UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1999
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 March 31, 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 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 Third Quarter Ended
February 28, 1999
- 2 -
<PAGE>
PML, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
February 28 May 31,
Assets 1999 1998
-------------- --------------
<S> <C> <C>
Current Assets:
Cash $ 27,101 $ 163,505
Trade accounts receivable, less allowance for doubtful 2,002,717 2,145,257
accounts of $35,255 and $30,000
Inventories 1,781,781 1,916,818
Deferred income taxes 397,910 276,604
Prepaid expenses and other current assets 67,214 113,931
-------------- --------------
Total Current Assets 4,276,723 4,616,115
-------------- --------------
Property, plant and equipment - net 1,546,663 1,754,993
Intangible assets - net 27,332 20,928
Other assets 107,293 126,453
-------------- --------------
Total Assets $ 5,958,011 $ 6.518.489
============== ==============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,679,292 $ 1,505,707
Accrued salaries and wages 170,178 256,027
Accounts payable - related parties 1,130 -
Other accrued liabilities 318,043 321,415
Notes payable - related parties 247,551 247,551
Bank line of credit 1,775,014 1,987,548
Current portion capital lease obligations 75,221 90,731
Current portion of borrowings - related parties 75,134 73,507
Current portion of borrowings 295,912 248,018
-------------- --------------
Total Current Liabilities 4,637,475 4,730,504
-------------- --------------
Capital lease obligations, less current portion 68,923 122,197
Borrowings - related parties, less current portion 74,758 115,197
Borrowings, less current portion 397,833 599,978
-------------- --------------
Total Borrowings. less current portion 541,514 837,372
-------------- --------------
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 726,754 691,060
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 (114,192) 93,093
-------------- --------------
Total Stockholders' Equity 779,022 950,613
-------------- --------------
Total Liabilities and Stockholders' Equity $ 5,958,011 $ 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 Nine Months Ended
February 28, February 28,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 3,352,728 $ 3,472,101 $ 10,260,967 $ 10,437,597
Cost of goods sold 2,273,331 2,093,037 6,532,764 6,385,122
------------- ------------- ------------- -------------
Gross profit 1,079,397 1,379,064 3,728,203 4,052,475
Operating expenses 1,205,652 1,259,573 3,734,003 3,680,858
------------- ------------- ------------- -------------
Operating (loss) income (126,255) 119,491 (5,800) 371,617
Other (income)/expense:
Interest expense 72,960 88,356 238,223 253,117
Other (116,309) (10,426) 44,801 19,325
------------- ------------- ------------- -------------
Total other (income)/expense (43,349) 77,930 283,024 272,442
------------- ------------- ------------- -------------
(Loss) income before income taxes (82,906) 41,561 (288,824) 99,175
Income tax (benefit) expense (33,464) 17,518 (117,233) 45,525
------------- ------------- ------------- -------------
Net (loss) income $ (49,442) $ 24,043 $ (171,591) $ 53,650
============= ============= ============= =============
Basic (loss) income per share $ (0.03) $ 0.01 $ (0.10) $ 0.01
============= ============= ============= =============
Diluted (loss) income per share $ (0.03) $ 0.01 $ (0.10) $ 0.01
============= ============= ============= =============
</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 35,694 (35,694) -
Net loss - (171,591) (171,591)
------ ---------- --------- --------- -------- -------- --------- ----------- -----------
Balance, February 28, 1999 (unaudited) 4,950 $ 726,754 1,780,441 $ 17,804 211,551 $ 2,116 $ 146,540 $ (114,192) $ 779,022
====== ========== ========= ========= ======== ======== ========= =========== ===========
</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 Nine Months Ended
February 28,
1999 1998
---------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income $ (171,591) $ 53,650
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating activities:
Depreciation and amortization 311,168 261,442
Gain on sale of equipment (648) (26,893)
Changes in:
Accounts receivable 142,540 (356,465)
Inventories 135,037 (343,797)
Deferred income taxes (121,306) 41,654
Other assets 58,444 35,889
Accounts payable and accrued liabilities 85,494 (141,999)
------------ ------------
Total adjustments 610,729 (530,169)
------------ ------------
Net cash provided by (used in) operating activities 439,138 (476,519)
Cash Flows from Investing Activities:
Proceeds from sale of assets 1,150 33,462
Purchase of property, plant and equipment (102,311) (355,442)
------------ ------------
Net cash used in investing activities (101,161) (321,980)
Cash Flows from Financing Activities:
Net proceeds of bank credit line (212,534) 759,201
Proceeds from issuance of capital lease obligations - 70,828
Repayment of capital lease obligations (68,775) (8,254)
Proceeds from issuance of long-term debt 24,607 149,864
Repayment of long-term debt (217,679) (218,442)
Proceeds from issuance of common stock - 1,875
------------ ------------
Net cash (used in) provided by financing activities (474,381) 755,072
------------ ------------
Decrease in cash (136,404) (43,427)
Cash at beginning of period 163,505 74,410
------------ ------------
Cash at end of period $ 27,101 $ 30,983
============ ============
Supplemental Disclosures:
Interest paid $ 249,228 $ 275,803
Income tax paid 1,970 16,723
Non Cash Items:
Preferred stock dividends accreted 35,694 37,023
Accounts payable exchanged for long-term debt 24,607 -
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 nine month periods ended February 28, 1999 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 Nine Months Ended
February 28, February 28,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Numerator
- ---------
Net (loss) income $ (49,442) $ 24,043 $ (171,591) $ 53,650
Preferred stock dividends accreted (11,289) (12,476) (35,694) (37,023)
