UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1997
Commission File No. 0-21816
PML, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 93-1116123
------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
15845 SW 72nd Avenue
Portland, Oregon 97224
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(503) 639-1500
---------------------------
(Issuer's telephone number)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
As of April 11, 1997 there were 1,776,816 shares of Common Stock with $0.01 par
value outstanding, and 211,551 Class B Common Shares with $0.01 par value
outstanding.
<PAGE>
PML, INC.
Index
Part I. Financial Information
Item 1. Financial Statements 2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussions and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
----------------
PML, INC.
For the Third Quarter Ended
February 28, 1997
- 2 -
<PAGE>
PML, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, May 31,
Assets 1997 1996
------------- -------------
Unaudited
<S> <C> <C>
Current Assets:
Cash $ 73,359 $ 9,887
Trade accounts receivable, less allowance for doubtful 1,709,667 1,651,918
accounts of $140,191 and $126,982
Inventories:
Raw Materials 699,555 808,680
Work in Process - 9,167
Finished Goods 647,449 604,902
Deferred Tax Asset 98,000 98,000
Prepaid expenses 95,412 49,583
------------- -------------
Total Current Assets 3,323,442 3,232,137
------------- -------------
Property, plant and equipment - net 1,298,841 1,358,854
Intangible assets - net 13,441 10,122
Other assets 102,583 66,623
------------- -------------
Total Assets $ 4,738,307 $ 4,667,736
============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,059,466 $ 1,416,515
Accrued salaries and wages 240,536 151,546
Accounts payable - related parties 5,590 6,440
Other accrued liabilities 386,269 291,742
Notes payable - related parties 248,532 280,770
Bank line of credit 1,003,534 1,106,761
Current portion of borrowings - related parties 66,403 54,776
Current portion of borrowings 189,331 176,785
------------- -------------
Total Current Liabilities 3,199,661 3,485,335
------------- -------------
Borrowings- related parties, less current portion 179,762 127,077
Borrowings, less current portion 898,757 814,887
------------- --------------
Total Borrowings, less current portion 1,078,519 941,964
------------- --------------
Stockholders' Equity
Preferred stock, $.01 par value; authorized 25,000 shares,
no shares issued or outstanding - -
Class A convertible preferred stock, stated and liquidation
value $100 per share; authorized 7,500 shares, issued and
outstanding 4,950 shares, including accreted dividends 629,172 592,974
Common stock, $.01 par value; authorized 2,000,000 shares,
issued and outstanding 1,776,816 shares 17,768 17,768
Class B common stock, $.01 par value; authorized 250,000 shares,
issued and outstanding 211,551 shares. 2,116 2,116
Class D common stock, $.01 par value, authorized 100 shares,
no shares issued or outstanding. - -
Additional Paid In Capital 144,701 144,701
Accumulated Deficit (333,630) (517,122)
------------- -------------
Total Stockholders' Equity 460,127 240,437
------------- -------------
Total Liabilities and Stockholders' Equity $ 4,738,307 $ 4,667,736
============= =============
</TABLE>
See notes to consolidated financial statements
- 3 -
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Three Months Ended For The Nine Months Ended
February 28 & 29 February 28 & 29
1997 1996 1997 1996
------------- ------------- ------------- -------------
Unaudited Unaudited
<S> <C> <C> <C> <C>
Net sales $ 3,280,227 $ 3,335,007 $ 9,907,332 $ 10,407,932
Cost of goods sold 1,919,280 2,046,396 5,980,556 6,872,242
------------- ------------- ------------- -------------
Gross profit 1,360,947 1,288,611 3,926,776 3,535,690
Selling, general, and
administrative expenses 1,175,452 1,114,161 3,489,496 3,295,951
------------- ------------- ------------- -------------
Operating income 185,495 174,450 437,280 239,739
Other (income) expense:
Interest expense 73,064 72,555 210,054 225,017
Other 9,794 (14,918) (1,792) (32,219)
------------- ------------- ------------- -------------
Total other expense 82,858 57,637 208,262 192,798
------------- ------------- ------------- -------------
Income before income taxes 102,637 116,813 229,018 46,941
Income tax expense 2,264 264 9,328 1,268
------------- ------------- ------------- -------------
Net Income $ 100,373 $ 116,549 $ 219,690 $ 45,673
------------- ------------- ------------- -------------
Net Income per common share after
accreted preferred stock dividends: $ 0.04 $ 0.06 $ 0.09 $ 0.01
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements
- 4 -
