UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 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
Indicate by check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. Yes X No
Revenues for the most recent fiscal year: $13,818,563
The aggregate market value of voting Common Stock held by non affiliates (based
on the closing sales price on the NASD Electronic Bulletin Board) on August 31,
1999 was approximately $151,400.
Indicate by check mark whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes No X
As of August 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.
Documents incorporated by reference: N/A
<PAGE>
PML, INC.
<TABLE>
FORM 10-KSB INDEX
Part I Page
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<S> <C>
Item 1. Description of Business 3
Item 2. Description of Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 7. Financial Statements and Supplementary Data 13 & 21
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 14
Part III
Item 9. Directors, Executive Officers, Promoters and Control Personnel;
Compliance with Section 16(a) of the Exchange Act 15
Item 10. Executive Compensation 16
Item 11. Security Ownership of Certain Beneficial Owners and Management 17
Item 12. Certain Relationships and Related Transactions 18
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19
</TABLE>
<PAGE>
PML, INC.
1999 FORM 10-KSB ANNUAL REPORT
PART I
Item 1. Description of Business
General
- -------
PML, Inc., (the company), formerly known as Meda, Inc., was formed on
September 3, 1991 by Monogenesis Corporation. It was inactive until it acquired
all of the issued and outstanding stock of PML Microbiologicals, Inc., formerly
known as Prepared Media Laboratory, Inc. (PML), on December 4, 1992 in return
for shares of its stock. The Company currently does all of its business through
PML, and references herein to "PML" and "the Company" are used interchangeably.
On December 13, 1996, the name of the operating company was changed from
Prepared Media Laboratory, Inc. to PML Microbiologicals, Inc., and on February
24, 1997 the name of the parent company was changed from Meda, Inc. to PML, Inc.
PML, which has been in business since 1969, researches, develops,
manufactures, tests and distributes a wide array of biological products which
are used to test for and diagnose various conditions, illnesses and
contaminants. Its products include the following: prepared culture media;
monophasic and biphasic blood culture systems; enzyme-based rapid identification
kits, disks and strips; identification reagents in ampules and dropper bottles;
environmental systems for non-aerobic organisms; bacteriology and parasitology
stains; inoculating loops and transport swabs; parasitology transport and
specimen processing kits; and lyophilized organisms.
PML markets to the clinical market (diagnosis of diseases in humans),
to the industrial market (environmental and sterility testing), and to the OEM
market (private label clinical products). Typical customers for PML's clinical
products are hospitals, clinics, and wholesalers that market to hospitals and
clinics. PML's industrial customers include pharmaceutical companies, biotech
research facilities, and food and water testing. The OEM market includes
companies in the medical device industry.
Products
- --------
PML's product line consists of diagnostic products and supporting
materials used by both clinical and industrial microbiologists. Its diagnostic
products include, among other items, prepared culture media in Petri dishes,
tubes and bottles for use in culturing and differentiating organisms from
specimens; various kits, disks and strips for rapid identification of organisms;
microdilution ("MIC") panels for determining the minimum inhibitory
concentration of antibiotics which may be used against the cultured organisms;
and various identification stains and reagents. Supporting materials include
inoculating loops for inoculating the specimen into culture media; transport
media for keeping specimens viable until they are delivered to the laboratory;
lyophilized quality control organisms for gas generating systems, for providing
the proper gaseous environment for culturing organisms; swabs for collecting
specimens; and various fixatives and preservatives.
The majority of PML's products have a defined shelf life ranging from
as little as a few weeks for media in
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Petri dishes to one year or more for products in test tubes or bottles. Most
products require refrigeration to prevent premature deterioration. and some
products are stored and shipped frozen. Most products can be shipped by common
carrier overnight without special protective packaging except in extreme
temperatures. Some products, such as general laboratory reagents, contain
hazardous chemicals and require special storage, packaging, and shipping. See
"Governmental Regulation."
Marketing
- ---------
PML markets its products primarily in the United States and Canada
through its internal sales organization and through a network of distributors.
PML's customers include both clinical and industrial microbiology laboratories.
Hospital and private medical laboratories plus doctor's offices and clinics make
up most of the clinical market. The industrial market includes food and drug
packagers, food and water testing labs, and pharmaceutical and biotechnology
research firms. The Original Equipment Manufacturer (OEM) market, which is a
new, fast growing market, includes companies manufacturing medical devices
requiring media based suppliers. The veterinary market is also a growing
segment.
Based upon management's research and derived from sources which
management believes to be reliable, the clinical microbiology market exceeds $1
billion annually in the United States. The industrial market is estimated to be
in excess of $100 million and growing. The prepared culture media segment of the
clinical microbiology market is estimated at over $200 million. The balance of
this market consists of products such as viral identification kits, mainly
hepatitis and AIDS; bacteriology identification test kits; and automated
microbiology systems.
Although prepared culture media represents only a modest portion of the
total microbiology products market, these products are some of the most basic
and essential tools used by microbiologists. Despite technological advances,
conventional culture media is among the cheapest and most reliable methods for
identification of microorganisms. Product differentiation between various
suppliers of prepared culture media typically shows only minimal differences;
price and service are generally the key variables, and culture media tends to be
a very competitive market. PML maintains a strong presence in this product line
because of its overwhelming importance to microbiologists and the proven value
of PML's service philosophy in gaining and keeping customers. PML's main
marketing strategy is to acquire and/or develop newer technological products
that can be sold in conjunction with conventional culture media. Marketing
selected products at the national, regional and international level is another
successful strategy.
In addition, PML has increased its focus on the industrial microbiology
market and OEM market, which are growing at a faster pace than the clinical
market. In Fiscal 1999, the Company's sales in the industrial segment continued
to increased, and the Company is optimistic about further increases in Fiscal
2000.
Distribution of Products
- ------------------------
To address service, shipping, and shelf life requirements, PML has
established distribution centers in or near the following metropolitan areas of
the United States and Canada: Portland, Oregon; Providence, Rhode Island;
Vancouver, British Columbia; and Toronto (Mississauga), Ontario. Each
distribution center includes temperature-controlled storage areas and a full
inventory of routinely ordered products. Each distribution center receives the
bulk of its inventory from the nearest PML production plant on a weekly basis
with specialty (products other than routine prepared culture media commercially
available from most suppliers) and distributed products coming from the
Wilsonville plant, a Portland, Oregon suburb. PML typically ships a complete
customer order within twenty-four to forty-eight hours of receipt of the order.
Depending on the size of the order, customer requirements and distance,
shipments are made by local courier, international package delivery service
(e.g. UPS, Federal Express) or an over the road common carrier.
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Manufacturing
- -------------
At present, the majority of PML's sales consist of products it
manufactures itself; primarily prepared culture media in Petri dishes, tubes and
bottles. The manufacturing process is essentially a mixing, filling and
packaging operation. The culture medium itself is a blend of powdered nutrients
which typically include beef and soy byproducts; agar, a seaweed derivative used
as a gelling agent; and other nutritional or diagnostic substances such as
animal blood. For Petri dishes, the powdered nutrients are blended and
rehydrated, and the resulting liquid is sterilized in pressure vessels and
aseptically dispensed into presterilized plastic Petri dishes. As the medium
cools it gels into a semi-solid state and is then packaged for sale. Tubed and
bottled media are prepared in a similar manner except that these products are
usually sterilized after they are dispensed.
With the exception of small batches, PML produces most of its products
on custom-designed semi-automated production equipment. For example, empty Petri
dishes are loaded into a filling machine where automated dispensing pumps fill a
measured amount of culture medium into each dish. The dish moves onto a
refrigerated cooling conveyer where gelling occurs; then, it is stacked and
packaged. The finished products are stored in a quarantine area until quality
control testing is complete and the batch is approved for distribution.
PML maintains a quality control laboratory in each of its manufacturing
plants as part of its Total Quality Assurance program. The quality control lab
tests raw material samples prior to purchase, and tests representative samples
from each production batch for sterility, pH, color, and general appearance, as
well as the growth of the microorganisms that the product is designed to
culture.