-------------- -------------- -------------- --------------
Basic (loss) income $ (60,731) $ 11,567 $ (207,285) $ 16,627
============== ============== ============== ==============
Denominator
- -----------
Average number of common shares outstanding 1,780,441 1,780,441 1,780,441 1,778,277
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 1,991,992 1,991,992 1,989,828
============== =============== ============== ==============
Basic (loss) income per share $ (0.03) $ 0.01 $ (0.10) $ 0.01
============== =============== ============== ==============
Information Needed to Calculate Diluted Earnings Per Share
For The Three Months Ended For The Nine Months Ended
February 28, February 28,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
Numerator
- ---------
Basic (loss) income $ (60,731) $ 11,567 $ (207,285) $ 16,627
Add back preferred stock dividends accreted * - - - -
-------------- -------------- -------------- --------------
Diluted (loss) income $ (60,731) $ 11,567 $ (207,285) $ 16,627
============== ============== ============== ==============
Denominator
- -----------
Average number of common shares outstanding 1,780,441 1,780,441 1,780,441 1,778,277
Average number of Class B common stock outstanding 211,551 211,551 211,551 211,551
Effect of common stock equivalents * - - - -
Effect of preferred convertible stock * - - - -
-------------- -------------- -------------- --------------
Average shares used in diluted EPS calculation 1,991,992 1,991,992 1,991,992 1,989,828
============== ============== ============== ==============
Diluted (loss) income per share $ (0.03) $ 0.01 $ (0.10) $ 0.01
============== ============== ============== ==============
</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 February 28, 1999 and 1998, amounts
excluded were $11,289 and $12,476 of accreted dividends respectively, 95,276 and
266,481 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 nine months ended February 28, 1999 and
1998, amounts excluded were $35,694 and $37,023 of accreted dividends
respectively, 131,999 and 244,001 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 within the next six 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 but will require about $75,000 in additional capital to upgrade
the Company's personal computers to meet Year 2000 requirements.
The Company is currently executing its plan to identify Year 2000 readiness
issues pertaining to internal and external communications systems and desk top
systems and has developed 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. Most
of the Company's internal systems have been evaluated and are expected to be
Year 2000 compliant by August 1999. The Company expects to substantially
complete its evaluations of any remaining Year 2000 issues and have them Year
2000 compliant 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
fiscal 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 nine months ended February 28, 1999 the Company's net
sales were reduced, as a result of changes in the Canadian exchange rate to
about $10,261,000 from about $10,593,000 or nearly $332,000. For this same time
period cost of goods sold and operating expenses improved about $167,000 due to
the lower exchange rate. As of February 28 the exchange loss related to current
assets and liabilities included in other expense in the Company's Consolidated
Statements of Operations was about $42,000 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
$207,000 for the nine month period ended February 28, 1999.
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. In the
nine month period ended February 28, 1999, the Company re-evaluated its
allowance for doubtful accounts resulting in an increase of about $91,000 in the
allowance account related to accounts receivable as of May 31, 1998. For the
same period, the Company evaluated its inventory for obsolete and slow moving
inventory resulting in a nearly $46,000 write-down of inventory. The total of
these adjustments was an increase in the net loss of about $137,000 for the nine
month period ended February 28, 1999.
- 10 -
<PAGE>
Results of Operations
Nine Months Ended February 28, 1999 Compared to February 28, 1998
Actual sales volumes for the nine months ended February 28, 1999 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 nine months ended February 28, 1999, measured in US
dollars, decreased approximately 1.7% to $10,260,967 from $10,437,597 during the
same period a year ago. Net sales were reduced about 0.9% from last year by the
$91,000 increase in the customer credit estimate discussed earlier and declined
from fiscal 1998 levels by approximately 3.2% (nearly $332,000) due to the
change in the Company's average Canadian dollar exchange rate, also discussed
earlier. The customer credit and the exchange impacts were partially offset by
the approximately 2.4% 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 nine months ended February 28, 1999 as compared to the same
period in the prior year, cost of goods sold (COGS) increased to 63.7% from
61.2% of net sales. COGS as a percent of net sales increased about 0.9% from the
exchange impact discussed earlier and increased about 0.8% from the modification
in the accounting estimates also discussed earlier. COGS as a percent of net
sales increased about 0.8% reflecting higher material usage from start up
problems associated with the installation of the Company's new information
reporting system. Operating expense was 36.4% of sales in the first nine months
of this year compared to 35.3% in the same period last year. The Canadian
Exchange and accounting estimate changes discussed earlier increased operating
expense by nearly 1.2% which was partially offset by the Company's cost
reduction efforts. 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 nine months of fiscal 1999 the Company's
Canadian exchange loss was $41,929 compared to a Canadian exchange loss of just
over $38,883 in the same nine month period of fiscal 1998. Exchange gains or
losses cannot be forecasted with any degree of accuracy.
