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, 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 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)
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 May 15, 1997, the Issuer had 14,999,970 shares of Common Stock, par value
$.001, outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
PC ETCETERA, INC.
Form 10-QSB
INDEX
Page
----
Consolidated Balance Sheets at March 31, 1997 and December 31, 1996....3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1997............................................5
Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1997............................................6
Notes to Financial Statements..........................................8
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................10
Exhibits and Reports on Form 8-K......................................13
Signatures....................................................................15
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<PAGE>
PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current Assets:
- ---------------
Cash and cash equivalents $ 746 $ 384
Accounts receivable 3,433 2,279
Prepaid expenses 115 225
Inventory 32 91
------- -------
Total current assets 4,326 2,979
------- -------
Property and Equipment:
- -----------------------
Property and equipment 3,554 2,227
Accumulated depreciation and amortization (1,243) (587)
------- -------
Total property and equipment 2,311 1,640
------- -------
Other Assets:
- -------------
Other assets, net 433 362
Investment in affiliate - 178
Goodwill (net of amortization of $286,926) 7,467 1,811
------- -------
TOTAL ASSETS $14,537 $ 6,970
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
- --------------------
Accounts payable and accrued expenses 2,970 1,495
Deferred revenue 1,891 1,624
Loans payable - others - current portion 669 -
Loans payable - affiliate - current portion 698 1,478
Capital equipment obligations 58 -
------- -------
Total current liabilities 6,286 4,597
------- -------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Other Liabilities
- -----------------
Loans payable affiliates (shareholders) 600 2,665
Other liabilities 581 455
------- -------
Total liabilities 7,467 7,717
------- -------
Stockholders' Equity:
- ---------------------
Common stock 150 150
Preferred stock 1 -
Additional paid in capital - common stock 7,794 -
Accumulated deficit (925) (920)
------- -------
Cumulative Foreign Currency
Translation Adjustment 50 23
Total stockholders' equity 7,070 (747)
----- ----
Total Liabilities and Stockholders' Equity $14,537 $6,970
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands except for earnings per share)
1997 1996
---- ----
(UNAUDITED)
Revenues $ 4,267 $ 2,109
Cost of revenues 2,629 1,072
------ ------
Gross profit 1,638 1,037
Selling, general and administrative
expenses 1,508 862
Research and development 103 -
------- -----
Operating Income 27 175
Share in profit of affiliate - 8
Gain on sale of subsidiary 11 -
Interest expense, net (28) (138)
-------- ------
Net income before provision
for income taxes 10 45
Provision for income taxes - -
------- ------
Net Income $ 10 $ 45
======= ========
Earnings per share:
Net income $0.0005 $45.00
======= ======
Weighted average number of shares 21,584 1
====== =======
See accompanying notes to consolidated financial statements.
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<PAGE>
PC ETCETERA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands except for earnings per share)
<TABLE>
<CAPTION>
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the period $ 10 $ 45
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation and amortization 251 99
Capital gain - (8)
Increase in accrued severance pay, net 21 13
Decrease (increase) in trade receivables 316 (138)
Decrease in prepaid expenses (180) -
Decrease (increase) in other receivables 56 (137)
Increase (decrease) in other assets (5) -
Decrease (increase) in inventories 56 (21)
Increase in trade payables (767) 112
Increase (decrease) in related parties (340) 75
Increase in deferred income 203 220
Increase (decrease) in accounts payable and
accrued liabilities 2 (72)
Accrued interest on shareholders' loan - 75
------ -----
Net cash provided by operating activities (377) 263
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (385) (225)
Proceed from sales of property and equipment 9 -
Purchase of subsidiary/acquisition (45) -
Cash acquired in Acquisition 1,217 -
-------- ------
Net cash used in investing activities 796 (225)
--------- -------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital equipment obligation repayments (15) -
Increase in short-term bank credit (42) -
------- -------
Net cash provided by financing activities (57) -
------- ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 362 38
Cash and cash equivalents at the beginning of the period 384 93
======= ======
Cash and cash equivalents at the end of the period $ 746 $ 131
======= ======
Supplemental disclosure of cash flow information:
Cash paid during the period for
Income Taxes 10 16
Interest 36 40
Supplemental disclosure of non-cash and financing
activities:
A shareholder loan in the amount of $2,578 was
converted to equity
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
PC ETCETERA, INC.
