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, 1996
__________________________________________________
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the Transition period from to
Commission file number: 0-17419
__________
PC ETCETERA, INC.
_______________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Delaware 13-3260705
________________________________________ ______________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
462 Seventh Avenue, New York, NY 10018
________________________________________ ______________________
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 736-5870
__________________
________________________________N/A____________________________________
(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:
3,127,462 shares of common stock as of October 25, 1996
<PAGE>
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 and nine months ended September
30, 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.
<PAGE>
PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
ASSETS:
_______
CURRENT ASSETS:
Cash and Cash Equivalents $ 53,656
Accounts Receivable 981,598
Inventories 54,458
Prepaid Expenses and Other Current Assets 43,099
_________
Total Current Assets 1,132,811
_________
PROPERTY AND EQUIPMENT (net of accumulated
depreciation of $821,231) 367,730
OTHER ASSETS (Net) 51,614
_________
TOTAL ASSETS $1,552,155
==========
LIABILITIES AND STOCKHOLDERS EQUITY:
_____________________________________
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $1,830,748
Loans Payable - Others - Current Portion 627,977
Loans Payable - Affiliate 285,706
Capital Equipment Obligations - Current Portion 56,205
Deferred Revenue 47,365
_________
Total Current Liabilities 2,848,001
_________
OTHER LIABILITIES:
Loans Payable - Bank 82,323
Capital Equipment Obligations 14,996
Other Liabilities 133,333
_________
Total Liabilities 3,078,653
_________
STOCKHOLDERS EQUITY:
Common Stock 31,275
Preferred Stock 1,000
Additional Paid in Capital 5,279,783
Accumulated Deficit (6,838,556)
_________
Total Stockholders Equity (1,526,498)
_________
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $1,552,155
==========
<PAGE>
PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SEPTEMBER 30,
(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
1996 1995 1996 1995
__________ __________ __________ __________
Net Sales $5,210,729 $8,427,704 $1,873,884 $2,627,440
Cost of Sales 3,543,092 4,737,283 1,230,450 1,664,563
______________________ ______________________
Gross Profit 1,667,637 3,690,421 643,434 962,877
______________________ ______________________
Selling, General and
Administrative 2,476,168 4,778,480 595,703 1,420,584
Research and Development 58,214 577,707 0 176,125
(Gain) on Sale of
Subsidiary (231,775) 0 (16,665) 0
______________________ ______________________
Operating Income (Loss) (634,970) (1,665,766) 64,396 (633,832)
______________________ ______________________
Interest Expense (net) (116,927) (75,631) (41,169) (27,155)
______________________ ______________________
Net Income (Loss) ($751,897)($1,741,397) $23,227 ($660,987)
====================== ======================
Net Income (Loss) Per
Share ($0.24) ($0.64) $0.01 ($0.23)
====================== ======================
Weighted Average
Number of Shares 3,127,462 2,705,240 3,127,462 2,927,462
====================== ======================
<PAGE>
PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1996 1995
________ _________
Cash flows from Operating Activities:
_____________________________________
Net (loss) ($751,897) ($1,741,397)
Adjustments to Reconcile Net (Loss) to
Net Cash (Used In) Operating Activities:
Depreciation and Amortization 176,706 633,426
Changes in Operating Assets and Liabilities:
(Increase) in Accounts Receivable (377,824) (221,273)
(Increase) Decrease in Prepaid Expenses
and Other Current Assets 2,359 (165,465)
Decrease in Security Deposits 14,687 13,618
Increase in Accounts Payable 438,226 377,149
(Increase) in Inventories (21,991) 0
Increase in Deferred Revenue 20,988 96,141
Increase in Other Liabilities 133,333 0
________ __________
Net Cash (Used in) Operating Activities (365,413) (1,007,801)
________ __________
Cash Flows From Investing Activities:
_____________________________________
Purchase of Fixed Assets (55,538) (93,494)
Sale of Subsidiaries 610,704 0
________ __________
Net Cash Provided by (Used in) Investing
Activities 555,166 (93,494)
________ __________
Cash Flows from Financing Activities:
_____________________________________
(Repayment of) Loans Payable - Bank (58,192) (91,375)
Increase (Decrease) in Loans Payable - Others 114,491 (123,192)
(Repayment of) Loans Payable Related Party (250,000) 0
(Repayment of) Capital Equipment Obligations (94,957) (170,670)
Issuance of Stock (Net of Expenses Incurred) 0 1,464,495
________ __________
Net Cash Provided by (Used in) Financing
Activities (288,658) 1,079,258
________ __________
Net (Decrease) in Cash and Cash Equivalents (98,905) (22,037)
Cash and Cash Equivalents
Beginning of Period 152,561 77,777
Cash and Cash Equivalents, End of Period $53,656 $55,740
======== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
________________________________________________
Cash paid during the year for
Interest $119,751 $100,789
Income Taxes $0 $800
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.
