U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
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Commission file number 0-14937
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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
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As of November 6, 1998, the issuer had outstanding 4,446,842 shares
of CommonStocks, par value $.01 per share.
Transitional Small Business Disclosure Format
Yes No X
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Page 1 of 23
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PMC INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page #
PART I Financial Information
Item 1 Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheets 3
- September 30, 1998 & December 31, 1997
Condensed Consolidated Statements of Income 5
- Three & Nine months ended
September 30, 1998 & September 30, 1997
Condensed Consolidated Statements of Cash Flow 6
- Nine months ended
- September 30, 1998 & September 30, 1997
Notes to Unaudited Condensed
Consolidated Financial Statements 7
Item 2 Management's Discussion & Analysis
of Financial Condition & Results of Operations 10
PART II Other Information
Item 1 Legal Proceedings 20
Item 6 Exhibits & Reports on Form 8-K 21
Signatures 22
Exhibit Index 23
Page 2 of 23
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PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (Notes 1 & 8)
----------------------------------
PMC INTERNATIONAL, INC. AND SUBSIDARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, December 31,
1998 1997
CURRENT ASSETS
Cash and cash equivalents (Note 2) $ 289,828 $ 2,953,740
Receivables:
Investment management fees (Note 3) 992,033 1,041,390
Other receivables 89,047 166,221
FURNITURE AND EQUIPMENT, at cost,
net of accumulated depreciation of
$1,376,221 and $1,277,801 (Note 1) 783,052 965,168
SOFTWARE AND PRODUCT DEVELOPMENT COST,
at cost, net of accumulated
depreciation of $ 609,795 and
$963,469 (Notes 1 & 4) 434,238 1,208,713
PREPAID EXPENSES AND OTHER ASSETS 903,698 1,023,364
LONG TERM NOTE RECEIVABLE (Note 5) 74,350 623,115
GOODWILL, net of amortization
of $6,289,738 and $146,096 (Notes 1 & 4) 1,251,075 5,394,606
----------------- ------------
TOTAL ASSETS 4,817,321 13,376,317
================== ============
See notes to financial statements
Page 3 of 23
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LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
September 30, December 31,
1998 1997
LIABILITIES
Accounts payable and
accrued expenses (Note 6) $ 5,810,327 $ 2,331,979
Other liabilities 92,148 104,125
Deferred revenue 1,154,179 1,307,382
Notes payable - current (Note 7) 2,223,380 166,158
Obligations under capital lease 269,435 384,986
Notes payable - long-term (Note 7) 40,000 200,000
------------ ------------
TOTAL LIABILITIES 9,589,469 4,494,630
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value -
authorized 5,000,000 shares;
issued and outstanding,
138,182 shares and 138,182 shares 345,455 345,455
Common stock, $.01 par value -
authorized 50,000,000 shares;
issued and outstanding,
4,446,942 shares and
4,857,903 shares 44,468 48,579
Additional paid-in capital 20,989,816 22,977,526
Accumulated deficit (26,151,887) (14,489,873)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (4,772,148) 8,881,687
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 4,817,321 13,376,317
============ ============
See notes to financial statements
Page 4 of 23
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<TABLE>
PMC INTERNATIONAL, INC. AND SUBSIDARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
REVENUE
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
Investment management fees $ 5,089,008 $ 3,163,246 $ 15,810,571 $ 8,896,390
Other income 54,253 41,121 203,987 159,183
------------- ------------- ------------- -------------
Total revenue
5,143,261 3,204,367 16,014,558 9,055,573
------------- ------------- ------------- -------------
DIRECT EXPENSES
Investment manager and other fees 3,128,035 1,702,820 9,686,257 4,437,494
------------- ------------- ------------- -------------
GROSS MARGIN $ 2,015,226 1,501,547 6,328,301 4,618,079
------------- ------------- ------------- -------------
OPERATING EXPENSES
Salaries and benefits 2,546,042 959,232 6,104,866 3,175,892
Clearing charges and user fees 157,628 149,804 466,870 402,248
Advertising and promotion 310,610 245,014 798,857 661,743
General and administrative 352,077 276,234 1,078,725 784,018
Occupancy and equipment costs 1,161,350 545,273 2,450,175 1,153,027
Professional fees 572,783 85,751 947,180 513,036
Amortization of goodwill 5,871,245 10,498 6,143,642 10,498
------------- ------------- ------------- -------------
Total operating expense 10,971,735 2,271,806 17,990,315 6,700,462
------------- ------------- ------------- -------------
NET LOSS BEFORE INCOME TAXES $ (8,956,509) $ (770,259) $(11,662,014) $ (2,082,383)
INCOME TAXES - - - -
------------- ------------- ------------- -------------
NET LOSS $ (8,956,509) $ (770,259) $(11,662,014) $ (2,082,383)
============= ============= ============== =============
NET LOSS PER COMMON SHARE $ (1.87) $ (0.21) $ (2.42) (0.58)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,790,798 3,716,767 4,835,223 3,659,744
============= ============= ============= =============
</TABLE>
Page 5 of 23
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PMC INTERNATIONAL, INC. AND SUBSIDARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(11,662,014) $(2,082,383)
Adjustments to reconcile net loss
to net cash used in
operating activities
Depreciation and amortization 1,375,674 634,249
Write-off of acquired goodwill 5,780,447
Write-off of product development
asset 440,697
Changes in operating assets and
liabilities
Investment management fees
receivable 49,357 (1,185,055)
Other receivables 77,174 36,342
Prepaid expenses and other assets 119,666 (1,088,487)
Accounts payable 1,400,424 358,056
Accrued expenses 63,938 76,866
Other liabilities (11,983) 13,782
SEC Settlement
Distribution (13,986) (605,591)
Deferred revenues (153,203) 839,131
------------ ------------
Net cash used in operating
activities (2,533,809) (3,003,090)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture, and equipment (182,116) (869,180)
Cost of product development (294,814) (797,918)
Decrease of long term note receivable 548,765 24,683
Goodwill recognized on ADAM purchase - (5,410,574)
Write off of loan to KP3, LLC and
collateral securing KP3,LLC loan
from bank (1,983,504) -
------------ ------------
Net cash provided by (used in)
investing activities (1,911,669) (7,052,989)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from notes payable 2,100,000 353,729
Principal payments on notes payable (202,883) -
Principal payments on obligations
under capital lease (115,551) 162,834
Proceeds from issuance of common stock - 6,505,395
------------ ------------
Net cash provided by financing
activities 1,781,566 7,021,958
------------ ------------
NET INCREASE (DECREASE) IN CASH
(2,663,912) (3,034,121)
============ ============
CASH, at beginning of period
2,953,740 6,499,390
------------ ------------
CASH, at end of period $ 289,828 $ 3,465,269
============ ============
Page 6 of 23
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PMC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the historical accounts of Portfolio Management Consultants, Inc. ("PMC") for
all periods, the accounts of PMCI since September 30, 1993, the accounts of
Portfolio Brokerage Services, Inc., and Portfolio Technology Services, Inc.