In addition to culture media, PML produces a variety of ancillary
products such as stains, reagents, microdilution MIC panels, animal blood
products, and a variety of chemical solutions used by other production
departments. The manufacturing process for certain of PML's ancillary products
such as stains, reagents, and other chemical solutions generates a small amount
(50 to 100 gallons per year) of hazardous materials which consist primarily of
organic solvents and heavy metal salts. PML hires licensed hazardous waste
disposal companies for the disposal of these materials at a nominal cost. See
"Governmental Regulation."
Suppliers
- ---------
PML's largest suppliers provide Petri dishes, blood, agar and plastic
packaging material which are available from a number of sources in the United
States and Canada. Several manufacturers and distributors of glassware,
chemicals and packaging materials exist in the United States and Canada.
Competition
- -----------
PML operates in three distinct markets, Clinical, Industrial and
Original Equipment Manufacturing (OEM), with each containing different customers
and competitive forces.
In the clinical market, PML's primary customers are hospital and
clinical laboratories. In the United States, most hospitals have become members
of buying groups known as Group Purchasing Organizations (GPOs), which have
negotiated single supplier contracts for prepared media from only one supplier.
Under these agreements, PML's principal competitor, Becton Dickinson
Microbiology Systems (BDMS), a subsidiary of Becton Dickinson & Co. has obtained
sole source supplier status to approximately 85% of the U.S. market. In the
Canadian clinical market, normal nonrestrictive competitive conditions exist,
and PML has historically outperformed all of its competitors and has continually
increased its market share.
In the industrial market, the key competitive factors are product
features, quality and service. PML has
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<PAGE>
only one other significant competitor in this market, which it competes
favorably against.
In the (OEM) market, PML is one of very few companies supplying
media-based products. Product quality and customer responsiveness are the
primary factors for success in this market. PML has been successful in expanding
this market against its competitors.
Research and Development
- ------------------------
PML does a small amount of pure research and development ("R & D"). The
principal purposes of its current R & D activities are to improve its products
(e.g. testing additional ingredients and formulas or enhancing certain
performance characteristics), to evaluate products being considered for addition
to PML's product line, and to develop new products for addition to its line. R &
D functions are presently performed by multiple departments within PML and by
independent researchers and scientists that have been retained by PML.
Patents and Licenses
- --------------------
PML owns a number of patents, trademarks and licenses. No individual
patent, trademark, or license is material or critical to PML or any particular
product line that PML maintains. All such agreements or rights are considered to
be standard for companies operating in our industry.
Employees
- ---------
On May 31, 1999 and 1998, PML had approximately 166 and 160,
respectively, full time equivalent employees. Minor increases and decrease to
the number of employees occurs throughout the year as manufacturing demand
changes. PML's employees are located throughout North America with the heaviest
concentrations in Portland, Oregon, and Toronto, Canada.
PML's employees are not covered by a collective bargaining agreement,
and the Company considers its employee relations to be satisfactory.
Government Regulation
- ---------------------
As a manufacturer of medical devices, PML is subject to certain
regulations of the U.S. Food and Drug Administration (FDA) and Canada's Health
Protection Branch (HPB). These regulations require that these government
agencies inspect PML's products, facilities, and manufacturing processes. PML's
facilities, processes and products have received all of the required approvals,
and PML believes that it is in substantial compliance with all relevant FDA and
HPB requirements.
In addition, PML is subject to other federal, state and local
regulatory requirements relating to environmental concerns, waste management,
hazardous materials shipping, and health and safety matters. As with many
similar businesses, some risk of costs and liabilities related to these matters
exists in PML's business. Management believes that the Company's business is
operated in substantial compliance with applicable regulations -- the violation
of which could have a material adverse effect on the Company.
Liability Insurance
- -------------------
The Company maintains product liability insurance in the amount of $4
million dollars. Product liability insurance is limited in availability and
restrictive in cost. Based on the essentially confirmatory nature of the
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majority of PML's diagnostic products, PML's management believes that the
Company is not subject to significant product liability risk with its present
product line. To date, PML has never paid a product liability claim.
Item 2. Description of Properties
PML currently operates from five leased locations in two countries. The
Company expects no difficulty in extending any of its leases as they come due.
The following chart summarizes the significant facilities which the Company
leases.
<TABLE>
Approximate Approximate
Square Footage Square Footage Lease
Location Manufacturing Admin & Distribution Expiration
-------- -------------- -------------------- ----------
<S> <C> <C> <C>
1. Wilsonville, Oregon 9,000 34,000 June 2004
2. Mississauga, Ontario 16,000 3,000 November 2000
3. Mississauga, Ontario 4,000 - May 2000
4. Richmond, British Columbia 2,000 3,100 June, 2001
5. Providence, Rhode Island - 12,000 April, 2004
</TABLE>
Each of the manufacturing facilities has extensive leasehold
improvements and production equipment. In April 1997, the Company consolidated
its Oregon facilities into one new building in Wilsonville, Oregon. PML's
Corporate headquarters, a manufacturing unit and a distribution center are now
located in this facility. The move eliminates inefficiencies associated with the
operation of multiple facilities and it provides additional capacity for
anticipated growth in current product lines and in potential new business areas.
The Wilsonville production facility supplies conventional culture media
to the western United States and Canadian regions and provides specialty
products to all other locations. Equipment for the production of PML's PHASE27
blood culture system, DUOTEK sterility testing system, MIC panels, and
dehydrated media are also located in Wilsonville.
The Mississauga plant produces mostly high-volume culture media for
eastern Canada and for the eastern United States regions, and much of PML's
industrial contact plate product line. A second Mississauga facility assembles
parasitology kits on a contract basis for various Canadian accounts.
Item 3. Legal Proceedings
Occasionally, the Company is a party to incidental suits or other legal
actions arising in the ordinary course of its business. The Company is not aware
of any pending or existing material lawsuits.
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<PAGE>
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. Four members of the Board of Directors were
elected and PricewaterhouseCoopers LLP was ratified as independent accountants.
Subsequent to the annual meeting, the Board of Directors appointed Moss-Adams
LLP as independent accountants in place of PricewaterhouseCoopers LLP, due
solely to cost considerations. The directors elected and the votes cast for all
matters are as follows:
Votes For Votes Against Abstain
Kenneth L. Minton 1,411,678 3,550 64,000
Arthur R. (Ron) Torland (CLASS B) 211,511 0 0
Craig S. Montgomery (CLASS B) 211,511 0 0
Douglas C. Johnson (CLASS B) 211,511 0 0
Ratification of auditors 1,661,829 23,625 4,875
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock commenced trading on NASD's Electronic
Bulletin Board system in January of 1993 under the symbol "MDAN." Effective
March of 1997, the symbol was changed to "PMLI." The following table sets forth
the high and low closing bid prices for the last two years as reported by The
National Quotation Bureau.
For the Quarterly High Low
Period Ended Bid Price Bid Price
------------ --------- ---------
May, 1999 $0.53125 $0.53125
February, 1999 $0.75000 $0.43750
November, 1998 $0.75000 $0.37500
August, 1998 $1.12500 $0.87500
May, 1998 $1.25000 $0.87500
February, 1998 $2.62500 $1.25000
November, 1997 $2.37500 $1.31250
August, 1997 $1.37500 $0.59375
The Company has not paid any cash dividends on the Common Stock in the
past and anticipates that, for the foreseeable future, it will retain any
earnings available as dividends for use in its business. The Company's loan
agreement does not allow the Company to declare or pay cash dividends without
the written consent of the bank. The preferred shares have a provision which
calls for the accretion of dividends annually at a rate of prime plus 1.5%. May
31, 1999 accreted dividends totaled $243,296. See Note 9 of Notes to
Consolidated Financial Statements. Approximately 1,114 record holders of Common
Stock existed as of May 31, 1999.
Item 6. 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 increase in the coming year, and that
reductions in the the cost of goods sold should result from improved operating
practices. 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-KSB.
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
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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.
