PMC INTERNATIONAL INC, 10KSB, 1998-03-31

PMC INTERNATIONAL INC
10KSB, 1998-03-31
INVESTMENT ADVICE

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-KSB
(Mark One)

[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year Ended December 31, 1997
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from to

Commission File No. 0-14937

PMC INTERNATIONAL, INC.
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(Name of Small Business Issuer in its Charter)

COLORADO 84-0627374
(State of Incorporation) (IRS Employer Identification No.)

555 17th Street, 14th Floor, 80202
Denver, Colorado
(Address of Principal Executive (Zip Code)
Offices)

Issuer's telephone number: (303) 292-1177
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:

Common Stock, $0.01 par value
(Title of Class)

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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]

The Issuer's revenues for the most recent fiscal year were $14,862,714.

The aggregate market value of the common equity held by non-affiliates
(4,107,846 shares) based upon the average bid and asked prices of the
Registrant's Common Stock on March 17, 1998, as quoted in the National
Quotation Bureau was $18,998,788.

As of March 17, 1998, the Registrant had 4,857,903 shares of common stock
issued and outstanding.
Documents Incorporated by Reference: NONE
Transitional Small Business Disclosure Format: Yes No X

Page 1 of 35 Pages
Exhibit Index Begins on Page 34

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FORM 10-KSB
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YEAR ENDED DECEMBER 31, 1997

Table of Contents

Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS................................3

ITEM 2. DESCRIPTION OF PROPERTIES.............................16

ITEM 3. LEGAL PROCEEDINGS......................................16

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS...............................................17

PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS...............................................18

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............19

ITEM 7. FINANCIAL STATEMENTS...................................23

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................23

PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT....................................23

ITEM 10. EXECUTIVE COMPENSATION.................................26

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT...............................30

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......32

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...................34

SIGNATURES.......................................................35

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<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.

Industry Overview

The financial services industry has been one of the fastest
growing sectors in recent years. As the industry has grown, a
substantial shift from commission and transaction-based products
to advisory and fee-based products has occurred. Evidenced most
clearly in the popularity of mutual funds, consumer demand for
investment advice and services in connection with managed asset
products has increased enormously over the past 10 years. The
mutual fund industry has grown from 1,528 funds encompassing $495
billion of assets in 1985 to 6,809 funds encompassing $4.49
trillion of assets in 1997. Increasingly, investors are looking
for expertise to assist them in understanding the range of
investment products that are currently marketed. As such,
managed account programs, such as asset allocation and wrap
accounts which assist investors in developing and implementing
appropriate investment strategies, have grown significantly to
service this segment of the marketplace. Wrap programs, which
offer a highly-personalized, fee-based (as opposed to
commission-based) platform for financial management, have grown
to more than $139 billion in assets at year-end 1996.

In recent years, there have been two principal objectives in the
development and marketing of asset allocation and wrap programs.
First, to improve customer service, programs were developed
offering asset allocation and professional money management
services that would better position a customer's investment
portfolio. Asset allocation is believed to be a significant
determinant of successful long-term investment performance. In
addition, by consolidating the numerous investment services,
costs of portfolio management can often be reduced as compared to
purchasing individual services in traditional a la carte
fashion. The second reason for developing these programs was to
shift customer assets from dormant custody accounts, which traded
periodically and without predictability, into predictable revenue
producing assets for the sponsoring firm. In developing a "trust
building" product, wrap program sponsors provide the following
four basic functions for a customer in addition to money
management, brokerage and custody services: (i) customer
evaluation, (ii) asset allocation and investment policy
development, (iii) investment management evaluation and
selection, and (iv) quarterly monitoring and reporting services.

As wrap programs have grown in size and popularity, investment
portfolio managers (those that manage individual accounts
consisting of stocks and bonds) and mutual fund distributors are
increasing their involvement within these programs. These
programs give money managers and mutual funds the ability to
market themselves and participate in distribution channels of
financial planners, which in turn provide them with the
opportunity to increase their assets under management. With
attention rapidly shifting to long-term asset allocation
strategies, consultant wrap assets, assets managed by
professional money managers, have grown from $60 billion in 1993
to $103.2 billion in 1996, while mutual fund wrap assets have
grown from $8 billion in 1993 to $36.2 billion in 1996. In 1988,
assets in these wrap programs were estimated at less than $2
billion.

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<PAGE>

Background of the Company

Founded in 1986, the Company is an independent sponsor of
privately managed accounts and asset allocation and wrap
programs. The majority of the Company's revenues are derived
from its individually managed wrap program, which the Company
created and has administered since 1987. In addition to its
traditional wrap program, since 1994 the Company has invested in
developing a range of related technology-based services and has
added staff to develop and support the Company's new products.
The Company's products and services are designed to assist
professional financial consultants in their efforts to market
high quality, fully diversified portfolio management products.
Through the use of technology, the Company assists third-party
financial advisors such as banks, insurance companies and
brokerage firms (collectively, "Institutional Channels") and
independent financial planners ("Independent Channels") in
allocating and diversifying a customer's investment portfolio
across multiple asset classes and investments. In respect to
Institutional Channels, the Company's products allow for a
repeatable sales process which helps increase sales productivity
while ensuring compliance with the Institutional Channels'
corporate and regulatory policies.

The Company has a staff of approximately 85 people, including
approximately 55 professionals, and conducts business in a number
of countries. The Company has four subsidiaries: (i) Portfolio
Management Consultants, Inc., an investment advisory firm; (ii)
Portfolio Brokerage Services, Inc., a broker/dealer; (iii)
Portfolio Technology Services, Inc., which specializes in
developing proprietary software for use in the financial services
industry; and (iv) PMC Investment Services, Inc., an investment
advisory firm which specializes in mutual fund asset allocation
products.

Products and Services

Portfolio Management Consultants, Inc.
Portfolio Management Consultants, Inc. ("PMC"), a wholly owned
subsidiary of the Company, currently has four discrete but
vertically integrated product lines. Each product offered by PMC
is designed to assist professional financial consultants in
various aspects of their business. The four services are: (i)
Private Wealth Management(TM), PMC's individually managed asset
and wrap account program, (ii) Allocation Manager(TM), a mutual
fund asset allocation program available both on paper and through
the Company's proprietary software that provides comprehensive
and detailed investment suitability analysis, recommended
allocation of assets, portfolio modeling and rebalancing, and
comprehensive portfolio performance reporting, (iii) Managed
Account Reporting Services ("MARS"), a portfolio accounting and
reporting service that operates as a service bureau, and (iv)
Style Manager, a discretionary money management program, using
style index funds and mutual funds, that offers equity style
rotation. In addition, PMC provides consulting services to
Institutional Channels and high net worth customers.

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<PAGE>

Private Wealth Management(TM)
Private Wealth Management(TM), PMC's multi-manager institutional
wrap program, has historically been PMC's largest revenue
producer. Targeted toward customers with high net worth
(typically having a portfolio larger than one million dollars),
Private Wealth Management(TM) assists financial planners in
assembling a custom-selected team of professional money managers
which precisely matches an individual investor's personal
investment goals, risk tolerance, and objectives.

Each portion of an individual's portfolio (allocated into asset
classes such as equity, fixed income and cash, and asset
sub-classes such as value, growth, large cap, small cap, and
emerging markets) is managed by a carefully selected
institutional money management firm that has been chosen from
PMC's list of recommended managers as best suited to match an
investor's investment philosophy within a specific discipline.
An important and proprietary component of the Private Wealth
Management(TM) program involves the basis of selection of these
money managers. PMC currently recommends a number of independent
money managers for its Private Wealth Management(TM)
multi-manager program, representing a diverse range of
philosophies and styles. These managers are chosen based largely
on quantitative analysis emphasizing return-based, multi-factor
style benchmarking. High correlation to benchmark indices,
supported by positive alpha, are necessary to meet the
"Preferred" standard for manager recommendations. Also
considered in manager evaluations are historical performance,
investment philosophy and style, disciplines, employee turnover,
rate of growth, accounts gained or lost, and industry
reputation. To help a customer choose and understand investment
options, PMC provides detailed profiles on money managers in the
context of style and methodology to achieve maximum investment
diversification. Additionally, PMC will provide guidance on the
termination of existing managers and the rebalancing of the
customer's assets. The Company considers periodic portfolio
rebalancing decisions to be an extremely important determinant of
long-term performance. Thus, several rebalancing options are
offered within PMC's private account programs.

Private Wealth Management(TM) is marketed under both the PMC
label and private labels. Institutional Channels currently using
private-label versions of Private Wealth Management(TM) include
Chase Investment Services Corp., National Financial Correspondent
Services ("NFCS"), the wholly-owned brokerage and securities
clearing subsidiary of Fidelity Management and Research, Israel
Discount Bank of New York, Ernst & Young LLP, Republic National
Bank of New York, TD Securities, Inc., an affiliate of Toronto
Dominion Bank and Cowen & Company. The relationship with Ernst &
Young also encompasses institutional consulting, Allocation
Manager(TM) services, and Managed Account Reporting Service
("MARS"). Additionally, PMC distributes Private Wealth
Management(TM) under its own name through thirty financial
planning broker-dealers and investment advisors representing more
than 10,000 registered sales professionals. To support the sales
process, the Company employs a staff of marketing
representatives. The Company has a joint marketing agreement
with Schwab Institutional Management ("Schwab"), pursuant to
which a specialized version of the Private Wealth Management(TM)
program is marketed to independent investment advisors who
utilize the services of Schwab. Currently, PMC is servicing
Institutional Channels in the

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<PAGE>

United States, Canada and seven Latin American countries with
many institutional money managers participating in the Company's
wrap programs.

Allocation Manager(TM)
Allocation Manager(TM), introduced in late 1995 and as an
operating product during the third quarter of 1996, is a
Windows-based software program. The program is designed to aid
in the solicitation, sale, and servicing of mutual funds,
variable annuities, offshore investments and other selected
financial products. A highly-flexible program based upon
theories of mass customization, Allocation Manager(TM) has the
capability of being tailored for use by specific financial
distribution channels having their own proprietary product mix.
This product assists in guiding a wide range of investors through
the complex process of choosing an appropriate combination of
mutual funds.

Allocation Manager(TM) was built with the intention of being
customized by PMC's existing and prospective clients, many of
whom have proprietary families of mutual funds. As a result,
Allocation Manager(TM) supports a broad range of financial
products and programs, both domestically and globally, and can be
customized to the individual requirements of Institutional
Channels. Customized versions of Allocation Manager(TM) have
been created for Chase Investment Services Corp., Ernst & Young
LLP, Republic National Bank of New York, CIGNA Financial
Services, MONY Securities Corporation, Texas Commerce Bank and
others.

A version of Allocation Manager(TM), called Fund Counselor, is
being marketed by NFCS. Under the Fund Counselor program, NFCS
will provide brokerage, clearing and custodial services and will
make the program available to its more than 225 bank, insurance
and financial planning broker/dealers. Allocation Manager(TM) is
being distributed through the Schwab system pursuant to a joint
marketing agreement. It is also being made available to
correspondents of EVEREN Clearing Corp.

Based upon (i) the substantial growth in the mutual funds
industry over the last 15 years, (ii) investor trends in mutual
fund investment and (iii) industry expectations, management
believes PMC's existing expertise and operations will permit a
smooth integration of this program with existing products and
services offered by the Company while expanding and diversifying
the distribution channels for such products and services.
Because the program also provides educational tutorials, training
modules and dynamic portfolio modeling, Allocation Manager(TM) is
much more than simply a "front-end" sales tool. It can be
positioned as a technology sale with licensing revenues to PTS or
it can be positioned, subject to applicable regulatory guidelines
and restrictions, as an investment management tool, allowing PMC
to receive asset-based pricing.

Managed Account Reporting Services
Management believes that as a result of the growth within the
fee-based financial advisory segment of the industry over the
past ten years, many institutions have been seeking ways to
improve their reporting capabilities. The Company's MARS is used
by financial professionals in providing customers with the
increasingly important value-added services of portfolio
performance reporting and cost-based tax accounting. Essentially
a service bureau/data

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<PAGE>

processing service, MARS leverages a PMC core competency, allowing
PMC to sell, on a stand alone basis, its monthly and quarterly reports.

MARS provides detailed statements that include comprehensive
management reporting, account reconciliation and cost-based
accounting on a full-accrual basis. In addition, PMC provides
full color, quarterly performance reports detailing the
investor's objectives and performance of each investment
strategy, money manager or mutual fund, as well as the entire
portfolio.

During 1996 PMC entered into an agreement with National Financial
Services Corporation, an affiliate of Fidelity Management and
Research ("NFSC"), to manage NFSC's newly created performance
reporting service called MAPS Tool Box ("MAPS"). MAPS provides
NFSC's correspondents with access to high quality, quarterly
performance reports and tax lot, cost basis and fully accrued
account statements. This service is targeted at high net worth
investors managed by financial planners and financial consultants
who use the securities clearing services of NFSC. MARS is also
being marketed within the Schwab system to the many investment
advisors that use Schwab's custodial services. Effective October
1997, the Company began providing MARS reports to clients of
Scotia McLeod, Inc. through a third party vendor agreement.

Style Manager Asset Management Products
Style Manager is a family of discretionary asset management
products which recommend strategies for the periodic rebalancing
of both institutional and retail investor portfolios. Through
the use of Style Manager, clients' portfolios are periodically
rebalanced through the rotation of U.S. equity styles (i.e.,
growth and value companies and large, mid and small
capitalization companies), with the intention of capturing
superior performance that results from taking advantage of
certain cyclical sector trends in the U.S. equity markets.
Recommended shifts in equity allocations are designed to move
assets away from under-performing sectors into those likely to
perform best. Although Style Manager recommends shifts within
the U.S. equity markets, it does not recommend shifts between
macro asset classes such as stocks, bonds and cash, thus the
program is not a market timing program as the term is generally
used. Currently, three Style Manager versions have been
developed.

