Filed Pursuant to Rule 424(b)(3)
File Number 333-21335
PROSPECTUS SUPPLEMENT No. 1 DATED SEPTEMBER 15, 1998
to
Prospectus Dated May 15, 1998
3,450,973 SHARES
PMC INTERNATIONAL, INC.
COMMON STOCK
($0.01 PAR VALUE PER SHARE)
This Prospectus Supplement No. 1 ("First Supplement")
supplements information contained in that certain Prospectus dated
May 15, 1998 (the "Prospectus") of PMC International, Inc. (the
"Company") relating to the public offering, which is not being
underwritten, and sale by certain shareholders of the Company or by
pledgees, donees, transferees or other successors in interest that
receive such shares as a gift, partnership distribution or other
non-sale related transfer (the "Selling Shareholders") of 3,450,973
shares of Common Stock, $0.01 par value, of the Company (the
"Common Stock"). This First Supplement briefly describes recent
transactions completed by the Company and incorporates the
Company's Quarterly Report on Form 10-QSB, as amended and without
exhibits, for the fiscal quarter ended June 30, 1998. This First
Supplement is not complete without, and may not be delivered or
utilized except in connection with, the Prospectus, including any
amendments or supplements thereto. Capitalized terms used in this
First Supplement and not otherwise defined herein have the meanings
assigned to such terms in the Prospectus.
The date of this Supplement No. 1 is September 15, 1998.
RECENT DEVELOPMENTS
On July 7, 1998, in connection with a letter of intent between
Dundee Bancorp Inc., a Canadian investment management firm
("Dundee"), to negotiate the acquisition by Dundee of a controlling
interest in the Company, Dundee provided a short-term loan to the
Company in the principal amount 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. On August 7, 1998, the
Company and Dundee mutually agreed to terminate negotiations for
the acquisition. If the Company is unable to repay the loan when
it is due on September 30, 1998 or obtain an extension of the due
date, the Company will be materially adversely affected.
<PAGE>
On August 24, 1998, the Company concluded negotiations with
Kenneth S. Phillips concerning the termination of his employment
and accepted his resignation as President, Chief Executive Officer
and Director of the Company and from all officer and director
positions with the Company's subsidiaries. In connection with
these events, the Company entered into a separation agreement with
Mr. Phillips whereby the Company agreed to make severance payments
to Mr. Phillips in an amount of $50,000 for two months and $25,000
per month for an additional 23 months in lieu of the severance
payments required under Mr. Phillips' Employment Agreement. The
separation agreement restricts Mr. Phillips from competing or
interfering with the Company's activities during the 27 month
period after his termination or from disclosing or utilizing
proprietary information. At the option of Mr. Phillips, the
non-compete restrictions may be terminated after one year and the
Company would have no further severance payment obligation to him.
In addition, Mr. Phillips' Employment Agreement and Change of
Control Severance Agreement were terminated and the Shareholders
Agreement dated as of December 24, 1996, among the Company, Mr.
Phillips and certain other shareholders, which included a voting
agreement among the parties, was effectively terminated as to Mr.
Phillips and KP3, LLC (a Colorado limited liability company
controlled by Mr. Phillips). Pursuant to the separation agreement,
the Company and Mr. Phillips agreed to conclude the relationship
between the Company and KP3. Mr. Phillips agreed to apply all
funds held by KP3 towards the prepayment of the KP3 Loans and the
Company agreed to allow the bank to apply the collateral it pledged
as security (including a portion of the accrued interest therein)
in the amount of approximately $1,766,000, to the payment of
principal and interest on the KP3 Loan. The Company will forgive
accounts receivable from KP3 in the amount of approximately
$234,000, with the combined assistance to KP3 not exceeding $2
million. As a result of the application of the pledged collateral
to the KP3 Loan and pursuant to the terms of the Reimbursement and
Pledge Agreement between the Company and KP3, the Company will
exercise its rights thereunder in respect of the 410,961 shares of
PMCI common stock pledged by KP3, and will take such shares into
its treasury.
SECOND QUARTER RESULTS
A copy of the Company's Quarterly Report on Form 10-QSB, as
amended and without exhibits, for the fiscal quarter ended June 30,
1998, is attached hereto and is a part hereof.
