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, 1998
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)
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 December 31, 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 9
Part II. Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
----------------
PML, INC.
For the Second Quarter Ended
November 30, 1998
- 2 -
<PAGE>
PML, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
November 30 May 31,
Assets 1998 1998
--------------- ---------------
<S> <C> <C>
Current Assets:
Cash $ 92,274 $ 163,505
Trade accounts receivable, less allowance for doubtful 1,917,496 2,145,257
accounts of $48,944 and $30,000
Inventories 1,815,278 1,916,818
Deferred income taxes 363,090 276,604
Prepaid expenses and other current assets 78,831 113,931
--------------- ---------------
Total Current Assets 4,266,969 4,616,115
--------------- ---------------
Property, plant and equipment - net 1,643,671 1,754,993
Intangible assets - net 27,161 20,928
Other assets 118,405 126,453
--------------- ---------------
Total Assets $ 6,056,206 $ 6,518,489
=============== ===============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,501,581 $ 1,505,707
Accrued salaries and wages 272,224 256,027
Accounts payable - related parties 97 -
Other accrued liabilities 325,567 321,415
Notes payable - related parties 247,551 247,551
Bank line of credit 1,810,502 1,987,548
Current portion capital lease obligations 75,467 90,731
Current portion of borrowings - related parties 67,124 73,507
Current portion of borrowings 247,714 248,018
--------------- ---------------
Total Current Liabilities 4,547,827 4,730,504
--------------- ---------------
Capital lease obligations, less current portion 91,203 122,197
Borrowings - related parties, less current portion 93,772 115,197
Borrowings, less current portion 494,940 599,978
--------------- ---------------
Total Borrowings. less current portion 679,915 837,372
--------------- ---------------
Commitments and contingencies - -
--------------- ---------------
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 715,465 691,060
Common stock, $.01 par value; authorized 2,500,000 shares,
issued and outstanding 1,780,441 shares 17,804 17,804
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 146,540 146,540
(Accumulated deficit) retained earnings (53,461) 93,093
--------------- ---------------
Total Stockholders' Equity 828,464 950,613
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 6,056,206 $ 6,518,489
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
November 30, November30,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 3,310,997 $ 3,534,612 $ 6,908,239 $ 6,965,496
Cost of goods sold 2,116,516 2,219,259 4,259,433 4,292,085
-------------- -------------- -------------- --------------
Gross profit 1,194,481 1,315,353 2,648,806 2,673,411
Operating expenses 1,243,154 1,206,735 2,528,351 2,421,285
-------------- -------------- -------------- --------------
Operating (loss) income (48,673) 108,618 120,455 252,126
Other expense:
Interest expense 79,790 85,343 165,263 164,761
Other 91,363 24,299 161,110 29,751
-------------- -------------- -------------- --------------
Total other expense 171,153 109,642 326,373 194,512
-------------- ---------------- ---------------- ---------------
(Loss) income before income taxes (219,826) (1,024) (205,918) 57,614
Income tax (benefit) expense (90,979) 2,077 (83,769) 28,007
-------------- ---------------- ---------------- ---------------
Net (loss) income $ (128,847) $ (3,101) $ (122,149) $ 29,607
============== ================ ================ ===============
Basic (loss) income per share $ (0.07) $ (0.01) $ (0.07) $ 0.00
============== ================ ================ ===============
Diluted (loss) income per share $ (0.07) $ (0.01) $ (0.07) $ 0.00
============== ================ ================ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Class B
Convertible Common Common (Accumulated
Preferred Shares Shares Shares Additional Deficit)
---------------- ------------------ --------------- Paid-in Retained
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT Capital Earnings Total