Portfolio Brokerage Services, Inc.
Portfolio Brokerage Services, Inc. ("PBS"), a wholly owned
subsidiary of the Company, is registered as a broker/dealer with
the NASD and in all U.S. jurisdictions. PBS executes security
transactions for certain of PMC's privately managed account
programs on behalf of its customers on a delivery vs. payment
basis. A self-clearing broker/dealer, substantially all trading
activity of PBS is unsolicited and initiated by the independent
money managers used in PMC's Private Wealth Management(TM)
program. Managers make all buy and sell decisions and place most
orders with PBS for execution All transactions are effected on
an agency basis.

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<PAGE>

Portfolio Technology Services, Inc.
Portfolio Technology Services, Inc. ("PTS"), a wholly owned
subsidiary of the Company, is a technology company dedicated to
assisting the Company in providing innovative products to the
financial services industry. PTS leverages the product knowledge
of PMC to design and build integrated product solutions to meet
the challenge of consolidating products and pricing in multiple
segments of the financial services industry. As its primary
contribution to the Company, PTS has developed the sales
workstation platform used for Allocation Manager(TM) and
communication interfaces to multiple custodial systems. PTS
licenses its technology and provides customization services in
support of the Company's relationship with its Institutional
Channels. The Company estimates that it has spent approximately
$1.1 million for software development activities in its last two
fiscal years. In some cases customers may bear the cost of such
activities directly when software is customized for their
particular requirements. Payments by customers for this purpose
during the last two fiscal years are not material.

PMC Investment Services, Inc.
PMC Investment Services, Inc. ("PMCIS"), formerly ADAM Investment
Services, Inc., was formed in 1980 to provide investment
consulting services to institutional investors. PMCIS's primary
services are based around mutual funds. PMCIS offers 17 model
portfolios constructed using no-load mutual funds and funds
available at net asset value. PMCIS's mutual fund portfolios are
offered as options for use by 401(k) plans and by The Hartford
Insurance Company within a variable life contract.

Today PMCIS offers independent financial advisers a variety of
investment services for use in helping their clients reach their
financial goals. With respect to standard fee assets under
management, PMCIS's services are typically provided for a fee
that is based on a percentage of assets under management. Fees
based on managed assets typically range from 100 to 185 basis
points per year. Fees are reduced as accounts reach certain
breakpoints. Occasionally fees are established on a negotiated
basis. PMCIS collects all fees directly from client accounts and
pays the adviser's portion to the adviser. In certain instances
PMCIS does not collect the adviser's portion of the fee and the
adviser invoices the client directly.

The services PMCIS provides are described below.

Mutual Fund Portfolios
PMCIS offers 17 model portfolios constructed using no-load mutual
funds and funds available at net asset value. These "standard"
portfolios consist of 5 global tactical asset allocation
portfolios, 5 global strategic asset allocation portfolios and 7
asset class portfolios that concentrate on narrow asset class
groups. PMCIS will also construct customized mutual fund
portfolios for larger accounts.

Socially Responsible Portfolios
PMCIS offers 5 strategic asset allocation portfolios constructed
using mutual funds that invest in companies that are identified
as operating in a socially responsible manner. These portfolios
are targeted to individual investors as well as endowments and
foundations that support social or religious causes.

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<PAGE>

401(k) Services
PMCIS offers its mutual fund portfolios as options for use by
401(k) plans. PMCIS has developed marketing, enrollment and
educational material for use in the 401(k) market. PMCIS has
also developed relationships with custodial and record keeping
firms that work with advisers using PMCIS's 401(k) services.

Insurance and Annuity Services
PMCIS has developed relationships with several insurance
companies under which it provides asset allocation and portfolio
construction services within variable life contracts. Financial
advisers can use these contracts in conjunction with PMCIS's
mutual fund portfolios to manage an investor's assets in a
consistent manner both inside and outside of insurance policies.

Private Label Program
PMCIS has developed and is initiating a "private label" program
that will allow advisers to determine the asset allocation
strategy and select the mutual funds used in constructing client
portfolios. This program will give advisers more involvement in,
and influence over, investment strategy and portfolio
construction.

Marketing, Education and Training Services
PMCIS provides advisers with a variety of marketing materials,
newsletters, slide presentations, software and proposal
preparation services that support the advisers' efforts to market
PMCIS's services. PMCIS also supports advisers' marketing
efforts through field wholesalers and in-house customer service
personnel. PMCIS educates advisers in its investment approach
and trains advisers how to market its services through visits to
the advisers' offices and through periodic regional seminars.

Back-Office and Administrative Services
PMCIS assists advisers in opening client accounts and monitors
and trades client portfolios on a discretionary basis. PMCIS
provides comprehensive quarterly reports to all clients.

Distribution
PMCIS distributes its services through six marketing
representatives who are supported by five account servicing
representatives. Marketing representatives recruit new advisers
to use PMCIS's services and provide training and marketing
support to advisers on an ongoing basis. Account servicing
representatives support the efforts of the marketing
representatives and provide customer assistance to advisers.

In 1995, PMCIS acquired Optima Funds, Inc., a registered
investment advisor. Optima was merged into PMCIS in December,
1997. At the time of the merger, Optima provided mutual fund
wrap services to clients with assets under management of
approximately $100 million. PMCIS's current Chief Investment
Officer was the President and Chief Investment Officer of Optima.

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Significant Relationships

Most of the Company's gross revenues are generated by fees from
the Company's Private Wealth Management(TM) and PMCIS investment
advisory programs. The programs are marketed and sold by
Institutional Channels and Independent Channels either under the
Company's name or under the "private label" of such channel.
While the Company has no reason to believe that its current
investment advisory relationships will not continue to generate
revenues for the Company consistent with prior years, there can
be no assurance that such will be the case.

Pursuant to a joint marketing agreement between the Company and
Schwab, a specialized version of the Private Wealth
Management(TM) program is being marketed as an optional
additional service to independent registered investment advisors
("RIAs") who utilize the services of Schwab. Schwab provides
custody and clearing services for independent RIAs. With respect
to Schwab Institutional Management's RIA customers who determine
to use the Company's products and services, Schwab will provide
brokerage, custody and securities clearing services while PMC
will provide asset allocation, money manager due diligence,
monthly and quarterly reporting, sales support and training.

In July 1997, the Company and PTS entered into agreements with
Ernst &Young LLP to provide institutional consulting, Private
Wealth Management(TM), Allocation Manager(TM) and MARS reporting
services. Under the agreement, the Company provides end to end
investment advisory services to Ernst & Young LLP in support of
its advisory and reporting services to clients. Also in 1997,
the Company entered into agreements with Republic National Bank
of New York to provide customized software, advisory and
reporting services in connection with both mutual fund and
privately managed accounts.

The Company targets other means of distribution, and has executed
selling agreements with new Institutional Channels for its
products. Examples of these new relationships include CIGNA
Financial Services, Inc., Cowen & Company, Texas Commerce Bank
and EVEREN Clearing Corp.

Competition

In offering services through its Institutional and Independent
Channels, the Company competes with other firms that offer wrap
and managed account programs. These distribution channels in
turn compete with banks, insurance companies, large securities
brokers and other financial institutions which offer wrap or
managed account programs to the public. The Company believes
that firms compete in this market primarily on the basis of
service, since the wrap fees charged by others are similar to
those charged by the Company. While a number of firms each
provide a portion of the services provided by the Company through
its Institutional Channels, the Company believes it is one of a
few firms offering integrated services to customers. Firms that
compete with the Company in providing services to its Independent
Channels and Institutional Channels have more financial resources
and greater recognition in the financial community than the
Company. Competitors may reduce the fees charged for wrap or
managed

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account programs or pursue other competitive strategies that could
have an adverse impact on the Company.

The Company's success is in large part a function of the
Independent Channels and Institutional Channels through which its
services are offered to others. There are many alternatives to
wrap programs that are being offered to the public, such as life
cycle funds, asset allocation funds, portfolio strategies and
third-party asset allocation services, and these services are
competitive with those offered by the Company. As financial
institutions continue to grow and build in-house asset
administration service capabilities, some will be able to provide
these services internally rather than using outsourcing
providers. Competitors may succeed in developing products and
services that are more effective than those that have been or may
be developed by the Company and may also prove to be more
successful than the Company in developing these products and
marketing these services to third-party asset managers.

Government Regulation

The Company's business falls entirely within the securities
industry, an industry which is heavily regulated by the federal
and state governments. New regulatory changes affecting the
securities industry could adversely affect the Company's
business. In addition, as investment advisers and a
broker/dealer, the Company's subsidiaries are subject to
regulation by the Securities and Exchange Commission, the
National Association of Securities Dealers and state regulatory
agencies. Consequently, the Company could become subject to
restrictions or sanctions from the Commission, the NASD or such
state regulatory agencies. It is impossible to predict the
direction future regulations will take or the effect of such
regulations on the Company's business.

Corporate History

SEC Investigation and Settlement
During November 1993, the staff of the Commission began an
examination of PMC and in January 1994, the Commission issued a
"Formal Order of Investigation." In April 1994, the staff of the
Commission made a formal enforcement recommendation against PMC,
its President Mr. Kenneth S. Phillips and its former Chief
Executive Officer, Mr. Marc Geman. Mr. Geman terminated his
association with the Company to pursue other interests at the
closing of the initial Bedford Loan (as hereinafter defined) in
July 1995.

Over the course of the following two years the Company committed
significant resources to its defense and the defense of its
officers. The case addressed issues associated with disclosures
and standards of "best execution" in advisory and wrap programs.
The investigation adversely affected the Company's new business
development activities during the period, as very few firms were
willing to develop relationships with the Company while an
enforcement recommendation was pending.

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<PAGE>

On June 27, 1996, PMC and Mr. Phillips announced that they had
reached a settlement agreement with the Commission. Pursuant to
the settlement agreement, PMC and Mr. Phillips, without admitting
or denying the Commission's allegations, consented to an Order
whereby PMC agreed to engage a compliance executive and to refund
net principal trading profits together with prejudgment interest
thereon, in an amount to be determined by an independent
accountant. The net trading profits were determined to be
$457,000, plus $146,000 of interest through the date of payment.
The refund process was substantially completed in 1997. In addition,
Mr. Phillips agreed to a censure and payment of a $25,000 fine.

Bedford
In July 1995, the Company entered into a transaction with Bedford
pursuant to which Bedford loaned $1.2 million to the Company and
received an option to loan up to an additional $1.8 million to
the Company for a specified period of time and pursuant to
certain call provisions. Each dollar loaned carried a ten-year
warrant to purchase one share of the Common Stock at an exercise
price of $4.00 per share. In connection with this funding and
the related shareholder and investment agreements, Bedford
received certain rights including, but not limited to, the right
to elect two of the Company's five directors, the right to
receive options that mirrored certain issuances or option grants
by the Company, and a security interest in all assets of the
Company and its subsidiaries. Contemporaneously with the closing
of the July 1995 transaction with the Company, Bedford also
purchased 1.0 million shares of Common Stock from Mr. Geman, the
former chief executive officer of the Company who was a subject
of the investigation by the staff of the Commission. Between
July 1995 and July 1996, the Company obtained the full $3.0
million financing from Bedford and certain assignees of Bedford
(the "Bedford Loans").

In addition, the Company granted to Bedford certain other rights
in connection with future debt and equity financings which
included a right of first negotiation regarding future fundings,
a 30-day exclusive negotiation period, and a right of first
refusal to match unsolicited offers for financing. The Company
also agreed to pay a $100,000 annual monitoring fee to Nevcorp
Inc., which is owned by J.W. Nevil Thomas, who was designated by
Bedford to serve on the Company's Board of Directors.

The Company's relationship with Bedford was restructured in
December 1996. See "--December 1996 Restructuring."

December 1995 and June 1996 Offerings
In December 1995 and January 1996, the Company issued a total of
482.5 units through a private offering (the "December 1995
Offering"), with each unit consisting of a convertible promissory
note with a principal amount of $1,000 and a warrant to purchase
250 shares of common stock at an exercise price of $4.00 per
share. During June 1996 the Company issued an additional 1,017.5
units through another private offering (the "June 1996 Offering")
under substantially the same terms. These private offerings were
issued primarily to employees, business associates and affiliates
of the Company or Bedford. The purchasers of units in the
December 1995 and June 1996 Offerings received registration
rights with respect to the shares of Common Stock underlying the
warrants.

- -12-
<PAGE>

Phillips & Andrus, LLC; KP3, LLC
Phillips & Andrus, LLC, a Colorado limited liability company
("P&A"), was formed in July 1995 to acquire 410,961 shares of
Common Stock from Mr. Geman in exchange for a promissory note
issued to Mr. Geman in the amount of $2,015,000. The promissory
note was secured by the Common Stock acquired. While Mr.
Phillips, President and Chief Executive Officer of the Company,
and David L. Andrus, the then Executive Vice President of the
Company, were the members of P&A, substantially all of the
membership interests in P&A were owned by Mr. Phillips. The
Company and Messrs. Phillips and Andrus believed that it would be
in the Company's interest that Mr. Geman's involvement with the
Company and direct ownership interest in Common Stock be
eliminated. In October 1996, affiliates of Bedford loaned P&A
funds to make the initial interest payments on the note owed to
Mr. Geman. In December 1996, after notifying its shareholders of
the proposal to do so, the Company loaned a total of $250,000 to
P&A to repay principal owed under the promissory note to Mr.
Geman. These loans permitted P&A to avoid defaults under the
promissory note owed to Mr. Geman.

