SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File Number: 0-17419
MENTORTECH INC.
(Name of small business issuer in its charter)
Delaware 13-3260705
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
462 Seventh Avenue 10018
New York, New York (Zip Code)
(Address of principal executive offices)
Issuer's telephone number: (212) 736-5870
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$.01 par value
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[ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $17,560,000
The aggregate market value of the voting stock held by non-affiliates computed,
as of March 18, 1998 was: $7,505,897 (using the average of the bid and asked
price)
Number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: 3,446,176 shares outstanding as of March 18,
1998
Transitional Small Business Disclosure Format Yes ___ No X
--
<PAGE>
PART I
Item 1. Description of Business.
General
Mentortech Inc. (the "Company") develops and offers instructor-led training
("ILT") and technology-based training ("TBT") courses for information technology
professionals and end-users and also provides consulting services in both the
State of Israel and the New York tri-state area, primarily to large business and
public sector organizations. The Company's ILT programs include a wide range of
introductory and advanced classes in operating systems (including Windows 95,
Windows NT, UNIX and Netware), programming languages (including C, C++ and
COBOL), databases (including Oracle and MS SQL Server), communication software,
integrated software packages, computer graphics, desktop publishing, and
groupware products, (including Outlook clients, Exchange Server and Lotus
Notes). In Israel the Company offers an extensive curriculum, including courses
in information technology ("IT") vocational training which provide full change
of career opportunities for individuals seeking to become IT professionals. The
Company's TBT software line includes offerings on Lotus Notes, cc: Mail,
Microsoft Office, and other end-user titles. The Company's Consulting Services
Division ("CSD") provides short to medium term technical consulting to large and
mid-sized corporations in the Northeast region of the U.S. No single client
accounts for more than 10% of the Company's revenues.
The Company has been authorized as a training center by a number of
software developers, including Microsoft, Novell, Autocad (in Israel only),
Corel, Borland, Apple, Lotus (in the United States only) and Magic. The Company
offers an extensive curriculum of Microsoft courses under its Microsoft Advanced
Technical & Education Center Authorization, and Lotus Notes courses under the
Company's Lotus Premium Partner and Lotus Authorized Education Center ("LAEC")
Status. The authorization status allows the Company to purchase training manuals
from the software publishers and offer official vendor courses.
The Company develops and offers TBT programs for use in conjunction with
some of its ILT classes. The Company supplies TBT programs on floppy disks and
compact disks for stand-alone PC's, as well as LANs, WANs, Intranets, and the
Internet via InterTrainer. InterTrainer is Mentortech's platform for delivering
just-in-time, continuous learning directly to the desktop through web browsers.
In addition to end-user applications, the Company also develops custom TBT
projects for large corporations. These custom TBT titles assist corporations in
the training and integration of internal applications and other non-IT related
training topics.
The Company's CSD is responsible for identifying and providing computer
personnel, on a temporary basis, to the Company's client base for special
projects. The Company provides its clients with its own full-time employees, as
well as with independent contractors. Consultants' projects include (i)
development of computer programs in accordance with the client's specifications;
(ii)
-2-
<PAGE>
installation of network operating systems, and networking and communications
software tools; (iii) troubleshooting software problems; and (iv) staffing
end-user help desk support.
Demand for training in information technology products is generated by the
rapid pace of technology's product cycles. The pace of emerging technologies has
increased dramatically and this has fueled a demand for IT training and
consulting. The business community continues to adopt the technologies, thus
absorbing the continuing introduction of new products. Publishers of tools,
operating systems and applications produce new versions, on average, once a year
and some even maintain a pace of twice a year or more. For example, the
emergence of the Internet has created an urgent need to develop appropriate
tools and also train programmers in the platform languages and environment.
Following the initial implementation, new technologies have emerged, including
HTML, Java, ActiveX, audio and video support. The need to master new versions
and products creates continued demand for training and consulting services.
Background
Effective February 13, 1997, the Company's predecessor, PC Etcetera, Inc.