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Retained
Convertible Class B Additional Earnings
Preferred Common Common Paid-in (Accumulated
Shares Shares Shares Capital Deficit) Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1995 $ 580,820 $ 14,497 $ 2,116 $ - $ (673,623) $ (76,190)
Common stock returned and canceled - (27) - 27 - -
Preferred Stock dividends accreted 49,500 - - - (49,500) -
Stock issued to employees - 1,870 - 68,255 - 70,125
1995 401K match - 432 - 40,069 - 40,501
Conversion of accreted dividends to Common Stock (37,346) 996 - 36,350 - -
Net income - - - - 206,001 206,001
----------- ----------- ----------- ----------- ----------- -----------
Balance, May 31, 1996 $ 592,974 $ 17,768 $ 2,116 $ 144,701 $ (517,122) $ 240,437
=========== =========== =========== =========== =========== ===========
Balance, May 31, 1996 $ 592,974 $ 17,768 $ 2,116 $ 144,701 $ (517,122) $ 240,437
Preferred Stock dividends accreted 36,198 - - - (36,198) -
Net income - - - - 219,690 219,690
----------- ----------- ----------- ----------- ----------- -----------
Balance, February 28, 1997 (unaudited) $ 629,172 $ 17,768 $ 2,116 $ 144,701 $ (333,630) $ 460,127
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
- 5 -
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Nine Months Ended
February 28 & 29
1997 1996
------------ ------------
Unaudited
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 219,690 $ 45,673
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 204,497 241,355
Loss (Gain) on sale of equipment 13,183 (14,207)
Changes in:
Accounts receivable (57,749) 407,309
Inventories 75,745 135,856
Other assets (88,503) 81,869
Accounts payable and accrued liabilities (174,383) (274,114)
------------ ------------
Total adjustments (27,210) 578,068
------------ ------------
Net cash provided by operating activities 192,480 623,741
Cash Flows from Investing Activities:
Proceeds from sale of assets 16,517 28,371
Purchase of property, plant and equipment (170,789) (34,563)
------------ ------------
Net cash used in investing activities (154,272) (6,192)
Cash Flows from Financing Activities:
Proceeds from issuance of notes payable and bank credit line 3,554,760 263,953
Repayment of notes payable and bank credit line (3,666,052) (603,158)
Proceeds from issuance of long-term debt 505,082 905,107
Repayment of long-term debt (368,526) (1,057,914)
------------ ------------
Net cash provided by (used in) financing activities 25,264 (492,012)
------------ ------------
Increase in cash 63,472 125,537
Cash at beginning of period 9,887 30,539
------------ ------------
Cash at end of period $ 73,359 $ 156,076
============ ============
Supplemental Disclosures:
Interest paid $ 330,099 $ 194,346
Income tax paid 13,191 1,268
Non Cash Items:
Preferred stock dividends accreted 36,138 37,434
Accounts payable exchanged for long-term debt and notes payable 5,981 609,548
Accounts payable exchanged for capital stock issued to employees - 69,750
</TABLE>
See notes to consolidated financial statements
- 6 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Financial Statements
The accompanying unaudited consolidated financial statements include the
accounts of PML, Inc., formerly known as Meda, Inc., and its wholly-owned
subsidiary, PML Microbiologicals, Inc., formally known as Prepared Media
Laboratory, Inc., (the "Company"). The Company produces and sells diagnostic
microbiology products to customers in the microbiology testing industry,
principally hospital and healthcare- related laboratories throughout the United
States and Canada. In addition, the Company has developed a line of sterility
testing products for the pharmaceutical and biotechnology industries. This new
product offering will be expanded to include general microbiology media and
Quality Control microorganisms.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission"). While these financial
statements reflect all necessary, normal and recurring adjustments in the
opinion of management required to present fairly, in all material respects, the
financial position, results of operations and cash flows of the Company and its
subsidiary at February 28, 1997, and for the periods then ended, they do not
include all information and notes required by generally accepted accounting
principles for complete financial statements. Further information is contained
in the annual financial statements of the Company and notes thereto, for the
year ended May 31, 1996, contained in the Company's Form 10-KSB, filed with the
Commission pursuant to the Securities Exchange Act of 1934. Operating results
for the nine month period ended February 28, 1997 are not necessarily indicative
of the results that may be expected for the full year.