since inception, and PMC Investment Services, Inc. (formerly ADAM Investment
Services, Inc.) since September 24, 1997. These financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal accruals and elimination of intercompany accounts and
transactions) considered necessary for a fair presentation have been included.
The unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-KSB, as amended, for the year
ended December 31, 1997.
NOTE 2 - CASH AND CASH EQUIVALENTS
In September 1998, in connection with a separation agreement with the former
President and CEO, a bank realized on cash collateral in the amount of
$1,750,000 previously pledged by the Company in support of a loan made to a
company (the "LLC") owned and controlled by the Company's former President and
CEO. As part of the LLC loan transaction, the Company collateralized the loan on
behalf of the LLC and the 410,961 shares of PMCI common stock owned by the LLC
were pledged to the Company. These shares were surrendered to the Company under
the terms of the LLC's pledge to the Company and were returned to treasury. The
Company had also loaned the LLC amounts sufficient to pay interest on the loan
so long as the amount of loans made and bank collateral provided did not exceed
$2,000,000. As a part of the separation agreement, the Company also forgave the
loans made to the LLC to pay interest amounting to approximately $224,000.
NOTE 3 - RECEIVABLES
Investment management fees have been reduced by $350,000 to reflect amounts
believed to be uncollectable.
NOTE 4 - SOFTWARE AND PRODUCT DEVELOPMENT & GOODWILL
During third quarter 1998, the Company determined that certain of its long lived
assets should be adjusted to reflect impairment of their value. Accordingly, the
Company reviewed its valuation of goodwill related to the acquisition of PMCIS.
The Company recorded a write-down of $5,780,000 in goodwill principally as a
result of a material decline in assets under management acquired in the PMCIS
transaction. In addition, capitalized development costs were written down by
$441,000.
Page 7 of 23
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PMC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 5 - LONG TERM RECEIVABLE
A long term note receivable acquired in 1993 related to a reverse acquisition
transaction involving the Company was paid in full.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Severance and other related termination expenses were recorded totaling
$953,000, primarily related to the resignation of the former President and CEO.
Accrued expenses also includes the second earn out payment to the former
shareholders of PMCIS of approximately $2,000,000, including interest.
NOTE 7 - NOTES PAYABLE
On July 7, 1998, in connection with the execution of the Letter of Intent
(see Item 2, Management's Discussion and Analysis, Overview), Dundee Bancorp
Inc. ("Dundee") provided a loan to the Company of $1.5 million for working
capital purposes. The loan is secured by the assets of the Company and by a
pledge of the stock of each of the Company's subsidiaries and is guaranteed by
PMC, PMCIS, and PTS. The loan, which accrues interest at 12%, was due on
November 30, 1998, unless extended by mutual agreement. Also included is a loan
from a bank with an original principal amount of $600,000 which was
collateralized by accounts receivable and of which $36,725 was paid on June 24,
1998. Principal payments are due as follows: $363,725 on January 1, 1999, and
$200,000 on April 1, 1999. Interest on the note at the rate of 11% per annum is
due and payable monthly. In a transaction occurring subsequent to the close of
the third quarter, the indebtedness to Dundee was paid in full. See Note 8.
NOTE 8 - SUBSEQUENT EVENTS
On October 15, 1998, the Company obtained a loan from The Ziegler Companies,
Inc., ("Ziegler") in the principal amount of $500,000. The note is due and
payable on December 31, 1998, and interest accrues thereon at prime rate
(currently 8%). The principal balance of the note is convertible into shares of
the Company's Series A Preferred Stock at the rate of $2.50 per share. The
Company also granted to Ziegler an option to purchase an additional 111,818
shares of preferred stock at $2.50 per share through December 31, 1999.
In October 1998, in connection with the proposed transactions with Ziegler, the
Company entered into warrant purchase agreements with certain of its officers,
directors and affiliates of its directors, pursuant to which such officers,
directors and affiliates of its directors have sold to the Company certain
outstanding warrants to purchase common shares of stock of the Company at a
purchase price of $0.05 per warrant share. The aggregate number of Common Stock
underlying the purchased warrants is 150,001. The current exercise price per
warrant share ranged from $4.00 to $8.50.