In January 1997 P&A was liquidated and the assets of P&A,
consisting of the 410,961 shares of Common Stock, were
transferred, subject to certain liabilities, to KP3, LLC, a
Colorado limited liability company ("KP3"), the members of which
are Mr. Phillips and a custodian for Mr. Phillips' son. Mr.
Phillips owns substantially all of the membership interests in
KP3. Also in January 1997, KP3 obtained a bank loan in the
amount of $1,750,000 for a term of approximately 12 months (the
"KP3 Loan"), the proceeds of which were used (i) to repay the
loans made to P&A by the Company and certain affiliates of
Bedford, and (ii) to prepay the balance of the principal and all
interest owing under the promissory note to Mr. Geman. The
Company pledged certain collateral for the KP3 Loan, valued at
approximately $1,890,000, and KP3 agreed to reimburse the Company
for any amount paid by it toward the KP3 Loan. KP3's
reimbursement obligation is secured by a pledge of all 410,961
shares of Common Stock held by KP3. The pledge by the Company to
the bank to secure the KP3 Loan permitted the promissory note to
Mr. Geman to be paid and to eliminate the possibility that Mr.
Geman could reacquire a substantial stock ownership in the
Company. Through February 1998, the Company has lent
approximately $158,000, including interest, to KP3 specifically
to service interest payments on the loan. KP3 has agreed to
reimburse the Company for all amounts paid by the Company on the
loan or for collateral applied to the KP3 Loan, including
interest at an annual rate of 9% and has granted the Company a
security interest in the KP3 Shares. Such loan was restructured
through a different bank on October 1, 1997. In connection
therewith, the collateral pledge by the Company in connection
with the KP3 Loan was reduced to $1,400,000 and the Company
released 87,500 of the KP3 Shares previously held as collateral.
The new loan due date is December 31, 1998.

Bedford and certain of its affiliates have an option, exercisable
through July 26, 2000, to acquire a total of 83,750 shares of
Common Stock currently owned by KP3 for an aggregate purchase
price of $410,637.85, increasing at a rate of 9% per annum
subsequent to July 27, 1995.

- -13-
<PAGE>

November 1996 Bridge Loan
In November 1996, the Company borrowed $250,000 (the "November
1996 Bridge Loan") to fund its working capital requirements
pending closing of the December 1996 Offering (as defined
below). Half of the loan was provided by Keefe, Bruyette &
Woods, Inc. ("KBW"), placement agent in the December 1996
Offering, and the balance by certain members of management of the
Company and a subsidiary of Bedford. The lenders received
five-year warrants to purchase an aggregate of 6,250 shares of
Common Stock. The warrants have an exercise price of $6.50 per
share. The lenders received registration rights with respect to
the Common Stock to be issued upon exercise of the warrants. The
November 1996 Bridge Loan was repaid in December 1996 from the
proceeds of the December 1996 Offering.

December 1996 Offering
In December 1996 the Company completed a private placement of
1,294,250 shares of Common Stock at a price of $8.50 per share
(the "December 1996 Offering"). A portion of the proceeds of the
December 1996 Offering were used (i) to repay interest due and
owing on the promissory notes issued in connection with the
December 1995 and June 1996 Offerings, including the notes held
by the father and brother of Mr. Phillips, the Company's Chief
Executive Officer, Mr. Andrus, the Company's Executive Vice
President, and certain employees of the Company, (ii) to repay
interest due and owing under the Bedford Loans, (iii) to repay a
portion of the principal on the Bedford Loans and (iv) to repay
the November 1996 Bridge Loan (including the notes held by Mr.
Phillips, Mr. Andrus and certain other members of the Company's
management).

December 1996 Restructuring
Simultaneous with the closing of the December 1996 Offering, the
Company completed a restructuring of its debt and a partial
restructuring of its outstanding Preferred Stock. The
restructuring involved (i) the payment of all outstanding
interest on the Bedford Loans, the repayment to Bedford and its
assignees of $1,976,250 of outstanding principal on the Bedford
Loans, the exercise by Bedford and its assignees of warrants to
purchase 255,938 shares of Common Stock and the delivery by
Bedford and its assignees of canceled promissory notes in the
amount of $1,023,750 in satisfaction of the exercise price of the
warrants, the cancellation of the remaining warrants to Bedford
and its assignees, and the issuance to Bedford and its assignees
of new warrants to purchase up to 37,500 shares of Common Stock
at an exercise price of $8.50 per share; (ii) the issuance of
375,000 shares of Common Stock upon the exercise of warrants
issued to investors in connection with the Company's private
placement of promissory notes and warrants in the December 1995
and June 1996 Offerings, the delivery of canceled promissory
notes in the aggregate principal amount of $1,500,000 in
satisfaction of the exercise price of such warrants, the payment
by the Company of all outstanding interest due and owing on such
notes as of the exercise date and the issuance to the holders of
such warrants of new warrants to purchase up to 37,500 shares of
Common Stock; (iii) the repayment of the November 1996 Bridge
Loan, and (iv) the conversion of 173,120 shares of Preferred
Stock into 59,511 shares of Common Stock, resulting in a
reduction in the Company's cumulative dividend obligation to the
holders of Preferred Stock from $583,576 as of September 30, 1996
to $322,700 as of December 31, 1996. The conversion of
additional shares of Preferred Stock into Common Stock was
effected in January 1997. The new

- -14-
<PAGE>

warrants issued by the Company to Bedford and others pursuant
to clauses (i) and (ii) are referred to hereafter as the "New Warrants."

The New Warrants are exercisable over a period of five years, at
an exercise price of $8.50 per share. Registration rights were
granted with respect to the Common Stock received upon the
exercise of the old warrants and the shares of Common Stock
underlying the New Warrants. The New Warrants contain adjustment
provisions relating to the exercise price per share and the
number of shares of Common Stock to be issued upon their exercise
in the event of issuances of additional shares of Common Stock
(including through the issuance of options, rights or warrants to
purchase Common Stock or securities convertible into Common
Stock) by the Company at a price below market price, certain
extraordinary dividends and distributions on the Common Stock,
stock splits or other reclassifications of the outstanding shares
of Common Stock, and any merger, consolidation or reorganization
involving the Company or a transfer by the Company of
substantially all of its assets or properties.

PMCIS Acquisition and Financing
On September 24, 1997, the Company completed the acquisition of
ADAM Investment Services, Inc., now known as PMC Investment
Services, Inc. ("PMCIS"), a financial services and investment
advisory company headquartered in Atlanta, Georgia. PMCIS has
provided investment consulting services to institutional
investors since 1980. PMCIS's primary services are based around
mutual funds. PMCIS offers 17 model portfolios constructed using
no-load mutual funds and funds available at net asset value.
These "standard" portfolios consist of 5 global tactical asset
allocation portfolios, 5 global strategic asset allocation
portfolios and 7 asset class portfolios that concentrate on
narrow asset class groups. PMCIS also has 5 strategic asset
allocation portfolios constructed using mutual funds that invest
in companies that are identified as operating in a socially
responsible manner. PMCIS's mutual fund portfolios are also
offered as options for use by 401(k) plans and with The Hartford
Insurance Company within a variable life contract. PMCIS had one
wholly-owned subsidiary, Optima, which it acquired in 1995.
Optima provides mutual fund wrap services to clients. Optima was
merged into PMCIS in December, 1997.

The agreement providing for the acquisition of PMCIS by the
Company provided that the Company would acquire all of the
outstanding capital stock of PMCIS for up to $9.0 million in cash
and up to $200,000 in Common Stock if certain conditions are met
over time. In addition, the Company agreed to assume the normal
operating liabilities of PMCIS at closing of the acquisition,
estimated to be approximately $1.5 million. At the closing of
the PMCIS transaction, the Company paid $5,000,000 in cash and
agreed to make two earn-out payments on the first and second
anniversary dates of the closing. The first earn-out payment
will equal 1.0% of PMCIS's standard fee assets under management
in excess of $500 million, determined on the one-year
anniversary of the closing of the PMCIS acquisition, not to
exceed $2.0 million, plus interest thereon at a rate of 8.75%.
The second earn-out payment will equal 1.0% of PMCIS's standard
fee assets under management in excess of $700 million, determined
on the two-year anniversary of the closing of the PMCIS
acquisition, not to exceed $2.0 million. PMCIS is now a wholly
owned subsidiary of the Company, and the Company

- -15-
<PAGE>

anticipates that PMCIS will continue to operate as a wholly owned
subsidiary of the Company in the near future.

In connection with the PMCIS acquisition, on September 24, 1997,
the Company sold 1,220,749 shares of its Common Stock in the
PMCIS Private Placement at a price of $6.00 per share. The
proceeds from this transaction, after deducting expenses relating
to the issuance of the Common Stock, were approximately
$6,400,000, of which the Company used $5,000,000 to purchase
PMCIS at the PMCIS closing and a substantial amount of the
balance for employee severance, relocation, and related expenses
associated with the closing of the Atlanta facility. The
additional $1,400,000 is currently being used by the Company for
working capital purposes.

ITEM 2. DESCRIPTION OF PROPERTY.

The Company leases approximately 20,000 square feet of office
space for its corporate headquarters in the Qwest Tower at 555
17th Street, Denver, Colorado pursuant to a lease which expires
in 2001. The Company pays approximately $20,000 per month for
this office space. PMCIS subleases approximately 12,000 square
feet of office space in the Galleria Plaza, 100 Galleria Parkway,
Suite 1200, Atlanta, Georgia, pursuant to a sublease which
expires April 1999. PMCIS pays approximately $25,000 per month
for this office space. On
January 21, 1998, PMCIS entered into a sublease agreement for its
Atlanta office space. Pursuant to the agreement, PMCIS is to
sublease all of the above described office space at $4.25 per
square foot until February 17, 1998. From February 17, 1998
until March 31, 1998, the office space is to be sublet for $8.50
per square foot, and from April 1, 1998 until the termination of
the lease in April 1999, the office space is to be sublet for
$17.00 per square foot. PMCIS will remain responsible for the
balance of the lease payments not covered by such sublease.

ITEM 3. LEGAL PROCEEDINGS.

In early June 1997, 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 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 Company
believes that the claims described in the NASD Arbitration notice
are without basis and intends to defend the matter vigorously.
The Company is not aware of any other material legal proceedings
or investigations currently pending or threatened against the
Company.

- -16-
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.

On December 15, 1997, the Company held an annual meeting of
Shareholders. The following matters were voted on at said
meeting:

(1) A proposal for election of all members of the Board of
Directors. The Company solicited proxies in favor of the
election of Kenneth S. Phillips, Scott A. MacKillop, J.W. Nevil
Thomas, D. Porter Bibb, Emmett J. Daly, and Richard C. Hyde,
all of whom were existing members of the Board. No other
nominees were presented and all members were reelected with one
seat remaining vacant. Voting results were as follows:

against
or
for withheld abstain
--------- -------- -------
Kenneth S. Phillips 4,117,479 1,366 0
Scott A. MacKillop 4,117,479 1,366 0
J.W. Nevil Thomas 4,117,479 1,366 0
D. Porter Bibb 4,117,478 1,367 0
Emmett J. Daly 4,117,479 1,366 0
Richard C. Hyde 4,117,479 1,366 0

(2) A proposal to the holders of the Company's Common and
Preferred Stock to amend the Company's Articles of
Incorporation to provide for automatic conversion of each
outstanding share of the Company's Preferred Stock, together
with any and all accrued but unpaid dividends, into 1,375
shares of the Company's Common Stock. A sufficient number of
votes of Preferred Stockholders were not present and voting at
the meeting and this matter was continued until December 29,
1997, at which time there were not sufficient votes to act on
the proposal and the meeting was adjourned.

(3) A proposal to holders of the Company's Common Stock to
amend the Company's Articles of Incorporation to effect a
one-for-four reverse split of the Common Stock, subject to a
determination by the Board that the reverse split is in the
best interests of the Company and its Shareholders. This
proposal was approved by the common shareholders with a vote of
4,087,813 for, 30,871 against or withheld, 161 abstaining. The
reverse split was made effective on December 30, 1997.

(4) A proposal to approve the Company's Equity Incentive
Plan adopted by the Company's Board of Directors on November
12, 1997. This proposal was approved with a vote of 4,055,451
for, 57,252 against or withheld, 6,141 abstaining.

- -17-
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

Prior to February 1995, the Common Stock was traded on The Nasdaq
Small Cap Market. See "Risk Factors--Limited Market for the
Company's Common Stock May Adversely Affect Share Price and
Liquidity." The Common Stock currently trades on the OTC
Bulletin Board under the symbol "PMCI." The following table
shows the high and low bid prices and trading volume of the
Common Stock for the periods indicated as reported by the
principal market maker in the Common Stock. These quotations
reflect inter-dealer prices without retail markup, markdown, or
commissions and may not necessarily represent actual transactions.
- -------------------------------------------

High Bid Low Bid
- -------------------------------------------
- -------------------------------------------
1995
- -------------------------------------------
- -------------------------------------------
First Quarter $5.00 $2.75
- -------------------------------------------
- -------------------------------------------
Second Quarter $2.75 $2.00
- -------------------------------------------
- -------------------------------------------
Third Quarter $5.25 $2.25
- -------------------------------------------
- -------------------------------------------
Fourth Quarter $6.50 $3.00
- -------------------------------------------
- -------------------------------------------

1996
- -------------------------------------------
- -------------------------------------------
First Quarter $4.00 $2.50
- -------------------------------------------
- -------------------------------------------
Second Quarter $7.25 $3.75
- -------------------------------------------
- -------------------------------------------
Third Quarter $8.25 $5.50
- -------------------------------------------
- -------------------------------------------
Fourth Quarter (1) $8.00 $5.50
- -------------------------------------------
- -------------------------------------------

1997
- -------------------------------------------
- -------------------------------------------
First Quarter $10.00 $8.00
- -------------------------------------------
- -------------------------------------------
Second Quarter $10.00 $6.50
- -------------------------------------------
- -------------------------------------------
Third Quarter $7.75 $5.00
- -------------------------------------------
- -------------------------------------------
Fourth Quarter $7.50 $6.00
- -------------------------------------------
- -------------------------------------------

1998
First Quarter(2) $7.00 $4.00
- -------------------------------------------
- -------------------------------------------
______________________________
(1) Does not reflect the private placement of 1,294,250 shares
of Common Stock by the Company in December 1996 at a price of
$8.50 per share.
(2) Through March 17, 1998.

As of March 17, 1998 the Company had 392 record holders of its
Common Stock.

The Company currently has outstanding a total of 138,182 shares
of Preferred Stock. As of March 17, 1998, the Company was in
default in the payment of dividends on the Preferred Stock in the
amount of $298,419. The Company may not pay dividends on its
Common Stock so long as it is in default in the payment of
dividends on the Preferred Stock.

