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 AUGUST 31, 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
incorporation or organization) Identification Number)
27120 SW 95TH Avenue
Wilsonville, Oregon 97070
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(503) 570-2500
---------------------------
(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 October 6, 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 11
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
----------------
PML, INC.
For the First Quarter Ended
August 31, 1997
-2-
<PAGE>
PML, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
August 31, May 31,
Assets 1997 1997
------------- -------------
<S> <C> <C>
Current Assets:
Cash $ 86,704 $ 74,410
Trade accounts receivable, less allowance for doubtful 1,856,066 1,773,446
accounts of $85,782 and $81,609
Inventories:
Raw Materials 765,243 756,388
Work in Process 5 4,583
Finished Goods 728,955 699,093
Deferred income taxes 294,226 318,854
Prepaid expenses and other current assets 72,844 70,669
------------- -------------
Total Current Assets 3,804,043 3,697,443
Property, plant and equipment - net 1,798,146 1,717,951
Intangible assets - net 61,564 64,801
Other assets 90,532 83,554
------------- -------------
Total Assets $ 5,754,285 $ 5,563,749
============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 888,300 $ 1,054,462
Accrued salaries and wages 247,590 375,249
Accounts payable - related parties 794 2,175
Other accrued liabilities 332,123 364,076
Notes payable - related parties 247,550 247,550
Bank line of credit 1,797,621 1,248,928
Current portion of borrowings - related parties 69,073 69,073
Current portion of borrowings 236,663 236,717
------------- -------------
Total Current Liabilities 3,819,714 3,598,230
------------- -------------
Borrowings - related parties less current portion 155,847 164,958
Borrowings, less current portion 836,208 890,753
------------- -------------
Total Borrowings. less current portion 992,055 1,055,711
------------- -------------
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 654,037 641,561
Common stock, $.01 par value; authorized 2,500,000 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 Equity 123,894 103,662
------------- -------------
Total Stockholders' Equity 942,516 909,808
------------- -------------
Total Liabilities and Stockholders' Equity $ 5,754,285 $ 5,563,749
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
-3-
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended
August 31,
1997 1996
------------------- ---------------------
Net sales $ 3,430,884 $ 3,240,712
Cost of goods sold 2,072,826 2,061,197
------------------- ---------------------
Gross profit 1,358,058 1,179,515
Selling, general, and
administrative expenses 1,214,550 1,110,929
------------------- ---------------------
Operating income 143,508 68,586
Other (income) expense:
Interest expense 79,418 67,197
Other 5,452 (11,417)
------------------- ---------------------
Total other expense 84,870 55,780
------------------- ---------------------
Income before income taxes 58,638 12,806
Income tax expense 25,930 4,208
------------------- ---------------------
Net Income $ 32,708 $ 8,598
=================== =====================
Net Income per common share
after accreted dividends: $ 0.01 $ 0.00
=================== =====================
The accompanying notes are an integral part of this statement.
-4-
<PAGE>
PML, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Unaudited
Retained
Class A Class B Additional Earnings
Convertible Common Common Paid-in (Accumulated
Preferred 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 48,587 - - - (48,587) -
Net income - - - - 669,371 669,371
---------------- ---------- ---------- ---------- ---------- ----------
Balance, May 31, 1997 $ 641,561 $ 17,768 $ 2,116 $ 144,701 $ 103,662 $ 909,808
================ ========== ========== ========== ========== ==========
Balance, May 31, 1997 $ 641,561 $ 17,768 $ 2,116 $ 144,701 $ 103,662 $ 909,808
Preferred Stock dividends accreted 12,476 - - - (12,476) -
Net income - - - - 32,708 32,708
---------------- ---------- ---------- ---------- ---------- ----------
Balance, August 31, 1997 $ 654,037 $ 17,768 $ 2,116 $ 144,701 $ 123,894 $ 942,516
================ ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
-5-
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Three Months Ended
August 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 32,708 $ 8,598
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 82,530 67,764
Gain on sale of equipment (8,509) -
Changes in:
Accounts receivable (82,620) 41,343
Inventories (34,139) 3,716
Other assets 17,597 (1,394)
Accounts payable and accrued liabilities (327,155) 137,712
------------ ------------
Total adjustments (352,296) 249,141
------------ ------------
Net cash (used in) provided by operating activities (319,588) 257,739
Cash Flows from Investing Activities:
Proceeds from sale of assets 11,277 -
Purchase of property, plant and equipment (164,378) (16,324)
------------ ------------
Net cash used in investing activities (153,101) (16,324)
Cash Flows from Financing Activities:
Net proceeds (repayment) of bank credit line 548,693 (50,178)
Proceeds from issuance of notes payable - 127,167
Repayment of notes payable (54) (22,337)
Repayment of long-term debt (63,656) (66,165)
------------ ------------
Net cash provided by (used in) financing activities 484,983 (11,513)
------------ ------------
Increase in cash 12,294 229,902
Cash at beginning of period 74,410 9,887
------------ ------------
Cash at end of period $ 86,704 $ 239,789
============ ============
Supplemental Disclosures:
Interest paid $ 61,014 $ 53,471
Income tax paid - 2,134
Non Cash Items:
Preferred stock dividends accreted 12,476 12,066
Accounts payable exchanged for long-term debt and notes payable - 1,321
</TABLE>
The accompanying notes are an integral part of this statement.
