U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB\A-2
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition
period from to
Commission file number 0-14937
PMC INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0627374
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
No.)
555 17th Street, 14th Floor, Denver, Colorado 80202
(Address of principal executive offices)
(303) 292-1177
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's
classes of common equity, as of May 11, 1997.
Common Stock $0.01 Par Value 14,543,614
Class Number of Shares
Transitional Small Business Disclosure Format
Yes No X
Page 1 of 8
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB\A
Introduction
PMC International, Inc. (the "Company" or the "Registrant")
hereby amends its Quarterly Report on Form 10-QSB, as amended,
for the three months ended March 31, 1997 by deleting its
responses to Part I, Item 2 contained in its amended filing and
replacing such section with the following:
Page 2 of 8
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The March 31, 1997 Form 10-QSB/A-2 (which amends the March
31, 1997 Form 10-QSB, as amended) represents the first quarterly
report after the Form 10-KSB and Form 10-KSB/A for the year ended
December 31, 1996. The 10-QSB/A-2 should be read in conjunction
with the aforementioned documents, and represents a comparison
between the quarter ended March 31, 1997 and the quarter ended
March 31, 1996.
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.
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.
Page 3 of 8
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended
March 31, 1996
Revenues. Revenues were $2,861,000 for the quarter ended
March 31, 1997 compared to $2,616,000 for the corresponding
quarter in 1996, an increase of 9.4%. The increase was
attributable primarily to investment management fees for start up
and conversion services received from new relationships with
Institutional Channels established by the Company during the
first quarter. Future revenues related to these new
relationships are expected to be based upon a percentage of
assets under management using the Company's products and services.
Expenses. Investment manager and other fees (which are
primarily a function of the amount of assets managed) decreased
marginally in absolute dollars while decreasing relative to total
investment management fees (also a function of the amount of
assets managed), primarily because the revenues related to the
new relationships with Institutional Channels had no associated
investment manager and other fees during the first quarter.
Operating expenses (total expenses less investment manager
and other fees) were $2,048,000 for the quarter ended March 31,
1997 compared to $1,743,000 for the corresponding quarter in
1996, an increase of $305,000 or 17.5%. This increase was due
primarily to an increase in salaries and benefits of $179,000 as
the Company added staff to its marketing and sales teams and
technology and operations groups. The balance of the increase
resulted primarily from increased general and administrative
expenses and advertising and promotion expenses corresponding to
the Company's increased staffing levels. The increased staff was
added to support the expansion of the Company's products and
services, the enhancements of its internal systems and the
servicing of new distribution channels and customers. Total
Company employees at March 31, 1997 and 1996 were approximately
65 and 43, respectively. Salaries and benefits are expected to
increase throughout 1997 relative to 1996 because of increased
staffing and compensation levels. The Company employed
approximately 73 persons at June 19, 1997.
Liquidity and Capital Resources
The Company's operating losses incurred over the last
several years resulted in the need for significant funding.
During the first three quarters of 1996, the Company borrowed an
aggregate of $1.8 million from Bedford Capital Financial
Corporation ("Bedford") and received an additional $1.0 million
from the private placement of debt securities. These financings
were in addition to $1.2 million borrowed by the Company from
Bedford in July 1995 and $482,500 received by the Company from
the private placement of debt securities in late 1995 and early
1996. In November 1996, the Company borrowed an additional
$250,000 as bridge financing to fund working capital shortfalls
through the completion of a private placement of Common Stock.
The loans from Bedford, the private placements, and the bridge
financing each involved the issuance of warrants to purchase
Common Stock.
Page 4 of 8
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
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 $3,773,535
deficit at September 30, 1996 to $6,270,537 at December 31, 1996
and cash increased from $701,160 at September 30, 1996 to
$6,499,000 at December 31, 1996. Through March 31, 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 $0.1 million was loaned to employees of
the Company to permit them to refinance certain loans originally
used by them to acquire certain outstanding shares of the
Company's common stock, approximately $1.8 million was used to
pay aged accounts payable of the Company in late 1996 and early
1997 and approximately $1.2 million was used to fund the
Company's other working capital and capital expenditure
requirements during the first quarter of 1997. The Company
anticipates that the balance of the proceeds from the private
placement will be used for its working capital requirements for
the second quarter of 1997 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. The Company recognizes that there
generally is a substantial delay between when costs such 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
second quarter before decreasing in the third and fourth quarters
of 1997 as cash is received from any new distribution
relationships that are established.
Page 5 of 8
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
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.
Uses of Cash. Between December 31, 1996, and March 31,
1997, cash and cash equivalents decreased from $6,499,000 at
December 31, 1996 to $4,450,000 ($2,256,000 of which was
unrestricted) at March 31, 1997, as other liabilities and
accounts payable were reduced significantly. Investment
management fees receivable increased $395,000 during the period
primarily as a result of the accrual of fees due from the new
relationships being established with Institutional Channels.
In January 1997, the Company assisted Kenneth S. Phillips,
the Company's President and Chief Executive Officer, by pledging
cash collateral in the amount of $1,890,000 to a bank in
connection with the bank's loan to KP3, LLC, a limited liability
company ("KP3"), the members of which are Mr. Phillips and a
custodian for Mr. Phillips' son. 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 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. In March 1997,
the Company lent $32,000 to KP3 to service interest payments on
the loan. The total amount of loans and pledges of collateral
authorized may not exceed $2.0 million. 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.
In January 1997, the Company also assisted certain of its
employees, including one of its officers, by making loans to such
employees to refinance certain loans originally obtained by such
employees to acquire Common Stock of the Company from a
stockholder in a private sale. The purchase was originally
financed through a bank loan which came due on December 31,
1996. The loans by the Company to its employees are
collateralized by the stock originally acquired. Of the $142,093
loaned, a total of $46,300 was made to an officer of the Company.
Capitalized Software Development Costs. The Company has
incurred significant costs during the past several years in
developing internal operational systems and in developing,
marketing and supporting its proprietary Allocation Manager(TM)
investment advisory software for use by professional financial
consultants and expects to have continuing costs in 1997 relating
to the enhancement of Allocation Manager(TM). Most of the costs
incurred to establish the technological feasibility of Allocation
Manager(TM) were borne by unrelated individuals prior to the product
being introduced to the Company. The Company incurred
approximately $50,000 in research and development costs relating
to Allocation Manager(TM) that were expensed in 1995. All
subsequent costs incurred that were directly related to the
development of the software were capitalized. The Company
currently intends to capitalize all similar costs incurred in the
future. Capitalized costs are amortized over the economic life
of the software, which in this case is three
Page 6 of 8
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
years. It is the Company's policy to amortize and evaluate software
for net realizable value on a product-by-product basis. The software
became available for sale during 1996, and the Company plans to
generate revenues from this product primarily from a continuing
fee based upon assets under management of the end users of the
software and, to a lesser extent, license fees, customization
fees and annual maintenance fees. The capitalization of computer
software costs ceased when the product was available for general
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. 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.
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.
Page 7 of 8
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant
has caused this Amendment Number 2 to Form 10-QSB to be signed on
its behalf by the undersigned thereunto duly authorized.
PMC INTERNATIONAL, INC.
REGISTRANT
Date: November 14, 1997 \s\__________________________
Kenneth S. Phillips
President, Chief Executive Officer
Date: November 14, 1997 \s\__________________________
Vali Nasr
Chief Financial Officer
Page 8 of 8
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,450,485
<SECURITIES> 0
<RECEIVABLES> 1,319,903
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345,455
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