<PAGE>
MANAGEMENT S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
_________________________________________________________
Results of Operations
_____________________
Revenues for the three and nine months ended September 30, 1996 of
$1,873,884 and $5,210,729, respectively represented a decrease of 29%
and 38%, respectively, as compared to revenues of $2,627,440 and
$8,427,704, respectively, for the three and nine months ended September
30, 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 and
nine months ended September 30, 1995 was $1,062,895 and $2,691,030,
respectively of revenues from PC Canada. In addition, Management closed
the Company's wholly-owned Israeli subsidiary ("PC Israel") as
discussed below. Revenues of PC Israel decreased by $208,536 and
$685,014, respectively, for the three and nine months ended September
30, 1996 as compared to the three and nine months ended September 30,
1995. Further, as discussed below, effective April 1, 1996, the Company
sold its San Francisco, California and Boise, Idaho operations.
Revenues attributable to the San Francisco operations decreased by
approximately $254,477 and $476,363, respectively for the three and
nine months ended September 30, 1996. Revenues associated with the
sale of the Company's Canadian, San Francisco and Boise operations
along with the closing of PC Israel accounted for substantially all of
the decreased revenues. Total revenues for the Company's remaining New
York location increased by 35% and 7%, for the three and nine months
ended September 30, 1996 as compared to the three and nine months ended
September 30, 1995.
During the year ended December 31,1994 and throughout 1995 the
Company had broadened and augmented its personal computer support
alternatives by introducing new service/product lines designed to
enhance its established Instructor-led training ("ILT") business.
Consulting Services Division ("CSD") is responsible for providing
personal computer personnel, on a temporary basis, to the Company's
client base. During the nine months ended September 30, 1996 Management
has changed its focus in order to place more emphasis on contract
consulting. Consulting revenues for the remaining New York location
grew from $665,574 and $1,606,461, respectively, for the three and
nine months ended September 30, 1995 to $1,151,110 and $2,655,698,
respectively for the three and nine months ended September 30, 1996, an
increase of 73% and 65%, respectively. Consulting revenues increased
by 52% for the third quarter of 1996 as compared to the second quarter
of 1996. In addition, the Company developed and offered computer-based
training ("CBT") programs to augment and supplement its live training
classes. However, the CBT programs were continually resulting in
operating losses and the Company ceased efforts to develop new CBT
products. Although CBT departments have been eliminated and there are
only minimal costs, the Company continues to sell existing CBT products
through its ILT and CSD sales force. CBT revenues for the three and
nine months ended September 30, 1996 were approximately $105,000 and
$230,000. 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 nine months
ended September 30, 1996 from such retail sales. Retail sales have
been lower than expectation and the Company has limited its efforts
within the retail market. The Company does not have any obligations to
the end-user once the product is sold.
During the three and nine months ended September 30, 1996, the
Company continued to experience declining ILT revenues. However, the
rate of the decrease has been diminishing. In the New York region
ILT revenues decreased by approximately 9% and 24%, respectively, for
the three and nine months ended September 30, 1996, as compared to the
comparable periods in 1995. ILT revenues for the first quarter of 1996
decreased by 30%, the second quarter decreased by 22% and the third
quarter decreased by 7% as compared to comparable periods of 1995.
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 marketplace
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 and lower
pricing 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 nine months ended September 30,
1996. During the three months ended September 30, 1996 the Company's
Business Partner status with Lotus was upgraded to Premium Business
Partner. The Company recognized technical training revenue of $114,848
and $332,178, respectively for the three and nine months ended
September 30, 1996 as compared to $51,997 and $177,751, respectively
for the three and nine months ended September 30, 1995. During the
three months ended September 30, 1996, technical training accounted for
approximately 20% of all ILT revenues.
The Company s cost of revenues for the three and nine months ended
September 30, 1996 was 66% and 68%, respectively of revenues as
compared to 63% and 56%, respectively, of revenues for the three and
nine months ended September 30, 1995. Cost of revenues for contract
consulting was 67% of revenues, for ILT was 68% of revenues and for CBT
was 29% of revenues.
