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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 September 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 November 1, 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 nine months ended September 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
SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $55,740
Accounts Receivable 1,652,183
Prepaid Expenses 216,765
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TOTAL CURRENT ASSETS 1,924,688
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PROPERTY AND EQUIPMENT:
Property and Equipment 1,611,395
Leasehold Improvement 242,534
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1,853,929
Less: Accumulated Depreciation and Amortization (954,077)
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TOTAL PROPERTY AND EQUIPMENT 899,852
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OTHER ASSETS:
Security Deposits 80,532
Software and Related Patents (Net) 2,586,246
Goodwill (Net) 326,667
Other Assets (Net) 20,000
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TOTAL OTHER ASSETS 3,013,445
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TOTAL ASSETS $5,837,985
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $1,707,976
Payroll Taxes Payable 80,699
Deferred Revenue 198,869
Loans Payable - Others - Current Portion 477,109
Loans Payable - Affiliate - Current Portion 36,540
Loans Payable - Bank - Current Portion 76,260
Capital Equipment Obligations - Current Portion 195,319
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TOTAL CURRENT LIABILITIES 2,772,772
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OTHER LIABILITIES:
Loans Payable - Bank 63,451
Capital Equipment Obligations 8,601
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TOTAL LIABILITIES 2,844,824
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STOCKHOLDERS' EQUITY:
Common Stock 29,275
Preferred Stock 1,000
Additional Paid in Capital 6,689,803
Accumulated Deficit (3,726,917)
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TOTAL STOCKHOLDERS' EQUITY 2,993,161
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,837,985
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PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $8,427,704 $8,166,221 $2,627,440 $2,719,172
Cost of Revenues 4,737,283 3,627,255 1,664,563 1,199,057
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Gross Profit 3,690,421 4,538,966 962,877 1,520,115
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Selling, General and Administrative 4,643,072 4,492,223 1,386,732 1,723,081
Research and Development 577,707 276,165 176,125 276,165
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Operating (loss) (1,530,358) (229,422) (599,980) (479,131)
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Interest (Expense) (net) (75,631) (89,987) (27,155) (37,202)
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Net (loss) Before Provision for Income
Taxes (1,605,989) (319,409) (627,135) (516,333)
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Provision for Income Taxes 0 0 0 (11,250)
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Net (Loss) ($1,605,989) ($319,409) ($627,135) ($505,083)
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Earnings Per Share:
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Net (loss) ($0.59) ($0.23) ($0.21) ($0.30)
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Weighted Average Number of Shares 2,705,240 1,414,128 2,927,462 1,707,461
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</TABLE>
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PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) ($1,605,989) ($319,409)
ADJUSTMENTS TO RECONCILE NET (LOSS) TO
NET CASH (USED IN) OPERATING ACTIVITIES:
Depreciation and Amortization 498,018 297,658
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) in Accounts Receivable (221,273) (125,076)
(Increase) in Prepaid Expenses (81,680) (20,583)
(Increase) in Deferred Costs (83,785) 0
Decrease in Security Deposits 13,618 474
Increase (Decrease) in Accounts Payable 384,642 (36,021)
Increase (Decrease) in Payroll Taxes Payable (7,493) 10,440
Increase (Decrease) in Deferred Revenue 96,141 (68,718)
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NET CASH (USED IN) OPERATING ACTIVITIES (1,007,801) (261,235)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (93,494) (407,793)
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Net Cash (Used in) Investing Activities (93,494) (407,793)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Loans Payable - Bank 200,000
(Repayment of) Loans Payable - Bank (91,375) (19,085)
Increase (Decrease) in Loans Payable - Other (123,192) 201,144
Repayment of Capital Equipment Obligations (170,670) (106,074)
Issuance of Stock (Net of Expenses Incurred) 1,464,495 512,000
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Net Cash Provided by Financing Activities 1,079,258 787,985
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (22,037) 118,957
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 77,777 30,478
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CASH AND CASH EQUIVALENTS, END OF PERIOD $55,740 $149,435
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</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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Cash paid during the year for