RECLASSIFICATIONS - Certain reclassifications have been made to the fiscal
1996 financial statements to conform to the fiscal 1997 presentation. Such
reclassifications did not have any effect on the net income reported in fiscal
1996.
- 7 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Nine Months Ended February 28, 1997 Compared to February 29, 1996
Net sales for the nine months ended February 28, 1997 decreased
approximately 4.8% to $9,907,332 from $10,407,932 during the same period a year
ago. However, for the third quarter net sales decreased just $54,780 or
approximately 1.6% when compared to the third quarter of the previous year. The
decrease in sales was due in part to a loss of business from hospital buying
groups because of their increased use of group purchasing organizations (GPOs).
For many products, including microbiology disposables, GPOs contract with a
single large manufacturer or distributor, and provide financial incentives for
member hospitals to use only that manufacturer or distributor as their prime
source. The Company has, however, made up for much of these lost sales in the
industrial microbiology market, and with increased sales of specialty products
not included in GPO contracts. Management is very encouraged with this favorable
trend showing that the net sales erosion of the past few years has nearly
stopped.
Gross profit improved to 39.6% of net sales in the nine months ended
February 28, 1997 compared to 34.0% in the prior year. This improvement results
from decreased sales of lower margin commodity-type products and increased sales
of higher margin specialty products, improved operating efficiencies resulting
in lower scrap and outdates, lower material costs, a small price increase
effective January 1996, a revaluation of U.S. finished goods inventory of about
$75.8 thousand, and a reclassification of corporate quality assurance and
product development from cost of goods sold to operating expense. Management
believes that there have been no other changes in its sales or operations that
would materially affect gross profit. The Company continues to experience
pricing pressure resulting from competition and from other cost containment
measures in the health care industry, but it has been working to adjust its
product mix and marketing focus towards less competitive, higher profit,
products and markets.
Selling, general and administrative expense increased in absolute dollars
and as a percentage of net sales. These expenses were 35.2% for the nine months
ended February 28, 1997 compared to 31.7% in the same period a year ago.
Approximately 50% of this increase was due to the reclassification of corporate
quality assurance and government compliance from cost of goods sold to operating
expense. The remaining increase came from the June 1996 reinstatement of two
thirds of the pay cut taken by all employees in January 1995 plus the salaries
of a newly hired CEO, a Vice President of Marketing and a Vice President of
Operations. However, these increases were partially offset by the termination of
the turnaround consultant and a further reduction in the Company's freight
expense resulting from fewer backorders and negotiation of better freight rates.
Most other expense categories remained relatively consistent both as a
percentage of sales and in total dollars.
Total other expense increased to 2.1% of sales in the first nine months of
this year compared to 1.9% in the first nine months of last year. Other expense
consists mainly of interest expense and Canadian currency exchange gain or loss.
Exchange gains or losses cannot be forecasted with any degree of accuracy.
The Company recorded net income of $219,690 for the first nine months
compared to net income of $45,673 during the same period a year ago. The net
income was $0.09 per share for the first nine months ended February 28, 1997
compared to net income of $0.01 per share during the same period a year ago. The
Company's improved profitability in the first nine months of this fiscal year
reflects the significant improvements that have been made in reducing both
manufacturing costs and operating costs as the Company continues the turnaround
process started in January 1995.
