U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 1997.
Transition report under Section 13 or 15(d) of the Exchange Act for the
__ transition period from __ to __
Commission file number: 0-17419
MENTORTECH INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3260705
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(State of Incorporation) (I.R.S. Employer Identification No.)
462 Seventh Avenue, New York, New York 10018
--------------------------------------------
(Address of Principal Executive Offices)
(212) 736-5870
--------------
(Issuer's Telephone Number, Including Area Code)
-----------------
(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
As of November 11, 1997, the Issuer had 21,365,768 shares of Common Stock, par
value $.01, outstanding.
Transitional Small Business Disclosure Format (check one): Yes__ No X
<PAGE>
MENTORTECH INC.
Form 10-QSB
INDEX
Page
----
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1997 and
December 31, 1996.......................................................3
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1997 and 1996.......................................5
Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996.......................................6
Notes to Consolidated Financial Statements................................8
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................10
Part II - Other Information
Item 4. Submission of Matters to a Vote of Shareholders.................17
Item 6. Exhibits and Reports on Form 8-K................................18
Signatures..................................................................20
2
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<TABLE>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1997 1996
---- ----
(unaudited)
<CAPTION>
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents.................................... $ 34 $ 384
Accounts receivable.......................................... 4,261 2,279
Prepaid expenses............................................. 142 225
Inventory.................................................... 30 91
----- -----
Total current assets................................ 4,467 2,979
----- -----
Property and Equipment:
Property and equipment....................................... 3,887 2,227
Accumulated depreciation and amortization ................... (1,607) (587)
------ ----
Total property and equipment........................ 2,280 1,640
----- -----
Other Assets:
Other assets, net............................................ 480 362
Investment in affiliate...................................... -- 178
Goodwill (net of accumulated amortization of
$320 in 1997 and $211 in 1996)............................... 4,913 1,811
----- -----
TOTAL ASSETS........................................ $12,140 $6,970
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
September 30, December 31,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses........................ $ 2,953 $1,495
Deferred revenue............................................. 1,770 1,624
Loans payable - others - current portion..................... 824 --
Loans payable - affiliate - current portion.................. 1,085 1,478
Capital equipment obligations................................ 36 --
------ -----
Total current liabilities........................... 6,668 4,597
------ -----
Other Liabilities:
Loans payable affiliates (shareholders)...................... 600 2,665
Other liabilities............................................ 623 455
----- -----
Total liabilities................................... 7,891 7,717
----- -----
Stockholders' Equity (Deficiency):
Common stock................................................. 212 150
Additional paid in capital - common stock.................... 5,325 --
Accumulated deficit.......................................... (1,145) (920)
Cumulative foreign currency
translation adjustment..................................... (143) 23
----- ----
Total Stockholders' Equity (Deficiency)............. 4,249 (747)
----- ----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY............................. $12,140 $6,970
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1997 1996 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Revenues...................................... $2,397 $4,396 $6,606 $13,083
Cost of revenues.............................. 1,230 2,730 3,454 8,105
----- ----- ----- -----
Gross profit.................................. 1,167 1,666 3,152 4,978
Selling and marketing......................... 371 750 927 1,955
General and administrative.................... 728 981 1,959 2,770
Research and development...................... 90 110 192 340
--- --- --- ---
Operating income (loss)...................... (22) (175) 74 (87)
--- ---- -- ---
Equity in earnings of affiliate............... 9 -- 41 --
Gain on sale of subsidiary.................... 0 17 44
Financial income (expense), net............... (104) (39) (411) (136)
---- --- ---- ----
Net (loss).................................... $(117) $(197) $(296) $ (179)
===== ===== ===== ======
Net (loss) per share.......................... ($0.01) ($0.01) ($0.01) ($0.01)
====== ====== ====== ======
Weighted average number of shares............. 21,238,495 19,158,997 21,238,495 16,386,332
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months
Ended
September 30,