On November 3, 1998, the Company entered into a Merger Agreement with Ziegler,
whereby Ziegler would conduct a tender offer for the Company's outstanding
shares of common and preferred stock and thereafter seek to have the Company
become a wholly-owned subsidiary through a merger of a subsidiary of Ziegler
with and into the Company. In connection with the signing of the Merger
Agreement, the Company and Ziegler entered into a Credit Agreement whereby the
Company was loaned $3.5 million. The note is due and payable on March 31, 1999
Page 8 of 23
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and interest accrues therein at prime rate (currently 8%). The note is
convertible into shares of the Company's common stock at the rate of $.60 per
share. Ziegler also received an option to purchase an additional 4.5 million
shares of common stock at $.60 per share through the later of March 31, 1999 or
15 days after all loans due Ziegler are paid in full. A portion of the proceeds
of the $3.5 million loan was used to repay in full the note due to Dundee. The
loans are secured by the assets of the Company, will be secured by a pledge of
the stock of each of the Company's subsidiaries and are guaranteed by PMC,
PMCIS, and PTS.
On November 3, 1998, the Company entered into a First Amendment to Stock
Purchase Agreement with the former shareholders of PMCIS (formerly ADAM
Investment Services, Inc.). Under the amendment, the payment of the Initial
Purchase Price Adjustment which had been due in full on November 6, 1998, in the
amount of approximately $2,000,000, was restructured as follows. The principal
amount of $1,822,311 accrues interest at the rate of 8.5% through November 6,
1998, and thereafter at the rate of 12%. The Company paid $500,000 by November
6, 1998; is to pay $500,000 on the earlier of January 6, 1999, or one business
day after the completion of Ziegler's tender offer; and the balance of principal
and interest is to be paid the earlier of March 31, 1999, or the completion of
the merger with the subsidiary of Ziegler. A portion of the proceeds from the
$3.5 million loan was used to make the November 6th payment to the former PMCIS
shareholders.
Also on November 3, 1998, the Company entered into a new employment agreement
with its President, Scott A. MacKillop, and his prior employment agreement and
change in control severance agreement were terminated. The new employment
agreement provides for a minimum salary of $240,000 that the Company may augment
with performance-based increases as established in the Company's discretion, and
participation in the Company's other benefit plans. In addition, it provides
that if payment in full of the Initial Purchase Price Adjustment under the PMCIS
Stock Purchase Agreement is not paid in accordance with the agreement, as
amended, then the Company will pay Mr. MacKillop $250,000 on the earlier of
April 2, 1999, or two business days after the consummation of the Merger.
Page 9 of 23
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PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. 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 and in the consolidated financial statements and footnotes
included in the Company's Annual Report on Form 10-KSB, as amended, for the year
ended December 31, 1997. The discussion below contains "forward looking
statements" within the meaning of the federal securities laws, including
statements regarding the Company's prospects, cash flows, liquidity, and
potential 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.
Overview
In order to bring financial stability to the Company, the Board of
Directors and management put significant effort into finding a strategic
investor, purchaser or merger candidate for the Company. As a result of those
efforts, the Company entered into a Merger Agreement, Credit Agreement and
related documents with The Ziegler Companies, Inc. ("Ziegler") on November 3,
1998, pursuant to which PMC International, Inc. would become a wholly owned
subsidiary of Ziegler. Based upon the Company's operating history, financial
condition, and prospects, as well as the factors described below, in the
business judgment of the Board of Directors, the transactions with Ziegler are
in the best interests of the shareholders, clients and vendors of the Company.
The Company provides investment management and consulting services to financial
advisers which enable advisers to offer their clients a wide range of
institutional quality investment programs. Through these programs, the Company
offers financial advisers access to separately managed accounts, managed mutual
fund portfolios, and other back-office and consulting services. These services
are tailored for use by fee-based financial advisers who charge their clients
based on a percentage of assets under management.
The number of fee-based advisers has grown rapidly in recent years and the
demand for services like those offered by the Company has also grown. The
Company has benefited from this growth, increasing both its assets under
management and its revenues significantly in recent years. As the market for the
Company's services grew, competition within this segment of the financial
services industry also increased.
To address the opportunities in this market, the Company pursued a strategy
designed to expand its services to financial advisers, increase assets under
management, and improve operating efficiency. That strategy included the
following actions. First, the Company invested significantly in the development
of its own proprietary portfolio accounting system. Second, it expended
significant resources developing a mutual fund investment program that featured
sophisticated software designed to help advisers market the program to clients.
Third, the Company pursued and obtained a number of institutional relationships
that were aggressively priced and called for a high degree of customization and
software development. Finally, in September 1997, it acquired PMCIS
Page 10 of 23
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PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
(formerly, ADAM Investment Services, Inc.), a provider of mutual fund portfolio
management services, for a price of up to $9 million.
The Company encountered difficulties in implementing the strategy described
above. The Company's efforts to develop a proprietary portfolio accounting
system were only partially successful and failed to produce many of the intended
benefits. This failure resulted in the loss of at least one major institutional
relationship, and caused significant disruption to the Company's operations. The
Company's efforts to develop its own mutual fund program were costly and did not
generate the interest among financial advisers or produce the revenues
anticipated by the Company. Many of the Company's large institutional
relationships proved unprofitable and diverted resources from the Company's core
business. All of these difficulties slowed the Company's efforts to integrate
the PMCIS business with the Company's operations to such a degree that the
Company failed to realize many of the expected benefits of that acquisition.
Because of those difficulties, in March 1998, the Board retained Putnam, Lovell,
de Guardiola and Thornton, Inc. ("Putnam Lovell"), to advise the Company with
respect to a possible sale of the Company or identification of a strategic
investor. The Board and the Company's management offered the names of a number
of possible purchasers and investors and Putnam Lovell generated its own list.
Through this process the Company received two formal offers. The Board
considered both offers, taking into account the Company's financial condition
and strategic objectives. Based on its review of both offers, the Board
determined to hold negotiations with Dundee Bancorp Inc. ("Dundee") and on July
7, 1998, entered into a Letter of Intent with Dundee whereby Dundee would make
an equity investment of $24 million in the Company. Dundee also provided a $1.5
million bridge loan to the Company.