------ --------- --------- -------- ------- ------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1996 4,950 $ 592,974 1,776,816 $ 17,768 211,551 $ 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 4,950 $ 641,561 1,776,816 $ 17,768 211,551 $ 2,116 $ 144,701 $ 103,662 $ 909,808
====== ========= ========= ======== ======= ======= ========= =========== ==========
Balance, May 31, 1997 4,950 $ 641,561 1,776,816 $ 17,768 211,551 $ 2,116 $ 144,701 $ 103,662 $ 909,808
Preferred Stock dividends accreted 49,499 - - - (49,499) -
Common Stock returned and canceled - (125) (1) - 1 - -
Stock options exercised - 3,750 37 - 1,838 - 1,875
Net income - - - - 38,930 38,930
------ --------- --------- -------- ------- ------- --------- ----------- ----------
Balance, May 31, 1998 4,950 $ 691,060 1,780,441 $ 17,804 211,551 $ 2,116 $ 146,540 $ 93,093 $ 950,613
====== ========= ========= ======== ======= ======= ========= =========== ==========
Balance, May 31, 1998 4,950 $ 691,060 1,780,441 $ 17,804 211,551 $ 2,116 $ 146,540 $ 93,093 $ 950,613
Preferred Stock dividends accreted 24,405 (24,405) -
Net loss - (122,149) (122,149)
------ --------- --------- -------- ------- ------- --------- ----------- ----------
Balance, November 30, 1998 (unaudited) 4,950 $ 715,465 1,780,441 $ 17,804 211,551 $ 2,116 $ 146,540 $ (53,461)$ 828,464
====== ========= ========= ======== ======= ======= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
For The Six Months Ended
November30,
1998 1997
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income $ (122,149) $ 29,607
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating activities:
Depreciation and amortization 209,019 170,909
Gain on sale of equipment (648) (16,047)
Changes in:
Accounts receivable 227,761 (151,011)
Inventories 101,540 (247,654)
Deferred income taxes (86,486) -
Other assets 35,886 (2,907)
Accounts payable and accrued liabilities 16,320 8,274
--------------- ---------------
Total adjustments 503,392 (238,436)
--------------- ---------------
Net cash provided by (used in) operating activities 381,243 (208,829)
Cash Flows from Investing Activities:
Proceeds from sale of assets 1,150 18,962
Purchase of property, plant and equipment (97,170) (317,801)
--------------- ---------------
Net cash used in investing activities (96,020) (298,839)
Cash Flows from Financing Activities:
Net proceeds of bank credit line (177,046) 452,102
Proceeds from issuance of capital lease obligations - 220,300
Repayment of capital lease obligations (46,257) (37,997)
Proceeds from issuance of long-term debt 11,612 -
Repayment of long-term debt (144,763) (108,193)
Proceeds from issuance of common stock - 1,875
--------------- ---------------
Net cash (used in) provided by financing activities (356,454) 528,087
--------------- ----------------
(Decrease) increase in cash (71,231) 20,419
Cash at beginning of period 163,505 74,410
--------------- ----------------
Cash at end of period $ 92,274 $ 94,829
=============== ================
Supplemental Disclosures:
Interest paid $ 177,930 $ 143,519
Income tax paid 1,970 8,523
Non Cash Items:
Preferred stock dividends accreted 24,405 24,817
Accounts payable exchanged for long-term debt 11,627 -
Common shares reaquired - 1
</TABLE>
The accompanying notes are an integral part of these 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. 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, 1998, and for the period 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, 1998, 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 and six month periods ended November 30, 1998 are not
necessarily indicative of the results that may be expected for the full year.
Reclassifications - Certain reclassifications have been made to the fiscal
1998 financial statements to conform to the fiscal 1999 presentation. Such
reclassifications did not have any effect on the net income or stockholders'
equity reported in fiscal 1998.
Note 2. Net Earnings Per Share
During the quarter ended February 28, 1998 the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). As
required by SFAS 128, the Company has applied the provisions of SFAS 128 to the
current and all prior periods shown for purposes of computing earnings per share
(EPS). The effect of equity instruments is excluded whenever the impact on
earnings per share would be anti-dilutive.