Interest $100,789 $89,249
Income Taxes $800 $17,180
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
A capital lease obligation of $67,379 and $122,588, respectively, was incurred
when the Company entered into new leases for new equipment during the period
ending September 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 nine months ended September 30, 1995 of
$2,627,440 and $8,427,704, respectively, represented a decrease of 3% and an
increase of 3%, respectively, over revenues of $2,719,172 and $8,166,221,
respectively, for the three and nine months ended September 30, 1994. During
the past two years, the Company has broadened and augmented its personal
computer support alternatives by offering 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 $883,000 and $2,052,000, respectively, for the three and nine
months ended September 30, 1995 as compared to approximately $408,000 and
$963,000, respectively for the three and nine months ended September 30, 1994,
an increase of 116% and 113%, 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 $385,000 for the nine months ended September 30, 1994 to
approximately $1,089,000 for the nine months ended September 30, 1995. CBT
revenues for the three months ended September 30, 1995 remained generally flat
at approximately $270,000, as compared to the three months ended September 30,
1994. In September, 1995, the Company began to ship its CBT products through
the retail channel. The Company has recognized no revenues and has deferred
direct costs related to such shipments as all product is returnable if not sold
through to end-users, and the Company has no historical basis for estimating
such returns. 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 $174,000 and $598,000,
respectively (which is included in the $270,000 and $1,089,000, respectively,
above).
During the three and nine months ended September 30, 1995, the
Company experienced a 27% and 24%, respectively, decrease in ILT revenues as
compared to the three and nine months ended September 30, 1994. On a regional
basis, revenues (exclusive of those from the new service/product lines) from
New York/East Coast operations decreased by 40% and 38%, respectively, Canadian
operations decreased by 5% and increased by 11% , respectively, and San
Francisco, California operations increased by 7% and decreased by 11%,
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 nine months ended September 30, 1995 prior to
the release of Windows 95 on 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. Certain clients are also delaying such
conversions and projects pending marketplace experience with Windows 95 and
while there are indications that the Company's client base intends to convert to
Windows 95 very few have done so as yet. Historically, companies wait many
months after a product is released before they fully convert to the new system.
Increased competition in both New York and San Francisco was also a factor in
the decreased revenues for such regions. Canadian revenues increased due
primarily to several software application conversion or upgrade projects within
existing clients.
The Company's cost of revenues for the three and nine months ended
September 30, 1995 was 63% and 56%, respectively, of revenues as compared to 44%
of revenues for the three and nine months ended September 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 70% and 69%, respectively, of revenues for the three and nine
months ended September 30, 1995, respectively. Such higher percentage reflects
the greater compensation paid to consultants based upon their
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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 nine
months ended September 30, 1995 of $1,386,732 and $4,643,072, respectively,
were approximately 24% lower, and 3% higher, respectively, than the selling,
general and administrative expenses of $1,723,081 and 4,492,223, respectively,
experienced for the three and nine months ended September 30, 1994. Included in
the nine months ended September 30, 1995 amounts is approximately $666,000 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 decreased by approximately 9% for the nine months ended
September 30, 1995 as compared to 1994. Management has implemented an
aggressive cost reduction plan. As a result, selling, general and
administrative for the three months ended September 30, 1995 were approximately
$325,000 or 19% lower than selling, general and administrative expenses for the
three months ended June 30, 1995. These cost reductions are offset by increased
depreciation and amortization of additional computer equipment, leasehold
improvements, goodwill, and patented software. The amortization expense of
the Company's intangible assets (i.e., goodwill and patented software), which
represent almost 50% of the Company's assets and more than 97% of the Company's
stockholders' equity, will adversely affect the Company's results of operations.
The Company is amortizing the patented software acquired over a 15 year period
since such software is a development language which is utilized in the authoring
of CBT applications. As such, it is expected to have a considerably longer
useful life than application software. 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".