The Company has never paid dividends on the Common Stock and
currently intends to retain all future earnings, if any, for the
continued growth and development of its business and has no plans
to pay cash dividends in the future. Any change in the Company's
dividend policy will

- -18-

<PAGE>

be made in the discretion of the Company's Board of Directors
in light of the Company's future earnings, financial condition
and capital requirements and of general business conditions
and other factors that cannot now be predicted.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

The following discussion provides information that the Company
believes is relevant to an assessment and understanding of its
results of operations. It should be read in conjunction with the
Financial Statements and Notes included elsewhere herein. This
discussion contains "forward looking statements" within the
meaning of the federal securities laws, including statements
regarding opportunities for growth from expanded use of existing
distribution channels and expanded use by existing distribution
channels of the Company's products and services and similar
expressions concerning matters that are not historical facts.
These statements are subject to risks and uncertainties that
could cause results to differ materially from those expressed in
the statements.

General

The Company develops, markets, and manages sophisticated
investment management products and services. Not a money manager
itself, the Company provides products and services to facilitate
the selection and/or monitoring of unaffiliated money managers or
mutual funds for customers of the Company's distribution channels
depending upon the size, sophistication and requirements of such
customers. The Company's products and services address
investment suitability and diversification, asset allocation
recommendations, portfolio modeling and rebalancing,
comprehensive accounting and portfolio performance reporting.
The Company's revenues are realized primarily from fees charged
to clients based on a percentage of managed assets and to a
lesser extent from consulting fees for certain advisory services
and licensing fees from its software products. Fees based upon
managed assets typically range from 20 to 250 basis points per
year, based upon a number of factors such as the size of account
and scope of services provided. At the present time, the
principal factors affecting the Company's revenues are whether
the Company adds or loses clients for its investment management
services, the performance of equity and fixed income markets, and
the type and size of accounts managed by the Company and related
differences in fees charged.

Results of Operations

The Year in Review
The year was marked by accomplishments, disappointments, and
changes.

The acquisition of PMCIS was completed on September 24, 1997.
The full benefits, both in strategic focus and in potential for
profitability, of this transaction are not expected to be
realized until the latter part of 1998.

- -19-
<PAGE>

Contracts were signed with both Ernst & Young and Republic
National Bank, two significant relationships in terms of revenue
opportunities and changes in line of business. Significant money
and resources were expended in 1997 to launch these programs.
The Company experienced cost overruns and delays in connection
with the development of the Republic National Bank program and
has also experienced delays in the roll-out of the Ernst and
Young program. These factors adversely impacted the Company's
operating results in 1997 and will negatively impact operations
in 1998 until these programs are fully rolled-out.

As a result of the PMCIS acquisition (formerly ADAM Investment
Services, Inc.), attrition and internal restructuring, several
executives and senior managers left the Company late in 1997 and
early 1998. This resulted in the need to transition new
personnel to numerous developing relationships and projects. The
sales and marketing force was also reorganized in conjunction
with the PMCIS acquisition. These transitions were costly.
Management believes that there are likely to be certain bottom
line savings associated with these changes that will not be fully
realized until the latter part of 1998.

The Company's success is contingent upon effectively leveraging
resources and managing operating costs. In 1997, the Company committed
extensive resources to raising capital, completing and
integrating the PMCIS transaction, developing significant new
business relationships, and managing turnover. These efforts
took a significant toll on the Company's human and capital
resources. An inability to attain profitability or raise
additional working capital in 1998 will have a substantial
negative impact on the Company.

1997 Compared to 1996
Revenues
Revenues were $14,900,000 for the year ended December 31, 1997,
compared to $10,100,000 for the year ended December 31, 1996, an
increase of 48%. The increase was attributable primarily to the
PMCIS contribution of $3,000,000 for the fourth quarter and Ernst
& Young contribution of $733,000. New business, such as Ernst &
Young, pays the Company only its net portion of the fees, and
does not include the fees for third parties (i.e., portfolio
managers, solicitors, brokerage or custody). Historically, fees
paid to the Company through its primary distribution channels
included fees payable for these other services. Revenues from
Republic National Bank of $550,000 were not recognized in 1997 as
was anticipated due to product roll-out delays.

Investment Management and Other Fees
Investment Management and Other Fees were $8,200,000 for the year
ended December 31, 1997, compared to $5,600,000 for the year
ended December 31, 1996, an increase of 46%. Direct expenses
increased primarily as a result of the PMCIS acquisition.
However, as discussed above, direct expenses did not increase in
proportion to revenues as certain of these revenues, such as
Ernst & Young, are recognized on a net basis to the Company.

- -20-
<PAGE>

Net Revenues after Investment Manager and Other Fees
Net Revenues after Investment Manager and Other Fees were
$6,700,000 for the year ended December 31, 1997, compared to
$4,500,000 for the year ended December 31, 1996, an increase of
49%. These increases are explained above under Revenues and
Investment Management and Other Fees.

Operating Expenses
Operating Expenses were $10,500,000 for the year ended December
31, 1997, compared to $8,500,000 for the year ended December 31,
1996, an increase of 24%. These increases were due primarily to
an increase in salaries and benefits which increased $1,500,000
or 43%, and depreciation and amortization which increased
$600,000 or 42%. Salaries and benefits, depreciation, and
amortization increased as a result of the expansion of the
Company's products and services, the development of internal
systems and the servicing of several new distribution channels
and customers, primarily PMCIS, Republic National Bank and Ernst
& Young. On a favorable note, the Company has been able to
decrease payroll and related expenses in 1998 which will result
in savings of approximately $1,500,000 annually; this reduction
is the result of layoffs, attrition, and the PMCIS acquisition.
The Company does not anticipate significant purchases of
equipment or capital assets in 1998.

Income Taxes
The Company's effective tax rate for 1997 is 0.

Net Loss
The Company recorded a net loss of $3,800,000 for the year ended
December 31, 1997 as compared to $4,000,000 for the year ended
December 31, 1996. The small improvement in earnings was the
result of revenues growing at a faster pace than direct and
operating expenses. However 1997 earnings estimates were not
met. This was due to higher than expected costs related to:
1. development of infrastructure to support new business relationships;
2. management restructuring;
3. the PMCIS acquisition; and
4. raising capital.

The Company is in the process of converting certain assets under
administration from one portfolio accounting system to a third
party system. The ability to transfer those accounts, maintain
customer satisfaction, and manage related operating costs could
impact the financial results of the Company.

The revenues of the Company are directly dependent upon the
amount of assets under management or administered by the
Company. A decline in market value or in assets under management
as a result of market conditions or customer satisfaction could
impact the future profitability of the Company.

- -21-
<PAGE>

Liquidity and Capital Resources
At December 31, 1997, the Company had cash of $3,000,000, a
substantial portion of which was held in short-term interest
bearing accounts, including restricted cash of $1,500,000.

For the year ended December 31, 1997:
Cash used in operating activities was $3,400,000. This was due
primarily to a net loss from operations.

Cash used in investing activities was $6,400,000. Cash used in
investing activities was the result of goodwill generated from
the PMCIS acquisition and capital expenditures incurred as a
result of business expansion.

Cash provided by financing activities of $6,300,000 was primarily
related to the September 1997 private placement of common stock.

The Company anticipates that it will continue to experience
operating losses until such time as it can realize the benefits
of:
1. the PMCIS acquisition, the related assets under
management and the expected economies of scale of merged
operations;
2. employee attrition and turnover, and related reduction
in payroll and associated costs;
3. the launching of new institutional programs and the
realization of associated fee income; and
4. other developing relationships and the ability to
leverage personnel and managing operating costs in a
normal operating environment.

On March 9, 1998, the Company obtained a line of credit in the
amount of $600,000 from a bank to finance the outstanding
receivable from Ernst & Young.

The Company is currently investigating sources of short and long
term capital as well as the restructuring of certain operational
systems and customer relationships, in order to support its
working capital requirements for the balance of 1998. The
Company's future liquidity needs are dependent upon the Company's
ability to generate higher levels of cash flow from operations,
to borrow funds, to complete additional equity offerings, or to
reduce operations, 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 cashflow
requirements.

- -22-

<PAGE>

Management believes that this plan along with projected increases
in revenues and deferral of payments of expenses should allow
the Company to continue without requiring additional resources,
excluding the ADAM payment. The Company is currently investigating
sources of short and long term capital to meet the ADAM payment as well as
working capital needs. Should additional capital not be raised,
the Company will be required to restructure the terms of the ADAM
payment, to remove the restriction from its cash balances,
restructure its operations or a combination of the above.

ITEM 7. FINANCIAL STATEMENTS.

See the financial statements attached to this report which start
at page F1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16 (a) OF THE
EXCHANGE ACT.

Directors and Executive Officers

The following table sets forth certain information regarding the
Company's directors and executive officers:

- --------------------------------------------------------------------

Name Age Position
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Kenneth S. Phillips 46 President, Chief Executive
Officer and Director
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Scott A. MacKillop 46 Executive Vice President, Chief
Operating Officer and Director
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Stephen M. Ash 40 Chief Financial Officer and
Treasurer
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Maureen E. Dobel 39 General Counsel, Corporate
Secretary and Director
- --------------------------------------------------------------------
- --------------------------------------------------------------------
J. W. Nevil Thomas 59 Chairman of the Board of
Directors
- --------------------------------------------------------------------
- --------------------------------------------------------------------
D. Porter Bibb 60 Director
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Emmett J. Daly 37 Director
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Richard C. Hyde 52 Director
- --------------------------------------------------------------------

Kenneth S. Phillips--President and Chief Executive Officer,
Director. Mr. Phillips founded PMC in 1986 and serves as the
President and Chief Executive Officer of the Company. Mr.
Phillips is responsible for corporate direction, product
development and strategic planning. He was co-founding
participant in the Wilshire cooperative in 1986 (associated with
the institutional consulting firm Wilshire Associates). He
served as Chairman of the Publications Committee of the
Investment Management Consultants Association ("IMCA") in 1994 and

- -23-

<PAGE>

1995, as a member of IMCA's officer and director Nominating
Committee in 1994 and 1996, and has recently been elected to
serve as a member of IMCA's Advisory Council. IMCA is the
investment consulting industry's principal trade organization
with more than 1,200 members, representing virtually all the
major national, regional and independent consulting firms.
Additionally, Mr. Phillips has been a guest speaker for the
International Association of Financial Planners, the Investment
Management Institute and the Institute for International
Research. Mr. Phillips received his education at Colorado State
University and holds numerous NASD license designations.

Scott A. MacKillop--Executive Vice President, Chief Operating
Officer, Director. Mr. MacKillop joined the Company in September
1997 as Executive Vice President and the Chief Operating Officer
of the Company, and as President of PMCIS, the Company's wholly
owned subsidiary, as Chief Operating Officer of Optima, a wholly
owned subsidiary of PMCIS, and as a member of the Boards of
Directors of both PMCIS and Optima. Mr. MacKillop was appointed
to the Board of Directors on October 27, 1997. Mr. MacKillop has
been employed by PMCIS since 1992. From 1991 until 1992 Mr.
MacKillop served as outside general counsel to PMCIS. Mr.
MacKillop received a B.A. degree from Stanford University in 1972
and a J.D. degree from George Washington University Law School in
1976.

Stephen M. Ash, CPA--Chief Financial Officer and Treasurer. Mr.
Ash joined the Company during the fourth quarter of 1997 as Vice
President Finance and Operations. In February 1998, he was named
Treasurer and President of Portfolio Brokerage Services, Inc.,
the Company's wholly owned subsidiary. He was named Chief
Financial Officer in March 1998. Prior to joining the Company,
from 1994 until 1997, Mr. Ash was a Senior Operations Manager for
Mees Pierson Trust Company, a division of Fortis, located in
Curacao, Netherlands Antilles. Mr. Ash has more than ten years
experience as a Certified Public Accountant, first as a Senior
Manager in the audit department of KPMG - Peat Marwick from 1986
to 1993 serving a diverse base of clients, and then as a Senior
Manager with Ernst & Young from 1993 to 1994, specializing in the
audit of off-shore mutual funds, partnerships, and other
investment vehicles. Mr. Ash is a graduate of The State
University of New York with a B.S. in Business Administration..

Maureen E. Dobel--General Counsel, Corporate Secretary and
Director. Ms. Dobel joined PMC in September 1995 as Corporate
Counsel and was named General Counsel and Corporate Secretary in
December 1995. Ms. Dobel was appointed to the Board on March 27,
1998. Prior to joining PMC, Ms. Dobel spent eight years in
private practice, specializing in securities, corporate, real
estate and transactional matters. Ms. Dobel received a B.A.
degree from Drake University in 1980 and a J.D. degree from the
University of Nebraska - Lincoln College of Law in 1984.

J.W. Nevil Thomas--Chairman of the Board. Mr. Thomas has been a
Director of the Company since July 1995. Since 1970 Mr. Thomas
has served as President of Nevcorp, Inc., an investment and a
financial and management consulting firm. In addition, Mr.
Thomas is a director of Bedford Capital Financial Corporation
("Bedford") and is Chairman of Bedford Capital Corporation, a
subsidiary of Bedford, whose principal business is merchant banking.

- -24-
<PAGE>

In addition to being a Director of the Company and of
Bedford and its subsidiary as described above, Mr. Thomas is a
director of Gan Canada Limited, Reliable Life Insurance Company,
Pet Valu Inc., French Fragrances, Inc., Old Republic Insurance
and several other private Canadian and American companies. Mr.
Thomas holds a B.B. Com. from the University of Toronto, an M.A.
in Economics from Queens University, an M.B.A. from York
University and is a Chartered Financial Analyst.

D. Porter Bibb--Director. Mr. Bibb became a Director of the
Company in October 1995. Mr. Bibb is a Managing Director of
Ladenburg, Thalmann & Co., Inc., an investment banking firm.
Prior to joining Ladenburg in 1984, Mr. Bibb was a Managing
Director of Bankers Trust Company, involved in the start-up of
their investment banking operations. Prior to that time, he was
Director of Corporate Development for the New York Times. In
addition to being a Director of the Company, Mr. Bibb is a
Director of East Wind Group, Inc. Mr. Bibb has a B.A. in
History, Economics and Political Science from Yale University and
engaged in graduate studies at New York University, London School
of Economics and Harvard Business School.