The Company recorded net loss of ($171,591) for the first nine months ended
February 28, 1999 compared to net income of $53,650 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 $344,000 for the first nine months of this year. Both the
basic and diluted net (loss) per share were ($0.10) for the first nine months of
fiscal 1999 as compared to $0.01 net income per share for both basic and diluted
for the first nine 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
Nine Months Ended February 28,
------------------------------
1999 1998
------ ------
Net Sales 100.0% 100.0%
Cost of Goods Sold 63.7 61.2
------ ------
Gross Profit 36.3 38.8
Operating expenses 36.3 35.3
------ ------
Operating (Loss) Income (0.0) 3.5
Other Expense 2.8 2.6
------ ------
Income (Loss) before income taxes (2.8) 0.9
Income tax (benefit) expense (1.1) 0.4
------ ------
Net (Loss) Income (1.7)% 0.5%
====== ======
Liquidity and Capital Resources
The Company has financed its operations over the years principally through
funds generated from operations and financing activities. At February 28, 1999,
the Company had negative working capital of $360,752 compared with negative
working capital of $114,389 at May 31, 1998. The ratio of current assets to
current liabilities was 0.92 at February 28, 1999 compared to 0.98 at May 31,
1998. Quick liquidity (current assets less inventories to current liabilities)
was .54 at February 28, 1999 and .57 at May 31, 1998. The twelve month average
collection period for trade receivables was 55.5 days at February 28, 1999
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 $439,1384 in the first nine
months of fiscal 1999 compared with net cash used in operations of $476,519 in
the same period a year ago. Approximately $277,577 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
$101,161 in the first nine months of fiscal 1999, compared with $321,980 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
$474,381 in the first nine 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 $755,072 from financing
activities in the same period of fiscal 1998.
- 12 -
<PAGE>
The Company negotiated its current four year financing agreement with its
current lender effective December 1, 1996. This financing agreement includes
interest at prime plus 2.0% (9.75% at February 28, 1999) (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 financing agreement were used to pay off all outstanding debt
from the prior lender and provided 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.
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 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 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% (9.75% at February 28, 1999) 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. The Company was in
compliance with all of its covenants at of February 28, 1999 resulting from the
bank revising the covenants to eliminate exchange gain or loss impacts related
to balance sheet accounts.
The Company's borrowing structure at February 28, 1999 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 February 28,
1999) due November 30, 2000 $ - $ 1,775,014
Note payable at 12%, due April 2000 50,205 19,138
Note payable at prime plus 2.0% (9.75% at February 28, 1999)
due November 30, 2000 83,308 100,008
Capital Lease Obligations, due now through July 2001 68,923 75,221
Note payable at 6%, due May 2005 60,000 10,000
Trade A/P converted to notes payable at 6%, due February 2001 204,320 166,766
------------- ---------------
Total third party long term borrowings $ 466,756 $ 2,146,147
------------- ---------------
Related Party Long Term Borrowings:
Ron Torland Note payable at 10% due January 2000 $ - $ 10,000
Ron Torland Note payable at prime plus 1% (8.75% at February 28,
1999) due November 1999 35,821 11,679
Mary Brown 8% Note due May 2000 7,178 27,323
Trade A/P converted to notes payable at 6% due February 2001 31,759 26,132
------------- ---------------
Total related party long term borrowings $ 74,758 $ 75,134
------------- ---------------
Related Party Notes Payable:
Demand Notes $ - 247,551
------------- ---------------
Total long term borrowings and notes payable $ 541,514 $ 2,468,832
============= ===============
</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
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 February 28, 1999.
However, the Company did make a Form 8-K filing on March 19, 1999 to announce a
change in its independent accountants form PricewaterhouseCoopers, LLP to
MossAdams LLP.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PML, INC.
(Registrant)
Date: April 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> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> FEB-28-1998
<CASH> 27,101
<SECURITIES> 0
<RECEIVABLES> 2,037,972
<ALLOWANCES> 35,255
<INVENTORY> 1,781,781
<CURRENT-ASSETS> 4,276,723
<PP&E> 4,597,185
<DEPRECIATION> 3,050,522
<TOTAL-ASSETS> 5,958,011
<CURRENT-LIABILITIES> 4,637,475
<BONDS> 541,514
0
726,754
<COMMON> 19,920
<OTHER-SE> 32,348
<TOTAL-LIABILITY-AND-EQUITY> 5,958,011
<SALES> 10,260,967
<TOTAL-REVENUES> 10,260,967
<CGS> 6,532,764
<TOTAL-COSTS> 6,532,764
<OTHER-EXPENSES> 3,745,951
<LOSS-PROVISION> 32,853
<INTEREST-EXPENSE> 238,223
<INCOME-PRETAX> (288,824)
<INCOME-TAX> (117,233)
<INCOME-CONTINUING> (171,591)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (171,591)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