- 7 -
<PAGE>
<TABLE>
<CAPTION>
Information Needed to Calculate Basic Earnings Per Share
For The Three Months Ended For The Six Months Ended
November 30, November 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator
Net (loss) income $ (128,847) $ (3,101) $ (122,149) $ 29,607
Preferred stock dividends accreted (11,928) (12,476) (24,405) (24,817)
----------- ----------- ----------- -----------
Basic (loss) income $ (140,775) $ (15,577) $ (146,554) $ 4,790
=========== =========== =========== ===========
Denominator
Average number of common shares outstanding 1,780,441 1,777,573 1,780,441 1,777,192
Average number of Class B common stock outstanding 211,551 211,551 211,551 211,551
----------- ----------- ----------- -----------
Average shares used in basic EPS calculation 1,991,992 1,989,124 1,991,992 1,988,743
=========== =========== =========== ===========
Basic (loss) income per share $ (0.07) $ (0.01) $ (0.07) $ 0.00
=========== =========== =========== ===========
Information Needed to Calculate Diluted Earnings Per Share
For The Three Months Ended For The Six Months Ended
November 30, November 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Numerator
Basic (loss) income $ (140,775) $ (15,577) $ (146,554) $ 4,790
Add back preferred stock dividends accreted* - - - -
----------- ----------- ----------- -----------
$ (140,775) $ (15,577) $ (146,554) $ 4,790
=========== =========== =========== ===========
Denominator
Average number of common shares outstanding 1,780,441 1,777,573 1,780,441 1,777,192
Average number of Class B common stock outstanding 211,551 211,551 211,551 211,511
Effect of common stock equivalents* - - - -
Effect of preferred convertible stock* - - - -
----------- ----------- ----------- -----------
Average shares used in diluted EPS calculation 1,991,992 1,989,124 1,991,992 1,988,743
=========== =========== =========== ===========
Diluted (loss) income per share $ (0.07) $ (0.01) $ (0.07) $ 0.00
=========== =========== =========== ===========
</TABLE>
* To the extent that the effect of preferred stock dividends accreted, the
effect of outstanding stock options, and the preferred convertible stock are
anti-dilutive, they are not included in the diluted earnings per share
calculation. For the three months ended November 30, 1998 and 1997, amounts
excluded were $11,928 and $12,476 of accreted dividends respectively, 114,912
and 277,998 shares of potential common stock (due to stock options)
respectively, and 176,786 and 176,786 shares of potential common stock (due to
preferred convertible stock) respectively. For the six months ended November 30,
1998 and 1997, amounts excluded were $24,405 and $24,817 of accreted dividends
respectively, 150,360 and 232,761 shares of potential common stock (due to stock
options) respectively, and 176,786 and 176,786 shares of potential common stock
(due to preferred convertible stock) respectively.
- 8 -
<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 last year's
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.
Year 2000 Issue
The Company recognizes the importance to its operations and reporting
systems of Year 2000 issues and is addressing this issue to ensure that the
reliability of its operations as well as the availability and integrity of its
financial systems will not be adversely impacted by Year 2000 computer
technology software failures. In that regard the Company is attempting to
identify all internal information technology ("IT") and non-IT systems which may
be affected by the Year 2000 issues as well as trying to assess third party IT
and non-IT that the Company relies upon and the third parties' Year 2000
readiness.
Between September 1996 and March 31, 1998 the Company evaluated, selected,
and appointed a task team to upgrade and install a completely new MIS system
which the vendor represents to be fully Year 2000 compliant. This system is now
operational in all but one of the Company's locations and is expected to be
fully operational throughout the Company in six to nine months. This new IT
software package controls major operational systems including purchasing,
scheduling, inventory control, sales and distribution as well as providing the
Company's new financial systems. The financial impact for the new MIS system was
about $350,000 for capital and $70,000 for excess labor and other expenses in
fiscal 1998. Additional expenses for this MIS system are expected to be minimal
in fiscal 1999.
The Company is currently developing a plan to identify Year 2000 readiness
issues pertaining to internal and external communications systems and desk top
systems as well as developing a questionnaire to aid in assessing Year 2000
readiness of its third party providers including those third parties who provide
financial, payroll, communications and component services to the Company. This
plan is expected to be ready by February 1999 and the Company expects to
substantially complete its evaluations of these remaining Year 2000 issues by
the end of its fiscal 1999 year. The financial impact of future required system
improvements is not anticipated to be material. The Company will also be working
on contingency plans for material IT and third party providers that the Company
relies upon, but at this time it is too soon for the Company to determine if
these contingency plans will be needed.