Selling, general and administrative expenses for the three and
nine months ended September 30, 1996 of $595,703 and $2,476,168,
respectively, showed a significant decrease as compared to selling,
general and administrative expenses of $1,420,584 and $4,778,480,
respectively, for the three and nine months ended September 30, 1995.
Included in the net reduction was approximately $672,455 and
$1,686,903, respectively, for the three and nine months ended
September 30, 1996, pertaining to the sale of PC Canada, and the San
Francisco operations as well as the shut down of PC Israel. Management
has devoted substantial efforts to an aggressive cost containment plan.
The Company reduced selling, general and administrative expenses for
its remaining United States operations by 28% and 23%, respectively,
for the three and nine months ended September 30, 1996 as compared to
the three and nine months ended September 30, 1995. Corporate overhead
decreased by 30% and selling, general and administrative expenses
decreased by 9% during the three months ended September 30, 1996 as
compared to the three months ended June 30, 1996.
Research and development expenses were $0 and $58,214,
respectively, for the three and nine months ended September 30, 1996,
as compared to $194,389 and $401,582, respectively, for the three and
nine months ended September 30, 1995. This decrease was due to a
determination by the Company to eliminate its CBT research and
development operations.
The Company had net income of $23,227 and a net loss of $751,897
respectively, for the three and nine months ended September 30, 1996,
as compared to a net loss of $660,987 and $1,741,397, respectively,
for the three and nine months ended September 30, 1995. With the
increased CSD revenues as well as the implementation of the
restructuring and cost containment plans, the Company was profitable
during the three months ended September 30, 1996. The reduction of
loss is attributable primarily to management s aggressive cost
containment plan, increased consulting revenues and the elimination of
the Company s CBT research and development expenses, offset by the
$231,775 gain on the sale of PC Canada and San Francisco operations.
Management believes that decreasing ILT revenues will continue
throughout 1996. However, the Company anticipates continued growth of
CSD revenues. The Company decided to cease operations of PC Israel
effective March 31, 1996 and substantially eliminate its CBT research
and development program; however, it continues to market its existing
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.
Liquidity and Capital Resources
________________________________
The Company's working capital deficiency increased to $1,715,190
at September 30, 1996 as compared to $1,234,834 at December 31, 1995.
The increase was due primarily to the operating losses experienced
during the nine months ended September 30, 1996, offset by the sale of
PC Canada and the sale of the San Francisco regional office.
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 $365,413 in operating activities during the nine
months ended September 30, 1996 , primarily due to its net loss of
$751,897 during such period. Such loss was offset by increased accounts
payable of $438,226 during such period as well as depreciation and
amortization expenses of $176,706. During the nine months ended
September 30, 1996, the Company s investing activities provided cash
in the amount of $555,166 as a result of the sale of PC Canada and the
San Francisco operations. The Company s financing activities during
such period used cash in the amount of $288,658 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.
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. With the implementation
of the restructuring and cost containment plans the Company was
profitable during the three months ended September 30, 1996. The
Company's continuing existence is dependent upon its ability to
continue to maintain profitable operations. The Company is currently
working under a plan to continue to reduce overhead, and maintain its
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
$150,000 a month by eliminating three Vice President positions, reduced
the number of CBT design staff, reduced administrative payroll
obligations and sublet office space. As discussed above, the Company
is also experiencing growth in its Consulting Services 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, no assurances can be given that the Company will
be successful in such regard.
<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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
<PAGE>
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 12, 1996 By: /s/ /Terry I. Steinberg
_______________________________
Terry I. Steinberg
President (Principal
Executive and Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 53,656
<SECURITIES> 0
<RECEIVABLES> 981,598
<ALLOWANCES> 0
<INVENTORY> 54,458
<CURRENT-ASSETS> 1,132,811
<PP&E> 1,188,961
<DEPRECIATION> 821,231
<TOTAL-ASSETS> 1,552,155
<CURRENT-LIABILITIES> 2,848,001
<BONDS> 0
0
1,000
<COMMON> 31,275
<OTHER-SE> (6,838,556)
<TOTAL-LIABILITY-AND-EQUITY> 1,552,155
<SALES> 5,210,729
<TOTAL-REVENUES> 5,210,729
<CGS> 3,543,092
<TOTAL-COSTS> 6,077,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,927
<INCOME-PRETAX> (751,897)
<INCOME-TAX> 0
<INCOME-CONTINUING> (751,897)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (751,897)
<EPS-PRIMARY> ($0.24)
<EPS-DILUTED> ($0.24)
</TABLE>