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 financial information should be read in conjunction
with the audited financial statements and notes thereto for the year ended
December 31, 1996 included in the Company's most recent Annual Report on Form
10-KSB filed with the Securities and Exchange Commission. 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 quarter 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 months ended March 31, 1997 and 1996 is not
material.
Note 3. Proforma Results of Operations
The unaudited financial statements for 1997 included in this report reflect
the operations of Sivan and Mashov CBT for the three months ended March 31, 1997
and the operations of 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 quarter ended March 31, 1996 includes the operations of Sivan only.
On a proforma basis had the acquisition occurred January 1, 1997, the
proforma results of operations would have been as follows:
-8-
<PAGE>
Revenues $4,874
Net Loss ($126)
Loss Per Share ($.006)
Note 4. Accounting Policy
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid instruments with maturity of three months or less to be cash
equivalents
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<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 PC Etcetera, Inc.
("PCE"), 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
PCE occurred pursuant to a Stock Purchase Agreement dated February 6, 1997 (the
"Stock Purchase Agreement") between PCE and Mashov Computers Marketing Ltd., a
corporation incorporated under the laws of the State of Israel ("Mashov"), 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 PCE (collectively, the "Sale Stock"), where each share of
Series C Preferred Stock is convertible into 10 shares of Common Stock and has
10 to 1 voting rights in relation to shares of Common Stock. In consideration
for the Sale Stock, PCE acquired two of Mashov's subsidiaries, Sivan Computers
Training Center (1994) Ltd. ("Sivan"), and Mashov Computer Based Training
(C.B.T.) Ltd., 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 products and
services. As a result of the transactions provided for in the Stock Purchase
Agreement, Mashov owns 69% of PCE's equity and voting securities on a fully
diluted basis, subject to an adjustment based upon the fiscal year 1996 audited
balance sheets of PCE, Sivan and Mashov. The Company anticipates that the final
adjustment will be calculated during the second quarter of 1997.
In connection with the execution of the Stock Purchase Agreement, PCE
executed a Conversion and Waiver Agreement effective February 13, 1997 (the
"Conversion and Waiver Agreement") with certain prior holders of its securities
and debt (the "Conversion Parties"). Pursuant to the Conversion and Waiver
Agreement the Conversion Parties received Common Stock for the cancellation of
the debt owed by PCE and for the dilution of all options and warrants owned by
the Conversion Parties. After giving effect to the Conversion and Waiver
Agreement, and aggregating their prior holdings, the Conversion Parties, as of
March 31, 1997, own 4,812,509 shares of Common Stock of PCE.
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<PAGE>
Financial Reporting
The unaudited financial statements for the first quarter of 1997 included
in this report reflect the operations of Sivan and Mashov CBT for the three
months ended March 31, 1997 and the operations of PCE and PC Etcetera Israel
since February 13, 1997, the date of the stock purchase transaction. Because of
the change in control, the stock purchase transaction between Mashov and PCE was
accounted for as a reverse acquisition. Based on such accounting treatment,
Sivan is reported as the surviving entity and financial information for the
quarter ended March 31, 1996 reflects the operations of Sivan. Mashov CBT did
not begin operations until the second quarter of 1996. The financial statements
for the quarter ended March 31, 1997 also include the operations of Mashov CBT,
as well as Sivan Jerusalem Ltd., a company in which Sivan had held a 50% equity
investment until January 1997 when Sivan purchased the remaining equity and it
became a wholly owned subsidiary. All dollar amounts referred to herein are in
thousands.
Quarter Ended March 31, 1997 Compared to Quarter Ended March 31, 1996
Revenues consist primarily of revenues from services and product sales. The
Company's revenues relating to instructor-led training are recognized over the
life of the training course. CBT 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. Revenues for the Company for the quarter ended
March 31, 1997 increased 102% to $4,267 from $2,109 for the quarter ended March
31, 1996. As indicated above, for accounting purposes Sivan and Mashov CBT
acquired PCE in February, 1997. Sivan training revenues increased by 23% from
$2,109 for the quarter ended March 31, 1996 to $2,598 for the quarter ended
March 31, 1997. This increase in Sivan's revenues was due primarily to its
success in offering more profitable technical courses which replaced lower
revenue generating application courses. This was possible because of the
increased emphasis and substantial growth in demand for Microsoft NT training.
