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 NOVEMBER 30, 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 January 13, 1998 there were 1,780,441 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 Second Quarter Ended
November 30, 1997
- 2 -
<PAGE>
PML, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
November 30, May 31,
Assets 1997 1997
------------- -------------
<S> <C> <C>
Current Assets:
Cash $ 94,829 $ 74,410
Trade accounts receivable, less allowance for doubtful 1,924,457 1,773,446
accounts of $65,732 and $81,609
Inventories:
Raw Materials 891,658 756,388
Work in Process 21,533 4,583
Finished Goods 794,527 699,093
Deferred income taxes 294,656 318,854
Prepaid expenses and other current assets 92,897 70,669
------------- -------------
Total Current Assets 4,114,557 3,697,443
Property, plant and equipment - net 1,864,143 1,717,951
Intangible assets - net 62,164 64,801
Other assets 88,853 83,554
------------- -------------
Total Assets $ 6,129,717 $ 5,563,749
============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,168,101 $ 1,054,462
Accrued salaries and wages 321,979 375,249
Accounts payable - related parties - 2,175
Other accrued liabilities 314,155 364,076
Notes payable - related parties 247,551 247,550
Bank line of credit 1,701,030 1,248,928
Current portion of borrowings - related parties 69,073 69,073
Current portion of borrowings 305,226 236,717
------------- -------------
Total Current Liabilities 4,127,115 3,598,230
------------- -------------
Borrowings - related parties less current portion 144,590 164,958
Borrowings, less current portion 916,722 890,753
------------- -------------
Total Borrowings. less current portion 1,061,312 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 666,378 641,561
Common stock, $.01 par value; authorized 2,500,000 shares,
issued and outstanding 1,780,441 and 1,776,816 shares respectively 17,804 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 146,540 144,701
Accumulated Equity 108,452 103,662
------------- -------------
Total Stockholders' Equity 941,290 909,808
------------- -------------
Total Liabilities and Stockholders' Equity $ 6,129,717 $ 5,563,749
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
November 30, November 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 3,534,612 $ 3,386,393 $ 6,965,496 $ 6,627,105
Cost of goods sold 2,219,259 2,072,533 4,292,085 4,133,730
------------- ------------- ------------- -------------
Gross profit 1,315,353 1,313,860 2,673,411 2,493,375
Selling, general, and
administrative expenses 1,206,735 1,130,661 2,421,285 2,241,590
------------- ------------- ------------- -------------
Operating income 108,618 183,199 252,126 251,785
Other expense (income):
Interest expense 85,343 69,793 164,761 136,990
Other 24,299 (169) 29,751 (11,586)
------------- ------------- ------------- -------------
Total other expense 109,642 69,624 194,512 125,404
------------- ------------- ------------- -------------
(Loss)/income before income taxes (1,024) 113,575 57,614 126,381
Income tax expense 2,0707 2,856 28,007 7,064
------------- ------------- ------------- -------------
Net (loss)/income $ (3,101) $ 110,719 $ 29,607 $ 119,317
============= ============= ============= =============
Net (loss)/income per common share
after accreted dividends: $ (0.01) $ 0.05 $ 0.02 $ 0.05
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
- 4 -
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Unaudited
<TABLE>
<CAPTION>
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 24,817 - - - (24,817) -
Common Stock returned and cancelled - (1) - 1 - -
Stock options exercised - 37 - 1,838 - 1,875
Net income - - - - 29,607 29,607
---------------- ---------- ---------- ---------- ---------- -----------
Balance, November 30, 1997 $ 666,378 $ 17,804 $ 2,116 $ 146,540 $ 108,452 $ 941,290
================ ========== ========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Six Months Ended
November 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 29,607 $ 119,317
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 170,909 135,225
Gain on sale of equipment (16,047) -
Changes in:
Accounts receivable (151,011) 41,719
Inventories (247,654) 80,070
Other assets (2,907) (37,366)
Accounts payable and accrued liabilities 8,274 28,267
------------ ------------
Total adjustments $ (238,436) 247,915
------------ ------------
Net cash (used in) provided by operating activities (208,829) 367,232
Cash Flows from Investing Activities:
Proceeds from sale of assets 18,962 -
Purchase of property, plant and equipment (317,801) (22,914)
------------ ------------
Net cash used in investing activities (298,839) (22,914)
Cash Flows from Financing Activities:
Net proceeds (repayment) of bank credit line 452,102 169,763
Proceeds from issuance of notes payable 70,828 57,141
Repayment of notes payable (2,319) (64,589)
Proceeds from issuance of long-term debt 149,472 109,801
Repayment of long-term debt (143,871) (218,904)
Proceeds from issuance of common stock 1,875 -
------------ ------------
Net cash provided by financing activities 528,087 53,212
------------ ------------
Increase in cash 20,419 397,530
Cash at beginning of period 74,410 9,887
------------ ------------
Cash at end of period $ 94,829 $ 407,417
============ ============
Supplemental Disclosures:
Interest paid $ 143,519 $ 130,731
Income tax paid 8,523 5,626
Non Cash Items:
Preferred stock dividends accreted 24,817 24,132
Accounts payable exchanged for long-term debt and notes payable - 5,979
Common Stock returned and cancelled 1 -
</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 November 30, 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 six month period ended November 30, 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.