-------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the period ........................................... ($179) ($296)
Adjustments to reconcile net (loss)
to net cash (used in) provided by operating activities
Depreciation and amortization ........................................... 674 334
Capital gain ............................................................ 5 0
Equity in earnings of affiliate.......................................... 0 (41)
Increase in accrued severance pay, net .................................. 94 82
Decrease in deferred income taxes........................................ (73) 0
Increase in trade receivables ........................................... (121) (385)
Decrease in prepaid expenses ............................................ (105) 0
Decrease (increase) in other receivables ................................ 56 (140)
Decrease (increase) in inventories ...................................... 55 (46)
Increase (decrease) in trade payables ................................... (520) 77
Increase (decrease) in loans payable affiliates ......................... (410) 260
Increase in deferred revenue ............................................ 110 343
Increase (decrease) in accounts payable and accrued
expenses............................................................... (198) 94
Accrued interest on shareholders' loan ................................... 0 218
---- ----
Net cash (used in) provided by operating activities ................. (612) 500
---- ---
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ...................................... (908) (645)
Proceeds from sales of property and equipment ........................... 71 0
Purchase of subsidiary ................................................. (45) 0
Cash acquired in acquisition............................................. 1,217 0
----- ----
Net cash provided by (used in) investing activities .................. 335 (645)
----- ----
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
Nine Months
Ended
September 30,
-------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares ........................................... 0 151
Capital equipment obligation repayments..................................... (37) 0
Stock issuance expense...................................................... (69) 0
Repayment of loans payable.................................................. (480) 0
Increase in short-term bank credit ......................................... 629 0
--- ---
Net cash provided by financing activities ............................... 43 151
--- ---
Net increase (decrease) in cash and cash equivalents....................... (234) 6
Effect of exchange rate changes on cash and cash equivalent................. (20) (2)
Cash and cash equivalents at the beginning of the period.................... 288 93
---- ---
Cash and cash equivalents at the end of the period......................... $34 $97
---- ---
Supplemental disclosure of cash flow information:
Cash paid during the period for
Income taxes ....................................................... $38 $20
Interest............................................................ $88 $411
Supplemental disclosure of non-cash and financing activities:
Two shareholder loans in the amount of $2,578 and $438
were converted to equity in 1997
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
MENTORTECH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying financial information is unaudited, but in the opinion of
management, reflects all adjustments (which include only normal recurring
adjustments) necessary to present fairly the Company's financial position,
operating results and cash flows for those periods presented. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulation of the Securities and
Exchange Commission (the "Commission"). The comparative figures for the
consolidated balance sheet for the year ended December 31, 1996, consolidated
statements of operations for the three and nine month periods ended September
30, 1996 and the consolidated statements of cash flows for the nine months ended
September 30, 1996 combines the data of Sivan Computers Training Center (1994)
Ltd. ("Sivan") and Mashov Computer Based Training (C.B.T.) Ltd. ("Mashov CBT").
See Management's Discussion and Analysis, "Background" and "Financial
Reporting." The financial information should be read in conjunction with the
audited financial statements and notes thereto for the year ended December 31,
1996. Results for the interim period are not necessarily indicative of results
for the entire year.
Note 2. Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (FAS 128), "Earnings Per Share". This
statement is effective for the Company's year ending December 31, 1997. The
statement redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share is replaced by
diluted earnings per share.
The impact of FAS 128 on the calculation of primary and fully diluted
earnings per share for the three and nine months ended September 30, 1997 and
1996 is not material.
Note 3. Pro Forma Results of Operations
The unaudited financial statements for 1997 included in this report reflect
the operations of Sivan and Mashov CBT for the nine months ended September 30,
1997, and PC Etcetera, Inc. since February 13, 1997, the date of the stock
purchase transaction. See Management's Discussion and Analysis, "Background".