Emmett J. Daly--Director. Mr. Daly became a Director of the
Company in February 1997. Mr. Daly is currently Senior Vice
President of Corporate Finance of Keefe, Bruyette & Woods, Inc.,
an investment banking firm that Mr. Daly joined in 1987 as an
Associate in the Corporate Finance Department. Before that time
he spent two years as Credit Analyst followed by one year as an
Assistant Treasurer of Manufacturers Hanover Trust Company. Mr.
Daly received a B.A. in Economics from College of the Holy Cross
and his M.B.A from the Kenan Flager School of Business at
University of North Carolina, Chapel Hill.

Richard C. Hyde--Director. Mr. Hyde became a director of the
Company in July 1997. Mr. Hyde is President of Moreland Capital,
Inc., an asset management and investment consulting firm. He is
also a Principal in Vestor Associates, LLC, the general partner
of Vestor Partners, LP, a private equity investment fund. Prior
to his current affiliations, from 1970 to 1995 Mr. Hyde served in
investment/asset management positions with Ameritrust Company and
its successor organizations, Society Corporation and Key Corp.
From 1984 through 1993, he was Chief Investment officer. From
1993 through 1995, Mr. Hyde was the CEO of Society Asset
Management and Managing Director of Key Asset Management
Holdings. Mr. Hyde holds both a Bachelor of Science and MBA --
Finance from Miami University of Ohio.

The Bylaws of the Company were amended in December 1996 to set
the number of members of the Board of Directors at seven. Under
subscription agreements with investors in the December 1996
Offering, those investors are entitled to designate one director
and one additional director is to be mutually acceptable to the
Company and such investors. The mutually acceptable director is
currently Emmett J. Daly, a Senior Vice President of KBW. The
director to be designated by the investors is Mr. Hyde.

Under a Shareholders Agreement among Bedford, the Company, Mr.
Phillips, Mr. David Andrus and KP3,LLC, (as successor to Phillips
& Andrus, LLC (i) Bedford is entitled to designate one director
and one additional director is to be reasonably acceptable to Bedford and

- -25-

<PAGE>

Messrs. Phillips and Andrus and (ii) Messrs. Phillips
and Andrus are entitled to designate three directors, including
one member of senior management designated after the date of the
agreement. Mr. Thomas is currently the director designated by
Bedford and Mr. Phillips, Mr. MacKillop and Ms. Dobel are the
three directors management is entitled to designate. The
director acceptable to Bedford and Messrs. Phillips and Andrus is
currently Mr. Bibb.

The Company believes that during fiscal year 1997, the following
officers, directors or 10% holders of its Common Stock filed late
reports, failed to report transactions on a timely basis or
failed to file a form required under Section 16 of the Securities
Exchange Act of 1934, as amended:

Kenneth S. Phillips - late filing of one required report
Scott A. MacKillop - late filing of one required report
J.W. Nevil Thomas - late filing of one required report

ITEM 10. EXECUTIVE COMPENSATION.

The following table provides certain summary information
concerning compensation paid by the Company and its subsidiaries
to the Company's Chief Executive Officer and to each of its other
executive officers at the end of 1997.

- -26-
<PAGE>

Summary Compensation Table

Annual Long-Term
Compensation Compensation
------------ ------------
Name and Principal Fiscal Options
Position Year Salary Granted(1)
------------------ ------ ---------- ------------
Kenneth S. Phillips 1997 $350,865 938
President, Chief 1996 252,000 12,500
Executive Officer 1995 228,124 -0-

Scott A. MacKillop 1997 $206,331(2) 75,750
Executive Vice
President & Chief
Operating Officer

David L. Andrus(3) 1997 $342,501 -0-
Executive Vice 1996 240,000 262,500
President 1995 40,000 -0-

Vali Nasr(3) 1997 $211,816 -0-
Chief Financial 1996 139,015 12,500
Officer & Treasurer 1995 126,475 -0-

(1)The shares of Common Stock to be received upon the
exercise of all stock options granted during the period
covered by the Table.
(2)Includes $150,000 in salary received from ADAM
Investment Services, Inc. for services rendered prior
to its acquisition by the Company.
(3)Mr. Andrus and Mr. Nasr's employment ceased in January 1998.

- -27-
<PAGE>

During the year ended December 31, 1997 the Company granted to
its Chief Executive Officer and the other executive officers
listed in the Summary Compensation Table options to acquire a
total of 76,688 shares of Common Stock as set forth in the
following table.

Option Grants in Last Fiscal Year
---------------------------------

Percentage
Number of of Total
Shares Options
Underlying Granted to Expiration
Name Options Employees Exercise Date
Granted in Fiscal Price(1)
Year
- ------------- ------------ --------- --------- -----------
Kenneth S. Phillips 938 .6% $6.485 12/31/2002

Scott A. MacKillop 62,500 51.4% $6.485 9/24/03
12,500 $6.485 10/27/02
750 $6.485 12/31/02

(1) All figures reflect a reverse split effective 12/30/97.
_______________________

The following table sets forth certain information with respect
to options exercised during the year ended December 31, 1997 by
those officers listed in the Summary Compensation Table.
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and
Fiscal Year End Option/SAR Values
<CAPTION>

Number of Securities Value of
Shares Underlying Unexercised Unexercised Money
Acquired Options at FY End Options at FY End
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable(1) Unexercisable(1)
---- -------- -------- --------------- ----------------
<S> <C> <C> <C> <C>
Kenneth S. Phillips 0 0 5,938 / 7,500 $26,083 / $30,000

David L. Andrus 0 0 193,750 / 0 $1,193,125 / $0

Vali Nasr 0 0 12,500 / 0 $50,000 / $0

Scott A. MacKillop 0 0 3,250 / 72,500 $21,076 / $470,163
<FN>
(1) All figures reflect a reverse split effective 12/30/97
</FN>
</TABLE>

- -28-
<PAGE>

Compensation of Directors

During 1997, the Company did not pay its employee directors for
attending board meetings. Each of the three outside directors
received a $5,000 annual retainer and a $500 fee for each meeting
attended. The Company reimburses all of its directors for travel
and out-of-pocket expenses in connection with their attendance at
meetings of the Board of Directors.

On February 28, 1997, Mr. Daly was granted options to purchase
12,500 shares of Common Stock at an exercise price of $10.00 per
share. Such options expire five years from the date of grant and
vest 20% at such time as the average bid and offer price for the
Common Stock equals $10.00, $14.00, $18.00, $22.00, and $26.00,
respectively, for twenty consecutive trading days.

On July 9, 1997, Mr. Hyde was granted options to purchase 12,500
shares of Common Stock at an exercise price of $7.872 per share.
Such options expire five years from the date of grant and vest
20% at such time as the average bid and offer price for the
Common Stock equals $7.872, $11.872, $15.872, $19.872, and
$23.872, respectively, for twenty consecutive trading days.

On October 27, 1997, Mr. MacKillop was granted options to
purchase 12,500 shares of Common Stock at an exercise price of
$6.485 per share. Such options expire five years from the date
of grant and vest 20% at such time as the average bid and offer
price for the Common Stock equals $6.485, $10.50, $14.50, $18.50,
and $22.50, respectively, for twenty consecutive trading days.

Employment Agreements

The Company has employment agreements with Mr. Phillips, its
President and Chief Executive Officer, and PMCIS has an
employment agreement with Mr. MacKillop, the Executive Vice
President and Chief Operating Officer of the Company. In
addition, the Company had an employment agreement with Mr.
Andrus, its former Executive Vice President. The Agreement with
Mr. Phillips is dated July 26, 1995 and is for a three
year-term. Either party may terminate the agreement upon 90
days' prior notice. The agreement provides for a minimum salary
of $240,000 ($300,000 if the Company has pre-tax profits of at
least $1,000,000), 40% of the annual bonus pool (equal to 10% of
the Company's pre-tax profits), a car allowance, and
participation in the Company's other benefit plans. Effective
January 1, 1997, Mr. Phillips salary was increased to $300,000.
If the Company terminates the agreement without cause, it will be
obligated to make severance payments to Mr. Phillips in an amount
equal to two-years' compensation. In addition, the agreement
provides that any options granted to Mr. Phillips vest
immediately upon his death or upon a change in control of the
Company.

The agreement with Mr. MacKillop is dated September 23, 1997, and
is for a two-year term. PMCIS may terminate the agreement at any
time after the one-year anniversary of the date of the agreement
by giving six months' prior written notice. The agreement
provides for a

- -29-

<PAGE>

minimum salary of $240,000, an annual bonus of up
to $50,000, options to acquire 62,500 shares of Common Stock, and
participation in the Company's other benefit plans.

The agreement with Mr. Andrus is dated July 26, 1995, was
amended in December 1996, and was terminated effective January
11, 1998. It originally had a three year-term ending November
1998. 'The agreement provided for a minimum salary of $240,000,
options to acquire 250,000 shares of Common Stock, and
participation in the Company's other benefit plans. Effective
January 1, 1997, Mr. Andrus salary had been increased to
$300,000. The agreement provided that if it was terminated
without cause, the Company will be obligated to make severance
payments to Mr. Andrus in an amount up to one-years'
compensation. In addition, the agreement provided that all
options granted to Mr. Andrus vest immediately upon a change in
control of the Company. On October 13, 1997, the Company
notified Mr. Andrus that his affiliation with the Company as an
officer and employee would cease effective January 11, 1998. Mr.
Andrus' employment contract stipulated he receive severance
payments in an amount equal to his base salary of $240,000,
payable ratably on a semi-monthly basis for up to one year after
January 11, 1998, the date of his separation from the Company.
Such payments would cease sooner in the event Mr. Andrus gained
employment affording him comparable compensation. However, 'the
Company believes there to be sufficient basis to dispute Mr.
Andrus' right to receive severance payments. The Company ceased
paying Mr. Andrus in February 1998, has retained legal counsel
and plans to address the matter vigorously.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.

The following table and related notes contain information
concerning beneficial ownership of the Company's Common Stock as
of March 16, 1998 by: (i) each person known by the Company to
own beneficially more than five percent of the Common Stock, (ii)
each director of the Company, (iii) each executive officer of the
Company named in the Summary Compensation Table, and (iv) all
directors and executive officers of the Company as a group. The
share amounts in this table reflect shares of Common Stock
issuable upon the exercise of options and warrants exercisable
within the next 60 days.

- -30-
<PAGE>

Beneficial Ownership of the Company's Common Stock
as of March 27, 1998
Shareholder Footnotes Shares Percent
---------- --------- ------ -------
Kenneth S. Phillips(1) (10)(11) 688,379 14.15

Scott A. MacKillop(1) (13) 8,750 .18

Stephen M. Ash(1) 0 0
Maureen E. Dobel(1) (19) 6,563 .13

J.W. Nevil Thomas(2) (11)(14) 7,500 .15

D. Porter Bibb(3) (11)(15) 5,000 .10

Emmett J. Daly(4) (12)(18) 52,500 1.07

Richard C, Hyde(5) (12) 2,500 .05

Bedford Capital Financial (16) 742,813 15.18
Corporation (6)

KP3, LLC(1) (17) 410,961 8.46

OCH ZIFF Capital 466,666 9.61
Mgmt(9)

Bay Pond Partners, LP(7) 365,832 5.56

Bay Pond Investors 270,250 7.53
(Bermuda) (7)

Wheatley Partners(8) 401,916 8.27

Officers and Directors (20) 771,192 15.67
(8 persons)
- -----------------------
FOOTNOTES:

(1) The address of Mr. Phillips, Mr. Ash, Mr. MacKillop, Ms. Dobel
and KP3, LLC is 555 17th Street, 14th Floor, Denver, Colorado
80202.
(2) The address of Mr. Thomas is Scotia Plaza, Suite 4712, 40 King
Street West, Toronto, Ontario M5H 3Y2.
(3) The address of Mr. Bibb is 590 Madison Avenue, New York, New
York 10022.
(4) The address of Mr. Daly is Two World Trade Center, 85th Floor,
New York, New York 10048.
(5) The address of Mr. Hyde is Moreland Capital, Inc., 30050
Chagrin Boulevard, Suite 100, Pepper Pike, Ohio 44124.
(6) The address of Bedford Capital Financial Corporation is 2nd
Floor, Charlotte Hs., Shirly Street, Box N964, Nassau, Bahamas.
(7) The address of Bay Pond Partners, L.P. and Bay Pond Investors
(Bermuda), Ltd. Is c/o Wellington Management Company, L.L.P.,
75 State Street, Boston, Massachusetts 02109.
(8) The address of Wheatley Partners is 80 Cutter Mill Road, Suite
311, Great Neck, New York 11021.
(9) The address of OCH ZIFF Capital Management is 153 East 53rd
Street, 43rd Floor, New York, New York 10022.
(10)Includes 410,961 shares owned by KP3, LLC ("KP3"), a
Colorado limited liability company, of which Mr. Phillips is
the managing member and has the controlling ownership
interest; includes 2,313 common shares underlying presently
exercisable warrants.
(11)Includes 5,000 common shares underlying presently
exercisable options.
(12)Includes 2,500 common shares underlying presently
exercisable options.
(13)Includes 3,250 common shares underlying presently
exercisable options.
(14 Includes 2,500 shares owned by Mr. Thomas' spouse, Suzanne E.
Thomas. Does not include shares owned by Bedford Capital
Financial Corporation ("Bedford") of which Mr. Thomas is a
director and a 6.13% shareholder.
(15)Does not include 50,000 common shares underlying presently
exercisable options granted to Ladenburg, Thalmann & Co.,
Inc., of which Mr. Bibb is a managing director.
(16)Includes 34,063 shares underlying presently exercisable
options or warrants, and 58,750 common shares owned by KP3 and
included in the beneficial ownership of Mr. Phillips which
Bedford may acquire pursuant to a presently exercisable
option. See, "Recent Offerings."
(17)All common shares have been included in the beneficial
ownership of Mr. Phillips; 58,750 common shares have been
included in the beneficial ownership of Bedford.
(18)Includes 12,500 shares jointly owned with Regina Daly.
(19)Includes 6,563 common shares underlying presently
exercisable options.
(20)Based upon total common shares outstanding of 4,857,903 plus
63,376 common shares underlying presently exercisable options.

