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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
AMENDMENT NO. 1
(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__________________
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_____
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
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<S> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 595,694
Accounts Receivable 1,616,937
Prepaid Expenses 114,433
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Total Current Assets 2,327,064
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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 (Net) 1,373,829
Other Assets (Net) 24,000
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Total Other Assets 1,485,339
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TOTAL ASSETS $4,828,374
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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
Additional Paid in Capital 5,286,283
Accumulated Deficit (3,287,319)
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Total Stockholders' Equity 2,029,239
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Total Liabilities and Stockholders' Equity $4,828,374
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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
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Gross Profit 2,727,544 2,812,450 1,361,042 1,388,587
Selling, General and
Administrative Expenses 3,324,044 2,562,741 1,745,945 1,221,316
Research and Development 401,582 0 194,389 0
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Operating Income (loss) (998,082) 249,709 (579,292) 167,271
Interest (Expense) (net) (48,476) (52,785) (17,178) (31,402)
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Net Income (loss)
Before Provision for
Income Taxes (1,046,558) 196,924 (596,020) 135,869
Provision for Income Taxes 0 11,250 0 0
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Net Income (Loss) ($1,046,558) $185,674 ($596,020) $135,869
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Earnings Per Share:
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Net Income (loss) ($0.417) $0.146 ($0.216) $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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PC ETCETERA INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
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<CAPTION>
1995 1994
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss) ($1,046,558) $185,674
Adjustments to Reconcile Net Income (Loss) to
Net Cash (Used In) Operating Activities:
Depreciation and Amortization 406,968 193,342
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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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
SUPPLEMENTAL 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 150% 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 $1,745,495 and $3,324,044,
respectively, were approximately 43% and 30%, 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
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expenses increased by approximately 23% and 12%, respectively, due primarily
to increased depreciation and amortization of additional computer equipment,
leasehold improvements, and software. The amortization expense of the
Company's intangible assets (software), which represented almost 28% of the
Company's assets and more than 68% of the Company's stockholders' equity as
of June 30, 1995, will adversely affect the Company's results of operations.
The Company is amortizing the software over a five year period. 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 $596,020 and $1,046,558,
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 (including software amortization 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.
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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.
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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
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
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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.
February 12 , 1996 /s/ Terry Steinberg
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Terry I. Steinberg
President (Principal
Executive and
Financial Officer)