Because of the change in control, the stock purchase transaction between Mashov
and PC Etcetera, Inc. was accounted for as a reverse acquisition. Based on such
accounting treatment, Sivan is reported as the surviving entity. The nine months
ended September 30, 1996 includes the nine months operations of Sivan and the
six months of operations (since inception) of Mashov CBT. It does not include
the operations of PC Etcetera, Inc.
8
<PAGE>
MENTORTECH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On a pro forma basis had the acquisition occurred January 1, 1997, the pro
forma results of operations for the nine months ended September 30, 1997 would
have been as follows:
Revenues $13,685,000
Net (Loss) ($315,000)
Net (Loss) Per Share ($0.01)
Note 4. Accounting Policy
For purposes of the Statements of Cash Flows, the Company considers all
highly liquid instruments with maturity of three months or less when purchased
to be cash equivalents.
9
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements
involve known and unknown risks and uncertainties that may cause the actual
results, performance, levels of activity, or achievements of Mentortech Inc.
(formerly PC Etcetera, Inc.) and its consolidated subsidiaries (collectively,
the "Company"), or industry results, to be materially different from any future
results, performance, levels of activity, or achievements of the Company
expressed or implied by such forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, general
and economic business conditions, changes in the industry, and the ability of
the Company to implement its business strategy, as well as those discussed
elsewhere in this report. The following discussion and analysis should be read
in conjunction with the Company's financial statements and notes thereto
included elsewhere in this report.
Background
As previously reported, effective February 13, 1997, a change of control of
PC Etcetera, Inc. (hereafter referred to as the "U.S. Operation") occurred
pursuant to a Stock Purchase Agreement dated February 6, 1997 (the "Stock
Purchase Agreement") between the former PC Etcetera, Inc. and Mashov Computers
Marketing Ltd. ("Mashov"), a corporation incorporated under the laws of the
State of Israel whose shares are publicly traded on the Tel-Aviv Stock Exchange.
Mashov is a subsidiary of Mashov Computers Ltd., whose shares are also publicly
traded on the Tel-Aviv Stock Exchange. Based on the Stock Purchase Agreement,
Mashov acquired 8,438,924 shares of Common Stock and 658,412 shares of Series C
Preferred Stock of the U.S. Operation (collectively, the "Sale Stock"). Each
share of Series C Preferred Stock was converted into 10 shares of Common Stock
and had 10 to 1 voting rights in relation to shares of Common Stock. In
consideration for the Sale Stock, the U.S. Operation acquired two of Mashov's
subsidiaries, Sivan Computers Training Center (1994) Ltd. ("Sivan"), and Mashov
Computer Based Training (C.B.T.) Ltd. ("Mashov CBT"), both of which are
incorporated under the laws of the State of Israel. Sivan and Mashov CBT are
engaged in instructor-led personal computer training and the development and
sale of technology-based training ("TBT") products and services. As a result of
the transactions provided for in the Stock Purchase Agreement, Mashov owned 69%
of the U.S. Operation's equity and voting securities on a fully diluted basis,
subject to an adjustment based upon the fiscal year 1996 audited balance sheets
of the U.S. Operation, Sivan and Mashov. The Company calculated the final
adjustment and Mashov contributed 345,595 shares of its common stock to the
capital of the Company. As a result, Mashov now owns 68.5% of the Company's
equity and voting securities on a fully diluted basis.
10
<PAGE>
In connection with the execution of the Stock Purchase Agreement, the U.S.
Operation executed a Conversion and Waiver Agreement effective February 13, 1997
(the "Conversion Agreement") with certain prior holders of its securities and
debt (the "Conversion Parties"). Pursuant to the Conversion Agreement, the
Conversion Parties received Common Stock for the cancellation of the debt owed
by the U.S. Operation and for the dilution of all options and warrants owned by
the Conversion Parties. After giving effect to the Conversion Agreement, and
aggregating their prior holdings, the Conversion Parties, as of September 30,
1997, own 4,812,509 shares of Common Stock of the Company. The shares of Common
Stock issued pursuant to the Conversion Agreement are the subject of a
Registration Statement on Form SB-2 which was declared effective on November 5,
1997 by the Securities and Exchange Commission.