("PCE U.S.") underwent a change in control pursuant to a Stock Purchase
Agreement (the "Stock Purchase Agreement") between it and Mashov Computers
Marketing Ltd. ("Mashov"). Mashov acquired 68.5% of the common stock of PCE U.S.
on a fully diluted basis, in consideration for which PCE U.S. acquired Sivan
Computers Training Center (1994) Ltd. ("Sivan") and Mashov Computer Based
Training (C.B.T.) Ltd. ("Mashov CBT"), both of which corporations are
incorporated under the laws of the State of Israel. The stock purchase
transaction was accounted for as a reverse acquisition such that Sivan and
Mashov CBT were considered the surviving entity, although Mentortech remains the
Registrant for purposes of filing periodic reports with the Securities and
Exchange Commission. Accordingly, for ease of reference in this Report, when the
U.S. historical operations of Mentortech are discussed, the entity will be
referred to as PCE U.S. When the historical operations of Sivan and Mashov CBT
are discussed, the entity will be referred to as "Mentortech." When the current
consolidated operations of Mentortech Inc. and its subsidiaries are discussed,
the entity will be referred to as the "Company." On March 3, 1998, a
one-for-eight reverse split of the Company's Common Stock was effected. All
references to the Company's Common Stock in this report reflect the reverse
split.
In October 1997, the Company acquired the assets of GLTN Computer
Consultants, Inc., a Long Island, New York, ILT training company in
consideration of $130,000 and the issuance of 15,909 shares of Common Stock.
United States ILT Operations
PCE U.S. was founded in 1985 to serve the growing demand for PC training
following the introduction and proliferation of the IBM PC. PCE U.S. grew
serving the training requirements generated by the propagation of the PC at the
corporate desktop. The massive migration from text- based DOS PC's to
Windows-based operating systems generated another growth spurt. Corporations
-3-
<PAGE>
and individuals making the change from DOS to Windows required the training
services that companies such as PCE U.S. offered. PCE U.S.'s main focus was on
end-user applications training via ILT and TBT. PCE U.S. followed a typical
training model, offering day-long, multi-day sessions. PCE U.S. trained
approximately 33,000 students in 1995 and 28,000 students in 1996. The Company
trained 31,000 students in the United States in 1997.
In the late 1980s and early 1990s, PCE U.S. embarked on a geographic
expansion plan that resulted in substantial losses. Throughout this period, PCE
U.S.'s operations in the New York metropolitan market continued to be
profitable. In the mid-1990s, PCE U.S. began to experience a decline in its
traditional ILT business which trend continued in 1997. In addition, failed
investments had left PCE U.S. with an insufficient amount of capital to expand
internally, particularly in its growing CSD business. In an attempt to reduce
expenses and improve its financial condition, PCE U.S. sold its Canadian
subsidiary in January 1996, shut-down PC Etcetera Ltd., its Israeli-based R&D
center in March 1996 and sold its San Francisco branch in April 1996.
Israeli Operations
ILT
The Company's ILT activities in Israel are conducted by Sivan, which was
founded in 1977. At the initiation of its activities, Sivan principally offered
classes in systems analysis and programming. The operations of Sivan were
acquired by Mashov in 1994. Under the leadership of the Company's current
management team, Sivan's sales increased from approximately $4 million in 1994
to $9.2 million in 1996 and $11.2 million in 1997. Sivan is a leading Israeli
ILT training company, with over sixty classrooms in ten cities throughout
Israel. Sivan is certified by numerous software publishers, including Novell,
Microsoft, Borland, SCO, Lotus, MSE, Autocad and others. Several of Sivan's
sites have been awarded Microsoft's Advanced Technical Education Center
Authorization, with the remainder expected to be authorized in the near future.
Sivan trained approximately 42,000 students in 1995, 55,000 students in
1996, and 42,000 students in 1997. In 1997, Sivan's training revenues were
derived 84% from individual students and 16% from governmental and
corporate-sponsored training. Sivan employs 220 full-time people and uses a
combination of in-house and free-lance trainers to fulfill the demand for its
services. Due to Sivan's size and its ability to provide many teaching hours to
its free-lance contractors, Sivan's agreements with them stipulate that they can
only teach at Sivan's locations and can not maintain their Sivan contracts if
they teach for other training companies. This arrangement ensures that, while
Sivan maintains its adjunct professional teaching faculty, it does not incur the
benefits cost associated with full-time employment contracts.
