
Company, ADAM and ADAM's shareholders. PMCI acquired all of the issued
and outstanding shares of common stock of ADAM from its shareholders in
consideration for payment of $5 million at closing and two earn-out
payments on the first and second anniversary dates of the closing. The
first earn-out payment will equal 1.0% of ADAM's standard fee assets under
management in excess of $500 million, determined on the one-year
anniversary of the closing of the Acquisition, not to exceed $2.0 million,
plus interest thereon at a rate of 8.75%. The second earn-out payment
will equal 1.0% of ADAM's standard fee assets under management in excess
of $700 million, determined on the two-year anniversary of the closing of
the Acquisition, not to exceed $2.0 million. The Acquisition was
accounted for using the purchase method of accounting. The excess of the
cost of the Acquisition over the fair value of the assets acquired and
liabilities assumed was recorded as goodwill. The Acquisition was funded
from the proceeds of a private placement of PMCI common stock which also
closed on September 24, 1997. The Company raised approximately $6.6
million by selling 4,882,996 shares of PMCI common stock at $1.50 per
share.
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. Subsequently, it was determined that due to the nature of this
transaction, goodwill should not have been recorded. Accordingly, the
balances of the additional paid-in capital and deficit at December 31,
1995 have been restated from amounts previously reported to reflect a
retroactive charge of $350,000 to additional paid-in capital for the
original goodwill recorded and a credit of $52,513 to deficit for the
amortization of such goodwill to that date. Of the amount charged to the
deficit, $23,340 (negligible per share) is applicable to 1995 and has been
reflected as a reduction of general and administrative expenses for that
year, the balance being charged to the deficit at December 31, 1994. The
effect on the 1996 statement of operations would be to reduce the net loss
by $23,340 (negligible per share).
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.
<PAGE>
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.
ADAM Investment Services, Inc. ("ADAM"), a Delaware corporation, was
formed in 1980 to provide investment consulting services to institutional
investors. ADAM's primary services are based around mutual funds. ADAM
offers 17 model portfolios constructed using no-load mutual funds and
funds available at net asset value. ADAM's mutual fund portfolios are
offered as options for use by 401(k) plans and with several insurance
companies within variable life and variable annuity contracts. On
September 24, 1997, the Company acquired all of the issued and outstanding
voting stock of ADAM. ADAM is currently a wholly owned subsidiary of the
Company.
The accompanying consolidated financial statements include the historical
accounts of PMC for all periods and the accounts of PMCI since September
30, 1993, PBS and PTS since inception, and ADAM since September 24, 1997.
All intercompany accounts and transactions have been eliminated in
consolidation. The September 30, 1997 and September 30, 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 September 30, 1997 and September
30, 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.
Revenue from software customizations is recorded as such revenue accrues
under the terms of the related agreements. Revenue from software
maintenance is recorded as such revenue accrues under the terms of the
maintenance contracts. Software products are used in generating
investment management revenues and therefore are recorded as such revenues
accrue under the terms of the related investment management contracts.
Securities transactions and related commission income are recorded on a
trade date basis. In the normal course of business, PBS executes, as
agent, transactions on behalf of customers. If the agency transactions do
not settle because of failure to perform by either the customer or the
counter-party, PBS may be obligated to discharge the obligation of the
non-performing party and, as a result, may incur a loss if the market value
of the security is different from the contract amount of the transactions.
The 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
<PAGE>
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. The Company's policy
is to capitalize all software costs incurred in developing computer
software products until such products are available for release to
customers. Subsequent cost incurred to enhance and redesign existing
software products are capitalized and such capitalization ceases when the
enhanced or redesigned products are released. 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, subject
to enhancement and customization, 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.
Product development costs consist of salary and benefits, outside services
and other direct costs relating to customization of products for
institutional client relationships. These costs are capitalized and
amortized straight line over the terms of the related contracts. These
costs are being amortized over periods ranging from 36 to 60 months.
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.