- -31-

<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company entered into an agreement with Ladenburg, Thalmann &
Co., Inc., investment bankers ("Ladenburg"), in January 1995,
pursuant to which Ladenburg would assist the Company in financing
efforts. Ladenburg was involved in the Company's transactions
with Bedford. Mr. D. Porter Bibb, a principal of Ladenburg, was
named to the Company's Board of Directors in September 1995.

In July 1995, the Company borrowed $1.2 million from Bedford. As
a result of this transaction and a simultaneous transaction
wherein Bedford purchased 1 million shares of outstanding Common
Stock of the Company from a former principal of the Company,
Bedford became a greater than 10% shareholder of the Company,
with the right to acquire in excess of 50% of the Company's
Common Stock. Mr. J.W. Nevil Thomas and another affiliate of
Bedford were appointed to the Company's Board of Directors in
connection with that transaction. See "Business--Corporate
History--Bedford."

Also in July 1995, the Company's then Chief Executive Officer and
a director, Marc Geman, resigned. In connection with his
resignation, Mr. Geman was entitled to severance payments
totaling $180,000, due in monthly payments of $15,000. As of
December 31, 1996, Mr. Geman had received all of the severance
payments to which he was entitled. The Company also entered into
an Indemnification Agreement with Mr. Geman whereby the Company
agreed to hold him harmless, in an amount not to exceed $100,000,
for expenses incurred in defense of the pending investigation by
the Commission. As of December 31, 1996, and September 30, 1997,
a total of $50,786 and $72,000, respectively, in indemnification
payments had been made by the Company under that agreement.

David L. Andrus, former Executive Vice President of the Company,
participated in the June 1996 offering of debt securities and
warrants. See "Business--Corporate History." Mr. Andrus
purchased $100,000 of subordinated debt and received a promissory
note and warrants to purchase 25,000 shares of Common Stock. In
addition, certain employees of PMC participated in the offering,
purchasing a total of $162,500 of subordinated debt and receiving
warrants to purchase 40,625 shares of Common Stock. Mr. Andrus
and the other Company employees participated in the offering on
the same terms as all other investors.

In November 1996 the Company borrowed $250,000 to fund working
capital requirements pending the closing of a private placement
of Common Stock in December 1996. The lenders included Mr.
Phillips and Mr. Andrus, the Company's President and Chief
Executive Officer and former Executive Vice President,
respectively, and certain other employees of the Company.
Bedford, a shareholder affiliate of the Company, and Keefe,
Bruyette & Woods, Inc., the placement agent for the December 1996
Offering, were also lenders. The loans were evidenced by 12%
notes to be repaid on the earlier of the closing of the December
1996 Offering or March 31, 1997. The lenders also received
warrants to purchase a total of 6,250 shares of Common Stock at a
price of $6.50 per share and registration rights with respect to
the shares of Common Stock underlying the warrants.

- -32-

<PAGE>

In December 1996, the Company completed a restructuring of its
outstanding debt. As part of the restructuring, Bedford and
certain of its assignees were repaid certain of the subordinated
debt held by them, exercised certain of the warrants held by
them, were issued certain shares of Common Stock by the Company
in cancellation of their other warrants and were issued new
five-year warrants to purchase 37,500 shares of the Common Stock
with an exercise price equal to the price to investors in the
December 1996 Offering. As a result of these transactions, all
$3 million in outstanding debt previously owed by the Company to
Bedford and its assignees was eliminated. Bedford also
relinquished certain rights held by it and its right to elect
directors of the Company was modified such that Bedford now has
the right to designate one director so long as it holds at least
10% of the outstanding Common Stock. In addition, at least one
additional director must be acceptable to Bedford and the Company
so long as Bedford owns at least 5% of the outstanding Common
Stock. Bedford also retained demand and piggyback registration
rights with respect to restricted securities acquired by it from
the Company. In connection with the restructuring, the Company's
consulting agreement with Nevcorp, Inc., was terminated. See
"Business--Corporate History--December 1996 Restructuring."

In connection with the December 1996 restructuring, the investors
in the December 1995 and June 1996 Offerings exercised their
warrants to purchase an aggregate of 375,000 shares of Common
Stock and surrendered canceled promissory notes in the aggregate
principal amount of $1,500,000 in satisfaction of the exercise
price for the warrants. In connection with the exercise of
warrants and cancellation of debt, the investors also received,
pro rata, five-year warrants to purchase an aggregate of 37,500
shares of Common Stock at an exercise price of $8.50 per share.
The brother and father of Mr. Phillips, the Company's President
and Chief Executive Officer, Mr. Andrus, former Executive Vice
President of the Company, and certain other employees of the
Company, participated in the restructuring on the same terms as
the other parties.

As part of the September 1997 Offering, Emmett J. Daly and J.W.
Nevil Thomas, directors of the Company, Scott A. MacKillop, the
President of PMCIS and current Executive Vice President, Chief
Operating Officer and director of the Company, Michael T.
Wilkinson, former director and principal shareholder of PMCIS and
two other PMCIS employees, participated in the offering. All of
these individuals participated in the offering on the same terms
as all other investors.

- -33-
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

A. Exhibits

3.1 Articles of Incorporation of the Company (1)
3.2 Bylaws of the Company (2)
10.1 Stock Purchase Agreement among PMC International, Inc.,
Michael T. Wilkinson, Scott A. MacKillop, Gary A.
Miller, Michael J. Flinn, Jared L. Shope, Graham L.
Guy, John W. Burgin, and ADAM Investment Services,
Inc., dated as of July 25, 1997 (3)
10.2 Non-Compete Agreement between ADAM Investment Services,
Inc., and Michael T. Wilkinson (3)
10.3 Employment Agreement between ADAM Investment Services,
Inc., and Scott A. MacKillop (3)
10.4 Form of Subscription Agreement between the Company and
each of the purchasers in the ADAM Private Placement (4)
21.1 List of Subsidiaries (4)
23.1 Consent of Spicer Jeffries & Co., Certified Public
Accountants

(1) Incorporated by reference from the Company's Registration
Statement on Form S-1 (File No. 33-37800) dated November 15,
1990.
(2) Incorporated by reference from the Company's Registration
Statement on Form SB-2 (File No. 333-21335) dated February 7,
1997.
(3) Incorporated by reference from the Company's Current Report
on Form 8-K (Commission File No. 0-14937), dated October 9,
1997.
(4) Incorporated by reference from the Company's Registered
Statement on Form SB-2 (File No. 333-40805), dated February 6,
1998.

B. Report on Form 8-K

The Company filed a report on Form 8-K dated October 9, 1997, describing
the acquision of ADAM Investment Services, Inc., now known as PMC Investment
Services, Inc. The report included financial statements for ADAM as of
December 31, 1996 and 1995 and certain pro forma financial information.

- -34-
<PAGE>

SIGNATURES

in accordance with Section 13 or 15(d) of Exchange Act, the
registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

PMC INTERNATIONAL, INC.

By: /s/ Kenneth S. Phillips
-----------------------------
Kenneth S. Phillips
President, Chief Executive
Officer

By: /s/ Stephen M. Ash
-----------------------------
Stephen M. Ash, Treasurer,
Principal Financial and Accounting
Officer

Date: March 30, 1998

In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.

Signature Title Date

/s/ Kenneth S. Phillips
- ----------------------------
Kenneth S. Phillips President, Chief March 30, 1998
Executive Officer,
Director
/s/ Scott A. MacKillop
- ----------------------------
Scott A. MacKillop Executive Vice March 30, 1998
President,
Chief Operating Officer,
Director
/s/ Maureen E. Dobel
- ----------------------------
Maureen E. Dobel General Counsel, March 30, 1998
Corporate Secretary
Director

/s/ J.W. Nevil Thomas
- ----------------------------
J.W. Nevil Thomas Director March 30, 1998

/s/ D. Porter Bibb
- ----------------------------
D. Porter Bibb Director March 30, 1998

/s/ Emmett J. Daly
- ----------------------------
Emmett J. Daly Director March 30, 1998

/s/ Richard C. Hyde
- ----------------------------
Richard C. Hyde Director March 30, 1998

<PAGE>

PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

CONTENTS
======================

Financial statements for the years ended
December 31, 1997 and 1996

Independent Auditors' Report F-2

Consolidated Balance Sheets F-3

Consolidated Statements of Operations F-4

Consolidated Statements of Changes in
Shareholders' Equity (Deficit) F-5

Consolidated Statements of Cash Flows F-6

Notes to Consolidated Financial Statements F-8

<TABLE>
PMC INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996

<CAPTION>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>

CASH AND CASH EQUIVALENTS (Notes 1 and 7) $ 2,953,740 $ 6,499,390

RECEIVABLES:
Investment management fees 1,041,390 113,778
Other receivables 166,221 187,109

FURNITURE AND EQUIPMENT, at cost, net of accumulated
depreciation of $1,277,801 and $539,782 965,168 604,085

SOFTWARE AND PRODUCT DEVELOPMENT COSTS,
at cost, net of accumulated amortization of
$963,469 and $352,971 (Note 1) 1,208,713 843,272

PREPAID EXPENSES AND OTHER ASSETS 1,023,364 340,006

LONG TERM NOTES RECEIVABLE (Note 2) 623,115 575,804

GOODWILL (net of amortization of $146,096) (Note 1) 5,394,606 -
----------------- ----------------

$ 13,376,317 $ 9,163,444
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
Accounts payable $ 1,687,967 $ 839,095
Accrued expenses 644,012 535,520
Other liabilities 104,125 730,909
Deferred revenue 1,307,382 552,868
Notes payable (Note 6) 366,158 14,694
Obligations under capital leases (Note 7) 384,986 219,821
----------------- ----------------

Total liabilities 4,494,630 2,892,907
----------------- ----------------

COMMITMENTS AND CONTINGENCIES (Note 7)

SHAREHOLDERS' EQUITY (Note 3):
Preferred stock - no par value - authorized 5,000,000 shares;
issued and outstanding, 138,182 and 175,897 shares 345,455 439 742
Common stock, $.01 par value - authorized, 50,000,000 shares;
issued and outstanding, 4,857,903 and 3,617,939 shares 48,579 36 179
Additional paid-in capital 22,977,526 16,461,953
Deficit (14,489,873) (10,667,337)
----------------- ----------------
Total shareholders' equity 8,881,687 6,270,537
----------------- ----------------
$ 13,376,317 $ 9,163,444
================= ================

</TABLE>

PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1997 AND 1996

<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUE:
Investment management fees (Note 1) $ 14,668,348 $ 9,944,544
Other income 194,366 142,337
----------------- ----------------
Total revenue 14,862,714 10,086,881
----------------- ----------------
EXPENSES:
Investment manager and other fees 8,151,912 5,580,846
Salaries and benefits 5,039,136 3,524,825
Clearing charges and user fees 613,794 813,239
Advertising and promotion 1,060,930 830,140
General and administrative 1,317,354 1,098,895
Software development costs 272,772 132,392
Occupancy and equipment costs 1,708,714 1,125,744
Professional fees 520,638 827,292
Settlement expense - 155,000
----------------- ----------------
Total expenses 18,685,250 14,088,373
----------------- ----------------

NET LOSS $ (3,822,536) $ (4,001,492)
=============== ================
NET LOSS PER COMMON SHARE (Note 1) $ (0.98) $ (2.85)
=============== ================

WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (Note 1) 3,961,768 1,425,509
================= ================
</TABLE>

<PAGE>

<TABLE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
DECEMBER 31, 1997 AND 1996
<CAPTION>
Total
Common Stock Additional Preferred Shareholders'
------------ Paid - In Stock Equity
Shares Amount Capital Shares Amount Deficit (Deficit)
-------- ------- ------- ------ ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>

BALANCES, December 31, 1995
as previously stated 5,555,713 $ 55,556 $3,523,909 349,017 $ 872,543 $ (6,665,845) $(2,213,837)

Stock Split effected (Note 1) (4,166,785) (41,667) 41,667 - - - -
---------- -------- ----------- -------- --------- ------------- ------------

BALANCES, December 31, 1995 as restated 1,388,928 13,889 3,565,576 349,017 872,543 (6,665,845) (2,213,837)

Stock options exercised 250 2 1,373 - - - 1,375

Notes payable converted to common stock 875,000 8,750 2,515,000 - - - 2,523,750

Preferred stock converted to common stock 59,511 595 432,206 (173,120) (432,801) - -

Issuance of stock 1,294,250 12,943 10,988,182 - - - 11,001,125

Less stock issuance costs - - (1,040,384) - - - (1,040,384)

Net loss - - - - - (4,001,492) (4,001,492)
---------- -------- ----------- -------- --------- ------------- ------------

BALANCES, December 31, 1996 3,617,939 36,179 16,461,953 175,897 439,742 (10,667,337) 6,270,537

Stock options exercised 6,250 63 26,812 - - - 26,875

Issuance of stock 1,220,749 12,207 7,312,287 - - - 7,324,494

Preferred stock converted to common stock 12,965 130 94,157 (37,715) (94,287) - -

Less stock issuance costs - - (917,683) - - - (917,683)

Net loss - - - - - (3,822,536) (3,822,536)
---------- -------- ----------- -------- --------- ------------- ------------

BALANCES, December 31, 1997 4,857,903 $ 48,579 $22,977,526 138,182 $ 345,455 $ (14,489,873) $ 8,881,687
========== ======== =========== ======== ========= ============= ============
</TABLE>

PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1997 AND 1996
INCREASE (DECREASE) IN CASH
<CAPTION>

1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,822,536) $ (4,001,492)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,137,790 537,522
Accretion of discount on note receivable (96,590) (67,181)
Changes in operating assets and liabilities:
Investment management fees receivable (736,202) (105,981)
Other receivables (5,738) (97,273)
Prepaid expenses and other assets 121,788 (119,401)
Accrued expenses 108,492 (172,377)
Accounts payable 525,947 (597,029)
SEC settlement distribution (605,591) -
Other liabilities (21,193) 159,520
Deferred revenue (21,547) 141,521
-------------- --------------

