UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2000
Commission File No. 0-21816
PML, INC.
(Name of small business issuer in its charter)
Delaware 93-1089304
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
27120 SW 95TH Avenue
Wilsonville, Oregon 97070
(Address of principal executive offices, including zip code)
(503) 570-2500
(Issuer's telephone number)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
As of October 11, 2000 there were 1,785,441 shares of Common Stock, $0.01 par
value, outstanding and 211,551 Class B Common Shares, $0.01 par value,
outstanding.
<PAGE>
PML, INC.
Index
Part I. Financial Information
Item 1. Financial Information 2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussions and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
----------------
PML, INC.
For the Fiscal Quarter Ended
August 31, 2000
2
<PAGE>
<TABLE>
PML, INC.
CONSOLIDATED BALANCE SHEETS Unaudited
August 31, May 31,
Assets 2000 2000
--------------- ---------------
<S> <C> <C>
Current Assets
Cash $ 66,225 $ 298,382
Trade accounts receivable, less allowance for doubtful 1,781,797 1,871,058
accounts of $57,954 and $62,506
Inventory 1,668,045 1,510,136
Deferred income taxe asset 312,673 316,000
Prepaid expenses and other 83,339 29,979
--------------- ---------------
Total Current Assets 3,912,079 4,025,555
--------------- ---------------
Property, plant and equipment - net 2,077,386 1,980,909
Intangible assets - net 31,020 30,650
Other assets 4,454 33,296
--------------- ---------------
Total Assets $ 6,024,939 $ 6,070,410
=============== ===============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,200,924 $ 1,196,487
Accrued Payroll and Related 541,177 416,461
Other accrued liabilities 176,988 350,212
Bank line of credit 1,623,944 1,597,618
Current portion capital lease obligations 45,589 52,145
Current portion of borrowings - related parties 82,226 90,949
Current portion of borrowings 205,258 291,218
--------------- ---------------
Total Current Liabilities 3,876,106 3,995,090
--------------- ---------------
Capital lease obligations, less current portion 41,654 -
Borrowings - related parties, less current portion 237,266 237,266
Borrowings, less current portion 565,087 572,088
--------------- ---------------
Total Borrowings. less current portion 844,007 809,354
--------------- ---------------
Deferred Income Tax 135,000 135,000
--------------- ---------------
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 801,331 787,644
Common stock, $.01 par value; authorized 2,500,000 shares,
issued and outstanding 1,780,441 shares 17,854 17,854
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 148,365 148,365
Retained earnings 200,160 174,987
--------------- ---------------
Total Stockholders' Equity 1,169,826 1,130,966
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 6,024,939 $ 6,070,410
=============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For The Three Months Ended
August 31,
2000 1999
-------------- --------------
Net sales $ 3,240,530 $ 3,540,405
Cost of goods sold 1,975,886 2,215,524
-------------- --------------
Gross profit 1,264,644 1,324,881
Operating expenses 1,155,915 1,158,858
-------------- --------------
Operating income 108,729 166,023
Other (income)/expense
Interest expense 58,695 70,771
Other (11,740) 13,837
-------------- --------------
Total other (income)/expense 46,955 84,608
-------------- --------------
Income before income taxes 61,774 81,415
Income tax expense 22,914 28,496
-------------- --------------
Net income $ 38,860 $ 52,919
============== ==============
Basic income per share $ 0.01 $ 0.02
============== ==============
Diluted income per share $ 0.01 $ 0.02
============== ==============
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
PML, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Class A Class B
Convertible Common Common
Preferred Shares Shares Shares Additional Retained
------------------- -------------------- ----------------- Paid-in Earnings
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT Capital (Deficit) Total
------- ---------- ---------- --------- -------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1998 4,950 $ 691,060 1,780,441 $ 17,804 211,551 $ 2,116 $ 146,540 $ 93,092 $ 950,613