Goodwill, which resulted from the acquisition of ADAM, as discussed above,
is being amortized over a period of 120 months.
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 $44,910,
$113,430, $57,166 and $113,430 for the periods ended September 30, 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 adopted the provisions of SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, in its financial statements for the year ended December 31, 1996. The
adoption of SFAS 121 had no material affect on the Company's financial
statements.
The Company reviews its long-lived assets for impairment to determine if
the carrying amount of the asset is recoverable.
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
<PAGE>
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 $634,578 compared to its carrying amount of $570,494. The
principal balance of the note as of September 30, 1997 is $379,376
compared to its carrying amount of $320,534 (unaudited). While the
original transaction involved a transfer of operations by the Company to a
former employee who had been responsible for managing the operations, the
transaction was handled on an arms length basis. The Company did not
provide any guarantee of the obligations of the buyer and had no further
involvement with the business after the sale. Moreover, the outstanding
principal balance of the note receivable has been reduced by approximately
eighty percent (80%) since the sale (from an original principal balance of
$1,807,350 to $379,376 as of September 30, 1997), and payments on the note
receivable have been made on a timely fashion in all material respects.
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, including one officer, 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, $46,300 to the one
officer and $95,793 to employees of the Company that are not officers or
directors. 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 September 30, 1997, cumulative dividends in arrears totaled
$275,964(unaudited).
<PAGE>
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
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 Preferred Stock for 51,858 shares of common stock. At September
30, 1997, there were 138,182 shares of preferred stock outstanding.
In September 1997, the Company issued 4,882,996 shares in a private
placement at $1.50 per share or cash of $7,324,494 less offering costs of
$797,216.
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:
------------------------------------------------------
1996 1995
Deferred tax liabilities $ - $ -
Deferred tax assets
Net operating loss carry 2,579,000 1,149,500
forwards
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)
$ - $ -
The valuation allowance for deferred tax assets was increased by $1,487,800
and $855,300 during 1996 and 1995, respectively.
<PAGE>
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 September 30, 1997, PBS had net capital and net capital requirements of
$1,130,694 and $100,000, respectively, and the Company's net capital ratio
was .07 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
September 30, 1997.
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following:
September December December
30, 1997 31, 31,
(unaudited) 1996 1995
8-1/2% note payable to $ - $ - $1,200,000
shareholder, due 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 8,423 14,694 22,470
shareholder(s), 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 - - 425,000
and unrelated individuals, due
December 29, 1996, principal and
interest payable on or before
maturity date, secured by a
second lien on Company assets.
5% Note payable to a former 360,000
stockholder of ADAM consists of
$360,000 of which $160,000 is
current and $200,000 is long
term. The note requires annual
principal and interest payments
and matures February 9, 1999. ---------- ---------- ----------
$ 368,423 $ 14,694 $1,647,470
========== ========== ==========
<PAGE>
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).
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 September 30, 1997 and 1996,
December 31, 1996 and 1995 was $9,895, $115,941, $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.
<PAGE>
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 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 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 (the LLC) 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 relating to these leases of $30,184. Future
minimum lease payments under noncancelable leases as of December 31, 1996
are as follows:
Principal
Year Ending due
December 31, Operating Capital Capital
Lease
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
Total rent expense for facilities and equipment for the periods ended
September 30, 1997 and 1996, December 31, 1996 and 1995, was $396,388,
$362,626, $471,339 and $410,263, respectively.
<PAGE>
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:
Expiration Date Warrants Exercise
Price
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
=========
The following table describes certain information related to the Company's
compensatory stock option activity for the year ending December 31, 1996.
Average Number Weighted
of Exercise
Options Price
Outstanding, 1,016,000 $ 1.42
December 31, 1995
Grants during
year:
Exercise price 1,352,500 1.40
= market price
Exercise price 200,000 1.56
greater than
market price
Exercised during (1,000) 1.38
year
Forfeited during (22,000) 1.13
year
Expired during (35,000) 2.79
year -------
Outstanding, 2,510,500 1.45
December 31, 1996 =========
Exercisable, 1,400,500 1.45
December 31, 1996 =========
The weighted average grant date fair value of the options granted in 1996
was as follows:
Exercise price = $ 0.67
market price
Exercise price $ 1.03
greater than
market price
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%.