-6-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Financial Statements
The accompanying unaudited consolidated financial statements include the
accounts of PML, Inc. and its wholly-owned subsidiary, PML Microbiologicals,
Inc., 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 August 31, 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, 1997, contained in the Company's Form 10-KSB, filed with the
Commission pursuant to the Securities Exchange Act of 1934. Operating results
for the three month period ended August 31, 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
1997 financial statements to conform to the fiscal 1998 presentation. Such
reclassifications did not have any effect on the net income or stockholders'
equity reported in fiscal 1997.
-7-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward looking statements that involve a number of
risks and uncertainties. For example, the Company has stated its belief that
sales of industrial products should continue to increase in the current year and
that reductions in cost of goods sold should continue from the consolidation of
three Oregon facilities into one new modern building. Future demand for the
Company's products, including its industrial products, is inherently subject to
supply and demand conditions, and to the unpredictable decisions of other market
participants. There can be no assurance that sales will increase generally or
within any specified product line or that the Company's margins will stabilize
or improve. Other elements that could cause results to differ materially include
competitive pressures and factors listed from time to time in the Company's
reports to the Securities and Exchange Commission, including, but not limited
to, this report on Form 10-QSB.
Results of Operations
- ---------------------
Three Months Ended August 31, 1997 Compared to August 31, 1996
Net sales for the three months ended August 31, 1997 increased
approximately 5.9% to $3,430,884 from $3,240,712 during the same period a year
ago. The increase in sales was due in part to an improvement in the industrial
microbiology market and from increased sales of speciality products. The sales
increase was partially offset by stiff competition, especially in clinical
products such as microbiology disposables, for orders from consolidated hospital
buying groups. The Company has, however, successfully more than made up for all
of these lost sales and management is very encouraged with this favorable trend
showing that the net sales erosion of the past few years has been reversed.
Gross profit improved to 39.6% of net sales in the three months ended
August 31, 1997 compared to 36.4% in the prior year. This improvement results
from decreased sales of lower margin commodity-type products, increased sales of
higher margin specialty products, and improved operating efficiencies resulting
from the consolidation of three Oregon locations into a single modern nearly
45,000 square foot building in Wilsonville, Oregon. 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 was 35.4% of sales for the
three months ended August 31, 1997 compared to 34.3% in the same period a year
ago. Some reductions were achieved in payroll expense, but they were offset by
increases in marketing expenses and new equipment depreciation expense. Total
other expense increased to 2.5% of sales in the first three months of this year
compared to 1.7% in the first three 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 $32,708 for the first three months
compared to net income of $8,598 during the same period a year ago. On a pre-tax
basis the Company recorded income of $58,638 for the first three months of this
year compared to $12,806 for the same period a year ago. The smaller difference
between net income and pre-tax income last year compared to this year reflects a
partially reserved deferred tax asset last year which eliminated the need to
book any federal income tax liability. In the current year the deferred tax
asset has been fully recognized which now requires the Company to book estimated
Federal,
-8-
<PAGE>
State, Canadian and Provincial tax provisions. The net income was $0.01 per
share for the first three months ended August 31, 1997 compared to net income of
$0.00 per share during the same period a year ago. The Company's improved
profitability in the first three months of this fiscal year reflects the
significant improvements that have been made in reducing both manufacturing
costs and operating costs.
As a result of the Company's unused net operating loss from prior years,
the Company will not have to pay any significant income tax amounts for several
years.
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 August 31,
1997 the Company had negative working capital of $15,671 compared with positive
working capital of $99,213 at May 31, 1997. The ratio of current assets to
current liabilities decreased to 1.00 at August 31, 1997 compared to 1.03 at May
31, 1997. Quick liquidity (current assets less inventories to current
liabilities) was .60 at August 31, 1997 and .62 at May 31, 1997.