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 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 are to
be Year 2000 compliant by the end of September 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 our 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 example, in the twelve months ended May 31, 1999 the Company's net sales
were reduced, as a result of changes in the Canadian exchange rate to about $5.5
million from a historical exchange of about $6.0 million or nearly $500,000. For
this same time period cost of goods sold and operating expenses improved by
approximately $180,000 due to the lower exchange rate. As of May 31 the exchange
loss related to current assets and liabilities included in other expense in the
Company's Consolidated Statements of Operations was about $30,000 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 $350,000 for the twelve month period ended May 31,
1999.
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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. For the year ended May 31, 1999, 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 year ended May 31, 1999.
Results of Operations
- ---------------------
The results of operations for Fiscal 1999 have been negatively affected
by several significant events which, when compared to Fiscal 1998, reflects a
deterioration of current earnings.
As discussed in the Canadian Exchange and Accounting Estimate sections
above, Fiscal 1999 results of operations have been negatively affected by an
estimated $487,000 due to these two items alone. While the management of the
Company has no control over the Canadian/US exchange rate, operational actions
have occurred and will continue to be made in an effort to mitigate, partially
or completely, an exchange effect for Fiscal 2000. However, management cannot
predict how the exchange rate may react in the future. Management is of the
opinion that the accounting estimate charge to earnings will not repeat in
Fiscal 2000.
Year Ended May 31, 1999 Compared With Year Ended May 31, 1998
- -------------------------------------------------------------
The following table presents the percentage relationship that certain
items in the Company's Consolidated Statements of Operations bear to sales for
the period indicated.
Percent of Sales
Year Ended May 31,
------------------
1999 1998
---- ----
Net Sales 100.0% 100.0%
Cost of Goods Sold 63.6 61.7
------ ------
Gross Profit 36.4 38.3
Selling, general and administrative expenses 36.0 35.3
------ ------
Operating Income 0.4 3.0
Other expense 2.3 2.4
------ -------
Income before income taxes (1.9) 0.6
Income tax expense (benefit) (0.4) 0.3
------ ------
Net income (1.5)% 0.3%
====== ======
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Sales in Fiscal 1999 totaled $13.8 million, a decrease of $117,000 or
.8% over Fiscal 1998. As discussed above, this year's sales were negatively
affected by the Canadian exchange. Had the exchange rate remained at its
historical position, sales would have increased over 4% compared to Fiscal 1998.
Operating expenses (selling, general and administrative) increased by
approximately $0.7%. The majority of this increase is attributed to higher
depreciation levels resulting from the large MIS upgrades in capital equipment
and freight charges absorbed, which resulted from backlogs generated when the
new computer system was launched.
QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following is a summary of unaudited operating results by quarter
for the fiscal years ended May 31, 1999 and 1998:
<TABLE>
1999 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
<S> <C> <C> <C> <C> <C>
Net sales $3,597,242 $3,310,997 $3,352,728 $3,557,596 $13,818,563
Gross profit 1,454,325 1,194,481 1,079,397 1,302,029 5,030,232
Net income (loss) before tax 13,908 (219,826) (82,906) 24,725 (264,099)
Net income (loss) 6,698 (128,847) (49,442) (42,010) (213,601)
Basic earnings (loss) per share 0.00 (0.07) (0.03) (0.03) (0.13)
Diluted earnings (loss) per share* 0.00 (0.07) (0.03) (0.03) (0.13)
1998 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
Net sales $3,430,884 $3,534,612 $3,472,101 $3,498,261 $13,935,858
Gross profit 1,358,058 1,315,353 1,379,064 1,283,013 5,335,488
Net income (loss) before tax 58,638 (1,024) 41,561 (13,224) 85,951
Net income 32,708 (3,101) 24,043 (14,720) 38,930
Basic earnings per share 0.01 (0.01) 0.01 (0.01) (0.01)
Diluted earnings per share* 0.01 (0.01) 0.01 (0.01) (0.01)
</TABLE>
* Where the effect of the diluted earnings (loss) per share calculation would
have been anti-dilutive, the diluted earnings (loss) per share is the same as
the basic earnings (loss) per share.
Liquidity and Capital Resources
- -------------------------------
The Company has financed its operations over the years principally
through funds generated from operations and bank and stockholder loans. At May
31, 1999, the Company had negative working capital of approximately $615,400
compared with a negative working capital of about $114,000 at May 31, 1998. Much
of the decrease in the current year is due to internal investments and a strong
effort to reduce current and long term debt. The ratio of current assets to
current liabilities is .87 at May 31, 1999 compared to .98 at May 31, 1998.
Quick liquidity (current assets less inventories to current liabilities) is .51
at May 31, 1999 and .57 at May 31, 1998. The twelve-month average collection
period for trade receivables was 55.1 days at May 31, 1999 compared with 52.1
days at May 31, 1998.
Net cash provided by operating activities was $599,428 in fiscal 1999
compared with $164,898 used by
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operations in fiscal 1998. Net cash used in investing activities was $112,573 in
fiscal 1999 compared with $374,629 used by the Company in investing activities
in fiscal 1998. The Company spent $113,723 on the purchase of plant, property
and equipment during fiscal 1999, compared with $414,158 in fiscal 1998.
Financing activities consumed cash of ($649,789), primarily from decreases in
short-term and long-term debt, compared with providing cash of $628,622 in 1998
from increases in the bank line of credit and a long-term lease on the Company's
new MIS reporting system.
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.
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 May 31, 1999 is as follows:
Long-Term Current-Portion
<S> <C> <C>
Revolving credit at prime plus 2.0%, due November 30, 2000 $ 0 $ 1,714,450
Note payable at prime plus 2.0%, due November 30, 2000 58,306 100,008
Note payable at 10%, due January 2000 0 10,000
Note payable at prime plus 1%, due December 1999 35,821 11,679
Note payable at 8%, due May 2000 0 27,873
Capital Lease obligations, due January 2001 52,145 70,206
Note payable at 6%, due May 2005 50,000 10,000
Note payable at 12%, due April 2000 0 64,770
Trade A/P converted to notes payable at 6%, due February 2001 172,769 209,360
----------- -----------
Total Bank and Term debt $ 369,041 $ 2,218,346
Notes payable to related parties 0 247,551
----------- -----------
Total long and short term debt $ 369,041 $ 2,465,897
=========== ===========
</TABLE>
Item 7. Financial Statements and Supplementary Data
The information required by this item starts on page 21 of this report.
Item 8. Changes in and Disagreements with Accountants on Accounting Disclosure
PML, Inc. engaged Moss Adams, LLP as its new independent accountants as
of March 15, 1999. There have been no disagreements with the accountants on any
matter of accounting principles or practices, financial statement disclosures,
or auditing scope or procedures.
13
<PAGE>
The Board of Directors of PML, Inc. dismissed its independent
accountants, PricewaterhouseCoopers LLP on March 15, 1999. The reports of
PricewaterhouseCoopers LLP on the consolidated financial statements of PML, Inc.
as of May 31, 1998 and for the year then ended contained no adverse opinions or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principle. In connection with its audit of the consolidated
financial statements of PML, Inc. as of May 31, 1998 and for the year then ended
and through March 15, 1999, there were no disagreements with
PricewaterhouseCoopers LLP on matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused them to make reference thereto in their report on the
consolidated financial statements for such years.
14
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Personnel;
Compliance with Section 16(a) of the Exchange Act
Directors and Executive Officers of the Company
- -----------------------------------------------
The directors and executive officers of the Company at May 31, 1999 are
as follows:
Term as
Name Position Director Expires
---- -------- ----------------
A. Ron Torland Chairman of the Board 1999
Secretary, Treasurer
Kenneth L. Minton President and
Chief Executive Officer
Director 1999
Douglas C. Johnson Director 1999
Craig S. Montgomery Director 1999
A. Ron Torland, age 52, has been employed by the Company or its
predecessor since 1970. He became Chairman of the Board in 1988, was Chief
Executive Officer from 1988 to 1996, and was President from 1982 to 1988. He was
Treasurer from 1972 to 1996 and a member of the Board of Directors since the
Company was incorporated in 1972. Mr. Torland holds a B.S.
degree in business administration and served in the U.S. Army from 1968 to 1970.
