<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark one)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1995
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( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the Transition period from to
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Commission file number 0-17419
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PC ETCETERA, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3260705
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No).
462 Seventh Avenue, New York, NY 10018
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 736-5870
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,927,462 shares of common
stock as of August 14, 1995.
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PC ETCETERA, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
All references herein to numbers of shares of Common Stock and per share
amounts, and all references herein to dollar amounts that are based upon the
number of shares of Common Stock that are issued, give retroactive effect to the
one-for-five reverse split of the shares of Common Stock effectuated as of
April 19, 1995.
The financial information herein is unaudited. However, in the opinion of
management, such information reflects all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results of
operations for the periods being reported. Additionally, it should be noted that
the accompanying condensed consolidated financial statements do not purport to
contain complete disclosures in conformity with generally accepted accounting
principles.
The results of operations for the six months ended June 30, 1995 are not
necessarily indicative of the results of operations for the full year.
These condensed consolidated financial statements should be read in conjunction
with the Company's financial statements for the year ended December 31, 1994 and
the notes thereto.
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PC ETCETERA, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
<TABLE>
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $595,694
Accounts Receivable 1,616,938
Prepaid Expenses 114,433
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TOTAL CURRENT ASSETS 2,327,065
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PROPERTY AND EQUIPMENT:
Property and Equipment 1,632,252
Leasehold Improvements 235,015
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1,867,267
Less: Accumulated Depreciation and
Amortization (851,296)
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TOTAL PROPERTY AND EQUIPMENT 1,015,971
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OTHER ASSETS:
Security Deposits 87,510
Software and Related Patents (Net) 2,632,386
Goodwill (Net) 332,500
Other Assets (Net) 24,000
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TOTAL OTHER ASSETS 3,076,396
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TOTAL ASSETS $6,419,431
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $1,488,300
Payroll Taxes Payable 76,153
Deferred Revenue 137,628
Loans Payable - Others - Current Portion 517,672
Loans Payable - Affiliate - Current Portion 33,333
Loans Payable - Bank - Current Portion 107,794
Capital Equipment Obligations 195,319
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TOTAL CURRENT LIABILITIES 2,556,199
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OTHER LIABILITIES:
Loans Payable - Bank 194,621
Capital Equipment Obligations 48,315
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Total Liabilities 2,799,135
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STOCKHOLDERS' EQUITY:
Common Stock 29,275
Preferred Stock 1,000
Stock Warrants 50,000
Additional Paid in Capital - Common Stock 5,512,803
Additional Paid in Capital - Preferred Stock 1,127,000
Accumulated Deficit (3,099,782)
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TOTAL STOCKHOLDERS' EQUITY 3,620,296
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,419,431
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</TABLE>
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PC ETCETERA, INC.,AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
JUNE 30,
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $5,800,264 $5,447,049 $2,909,005 $2,886,503
Cost of Revenues 3,072,720 2,634,599 1,547,963 1,497,916
---------- ---------- ---------- ----------
Gross Profit 2,727,544 2,812,450 1,361,042 1,388,587
Selling, General and Administrative
Expenses 3,256,340 2,562,741 1,711,643 1,221,316
Research and Development 401,582 0 194,389 0
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Operating Income (loss) (930,378) 249,709 (544,990) 167,271
Interest (Expense) (net) (48,476) (52,785) (17,178) (31,402)
---------- ---------- ---------- ----------
Net Income (loss) Before Provision
for Income Taxes (978,854) 196,924 (562,168) 135,869
Provision for Income Taxes 0 11,250 0 0
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Net Income (Loss) ($978,854) $185,674 ($562,168) $135,869
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Earnings Per Share:
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Net Income (loss) ($0.390) $0.146 ($0.204) $0.107
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Weighted Average Number of Shares 2,510,795 1,267,462 2,760,795 1,267,462
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</TABLE>
<PAGE>
PC ETCETERA INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) ($978,854) $185,674
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH (USED IN) OPERATING ACTIVITIES:
Depreciation and Amortization 339,264 193,342
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) in Accounts Receivable (186,028) (570,538)
(Increase) in Prepaid Expenses (63,133) (17,236)
(Increase) Decrease in Security Deposits 6,640 (7,112)
Increase in Accounts Payable 227,293 197,783
Increase (Decrease) in Payroll Taxes Payable (12,039) 19,056
Increase (Decrease) in Deferred Revenue 34,900 (29,361)
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Net Cash (Used in) Operating Activities (631,957) (28,392)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (123,539) (269,047)
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Net Cash (Used In) Investing Activities (123,539) (269,047)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Loans Payable - Bank 71,329 200,000
Increase (Decrease) in Loans Payable - Other (82,503) 242,711
Repayment of Capital Equipment Obligations (179,908) (69,415)
Issuance of Stock (Net of Expenses Incurred) 1,464,495 0
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Net Cash Provided by Financing Activities 1,273,413 373,296
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NET INCREASE IN CASH AND CASH EQUIVALENTS 517,917 75,857
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 77,777 30,478
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CASH AND CASH EQUIVALENTS, END OF PERIOD $595,694 $106,335
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</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for
Interest (Net of Amount Capitalized) $65,835 $53,890
Income Taxes $0 $15,884
SUPPLIMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
A capital lease obligation of $50,672 and $18,145, respectively, was incurred
when the Company entered into new leases for new equipment during the period
ending June 30, 1995 and 1994, respectively.