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 $176,125
and $577,707, respectively, for the three and nine months ended September 30,
1995 reflect the costs associated with the maintenance, design and enhancements
of the CBT design technology. Research and development expenses were reduced
principally by staff reductions.
The Company had a net loss of $627,135 and $1,605,989, respectively,
for the three and nine months ended September 30, 1995 as compared to $505,083
and $319,409 for the three and nine months ended September 30, 1994. The
substantial increase in net loss for the nine month period is attributable
primarily to the research and development and selling, general and
administrative costs associated with the Company's CBT product line (established
July 1, 1994), and decreased ILT revenues offset by decreased selling, general
and administrative expenses. 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 increased to $848,084 at
September 30, 1995 as compared to $828,562 at December 31, 1994, primarily due
to the net losses offset by the sale of preferred stock as described below.
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.
<PAGE>
The Company used $1,007,801 in operating activities during the nine
months ended September 30, 1995, primarily due to its net loss of $1,605,989
during such period. Such loss was offset by decreased accounts receivable of
$221,273 and increased accounts payable of $384,642 during such period as well
as depreciation and amortization expenses of $498,018. During the period the
Company's financing activities provided cash in the amount of $1,079,258
primarily through the sale of stock as discussed below.
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.
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.
The Company is currently seeking additional debt financing, from
affiliated parties in order to alleviate cash flow demands. No assurances can
be given that any such required financing will be available.
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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
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3(a) Certificate of Amendement of Certificate of
Incorporation, filed April 18, 1995, with
regard to one-for-five reverse split
(b) REPORTS ON FORM 8-K
One Current Report on Form 8-K was filed during the
quarter ended September 30, 1995 as follows:
Date of Event: August 11, 1995
Items Reported: 4 and 7
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SIGNATURES
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.
November 8, 1995 By: /s/ Terry Steinberg
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Terry I. Steinberg
President (Principal
Executive and Financial
Officer)
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EXHIBIT 3(a)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PC ETCETERA, INC.
PC ETCETERA, INC. (the "Corporation"), a corporation organized and existing
by virtue of the General Corporation Law of the State of Delaware (the "General
Corporation Law"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors, acting pursuant to Sections 141 (f)
and 242 of the General Corporation Law, adopted a resolution authorizing the
Corporation to reclassify, change and convert each five (5) outstanding shares
of Common Stock, par value $.01 per share, of the Corporation into one (1) share
of Common Stock, par value $.01 per share. The aggregate number of shares of
stock which the Corporation shall have authority to issue shall not be reduced
as a result of the foregoing.
SECOND: That Article IV of the Certificate of Incorporation of the
Corporation hereby is amended to add a new paragraph (c), which shall read as
follows:
"(c) Each five (5) shares of the Common Stock, par value $.01 per share,
of the Corporation issued and outstanding or held in treasury as of 5:00 p.m.
New York time on the date on which this Certificate of Amendment is filed by the
Secretary of State of the State of Delaware (the "Effective Time") shall be
reclassified as and changed into one (1) share of Common Stock, par value $.01
per share, of the Corporation, without any action by the holders thereof. Each
stockholder who, immediately prior to the Effective Time, owns a number of
shares of Common Stock which is not evenly divisible by five (5) shall, with
respect to such fractional interest, be entitled to receive from the
Corporation, in lieu of fractions of shares of Common Stock, (i) one (1) share
of Common Stock, par value $.01 per share, of the Corporation if the stockholder
would otherwise be entitled to receive at least one-half (1/2) of a share of
Common Stock or (ii) no additional shares of Common Stock if the stockholder
would otherwise be entitled to receive less than one-half (1/2) of a share of
Common Stock."
THIRD: That said amendment has been duly adopted in accordance with the
applicable provisions of Sections 228 and 242 of the General Corporation Law.
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IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by
Terry I. Steinberg, its President, this 13th day of April, 1995.
/s/ Terry I. Steinberg
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Terry I. Steinberg
President