<PAGE>
A summary of the Company's outstanding and exercisable stock options as of
December 31, 1996 is as follows:
Range of Exercise Number Weighted Weighted
Prices of Average Average
Options Exercise Remaining
Price Contractual
Life
(months)
$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
(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, 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 appointment as 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. Mr. Daly's options are exercisable at $2.50 per
share and expire in five years.
The Board of Directors granted options to purchase 50,000 shares of common
stock to Mr. Richard C. Hyde in connection with his appointment as a
director of the Company on July 9, 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 $1.968, $2.968, $3.968, $4.968, and $5.968,
respectively, for 20 consecutive trading days. Mr. Hyde's options are
exercisable at $1.968 per share and expire in five years.
<PAGE>
The Board of Directors granted options to purchase 250,000 shares of
common stock to Mr. Scott MacKillop and a total of 165,000 shares of
common stock to a total of 6 other employees of ADAM in connection with
the Acquisition. The options vest as follows: 20% of each employee's
options vest on the first anniversary of the Company's Acquisition of ADAM
and the balance in equal successive quarterly installments over the
following four year period, provided, however, that the employee must me
employed or engaged by PMCI or one of its affiliates a s either an
employee or consultant on the date any vesting would occur. The exercise
price of options are $1.625 per common share and the options expire six
years from the date of grant unless employment or engagement is terminated
prior to that time, which case the options shall expire 90 days after
termination.
The Board also granted options to purchase 50,000 shares of common stock
to Mr. Scott MacKillop in connection with his appointment as a director of
the Company on October 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 $1.625, $2.625, $3.625, $4.625, $5.625, respectively, for 20
consecutive trading days. Mr. MacKillop's options are exercisable at
$1.625 per share and expire in five years.
In May 1997, a total of 25,000 stock options were exercised to purchase
25,000 shares of common stock at the exercise price of $1.00 per share on
20,000 options and $1.375 per share on 5,000 options.
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 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:
September 30, December 31,
1997 1996 1995
Net loss $(2,050,613) $(5,111,682) $(2,518,266)
Net loss per share $ (.14) $ (.91) (.47)
<PAGE>
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.
The Company has been notified of a threatened litigation from a former
employee alleging damages of $645,000. Management, after review and
discussion with counsel, believes the Company has meritorious defenses and
intends to vigorously defend itself in this matter, but it is not feasible
to predict the final outcome at the present time.
NOTE 11 - FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS 107 requires disclosure of the fair value of financial instruments,
both assets and liabilities recognized and not recognized in the statement
of financial position, for which it is practicable to estimate fair value.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments.
The carrying amount of receivables, accounts payable, accrued expenses,
and other liabilities approximate fair value because the collection or
payments on those instruments are expected in the short term.
The long term note receivable was discounted at inception (see Note 2) and
at December 31, 1996, discounting the note at the current interest rate at
which similar loans would be made to borrowers with similar credit ratings
and for the same maturities yields a fair value which approximates the
carrying value.
Based on the borrowing rates currently available to the Company for loans
with similar terms and maturities, the carrying value of obligations under
capital leases approximate fair value.
The carrying amount of deferred revenue approximates fair value because it
is expected to be realized within ninety days.
<PAGE>
NOTE 12 - PRO FORMA INFORMATION FROM ACQUISITION OF ADAM INVESTMENT
SERVICES, INC.