<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB (AS AMENDED)
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition to
period from:
----- ----
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
----- ----
As of August 13, 1998, the issuer had outstanding 4,857,803 shares
of Common Stocks, par value $.01 per share.
Transitional Small Business Disclosure Format
Yes No X
---- ----
<PAGE>
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
-- June 30, 1998 & December 31, 1997
Condensed Consolidated Statements of Income 5
-- Six months ended June 30, 1998 & June 30, 1997
Condensed Consolidated Statements of Cash Flow6
-- Six months ended June 30, 1998 & June 30, 1997
Notes to Unaudited Condensed Consolidated
Financial Statements 7
Item 2Management's Discussion & Analysis of Financial Condition
& Results of Operations 9
PART II Other Information
Item 1 Legal Proceedings 17
Item 6 Exhibits & Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (Notes 1 & 4)
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
1998 1997
--------- ---------
CURRENT ASSETS
Cash and cash equivalents (Note 2) $2,099,557 $2,953,740
RECEIVABLES:
Investment management fees 1,050,688 1,041,390
Other receivables 92,587 166,221
FURNITURE AND EQUIPMENT, at cost,
net of accumulated depreciation of
$1,318,697 and $1,277,801 (Note 1) 769,186 965,168
SOFTWARE AND PRODUCT DEVELOPMENT
at cost, net of accumulated
amortization of
$1,382,674 and $963,469 (Note 1) 1,090,023 1,208,713
PREPAID EXPENSES AND OTHER ASSETS 1,081,997 1,023,364
LONG TERM NOTE RECEIVABLE (Note 2) 319,948 623,115
GOODWILL, net of amortization
of $418,492 and $146,096 (Note 1) 5,122,209 5,394,606
--------- ---------
TOTAL ASSETS 11,626,195 13,376,317
========= =========
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONT'D)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
June 30, December
31,
1998 1997
---------- -----------
LIABILITIES
Accounts payable $2,126,991 $1,687,967
Accrued expenses 772,404 644,012
Other liabilities 102,597 104,125
Deferred revenue 1,368,377 1,307,382
Notes payable - current (Note 3) 724,696 166,158
Obligations under capital lease 323,264 384,986
Notes payable - long-term (Note 3) 40,000 200,000
---------- -----------
TOTAL LIABILITIES 5,458,329 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 138,182 345,455 345,455
shares
Common stock, $.01 par value -
authorized
50,000,000 shares; issued and
outstanding,
4,857,803 shares and 4,857,903 48,578 48,579
shares
Additional paid-in capital 22,969,211 22,977,526
Accumulated deficit (17,195,378) (14,489,873)
---------- -----------
TOTAL SHAREHOLDERS' EQUITY 6,167,866 8,881,687
---------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $11,626,195 $13,376,317
========== ===========
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
REVENUE
1998 1997 1998 1997
----------- ---------- ------------ -----------
Investment $5,305,228 $2,944,643 $10,721,563 $5,733,145
management
fees
Other 95,620 45,442 149,733 118,062
income
----------- ---------- ------------ -----------
Total 5,400,848 2,990,085 10,871,296 5,851,207
revenue
----------- ---------- ------------ -----------
DIRECT EXPENSES
Investment 3,209,421 1,343,952 6,558,222 2,734,674
manager
and other
fees
----------- ---------- ------------ -----------
GROSS MARGIN
$2,191,427 $1,646,133 $4,313,074 $3,116,533
----------- ---------- ------------ -----------
OPERATING
EXPENSES
Salaries 1,711,755 1,248,211 3,558,824 2,216,660
and
benefits
Clearing 154,758 120,447 309,242 277,655
charges
and user
fees
Advertising 224,247 203,281 488,248 416,729
and
promotion
General 372,336 255,227 726,647 482,575
and
administrative
Occupancy 553,216 331,509 1,152,828 607,754
and
equipment
costs
Professional 125,075 221,335 374,397 427,285
fees
Amortization 136,198 - 272,396 -
of goodwill
Amortization 89,612 - 135,997 -
of software
development
costs
----------- ---------- ------------ -----------
Total 3,367,197 2,380,010 7,018,579 4,428,658
operating
expenses
----------- ---------- ------------ -----------
NET LOSS $(1,175,770) $(733,877) $(2,705,505) $(1,312,125)
BEFORE INCOME
TAXES
INCOME TAXES - - - -
----------- ---------- ------------ -----------
NET LOSS $(1,175,770) $(733,877) $(2,705,505) $(1,312,125)
----------- ---------- ------------ -----------
NET LOSS PER $(0.25) $(0.21) $ (0.56) $(0.37)
COMMON SHARE
WEIGHTED
AVERAGE NUMBER
OF COMMON
SHARES 4,857,804 3,630,673 4,857,804 3,630,805
OUTSTANDING