First quarter 1997 revenues for PCE, Sivan Jerusalem and Mashov CBT were $1,327,
$236 and $117, respectively.
Cost of revenues for instructor led training consists primarily of the
expenses of instructors as well as classroom space costs. Cost of revenues for
consulting services consists primarily of the labor costs of the consultants
performing the work at our clients' facilities. Cost of revenues for CBT sales
include development and manufacturing costs of the products. Cost of revenues
rose to 62% of revenues for the three months ended March 31, 1997 as compared to
51% of revenues for the three months ended March 31, 1996. Cost of revenues for
Sivan was 61% of revenues for the three months ended March 31, 1997 as compared
to 51% for the comparable period in 1996. This increase was primarily due to a
reclassification of expenses which was made in order to provide a more accurate
picture of cost of revenues.
Research and development expenses consist primarily of salaries of
employees engaged in on-going research and development activities of technology
based training materials and other related costs. Research and development
expenses amounted to $103 for the quarter ended March 31, 1997 and were mainly
incurred by Mashov CBT which did not begin operating until the second quarter of
1996.
-11-
<PAGE>
Selling, general and administrative expenses consist primarily of costs
relating to promotion, advertising, trade shows and exhibitions, compensation of
sales support, travel and related expenses. such expenses also include
compensation costs for administration, finance and general management personnel
and office maintenance and administrative costs. Selling, general and
administrative costs for the Company increased by $646 to $1,508 during the
three months ended March 31, 1997 from $862 for the three months ended March 31,
1996. Selling, general and administrative costs were $383 for PCE, $1,009 for
Sivan and Mashov CBT, and $78 for Sivan Jerusalem for the three months ended
March 31, 1997. Selling, general and administrative expenses for Sivan increased
from $590 for the quarter ended March 31, 1996 to $639 for the quarter ended
March 31, 1997, an increase of 18%. The selling and marketing expenses of Sivan
increased principally as a result of Sivan's 23% increase in revenues.
Financial expenses consist primarily of interest expenses on bank and other
debt. Financial expenses decreased to $28 for the quarter ended March 31, 1997
from $138 for the quarter ended March 31, 1996. This decrease was due
principally to the conversion of $2,578 of shareholder loans into equity in the
first quarter of 1997. As a result of such conversion no interest was accrued on
the loans during the quarter ended March 31, 1997.
During the quarter ended March, 1997, both Sivan and PCE operated on a
profitable basis, which profits were offset by the operations of Mashov CBT,
which incurred a loss of approximately $120. Management's expects Mashov CBT to
continue to operate at a loss for the remainder of 1997 while the Company
invests in the subsidiary's future.
As a result of the foregoing, the Company incurred a net profit of $10 for
the quarter ended March 31, 1997 compared to $37 for the quarter ended March 31,
1996. Sivan's profit grew from $45 to $69 an increase of 86%.
Liquidity and Capital Resources
At March 31, 1997, the Company had $746 in cash and cash equivalents and a
working capital deficiency of $2,005. At December 31, 1996, the cash and working
capital deficiency was $50 and $1,946 respectively for PCE and $384 and $1,618
respectively for Sivan. The improvement of the Company's cash position was a
result of Mashov's infusion of $1,200 pursuant to the Stock Purchase Agreement.
It is the intention of Mashov to provide continued financial support of the
Company, if necessary, to meet the Company's obligations for the next twelve
months.
The Company used net cash from operating activities of $377 in the first
quarter. Accounts receivable increased by $316 in the first quarter. This
increase was due primarily to the increase in revenues. Trade payables decreased
by $767 during the first quarter. The Company used $796 in investing activities
of which $385 was used to purchase fixed assets and $45 was used to purchase
Sivan Jerusalem. Financing activities used $57 principally for the repayment of
debt.
