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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
AMENDMENT NO. 2
(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, 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 May 8, 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 three months ended March 31, 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
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS:
CURRENT ASSETS:
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<S> <C>
Cash and Cash Equivalents $685,508
Accounts Receivable 1,791,977
Prepaid Expenses 77,720
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TOTAL CURRENT ASSETS 2,555,205
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PROPERTY AND EQUIPMENT:
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Property and Equipment 1,522,263
Leasehold Improvements 219,570
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1,741,833
Less: Accumulated Depreciation and
Amortization (737,289)
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TOTAL PROPERTY AND EQUIPMENT 1,004,544
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OTHER ASSETS:
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Security Deposits 94,703
Software (Net) 1,459,693
Other Assets (Net) 28,000
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TOTAL OTHER ASSETS 1,582,396
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TOTAL ASSETS $5,142,145
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
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Accounts Payable and Accrued Expenses $1,177,466
Payroll Taxes Payable 141,308
Deferred Revenue 178,752
Loans Payable - Others - Current Portion 502,227
Loans Payable - Affiliate - Current Portion 33,333
Loans Payable - Bank - Current Portion 107,794
Capital Equipment Obligations 129,660
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TOTAL CURRENT LIABILITIES 2,270,540
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OTHER LIABILITIES:
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Loans Payable - Bank 173,637
Capital Equipment Obligations 72,670
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Total Liabilities 2,516,847
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STOCKHOLDERS' EQUITY:
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Common Stock 19,275
Preferred Stock 2,000
Additional Paid in Capital 5,295,283
Accumulated Deficit (2,691,260)
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TOTAL STOCKHOLDERS' EQUITY 2,625,298
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,142,145
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</TABLE>
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PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Revenues $2,891,259 $2,560,546
Cost of Revenues 1,524,757 1,136,683
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Gross Profit 1,366,502 1,423,863
Selling, General and Administrative
Expenses 1,578,549 1,341,425
Research and Development 207,193 0
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Operating Income (loss) (419,240) 82,438
Interest (Expense) (net) (31,298) (21,383)
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Net Income (loss) Before Provision
for Income Taxes (450,538) 61,055
Provision for Income Taxes 0 11,250
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Net Income $(450,538) $49,805
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Earnings Per Share:
Net Income (loss) $(0.20) $0.04
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Weighted Average Number of Shares 2,260,795 1,267,462
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</TABLE>
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PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) ($450,538) $49,805
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH (USED IN) OPERATING ACTIVITIES:
Depreciation and Amortization 203,136 90,993
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) in Accounts Receivable (361,067) (111,340)
(Increase) Decrease in Prepaid Expenses (26,420) 8,950
(Increase) Decrease in Security Deposits (553) 2,003
Increase (Decrease) in Accounts Payable (150,034) 6,723
Increase in Payroll Taxes Payable 53,116 29,825
Increase (Decrease) in Deferred Revenue 76,024 (97,887)
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Net Cash (Used in) Operating Activities (656,336) (20,928)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (48,777) (130,389)
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Net Cash (Used In) Investing Activities (48,777) (130,389)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Loans Payable - Bank 72,922 0
Principal Repayments Loans Payable - Bank (22,577) 0
Increase (Decrease) in Loans Payable - Other (97,948) 195,670
Increase in Loans Payable - Affiliate 833 0
Repayment of Capital Equipment Obligations (104,881) (34,507)
Issuance of Stock (Net of Expenses Incurred) 1,464,495 0
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Net Cash Provided by Financing Activities 1,312,844 161,163
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NET INCREASE IN CASH AND CASH EQUIVALENTS 607,731 9,846
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 77,777 30,478
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CASH AND CASH EQUIVALENTS, END OF PERIOD $685,508 $40,324
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SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
Cash paid during the year for
Interest (Net of Amount Capitalized) $65,835 $53,890
Income Taxes $0 $15,884
</TABLE>
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, 1995 of $2,891,259
represented an increase of 13% over revenues of $2,560,546 for the three months
ended March 31, 1994. During the year ended December 31, 1993, 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 $623,000 for
the three months ended March 31, 1995 as compared to approximately $295,000 for
the three months ended March 31, 1994, an increase of 111%. 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 $49,000 for the three months ended March 31, 1994 to
approximately $449,000 for the three months ended March 31, 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 $267,000 (which is included in the $449,000 above).
During the three months ended March 31, 1995, the Company experienced
an 18% decrease in ILT revenues as compared to the three months ended March 31,
1994. On a regional basis, revenues (exclusive of those from the new
service/product lines) from New York/East Coast operations decreased by 28%,
Canadian operations increased by 22% and San Francisco, California operations
decreased by 14%. 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 three months ended March 31, 1995 nor the
year ended December 31, 1994. 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 the third
quarter of 1995. Many of the Company's clients have delayed any software
conversions and training projects, awaiting the release of Windows 95. The
decreased revenues in the United States were offset by the large increases in
Canadian revenues. These were 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 months ended March 31,
1995 was 53% of revenues as compared to 44% of revenues for the three months
ended March 31, 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% of revenues. 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 months
ended March 31, 1995 of $1,578,549 were approximately 18% higher than the
selling, general and administrative expenses of $ 1,341,425 experienced for
the three months ended March 31, 1994. Included in the 1995 amount are $215,000
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 increased by approximately $22,000. Notwithstanding
increased depreciation and amortization of additional computer equipment,
leasehold improvements and software, management was able to contain selling,
general and administrative expenses. The amortization expense of the Company's
intangible assets (software), which represented more than 28% of the Company's
assets and more than 56% of the Company's stockholders' equity as of March 31,
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
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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 $207,193
for the three months ended March 31, 1995 reflect the costs associated with the
maintenance, design and enhancements of the CBT design technology.
The Company had a net loss of $450,538 for the three months ended
March 31, 1995 as compared to a net income of $49,805 for the three months
ended March 31, 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 increased to $284,665 at March 31, 1995
as compared to a working capital deficiency of $828,562 at December 31, 1994.
The increase in working capital was due primarily to 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 is limited to 80%
of eligible receivables, is reported as a current liability under "Loans Payable
- -Others".
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.
The Company used $656,336 in operating activities during the three
months ended March 31, 1995 primarily due to its net loss of $450,538, as well
as increased accounts receivable of $361,067 and decreased accounts payable of
$150,034, during such period. During the three months ended March 31, 1995, the
Company's financing activities provided cash in the amount of $1,312,844
primarily due to the sale of Preferred Stock and the receipt of net proceeds of
$1,464,495 in connection therewith.
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 for
an aggregate purchase price of $1,500,000. 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.
Simultaneously with the issuance of the Series B Preferred Stock, the
purchasers thereof were issued four-year warrants for the purchase of an
aggregate of 500,000 shares of Common Stock at an exercise price of $2.75 per
share (giving effect to the reverse split). No accounting entry was made to
reflect the issuance of the warrants.
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The Company is presently exploring all possible opportunities in order
to fund the current losses 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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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 By: /s/ Terry Steinberg
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Terry I. Steinberg
President (Principal
Executive and Financial
Officer)