----------- ---------- ------------ -----------
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1998 1997
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(2,705,505) $(1,312,125)
Adjustments to reconcile net loss
to net cash used in operating
activities
Accretion of discount on notes (19,111) (32,610)
receivable
Depreciation and amortization 709,976 310,500
Changes in operating assets and
liabilities
Investment management fees (9,298) (824,840)
receivable
Other receivables 73,634 19,989
Prepaid expenses and other (58,633) (373,114)
assets
Accounts payable 439,024 (84,402)
Accrued expenses 128,392 (24,039)
Other liabilities (1,528) (21,625)
SEC Settlement Distribution (13,986) (603,091)
Deferred revenues 60,995 (1,379)
---------- -----------
Net cash used in operating (1,396,040) (2,946,736)
activities
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture, and (78,671) (441,610)
equipment
Disposal of furniture & equipment 261,949 -
- PMCIS
Decrease of long term note 322,278 38,871
receivable
Cost of product development (300,515) -
---------- -----------
Net cash provided by (used in)
investing activities 205,041 (402,739)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from notes payable 600,000 -
Principal payments on notes payable (201,462) (4,075)
Principal payments on obligations (61,722) (62,991)
under capital lease
Proceeds from exercise of stock - 26,875
options
---------- -----------
Net cash provided by financing 336,816 (40,191)
activities
---------- -----------
NET INCREASE (DECREASE) IN CASH (854,183) (3,389,666)
========== ===========
CASH, at beginning of period 2,953,740 6,499,390
---------- -----------
CASH, at end of period $2,099,557 $3,109,724
========== ===========
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 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
The Company holds cash of $2,100,000 of which $1,750,000 is
restricted as a result of the following transaction: In January,
1997, a company (the "LLC") owned and controlled by the Company's
president and CEO, 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 410,961
shares of PMCI common stock owned by the LLC that were purchased
from a former officer of the Company at the time of his departure
in July 1995. In connection with this borrowing, the Company
agreed to collateralize the loan on behalf of the LLC and the
410,961 shares of common stock owned by the LLC were pledged to the
Company. Accordingly, $1,890,000 of cash was originally restricted
for this purpose. In October 1997, the Company and the LLC
renegotiated the arrangement with another bank resulting in a
$1,400,000 loan to the LLC due and payable December 31, 1998, and
collateralized by the Company, and a $350,000 loan due March 31,
1998, collateralized with 87,500 shares of PMCI stock owned by the
LLC and released from a pledge to the Company. In April 1998, the
$350,000 LLC loan due March 31, 1998, was again restructured with
the Company providing cash collateral, the loan being extended
until December 31, 1998, and the 87,500 shares of PMCI stock owned
by the LLC released from a pledge to the bank and pledged to the
Company. Accordingly, as of June 30, 1998, $1,750,000 included in
Cash and Cash Equivalents in the accompanying balance sheet is
restricted under this arrangement. The Company 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. As of June 30, 1998, the Company has loaned the
LLC approximately $195,000 designated to pay the interest on the
bank loan. 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 the 410,961
shares of the Company's common stock owned by it.
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 3 - NOTES PAYABLE
Notes payable include a loan from a bank with an original 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, 11%, is due and payable monthly.
NOTE 4 - SUBSEQUENT EVENTS
The Company is reorganizing its executive management and is in
discussions with its President and Chief Executive Officer
regarding his departure from the Company. In connection with the
reorganization, the Company expects that it would become obligated
to pay the loan obligations of the LLC (see Note 2) with cash held
in restricted accounts. The Company also expects it would take
into its treasury stock the 410,961 shares of PMCI common stock
owned by the LLC and pledged to the Company in support of its
guarantee of the LLC loans.
<PAGE>
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.