The twelve-month average collection period for trade receivables was 49.9
days at August 31, 1997, compared with 49.4 days at May 31, 1997. This slight
increase reflects the seasonally lower first quarter sales normal in the
microbiology industry.
Net cash used by operating activities was $352,296 in the first three
months of fiscal 1998 compared with net cash provided of $249,141 in the same
period a year ago. Approximately $327,155 of the cash used in fiscal 1998 was
for the planned faster payment of Accounts Payable and other accrued
liabilities. In fiscal 1997, nearly the entire operating cash increase was from
collection of past due Accounts Receivable, and an increase in accrued
liabilities. Net cash used in investing activities was $153,101 in the first
three months of fiscal 1998, compared with $16,324 used by the Company in
investing activities in the same period of 1997. These expenditures were mainly
for purchases of property, plant and equipment for the new manufacturing
facility in Wilsonville and expenditures for an integrated MIS reporting system
that is scheduled to be in place later this year. Financing activities provided
cash of $484,983 in the first three months of fiscal 1998 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 $11,513 from financing activities in
the same period of fiscal 1997. The 1997 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 2.0% (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 2.0% 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>
The Company's borrowing structure at August 31, 1997 was as follows:
Third Party Long Term Borrowings:
<TABLE>
<CAPTION>
Long-Term Current-Portion
--------------- ---------------
<S> <C> <C>
Revolving credit line at prime plus 2.0%, due November 30, 2000 $ - $ 1,797,621
Note payable at 12%, due April 2000 78,558 15,529
Note payable at prime plus 2.0% due November 30, 2000 233,320 100,008
Capital Lease Obligations, due now through July 1999 29,201 40,115
Note payable at 6%, due May 2005 70,000 10,000
Trade A/P converted to notes payable at 6%, due February 2001 425,129 71,011
--------------- ---------------
Total third party long term borrowings $ 836,208 $ 2,034,284
--------------- ---------------
Related Party Long Term Borrowings:
Ethel Wildt Note payable at prime plus 1% due November 1998 3,514 11,894
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 47,687 23,923
Trade A/P converted to notes payable at 6% due February 2001 68,825 11,577
--------------- ---------------
Total related party long term borrowings $ 155,847 $ 69,073
--------------- ---------------
Related Party Notes Payable:
Demand Notes $ - $ 247,550
--------------- ---------------
Total long term borrowings and notes payable $ 992,055 $ 2,350,907
--------------- ---------------
</TABLE>
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<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 August 31, 1997. The Company will hold its annual meeting at its
Wilsonville, Oregon facility on November 6, 1997.
Item 6. Exhibits and Reports on Form 8-K
No 8-K filings were made during the quarter ended August 31, 1997.
6.1 Exhibit 6.1 is a statement on computation of per share income.
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: October 10, 1997 By: /s/ Kenneth L. Minton
---------------- ---------------------
Kenneth L. Minton
President and Chief Executive Officer
-11-
PML, INC.
Exhibit 6.1
<TABLE>
<CAPTION>
For The Three Months Ended
August 31,
1997 1996
------------------- -------------------
<S> <C> <C>
Net income $ 32,708 $ 8,598
Preferred stock dividends accreted (12,476) (12,066)
------------------- --------------------
Net income (loss) after accretion of dividends $ 20,232 $ (3,468)
=================== ====================
Average number of common shares outstanding 1,776,816 1,776,816
Average number of Class B common stock outstanding 211,551 211,551
Average effect of common stock equivalents 187,524 36,035
------------------- --------------------
Average number of total shares outstanding 2,175,891 2,024,402
=================== ====================
Net income per common share $ 0.01 $ 0.00
=================== ====================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 86,704
<SECURITIES> 0
<RECEIVABLES> 1,941,848
<ALLOWANCES> 85,782
<INVENTORY> 1,494,203
<CURRENT-ASSETS> 3,804,043
<PP&E> 4,326,017
<DEPRECIATION> 2,527,871
<TOTAL-ASSETS> 5,754,285
<CURRENT-LIABILITIES> 3,819,714
<BONDS> 992,055
0
654,037
<COMMON> 19,884
<OTHER-SE> 268,595
<TOTAL-LIABILITY-AND-EQUITY> 5,754,285
<SALES> 3,430,884
<TOTAL-REVENUES> 3,430,884
<CGS> 2,072,826
<TOTAL-COSTS> 2,072,826
<OTHER-EXPENSES> 1,202,900
<LOSS-PROVISION> 17,102
<INTEREST-EXPENSE> 79,418
<INCOME-PRETAX> 58,638
<INCOME-TAX> 25,930
<INCOME-CONTINUING> 32,708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,708
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