Preferred Stock dividends accreted 47,236 (47,236) -
Net loss - (213,601) (213,601)
--------- ---------- ---------- --------- -------- -------- --------- ---------- -----------
Balance, May 31, 1999 4,950 $ 738,296 1,780,441 $ 17,804 211,551 $ 2,116 $ 146,540 $(167,744) $ 737,012
========= ========== ========== ========= ======== ======== ========= ========== ===========
Balance, May 31, 1999 4,950 $ 738,296 1,780,441 $ 17,804 211,551 $ 2,116 $ 146,540 $(167,744) $ 737,012
Preferred Stock dividends accreted 49,348 (49,348) -
Stock options exercised 5,000 50 1,825 1,875
Net Income - 392,079 392,079
--------- ---------- ---------- --------- -------- -------- --------- ---------- -----------
Balance, May 31, 2000 4,950 $ 787,644 1,785,441 $ 17,854 211,551 $ 2,116 $ 148,365 $ 174,987 $ 1,130,966
========= ========== ========== ========= ======== ======== ========= ========== ===========
Balance, May 31, 2000 4,950 $ 787,644 1,785,441 $ 17,854 211,551 $ 2,116 $ 148,365 $ 174,987 $ 1,130,966
Preferred Stock dividends accreted 13,687 (13,687)
Net Income 38,860 38,860
--------- ---------- ---------- --------- -------- -------- --------- ---------- -----------
Balance, August 31, 2000 4,950 $ 801,331 1,785,441 $ 17,854 211,551 $ 2,116 $ 148,365 $ 200,160 $ 1,169,826
========= ========== ========== ========= ======== ======== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
PML, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended
August 31,
2000 1999
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 38,860 $ 52,919
Adjustments to reconcile net income to
net cash provided by (used in) operating activities
Depreciation and amortization 90,085 90,585
Changes in:
Accounts receivable 89,261 144,981
Inventories (157,909) 106,024
Deferred income taxes 3,327 28,496
Other assets (25,750) 26,759
Accounts payable and accrued liabilities (44,071) (212,749)
------------- -------------
Total adjustments (45,057) 184,096
------------- -------------
Net cash from operating activities (6,197) 237,015
Cash Flows from Investing Activities
Purchase of property, plant and equipment (185,700) (44,908)
------------- -------------
Net cash from investing activities (185,700) (44,908)
Cash Flows from Financing Activities
Net borrowing under bank credit line 26,326 (57,199)
Proceeds from issuance of capital lease obligations 54,696 -
Repayment of capital lease obligations (19,598) (20,466)
Repayment of long-term debt (101,684) (81,713)
------------- -------------
Net cash from financing activities (40,260) (159,378)
------------- -------------
Net (decrease) increase in cash (232,157) 32,729
Cash at beginning of period 298,382 571
------------- -------------
Cash at end of period $ 66,225 $ 33,300
============= =============
Supplemental Disclosures
Interest paid $ 88,777 $ 83,439
Non Cash Items:
Preferred stock dividends accreted 13,687 11,775
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Financial Statements
The accompanying unaudited consolidated financial statements include the
accounts of PML, Inc. and its wholly-owned subsidiary, PML Microbiologicals,
Inc. The Company produces and sells diagnostic microbiology products used by
both clinical and industrial microbiologists throughout the United States and
Canada. In addition, the Company produces a wide variety of products on a
private label basis for medical diagnostics companies worldwide.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission"). While these financial
statements reflect all necessary, normal and recurring adjustments in the
opinion of management required to present fairly, in all material respects, the
financial position, results of operations and cash flows of the Company and its
subsidiary at August 31, 2000, 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, 2000, contained in the Company's Form 10-KSB, filed with the
Commission pursuant to the Securities Exchange Act of 1934. Operating results
for the three month period ended August 31, 2000 are not necessarily indicative
of the results that may be expected for the full year.
Note 2. Net Earnings Per Share
During the quarter ended February 28, 1998 the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). The
effect of equity instruments is excluded whenever the impact on earnings per
share would be anti-dilutive.