The above statements contain certain risks and uncertainties. Although the
Company is continuing to thoroughly examine its Year 2000 readiness, there is no
assurance that it can identify all Year 2000 issues. These risks and
uncertainties could include the risk of unidentified bugs in the source code of
packaged or custom software, misrepresentations by third party vendors,
unidentified dependency upon a system that is not Year 2000 ready, unidentified
non-IT systems, or misdiagnosed Year 2000 readiness in current systems.
- 9 -
<PAGE>
Canadian Exchange
PML is a US incorporated company but also has several operating locations
in Canada. Since management has previously determined that the functional
currency of the Canadian operations is the US dollar, it must consolidate its
foreign operations by using the appropriate foreign exchange rate in accordance
with generally accepted accounting principles applied on a consistent basis.
Unlike most of our US competitors, the Company is in a somewhat unique position
in that it manufactures in both the US and Canada and has received nearly 40% of
its revenues from Canadian sales in each of the last few years. In the last five
years, the exchange rate between Canadian and US currency has been quite stable
and has not fluctuated more than about 3% from its"normal" trading range of
about $.72 to $.73 (US $ equivalent rate).
Starting in April 1998, the Canadian/US exchange rate started an unusually
sharp decline and reached as low as the $.63 range before stabilizing at about
$.65 in September 1998. This decline of almost 10% is unprecedented in PML's
history and whether the rate continues to decline, remains the same, or starts
to recover is unpredictable. However, since the Company's Canadian operations
are such a significant part of total operations, this decline in the Canadian
exchange rate has had a material adverse impact on the consolidated financial
results of the Company.
For example, in the six months ended November 30, 1998, the Company's net
sales were reduced, as a result of changes in the Canadian exchange rate to
about $6,908,000 from about $7,161,000 or nearly $253,000. For this same time
period cost of goods sold and operating expenses improved about $120,000 due to
the lower exchange rate. As of November 30, 1998 the exchange loss related to
current assets and liabilities included in other expense in the Company's
Consolidated Statements of Operations was about $160,000 and results solely from
the decline in the exchange rate and would be reversed in future periods if the
Canadian/US exchange rate returned to last year's levels. As a result of the
decline in the Canadian/US exchange rate, the Company's net loss increased by an
estimated $169,000 for the six month period ended November 30, 1998.
Accounting Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and reported amounts of revenues and expenses during the reporting
periods. Actual results often will differ from such accounting estimates. For
the fiscal year ended May 31, 1998, this task was made more difficult as the
Company had just "gone live" on a new and totally integrated management
reporting system. As with any new system, it took many months to "debug" the new
software. One area in which the Company encountered more difficulty than
anticipated was in estimating credits and discounts due to customers. Another
area with inherent estimating difficulty is inventory reductions required by
changing market conditions. In the six month period ended November 30, 1998, net
sales were negatively impacted by about $91,000 due to a change in the customer
credit estimate. For the same period, cost of goods sold and operating expenses
were negatively impacted by nearly $46,000 reflecting a change in inventory
reserves. The total of the adjustments to these reserves increased the pre-tax
loss by an estimated $137,000 for the six month period ended November 30, 1998.
- 10 -
<PAGE>
Results of Operations
Six Months Ended November 30, 1998 Compared to November 30, 1997
Actual sales volumes for the six months ended November 30, 1998 increased
when compared to the same period a year ago. However, due solely to the decline
in the Canadian exchange rate and the changes in accounting estimates previously
discussed, net sales for the six months ended November 30, 1998, measured in US
dollars, decreased approximately 0.8% to $6,908,239 from $6,965,496 during the
same period a year ago. Net sales were reduced about 1.3% from last year by the
$91,000 increase in the customer credit estimate discussed earlier and declined
from fiscal 1998 levels by approximately 3.6% (nearly $253,000) due to the
change in the Company's average Canadian dollar exchange rate, also discussed
earlier. The customer credit and the exchange impacts were nearly offset by the
approximately 4.1% sales improvements in the industrial microbiology market and
from sales increases of speciality products. The Company's management remains
very encouraged with the favorable constant dollar increase in total sales
showing that the net sales erosion of the past few years has been contained.