- 8 -
<PAGE>
As a result of the Company's unused net operating loss from prior years,
the Company will not experience any significant income tax expense for an
indeterminate time. The income tax expense shown on the Consolidated Statements
of Operations reflects minimum tax expense in those States and Provinces which
require minimum tax even when a net tax loss occurs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations over the years principally through
funds generated from operations and bank and stockholder loans. At February 28,
1997 the Company had positive working capital of $123,781 compared with negative
working capital of $253,198 at May 31, 1996. The ratio of current assets to
current liabilities improved to 1.04 at February 28, 1997 compared to .93 at May
31, 1996. Quick liquidity (current assets less inventories to current
liabilities) was .62 at February 28, 1997 and .52 at May 31, 1996.
The twelve-month average collection period for trade receivables improved
to 49.3 days at February 28, 1997, compared with fifty-four days at May 31,
1996.
Net cash provided by operating activities was $192,480 in the first nine
months of fiscal 1997 compared with net cash provided of $623,741 in the same
period a year ago. Approximately $543,165 of the cash provided in fiscal 1996
was from the collection of past due Accounts Receivable and better inventory
control of raw materials. In fiscal 1997, the entire operating cash increase was
from net income. Net cash used in investing activities was $154,272 in the first
nine months of fiscal 1997, compared with $6,192 used by the Company in
investing activities in the same period of 1996. These expenditures were mainly
for purchases of property, plant and equipment including an integrated MIS
reporting system which is scheduled to be in place by June 1, 1997. Financing
activities provided cash of $25,264 in the first nine months of fiscal 1997 as
the net result of draws on the bank credit line and repayments on notes payable
and the bank credit line. This compares to cash used of $492,012 from financing
activities in the same period of fiscal 1996. The 1996 amount included more
repayments of notes payable than draws on the bank credit line
Due to a September 16, 1996 increase in the interest rate charged by our
former lender, the Company negotiated a larger and more favorable four year
financing agreement with another lender effective December 1, 1996. The new
financing agreement includes interest at prime plus 2.5% (which will decrease
each year if certain financial ratios are met) and also allows the Company to
borrow against both equipment and inventory as well as Accounts Receivable.
Proceeds from the new financing agreement were used to pay off all outstanding
debt from the prior lender and will provide additional funds for growth. The
Company believes the improvement in available cash financing will allow it to
achieve significant manufacturing cost efficiencies and much needed improvements
in MIS systems which were not possible under its previous loan agreement.
Management expects any investments made in these areas will payback in one to
two years.
As part of the financing agreement, the Company obtained a new bank line of
credit that has a current maturity date of November 30, 2000. This new line of
credit is secured by substantially all of the assets of the Company. The
available amount under the line of credit is based upon 80% to 85% of the
eligible accounts receivable and 30% to 40% of eligible inventory at the end of
each reporting period, not to exceed $2.5 million. The Company also borrowed
$400,000 on December 1, 1996, under a new four year term loan secured by
eligible operating equipment. The rate of interest charged on the line is prime
plus 2.5% and will decrease each year if the Company meets certain financial
ratios. This loan will be repaid primarily out of the Company's receivable
collections and other cash provided by operating activities.
- 9 -
<PAGE>
In fiscal 1995, the Company was in arrears with many vendors and had
insufficient cash available to bring vendor accounts current. On May 1, 1995,
the Company sent a Vendor Repayment Plan to all suppliers who had unpaid
invoices over 60 days. This letter asked vendors to accept one of three payment
options, two of which involved converting their accounts to a term note. Vendor
response has been good, with the majority of the vendors (both in dollars and
numbers) having accepted an option. In the first nine months of fiscal 1996 and
fiscal 1997, $609,548 and $5,981 of accounts payable were exchanged for long
term debt and notes payable. The Company has already made the first four
scheduled payments with interest and continues to communicate with vendors who
have not yet made a selection in hopes of convincing them to accept a repayment
plan.