Information Needed to Calculate Basic Earnings Per Share
For the Three Months Ended
August 31,
2000 1999
------------ ------------
Net income $ 38,860 $ 52,919
Preferred stock dividends accreted (13,687) (11,775)
------------ ------------
Net income after accretion of dividends $ 25,173 $ 41,144
============ ============
Average number of common shares outstanding 1,785,441 1,780,441
Average number of Class B common stock outstanding 211,551 211,551
------------ ------------
Average shares used in basic EPS calculation 1,996,992 1,991,992
============ ============
Basic income per share $ 0.01 $ 0.02
============ ============
7
<PAGE>
Information Needed to Calculate Diluted Earnings Per Share
For the Three Months Ended
August 31,
2000 1999
------------ ------------
Net income after accretion of dividends $ 25,173 $ 41,144
Add back preferred stock dividends accreted* - -
------------ ------------
Diluted income after add back of accreted dividends $ 25,173 $ 41,144
============ ============
Average number of common shares outstanding 1,780,441 1,780,441
Average number of Class B common stock outstanding 211,551 211,551
Effect of common stock equivalents 188,098 7,903
Effect of preferred convertible stock* - -
------------ ------------
Average shares used in diluted EPS calculation 2,185,090 1,999,895
============ ============
Diluted income per share $ 0.01 $ 0.02
============ ============
* To the extent that the effect of preferred stock dividends accreted, common
stock equivalents, and the preferred convertible stock are anti-dilutive,
they are not included in the diluted earnings per share calculation. For
the three months ended August 31, 2000, amounts excluded were $13,687 of
accreted dividends and 176,786 shares of preferred convertible stock. For
the three months ended August 31, 1999, amounts excluded were $11,775 of
accreted dividends and 176,786 shares preferred convertible stock.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward looking statements that involve a number of
risks and uncertainties. Future demand for the Company's products is inherently
subject to supply and demand conditions, and to the unpredictable decisions of
other market participants. There can be no assurance that sales will increase
generally or within any specified product line or that the Company's margins
will stabilize or improve. Other elements that could cause results to differ
materially include competitive pressures and factors listed from time to time in
the Company's reports to the Securities and Exchange Commission, including, but
not limited to, this report on Form 10-QSB.
Canadian Exchange
PML is a US incorporated company but also has several significant operating
locations in Canada. Since management has previously determined that the
functional currency of the Canadian operations is the US dollar, it must
consolidate its foreign operations by using the appropriate foreign exchange
rate in accordance with generally accepted accounting principles applied on a
consistent basis. Unlike most of the Company's US competitors, the Company is in
a somewhat unique position in that it manufactures in both the US and Canada and
regularly receives approximately 40% of its revenues from Canadian sales. In the
five fiscal years ending in 1998, the exchange rate between Canadian and US
currency had been quite stable and did not fluctuate 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, the adverse or improved condition of the
Canadian exchange rate is expected to continue to have an impact on the
consolidated financial results of the Company.
8
<PAGE>
For the quarter ended August 31, 2000 and August 31, 1999, the average
exchange rate was $.676 and $.671 respectively. This improvement during the
quarter ended August 31, 2000 resulted in a Balance Sheet write up of
approximately $10,600.
Results of Operations
Three Months Ended August 31, 2000 Compared to August 31, 1999
Income before taxes for the three months ended August 31, 2000 showed a
decrease in pre-tax profits of $19,641 from the three-month period ended August
31, 1999. While sales declined between the two periods, cost of goods sold as a
percentage of sales improved to 60.9% in the current period compared to 62.6%
for the comparable period ended August 31, 1999. The current cost of goods sold
percentage of 60.9% reflects a stabilizing of cost of goods sold when compared
to the fourth quarter of Fiscal 2000 of 60.5% and an improvement over Fiscal
2000 cost of goods sold percentage of 61.2%.
Operating expenses decreased by $2,943 over the first quarter of last year
demonstrating management's continued priority of making the best use of
operating expenses; but as a percentage of sales, is 35.7% compared to 32.7% for
the same period of fiscal 2000 and is representative of the decline in sales for
the same period of fiscal 2000.
Other expenses decreased by $37,653 over the previous year's first quarter
as a result of the Canadian translation effect on the Company's Canadian assets
and liabilities, which resulted in a $25,577 reduction in exchange costs. In
addition, interest expense decreased by $12,076 as a result of lower borrowing
levels.
The following table presents the percentage relationship that certain items in
the Company's Consolidated Statements of Operations bear to net sales for the
periods indicated.