On August 10, 1998, the Letter of Intent was terminated based on Dundee's stated
belief that the Company would not provide the strategic business advantages that
Dundee had originally hoped to achieve through its investment in the Company.
Following termination of the Dundee Letter of Intent, the Company immediately
began an effort to identify a new investor or purchaser for the Company. Members
of the Board and the Company's management, and representatives of Putnam Lovell
contacted companies that had previously expressed an interest in the Company, as
well as companies not previously contacted. The Company's management met in
person with a number of companies to discuss a possible investment and the Board
spoke by telephone with three of them. Seven companies submitted investment
proposals for consideration by the Company, two of which were subsequently
withdrawn.
On August 24, 1998, the Company entered into a Separation Agreement
with Kenneth S. Phillips, the Company's founder, CEO and President,
and the Board accepted his resignation. Effective that date, the Board
appointed C.R. "Sonny" Tucker as the Company's acting CEO and Scott A.
MacKillop as the Company's President. Mr. Tucker had been serving as
a consultant to the Company on certain organizational and operational issues.
Mr. MacKillop had served as the
Page 11 of 23
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PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
Company's Chief Operating Officer, President of its PMCIS subsidiary, and a
member of the Board. Effective that date, the Company's entered into a
consulting agreement with Mr. Tucker for his engagement as the Company's Interim
CEO. The agreement provides that Mr. Tucker will be indemnified for all acts
taken as an officer of and consultant to the Company to the same extent as the
Company's other officers and directors (consistent with the Company's Articles
of Incorporation). Under Mr. Tucker's agreement, he is to be paid $28,350 per
month, and may be paid a bonus from time to time at the sole discretion of the
Company's Board of Directors. The initial term of Mr. Tucker's Consulting
Agreement was two months commencing August 24, 1998 with the term to be extended
for successive one-month periods unless either party gives timely written notice
to the contrary to the other party.
The Company also entered into a Confidentiality/Nonsolicitation Agreement
effective as of August 24, 1998 with Mr. Tucker, which provides that Mr. Tucker
will not disclose or use for any purpose unrelated to his service to the Company
any confidential information during the course of such service. The agreement
also provides that, without the Company's prior written consent, during the term
of the agreement and for 12 months thereafter Mr. Tucker will not (i) solicit or
attempt to cause any employee, agent or contractor of the Company or any of its
affiliates to terminate his or her consulting period, agency or contractor
relationship, as applicable, with the Company or such affiliate, (ii) interfere
or attempt to interfere with the relationship between the Company and its
employees, contractors and agents, (iii) solicit similar business that the
Company or any of its affiliates offers from any customer or client served by
the Company, or (iv) interfere or attempt to interfere with any transaction,
agreement or business relationship in which the Company or any of its affiliates
was involved.
From August through September, the Board of Directors met eight times and
considered and evaluated (i) the Company's financial condition and the Board's
responsibilities to creditors, shareholders, and clients, (ii) the scope of the
effort to seek an investor for the Company, (iii) the specific discussions that
management and members of the Board were having with potential investors, (iv)
the relative merits of the proposals that were received, and (v) the probability
of timely completing a transaction.
On September 2, 1998, the Board retained Value Investing Partners, Inc. ("Value
Investing") to advise the Company on issues relating to a potential sale,
solicit potential strategic investors, manage the process of receiving,
qualifying and accepting offers, and to render an opinion as to the fairness of
the consideration to be paid by any strategic investor in the Company. On
September 25, 1998, after thorough review of the Company's situation and
options, the Board authorized the Company's management to execute a Letter of
Intent with Ziegler.
On October 15, 1998, the Company entered into a revised letter of intent with
Ziegler under the following terms: Ziegler to make a cash tender offer to
existing shareholders at $0.60 per share of Common Stock and $2.50 per share of
Preferred Stock followed by a cash merger (the "Merger"); Ziegler to make
available a $3,500,000 credit facility convertible into Common Stock at $0.60
per share and Ziegler to receive an option to purchase 4,500,000 shares of
Common Stock at $0.60 per share; Ziegler to loan the Company an additional
$500,000 immediately under a note convertible into Preferred Stock at $2.50 per
Page 12 of 23
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PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
share; and Ziegler to receive an option to purchase 111,818 shares of
Preferred Stock at $2.50 share.
On October 15, 1998, upon agreement by the parties to revised terms reflected in
the revised Letter of Intent, Ziegler loaned the Company $500,000 pursuant to a
promissory note (the "First Note"). The First Note is repayable by December 31,
1998, bears interest at a variable rate equal to the prime rate as published in
the Wall Street Journal (Midwest Edition), and the principal balance is
convertible into Preferred Shares at the rate of $2.50 per share upon election
by Ziegler. The Company and Ziegler also entered into a preferred stock option
agreement, pursuant to which the Company granted Ziegler the option to purchase
111,818 Preferred Shares at a price of $2.50 per share. These Preferred Shares,
together with those that may be acquired upon conversion of the First Note,
would equal upon exercise and conversion an aggregate of 311,818 Preferred
Shares, or approximately 69% of the then outstanding Preferred Shares. This
would be an amount sufficient to approve on behalf of the holders of the
Preferred Shares any amendment to the provisions of the Company's Articles of
Incorporation applicable to the Preferred Shares and sufficient to approve the
Merger on behalf of the holders of the Preferred Shares. The $2.50 per share
conversion price under the First Note, and exercise price under the Preferred
Stock Option Agreement, is equal to the liquidation preference of the Preferred
Stock.
On October 26, 1998, Value Investing issued its opinion that, as of such date,
the consideration to be received by the Company's shareholders pursuant to
Ziegler's tender offer and the Merger is fair to the shareholders from a
financial point of view. The Board met on October 26, 1998, and after due
consideration, the Board unanimously approved the tender offer, the Merger and
the other transactions with Ziegler.