General
The Company and its subsidiaries develop, market, and manage
sophisticated investment management products and services. 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 10
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.
Corporate Restructuring
During the second quarter of 1998, the Company committed
substantial resources and efforts in seeking to find a strategic
partner to assist the Company with its capital needs as well as
strengthen its positions in the financial services arena. To this
end, the Company engaged the investment banking firm of Putnam,
Lovell, de Guardiola & Thornton. On July 7, 1998, after an
extensive negotiation period, the Company entered into a Letter of
Intent with Dundee Bancorp Inc. ("Dundee"), a Canadian investment
management firm, for a proposed equity investment in the Company of
$24 million. In connection with the execution of the Letter of
Intent, 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 is
due on September 30, 1998, unless extended by mutual agreement. On
August 7, 1998, the Company and Dundee mutually agreed to terminate
the Letter of Intent, principally as a result of an internal change
in Dundee's priorities. Dundee concluded that a license for the
use of the Company's products and services in Canada, or other
similar arrangements, may better suit its business plan and
strategic goals. The Company and Dundee are in discussions
regarding such
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
an arrangement, however there can be no assurance that an agreement
will be reached. The Company continues to seek out strategic
relationships and sources of capital to meet the Company's working
capital needs.
In order to address its working capital deficit and capital needs,
the Company is implementing a wide reaching corporate
restructuring. The Company is reorganizing its executive
management and on August 24, 1998, the Company concluded
negotiations with Kenneth S. Phillips concerning the termination of
his employment and accepted his resignation as President, Chief
Executive Officer and Director of the Company and from all officer
and director positions with the Company's subsidiaries. In
connection with these events, the Company entered into a separation
agreement with Mr. Phillips whereby the Company agreed to make
severance payments to Mr. Phillips in an amount of $50,000 for two
months and $25,000 per month for an additional 23 months in lieu of
the severance payments required under Mr. Phillips' Employment
Agreement. The separation agreement restricts Mr. Phillips from
competing or interfering with the Company's activities during the
27 month period after his termination or from disclosing or
utilizing proprietary information. At the option of Mr. Phillips,
the non-compete restrictions may be terminated after one year and
the Company would have no further severance payment obligation to
him. In addition, Mr. Phillips' Employment Agreement and Change of
Control Severance Agreement were terminated and the Shareholders
Agreement dated as of December 24, 1996, among the Company, Mr.
Phillips and certain other shareholders, which included a voting
agreement among the parties, was effectively terminated as to Mr.
Phillips and KP3, LLC (a Colorado limited liability company
controlled by Mr. Phillips). Pursuant to the separation agreement,
the Company and Mr. Phillips agreed to conclude the relationship
between the Company and KP3. Mr. Phillips agreed to apply all
funds held by KP3 towards the prepayment of the KP3 Loans and the
Company agreed to allow the bank to apply the collateral it pledged
as security (including a portion of accrued interest therein) in
the amount of approximately $1,766,000, to the payment of principal
and interest on the KP3 Loan. The Company will forgive accounts
receivable from KP3 in the amount of approximately $234,000, with
the combined assistance to KP3 not exceeding $2 million. As a
result of the application of the pledged collateral to the KP3 Loan
and pursuant to the terms of the Reimbursement and Pledge Agreement
between the Company and KP3, the Company will exercise its rights
thereunder in respect of the 410,961 shares of PMCI common stock
pledged by KP3, and will take such shares into its treasury.
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
The Company named Mr. Scott A. MacKillop, the Company's Executive
Vice President and Chief Operating Officer, President and named Mr.
C.R. (Sonny) Tucker, a consultant for the Company, Interim Chief
Executive Officer. Mr. Tucker has held positions as Chief
Executive Officer of Shell Middle East and CFO/Controller of Shell
Offshore Inc. He also worked as Managing Director for Westridge
Capital Management and Director Investment Planning of the Shell
Oil Retirement and Savings plans.
The Company has established an executive management team consisting
of Mssrs. Tucker, MacKillop and Mr. Robert Brown, Executive Vice
President of the Company's subsidiary Portfolio Management
Consultants, Inc. ("PMC"), to implement the Company's restructuring
plans. An internal leadership team of approximately 20 employees,
including senior and middle managers, has been created to make
recommendations to the executive management team and implement
tactical changes to the Company's method of operations. The goal
of these teams is to restructure and refocus the Company's efforts
and to achieve profitable operations. The Company intends to
achieve this result by focusing on and increasing profitable
business channels, eliminating unprofitable business channels,
gaining efficiencies in operations and reducing expenses.