Kenneth L. Minton, age 49, was hired as the Company's President and
Chief Executive Officer in April, 1996, and was elected to the Board of
Directors in November, 1997. Prior to joining PML, he was President and Chief
Operating Officer of Hind, Inc., a manufacturer and distributor of high end
sports apparel from 1993 to 1996, and Vice President of Microwave Applications
Group, an electronics manufacturer, from 1985 to 1993. Prior to 1985, Mr. Minton
had extensive experience in operations, finance, sales and marketing in several
industries. Mr. Minton holds a B.S. degree in Business Administration.
Douglas C. Johnson, age 43, has been a director of the Company since
March, 1996. He holds a B.A. degree in Music from Fort Wright College in
Spokane, Washington, and a Masters Degree from the University of Southern
California in Los Angeles. He has been a professional opera singer for 13 years
and returned to the U.S. four years ago after nine years in Europe.
Craig S. Montgomery, Ph.D., 45, has been a director of the Company
since March, 1996. He is a licensed clinical psychologist. From 1983 to 1991, he
was Program Director of New Day Center, Portland, Oregon, a residential and
outpatient facility for chemical dependency treatment. From 1991 to 1993, he was
Clinical Supervisor of both the New Day Center and the Dual Diagnosis program at
Portland Adventist Hospital and Caremark Behavioral Health Services. He is now
in private practice. Dr. Montgomery holds a Masters Degree from Pepperdine
University and a Ph.D. from the California School of Professional Psychology in
San Diego, California.
No director holds a directorship in any other Company reporting under
the Securities and Exchange Act of 1934.
15
<PAGE>
Significant Employees
- ---------------------
There are no significant employees as defined by the SEC other than
those listed above.
Family Relationships
- --------------------
Mr. Torland and Dr. Montgomery are stepbrothers. Mr. Johnson is Dr.
Montgomery's and Mr. Torland's brother-in-law.
Involvement in Certain Legal Proceedings
- ----------------------------------------
None.
Item 10. Executive Compensation
The following table sets forth the compensation of all executive
officers of the Company for the fiscal year ending May 31, 1999 and 1998, who
earned total annual salary and bonuses during that period in excess of $100,000.
<TABLE>
Name of Individual Annual Compensation
and Position Year Salary Bonus Other Compensation
------------ ---- ------ ----- ------------------
<S> <C> <C> <C> <C>
Kenneth L. Minton, CEO 1999 150,026 None None
1998 150,026 None None
Woody Streb, VP Marketing 1999 107,881 23,000 None
1998 103,025 8,000 None
</TABLE>
No officer, director or employee was beneficiary of any long-term
compensation or other compensation in excess of the dollar values reflected in
item 402(b)(2)(iii)(c). No director received any compensation for his or her
services as a director.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the
ownership of issued and outstanding shares of the Company as of the date hereof
by each director, executive officer, and person known to the Company to be the
beneficial owner of more than 5% of any class of the Company's voting securities
as of August 31, 1998:
<TABLE>
Amount and
Name and Address Nature of Percent
Title of of Beneficial Beneficial of Class
Class Owner Ownership
- ------------------ ------------------------------ ----------- --------
<S> <C> <C> <C>
Common Shares A. Ron Torland 183,381 (a) 10.3%
10595 SW Kiowa Street
Tualatin, OR 97062
Common Shares Julian G. Torland 267,900 15.1%
11100 SW North Dakota Street
Tigard, OR 97223
Common Shares Douglas C. & Joanne E. Johnson 266,832 (b) 15.0%
16
<PAGE>
8728 SW Pamlico Court
Tualatin, OR 97062
Common Shares Craig S. Montgomery 167,243 (c) 9.4%
12600 SE Rachella Court
Boring, OR 97009
Common Shares Marcia & Stan Drake 122,243 6.9%
28890 S. Beavercreek Rd.
Mulino, OR 97042
Common Shares Mary Lou Ham 167,243 (d) 9.4%
3363-B Blaine Rd.
Moscow, ID 83843
Class B
Common Shares A. Ron Torland 142,902 67.5%
10595 SW Kiowa Street
Tualatin, OR 97062
Class B
Common Shares Julian G. Torland 68,649 32.5%
11100 SW North Dakota Street
Tigard, OR 97223
Class A Convertible
Preferred Shares Arthur N. and Bessie M. Torland 2,750 55.6%
8520 SW Avery Street
Tualatin, OR 97062
Class A Convertible
Preferred Shares Julian G. Torland 700 14.1%
11100 SW North Dakota Street
Tigard, OR 97223
Class A Convertible
Preferred Shares Douglas C. & Joanne E. Johnson 1,500 30.3%
8728 SW Pamlico Court
Tualatin, OR 97062
</TABLE>
- --------------------------------------------------------------------------------
(a) Includes 1,000 shares owned by Janice Torland, Ron Torland's wife. Also
includes 23,500 shares owned by Kris Torland, Ron Torland's daughter. Kris
Torland lives at home but is an adult and Ron Torland disclaims any
beneficial interest in these shares.
(b) Includes 96,743 shares owned bt Joanne Johnsonn, Doug Johnson's wife.
Includes 70,500 shares owned by the Johnson children.
(c) Includes 70,500 shares owned by the Montgomery children.
(d) Includes 70,500 shares owned by the three Ham children. However, two of the
Ham children are adults who own 47,000 of these 70,500 shares, and Mary Lou
Ham disclaims any beneficial interest in these shares.
17
<PAGE>
The directors and officers of the Company, as a group, own 624,556
common shares, representing 35.1% of that class, and 142,902 shares of Class B
common shares, representing 67.5% of that class, and 1,500 shares of Class A
convertible preferred, representing 30.3% of that class.
There are no arrangements which may result in a change of control of
the Company.
Item 12. Certain Relationships and Related Transactions
The Company currently leases equipment and formerly leased laboratories
and office facilities from Arthur & Bessie Torland, Julian Torland, and Ron
Torland, some of whom hold more than ten percent of certain classes of voting
securities of the Company under three operating leases. Total rental expense
incurred under these four operating leases was approximately $78,500 and $80,500
in fiscal 1999 and 1998, respectively. (See Note 12 on Notes to Consolidated
Financial Statements.
The Company has a Technology License Agreement with Definitive
Diagnostics, Inc. ("DDI"). See Patents and Licenses. Under the agreement which
extends for six years, the Company will manufacture and market products
developed by DDI and pay a royalty based upon the number of units sold. Total
royalties of $11,404 were incurred in fiscal 1999 and $11,403 in fiscal 1998.
DDI is owned by Messrs. Arthur and Ron Torland, both shareholders owning more
than ten percent of a class of stock of the Company. Ron Torland is also a
director of the Company.
Joanne E. Johnson, wife of director Doug C. Johnson; Ron Torland, a
stockholder and director; Arthur & Bessie Torland, shareholders; and L. Bruce
Ham, brother-in-law of a director all have five year six percent notes issued in
fiscal 1996. In fiscal 1996 this group of shareholders paid off a small group of
the Company's Accounts Payable vendors who would not accept the Company's offer
to exchange these liabilities for five year notes. Instead the Company issued
these notes to this group of shareholders and the notes now have a balance of
$71,211 at May 31, 1999.
There are no other transactions, or series of similar transactions,
involving amounts in excess of $60,000.
18
<PAGE>
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Exhibits
- -------------
Exhibit Description of Exhibit
- ------- ----------------------
3 Articles of Incorporation and Bylaws
4 Instruments defining the rights of holder (none)
9 Voting Trust Agreement (none)
10 Material contracts
a. Employment Agreement with Lester L. Leno
b. Employment Agreement with Kenneth L. Minton
c. Incentive Plan for VP Sales/Marketing
d. 1994 Stock Option Plan for Non-employee Directors.
e. 1994 Stock Option Plan
16 Letter on changes and certifying accountants
18 Letter on change in accounting principles
19 Previously unfiled documents (none)
21 Subsidiaries of Registrant
22 Published report regarding matters submitted to vote (none)
23 * Consent of independent accountants
24 Power of Attorney (none)
28 Additional exhibits (none)
Each exhibit marked with a single asterisk is filed with this report on
form 10-KSB. Except as otherwise indicated, each exhibit not so marked is
incorporated by reference to the exhibit filed by the Company with its previous
filings to the SEC.
