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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
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 March 31, 1996
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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
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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:
3,127,462 shares of common stock as of May 8, 1996
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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 three months ended March 31, 1996 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 audited financial statements for the year ended December 31,
1995 and the notes thereto.
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PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $78,592
Accounts Receivable(net of allowance of $216,750) 772,405
Inventories 54,458
Prepaid Expenses and Other Current Assets 63,081
Assets Held for Sale 339,989
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TOTAL CURRENT ASSETS 1,308,525
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PROPERTY AND EQUIPMENT(net of accumulated depreciation of $722,003) 430,340
OTHER ASSETS(Net) 62,301
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TOTAL ASSETS $1,801,166
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $1,426,190
Loans Payable - Others - Current Portion 626,500
Loans Payable - Related Party 285,706
Capital Equipment Obligations - Current Portion 51,618
Deferred Revenue 89,026
Liabilities in Connection with Assets Held for Sale 336,053
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TOTAL CURRENT LIABILITIES 2,815,093
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OTHER LIABILITIES:
Loans Payable - Bank 123,091
Capital Equipment Obligations 37,143
Other Liabilities 133,333
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TOTAL LIABILITIES 3,108,660
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STOCKHOLDERS' EQUITY:
Common Stock 31,275
Preferred Stock 1,000
Additional Paid in Capital 5,284,283
Accumulated Deficit (6,624,052)
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TOTAL STOCKHOLDERS' EQUITY (1,307,494)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,801,166
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PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net Sales $1,762,620 $2,891,259
Cost of Sales 1,299,592 1,524,757
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Gross Profit 463,028 1,366,502
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Selling, General and Administrative 1,034,704 1,578,549
Research and Development 58,214 207,193
(Gain) on Sale of Subsidiary (134,196) 0
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Operating (loss) (495,694) (419,240)
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Interest Expense (net) (41,699) (31,298)
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Net (loss) ($537,393) ($450,538)
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Net (loss) per share ($0.17) ($0.20)
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Weighted Average Number of Shares 3,127,462 2,260,795
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</TABLE>
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PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ($537,393) ($450,538)
ADJUSTMENTS TO RECONCILE NET (LOSS) TO
NET CASH (USED IN) OPERATING ACTIVITIES:
Depreciation and Amortization 151,102 203,136
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) in Accounts Receivable (107,720) (361,067)
(Increase) Decrease in Prepaid Expenses and Other Current Assets 4,245 (26,420)
(Increase) Decrease in Other Assets 1,032 (553)
Increase (Decrease) in Accounts Payable 94,856 (96,918)
(Increase) in Inventories (21,991) 0
Increase in Deferred Revenue 60,058 76,024
Increase in Other Liabilities 133,333 0
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NET CASH (USED IN) OPERATING ACTIVITIES (222,478) (656,336)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets 0 (48,777)
Sale of Canadian Subsidiary 384,376 0
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Net Cash Provided by (Used in) Investing Activities 384,376 (48,777)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Loans Payable - Bank 0 72,922
(Repayment of) Loans Payable - Bank (19,077) (22,577)
Increase (Decrease) in Loans Payable - Others 46,012 (97,948)
(Repayment of) Increase in Loans Payable Related Party (250,000) 833
(Repayment of) Capital Equipment Obligations (43,260) (104,881)
Issuance of Stock (Net of Expenses Incurred) 0 1,464,495
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Net Cash Provided by (Used in) Financing Activities (266,325) 1,312,844
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (104,427) 607,731
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 183,019 77,777
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CASH AND CASH EQUIVALENTS, END OF PERIOD $78,592 $685,508
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $43,727 $65,835
Income Taxes $0 $0
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON -CASH INVESTING AND FINANCING ACTIVITIES
None
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 months ended March 31, 1996 of $1,762,620
represented a decrease of 39% as compared to revenues of $2,891,259 for the
three months ended March 31, 1995.
As discussed below, effective January 1, 1996, all of the outstanding stock
of the Company's wholly-owned Canadian subsidiary ("PC Canada") was sold.
Included in the revenues for the three months ended March 31, 1995 was $591,783
of revenues from PC Canada. In addition, Management has made the decision to
close the Company's wholly-owned Israeli subsidiary ("PC Israel") as discussed
below. Revenues of PC Israel decreased by $207,563 during the three months
ended March 31, 1996 as compared to the three months ended March 31, 1995. The
sale of PC Canada and the lower revenues of PC Israel accounted for 71% of the
decreased revenues. Further, as discussed below, effective April 1, 1996, the
Company sold its San Francisco, California and Boise, Idaho operations.