The Company effectuated a 1 for 5 reverse stock split resulting in a
reclassification between common stock and paid in capital of $77,099.
1,000,000 shares of preferred stock were converted into 1,000,000 (post reverse
split) shares of common stock.
DISCLOSURE OF ACCOUNTING POLICY
For purposes of the Statement of Cash Flows, the Company considers all highly
liquid instruments with a maturity of three months or less to be cash
equivalents.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Revenues for the three and six months ended June 30, 1995 of
$2,909,005 and $5,800,264, respectively, represented an increase of 1% and 6%,
respectively, over revenues of $2,886,503 and $5,447,049, respectively, for the
three and six months ended June 30, 1994. The Company broadened and augmented
its personal computer support alternatives by introducing two new
service/product lines designed to enhance its established instructor led
training ("ILT") business. The first, contract consulting, is responsible for
providing personal computer personnel, on a temporary basis, to the Company's
client base. Consulting revenues were approximately $651,000 and $1,275,000,
respectively, for the three and six months ended June 30, 1995 as compared to
approximately $260,000 and $555,000, respectively for the three and six months
ended June 30, 1994, an increase of 151% and 130%, respectively. In addition,
the Company develops and offers computer-based training ("CBT") programs to
augment and supplement its live training classes. CBT programs were first
introduced to clients during the fourth quarter of 1993 and revenues from such
programs grew from approximately $83,000 and $104,000, respectively, for the
three and six months ended June 30, 1994 to approximately $370,000 and $819,000,
respectively, for the three and six months ended June 30, 1995. As discussed
below, the Company purchased substantially all of the assets of the ACE Division
("ACE") of Elron Electronic Industries, Ltd. effective July 1, 1994 and formed
PC Etcetera Israel Ltd. ("PC Israel"). The new Israeli operations generated
revenues of approximately $238,000 and $425,000, respectively (which is
included in the $370,000 and $819,000, respectively, above).
During the three and six months ended June 30, 1995, the Company
experienced a 16% and 23%, respectively, decrease in ILT revenues as compared to
the three and six months ended June 30, 1994. On a regional basis, revenues
(exclusive of those from the new service/product lines) from New York/East Coast
operations decreased by 44% and 37%, respectively, Canadian operations increased
by 21% and 21%, respectively, and San Francisco, California operations decreased
by 26% and 21%, respectively. Management attributes the decreased ILT revenue to
the fact that software vendors did not release many new versions of existing
software or any new operating systems during the six months ended June 30, 1995.
A new operating system entitled Windows 95 was originally scheduled for release
during the first quarter of 1994. The release date has been continually deferred
and is currently scheduled for August 24, 1995. Many of the Company's United
States clients have delayed any software conversions and training projects,
awaiting the release of Windows 95. Canadian revenues increased due primarily to
several software application conversion or upgrade projects within existing
clients. Increased competition in both New York and San Francisco was also a
factor in the decreased revenues for such regions.
The Company's cost of revenues for the three and six months ended June
30, 1995 was 53% of revenues as compared to 52% and 48%, respectively, of
revenues for the three and six months ended June 30, 1994. The Company's new
service/product lines do not follow the same trends in cost of revenues as the
ILT business. For example, cost of revenues for contract consulting was 68% and
69%, respectively, of revenues for the three and six months ended June 30, 1995,
respectively. Such higher percentage reflects the greater compensation paid to
consultants based upon their higher skill level; however, all other variable
costs associated with classroom training do not pertain to consulting.
Selling, general and administrative expenses for the three and six
months ended June 30, 1995 of $1,711,643 and $3,256,340, respectively, were
approximately 27% and 40%, respectively, higher than the selling, general and
administrative expenses of $1,221,316 and $2,562,741, respectively, experienced
for the three and six months ended June 30, 1994. Included in the 1995 amounts
are $244,000 and $459,000, respectively, in expenses incurred in connection with
the new CBT product line both in Israel and North America. Excluding the new CBT
product line, selling, general and administrative expenses increased by
approximately 17% and 9%, respectively, due primarily to
<PAGE>
increased depreciation and amortization of additional computer equipment,
leasehold improvements, goodwill, software and patents. The amortization expense
of the Company's intangible assets (i.e., goodwill, software and patents)
which, represents almost 50% of the Company's assets and more than 80% of the
Company's stockholders' equity, will adversely affect the Company's results of
operations. The Company also experienced increased expenses and professional
fees during the 1995 period in connection with the financing discussed below
under "Liquidity and Capital Resources". The 1994 figures set forth above for
cost of revenue and selling, general and administrative expenses have been
restated to more properly classify a portion of the Company's classroom rent as
a cost of revenues instead of selling, general and administrative expenses.