As a result of this restructuring, the Company anticipates one-time
charges and write-offs in the third quarter of 1998 of
approximately $2,500,000.
In addition, the Company has taken or intends to take the following
actions:
o Due to the PMCIS integration and related corporate
reorganizations, 20 non-critical employees have departed the
Company or are expected to depart in the second half of 1998.
The Company does not intend to replace those employees.
o In the second quarter of 1998, the Company outsourced the
portfolio accounting function for its separate account business.
The Company believes this outsourcing will allow it to deploy
capital into other areas and into supporting new business. This
outsourcing decision is expected to create annual savings by
reducing system support, payroll, licensing and maintenance fees,
telecommunications and pricing feeds.
o The Company has implemented measures to control costs in all
areas and has made strategic improvements in promotion and
advertising spending.
o The reorganization of its executive management and executive
pay cuts it intends to implement will reduce payroll and related
expenses.
o The Company's Atlanta lease obligation terminates in April
1999. The Company believes that all staff will have relocated to
Denver or will have left the Company at that time. The Company
expects there will be a reduction in one-time relocation,
training and employment agency fees and expenses.
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
o The Company's sales and marketing group has been strategically
reorganized. The customer service area has been reengineered and
customers will benefit from more timely and efficient support.
The Company expects to benefit from a re-energized sales effort
and lower payroll and travel costs as a result of the
reorganization. The Company has also gained capacity as a result
of process flow improvements.
o In connection with head count reductions, the Company is
evaluating its Denver office space options in order to further
reduce costs.
While Management believes that the implementation of the
restructuring plans will move the Company towards its goal of near
term profitability, there is no assurance that the plan will be
successful or that the Company will achieve profitable operations.
Results of Operations
The Quarter in Review
During the second quarter of 1998, the Company experienced
disappointing operating results primarily from the Company's
activities in non-core business and initiated the corporate
restructuring described above. Salaries, advertising and
promotion, general and administrative, occupancy and equipment, and
professional fees are all lower than the previous quarter.
Operating expenses decreased from $3,700,000 in the first quarter
to $3,400,000 in the second quarter. Management expects economies
of scale and other benefits of the ongoing integration of PMC and
PMCIS to continue to emerge over the third and fourth quarters.
(See "Corporate Restructuring" above.) The Company's relationship
with Ernst & Young LLP ("E&Y") continues to progress. Assets under
management in the E&Y program increased $150 million in the second
quarter and E&Y added another $93 million in July.
Three Months Ended June 30, 1998 Compared to Three Months Ended
June 30, 1997
Six Months Ended June 30, 1998 Compared to Six Months Ended June
30, 1997
Revenues
Gross revenues were $5,400,000 for the quarter ended June 30, 1998,
compared to $3,000,000 for the corresponding period in 1997, an
increase of 80%. Revenues were $10,900,000 for the six months
ended June 30, 1998, compared to $5,900,000 for the corresponding
period in 1997, an increase of 85%. The increases were
attributable primarily to the PMCIS contribution to investment fees
of $2,000,000 and $4,300,000 respectively. PMCIS was acquired in
September 1997, and consequently no contribution from PMCIS is
reflected through the second quarter of 1997. In addition,
revenues in PMC's core wrap business increased $750,000 (25%) for
the quarter ended June 30, 1998, and $1,300,000 (22%) for the six
months ended June 30, 1998.
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
This increase was attributable to both growth in new assets under
management and market appreciation. Negative impact on revenue for
the quarter and six months ended June 30, 1998, versus the prior
periods were attributable to not going forward with the Republic
National Bank of New York ("Republic") relationship and a decrease
of revenues of $100,000 and $200,000 respectively, due to the
lowered minimum guaranteed fee from E&Y.