(b) Reports on Form 8-K.
- -------------------------
Change in Registrant's Certifying Accountants from
PricewaterhouseCoopers LLP, to Moss-Adams LLP.
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Wilsonville, State of Oregon, on
September 10, 1999.
PML, INC.
By: /s/ Kenneth L. Minton
-----------------------
Kenneth L. Minton, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on September 10, 1999, on behalf of the Company and in
the capacities indicated.
Signatures Title
/s/ Kenneth L. Minton President and Chief Executive Officer
- ------------------------ (Principal Executive Officer), Director
Kenneth L. Minton
/s/A. Ron Torland Chairman of the Board, Secretary
- ------------------------ Treasurer
A. Ron Torland
/s/Doug C. Johnson Director
- ------------------------
Doug C. Johnson
/s/Craig S. Montgomery Director
- ------------------------
Craig S. Montgomery
20
<PAGE>
PML, INC.
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITOR'S REPORT 21
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets 22
Consolidated statements of operations 23
Consolidated statement of changes in stockholders' equity 24
Consolidated statements of cash flows 25
Notes to financial statements 26 - 41
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
PML, Inc.
We have audited the accompanying balance sheet of PML, Inc. as of May 31, 1999,
and the related consolidated statements of operations, changes in stockholder's
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The financial
statements of PML, Inc. as of May 31, 1998, were audited by other auditors whose
report dated August 21, 1998, expressed an unqualified opinion on these
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PML, Inc. as of May 31, 1999,
and the results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/ Moss Adams LLP
- ------------------
MOSS ADAMS LLP
Beaverton, Oregon
August 6, 1999
21
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of PML, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of PML, Inc. (formerly MEDA, Inc.) and its subsidiary at May 31, 1998,
and the reults of their operations and their cash flows for the year then ended,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of PML, Inc.
and its subsidiary for any period subsequent to May 31, 1998.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Portland, Oregon
August 21, 1998
21a
<PAGE>
PML, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
May 31,
------------------------------------
1999 1998
---------------- ----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 571 $ 163,505
Trade accounts receivable, net 2,106,210 2,145,257
Inventories 1,670,459 1,916,818
Prepaid expenses and other 74,675 113,931
Deferred income taxes 209,000 276,604
---------------- ----------------
Total current assets 4,060,915 4,616,115
---------------- ----------------
PROPERTY, PLANT, AND EQUIPMENT, net 1,453,222 1,754,993
INTANGIBLE ASSETS, net 27,469 20,928
DEFERRED INCOME TAXES 136,000 -
OTHER ASSETS 104,768 126,453
---------------- ----------------
$ 5,782,374 $ 6,518,489
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line of credit $ 1,714,450 $ 1,987,548
Accounts payable 1,596,512 1,505,707
Accrued salaries and wages 312,964 256,027
Other accrued liabilities 300,948 321,415
Notes payable - related parties 247,551 247,551
Current portion of capital lease obligations 70,153 90,731
Current portion of long-term debt - related parties 77,891 73,507
Current portion of long-term debt 355,852 248,018
---------------- ----------------
Total current liabilities 4,676,321 4,730,504
---------------- ----------------
CAPITAL LEASE OBLIGATIONS, less current portion 52,145 122,197
---------------- ----------------
LONG TERM DEBT, related parties less current portion 58,985 115,197
---------------- ----------------
LONG TERM DEBT, less current portion 257,911 599,978
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 per share; 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 738,296 691,060
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
Retained earnings (deficit) (167,744) 93,093
---------------- ----------------
737,012 950,613
---------------- ----------------
$ 5,782,374 $ 6,518,489
================ ================
</TABLE>
See accompanying notes. 22
- --------------------------------------------------------------------------------
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year ended May 31,
----------------------------------------
1999 1998
------------------ ------------------
NET SALES $ 13,818,563 $ 13,935,858
COST OF GOODS SOLD 8,788,331 8,600,370
------------------ ------------------
GROSS PROFIT 5,030,232 5,335,488
OPERATING EXPENSES 4,975,232 4,914,652
------------------ ------------------
OPERATING INCOME 55,000 420,836
OTHER EXPENSE
Interest expense, net 310,755 334,299
Miscellaneous 8,344 586
------------------ ------------------
319,099 334,885
------------------ ------------------
NET INCOME (LOSS) BEFORE INCOME
TAX PROVISION (264,099) 85,951
INCOME TAX EXPENSE (BENEFIT) (50,498) 47,021
------------------ ------------------
NET INCOME (LOSS) $ (213,601) $ 38,930
================== ==================
NET INCOME (LOSS) PER COMMON SHARE
Basic $ (0.13) $ (0.01)
================== ==================
Diluted $ (0.13) $ (0.01)
================== ==================
See accompanying notes. 23
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
PML, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Class A Class B Additional Retained
Convertible Common Common Paid-in Earnings
Preferred Shares Shares Shares Capital (Deficit) 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
------ --------- ---------- -------- -------- ------- --------- ---------- ---------
Preferred stock dividends accreted - 47,236 - - - - - (47,236) -
Net income - - - - - - - (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
======= ======== =========== ======== ======== ======= ========= ========== =========
</TABLE>
See accompanying notes. 24
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
PML, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Year ended May 31,
---------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (213,601) $ 38,930
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization 408,451 361,247
Deferred income taxes (68,396) 42,250
Gain on disposition of assets (648) (19,297)
Changes in:
Accounts receivable 39,047 (371,811)
Inventories 246,359 (456,754)
Other assets 60,941 (46,650)
Accounts payable and accrued liabilities 127,275 287,187
-------------- ---------------
Net cash from operating activities 599,428 (164,898)
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 1,150 39,529
Purchase of property, plant and equipment (113,723) (414,158)
-------------- ---------------
Net cash from investing activities (112,573) (374,629)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) on line of credit (273,098) 738,620
Principal payments on notes payable - related parties (51,828) -
Proceeds from issuance of capital lease obligations - 220,000
Principal payments on capital lease obligations (90,630) (87,461)
Principal payments on long-term debt (234,233) (244,412)
Proceeds from issuance of common stock - 1,875
-------------- ---------------
Net cash from financing activities (649,789) 628,622
-------------- ---------------
NET INCREASE (DECREASE) IN CASH (162,934) 89,095
CASH AND CASH EQUIVALENTS, beginning of year 163,505 74,410
-------------- ---------------
CASH AND CASH EQUIVALENTS, end of year $ 571 $ 163,505
============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest paid $ 315,670 $ 342,631
Income tax paid $ 9,792 $ 10,117
Non-cash items:
Preferred stock dividends accreted $ 47,236 $ 49,499
Common stock returned and canceled $ - $ 1
</TABLE>
See accompanying notes. 25
- --------------------------------------------------------------------------------
<PAGE>
PML, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
PML, Inc. ("PML" or the "Company") was incorporated as Meda, Inc. in
September 1991 and owns 100% of the common and preferred stock of PML
Microbiologicals, Inc. ("PML"), formerly Prepared Media Laboratory,
Inc. Effective December 4, 1992, Meda acquired PML and issued PML
shareholders 1,164,526 Common Shares, 211,551 Class B Common Shares,
and 4,950 Class A convertible preferred shares of Meda. This business
combination was accounted for as a reverse acquisition of Meda by PML,
whereby PML is deemed to be the acquirer for accounting purposes.
As a result of the reverse acquisition, effective December 4, 1992, PML
stockholders' equity was adjusted to reflect the exchange of stock in
Meda described above.
The Company produces and sells, throughout the United States and
Canada, to both the clinical market (diagnosis of diseases in humans)
and the industrial market (environmental and sterility testing).
