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, 1999
Commission File No. 0-21816
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 October 15, 1999 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 Information 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 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
----------------
PML, INC.
For the First Quarter Ended
August 31, 1999
<PAGE>
PML, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
Unaudited
August 31, May 31,
Assets 1999 1999
--------------- ---------------
<S> <C> <C>
Current Assets:
Cash $ 33,300 $ 571
Trade accounts receivable, less allowance for doubtful 1,961,229 2,106,210
accounts of $62,506 and $50,414
Inventories 1,564,435 1,670,459
Deferred income taxes 180,504 209,000
Prepaid expenses and other current assets 69,821 74,675
--------------- ---------------
Total Current Assets 3,809,289 4,060,915
--------------- ---------------
Property, plant and equipment - net 1,407,545 1,453,222
Intangible assets - net 27,673 27,469
Deferred income Taxes 136,000 136,000
Other assets 82,659 104,768
--------------- ---------------
Total Assets $ 5,463,166 $ 5,782,374
=============== ===============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,394,348 $ 1,596,512
Accrued Payroll and Related 307,158 312,964
Other accrued liabilities 296,168 300,948
Notes payable - related parties 247,551 247,551
Bank line of credit 1,657,251 1,714,450
Current portion capital lease obligations 68,011 70,153
Current portion of borrowings - related parties 73,369 77,891
Current portion of borrowings 365,377 355,852
--------------- ---------------
Total Current Liabilities 4,409,233 4,676,321
--------------- ---------------
Capital lease obligations, less current portion 36,649 52,145
Borrowings - related parties, less current portion 50,262 58,985
Borrowings, less current portion 177,090 257,911
--------------- ---------------
Total Borrowings. less current portion 264,001 369,041
--------------- ---------------
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 750,071 738,296
Common stock, $.01 par value; authorized 2,500,000 shares,
issued and outstanding 1,780,441 shares - -
Class B common stock, $.01 par value; authorized 250,000 shares,
issued and outstanding 211,551 shares. - -
Class D common stock, $.01 par value, authorized 100 shares,
no shares issued or outstanding. - -
Additional paid in capital - -
Retained earnings (deficit) (126,599) (167,744)
--------------- ---------------
- -
Total Stockholders' Equity 623,472 570,552
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 5,296,706 $ 5,615,914
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For The Three Months Ended
August 31,
1999 1998
-------------- ------------
Net sales $ 3,540,405 $ 3,597,242
Cost of goods sold 2,215,524 2,142,917
-------------- --------------
Gross profit 1,324,881 1,454,325
Operating expenses 1,158,858 1,285,197
-------------- --------------
Operating income 166,023 169,128
Other (income)/expense:
Interest expense 70,771 85,473
Other 13,837 69,747
-------------- --------------
Total other (income)/expense 84,608 155,220
-------------- --------------
Income before income taxes 81,415 13,908
Income tax expense 28,496 7,210
-------------- --------------
Net income $ 52,919 $ 6,698
============== ==============
Basic income (loss) per share $ 0.02 $ (0.00)
============== ==============
Diluted income per share $ 0.02 $ 0.00
============== ==============
The accompanying notes are an integral part of these statements.