Investment Management and Other Fees
Investment Management and Other Fees were $3,300,000 for the
quarter ended June 30, 1998, compared to $1,400,000 for the
corresponding period in 1997, an increase of 136%. Investment
management and other fees were $6,600,000 for the six months ended
June 30, 1998, compared to $2,800,000 for the corresponding period
in 1997, also an increase of 136%. These fee increases of
$1,900,000 and $3,800,000 for the quarter and six months ended June
30, 1998, respectively, were principally the result of $1,300,000
and $2,900,000 increases attributable to the PMCIS acquisition.
Investment management and other fees related to PMC's core wrap fee
business increased $600,000 (43%) and $900,000 (32%) for the
quarter and six months ended June 30, 1998, respectively. These
increases are directly related to the increase in PMC core wrap fee
business as discussed above.
Net Revenues after Investment Manager and Other Fees
Net Revenues after Investment Manager and Other Fees were
$2,200,000 for the quarter ended June 30, 1998, compared to
$1,600,000 for the corresponding period in 1997, an increase of
38%. Net revenues after investment manager and other fees were
$4,300,000 for the six months ended June 30, 1998, compared to
$3,100,000 for the corresponding period in 1997, an increase of
39%. The increase was primarily attributable to the PMCIS
acquisition and increase in PMC core wrap fee business as discussed
above.
Operating Expenses
Operating expenses were $3,400,000 for the quarter ended June 30,
1998, compared to $2,400,000 for the corresponding quarter in
1997, an increase of 42%. Operating expenses were $7,000,000 for
the six months ended June 30, 1998, compared to $4,400,000 for the
corresponding period in 1997, an increase of 59%. The increases of
$1,000,000 for the quarter and $2,600,000 for the six months ended
June 30, 1998, were primarily due to increases in salaries and
benefits of $500,000 (37%) for the quarter and $1,300,000 (61%) for
the six months ended June 30, 1998, as a result of the PMCIS
acquisition and the increase in business related to the E&Y
relationship. Eighteen people were added to payroll in conjunction
with the PMCIS acquisition. Four people have been added to support
the E&Y program. General & administrative and occupancy &
equipment expenses increased $300,000 (58%) for the quarter and
$800,000 (73%) for the six months ended June 30, 1998, as a result
of the PMCIS acquisition and overlapping costs of maintaining
duplicate facilities. Amortization expense increased $200,000
(100%) for the quarter and $300,000 (100%) for the six months ended
June 30, 1998, directly related to the PMCIS acquisition.
Income Taxes
The Company's effective tax rate for 1997 is 0 (zero).
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
Net Loss
The Company recorded a net loss of $1,200,000 for the quarter ended
June 30, 1998, as compared to $700,000 for the same period in 1997,
an increase of 71%. The net loss was $2,700,000 for the six months
ended June 30, 1998, as compared to $1,300,000 for the
corresponding period in 1997, an increase of 108%. The increase in
net loss for the quarter ended June 30, 1998, is directly related
to:
1. decrease in revenues compared to the same period last year as
a result of not going forward with the Republic relationship
($250,000) and a reduction in revenues recognized from the E&Y
relationship ($100,000).
2. one-time expenses related to the PMCIS acquisition (e.g.
relocation costs, placement fees and duplicate facilities of
$125,000). In addition, the Company recognized amortization of
$225,000 in 1998 with no corresponding amount in 1997.
The increase in loss for the six month period ended June 30, 1998,
is primarily related to:
1. Republic revenue decrease $400,000
2. reduction in E&Y minimum fee guarantee$200,000
3. relocation costs associated with PMCIS$100,000
4. maintenance of Atlanta office $100,000
5. PMCIS goodwill amortization $300,000
6. increase in depreciation/amortization$300,000
7. severance payments/employment agency fees$100,000
TOTAL $1,500,000
Liquidity and Capital Resources
The Company is actively investigating sources of capital in order
to support its working capital requirements. The Company's future
liquidity needs are dependent upon the Company's ability to
generate additional equity, to reduce expenses associated with its
operations, to achieve higher levels of cash flows or a combination
of the above. There can be no assurance that financing will be
available to the Company or that the Company will otherwise find
sources to meet its cash flow requirements.
The Company has historically incurred net losses and accordingly
experienced cash flow problems. As a result of the acquisition of
PMCIS, the Company is obligated to make a deferred purchase payment
on September 24, 1998, currently estimated at approximately
$2,000,000. On September 30, 1998, the Company will be required to
set aside $500,000 to meet increased regulatory capital
requirements for its broker/dealer operations. On December 31,
1998, the Company is obligated to repay the Dundee note obligation
of $1,500,000. However, the Company is in negotiations with Dundee
concerning an arrangement whereby Dundee would license certain of
the Company's products with proceeds applied toward the loan.