During the six months ended November 30, 1998 as compared to the same
period in the prior year, cost of goods sold (COGS) increased slightly to 61.7%
from 61.6% of net sales. COGS as a percent of net sales increased about 0.9%
from the exchange impact discussed earlier and increased about 1.2 % from the
modification in the accounting estimates also discussed earlier. COGS as a
percent of net sales experienced a nearly 2.0% reduction reflecting the benefits
from the operating efficiencies resulting from the completion of last year's
consolidation project of three Oregon facilities into one modern Oregon
facility, and increased sales of higher margin industrial products. Operating
expense was 36.6% of sales in the first six months of this year compared to
34.8% in the same period last year. The Canadian Exchange and accounting
estimate changes discussed earlier increased operating expense by nearly 1.5%
while the remaining increase reflects a wage increase granted on June 1, 1998.
Other expense consists mainly of interest expense and Canadian balance sheet
currency exchange loss. Interest expense was about the same for both years, but
in the first six months of fiscal 1999 the Company's Canadian exchange loss was
more than $160,000 compared to a Canadian exchange loss of just over $41,000 in
the same six month period of fiscal 1998. Exchange gains or losses cannot be
forecasted with any degree of accuracy.
The Company recorded net loss of ($122,149) for the first six months ended
November 30, 1998 compared to net income of $29,607 during the same period a
year ago. The impacts of the previously discussed Canadian/US exchange rate
reduction and the modification of accounting estimates reduced the Company's net
income by an estimated $249,000 for the first six months of this year. Both the
basic and diluted net (loss) per share were ($0.07) for the first six months of
fiscal 1999 as compared to $0.00 per basic and diluted share for the first six
months of fiscal 1998.
- 11 -
<PAGE>
The following table presents the percentage relationship that certain items in
the Company's Consolidated Statements of Operations bear to net sales for the
periods indicated.
Percent of Sales
Six Months Ended November 30,
--------------------------------
1998 1997
---- ----
Net Sales 100.0% 100.0%
Cost of Goods Sold 61.7 61.6
------ ------
Gross Profit 38.3 38.4
Operating expenses 36.6 34.8
------ ------
Operating Income 1.7 3.6
Other Expense 4.7 2.8
------ ------
Income (loss) before income taxes (3.0) 0.8
Income tax expense (benefit) (1.2) 0.4
------ ------
Net Income (loss) (1.8)% 0.4%
====== ======
Liquidity and Capital Resources
The Company has financed its operations over the years principally through
funds generated from operations and financing activities. At November 30, 1998,
the Company had negative working capital of $280,858 compared with negative
working capital of $114,389 at May 31, 1998. The ratio of current assets to
current liabilities was 0.94 at November 30, 1998 compared to 0.98 at May 31,
1998. Quick liquidity (current assets less inventories to current liabilities)
was .54 at November 30, 1998 and .57 at May 31, 1998. The twelve month average
collection period for trade receivables was 54.8 days at November 30, 1998
compared with 52.1 days at May 31, 1998. This increase reflects both seasonality
and slower collection of payments on accounts receivable account balances from
east coast clinical customers.
Net cash provided by operating activities was $381,243 in the first six
months of fiscal 1999 compared with net cash used in operations of $208,829 in
the same period a year ago. Approximately $329,301 of the cash provided in
fiscal 1999 was due to a decrease in accounts receivable and inventories. The
Company anticipates that the inventory reduction programs now in progress over
the next year will aid in further improving cash flow and increasing the
Company's ability to repay its debt. Net cash used in investing activities was
$96,020 in the first six months of fiscal 1999, compared with $298,839 used by
the Company in investing activities in the same period of fiscal 1998. These
expenditures for both periods were mainly for purchases of equipment for the new
manufacturing facility in Wilsonville. Financing activities used cash of
$356,454 in the first six months of fiscal 1999 as a result of repayments on the
bank credit line, payments on capital lease obligations, and repayments of long
term debt. This compares to cash provided of $528,087 from financing activities
in the same period of fiscal 1998.