Recent Corporate Events
At the Company's 1997 Annual Meeting held August 4, 1997, the Company's
stockholders voted to (i) amend the Company's Certificate of Incorporation to
change the name of the Company to Mentortech Inc.; (ii) amend the Company's
Certificate of Incorporation to increase the number of authorized shares of
capital stock of the Company from 20,000,000 to 45,000,000 comprised of
40,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000
shares of Preferred Stock, par value of $.001 per share; (iii) authorize the
conversion of each of the 658,412 outstanding shares of the Company's Series C
Preferred Stock into ten shares of Common Stock; and (iv) ratify the Company's
1997 Stock Option Plan.
Effective October 1, 1997, the Company purchased substantially all of the
assets of GLTN Computer Consultants Inc. GLTN was an independent computer
training company located on Long Island, New York. The former president of GLTN
has been hired as the Company's Vice President of Instructor Led Training.
Financial Reporting
The unaudited financial statements as of September 30, 1997 included in
this report reflect the operations of Sivan and Mashov CBT for the nine months
ended September 30, 1997 as well as those of the U.S. Operation and Mentortech
TBT formerly PC Etcetera Israel since February 13, 1997, the effective date of
the Stock Purchase Agreement. Because of the change in control, the transaction
has been accounted for as a reverse acquisition. Based on such accounting
treatment, Sivan and Mashov CBT are reported together as the surviving entity
and the financial information for the three and nine months ended September 30,
1996 reflect the operations of Sivan and those of Mashov CBT since its inception
in second quarter of 1996. The financial statements for the period ended
September 30, 1997 also include the operations of Sivan Jerusalem Ltd. ("Sivan
Jerusalem"), a company in which Sivan had held a 50% equity investment until
January 1997 when it purchased the remaining equity in Sivan Jerusalem and it
became a wholly-owned subsidiary. All amounts referred to herein are in
thousands. The following discussion with respect to the U.S. Operation reflects
the entire
11
<PAGE>
nine month period ended September 30, 1997 in order to provide a clearer
description of such operations during the period.
Three and Nine Months Ended September 30, 1997 Compared to Three and Nine Months
Ended September 30, 1996
Revenues consist primarily of revenues from services and product sales. The
Company's revenues relating to instructor-led training ("ILT") are recognized
over the life of the training course. Technology Based Training ("TBT") revenues
are recognized upon shipment of the software provided that no significant vendor
obligations remain and collection of the related receivable is probable.
Contract consulting revenue is recognized as the services are performed.
The Company's revenues for the three months ended September 30, 1997
increased by 83% to $4,396 from $2,397 for the three months ended September 30,
1996. Revenue for the nine months ended September 30, 1997 increased 98% to
$13,083 from $6,606 for the comparable 1996 period. Sivan training revenues
increased by 25% and 29% from $2,321 and $6,487 for the three and nine months
ended September 30, 1996, respectively, to $2,868 and $8,359 for the three and
nine months ended September 30, 1997. Sivan Jerusalem, a company in which Sivan
had held a 50% equity investment until January 1997 when Sivan purchased the
remaining equity, accounted for 49% and 41%of Sivan's increased revenues for the
three and nine months ended September 30, 1997. Sivan's share of Sivan
Jerusalem's results of operations were reported as equity in earnings of an
affiliate in 1996. The remaining increases in Sivan's revenues of 12% and 17%
for the three and nine months ended September 30, 1997 were due primarily to its
success in offering more profitable technical courses as well as an increase in
the number of application courses offered. The operations of Mentortech TBT
began in April 1996, therefore the 1996 amounts only reflect six months of
operations rather than nine.