Also, the Company will be required to use cash of approximately
$1,750,000 to repay the obligation of KP3, LLC, and write-off
approximately $230,000 in notes receivable from the LLC, in
conjunction with the Separation and Consulting Agreement with Mr.
Phillips.
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
In addition, continuing losses from operations have resulted in the
Company's cash balances decreasing further. The Company's current
working capital deficit is approximately $1,500,000.
The Company is continuing its efforts to reduce expenses. (See
"Corporate Restructuring" above.) Management believes that these
efforts, along with deferral of expenses and liabilities, should
allow the Company to continue operations while it seeks further
capital. While the Company is seeking out sources of short and
long term capital to meet its obligations, there is no assurance
that sources of such funds will be available to the Company.
Should additional capital not be raised, the Company will look to
further reduce expenses associated with its operations, sell
non-core business or assets and otherwise downsize its overhead, or
a combination of the above. There is no assurance that the
Company's restructuring efforts will be successful. If the Company
is not able to raise additional capital or successfully restructure
its obligations, the business and financial condition of the
Company will be materially adversely affected.
At June 30, 1998, the Company had cash of $2,100,000, a substantial
portion of which was held in short-term interest bearing accounts,
including restricted cash of $1,800,000.
For the Quarter Ended June 30, 1998:
Cash used in operating activities was $1,400,000. This was due
primarily to the net loss from operations.
Cash provided by investing activities was $200,000. Cash provided
by investing activities was the result of payments received on a
note receivable.
Cash provided by financing activities of $340,000 was primarily
related to the borrowings to finance accounts receivable.
The Company anticipates that it will continue to experience
operating losses until such time as it can realize the benefits of
the restructuring and growth in assets under management and
administration.
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
in order to enable its systems to process data and transactions
incorporating year 2000 dates without material errors or
interruptions.
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (cont'd)
The success of the Company's plan depends in large part on parallel
efforts being undertaken by other entities, including third party
vendors, with which the Company's systems interact and therefore,
the Company is taking steps to determine the status of these other
entities' Year 2000 compliance. The Company is formulating
contingency plans to be implemented in the event that any other
entity with which the Company's systems interact, or the Company
itself, fails to achieve timely and adequate Year 2000 compliance.
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 18 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.
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 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. The matter
has been transferred to the NASD's regional office in Denver. 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. The Company believes that the
claims described in the NASD Arbitration notice are without basis
and 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.
The Company is not aware of any other material legal proceedings or
investigations currently pending or threatened against the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.1 Change in Control Agreement between the Company and
Kenneth S. Phillips, dated May 15, 1998.
10.2 Change in Control Agreement between the Company and Scott
A. MacKillop, dated May 15, 1998
10.3 Change in Control Agreement between the Company and
Stephen A. Ash, dated May 15, 1998
10.4 Change in Control Agreement between the Company and Maureen E.
Dobel, dated May 21, 1998
10.5 Letter of Intent between the Company and Dundee Bancorp
Inc., dated July 7, 1998
10.6 Loan Agreement between the Company and Dundee Bancorp Inc.,
dated July 7, 1998
10.7 Borrower Security Agreement between the Company and
Dundee Bancorp Inc., dated July 9, 1998
10.8 Subsidiary Security Agreement among PMC, PMCIS, PTS and Dundee
Bancorp Inc., dated July 9, 1998
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (cont'd)
10.9 Guarantee Agreement among PMC, PMCIS, PTS and Dundee Bancorp
Inc., dated July 9, 1998
10.10 Pledge Agreement between the Company and Dundee Bancorp Inc.,
dated July 9, 1998
10.11 Promissory Note made by the Company dated July 10, 1998
10.12 Separation Agreement between the Company and Kenneth S.
Phillips, dated August 24, 1998
10.13 Amendment to the Reimbursement and Pledge Agreement dated
August 24, 1998
B. Reports on Form 8-K
None
<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: September 14, 1998 /s/ Scott A. MacKillop
Scott A. MacKillop
President