4
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
Class A Class B Accumulated
Convertible Common Common Additional Deficit
Preferred Shares Shares Shares 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, 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 47,236 (47,236) -
Net loss - (213,601) (213,601
--------- ---------- --------- -------- ------- ------- --------- --------- ----------
Balance, May 31, 1999 4,950 $ 738,296 1,780,441 $ 17,804 211,551 $ 2,116 $ 146,540 $(167,744) $ 737,012
========= ========== ========= ======== ======= ======= ========= ========= ==========
Balance, May 31, 1999 4,950 $ 738,296 1,780,441 $ 17,804 211,551 $ 2,116 $ 146,540 $(167,744) $ 737,012
Preferred Stock dividends accreted 11,775 (11,775) -
Net Income - 52,919 52,919
--------- ---------- --------- -------- ------- ------- --------- --------- ----------
Balance, August 31, 1999 (unadited) 4,950 $ 750,071 1,780,441 $ 17,804 211,551 $ 2,116 $ 146,540 $(126,600) $ 789,931
========= ========== ========= ======== ======= ======= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
For the Three Months Ended
August 31,
1999 1998
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 52,919 $ 6,698
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 90,585 105,334
Changes in:
Accounts receivable 144,981 25,824
Inventories 106,024 (168,932)
Deferred income taxes 28,496 5,841
Other assets 26,759 23,825
Accounts payable and accrued liabilities (212,749) 452,215
-------------- --------------
Total adjustments 184,096 444,107
-------------- --------------
Net cash provided by (used in) operating activities 237,015 450,805
Cash Flows (used in) from Investing Activities:
Purchase of property, plant and equipment (44,908) (62,989)
-------------- --------------
Net cash used in investing activities (44,908) (62,989)
Cash Flows (used in) from Financing Activities:
Net proceeds of bank credit line (57,199) (300,040)
Repayment of capital lease obligations (20,466) (25,025)
Repayment of long-term debt (81,713) (74,223)
-------------- --------------
Net cash (used in) provided by financing activities (159,378) (399,288)
-------------- --------------
(Decrease) increase in cash 32,729 (11,472)
Cash at beginning of period 571 163,505
-------------- --------------
Cash at end of period $ 33,300 $ 152,033
============== ==============
Supplemental Disclosures:
Interest paid $ 83,439 $ 100,337
Income tax paid - 1,970
Non Cash Items:
Preferred stock dividends accreted 11,775 12,477
Accounts payable exchanged for long-term debt - 11,612
</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 used by
both clinical and industrial microbiologists throughout the United States and
Canada. In addition, the Company produces a wide variety of products on a
private label basis for medical diagnostics companies worldwide.
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, 1999, 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, 1999, 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, 1999 are not necessarily indicative
of the results that may be expected for the full year.
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.
<TABLE>
Information Needed to Calculate Basic Earnings Per Share
For the Three Months Ended
August 31,
1999 1998
------------ ------------
<S> <C> <C>
Net income $ 52,919 $ 6,698
Preferred stock dividends accreted (11,775) (12,477)
------------ ------------
Net income (loss) after accretion of dividends $ 41,144 $ (5,779)
============ ============
Average number of common shares outstanding 1,780,441 1,780,441
Average number of Class B common stock outstanding 211,551 211,551
------------ ------------
Average shares used in basic EPS calculation 1,991,992 1,991,992
============ ============
Basic income (loss) per share $ 0.02 $ (0.00)
============ ============
7
<PAGE>
Information Needed to Calculate Diluted Earnings Per Share
For the Three Months Ended
August 31,
1999 1998
------------ ------------
Net income (loss) after accretion of dividends $ 41,144 $ (5,779)
Add back preferred stock dividends accreted* - -
------------ ------------
Diluted income (loss) after add back of accreted dividends $ 41,144 $ (5,779)
============ ============
Average number of common shares outstanding 1,780,441 1,780,441
Average number of Class B common stock outstanding 211,551 211,551
Effect of common stock equivalents 7,903 -
Effect of preferred convertible stock* - -
------------ ------------
Average shares used in diluted EPS calculation 1,999,895 1,991,992
============ ============
Diluted income (loss) per share $ 0.02 $ (0.00)
============ ============
</TABLE>
*To the extent that the effect of preferred stock dividends accreted, common
stock equivalents, and the preferred convertible stock are anti-dilutive, they
are not included in the diluted earnings per share calculation. For the three
months ended August 31, 1999, amounts excluded were $11,775 of accreted
dividends and 176,786 shares of preferred convertible stock.
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. Future demand for the Company's 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 recognized the importance to its operations and reporting
systems of the Year 2000 issues and began addressing the issue in 1996, 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 has attempted
to identify all internal information technology ("IT") and non-IT systems which
may be affected by the Year 2000 issues as well as assessing third party IT and
non-IT that the Company relies upon and the third parties' Year 2000 readiness.