The revenues of the U.S. Operation were $1,466 and $4,825 for the three and
nine months ended September 30, 1997, a decrease of 17% and an increase of 2%,
respectively, compared to revenues of $1,769 and $4,707, respectively, for the
three and nine months ended September 30, 1996. In 1997, the U.S. Operation has
been placing more emphasis on the growth of its Consulting Services Division.
Consulting revenues for the New York metropolitan area went from $1,167 and
$2,725 for the three and nine months ended September 30, 1996, to $1,054 and
$3,564, respectively, for the three and nine months ended September 30, 1997, a
decrease of 10% and an increase of 31%, respectively. Consulting revenues
decreased in the third quarter of 1997 primarily due to termination of
assignments and delays in the start dates of new assignments. Management has
engaged a consultant's advocate whose primary role is to communicate with
consultants, increase their retention rate and improve expected termination
reporting. Management believes that this action should reduce future turnover.
During the three and nine months ended September 30, 1997, the U.S.
Operation continued to experience declining ILT revenues. Application training
revenues decreased by
12
<PAGE>
approximately 32% and 36%, respectively, for the three and nine months ended
September 30, 1997 compared to the same periods in 1996. Management attributes
the declining ILT revenue to the fact that software vendors have not released
many new versions of existing software. The U.S. Operation had anticipated that
the release of a new application software entitled Office 97 would have a
positive impact on ILT revenues. However, many clients continued to delay such
conversions and projects pending the market's experiences with Office 97. The
U.S. Operation has recently begun to experience an increase in training demand
for the upgraded Office 97 products.
The U.S. Operation is 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 have had
higher margins. Management believes that this higher technical training
environment will have a better synergy with the U.S. Operation's growing
consulting business. The U.S. Operation has been authorized as a Lotus
Authorized Education Center and its status has been upgraded to Premium Business
partner and has received Microsoft Authorized Technical Education Center status.
During the nine months ended September 30, 1997, technical training revenues
increased by 15% compared to the same period in 1996.
Cost of revenues for ILT consists primarily of the expenses of instructors,
classroom space costs as well as depreciation of classroom equipment. Cost of
revenues for consulting services consists primarily of the labor costs of the
consultants performing the work at clients' facilities. Cost of revenues for TBT
revenues include packaging and manufacturing costs of the products as well as
design expenses in custom TBT projects. Cost of revenues rose to 62% of revenues
for the three and nine months ended September 30, 1997, respectively, compared
to 51% and 52% of revenues for the three and nine months ended September 30,
1996, respectively. Cost of revenues for Sivan was 53% and 58% of revenues for
the three and nine months ended September 30, 1997, respectively, compared to
53% for the comparable periods in 1996. These increases were primarily due to an
increase in depreciation expense as a result of a substantial investment in new
classroom computer equipment. Depreciation expense for classroom computers
increased by 51% for the three and nine months ended September 30, 1997 as
compared to the 1996 comparable period. Cost of revenues for the U.S. Operation
were 75% and 72% for the three and nine months ended September 30, 1997,
respectively. As training revenues decrease, cost of revenues as a percentage of
sales has increased due to the fixed costs of classroom facilities and
depreciation.
Selling and marketing expenses consist primarily of costs relating to
promotion, advertising, trade shows and exhibitions. Such expenses also include
compensation of sales support, travel and related expenses. Sales and marketing
expenses increased by $379 and $1,028 to $750 and $1,955 during the three and
nine months ended September 30, 1997, respectively, from $371 and $927 for the
three and nine months ended September 30, 1996, respectively. Selling and
marketing expenses of Sivan increased by 36% and 31 % for the three and nine
months ended September 30, 1997, respectively, compared to the same periods in
1996. This increase is due to Management's decision to increase sales and
marketing
13
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activities in order to obtain increased revenues. Sivan's increase in sales and
marketing expenses correlates with its increase in revenue. Selling and
marketing expenses in the U.S. increased to $262 and $658 for the three and nine
months ended September 30, 1997, respectively, from $205 and $547 for the three
and nine months ended September 30, 1996, respectively.