Note 2. Net Earnings Per Share
Net earnings per share are based on the weighted average number of shares
of common stock and common stock equivalents during the periods, computed using
the treasury stock method for stock options. The Company will adopt Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" for periods ending
subsequent to December 15, 1997. The effect of the adoption of such
pronouncement is expected to be immaterial to the financial statements taken as
a whole.
- 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
Six Months Ended November 30, 1997 Compared to November 30, 1996
Net sales for the six months ended November 30, 1997 increased
approximately 5.1% to $6,965,496 from $6,627,105 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 would have been 6.0% higher than last year but was unfavorably reduced
about $61,000 by a 1.5% reduction in the average Canadian dollar exchange rate
which impacts nearly 42% of total Company sales. The Company's management is
very encouraged with the favorable trend showing that the net sales erosion of
the past few years has been reversed.
Gross profit improved to 38.4% of net sales in the six months ended
November 30, 1997 compared to 37.6% 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 June 1997 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 34.8% of sales for the six
months ended November 30, 1997 compared to 33.8% in the same period a year ago.
While some reductions were achieved in payroll expense, they were offset by
increases in marketing expenditures to aggressively promote PML products and by
$32,000 in legal expenses to successfully defend a lawsuit brought by a former
employee. Total other expense increased to 2.8% of sales in the first six months
of this year compared to 1.9% in the first six 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 but have generated a $41,000 loss this year compared to a $10,000 loss
last year for the same period.
The Company recorded net income of $29,607 for the first six months
compared to net income of $119,317 during the same period a year ago. On a
pre-tax basis the Company recorded income of $57,614 for the first six months of
this year compared to $126,381 for the same period a year ago. The smaller
difference between net income and pre-tax income last year compared to this year
reflects the recognition of benefit from a partially reserved deferred tax asset
last year which eliminated the need to book any federal income tax liability.
Since the
- 8 -
<PAGE>
benefit from the deferred tax asset has been fully recognized, the
estimated Federal, State, Canadian and Provincial tax provisions more closely
reflect the current statutory tax rates.. The net income was $0.00 per share for
the first six months ended November 30, 1997 compared to net income of $0.05 per
share during the same period a year ago. The Company's reduced profitability in
the first six months of this fiscal year reflects the exchange loss and
investment in marketing programs which more than offset the significant
improvements that have been made in reducing normal 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 November 30,
1997 the Company had negative working capital of $12,558 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 November 30, 1997 compared to 1.03 at
May 31, 1997. Quick liquidity (current assets less inventories to current
liabilities) was .58 at November 30, 1997 and .62 at May 31, 1997.
The twelve-month average collection period for trade receivables was 50.4
days at November 30, 1997, compared with 49.4 days at May 31, 1997. This slight
increase reflects the seasonally lower first half sales normal in the
microbiology industry.
Net cash used by operating activities was $208,829 in the first six months
of fiscal 1998 compared with net cash provided of $367,232 in the same period a
year ago. Approximately $247,654 of the cash used in fiscal 1998 was for the
planned increase of inventories to support the higher level of sales In fiscal
1997, nearly the entire operating cash increase was from collection of past due
Accounts Receivable, and a decrease in inventories. Net cash used in investing
activities was $298,839 in the first six months of fiscal 1998, compared with
$22,914 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 $528,087 in the first six 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 provided of
$53,212 from financing activities in the same period of fiscal 1997.