The Company's borrowing structure at February 28, 1997 was as follows:
Third Party Long Term Borrowings:
<TABLE>
<CAPTION>
Long-Term Current-Portion
------------ ---------------
<S> <C> <C>
Revolving credit line at prime plus 2.5%, due November 30, 2000 $ - $ 1,003,534
Note payable at prime plus 2.5% due November 30, 2000 283,332 100,000
Capital Lease Obligations, due now through July 1999 52,751 36,434
Note payable at 6%, due May 2005 80,000 10,000
Trade A/P converted to notes payable at 6%, due February 2001 482,674 42,897
------------ ---------------
Total third party long term borrowings $ 898,757 $ 1,192,865
------------ ---------------
Related Party Long Term Borrowings:
Ethel Wildt Note payable at prime plus 1% due November 1998 9,452 11,627
Ron Torland Note payable at 10% due January 1998 - 10,000
Ron Torland Note payable at prime plus 1% due December 1999 35,821 11,679
Mary Brown 8% Note due May 2000 59,912 22,535
Trade A/P converted to notes payable at 6% due February 2001 74,577 10,562
------------ ---------------
Total related party long term borrowings $ 179,762 $ 66,403
------------ ---------------
Related Party Notes Payable Borrowings:
Demand Notes $ - $ 248,532
------------ ---------------
Total long term and notes payable borrowings $ 1,078,519 $ 1,507,800
------------ ---------------
</TABLE>
- 10 -
<PAGE>
II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material or substantive claims pending or threatened against
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of shareholders during the
quarter ended February 28, 1997. The change in name of the Company from Meda,
Inc. to PML, Inc., approved by the shareholders in November 1996, was completed
during the current quarter.
Item 6. Exhibits and Reports on Form 8-K
No 8-K filings were made during the quarter ended February 28, 1997.
6.1 Exhibit 6.1 is a statement on computation of per share income.
- 11 -
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PML, INC.
(Registrant)
Date: April 11, 1997 By: /s/ Kenneth L. Minton
----------------------- ---------------------
Kenneth L. Minton
President and Chief Executive Officer
- 12 -
<PAGE>
PML, INC.
Exhibit 6.1
<TABLE>
<CAPTION>
For The Three Months Ended For The Nine Months Ended
February 28 & 29 February 28 & 29
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income $ 100,373 $ 116,549 $ 219,690 $ 45,673
Preferred stock dividends accreted (12,066) (12,066) (36,198) (37,434)
------------ ------------ ------------ ------------
Net Income after accretion of dividends $ 88,307 $ 104,483 $ 183,492 $ 8,239
============ ============ ============ ============
Average number of common shares outstanding 1,776,816 1,635,677 1,776,816 1,580,079
Average number of Class B common stock outstanding 211,551 211,551 211,551 211,551
Average effect of common stock equivalents 90,105 - 67,047 -
------------ ------------ ------------ ------------
Average number of total shares outstanding 2,078,472 1,847,228 2,055,414 1,791,630
============ ============ ============ ============
Net Income per common share $ 0.04 $ 0.06 $ 0.09 $ 0.01
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> FEB-28-1997
<CASH> 73,359
<SECURITIES> 0
<RECEIVABLES> 1,849,858
<ALLOWANCES> 140,191
<INVENTORY> 1,347,004
<CURRENT-ASSETS> 3,323,442
<PP&E> 3,721,501
<DEPRECIATION> 2,422,660
<TOTAL-ASSETS> 4,738,307
<CURRENT-LIABILITIES> 3,199,661
<BONDS> 1,078,519
0
629,172
<COMMON> 19,884
<OTHER-SE> (188,929)
<TOTAL-LIABILITY-AND-EQUITY> 4,738,307
<SALES> 9,907,332
<TOTAL-REVENUES> 9,907,332
<CGS> 5,980,556
<TOTAL-COSTS> 5,980,556
<OTHER-EXPENSES> 3,439,976
<LOSS-PROVISION> 49,520
<INTEREST-EXPENSE> 210,054
<INCOME-PRETAX> 229,018
<INCOME-TAX> 9,328
<INCOME-CONTINUING> 219,690
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 219,690
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