Percent of Sales
Three Months Ended August 31,
-----------------------------
2000 1999
---- ----
Net Sales 100.0% 100.0%
Cost of Goods Sold 60.9 62.6
----- -----
Gross Profit 39.1 37.4
Operating Expenses 35.7 32.7
----- -----
Operating Income 3.4 4.7
Other Expense 1.4 2.4
----- -----
Income before income taxes 2.0 2.3
Income tax expense 0.7 0.8
----- -----
Net Income 1.2% 1.5%
===== =====
Liquidity and Capital Resources
The Company has financed its operations over the years principally through
funds generated from operations and bank loans. At August 31, 2000 the Company
had positive working capital of $35,973 compared with positive working capital
of $30,465 at May 31, 2000. The ratio of current assets to current liabilities
was 1.01 at August 31, 2000 compared to 1.01 at May 31, 2000. Quick liquidity
(current assets less inventories to current liabilities) was 0.58 at August 31,
2000 and .63 at May 31, 2000. The twelve-month average collection period for
trade receivables was 53.0 days at August 31, 2000 compared with 53.7 days at
May 31, 2000.
9
<PAGE>
Net cash used in operating activities was $6,197 in the first three months
of Fiscal 2001 compared to net cash provided by operating activities of $237,015
in the same period of Fiscal 2000. Net cash used in investing activities was
$185,700 in the first three months of Fiscal 2001, compared with $44,908 used by
the Company in investing activities in the same period of Fiscal 2000. These
expenditures were mainly for manufacturing facility improvements and equipment
purchases in Toronto, Canada. Financing activities including borrowing under
existing credit line, new capital lease transactions and repayment of existing
debt obligations used cash of $40,260 in the first three months ended August 31,
2000 as the net result of repayments on capital lease obligations and long-term
debt of $121,282. This compares to cash used of $159,378 from financing
activities in the same period ended August 31, 1999.
The Company has a line of credit that has a current maturity date of
November 30, 2000. This line of credit is secured with substantially all of the
Company's assets. The amount available under the line of credit is based upon
80% to 85% of the eligible accounts receivable and 30% to 40% of eligible
inventory at the end of each reporting period, not to exceed $2.5 million. This
loan will be repaid primarily out of the Company's receivable collections and
other cash provided by operating activities. As of August 31, 2000 the Company
was in compliance with all operating covenants required by its lender.
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. Management can provide no assurances
that future financing will be available on terms acceptable to the Company or at
all. Without such future financing, the Company's ability to finance its growth
will be limited and its revenues and financial condition may be affected
materially and adversely.
The Company's total debt structure at August 31, 2000 is as follows:
<TABLE>
<CAPTION>
Long-Term Current Portion
--------------- ---------------
<S> <C> <C>
Revolving credit at prime plus 2.0%, due November 30, 2000 $ $ 1,623,944
Note payable at prime plus 2.0%, due November 30, 2000 33,304
Note payable at 12%, due April 2001 39,744
Capital Lease obligations, due January 2001 41,654 45,589
Note payable at 6%, due May 2005 40,000 10,000
Note payable at prime less .25%, due May 1, 2010 525,087 28,005
Trade A/P converted to notes payable at 6%, due February 2001 94,206
--------------- ---------------
Total Bank and Term debt 606,741 1,874,792
Notes payable to related parties 237,266 82,226
--------------- ---------------
Total long and short term debt $ 844,007 $ 1,957,018
=============== ===============
</TABLE>
10
<PAGE>
II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company occasionally has been made a party to incidental suits or other
legal actions arising in the ordinary course of its business. A claim has been
brought by one purchaser alleging deficient product quality against the Company
and a distributor. The Company has notified its product liability insurance
carrier, and that carrier is providing a defense of the company. This claim is
in a very preliminary stage, and the Company is unable to evaluate if it will
have any effect on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
quarter ended August 31, 2000. The Company will hold its annual meeting at its
Wilsonville, Oregon facility on October 24, 2000.
Item 6. Exhibits and Reports on Form 8-K
No 8-K filings were made during the quarter ended August 31, 2000.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PML, INC.
(Registrant)
Date: October 12, 2000 By: /s/ Kenneth L. Minton
---------------------------------
Kenneth L. Minton
President and Chief Executive Officer
11