On September 24, 1997, the Company acquired all of the issued and
outstanding voting stock of ADAM. Pro forma revenue, income from
continuing operations, net income, and income per share for the three
months ended September 30, 1996 and 1997, as though the acquisition
occurred at the beginning of such periods are as follows:
1997 1996
Revenue $6,069,084 $6,403,385
Income from (802,238) (1,022,751)
continuing operations
Net income (802,238) (1,022,751)
Income per share (0.04) (0.10)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Article V of the Company's Articles of Incorporation requires
the Company to indemnify any person who is or is threatened to be
made a party to any civil, criminal, administrative, arbitrative or
investigative proceeding instituted or threatened by reason of the
fact that he is or was a director or officer of the Company or is or
was serving at the request of the Company as a director or officer of
another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan if the claim is based on actions
taken by such person in good faith with the reasonable belief that
such action was in the best interest of the Company.
Article V of the Company's Articles of Incorporation further
requires the Company to indemnify any person who is or is threatened
to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company by reason of the fact that he
is or was a director or officer of the Company or is or was serving
at the request of the Company as a director or officer of another
corporation, partnership, joint venture, trust, other enterprise or
employee benefit plan if the claim is based on actions taken by such
person in good faith with the reasonable belief that such action was
in the best interest of the Company, provided, however, that such
person generally shall not be indemnified for negligent or willful
misconduct.
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:
Securities and Exchange Commission $2,839.71
registration fee........................
Printing expenses....................... *
Legal fees and expenses................. *
Accounting fees and expenses............ *
Blue Sky fees and expenses.............. *
Miscellaneous........................... *
Total.............................. *
All of the above expenses will be borne by the Company.
*To be completed by amendment.
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.
<PAGE>
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 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.
ADAM Private Placement
On September 24, 1997, the Company, in connection with the
acquisition of ADAM Investment Services, Inc., completed a private
placement of 4,882,996 shares of Common Stock at a price of $1.50 per
share. The purchasers of such shares of Common Stock were all
accredited investors.
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
<PAGE>
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 173,170 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.
Item 27. Exhibits
(a) Exhibits
3.1 Articles of Incorporation of the Company (1)
3.2 Bylaws of the Company (2)
4.1 Specimen Common Stock certificate of the Company (3)
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*
10.1 Stock Purchase Agreement among PMC International, Inc., Michael
T. Wilkinson, Scott A. MacKillop, Gary A. Miller, Michael J.
Flinn, Jared L. Shope, Graham L. Guy, John W. Burgin, and ADAM
Investment Services, Inc., dated as of July 25, 1997(4)
10.2 Non-Compete Agreement between ADAM Investment Services, Inc.,
and Michael T. Wilkinson(4)
10.3 Employment Agreement between ADAM Investment Services, Inc., and
Scott A. MacKillop(4)
21.1 List of Subsidiaries
23.1 Consent of Spicer, Jeffries & Co., Certified Public Accountants
23.2 Consent of Holme Roberts & Owen LLP is included in Exhibit 5.1
24.1 Power of Attorney
(1) Incorporated by reference from the Company's Registration
Statement on Form S-1 (File No. 33-37800), dated November 15,
1990.
(2) Incorporated by reference from the Company's Registration
Statement on Form SB-2 (File No. 333-21335), dated February 7,
1997.
(3) Incorporated by reference from Amendment Number 2 to the
Company's Registration Statement on Form SB-2 (File No.
333-21335), dated June 23, 1997.
(4) Incorporated by reference from the Company's Current Report on
Form 8-K (Commission File No.0-14937), dated October 9, 1997.
* To be filed by amendment.
Item 28. Undertakings.
The Registrant hereby undertakes that it will:
(1) file, during any period in which it offers to sell securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
<PAGE>
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of
securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) include any additional or changed material information on the
plan of distribution required in a post-effective amendment is
incorporated by reference from periodic reports filed by the small
business issuer under the Exchange Act.
(2) for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant, pursuant to the provisions
described in Item 24 or otherwise, the Registrant has been advised
that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by a controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and
will be governed by a final adjudication of such issue.
<PAGE>
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 Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado, on this 21st day of November, 1997.