General and administrative expenses include compensation costs for
administration, finance and general management personnel and office maintenance
and administrative costs. General and administrative costs for the Company
increased by $253 and $811 to $981 and $2,770 during the three and nine months
ended September 30, 1997, respectively, from $728 and $1,959 for the three and
nine months ended September 30, 1996, respectively. These increases were due
entirely to the expansion and the inclusion of the results of Sivan Jerusalem,
Mashov CBT and the U.S. Operation. General and administrative expenses were $344
and $1,062, respectively, for the U.S. Operation, $589 and $1,683, respectively,
for Sivan, and $64 and $196, respectively, for Mashov CBT for the three and nine
months ended September 30, 1997. General and administrative expenses for Sivan
(excluding Sivan Jerusalem) decreased by $187 (27%) and $343 (18%) for the three
and nine months ended September 30, 1997, respectively, compared to the same
periods in 1996.
Research and development expenses consist primarily of salaries of
employees engaged in ongoing research and development activities of TBT
materials and other related costs. Research and development expenses amounted to
$110 and $340, respectively, for the three and nine months ended September 30,
1997, respectively, compared to $89 and $193 for the three and nine months ended
September 30, 1996. Research and development is primarily incurred by Mashov CBT
which did not begin operating until the second quarter of 1996.
The Company incurred an operating loss of $175or the three months ended
September 30, 1997 compared to an operating loss of $22 for the three months
ended September 30, 1996. The operating loss for the nine months ended September
30, 1997 was $87 compared to operating income of $74 for the nine months ended
September 30, 1996. The results in the 1997 periods were due to decreased
revenues in the U.S., increased sales and marketing expenses, coupled with
increased research and development activities.
As discussed above, equity in earnings of affiliate represented Sivan's 50%
investment in Sivan Jerusalem during 1996. Effective January 1, 1997, Sivan
purchased the remaining equity, and Sivan Jerusalem became a wholly-owned
subsidiary. Sivan Jerusalem's results of operations are consolidated in the
financial statements for the three and nine months ended September 30, 1997. The
Company's gain on the sale of a subsidiary refers to the 1996 sale of the U.S.
Operation's wholly- owned Canadian subsidiary. Due to the fact that the purchase
agreement included certain covenants that continued for two years, a part of the
purchase price is being recognized over the two year period. The U.S. Operation
is not included in the results for the three and nine months ended September 30,
1996.
Financial expenses, net, consists primarily of bank charges and interest
expenses offset by interest income. Financial expenses decreased to $136 and $39
for the three and nine
14
<PAGE>
months ended September 30, 1997 from $411 for the nine months ended September
30, 1996. An adjustment representing renegotiation of loans in Israel was made
during the three months ended September 30, 1997 compared to financial expenses
of $104 for the three months ended September 30, 1996. This decrease was due
principally to the conversion of $2,578 of shareholder loans into equity by
Sivan in the first quarter of 1997 and the repayment of the U.S. Operation's
receivables financing with Rosenthal and Rosenthal during the second quarter of
1997.
As a result of the foregoing, the Company incurred net losses of $197 and
$179, respectively, for the three and nine months ended September 30, 1997
compared to net losses of $117 and $296, respectively, for the three and nine
months ended September 30, 1996. Sivan's profit was $271 and $436, respectively,
for the three and nine months ended September 30, 1997 compared to net income of
$11 and net loss of $58 for the three and nine months ended September 30, 1996.
During both the first and second quarters of 1997, both Sivan and the U.S.
Operation operated on a profitable basis, which profits were offset by the
unprofitable operations of Mentortech TBT, which incurred losses of
approximately $228 and $485, respectively, during the three and nine months
ended September 30, 1996. The third quarter losses are due primarily to
decreased consulting revenues in the US, and increased sales and marketing
expenses. Management expects Mentortech TBT to continue to operate at a loss for
the remainder of 1997 while the Company invests in the subsidiary's future.