On October 28, 1998, the Board met again to consider the Company's financial
condition and to evaluate the status of and proposed changes to the transactions
with Ziegler, including the proposed termination of Mr. MacKillop's employment
agreement and change in control severance agreement and the execution of a new
employment agreement between Mr. MacKillop and the Company. The Board considered
the Company's circumstances, the impact of the changes on timeliness and
likelihood of completing the transactions, and the benefits to creditors,
shareholders and clients. The Board authorized going forward with the
transactions. The Board also considered and approved, without Mr. MacKillop's
participation, the termination and execution of the agreements with Mr.
MacKillop.
Also in October 1998, the Company's directors and executive officers who own
Common Shares, certain of the Company's employees and affiliates and affiliates
of certain directors entered into shareholder tender agreements pursuant to
which they have agreed to tender their Common Shares in the tender offer. The
number of shares subject to tender agreements is 262,277 or approximately 5.9%
of the Common Shares outstanding.
On November 3, 1998, the Merger Agreement and Credit Agreement between the
Company and Ziegler were finalized and signed and the Company and Ziegler issued
a joint press release publicly announcing the transaction. Under the Credit
Agreement, Ziegler loaned the Company $3.5 million pursuant to a promissory note
(the "Second Note"). The Second Note is repayable March 31, 1999,
Page 13 of 23
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
bears interest at the same rate as the First Note, and is convertible into
Common Shares at the rate of $.60 per share upon election by Ziegler. The
Company and Ziegler also entered into a common stock option agreement pursuant
to which the Company granted Ziegler the option to purchase 4.5 million Common
Shares at a price of $.60 per share. These Common Shares together with those
that may be acquired upon conversion of the Second Note would equal upon
exercise and conversion an aggregate of 10,333,333 or approximately 70% of the
then outstanding Common Shares. This would be an amount sufficient to approve on
behalf of the holders of Common Shares any amendment to the provisions of the
Company's Articles of Incorporation applicable to Common Shares and sufficient
to approve the Merger on behalf of the holders of Common Shares.
In connection with the execution of the Merger Agreement, the Company entered
into a new one year employment agreement with Mr. MacKillop. This agreement
provides for a one-year term and a minimum salary of $240,000 that the Company
may augment with performance-based increases as established in the Company's
discretion, and participation in the Company's other benefit plans. In addition,
the new employment agreement provides that if payment in full of the Initial
Purchase Price Adjustment under the PMCIS Stock Purchase Agreement is not paid
in accordance with the Agreement, as amended, then the Company will pay Mr.
MacKillop $250,000 on the earlier of April 2, 1999, or two business days after
the consummation of the Merger. Upon the effectiveness of this agreement, Mr.
MacKillop's existing employment agreement and change in control severance
agreement terminated. Also on that date, the Company executed the First
Amendment to Stock Purchase Agreement modifying the terms of payment of the
Initial Purchase Price Adjustment payable to the former PMCIS shareholders. Such
payment was due in full on November 6, 1998 and under the modified terms is
payable as follows: $500,000 payable November 6, 1998; $500,000 due the earlier
of January 6, 1999 or one business day after consummation of the Offer; and the
balance (including interest accruing at 8.5% until November 6, 1998 and 12%
thereafter) due at the earlier of the effective time of the Merger or March 31,
1999. If the Company fails to make any of the foregoing payments and does not
cure such nonpayment within 5 business days after receiving notice thereof, such
nonpayment will constitute a default under the First Amendment to Stock Purchase
Agreement, such First Amendment will become null and void, and the rights of the
former PMCIS shareholders under the PMCIS Stock Purchase Agreement may be
enforced to the full extent permitted thereunder.
On November 9, 1998, ZACQ Corp., a wholly owned subsidiary of Ziegler, commenced
its tender offer for the Company's outstanding Common and Preferred Shares.
Page 14 of 23
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
Results of Operations
The Quarter in Review
During the third quarter of 1998, the Company recorded poor operating
results primarily from 1) recurring losses from ongoing operating
activities 2) restructuring charges in connection with the Company's
corporate restructuring and 3) write down of goodwill. The net loss for
the third quarter was $8,956,509. The loss included one time charges such as:
Write down of goodwill/capitalized costs $5,900,000
Severance/employee separation costs 1,000,000
Write down of receivables 350,000
Termination of Atlanta lease 100,000
------------
$ 7,350,000
The charges and write-offs are part of the Company's overall corporate
restructuring. The Company has reorganized its executive management, including
the departure of its President and Chief Executive Officer, Kenneth S. Phillips,
is refocusing its efforts on its core business, has implemented cost control
measures, has reduced head count and has entered into merger and loan agreements
with Ziegler in order to create a new strategic alliance. The Company believes
that these measures, taken in concert, will stabilize the Company's financial
condition, provide the opportunity for the Company to be successful, and are in
the best interests of the Company's shareholders, clients, and vendors.
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997 Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Revenues
Total revenue was $5,200,000 for the quarter ended September 30, 1998, compared
to $3,200,000 for the corresponding period in 1997, an increase of 49%. Total
revenue was $16,000,000 for the nine months ended September 30, 1998, compared
to $9,000,000 for the corresponding period in 1997, an increase of 72%. The
increases were attributable primarily to the PMCIS acquisition in September 1997
and the related increases in gross revenues for the period. In addition,
revenues in PMC's core wrap business increased during the periods, though offset
in part by a reduction in revenues from the loss of an institutional customer.
Investment Management and Other Fees, Including Manager, Adviser, and
Custody Fees
Investment management and other fees, including manager, adviser,
and custody fees, were $3,100,000 for the quarter ended September 30, 1998,
compared to $1,700,000 for the corresponding period in 1997, an increase of 82%.