Effective July 1, 1994, the Company purchased substantially all of the
assets of ACE which was engaged in the design, development and production of CBT
courseware and interactive multimedia training. Such functions are currently
being performed by PC Israel. The research and development expenses of $194,389
and $401,582, respectively, for the three and six months ended June 30, 1995
reflect the costs associated with the maintenance, design and enhancements of
the CBT design technology.
The Company had a net loss of $562,168 and $978,854, respectively, for
the three and six months ended June 30, 1995 as compared to a net income of
$135,869 and $185,674 for the three and six months ended June 30, 1994. Such
result is attributable primarily to the Company's CBT research and development,
the increased selling, general and administrative expenses and the decreased ILT
revenues. Management believes that decreasing ILT revenues will continue
throughout the remainder of 1995 until training in Windows 95 commences to any
material degree. In addition, continued research and development expenses are
expected to have a material impact on results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficiency decreased to $229,134 at June
30, 1995 as compared to $828,562 at December 31, 1994, primarily due to the sale
of preferred stock as described below, offset by operating losses.
The Company is a party to a financing agreement pursuant to which it
finances its trade receivables. The agreement is scheduled to expire on April
30, 1996. The balance outstanding under the agreement, which, prior to August 1,
1995, was limited to 80% of eligible receivables, is reported as a current
liability under "Loans Payable - Others". Effective August 1, 1995 the loan
balance is limited to 75% of eligible receivables.
During 1994, the Company made a substantial investment in state-of-
the-art computer equipment. These purchases were funded through operating
profits for the previous year, equipment leases provided by the equipment
manufacturer and bank loans. The bank loans are repayable over three years and
are secured by all assets of the Company.
Effective March 15, 1995, the Company entered into a Stock Purchase
Agreement with certain investors pursuant to which, among other things, the
Company issued an aggregate of 1,000,000 shares of Series B Preferred Stock and
500,000 warrants for an aggregate purchase price of $1,500,000. Of the net
proceeds of $1,464,495, $10,000 was recorded as capital stock and $1,454,495 was
recorded as paid-in-capital. The Company has agreed to use the proceeds for
research and development, CBT promotion and working capital purposes.
Effective with the Company's April 19, 1995 one-for-five reverse split
of its shares of Common Stock, the Series B Preferred Stock mandatorily
converted into an aggregate of 1,000,000 post-reverse split shares of Common
Stock of the Company.
<PAGE>
The Company is presently exploring all possible opportunities in order
to fund the working capital deficiency including expanding its marketing
efforts, implementing an aggressive cost reduction plan and negotiating with
vendors. Management believes that decreasing ILT revenues will continue
throughout the remainder of 1995 until training in Windows 95 commences to any
material degree. In addition, continued research and development expenses are
expected to have a material impact on liquidity.
<PAGE>
PC ETCETERA, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended June 30, 1995, the Company
solicited stockholder consent in lieu of a special meeting
of stockholders for purposes of approving an amendment to
the Company's Certificate of Incorporation to effectuate a
one-for-five reverse split of the Company's shares of Common
Stock. Consents to such action were received from holders of
7,139,918 shares of Common Stock (representing approximately
74% of the outstanding shares of Common Stock of the
Company). The reverse split took effect as of April 19,
1995
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) None
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PC Etcetera, Inc.
August 18, 1995 By: /s/ Terry Steinberg
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Terry I. Steinberg
President (Principal
Executive and Financial
Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 595,694
<SECURITIES> 0
<RECEIVABLES> 1,616,938
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,327,065
<PP&E> 1,867,267
<DEPRECIATION> 851,296
<TOTAL-ASSETS> 6,419,431
<CURRENT-LIABILITIES> 2,556,199
<BONDS> 0
<COMMON> 29,275
1,000
0
<OTHER-SE> 3,590,021
<TOTAL-LIABILITY-AND-EQUITY> 6,419,431
<SALES> 5,800,264
<TOTAL-REVENUES> 5,800,264
<CGS> 3,072,720
<TOTAL-COSTS> 6,779,118
<OTHER-EXPENSES> 3,657,922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,476
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (978,854)
<EPS-PRIMARY> ($.039)
<EPS-DILUTED> 0
</TABLE>