During the year ended December 31,1994 and throughout 1995 the Company
broadened and augmented its personal computer support alternatives by
introducing new service/product lines designed to enhance its established
Instructor-led training ("ILT") business. Contract consulting is responsible for
providing personal computer personnel, on a temporary basis, to the Company's
client base. Consulting revenues were approximately $750,000 for the three
months ended March 31, 1996 as compared to approximately $645,000 for the three
months ended March 31, 1995, an increase of 16%. In addition, the Company
develops and offers computer-based training ("CBT") programs to augment and
supplement its live training classes. In September, 1995, the Company began to
ship its CBT products through the retail channel in addition to selling to
corporate clients. All products sold to retailers are returnable if not resold
to end-users. Since the Company has no historical basis of estimating such
returns, it recognizes revenues only when such resales occur. The Company only
recognized revenues of $21,000 during the three months ended March 31, 1996 from
such retail sales. The Company does not have any obligations to the end-user
once the product is sold.
During the three months ended March 31, 1996, the Company continued to
experience declining ILT revenues. In the United States, ILT revenues decreased
by approximately 30%. Management attributes the declining ILT revenue to the
fact that software vendors have not released many new versions of existing
software. The Company had anticipated that the release of a new operating
system entitled Windows 95 would have a positive impact on ILT revenues.
Although released in August 1995, many clients are continuing to delay such
conversions and projects pending market place experiences with Windows 95. In
addition, the contemplated release in August 1996 of Windows NT, a more advanced
network operating system, has caused organizations to re-evaluate desktop
application strategies and back office applications together and thus has
further delayed application or conversion projects. Increased competition in
both New York and San Francisco was also a factor in the decreased ILT revenues.
The Company is aggressively pursuing a move into the higher end training
market as many organizations require certification training for Microsoft and
Lotus back office applications and operating systems which historically has had
higher margins. This higher technical training environment has a better synergy
with the Company's growing consulting business. In 1995, the Company was
awarded Lotus Authorized Education Center status and received Microsoft
Authorized Technical Education Center status during the three months ended March
31, 1996.
The Company's cost of revenues for the three months ended March 31, 1996
was 74% of revenues as compared to 53% of revenues for the three months ended
March 31, 1995. The Company's new service/product lines do not follow the same
trends in cost of revenues as the ILT business. Cost of revenues for contract
consulting was 65% of revenues and cost of revenues (including approximately
$100,000 in design costs for the retail product) for CBT was greater than
revenues for the 1996 period.
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Selling, general and administrative expenses for the three months ended
March 31, 1996 of $1,034,704 showed a significant decrease as compared to
selling, general and administrative expenses of $1,578,549 for the three months
ended March 31, 1995. Included in the net reduction was approximately $188,513
pertaining to the sale of PC Canada. Due to extensive cost reductions with
regard to PC Israel, selling, general and administrative expenses for such
entity decreased to $208,166 for the three months ended March 31, 1996 as
compared to $408,575 for the three months ended March 31, 1995. Management has
devoted substantial efforts to an aggressive cost containment plan. The Company
reduced selling, general and administrative expenses for its United States
operations by 50% for the three months ended March 31, 1996 as compared to the
three months ended March 31, 1995 and reduced general corporate expenses by 45%
for the same period.
Research and development expenses were $ 58,214 for the three months ended
March 31, 1996 as compared to $207,193 for the three months ended March 31, 1995
due to a determination by the Company to significantly downsize its CBT research
and development operations.
The Company had a net loss of $537,393 for the three months ended March 31,
1996 as compared to a net loss of $450,538 for the three months ended March 31,
1995. Such result is attributable primarily to decreasing ILT revenues, and the
Company's CBT research and development expenses, offset by the $134,196 gain on
the sale of PC Canada. Management believes that the decreasing revenues will
continue throughout 1996. The Company decided to cease operations of PC Israel
effective March 31, 1996 and substantially eliminate its CBT research and
development program; however, it intends to continue to market CBT software.
As discussed below under "Liquidity and Capital Resources," (i) effective
January 1, 1996, the Company sold all of the outstanding stock of PC Canada and
(ii) effective April 1, 1996, the Company sold its San Francisco, California and
Boise, Idaho operations (which accounted for revenues and a loss of $204,650 and
$4,936, respectively, during the three month period ended March 31, 1996).