Typical customers for the Company's clinical products are hospitals,
clinics, and wholesalers that market to hospitals and clinics. The
Company's industrial customers include pharmaceutical companies,
biotech research facilities, and food and water testing labs.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of PML and its wholly-owned subsidiary,
PML Microbiologicals. All significant intercompany transactions and
balances have been eliminated.
Revenue recognition - Sales revenue net of allowances is recognized at
the time the Company's product is shipped to customers.
Cash and cash equivalents - For the purpose of the statement of cash
flows, the Company considers highly liquid investments with a maturity
of three months or less to be cash equivalents. The Company places its
cash and cash equivalents with high quality financial institutions.
Accounts receivable - The Company generally does not require collateral
of other security to support accounts receivable. Management
periodically assesses the collectibility of accounts receivable. This
assessment provides the basis for the allowance for doubtful accounts
and related bad debt expense. An allowance for doubtful accounts of
$50,414 and $30,000 was recorded at May 31, 1999 and 1998,
respectively.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined by the first-in first-out method.
26
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Property, plant and equipment - Property, plant and equipment are
stated at cost. Depreciation of property, plant and equipment is
provided using primarily the straight-line method over the estimated
useful lives of the assets of 2 to 12 years. Amortization of leasehold
improvements is provided using the straight-line method over the
estimated useful lives of the assets or the initial term of the lease,
whichever is shorter.
Intangible assets - Intangible assets are comprised of patents in
process. Patents are amortized over the life of the patent as they are
received.
Income taxes - The Company accounts for income taxes on the liability
method. The liability method recognizes the amount of tax payable at
the date of the financial statements as a result of all events that
have been recognized in the financial statements, as measured by the
provisions of currently enacted tax laws and rates. The accumulated tax
effect of all temporary differences is presented as deferred federal
income tax assets and liabilities within the balance sheet.
Profit sharing plan - The Company has a profit sharing plan, which
qualifies under Section 401(k) of the Internal Revenue Code. Under the
plan, eligible U.S. employees may contribute up to 15% of their
compensation with a Company match, at its option, up to 3% of the
employees' total compensation. The Company also has a profit sharing
plan which covers eligible Canadian employees. The Company is required
to fund out of profits, a minimum contribution of $100 (CDN) per
participant. The Company recorded $5,202 and $4,819 of profit sharing
expense in fiscal 1999 and 1998, respectively.
Foreign currency - The financial statements and transactions of the
Company's Canadian division are maintained in Canadian dollars and
remeasured into the Company's functional currency (U.S. dollars) in
accordance with Statements of Financial Accounting Standards (SFAS) No.
52. Non-monetary balance sheet items are remeasured at historical
exchange rates. Revenue and expenses are remeasured at the average
exchange rate for each fiscal year.
Fair value of financial assets and liabilities - The Company estimates
the fair value of its monetary assets and liabilities based upon the
existing interest rates related to such assets and liabilities compared
to current market rates of interest for monetary assets and liabilities
of similar nature and degree of risk. The Company estimates that the
carrying value of all of its monetary assets and liabilities
approximates fair value as of May 31, 1999.
27
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Concentration of credit risk - Financial instruments that potentially
subject the Company to concentration of credit risk consist primarily
of trade receivables. The Company sells to both clinical and industrial
customers who traditionally pay in the 60 to 90 day range. However,
this customer base is very stable and the Company has experienced a
very low level of uncollectible accounts in the past. Concentration of
credit risk with respect to trade receivables is limited because a
relatively large number of customers are spread throughout the United
States and Canada. The Company controls credit risk through credit
approvals, credit limits, and monitoring procedures. The Company
performs credit evaluations for all new customers and requires advance
payments if deemed necessary.
Use of 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 disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported periods. Actual results may differ from such estimates.
NOTE 3 - INVENTORIES
Inventories consist of:
May 31,
------------------------------------
1999 1998
---------------- ----------------
Raw materials $ 875,434 $ 982,159
Work-in-process 55,388 31,013
Finished goods 739,637 903,646
---------------- ----------------
$ 1,670,459 $ 1,916,818
================ ================
28
<PAGE>
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
May 31,
------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Manufacturing equipment $ 2,628,236 $ 2,549,702
Office furniture and equipment 1,211,889 1,189,254
Service vehicles 17,754 19,756
Leasehold improvements 743,120 738,464
---------------- ----------------
4,600,999 4,497,176
Less accumulated depreciation and
amortization 3,147,777 2,742,183
---------------- ----------------
$ 1,453,222 $ 1,754,993
================ ================
</TABLE>
NOTE 5 - NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consisted of unsecured demand notes at
prime rate plus 1% (8.75% and 9.5% at May 31, 1999 and 1998,
respectively) totaling $247,551 at May 31, 1999 and 1998.
These related party notes are due upon demand based upon the original
promissory notes, and are, therefore, classified within current
liabilities. However, the Company only anticipates repaying these notes
if operating results in fiscal 2000 substantially exceed management's
estimates. These notes are subordinated to the debt of the Company's
primary lender.
NOTE 6 - LINE OF CREDIT
The Company has a $2,500,000 revolving line of credit with its primary
lender, which is due November 20, 2000. The line of credit is at prime
rate plus 2.0% or 9.75 % and 10.5% at May 31, 1999 and 1998,
respectively, and is collateralized by accounts receivable and
inventory. The amount borrowed was $1,714,450 and $1,987,548 at May 31,
1999 and 1998, respectively.
29
<PAGE>
NOTE 7 - LONG-TERM DEBT
<TABLE>
Borrowings consisted of the following:
May 31,
--------------------------------
1999 1998
--------------- -------------
<S> <C> <C>
Norwest Business Credit, Inc.:
Note payable through November 2000 in monthly
installments of $8,334 plus interest of prime
plus 2%; collateralized by substantially all
of the Company's equipment. $ 158,314 $ 258,322
JP Wilsonville, LLC:
Unsecured note payable due in monthly
installments of $2,202, including interest
of 12% for 36 months and unpaid balance
due April 1, 2000. 64,770 82,268
Les Leno:
Note payable through May 2005 in yearly
principal installments of $10,000, interest
at 6% related to termination settlement
with former president. 60,000 70,000
Various vendors:
Unsecured notes payable with 6% interest due
in installments through February 2001. 330,679 437,406
------------- -------------
613,763 847,996
Less current portion (355,852) (248,018)
------------- -------------
$ 257,911 $ 599,978
============= =============
</TABLE>
Maturities of long-term debt, including the long-term debt due related
parties disclosed in Note 9, are as follows:
Years ending May 31,
2000 $ 433,743
2001 276,896
2002 10,000
2003 10,000
2004 10,000
Thereafter 10,000
----------------
$ 750,639
================
30
<PAGE>
NOTE 7 - LONG-TERM DEBT - (continued)
The various debt agreements with Norwest Business Credit, Inc. contain
covenants, which require the Company, among other things, to meet
certain objectives with respect to debt service coverage and net
income. In addition, the agreements place certain limitations on
dividend payments, capital expenditures, lease rental payments, and
other outside borrowings. The Company is either in compliance with all
debt covenants or has been granted waivers where applicable.
NOTE 8 - LONG-TERM DEBT DUE RELATED PARTIES Long-term debt due related
parties consisted of the following:
Various - Related parties:
Unsecured notes payable with 6% interest due
in installments through February 2001. $ 51,503 $ 71,211
Ethel Wildt:
Unsecured note payable with interest at
prime plus 1%, due November 1998. - 6,383
Mary Brown:
Unsecured note due in installments of $2,425
including interest through May 2000,
related to purchase of common stock. 27,873 53,610
Ronald Torland:
Unsecured demand note with interest at 10%
due January 1999 to a related party. 10,000 10,000
Unsecured note payable with interest at
prime plus 1%, due December 1999. 47,500 47,500
----------- -----------
136,876 188,704
Less current portion (77,891) (73,507)
----------- -----------
$ 58,985 $ 115,197
=========== ===========
31
<PAGE>
NOTE 9 - STOCKHOLDERS' EQUITY
Class A Convertible Preferred Shares - In fiscal 1993, the Board of
Directors adopted a resolution authorizing 7,500 Class A Convertible
Preferred Shares under the following terms and conditions:
o Stated Value - $100 per share.
o Conversion Feature - Convertible by the holder into Common Shares
at a rate of one Common Share for each $2.80 of preferred share
stated value.
o Dividends - Wells Fargo Bank of Oregon, N.A. prime rate plus 1.5%
cumulative, annually, payable when and as declared by the Board of
Directors. Such dividends are accreted in periods when the
declaration is not made.
o Redemption - Redeemable for cash, in whole or in part, at 100% of
stated value plus accrued and unpaid dividends to redemption date,
on a date determined by the Board of Directors.