Prior to April 30, 1997, PCE was a party to a financing agreement by which
it financed its trade receivables. The balance outstanding under the agreement,
which was limited to 75% of eligible receivables, was reported as a current
liability under "Loans Payable - Others." Effective April 30, 1997 the agreement
expired and the loan balance was repaid.
-12-
<PAGE>
Exhibits and Reports on Form 8-K.
Exhibits.
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1 Asset Purchase Agreement dated as of August 12, 1994 among PCE, PC Israel,
Elron, Adar International, Inc. and Elron Technologies Inc. (1)
2.2 Stock Purchase Agreement dated as of January 31, 1996 by and between
Training Holdings L.L.C. and PCE.(2)
2.3 Stock Purchase Agreement dated February 6, 1997 and effective February 13,
1997 by and between PCE and Mashov.(3)
3.1 Certificate of Designation with regard to Series C Preferred Stock.(4)
3.2 Certificate of Amendment of Certificate of Incorporation with regard to
reverse split.(5)
3.3 Certificate of Incorporation, as amended.(6)
3.4 By-Laws.(7)
10.1 Lease for premises situated at 462 Seventh Avenue, 4th Floor, New York, New
York.(5)
10.2 Lease for premises situated at 462 Seventh Avenue, 18th Floor, New York,
New York.(8)
10.3 Amended and Restated 1987 Stock Option Plan.(9)
10.5 Stockholders' Agreement dated as of August 12, 1994 among PCE, Elron, Adar
International, Inc., Elron Technologies Inc., Terry I. Steinberg, Joseph
Sabrin and Gilbert H. Steinberg. (1)
- --------------------------
(1) Filed as an exhibit to PCE's Current Report on Form 8-K for an event dated
August 12, 1994 and hereby incorporated by reference thereto.
-13-
<PAGE>
(2) Filed as an exhibit to PCE's Current Report on Form 8-K for an event dated
January 31, 1996 and hereby incorporated by reference thereto.
(3) Filed as an exhibit to PCE's Current Report on Form 8-K for an event dated
February 13, 1997 and hereby incorporated by reference thereto.
(4) Filed as an exhibit to PCE's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1996 and hereby incorporated by reference thereto.
(5) Filed as an exhibit to PCE's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994 and hereby incorporated by reference thereto.
(6) Filed as an exhibit to PCE'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 PCE'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 PCE's Registration Statement on Form S-18 (File No.
33-19521) and hereby incorporated by reference thereto.
(8) Filed as an exhibit to PCE's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1993 and hereby incorporated by reference thereto.
(9) Filed as an exhibit to PCE's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1992 and hereby incorporated by reference thereto.
Reports on Form 8-K.
The following Current Report on Form 8-K was filed since December 31, 1996:
A Current Report on Form 8-K ("Form 8-K") was filed by the Company with the
Commission on February 27, 1997 with respect to the execution of the Stock
Purchase Agreement and the change of the Company's auditors.
An Amendment No. 1 to the Form 8-K was filed by the Company on March 4,
1997 with respect to the change of the Company's auditors.
An Amendment No. 2 to the Form 8-K was filed by the Company on March 13,
1997 with respect to the change of the Company's auditors.
An Amendment No. 3 to the Form 8-K was filed by the Company on April 24,
1997 with respect to the financial statements of Sivan and Mashov CBT.
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<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.
PC ETCETERA, INC.
By:/s/Roy Machnes
-----------------
Roy Machnes
President and
Chief Executive Officer
Date: May 15, 1997
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 746
<SECURITIES> 0
<RECEIVABLES> 3,433
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,326
<PP&E> 3,554
<DEPRECIATION> 1,243
<TOTAL-ASSETS> 14,537
<CURRENT-LIABILITIES> 6,286
<BONDS> 0
0
0
<COMMON> 15,000
<OTHER-SE> 6,920
<TOTAL-LIABILITY-AND-EQUITY> 14,537
<SALES> 4,267
<TOTAL-REVENUES> 4,267
<CGS> 2,629
<TOTAL-COSTS> 4,257
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 0
<INCOME-TAX> 10
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10
<EPS-PRIMARY> .001
<EPS-DILUTED> .001
</TABLE>