Investment management and other fees were $9,700,000 for the nine months ended
September 30, 1998, compared to $4,400,000 for the corresponding period in 1997,
an increase of 120%. These increases were principally attributable to the PMCIS
acquisition. Also, direct expenses increased in proportion to revenues in the
PMC core wrap fee business.
Page 15 of 23
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
Net Revenue after Investment Manager and Other Fees
Net revenue after investment manager and other fees was $2,000,000 for the
quarter ended September 30, 1998, compared to $1,500,000 for the corresponding
period in 1997, an increase of 34%. Net revenue after investment manager and
other fees was $6,300,000 for the nine months ended September 30, 1998, compared
to $4,600,000 for the corresponding period in 1997, an increase of 37%. The
increase was primarily attributable to the PMCIS acquisition. Institutional
clients do not have associated direct expenses, therefore, gross margin may not
be comparable from period to period because of the mix of business between
institutional, mutual fund wrap and the core separate account wrap fee lines of
business.
Operating Expenses
Operating expenses were approximately $11,000,000 for the quarter ended
September 30, 1998, compared to $2,300,000 for the corresponding quarter in
1997, an increase of 380%. Operating expenses were $18,000,000 for the nine
months ended September 30, 1998, compared to $6,700,000 for the corresponding
period in 1997, an increase of 169%. The increase in operating expenses are
related to increases in salaries and benefits as a result of 1) severance
payments, 2) the PMCIS acquisition, and 3) the increase in business related to
the E&Y relationship. Severance payments were recognized primarily as a result
of the resignation of the former President and CEO. Eighteen people were added
to payroll in conjunction with the PMCIS acquisition in 1997. Four people have
been added in 1998 to support the E&Y program. Although the Company has reduced
staffing in connection with its corporate restructuring, decreased expense
resulting from those reductions will not be evident until the fourth quarter of
1998 and the first quarter of 1999. General & administrative and occupancy and
equipment expenses increased as a result of the PMCIS acquisition and
overlapping costs of maintaining duplicate facilities. Professional fees
increased as a result of 1) increased fees from the merged two companies, 2)
expenses associated with the Company's capital raising efforts, and 3) a
consulting contract with a former PMCIS employee. Amortization of goodwill was
the single largest component of operating expenses, representing $5,871,245 for
the quarter and $6,143,642 for the nine months ended September 30, 1998. The
substantial increase over the prior period is as a result of 1) an adjustment in
the third quarter to reflect the impairment of the PMCIS goodwill, 2)
amortization of goodwill related to the PMCIS acquisition, and 3) write off of
capitalized product development costs. The PMCIS goodwill was written down as a
result of significant attrition of PMCIS assets under management since the
acquisition date.
Income Taxes
The Company's effective tax rate for 1997 is 0 (zero).
Net Loss
The Company recorded a net loss of $9,000,000 for the quarter ended September
30, 1998, as compared to $800,000 for the same period in 1997, an increase of
1025%. The net loss was $11,700,000 for the nine months ended September 30,
1998, as compared to $2,100,000 for the corresponding period in 1997, an
increase of 457%.
Page 16 of 23
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
The increase in loss for the nine month period ended September 30, 1998, is
primarily related to the Company's corporate restructuring and increased
headcount to meet its obligations to clients, as follows:
1. PMCIS goodwill amortization, including write-down $6,100,000
2. Increase in salaries and benefits $1,800,000
3. Severance payments/employment agency fees $1,000,000
4. Increase in amortization/depreciation, included in G&A $700,000
-----------
$9,600,000
Continuing losses from operations have resulted in significant strain on the
Company's cash balances. However, the Company is continuing its efforts to
reduce expenses in all areas of the Company and continues to focus efforts on
its core business in order to grow assets under management and administration.
The Company's relationship with its largest institutional client is progressing
and the Company is addressing unprofitable relationships. Management believes
that these efforts along with a capital infusion should allow the Company to
continue operations until it becomes cash flow positive, which is anticipated to
occur by the second quarter 1999. There is no assurance that the Company's
restructuring will be successful. If the Company is not able to successfully
restructure, the business and financial condition of the Company will be
materially adversely affected. As discussed below, management believes that the
Company's proposed strategic alliance with Ziegler will provide
economic stability allowing the Company to reach a positive cash flow position
in fiscal 1999.
At September 30, 1998, the Company had cash of $290,000, including restricted
cash of $100,000.
Liquidity and Capital Resources
Cash used in operating activities was $2,500,000 for the nine months ended
September 30, 1998. This was due primarily to the net loss from operations.
Cash used in investing activities was $1,900,000 for the nine months ended
September 30, 1998. Cash used in investing activities was primarily the result
of the write off of cash collateral pledged to secure the KP3, LLC, loan and the
write off of the related loan from the Company to KP3, LLC to pay interest on
the KP3, LLC loan.
0
Cash provided by financing activities of $1,800,000 was primarily related to the
borrowings for working capital from Dundee and from a local bank.
The Company anticipates that it will continue to experience operating losses
until such time as it can realize the benefits of the cost restructuring and
growth in assets under management and administration.
In connection with the Company's entering into a Merger Agreement to create a
new strategic alliance with Ziegler, the Company received
loans totaling $4 million in October and November 1998. In addition, the Company
restructured the terms of payment of the Initial Purchase Price Adjustment
payment due to the former shareholders of PMCIS. The Company is using the loan
proceeds to pay aged liabilities, repay the note to Dundee,
Page 17 of 23
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
make the first installment payment to the former PMCIS shareholders, and for
other working capital purposes. Management believes that the cash infusion
coupled with the Company's restructuring efforts and proposed merger will
position the Company to be successful in 1999. There is no assurance that the
merger will be consummated, and in that event, the Company will need to seek out
other sources of capital to repay its borrowings and to meet its cash
requirements until it becomes cash flow positive. There is no assurance that
such other sources of capital would be available to the Company to meet its
needs and in that circumstance, the business and financial condition of the
Company will be materially adversely affected.