Liquidation Preference - Upon any liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary, holders of
Class A Convertible Preferred Shares shall have preference and priority
over Common Shares, Class B Common Shares, Class D Common Shares, and
other class of stock ranking junior to the Class A Convertible
Preferred Shares for payment out of the assets of the Company or
proceeds thereof available for distribution to stockholders of $100 per
share plus all accrued and unpaid dividends. The holders of Class A
Convertible Preferred Shares shall not be entitled to any other
payments.
Holders of issued and outstanding Common Shares have preference over
Class B Common Shares upon voluntary or involuntary liquidation of the
Company only to the extent that holders of Common Shares shall be paid
par value of such shares prior to any distributions being made to
holders of Class B Common Shares. Holders of Class B Common Shares will
then receive par value for each share held and a sum equal to the
distribution to be made on each Common Share.
Pre-Emptive Rights - Under the terms of the amended Certificate of
Incorporation of PML, the holders of shares of any class of stock of
PML are not entitled to cumulative voting nor preferential or
pre-emptive right to subscribe for, purchase, or receive any shares of
any class of PML stock except that holders of Class B Common Shares
only. In addition, PML is not allowed to sell or offer to sell any
Class B Common Shares without prior approval of the holders of a
majority of the issued and outstanding Class B Common Shares. Each
Class B Common Share may be converted to one Common Share at the
discretion of the Class B shareholder.
32
<PAGE>
NOTE 9 - STOCKHOLDERS' EQUITY - (continued)
Stock Option Plans - Effective September 6, 1994, the Board of
Directors adopted the "1994 Stock Option Plan" and the "1994 Stock
Option Plan for Non-employee Directors" (collectively, the "Plans").
The Plans authorize 650,000 shares be available for grant to eligible
individuals and entities as defined by the Plans. The term of each
incentive stock option is 10 years or less as determined by the Plan
administrator. Options granted under the Plans generally vest over four
to five years beginning one year after the date of grant, and expire
ten years or less after the date of the grant. During fiscal 1999, the
company did not grant any stock options During fiscal 1998, the Company
granted 80,000 options, expiring within ten years or less depending on
the specific agreements, at option prices of $0.594 to $0.625 per
share. Only 3,750 of all options granted to date have been exercised.
A summary of the status of the options granted under the Plans at May
31, 1999 and 1998, together with changes during the periods then ended,
are following. Options exercisable at May 31, 1999 and 1998 were
229,357 and 173,179, respectively.
Weighted
Average
Options Exercise Price
-------------- --------------
Outstanding at May 31, 1997 350,714 0.62
Options granted at market price 80,000 0.60
Options exercised (3,750) 0.50
Options canceled or expired (42,857) 1.03
-------------- --------------
Outstanding at May 31, 1998 384,107 0.53
Options granted at market price - -
Options exercised - -
Options canceled or expired - -
-------------- --------------
Outstanding at May 31, 1999 384,107 0.53
The Company applies APB Opinion 25 and related interpretations in
accounting for the Option Plans. Accordingly, no significant
compensation cost has been recognized in the financial statements for
options granted under the Plans, as options are granted at or proximate
to the fair market value at time of grant. Had compensation cost
associated with the Plans been determined based on the fair market
value at the grant date for options under the Plans, consistent with
the methodology of Statement of Financial Accounting Standards (SFAS)
No. 123, the Company's net income would have been reduced to the pro
forma amounts indicated below:
33
<PAGE>
NOTE 9 - STOCKHOLDERS' EQUITY - (continued)
<TABLE>
1999 1998
------------- -------------
<S> <C> <C>
Net income (loss), as reported $ (213,601) $ 38,930
Net income (loss), pro forma $ (310,998) $ 2,067
Basic earnings (loss) per share, as reported $ (0.13) $ (0.01)
Diluted earnings (loss) per share, as reported $ (0.13) $ (0.01)
Basic earnings (loss) per share, pro forma $ (0.18) $ (0.02)
Diluted earnings (loss) per share, pro forma $ (0.18) $ (0.02)
</TABLE>
The effects of applying SFAS 123 to pro forma disclosures for 1999 and
1998 are not likely to be representative of the effects on reported
income for future years, because options vest over several years and
additional awards generally are made each year.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grant in 1999 and 1998: expected
volatility 144%, expected dividend yield of 0%; risk-free rate of
return of 5.6%; and expected lives of five years.
Total fair value of options granted was computed to be $45,301 for the
year ended May 31, 1998. No options were granted for the year ended May
31, 1999.
The following table summarizes information about options outstanding at
May 31, 1999.
Weighted
Weighted Average
Exercise Number of Average Remaining
Price Range Shares Price Contractual Life
- ------------------------- -------------- -------------- ------------------
$0.3125 - $0.625 359,107 $ 0.47 1.84
$1.50 25,000 $ 1.50 5.32
Stock Bonus - No stock bonuses were accrued or paid in the fiscal years
ended May 31, 1999 or May 31, 1998.
34
<PAGE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company leases certain laboratories, facilities, and equipment
under noncancelable long-term lease arrangements which also require the
Company to pay executory costs such as property taxes, maintenance, and
insurance. The laboratories, facilities, and equipment leases are
operating and capital leases which expire in various years through
2004. Generally, such operating leases include renewal options ranging
from one to seven years. Rental expense for operating leases was
$563,148 and $593,786 in fiscal 1999 and 1998, respectively. Certain of
the operating leases represent related party transactions. See note 11.
The future expected rental commitments as of May 31, 1999, for all
long-term noncancellable operating leases are as follows:
<TABLE>
Years ending Capital Operating
May 31, Leases Leases
-------------- -------------- -----------------
<S> <C> <C> <C>
2000 $ 81,358 $ 455,021
2001 55,471 351,977
2002 - 293,659
2003 - 282,000
2004 - 32,702
Thereafter - -
-------------- -----------------
Total 136,829 $ 1,415,359
=================
Less amount representing interest (14,531)
--------------
Present value of capital lease obligations 122,298
Less current portion (70,153)
--------------
Long-term portion $ 52,145
==============
</TABLE>
NOTE 11 - INCOME TAXES
Deferred income taxes are provided for temporary differences between
the financial reporting bases and the tax bases of assets and
liabilities. Deferred tax assets result primarily from the recording of
certain expenses which currently are not deductible for tax purposes,
tax credit carryforwards, and Canadian net operating loss
carryforwards. Deferred tax liabilities result principally from the
use, for tax purposes, of accelerated depreciation.