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
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<PAGE>
other cash provided by operating activities.
The Company's borrowing structure at November 30, 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 $ - $ 1,701,030
Note payable at 12%, due April 2000 74,736 15,529
Note payable at prime plus 2.0% due November 30, 2000 208,318 100,008
Capital Lease Obligations, due now through July 1999 153,917 108,775
Note payable at 6%, due May 2005 70,000 10,000
Trade A/P converted to notes payable at 6%, due February 2001 409,751 70,914
---------- ---------------
Total third party long term borrowings $ 916,722 $ 2,006,256
---------- ---------------
Related Party Long Term Borrowings:
Ethel Wildt Note payable at prime plus 1% due November 1998 $ 576 $ 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 41,806 23,923
Trade A/P converted to notes payable at 6% due February 2001 66,387 11,577
---------- ---------------
Total related party long term borrowings $ 144,590 $ 69,073
---------- ---------------
Related Party Notes Payable:
Demand Notes $ - $ 247,551
---------- ---------------
Total long term borrowings and notes payable $1,061,312 $ 2,322,880
---------- ---------------
</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
During the quarter ended November 30, 1997, the Company held its annual
meeting on November 6, 1997 at its Wilsonville, Oregon facility. The following
directors were elected at this meeting.
NAME: VOTES FOR VOTES AGAINST ABSTAIN
Kenneth L. Minton 1,046,455 250 2,875
Ron Torland 211,551 0 0
Craig Montgomery 211,551 0 0
Doug Johnson 211,551 0 0
Other items voted on at this meeting were the following:
Appoint Price Waterhouse LLP as
independent auditors for year
ended May 31, 1998 1,261,006 125 0
Item 6. Exhibits and Reports on Form 8-K
No 8-K filings were made during the quarter ended November 30, 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: January 14, 1998 By: /s/ Kenneth L. Minton
------------------------- ---------------------
Kenneth L. Minton
President and Chief Executive Officer
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PML, INC.
Exhibit 6.1
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
November 30 November 30
1997 1996 1997 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net (loss)/income $ (3,101) $ 110,719 $ 29,607 $ 119,317
Preferred stock dividends accreted (12,476) (12,066) (24,817) (24,132)
------------ ------------ ------------ -----------
Net (loss)/income after accretion of dividends $ (15,577) $ 98,653 $ 4,790 $ 95,185
============ ============ ============ ===========
Average number of common shares outstanding 1,777,573 1,776,816 1,777,192 1,776,816
Average number of Class B common stock outstanding 211,551 211,551 211,551 211,551
Effect of common stock equivalents 277,998 75,000 232,761 55,518
------------ ------------ ------------ -----------
Average number of total shares outstanding 2,267,122 2,063,367 2,221,504 2,043,885
============ ============ ============ ===========
Net (loss)/income per common share $ (0.01) $ 0.05 $ 0.00 $ 0.05
============ ============ ============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1997
<CASH> 94,829
<SECURITIES> 0
<RECEIVABLES> 1,990,189
<ALLOWANCES> 65,732
<INVENTORY> 1,707,718
<CURRENT-ASSETS> 4,114,557
<PP&E> 4,449,135
<DEPRECIATION> 2,584,992
<TOTAL-ASSETS> 6,129,717
<CURRENT-LIABILITIES> 4,127,115
<BONDS> 1,061,312
0
666,378
<COMMON> 19,920
<OTHER-SE> 254,992
<TOTAL-LIABILITY-AND-EQUITY> 6,129,717
<SALES> 6,965,496
<TOTAL-REVENUES> 6,965,496
<CGS> 4,292,085
<TOTAL-COSTS> 4,292,085
<OTHER-EXPENSES> 2,441,785
<LOSS-PROVISION> 9,251
<INTEREST-EXPENSE> 164,761
<INCOME-PRETAX> 57,614
<INCOME-TAX> 28,007
<INCOME-CONTINUING> 29,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,607
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