Year 2000
Many existing computer programs use only two digits to identify a specific year
and therefore may not accurately recognize the upcoming change in the century.
If not corrected, many computer applications could fail or create erroneous
results by or at the year 2000. Due to the Company's dependence on computer
technology to operate its business, and the dependence of the financial services
industry on computer technology, the nature and impact of Year 2000 processing
failures on the Company's business could be material. The Company is currently
modifying its computer systems and working with its third party vendors in
order to enable its systems and dependent systems to process data
and transactions incorporating year 2000 dates without material errors or
interruptions.
The Company has undertaken initiatives intended to ensure that its computer
equipment and software will function properly with respect to dates in the Year
2000 and thereafter. For this purpose, the term "computer equipment and
software" includes systems that are commonly thought of as IT systems, including
portfolio accounting, financial accounting, data processing, network systems,
trading and telephone systems, and other miscellaneous systems, as well as
systems that are not commonly thought of as IT systems, such as alarm systems,
fax machines, heating and air conditioning facilities, or other miscellaneous
systems. Both IT and non-IT systems may contain imbedded technology, which
complicates Year 2000 identification, assessment, remediation, and testing
efforts. Based upon its identification and assessment efforts to date, the
Company found that certain of the computer equipment and software in use
required replacement or modification. In addition, in the ordinary course of
replacing computer equipment and software, the Company attempts to obtain
replacements that are Year 2000 compliant. Utilizing both internal and external
resources to identify and assess needed Year 2000 remediation, the Company
currently anticipates that its Year 2000 identification, assessment, remediation
and testing efforts, which began in December 1997, will be completed by July 15,
1999, and that such efforts will be completed prior to any currently anticipated
impact on its computer equipment and software. The Company estimates that as of
September 30, 1998, it had completed approximately 35% of the initiatives that
it believes will be necessary to address potential Year 2000 issues relating to
its computer equipment and software. The projects comprising the remaining 65%
of the initiatives are in process and expected to be completed on or about July
15, 1999.
Page 18 of 23
<PAGE>
The Company has also contacted its significant vendors and service
providers and has communicated with many strategic customers to determine the
extent to which interfaces with such entities are vulnerable to Year 2000 issues
and whether the products and services purchased from or by such entities are
Year 2000 compliant. The Company will continue to follow-up with significant
vendors and service providers to obtain assurances that they expect to have
addressed all their material Year 2000 issues on a timely basis.
The Company currently expects that costs to comply will be born
substantially by outside entities, and the Company anticipates that its costs to
achieve Year 2000 compliance will not exceed $250,000 over the next 15 months.
These costs exclude the time that may be spent by management and administrative
staff in guiding and assisting the information technology effort described above
or for bringing internal systems into Year 2000 compliance. However, if all Year
2000 issues are not properly identified, there can be no assurance that the Year
2000 issues will not materially adversely impact the Company's results of
operations or adversely affect the Company's relationships with customers,
vendors, or others. Additionally, there can be no assurance that the Year 2000
issues of other entities will not have a material adverse impact on the
Company's systems or results of operations.
The Company has begun, but not yet completed, a comprehensive analysis of
the operational problems and costs that would be reasonably likely to result
from the failure by the Company and certain third parties to complete efforts
necessary to achieve Year 2000 compliance on a timely basis. A contingency plan
is being developed but is not yet completed, for dealing with the most
reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis
and contingency planning by December 31, 1999.
The costs of the Company's Year 2000 identification, assessment,
remediation and testing efforts and the dates on which the Company believes it
will complete such efforts are based upon management's best estimates, which
were derived using numerous assumptions regarding future events, including the
continued availability of certain resources, third-party remediation plans, and
other factors. There can be no assurance that these estimates will prove to be
accurate, and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in Year 2000 issues, the ability to identify, assess, remediate and test all
relevant computer codes and embedded technology, and similar uncertainties. In
addition, variability of definitions of "compliance with Year 2000" and the
different products and services, and combinations thereof, purchased and sold by
the Company may lead to claims whose impact on the Company is not currently
estimable. No assurance can be given that the aggregate cost of defending and
resolving such claims, if any, will not materially adversely affect the
Company's results of operations.
Page 19 of 23
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1997, the Portfolio Management Consultants, Inc., ("PMC") 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
Company responded to the letter and stated its position that no amounts are
owed. By correspondence from The National Association of Security Dealers
("NASD") dated December 19, 1997, PMC was notified that the matter was submitted
by the employee to the NASD for arbitration. The employee is seeking damages for
lost earnings from his prior employer, lost commissions from PMC and other
damages, totaling $1,190,000. PMC has responded to the NASD Arbitration demand
by denying that the NASD has jurisdiction over the matter and seeking to have
the matter dismissed. On May 13, 1998, the Company filed a verified Application
for Stay of Arbitration in Denver District Court, asking for an order staying
arbitration due to the fact that there is no agreement for arbitration between
the parties. A hearing on the Application was held on October 30, 1998 and the
Court ruled in the Company's favor, staying the arbitration. The Company
believes that the claims described in the NASD arbitration are without basis
and, if reasserted, the Company intends to defend the matter vigorously.
In August 1998, the Company settled a dispute with its former Executive Vice
President, Mr. David Andrus, concerning his entitlement to severance under his
Employment Agreement.
On November 5, 1998, the Company received a letter from the Securities and
Exchange Commission requesting that the Company's two investment adviser
subsidiaries, PMC and PMCIS, respond to certain possible deficiencies noted in
the letter. Among other matters, the letter inquired as to the financial
condition of the Company and its subsidiaries and their ability to meet their
contractual commitments to clients as a result of such condition. Ziegler has
advised the Company that, on or after consummation of the Merger, it is prepared
to devote sufficient financial resources to the Company and its subsidiaries so
that they can meet their respective contractual commitments referred to above.