Liquidity and Capital Resources
At September 30, 1997, the Company had $34 in cash and cash equivalents and
a working capital deficiency of $2,201. At December 31, 1996, the cash and
working capital deficiency was $50 and $1,946, for the U.S. Operation, and $384
and $1,618, respectively, for Sivan. The improved cash position was a result of
Mashov's infusion of approximately $1,200 into the Company pursuant to the Stock
Purchase Agreement, offset by operating losses as well as an increase in
accounts receivable and an investment in computer equipment and other fixed
assets.
The Company used net cash of $612 in operating activities in the nine
months ended September 30, 1997. Accounts receivable increased by $121 during
the same period. This increase was due primarily to the increase in revenues.
Accounts payable decreased by $520 during the same period. The Company's
investing activities resulted in $335 mainly from the cash received in
connection with the Stock Purchase Agreement offset by the purchase of $908 in
fixed assets and $45 used to purchase Sivan Jerusalem. Financing activities
provided $43, principally from short term bank credit.
In 1997, the Company obtained an oral commitment from its Israeli bank to
provide Sivan up to $1.1 million in working capital loans. As of September 30,
1997, Sivan had borrowed $1 million from such bank. Based on the commitment of
its Israeli bank and the representation by Mashov that it will provide continued
financial support, if necessary, to meet the Company's obligations for the
remainder of 1997, the Company believes it has sufficient working capital to
meet its obligations through at least the end of 1997.
15
<PAGE>
In order to facilitate its planned growth, the Company intends to seek
additional equity or other financing in fourth quarter of 1997. No assurance can
be given that it will be successful in obtaining such financing. If such
financing is not obtained, no assurance can be given that the Company will be
able to implement its planned growth.
16
<PAGE>
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders
The Company held its Annual Meeting of Stockholders on August 4, 1997. The
number of shares of the Company's Common Stock outstanding and entitled to vote
at the 1997 Annual Meeting of Stockholders was 21,584,090, including 658,412
shares of the Company's Series C Preferred Stock which have 10 to 1 voting
rights in relation to shares of Common Stock. At the meeting the shareholders
voted for:
1. The election of the following directors to hold office for a term until their
successors are duly elected and qualified at the Company's 1998 Annual Meeting
of Stockholders.
For Withhold
--- --------
David Assia 17,550,751 600
Jack Dunietz 17,550,751 600
Martin F. Kahn 17,550,751 600
Roy Machnes 17,550,751 600
Elan Penn 17,550,751 600
Terry I. Steinberg 17,550,751 600
2. Approval to amend the Certificate of Incorporation to change the name of the
Company from PC Etcetera, Inc. to Mentortech Inc.
For Against Abstain
--- ------- -------
17,550,791 560 --
3. Approval to amend the Certificate of Incorporation to increase the number of
authorized shares of capital stock of the Company from 20,000,000 to 45,000,000
comprised of 40,000,000 shares of common stock of the Company, par value $.01
per share, and 5,000,000 shares of preferred stock of the Company, par value of
$.001 per share.
For Against Abstain Unvoted
--- ------- ------- -------
17,537,477 4,620 -- 9,254
4. Approval to authorize the conversion, at the option of the holder, of each of
the 658,412 outstanding shares of the Company's Series C Preferred Stock into
ten shares of Common Stock.
For Against Abstain Unvoted
--- ------- ------- -------
17,255,706 6,620 400 288,225
17
<PAGE>
5. Approval of the Company's 1997 Stock Option Plan.
For Against Abstain Unvoted
--- ------- ------- -------
17,257,706 5,220 200 288,225
6. Approval of the appointment of Ernst & Young LLP as the independent auditors
of the Company's 1997 financial statements.