PMC International, Inc.
a Colorado corporation
By: /s/___________________
Kenneth S. Phillips
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this Statement has been signed by the following persons in the
capacities and on the dates stated.
Title Position Held
Signature With the Registrant Date
/s/__________________ President, Chief November 20, 1997
Kenneth S. Phillips Executive Officer and Director
*___________________
Scott A. MacKillop Executive Vice November 20, 1997
President and Director
*___________________
Vali Nasr Treasurer and Chief November 20, 1997
Financial Officer
(principal accounting and
financial officer)
*___________________
J.W. Nevil Thomas Chairman of the November 20, 1997
Board and Director
*___________________
D. Porter Bibb Director November 20, 1997
*___________________
Emmett J. Daly Director November 20, 1997
*___________________
Richard Hyde Director November 20, 1997
*By: /s/_____________________
Kenneth S. Phillips,
attorney-in-fact
<PAGE>
EXHIBIT INDEX
Exhibit Description
Number
3.1 Articles of Incorporation of the Company (1)
3.2 Bylaws of the Company (2)
4.1 Specimen Common Stock certificate of the Company
(3)
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*
10.1 Stock Purchase Agreement among PMC International,
Inc., Michael T. Wilkinson, Scott A. MacKillop,
Gary A. Miller, Michael J. Flinn, Jared L. Shope,
Graham L. Guy, John W. Burgin, and ADAM Investment
Services, Inc., dated as of July 25, 1997 (4)
10.2 Non-Compete Agreement between ADAM Investment
Services, Inc., and Michael T. Wilkinson (4)
10.3 Employment Agreement between ADAM Investment
Services, Inc., and Scott A. MacKillop (4)
21.1 List of Subsidiaries
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 Power of Attorney
(1) Incorporated by reference from the Company's Registration
Statement on Form S-1 (File No. 33-37800), dated November 15,
1990.
(2) Incorporated by reference from the Company's Registration
Statement on Form SB-2 (File No. 333- 21335), dated February 7,
1997.
(3) Incorporated by reference from Amendment Number 2 to the
Company's Registration Statement on Form SB-2 (File No.
333-21335), dated June 23, 1997.
(4) Incorporated by reference from the Company's Current Report on
Form 8-K (Commission File No. 0-14937), dated October 9, 1997.
* To be filed by amendment.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Portfolio Management Consultants, Inc.
Portfolio Brokerage Services, Inc.
Portfolio Technology Services, Inc.
ADAM Investment Services, Inc.
Optima Funds, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the PMC International, Inc.
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.
November 21, 1997
Spicer, Jeffries & Co.
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kenneth S. Phillips, Vali
Nasr, and Maureen E. Dobel, and each of them, his attorneys-in-fact,
with full power of substitution, for him in any and all capacities,
to sign a registration statement to be filed with the Securities and
Exchange Commission (the "Commission") on Form SB-2 in connection
with the registration by PMC International, Inc. a Colorado
corporation (the "Company"), of securities ("Securities") on behalf
of certain selling stockholders, and all amendments (including
post-effective amendments) thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with
the Commission; and to sign all documents in connection with the
qualification and sale of the Securities with Blue Sky authorities
and with the National Association of Securities Dealers, Inc.;
granting unto said attorneys-in-fact full power and authority to
perform any other act on behalf of the undersigned required to be
done in the premises, hereby ratifying and confirming all that said
attorneys-in-fact may lawfully do or cause to be done by virtue
hereof.
Date: November 20, 1997 /s/___________________
Kenneth S. Phillips
Date: November 13, 1997 /s/___________________
Scott A. MacKillop
Date: November 20, 1997 /s/___________________
Vali Nasr
Date: November 13, 1997 /s/___________________
J.W. Nevil Thomas
Date: November 20, 1997 /s/___________________
D. Porter Bibb
Date: November 13, 1997 /s/___________________
Emmett J. Daly
Date: November 13, 1997 /s/___________________
Richard Hyde