Starting in September 1996 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
8
<PAGE>
system is now operational. 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.
Most of the Company's internal systems have been evaluated and were to be
Year 2000 compliant by the end of September 1999; however, because of additional
testing, the date has been moved to the end of October 1999. 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.
Canadian Exchange
PML is a US incorporated company but also has several significant 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 the Company's US competitors, the Company is in
a somewhat unique position in that it manufactures in both the US and Canada and
regularly receives approximately 40% of its revenues from Canadian sales. In the
five fiscal years ending in 1998, 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
$.67 in May 1999. This decline 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 the year ended May 31, 1999.
The sharp exchange decline started just prior to the first quarter ended
August 31, 1998 and averaged $.667 during that quarter. The average exchange
rate for the current quarter was $.673, which does not represent a significant
difference when comparing quarterly operating results. However, as a result of
the sharp decline occurring at the beginning of last year's quarter, the
Canadian assets were negatively adjusted during that quarter. See further
discussion of this in the following section.
Results of Operations
Three Months Ended August 31, 1999 Compared to August 31, 1998
Income before taxes for the three months ended August 31, 1999 showed an
increase in profits of $67,507 over the three-month period ended August 31,
1998. While sales remained fairly constant between the two periods, cost of
goods sold as a percentage of sales increased to 62.6% in the current period
compared to a reported 59.6% for the comparable period ended August 31, 1998.
Management believes that reporting
9
<PAGE>
anomalies resulting from the start-up of the Company's new information system in
the prior year distorted cost of goods sold amounts for the quarter ended August
31, 1998, which self-corrected in subsequent Fiscal 1999 quarters. The current
cost of goods sold percentage of 62.6% reflects an .8% improvement from the
fourth quarter of Fiscal 1999 and a full one point improvement over Fiscal 1999
cost of goods sold percentage of 63.6%.
Operating expenses decreased by $126,339 over the first quarter of last
year as a result of cost reduction programs initiated by the Company.
Distribution and shipping expenses were decreased through the coordination of
stocking shipments, decreases in back orders requiring free delivery, and
overall reduction in "no charge" delivery to customers. Sales and marketing
expenses were reduced through the streamlining of the Company's sales and
marketing efforts and the utilization of distributors rather than direct
salespeople.
Other expenses decreased by $70,612 over the previous year's first quarter
as a result of the Canadian translation effect on the Company's Canadian assets
and liabilities, which resulted in a $59,871 reduction in exchange costs. In
addition, interest expense decreased by $14,702 as a result of lower borrowing
levels.
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
Three Months Ended August 31,
-----------------------------
1999 1998
---- ----
Net Sales 100.0% 100.0%
Cost of Goods Sold 62.6 59.6
----- -----
Gross Profit 37.4 40.4
Operating Expenses 32.7 35.7
----- -----
Operating Income 4.7 4.7
Other Expense 2.4 4.3
----- -----
Income before income taxes 2.3 0.4
Income tax expense 0.8 0.2
----- -----
Net Income 1.5% 0.1%
===== =====
Liquidity and Capital Resources
The Company has financed its operations over the years principally through
funds generated from operations and bank loans. At August 31, 1999 the Company
had negative working capital of $599,944 compared with negative working capital
of $615,406 at May 31, 1999. The ratio of current assets to current liabilities
was 0.86 at August 31, 1999 compared to 0.87 at May 31, 1999. Quick liquidity
(current assets less inventories to current liabilities) was 0.51 at August 31,
1999 and .51 at May 31, 1999. The twelve month average collection period for
trade receivables was 52.1 days at August 31, 1999 compared with 52.3 days at
May 31, 1999.