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficiency increased to $1,506,568 at March
31, 1996 as compared to $828,562 at December 31, 1995. The increase was due
primarily to the operating losses experienced during the three months ended
March 31, 1996, offset by the sale of PC Canada as described above.
The Company is a party to a financing agreement by which it finances its
trade receivables. The agreement is scheduled to expire on April 30, 1997. The
balance outstanding under the agreement, which is limited to 75% of eligible
receivables, is reported as a current liability under "Loans Payable - Others."
The Company used $222,478 in operating activities during the three months
ended March 31, 1996 , primarily due to its net loss of $537,393 during such
period. Such loss was offset by decreased accounts receivable and increased
accounts payable during such period as well as depreciation and amortization
expenses of $151,102. During the three months ended March 31, 1996, the
Company's investing activities provided cash in the amount of $384,376 as a
result of the sale of PC Canada. The Company's financing activities during
such period used cash in the amount of $266,325 primarily due to the repayment
of loans from related parties of $250,000.
Effective December 5, 1995, the Company borrowed $500,000 from certain
stockholders of the Company for working capital purposes. The notes evidencing
the loans provide for interest at the rate of 10% per annum and the payment of
the principal amount one year from the date of issuance.
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Effective January 1, 1996, all of the outstanding stock of PC Canada was
sold to a private company for net proceeds of $718,000, including the license
of certain computer software. Of such amount, $250,000 was used to repay a
portion of the December 1995 loans described above. Pursuant to the terms of
the notes, as a result of the sale of PC Canada, the remaining balance of the
loans is due and payable.
Effective April 1, 1996, the Company sold the operating assets of its San
Francisco, California training office and Boise, Idaho business location for an
aggregate cash purchase price of $42,000. In addition, the purchaser agreed to
assume certain obligations and liabilities of the Company.
As indicated above, the Company has experienced continuing net losses and
negative cash flows from operations and has a working capital deficiency and
stockholders deficit. The Company's continuing existence is dependent upon its
ability to achieve and maintain profitable operations. The Company is
currently working under a plan to reduce overhead, and return to profitability.
As indicated above, the Company sold its Canadian subsidiary in January 1996,
shut down the Israeli- based research and development center in March 1996, and
sold the San Francisco branch in April 1996 in order to raise needed cash and
reduce expenses. In addition, the Company has implemented a substantial cost
cutting program. The Company has currently reduced expenses by approximately
$135,000 a month by eliminating three Vice President positions, reduced the
number of CBT design staff, reduced administrative payroll obligations and
sublet office space. The Company is also experiencing growth in its Consulting
Service Division and has begun to experience reduced losses in its ILT
operations.
The Company is also presently exploring all other possible opportunities in
order to reduce the working capital deficiency, including expanding its
marketing efforts, negotiating with vendors and debt holders and seeking
additional financing. No assurances can be given that any such efforts will be
successful. Based upon the cost reduction plans outlined above, the Company
believes that it will be able to generate sufficient cash to support its
operations through the remainder of 1996. Such belief is, however, a forward-
looking statement and, due to the stiff competition faced by the Company from
entities which provide computer training and consulting services, and market CBT
products, as well as the uncertain operating environment currently surrounding
personal computers in general no assurances can be given that the Company will
be successful in such regard.
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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
2(a) Stock Purchase Agreement dated as of January
31, 1996 by and between Training Holdings L.L.P.
and the Company - filed as an exhibit to the
Company's Current Report on Form 8-K for an event
dated January 31, 1996 (File No. 0-17419) and
incorporated by reference.
3(a) Certificate of Designation with regard to
Series A Preferred Stock - filed as an exhibit to
the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994 (File No. 0-
17419) and incorporated herein by reference.
3(b) Certificate of Incorporation, as amended -
filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December
31, 1994 (File No. 0-17419) and incorporated
herein by reference.
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3(c) By-Laws - filed as an exhibit to the
Company's Registration Statement on Form S-18
(File No. 33-19521) and incorporated herein by
reference.
(b) REPORTS ON FORM 8-K
One Current Report on Form 8-K was filed during
the quarter ended March 31, 1996 as follows:
Date of Event: January 31, 1996
Items Reported: 2 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.
June 14, 1996 By: /s/ /Terry I. Steinberg
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Terry I. Steinberg
President (Principal
Executive and Financial Officer)