35
<PAGE>
NOTE 11 - INCOME TAXES (continued)
A reconciliation between the statutory federal income tax (benefit)
expense and effective federal income tax (benefit) expense is as
follows:
<TABLE>
May 31,
-----------------------------------------------------------
1999 1998
---------------------------- ----------------------------
Amount % Amount %
--------------- --------- --------------- ----------
<S> <C> <C> <C> <C>
Federal statutory expense at 34% $ (89,794) 34% $ 29,223 34%
Increase (decrease) in tax resulting from:
Nondeductible permanent differences 4,539 -2% 12,194 14%
State and Canadian income taxes 34,757 -13% 5,604 7%
--------------- --------- --------------- ----------
$ (50,498) 19% $ 47,021 55%
=============== ========= =============== ==========
</TABLE>
The components of the Company's income tax expense (benefit) are as
follows:
May 31,
----------------------------------
1999 1998
--------------- ---------------
Current tax expense $ 17,898 $ 4,771
Deferred tax expense (68,396) 42,250
--------------- ---------------
$ (50,498) $ 47,021
=============== ===============
The domestic and foreign components of income (loss) before income
taxes are as follows:
May 31,
----------------------------------
1999 1998
--------------- ---------------
Domestic $ (118,009) $ (152,602)
Foreign (146,090) 238,553
--------------- ---------------
Income before income taxes $ (264,099) $ 85,951
=============== ===============
36
<PAGE>
NOTE 11 - INCOME TAXES (continued)
At May 31, 1999 and 1998, the significant components of the Company's
deferred tax assets and liabilities are as follows:
<TABLE>
May 31,
---------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
Current deferred tax assets:
Vacation accrual $ 35,600 $ 76,944
Allowance for doubtful accounts 17,100 11,580
Net operating loss carryforwards 102,000 148,905
Other 54,300 39,175
--------------- --------------
$ 209,000 $ 276,604
=============== ==============
Non-current deferred tax asset:
Net operating loss carryforwards $ 257,000 $ 117,284
Non-current deferred tax liability:
Depreciation differences between
financial and tax accounting (121,000) (117,284)
--------------- --------------
$ 136,000 $ -
=============== ==============
</TABLE>
Management periodically assesses the need for valuation allowances as
they relate to deferred tax assets. Management has concluded that a
valuation allowance is not necessary given the estimates of future
earnings and the expected timing of temporary difference reversals.
The Company files U.S. and Canadian tax returns on the results of its
operations conducted in each country. At May 31, 1999, the Company has
available approximately $1,055,157 of unused operating loss
carryforwards, to offset domestic taxable income, which expire in 2010
and 2019.
37
<PAGE>
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company has entered into a Technology License Agreement with
Definitive Diagnostics, Inc. ("DDI"). Certain stockholders and officers
of the Company are also stockholders and officers of DDI. Under the
terms of the agreement, which began on June 1, 1992, was modified on
February 28, 1997, and extends over seven years from the original date,
the Company manufactures and markets the products developed by DDI and
paid a royalty of $.50 per unit through May 31, 1997. Effective June 1,
1997, royalties range from $.15 to $.35 per unit until $500,000 has
been paid, and then will be $.00 to $.15 per unit for the remaining
life of the agreement. Total royalties of $11,414 and $11,403 were
incurred in fiscal 1999 and 1998, respectively.
The Company also has related party debt, which is separately disclosed
in the balance sheet and in notes 6 and 7. In addition to the specific
notes identified by related party name, the Company has $71,211 of
notes payable with a group of shareholders. When the Company had a cash
shortage in fiscal 1996, a group of shareholders bought out some
accounts payable liabilities for the Company and then accepted five
year notes at 6% interest due in installments through February 2001.
The Company leases laboratories, office facilities and equipment from
stockholders under three operating leases. The monthly obligations
under the leases were $5,000 per month on a month-to-month basis, which
was discontinued in June 1997, $5,500 per month, expiring May 31, 1999;
and $1,000 per month expiring May 31, 2000. Total rental expense paid
to stockholders for all leases was approximately $78,000 and $80,500 in
fiscal 1999 and 1998, respectively.
One of the leases the Company entered into was a five-year equipment
lease agreement ("Agreement") with DDI, commencing June 1, 1992. Under
the Agreement, the Company is required to pay rent in the amount of
$1,000 per month for four months, $2,500 per month for the following
eight months, $4,000 per month for the following 12 months, and $5,500
per month for the remaining 36 months. Upon termination of the
Agreement in 2000, the Company may renew the lease at $5,500 per month
for 12 months or purchase the equipment at its fair market value.
38
<PAGE>
NOTE 13 - FOREIGN OPERATIONS
The following table indicates the relative amounts of net sales,
operating income, and identifiable assets of the Company by geographic
area during fiscal years 1999 and 1998.
<TABLE>
1999 1998
------------------- -----------------
<S> <C> <C>
Net sales:
United States $ 8,263,747 $ 8,223,118
Canada 5,554,816 5,712,740
------------------- -----------------
Total net sales $ 13,818,563 $ 13,935,858
=================== =================
Operating income:
United States $ 88,576 $ 74,073
Canada (33,576) 346,763
------------------- -----------------
Total operating income $ 55,000 $ 420,836
=================== =================
Identifiable assets:
United States $ 3,975,425 $ 4,649,983
Canada 1,738,553 1,868,506
------------------- -----------------
Total identifiable assets $ 5,713,978 $ 6,518,489
=================== =================
</TABLE>
Net currency transaction losses from Canada were $30,512 and $61,086 in
1999 and 1998, respectively.
Sales between geographic areas and export sales are not material.
The Company maintains separate accounts for both the United States and
Canada down to the Gross Profit level. However, some operating,
selling, general and administrative expenses are captured only on a
corporate level. Therefore, the Company has had to make substantial use
of estimates and allocations in order to split its operating income on
a geographic basis. The numbers shown represent management's best
estimate of total operating income on a segment basis.
39
<PAGE>
NOTE 14 - EARNINGS PER SHARE CALCULATIONS
<TABLE>
Information needed to calculate basic earnings per share:
For the year ended May 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Numerator:
Net income $ (213,601) $ 38,930
Preferred stock dividends accreted (47,236) (49,499)
---------------- ----------------
$ (260,837) $ (10,569)
================ ================
Denominator:
Average number of common shares
outstanding $ 1,780,441 $ 1,778,822
Average number of Class B common
stock outstanding 211,551 211,551
---------------- ----------------
Average shares used in basic EPS calculation $ 1,991,992 $ 1,990,373
================ ================
Basic (loss) income per share $ (0.13) $ (0.01)
================ ================
Information needed to calculate diluted earnings per share:
For the year ended May 31,
1999 1998
---------------- ----------------
Numerator
Basic income $ (260,837) $ (10,569)
Add back preferred stock dividends accreted* - -
---------------- ----------------
Diluted (loss) income after add back of
accreted dividends $ (260,837) $ (10,569)
================ ================
Denominator
Average number of common shares outstanding 1,780,441 1,778,822
Average number of Class B common stock
outstanding 211,551 211,551
Effect of common stock equivalents* - -
Effect of preferred convertible stock* - -
---------------- ----------------
Average shares used in diluted EPS calculation 1,991,992 1,990,373
================ ================
Diluted (loss) income per share $ (0.13) $ (0.01)
================ ================
</TABLE>
40
<PAGE>
NOTE 14 - EARNINGS PER SHARE CALCULATIONS - (continued)
*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. In fiscal 1999, amounts excluded were $47,236 of accreted
dividends, 99,117 shares of common stock equivalents and 176,786 shares
of preferred convertible stock. In fiscal 1998, amounts excluded were
$49,499 of accreted dividends, 71,890 shares of common stock
equivalents and 176,786 shares of preferred convertible stock.
41
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-38903) of PML, Inc. of our report dated August
21, 1998 relating to the financial statements, which appears in this Annual
Report on Form 10-KSB.
PricewaterhouseCoopers LLP
Portland, Oregon
September 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 571
<SECURITIES> 0
<RECEIVABLES> 2,075,796
<ALLOWANCES> 30,414
<INVENTORY> 1,670,459
<CURRENT-ASSETS> 4,060,915
<PP&E> 4,600,999
<DEPRECIATION> 3,147,777
<TOTAL-ASSETS> 5,782,374
<CURRENT-LIABILITIES> 4,676,321
<BONDS> 369,041
0
738,296
<COMMON> 19,920
<OTHER-SE> (21,204)
<TOTAL-LIABILITY-AND-EQUITY> 5,782,374
<SALES> 13,818,563
<TOTAL-REVENUES> 13,818,563
<CGS> 8,788,331
<TOTAL-COSTS> 8,788,331
<OTHER-EXPENSES> 4,983,576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 310,755
<INCOME-PRETAX> (264,099)
<INCOME-TAX> (50,498)
<INCOME-CONTINUING> (213,601)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (213,601)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