Net cash provided by operating activities was $237,015, which was net of
cash used of $212,749 to decrease accounts payable and accrued liabilities in
the first three months of Fiscal 2000. In the same period of Fiscal 1999, net
cash provided by operations was $450,805. However, $452,215 of this cash was
generated by allowing accounts payable and accrued liabilities to increase or
deteriorate. Net cash used in investing activities was $44,908 in the first
three months of Fiscal 2000, compared with $62,989 used by the Company in
investing activities in the same period of Fiscal 1999. These expenditures were
mainly for purchases of manufacturing
10
<PAGE>
facility improvements and equipment in Toronto, Canada, and computer license
upgrades needed for the company's new MIS system to support additional users as
the Canadian locations came on line. Financing activities used cash of $159,378
in the first three months ended August 31, 1999 as the net result of repayments
on the bank credit line, repayments on capital lease obligations, and repayments
of long term debt. This compares to cash used of $399,288 from financing
activities in the same period ended August 31, 1998.
The Company has a line of credit that has a current maturity date of
November 30, 2000. This line of credit is secured substantially with 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. This
loan will be repaid primarily out of the Company's receivable collections and
other cash provided by operating activities. As of August 31, 1999, the Company
was in compliance with all operating covenants required by its lenders.
The Company may require additional capital to finance current operations,
make enhancements to or expansions of its manufacturing capacity, in accordance
with its business strategy, or for additional working capital, for inventory and
accounts receivable. The Company may also seek additional funds through public
or private debt or through bank borrowings. No assurances can be given that
future financings will be available with terms acceptable to the Company.
Without such future financing, the Company's ability to finance its growth will
be limited.
<TABLE>
The Company's total debt structure at August 31, 1999 is as follows:
Long-Term Current Portion
---------- ---------------
<S> <C> <C>
Revolving credit at prime plus 2.0%, due November 30, 2000 $ $ 1,657,251
Note payable at prime plus 2.0%, due November 30, 2000 33,304 100,008
Note payable at 10%, due January 2000 10,000
Note payable at prime plus 1%, due December 1999 35,821 11,679
Note payable at 8%, due May 2000 21,112
Capital Lease obligations, due January 2001 36,649 68,011
Note payable at 6%, due May 2005 50,000 10,000
Note payable at 12%, due April 2000 60,059
Trade A/P converted to notes payable at 6%, due February 2001 108,227 225,888
---------- ------------
Total Bank and Term debt $ 264,001 $ 2,164,008
Notes payable to related parties 247,551
Total long and short term debt $ 264,001 $ 2,411,559
========= ===========
</TABLE>
II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company occasionally has been made a party to incidental suits or other
legal actions arising in the ordinary course of its business. To the best
knowledge of Management, the Company is not currently subject to any pending
litigation that would have a material adverse effect upon its operations. The
Company was engaged in discussions with one purchaser concerning product quality
and had notified its product liability insurance carrier of those discussions.
To date, the Company has never paid a product liability claim.
11
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
quarter ended August 31,1999. The Company will hold its annual meeting at its
Wilsonville, Oregon facility on November 16, 1999.
Item 6. Exhibits and Reports on Form 8-K
No 8-K filings were made during the quarter ended August 31, 1999.
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 19,1999 By: /s/ Kenneth L. Minton
------------------- ---------------------------
Kenneth L. Minton
President and Chief Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> AUG-31-1999
<CASH> 33,300
<SECURITIES> 0
<RECEIVABLES> 2,023,735
<ALLOWANCES> 62,506
<INVENTORY> 1,564,435
<CURRENT-ASSETS> 4,055,621
<PP&E> 4,645,907
<DEPRECIATION> 3,238,362
<TOTAL-ASSETS> 5,463,166
<CURRENT-LIABILITIES> 4,409,233
<BONDS> 264,001
0
750,071
<COMMON> 19,920
<OTHER-SE> 19,941
<TOTAL-LIABILITY-AND-EQUITY> 5,463,166
<SALES> 3,540,405
<TOTAL-REVENUES> 3,540,405
<CGS> 2,215,524
<TOTAL-COSTS> 2,215,524
<OTHER-EXPENSES> 1,172,695
<LOSS-PROVISION> 152,186
<INTEREST-EXPENSE> 70,771
<INCOME-PRETAX> 81,415
<INCOME-TAX> 28,496
<INCOME-CONTINUING> 52,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,919
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