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,
- 12 -
<PAGE>
1996. The new financing agreement includes interest at prime plus 2.0% (9.75% at
November 30, 1998) (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. Although the due
date for the facility is November 30, 2000, the borrowings are classified as
current as the Company initiates repayments and borrowings on a regular (near
daily) basis throughout the year 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 future receivable collections. Due to the impacts
of the Canadian exchange rate discussed earlier, the Company was in technical
violation of several of its covenants at of November 30, 1998. The bank has
agreed to waive the covenant violations and has revised the covenants to
eliminate exchange gain or loss impacts related to balance sheet accounts.
The Company's borrowing structure at November 30, 1998 was as follows:
<TABLE>
<CAPTION>
Third Party Long Term Borrowings:
Long-Term Current-Portion
------------ ---------------
<S> <C> <C>
Revolving credit line at prime plus 2.0% (9.75% at November 30,
1998) due November 30, 2000 $ - $ 1,810,502
Note payable at 12%, due April 2000 56,282 17,498
Note payable at prime plus 2.0% (9.75% at November 30, 1998)
due November 30, 2000 108,310 100,008
Capital Lease Obligations, due now through July 1999 91,203 75,467
Note payable at 6%, due May 2005 60,000 10,000
Trade A/P converted to notes payable at 6%, due February 2001 270,348 120,208
------------ ------------
Total third party long term borrowings $ 586,143 $ 2,133,683
------------ ------------
Related Party Long Term Borrowings:
Ron Torland Note payable at 10% due January 1999 $ - $ 10,000
Ron Torland Note payable at prime plus 1% (8.75% at November 30,
1998) due December 1999 35,821 11,679
Mary Brown 8% Note due May 2000 15,261 25,737
Trade A/P converted to notes payable at 6% due February 2001 42,690 19,708
------------ ------------
Total related party long term borrowings $ 93,772 $ 67,124
------------ ------------
Related Party Notes Payable:
Demand Notes $ - $ 247,551
------------ ------------
Total long term borrowings and notes payable $ 679,915 $ 2,448,358
============ ============
</TABLE>
- 13 -
<PAGE>
II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material or substantive claims pending or threatened against
the Company. The Company is, however, currently engaged in discussions with one
purchaser concerning product quality and has notified its product liability
insurance carrier of these discussions.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the security holders during
the quarter ended November 30, 1998. However, the Company held its annual
meeting on December 3, 1998 at its Wilsonville, Oregon facility. The following
directors were elected at this meeting
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES AGAINST ABSTAIN
<S> <C> <C> <C>
Kenneth L. Minton 1,411,678 3,550 64,000
Ron Torland 211,511 0 0
Doug Johnson 211,511 0 0
Craig Montgomery 211,511 0 0
Other items voted on at this meeting were as follows:
Appoint PricewaterhouseCoopers LLP
as independent accountants for the year
ended May 31, 1999 1,661,829 23,625 4,875
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
No Form 8-K filings were made during the quarter ended November 30, 1998.
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, 1999 By: /s/ Kenneth L. Minton
-------------------- -----------------------
Kenneth L. Minton
President and Chief Executive Officer
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 92,274
<SECURITIES> 0
<RECEIVABLES> 1,966,440
<ALLOWANCES> 48,944
<INVENTORY> 1,815,278
<CURRENT-ASSETS> 4,266,969
<PP&E> 4,592,044
<DEPRECIATION> 2,948,373
<TOTAL-ASSETS> 6,056,206
<CURRENT-LIABILITIES> 4,547,827
<BONDS> 679,915
0
715,465
<COMMON> 19,920
<OTHER-SE> 93,079
<TOTAL-LIABILITY-AND-EQUITY> 6,056,206
<SALES> 6,908,239
<TOTAL-REVENUES> 6,908,239
<CGS> 4,259,433
<TOTAL-COSTS> 4,259,433
<OTHER-EXPENSES> 2,667,392
<LOSS-PROVISION> 22,069
<INTEREST-EXPENSE> 165,263
<INCOME-PRETAX> (205,918)
<INCOME-TAX> (83,769)
<INCOME-CONTINUING> (122,149)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (122,149)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