For Against Abstain
--- ------- -------
17,550,511 640 200
Item 6. Exhibits and Reports on Form 8-K.
Exhibits.
2.1 Stock Purchase Agreement dated February 6, 1997 and effective February 13,
1997 by and between the Company and Mashov (1)
3.1 Certificate of Amendment of Certificate of Incorporation with regard to the
change of the Company's name and the increase in the Company's authorized
capital stock (2)
3.2 Certificate of Incorporation, as amended (3)
3.3 By-Laws (4)
4.1 Specimen Common Stock Certificate (5)
10.1 Lease for premises situated at 462 Seventh Avenue, 18th Floor, New York,
New York (6)
10.2 Lease for premises situated at 462 Seventh Avenue, 4th Floor New York, New
York (7)
10.3 1997 Stock Option Plan (2)
10.4 Employment Agreement of Roy Machnes (8)
10.5 Employment Agreement of Elan Penn (8)
10.6 Employment Agreement of Terry I. Steinberg (8)
27 Financial Data Schedule
__________
(1) Filed as an exhibit to the Company's Current Report on Form 8-K for an
event dated February 13, 1997 and hereby incorporated by reference thereto.
18
<PAGE>
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1997 and hereby incorporated by reference
thereto.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 and incorporated herein by reference,
as amended by document filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1993 and hereby
incorporated by reference thereto.
(4) Filed as an exhibit to the Company's Registration Statement on Form S-18
(File No. 33- 19521) and hereby incorporated by reference thereto.
(5) Filed as an exhibit to the Company's Registration Statement No. 33-93842 on
Form S-2 and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993 and hereby incorporated by reference
thereto.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994 and hereby incorporated by reference
thereto.
(8) Filed as a "Related Agreement" to the Stock Purchase Agreement, which was
filed as an exhibit to the Company's Current Report on Form 8-K for an
event dated February 13, 1997 and hereby incorporated by reference thereto.
Reports on Form 8-K.
No Current Reports on Form 8-K have been filed since June 30, 1997.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MENTORTECH, INC.
By: /s/ Roy Machnes
---------------
Roy Machnes
President and Chief Executive Officer
Date: November 14, 1997
20
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1 Stock Purchase Agreement dated February 6, 1997 and effective February 13,
1997 by and between the Company and Mashov (1)
3.1 Certificate of Amendment of Certificate of Incorporation with regard to the
change of the Company's name and the increase in the Company's authorized
capital stock (2)
3.2 Certificate of Incorporation, as amended (3)
3.3 By-Laws (4)
4.1 Specimen Common Stock Certificate (5)
10.1 Lease for premises situated at 462 Seventh Avenue, 18th Floor, New York,
New York (6)
10.2 Lease for premises situated at 462 Seventh Avenue, 4th Floor New York, New
York (7)
10.3 1997 Stock Option Plan (2)
10.4 Employment Agreement of Roy Machnes (8)
10.5 Employment Agreement of Elan Penn (8)
10.6 Employment Agreement of Terry I. Steinberg (8)
27 Financial Data Schedule
_______________
(1) Filed as an exhibit to the Company's Current Report on Form 8-K for an
event dated February 13, 1997 and hereby incorporated by reference thereto.
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1997 and hereby incorporated by reference
thereto.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 and incorporated herein by reference,
as amended by document filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1993 and hereby
incorporated by reference thereto.
(4) Filed as an exhibit to the Company's Registration Statement on Form S-18
(File No. 33- 19521) and hereby incorporated by reference thereto.
(5) Filed as an exhibit to the Company's Registration Statement No. 33-93842 on
Form S-2 and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993 and hereby incorporated by reference
thereto.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994 and hereby incorporated by reference
thereto.
(8) Filed as a "Related Agreement" to the Stock Purchase Agreement, which was
filed as an exhibit to the Company's Current Report on Form 8-K for an
event dated February 13, 1997 and hereby incorporated by reference thereto.
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