Net cash used in operating activities (3,415,380) (4,322,171)
-------------- --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (303,028) (376,574)
Reduction of long-term note receivable 345,582 393,854
Issuance of notes receivable (301,613) -
Acquisition of ADAM, net of cash acquired (5,104,007) -
Cost of software development (1,027,163) (295,022)
-------------- --------------

Net cash used in investing activities (6,390,229) (277,742)
-------------- --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - 3,125,000
Principal payments on notes payable (8,536) (2,234,026)
Payments on obligations under capital lease (165,191) (67,672)
Sale of common stock, less offering costs 6,406,811 9,960,741
Proceeds from exercise of stock options 26,875 1,375
-------------- --------------

Net cash provided by financing activities 6,259,959 10,785,418
-------------- --------------

NET INCREASE (DECREASE) IN CASH (3,545,650) 6,185,505

CASH, at beginning of year 6,499,390 313,885
-------------- --------------

CASH, at end of year $ 2,953,740 $ 6,499,390
============== ==============
</TABLE>
<PAGE>
<TABLE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1997 AND 1996
INCREASE (DECREASE) IN CASH
(Continued)
<CAPTION>

1997 1996
---- ----
<S> <C> <C>

SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 34,137 $ 367,180
============== ============

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of equipment via capital lease obligation $ 330,356 $ 205,433
============== ============
Conversion of preferred stock to common stock $ 94,287 $ 432,801
============== ============
Conversion of notes payable to common stock $ - $ 2,523,750
============== ============
Transfer of assets via accounts receivable at net book value $ 43,002 $ -
============== ============
The Company purchased all of the capital stock of
ADAM for $5,163,386. In connection with the
acquisition, liabilities were assumed as follows:

Fair value of assets acquired $ 6,622,370
==============
Cash paid for the capital stock (5,163,386)
==============
Liabilities assumed $ 1,458,984
==============
</TABLE>
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Organization

On September 23, 1993, the shareholders of Schield Management
Company ("Schield") approved an exchange of common stock of
Schield for all of the outstanding common stock of Portfolio
Management Consultants, Inc. ("PMC") and a name change from
Schield to PMC International, Inc. ("PMCI" or the "Company").
The share exchange was completed on September 30, 1993 and as a
result of this transaction, PMC is a wholly owned subsidiary of
PMCI. The share exchange between Schield and PMC was treated as
a reverse acquisition and accounted for under the purchase method
of accounting. Under reverse acquisition accounting, PMC was
considered the acquiror for accounting and financial reporting
purposes, and acquired the assets and assumed the liabilities of
Schield.

On September 24, 1997, PMCI completed its acquisition (the
"Acquisition") of PMC Investment Services, Inc., ("PMCIS")
formerly ADAM Investment Services, Inc. ("ADAM"), a Delaware
Corporation, and its wholly owned subsidiary, Optima Funds, Inc.,
("Optima") a Georgia corporation, pursuant to a Stock Purchase
Agreement dated July 25, 1997 ("the Agreement") among the
Company, ADAM and ADAM's shareholders. PMCI acquired all of the
issued and outstanding shares of common stock of ADAM from its
shareholders in consideration for payment of $5 million at
closing and two earn-out payments on the first and second
anniversary dates of the closing. The first earn-out payment
will equal 1.0% of ADAM's standard fee assets under management in
excess of $500 million, determined on the one-year anniversary of
the closing of the Acquisition, not to exceed $2.0 million, plus
interest thereon at a rate of 8.75%. The second earn-out payment
will equal 1.0% of ADAM's standard fee assets under management in
excess of $700 million, determined on the two-year anniversary of
the closing of the Acquisition, not to exceed $2.0 million. The
Acquisition was accounted for using the purchase method of
accounting. The excess of the cost of the Acquisition over the
fair value of the assets acquired and liabilities assumed was
recorded as goodwill. The Acquisition was funded from the
proceeds of a private placement of PMCI common stock which also
closed on September 24, 1997. The Company raised approximately
$6.4 million by selling 1,220,749 shares of PMCI common stock at
$6.00 per share.

PMC was organized in 1986 and its principal business activity is
the administration of private and institutional managed account
programs with its customers located substantially in the United
States. Its services include investment suitability analysis,
portfolio modeling and asset allocation, money manager selection,
portfolio accounting and performance reporting. PMC is
registered as an investment advisor under the Investment Advisors
Act of 1940.

F-8
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

Organization (continued)
In June, 1994, Portfolio Brokerage Services, Inc. ("PBS") was
capitalized through a series of transactions with PMCI and PMC,
whereby PBS became a wholly owned subsidiary of PMCI by issuing
1,000 shares of its common stock in exchange for certain assets
and liabilities with a book value of $1,532,332. PBS is engaged
in business as a securities broker-dealer. As a broker-dealer it
executes security transactions for PMC's privately managed
account programs, on behalf of its customers, through the
customer's custodian bank on a delivery versus payment basis.

Portfolio Technology Service, Inc. ("PTS"), a wholly owned
subsidiary of PMCI, was organized in June, 1994 but had no
operations until 1995. PTS was formed for the purpose of
developing proprietary software for use in the financial services
industry.

ADAM was formed in 1980 to provide investment consulting services
to institutional investors. ADAM's primary services are based
around mutual funds. ADAM offers 17 model portfolios constructed
using no-load mutual funds and funds available at net asset
value. ADAM's mutual fund portfolios are offered as options for
use by 401(k) plans and with an insurance company within a variable
annuity contract.

The accompanying consolidated financial statements include the
historical accounts of PMC for all periods and the accounts of
PMCI since September 30, 1993, PBS and PTS since inception and
ADAM since September 24, 1997. All intercompany accounts and
transactions have been eliminated in consolidation.

On December 15, 1997, at the Annual Meeting of Shareholders of
the Company, the Shareholders of the Company approved a 1 for 4
reverse split of the Common Stock (the "Reverse Split"). On
December 30, 1997, the Company effected the Reverse Split to all
shareholders of record as of December 30, 1997.

Unless otherwise noted, all references to shares and share
prices, including retroactive treatment, reflect the Reverse
Split.

Significant Accounting Policies

Revenue from investment management services is recorded as such
revenues accrue under the terms of the related investment
management contracts. A specific charge to earnings is recorded
when a significant and permanent contingency exists; primarily
the inability to collect amounts due according to contract terms.

F-9
<PAGE>

PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

Significant Accounting Policies (continued)

Securities transactions and related commission income are
recorded on a trade date basis. In the normal course of
business, PBS executes, as agent, transactions on behalf of
customers. If the agency transactions do not settle because of
failure to perform by either the customer or the counter-party,
PBS may be obligated to discharge the obligation of the
non-performing party and, as a result, may incur a loss if the
market value of the security is different from the contract
amount of the transactions.

The Company has developed a windows-based software program for
sale to financial product distribution entities. The product is
designed to guide clients of these entities through the process
of choosing appropriate combinations of mutual funds for their
own portfolios. The majority of costs incurred to establish the
technological feasibility of this product were borne by unrelated
individuals prior to the product being introduced to the
Company. Prior to achieving technological feasibility in 1995,
the Company incurred approximately $50,000 in research and
development costs after receiving the products from the unrelated
individuals. All subsequent costs incurred directly related to
the development of the software were capitalized. Capitalized
costs are being amortized over the economic life of the software,
which in this case is three years. It is the Company's policy to
amortize and evaluate software for net realizable value on a
product-by-product basis. The software became available for sale
during 1996. The Company generates revenues from four sources:
license fees, customization fees, a continuing fee equal to a
percentage of assets under management of the end users purchasing
such software, and annual maintenance fees. Costs of maintenance
and customer support are charged to expense when the related
revenue is recognized, or when those costs are incurred,
whichever occurs first.

During 1997, PMC entered into agreements with certain clients to
provide customized software, advisory, consulting and reporting
services in connection with the clients' investment advisory
services. PMC has capitalized product development costs
consisting of salaries and other direct costs relating to these
products. These costs are being amortized on the straight line
method over the terms of the related contracts.

The Company provides for depreciation of furniture and equipment
on the straight line and declining balance methods based on
estimated lives of three to seven years.

Goodwill, which resulted from the acquisition of ADAM, as
described above, is being amortized over a period of 120 months.

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

F-10
<PAGE>

PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

Significant Accounting Policies (continued)

The Company follows the intrinsic value based method of
accounting as prescribed by APB 25,
Accounting for Stock Issued to Employees, for its stock-based
compensation. Under the Company's stock option plan, the
exercise price is equal to the fair value of the options at the
grant date and no compensation cost is recognized.

Cash and cash equivalents for purposes of the statement of cash
flows includes highly liquid investments with a maturity of three
months or less at the date of acquisition.

Net loss per share of common stock is based on the weighted
average number of shares of common stock outstanding. Common
stock equivalents are not included in the weighted average
calculation since their effect would be anti-dilutive. Dividends
on cumulative preferred stock, of $44,909 and $57,166 for the
years ended December 31, 1997 and 1996 respectively, have been
added back to the net loss in computing the net loss per share.

The Company adopted the provisions of SFAS 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, in its financial statements for the year ended
December 31, 1996. The adoption of SFAS 121 had no material
affect on the Company's financial statements. The Company reviews
its long-lived assets for impairment to determine if the carrying
amount of the asset is recoverable.

Certain 1996 amounts have been reclassified to conform to 1997
presentation.

NOTE 2 - LONG TERM NOTES RECEIVABLE

In connection with the Schield reverse acquisition, the Company
acquired a long term note receivable related to the sale of
Schield's market timing operations from an entity controlled by a
founder of Schield. The note is payable in monthly installments
of $32,000, including interest, through August, 1998. The note
was recorded at its estimated fair value as of September 30,
1993. The discount from the face amount of the note receivable
is a credit to interest income over the life of the note using
the interest method. The principal balance of the note as of
December 31, 1997 is $379,377 compared to its carrying amount of
$349,332. While the original transaction involved a transfer of
operations, the transaction was handled on an arms length basis.
The Company did not provide any guarantee of the obligations of
the buyer and had no further involvement with the business after
the sale. As of December 31, 1997, the Company agreed to defer
the September 1997 through December 1997 payments; these payments
were made in January 1998.

F-11
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 2 - LONG TERM NOTE RECEIVABLE (continued)

During January, 1997, the Company authorized financing of 38,672
shares of PMCI's common stock which had been purchased and owned
by a number of PMC employees, including one officer, as part of a
private sale of stock by a shareholder of the Company in 1993.
This purchase was originally financed through a bank loan which
came due on December 31, 1996. The balloon amount due at the
expiration of the loan was $142,093, $46,300 from the one officer
and $95,793 from employees of the Company that are not officers
or directors. In January, 1997 PMCI paid off the prior bank loan
and financed this amount for its employees as notes receivable,
collateralized by the underlying stock. PMCI is receiving
installments in the amount of $3,435 collected through payroll
deductions. These notes will mature on December 31, 1999, with
balloon payments of $38,825 due from employees. At December 31,
1997, $118,057 was included in notes receivable related to these
notes.

During 1997, the Company loaned a limited liability company owned
and controlled by the Company's president and chief executive
officer, (the "LLC") amounts sufficient to pay interest on a bank
loan guaranteed by the Company (see Note 7). The balance of such
loan at December 31, 1997 was $155,726 including accrued
interest. The loan matures on December 31, 1998.

NOTE 3 - SHAREHOLDERS' EQUITY

Preferred Stock

Holders of preferred stock are entitled to receive dividends at a
rate of $0.325 per share per annum (equal to 13% of the purchase
price per share attributable to the preferred stock). Dividends
are payable semi-annually on January 15 and July 15 in each
year. Dividends accrue from the date of the preferred stock
issuance and are cumulative. Upon liquidation or dissolution of
the Company, holders of preferred stock are entitled to a
preference over the holders of common stock in an amount per
share equal to the original purchase price attributed to a share
of preferred stock ($2.50) plus all unpaid cumulative dividends.
The preferred stock is non-participating and the holders of
preferred stock have no preemptive rights and no voting rights
except as may be required by Colorado law. At the option of the
Company, the preferred stock may be redeemed in whole, or in
part, at a price of $2.75 per share, plus unpaid cumulative
dividends. Redemption can only occur if certain conditions
regarding the bid prices of the Company's common stock and the
Company's after-tax earnings are met.

As of January 15, 1998, cumulative dividends in arrears totaled
approximately $298,400.

F-12
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 3 - SHAREHOLDERS' EQUITY (continued)

Common Stock

During December, 1996, the Company issued 2,229,011 shares of its
common stock through several issuances. First, a private
placement was completed whereby 1,294,250 shares were issued for
cash of $11,001,125 less offering costs of $1,040,384. Secondly,
convertible promissory notes issued in December, 1995 and the
first half of 1996 in the amount of $1,500,000 were repaid and
the proceeds were used to exercise warrants for 375,000 common
shares, and 37,500 new warrants were issued to the noteholders in
connection therewith (see Note 6). Thirdly, in connection with
the shareholder note payable as described in Note 6, warrants to
purchase 255,938 shares of common stock were exercised for cash
of $1,023,750 and warrants to purchase 494,062 shares of common
stock were exchanged for 244,062 shares of common and 37,500 new
warrants. Additionally, certain preferred shareholders exercised
their conversion rights and exchanged 173,120 preferred shares
for 59,511 shares of common.

During January, 1997, certain shareholders voluntarily exchanged
37,715 shares of Preferred Stock for 12,965 shares of common
stock.

In September 1997, the Company issued 1,220,749 shares of common
stock in a private placement for cash of $7,324,494 less offering
costs of $917,683.

NOTE 4 - INCOME TAXES

The Company has an unused net operating loss carryforward of
approximately $11,000,000 for income tax purposes, $1,200,000
expiring in 2009, $1,800,000 in 2010, $3,800,000 in 2011 and the
remainder expiring in 2012. This net operating loss carryforward
may result in future income tax benefits of approximately
$4,300,000; however, because realization is uncertain at this
time, a valuation reserve in the same amount has been
established. Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31,
1997 and 1996 are as follows:

1997 1996
=========== ==========
Deferred tax liabilities $ - $ -
=========== ==========
Deferred tax assets
Net operating loss carry forwards 4,276,800 2,579,000
Legal settlement - 233,300
----------- ----------
Total deferred tax assets 4,276,800 2,812,300
Valuation allowance for deferred
tax assets (4,276,800) (2,812,300)
=========== ==========
$ - $ -
=========== ==========

The valuation allowance for deferred tax assets was increased by
$1,464,500 and $1,487,800 during 1997 and 1996, respectively.