The Company is not aware of any other material legal proceedings or
investigations currently pending or threatened against the Company.
Page 20 of 23
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION (cont'd)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.1 Agreement and Plan of Merger, dated November 3, 1998, among The
Ziegler Companies, Inc., ZACQ Corp. and the Company.*
10.2 Employment Agreement, dated November 3, 1998, between the
Company and Scott A. MacKillop.*
10.3 First Amendment to Stock Purchase Agreement, dated as of November 3,
1998, among the Company and the former PMCIS Shareholders.*
10.4 Consulting Agreement, effective as of August 24, 1998, between the
Company and C.R. "Sonny" Tucker.*
10.5 Confidentiality/Nonsolicitation Agreement, effective as of
August 24, 1998, between the Company and C.R. "Sonny" Tucker.*
10.6 Convertible Promissory Note, dated October 15, 1998, under which
the Company promises to pay $500,000 to the order of The Ziegler
Companies, Inc.*
10.7 Credit Agreement, dated November 3, 1998, between The Ziegler
Companies, Inc. and the Company.*
10.8 Stock Option Agreement, dated as of October 15, 1998, between The
Ziegler Companies, Inc. and the Company with respect to
Preferred Shares.*
10.9 Stock Option Agreement, dated as of November 3, 1998, between The
Ziegler Companies, Inc. and the Company with respect to
Common Shares.*
10.10 Form of Shareholder Tender Agreement between The Ziegler
Companies, Inc. and certain officers, directors, employees and
affiliates of directors of the Company (including list of
parties executing such agreements and the applicable number of
Common Shares).*
10.11 Form of Warrant Purchase Agreement between the Company and
certain warrant holders (including list of parties executing
such agreements and the applicable number of warrants).*
10.12 Guaranty, dated October 15, 1998, by PMCIS.* 10.13 Guaranty, dated
October 15, 1998, by PTS.* 10.14 Guaranty, dated October 15, 1998,
by PMC.*
10.15 General Business Security Agreement, dated October 15, 1998, by the
Company.*
10.16 General Business Security Agreement, dated October 15, 1998,
by PMCIS.*
10.17 General Business Security Agreement, dated October 15, 1998,
by PTS.*
10.18 General Business Security Agreement, dated October 15, 1998, by PMC.*
* Incorporated by reference from the Company's statement on Schedule 14d-9
filed with the Commission on November 10, 1998.
B. Reports on Form 8-K
None
Page 21 of 23
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PMC INTERNATIONAL, INC.
REGISTRANT
Date: November 16, 1998 /s/ Scott A. MacKillop
Scott A. MacKillop
President
Page 22 of 23
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT INDEX
A. Number Exhibit
10.01 Agreement and Plan of Merger, dated November 3, 1998, among The
Ziegler Companies, Inc., ZACQ Corp. and the Company.*
10.02 Employment Agreement, dated November 3, 1998, between the Company
and Scott A. MacKillop.*
10.03 First Amendment to Stock Purchase Agreement, dated as of November 3,
1998, among the Company and the former PMCIS Shareholders.*
10.04 Consulting Agreement, effective as of August 24, 1998, between the
Company and C.R. "Sonny" Tucker.*
10.05 Confidentiality/Nonsolicitation Agreement, effective as of
August 24, 1998, between the Company and C.R. "Sonny" Tucker.*
10.06 Convertible Promissory Note, dated October 15, 1998, under which the
Company promises to pay $500,000 to the order of The Ziegler
Companies, Inc.*
10.07 Credit Agreement, dated November 3, 1998, between The Ziegler
Companies, Inc. and the Company.*
10.08 Stock Option Agreement, dated as of October 15, 1998, between The
Ziegler Companies, Inc. and the Company with respect to
Preferred Shares.*
10.09 Stock Option Agreement, dated as of November 3, 1998, between The
Ziegler Companies, Inc. and the Company with respect to
Common Shares.*
10.10 Form of Shareholder Tender Agreement between The Ziegler
Companies, Inc. and certain officers, directors, employees and
affiliates of directors of the Company (including list of
parties executing such agreements and the applicable number of
Common Shares).*
10.11 Form of Warrant Purchase Agreement between the Company and
certain warrant holders (including list of parties executing
such agreements and the applicable number of warrants).*
10.12 Guaranty, dated October 15, 1998, by PMCIS.*
10.13 Guaranty, dated October 15, 1998, by PTS.*
10.14 Guaranty, dated October 15, 1998, by PMC.*
10.15 General Business Security Agreement, dated October 15, 1998,
by the Company.*
10.16 General Business Security Agreement, dated October 15, 1998,
by PMCIS.*
10.17 General Business Security Agreement, dated October 15, 1998,
by PTS.*
10.18 General Business Security Agreement, dated October 15, 1998,
by PMC.*
* Incorporated by reference from the Company's statement on Schedule 14d-9
filed with the Commission on November 10, 1998.
Page 23 of 23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 289,828
<SECURITIES> 0
<RECEIVABLES> 1,155,430
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 903,698
<PP&E> 10,744,119
<DEPRECIATION> (8,275,754)
<TOTAL-ASSETS> 4,817,321
<CURRENT-LIABILITIES> 9,589,469
<BONDS> 0
0
345,455
<COMMON> 44,468
<OTHER-SE> (5,162,071)
<TOTAL-LIABILITY-AND-EQUITY> 4,817,321
<SALES> 16,014,558
<TOTAL-REVENUES> 16,014,558
<CGS> 9,686,257
<TOTAL-COSTS> 9,686,257
<OTHER-EXPENSES> 17,869,142
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,173
<INCOME-PRETAX> (11,662,014)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,662,014)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,662,014)
<EPS-PRIMARY> (2.42)
<EPS-DILUTED> (2.42)
</TABLE>