F-13
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 5 - REGULATORY REQUIREMENTS

PBS is subject to the Securities and Exchange Commission's
Uniform Net Capital Rule (Rule 15c3-1), which requires the
maintenance of minimum net capital. At December 31, 1997, PBS
had net capital and net capital requirements of $1,145,758 and
$100,000, respectively. The Company's net capital ratio
(aggregate indebtedness to net capital) was .09 to 1. According
to Rule 15c3-1, PBS's net capital ratio shall not exceed 15 to
1. On a consolidated basis, as a result of the requirement, net
assets of $120,000 are unavailable for any purpose other than
meeting PBS's net capital requirements at December 31, 1997.

NOTE 6 - NOTES PAYABLE

Notes payable consist of the following:
1997 1996
----------- -----------
5% note payable to a former
stockholder of ADAM Investment
Services, Inc., unsecured, requiring
annual principal and interest $ 240,000 $ -
payments and maturing February 9,
1999.

11% note payable to a former
shareholder of ADAM Investment
Services, Inc., unsecured, due 120,000 -
February 5, 2000, payable in
quarterly payments of principal and
interest.

11.5% note payable to shareholder(s),
unsecured, due August 1, 1998,
payable in monthly installments of 6,158 14,694
$832 including interest.
----------- -----------
$ 366,158 $ 14,694
=========== ===========

In 1995 a shareholder acquired 250,000 shares of the Company's
common stock in a private transaction with another individual and
loaned the Company $1,200,000. In connection with this loan, a
warrant to purchase 300,000 shares of common stock at $4.00 per
share (see Note 3) was also received. In addition, the
shareholder obtained an option to lend the Company an additional
$1,800,000 and received warrants similar to those issued in
connection with the initial loan. This
shareholder exercised its option and loaned the Company an
additional $1,800,000 through several partial exercises through
July 9, 1996, and received 450,000 warrants to purchase
common shares. On December 24, 1996, the shareholder and the
Company entered into an agreement whereby (1) the Company would
remit $1,976,250 against the principal amount of the loan, (2)
the shareholder would exercise warrants to purchase 255,938
common shares at $4.00 per share to be used against the remaining
principal balance, and (3) the shareholder would exchange its
remaining warrants for 244,062 shares of common stock and 37,500
warrants to purchase common stock at $8.50 per share.

In November, 1996, the Company borrowed $250,000 from the Company's
President, Executive Vice President, Company employees, a shareholder,
and the Company's investment bankin firm on a short-term basis
carrying interest at 12%. In December, 1996 these amounts were
repaid through the proceeds of the private offering (see Note 3).

F-14
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 6 - NOTES PAYABLE (continued)

On December 14, 1995, the Company commenced a private offering of
units. Each unit consisted of a promissory note with limited
conversion rights in the principal amount of $1,000 and a warrant
to purchase 250 shares of common stock at a price per share equal
to the greater of $4.00 or the market price on the initial
closing date of the offering. If the notes were not paid by the
due date, the notes, at the option of the holder, became
convertible into shares of the Company's common stock on the
basis of one share for each $4.00 of unpaid principal and
interest. On May 7, 1996 a second private offering of units
commenced with similar terms and, after completion, $1,500,000 of
promissory notes were outstanding from both offerings. Prior to
the due date of the notes, the Company asked its noteholders to
apply their principal balance against the exercise price of their
warrants and, in addition, they would also receive warrants to
purchase 37,500 shares of the Company's stock at an exercise
price of $8.50 per share. Subsequently, the noteholders agreed
to this arrangement.

As of December 31, 1997, maturities of notes payable are as
follows:

December 31, Amount
------------ ------
1998 $166,158
1999 160,000
2000 40,000
-----------

$ 366,158
===========

Interest expense for the years ended December 31, 1997 and 1996
was $43,227 and $331,008 respectively.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

PMC had been under a formal order of private investigation by the
Securities and Exchange Commission relating to certain aspects of
PMC's former practice of principal trading. PMC discontinued
this practice in April, 1994. In 1995, the Company submitted a
settlement proposal to the Commission, without admitting or
denying liability, on behalf of PMC under a plan pursuant to
which PMC should disgorge its net trading profits realized from
principal trading together with prejudgment interest in an amount
estimated to be $465,000. In 1996, the settlement was accepted
by the Commission with the total amount payable, including
accrued interest, approximating $616,000. At December 31, 1997,
approximately $9,400 is included in other liabilities in the
accompanying financial statements.

F-15
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)

In January, 1997, LLC, mentioned in Note 2, 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 Common Stock owned by the LLC
that were purchased from a former officer of the Company at the
time of his departure. In connection with this borrowing, the
Company agreed to collateralize the loan on behalf of the LLC.
Accordingly, $1,890,000 of cash was restricted for this purpose.
Subsequently, the Company renegotiated the arrangement with
another bank and accordingly, as of December 31, 1997, $1,422,264
included in cash and cash equivalents in the accompanying balance
sheet is restricted under this arrangement with the Company
guaranteeing the uncollateralized balance. 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 December 31, 1997,
(see Note 2) the Company has loaned the LLC $150,400 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 323,461 shares of the Company's common stock
held by it.

The Company leases office space and equipment under various
operating and capital leases. Included in furniture and
equipment is $562,532 of equipment under capital leases at
December 31, 1997 and accumulated depreciation relating to these
leases of $219,198.

Future minimum lease payments under noncancelable leases as of
December 31, 1997 are as follows:

Principal
Year ending due
December 31, Operating Capital Capital Lease
- -------------- --------- ------- -------------
1998 $ 681,334 $ 230,421 $ 203,023
1999 812,782 147,473 136,628
2000 828,340 46,908 45,335
2001 568,716 - -
2002 574,176 - -
--------- --------- ----------
$3,465,348 424,802 $ 384,986
========== ==========
Less amount representing interest 39,816
---------
Present value of net minimum
lease payments $ 384,987
=========
Total rent expense for facilities and equipment for the years
ended December 31, 1997 and 1996, was $628,551 and $471,339,
respectively.

F-16
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)

The Company has historically incurred net losses and accordingly
experienced cash flow problems. As a result of the acquisition
of ADAM, the Company is obligated to make a deferred purchase
payment on September 24, 1998. The payment will be equal to 1.0%
of certain ADAM assets under management in excess of
$500,000,000, with the payment not to exceed $2,000,000 plus interest.
As of December 31, 1997, this payment would not be able to be made
principally due to the fact that $1,400,000 of cash is
restricted. In addition, through the first quarter of 1998,
continuing losses from operations have resulted in the Company's
cash balances decreasing further. In March 1998, the Company
implemented a cost reduction plan. Management believes that this
plan along with projected increases in revenues and deferral of
payments of expenses should allow the Company to continue without
requiring additional resources, excluding the ADAM payment. The
Company is currently investigating sources of short and long term
capital to meet the ADAM payment as well as working capital
needs. Should additional capital not be raised, the Company will
be required to restructure the terms of the ADAM payment, to
remove the restriction from its cash balances, restructure its
operations or a combination of the above.

NOTE 8 - STOCK OPTIONS AND WARRANTS

The Company has an equity incentive stock option plan. The Plan
was adopted by the Company's Board of Directors on November 12,
1997, and approved by shareholders on December 15, 1997. The Board
believes that approval of the Plan is in the
best interests of the Company. The purpose of the Plan is to
provide incentives to attract, retain and motivate eligible
persons whose present and potential contributions are important
to the success of the Company, by offering them an opportunity to
participate in the Company's future performance through awards of
options and stock bonuses. Options totaling 177,386 were granted
in 1998 under the Plan. Also the Company has granted options to
officers, employees, shareholders and certain other individuals
and entities. These plans and arrangements allow these parties
to purchase common stock of the Company generally at the market
value of the stock at date of grant. Options are generally for a
five-year term, however, in certain instances the term is longer.

In addition, common stock warrants have been issued in connection
with certain private offerings of stock and debt. At December
31, 1997, warrants to purchase common stock at various prices
were outstanding which expire as follows:

Expiration Exercise
Date Warrants Price
-------------- -------- -----
December, 1998 75,000 $6.48
June, 2001 50,000 4.00
November, 2001 6,250 6.50
December, 2001 137,500 8.50
--------
268,750
========

F-17
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 8 - STOCK OPTIONS AND WARRANTS (continued)

The following table describes certain information related to the
Company's compensatory stock option activity for the years ending
December 31, 1997 and 1996.
1997 1996
------------------- -------------------

Weighted Weighted
Average Average
Number Exercise Number Exercise
of Options Prices of Options Prices
---------- ------ ---------- -------
Outstanding, beginning of year 627,625 5.80 254,000 5.68

Grants during year -
Exercise price equals
market price 209,795 7.07 338,125 5.60
Exercise price greater than
market price - - 50,000 6.24
Exercised during year (6,250) 4.30 (250) 5.52
Forfeited during year (56,750) 5.17 (5,500) 4.52
Expired during year (13,125) 10.00 (8,750) 11.16
------- ----- ------- -----
Outstanding, end of year 761,295 6.03 627,625 5.80
======= =======
Exercisable 519,000 5.68 350,125 5.80
======= =======
The weighted average grant date fair value of the options granted
in 1997 and 1996 was as follows:

1997 1996
-------- --------
Exercise price equals
market price $ 3.40 $ 2.68

Exercise price is greater than
market price $ - $ 4.12

During 1996, the fair value of each option grant was estimated
using the Black-Scholes option-pricing model with the following
assumptions: risk-free interest rate of 5.71% to 6.56%; dividend
yield of -0-%; expected lives of five to six years; and
volatility of 37.2% to 44.2%.

F-18
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 8 - STOCK OPTIONS AND WARRANTS (continued)

A summary of the Company's outstanding and exercisable stock
options as of December 31, 1997 are as follows:
Weighted Average
Number Remaining
Range of of Weighted Average Contractual
Exercise Prices Options Exercise Price Life (months)
- ------------------ ---------- -------------------- -----------------
$4.00 - $5.50
Outstanding 251,625 $ 4.64 19
Exercisable 251,625 4.64 21

$6.00 - $6.50
Outstanding 417,170 6.24 40
Exercisable 217,375 6.23 21

$7.50 - $8.50
Outstanding 62,500 8.37 49
Exercisable 50,000 8.50 48

$10.00
Outstanding 30,000 10.00 57
Exercisable - - -

As previously described, the Company applies APB 25 and related
Interpretations in accounting for its stock options.
Accordingly, no compensation cost has been recognized. Had
compensation cost for the Company's vested options been
determined based on the fair value at the grant dates for awards
consistent with the method of SFAS 123, the Company's net loss
and loss per share would have resulted in the pro-forma amounts
indicated below:

1997 1996
----------- -----------
Net loss $(3,860,050) $(5,111,682)
=========== ===========
Net loss per share $ (.99) $ (3.63)
=========== ===========

NOTE 9 - EMPLOYEE BENEFIT PLAN

Salary deferral "401(k)" plan

The plan allows employees, who have completed one year of
employment and at least 1,000 hours service, to defer up to 15%
of their salary. The Company match employee contributions by an
amount determined annually by the board of directors. Only
contributions up to the first 6% of an employee's salary will be
considered for the match.

F-19
<PAGE>
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
==========================================

NOTE 10 - RISKS AND UNCERTAINTIES

The Company's revenues are primarily derived from a percentage of
the assets under the management of its distribution channels.
Assets under management are impacted by both the extent to which
the Company attracts new, or loses existing clients and the
appreciation or depreciation of the U.S. and international equity
and fixed income markets. A downturn in general economic
conditions could cause investors to cease using the products,
including its proprietary software products, and services of the
Company or its distribution channels.

The Company has deposits in banks in excess of the FDIC insured
amount of $100,000. The amounts in excess of the $100,000 are
subject to loss should the banks cease business.

The Company has been notified of a threatened litigation form a
former employee alleging damages of $1,190,000. Management, after
review and discussion with counsel, believes the Company has
meritorious defenses and intends to vigorously defend itself in
this matter, but it is not feasible to predict the final outcome
at the present time.

NOTE 11 - FAIR VALUES OF FINANCIAL INSTRUMENTS

SFAS 107 requires disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not
recognized in the statement of financial position, for which it
is practicable to estimate fair value.

The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:

The carrying amount of cash and cash equivalents approximates
fair value because of the short maturity of those instruments.

The carrying amount of receivables, accounts payable, accrued
expenses and other liabilities approximates fair value because
the collection or payments on those instruments are expected in
the short term.

The long term note receivable was discounted at inception (see
Note 2) and at December 31, 1997, discounting the note at the
current interest rate at which similar loans would be made to
borrowers with similar credit ratings and for the same maturities
yields a fair value which approximates the carry value.

Based on the borrowing rates currently available to the Company
for loans with similar terms and maturities, the carry value of
obligations under capital leases approximate fair value.

The carrying amount of deferred revenue approximates fair value
because it is expected to be realized within ninety days.

F-20

<ARTICLE> 5

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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,953,740
<SECURITIES> 0
<RECEIVABLES> 1,830,726
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,023,364
<PP&E> 9,955,853
<DEPRECIATION> (2,387,366)
<TOTAL-ASSETS> 13,376,317
<CURRENT-LIABILITIES> 4,494,630
<BONDS> 0
0
345,455
<COMMON> 48,579
<OTHER-SE> 8,487,653
<TOTAL-LIABILITY-AND-EQUITY> 13,376,317
<SALES> 14,862,714
<TOTAL-REVENUES> 14,862,714
<CGS> 8,151,912
<TOTAL-COSTS> 8,151,912
<OTHER-EXPENSES> 10,490,111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,227
<INCOME-PRETAX> (3,822,536)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,822,536)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,822,536)
<EPS-PRIMARY> (.98)
<EPS-DILUTED> (.98)

</TABLE>