One of Sivan's major strengths is its vocational training programs. These
programs accounted for over 40% of Sivan's revenues in 1997. These programs,
developed by Sivan experts, provide full vocational training to individuals who
want to become IT professionals and are accredited by the Israeli government and
recognized by leading high-tech employers in Israel. The
-4-
<PAGE>
vocational training arena will grow with the demand for IT professionals and the
Company intends to launch vocational programs in the U.S. based on the proven
Sivan model. The creation of such programs in the U.S. will allow Mentortech to
develop talent internally and then offer it to corporations on a consulting
basis.
Sivan offers its training through six academic departments:
o Professional acquisition: Vocational courses in Programming in C and
C++, real-time Programming, PC technicians, Communication Technicians
and Application Specialists. These courses provide between 400 - 900
classroom hours.
o System Analysts: The only course approved by the System Analysts Guild
in Israel.
o Continuing Professional Update: Courses for IT professionals providing
incremental technology and products updates. Among these courses are:
JAVA for C++ programmers, ActiveX, new SQL database versions, Delphi
for programmers, PowerBuilder, VB, Access and others.
o Communications: Full curriculum of Novell, Microsoft as well as
AS/400, Mainframe and UNIX communication protocols.
o Graphics: Courses offered in all popular graphics packages both for
the print and the multi-media industries. These courses are offered
both for the Macintosh and WINTEL (Intel Architecture based PCs
running Windows operating system) environments.
o End-Users: Courses offered in the popular end-user packages such as
Microsoft Office.
The model that Sivan employs to deliver all of its ILT courses is based on
a four-hour session model, rather than one-day courses as is the prevalent model
in the U.S. Management believes that teaching a course in four-hour sessions
over a greater length of time with added content, exercises, and homework is a
more effective way of learning technology.
Currently, Sivan is investing substantial efforts in increasing the number
of its value-added technical courses. Sivan offers one-year professional
acquisition programs, training participants to become programmers, PC
technicians, communication technicians, system analysts and end-user help desk
support professionals. Sivan is currently launching new communications training
programs in cooperation with leading networking equipment companies, Internet
design and programming, ActiveX and Java professional training programs. These
courses have been extremely effective and generate continued demand from
graduates who require technical updates during their professional career. During
1996 and 1997, Sivan graduated 2,000 and 2,200 individuals, respectively, from
such courses. Sivan's diplomas are recognized by leading Israeli technology
companies and the Israeli Government's Ministry of Labor. Sivan supplements its
ILT end-user training courses with TBT materials, thus reducing end-user
training costs and freeing up instructors to teach technical courses.
-5-
<PAGE>
In order to provide its students and recent graduates with work experience,
the Company has recently established a software development business. This
business activity is conducted by Mentortech Systems (1996) Ltd., which company
was known as Mashov CBT until year-end 1997.
TBT
The Company is engaged in the development of technology-based training
products in Israel. The Company's products include TBT titles for end-user
applications, custom projects, Hebrew and English titles for training in
Microsoft Office, Lotus Notes and cc:Mail. From April 1996 until year-end 1997,
the Company's TBT activities were conducted by Mashov CBT. Beginning in 1998,
these activities were transferred to Mentortech TBT Ltd. ("Mentortech TBT"),
which company was previously known as PC Etcetera Ltd. The Company provides full
service custom development of training concepts, supporting materials, delivery
media and tools. Custom projects are tailored to corporate needs, such as
training for bank tellers, insurance agents, product scheduling. Mentortech TBT
is currently engaged in the development of TBT products to work in conjunction
with Sivan's ILT offerings.
Mentortech TBT's products are targeted at corporations who utilize LANs,
WANs, Intranet and Internet. The TBT products are network-compatible and are
easily integrated into clients' systems. Mentortech TBT intends to continue to
expand its product line to capitalize on the increasing capacity of such
networks, ultimately leading to fully-interactive network video and audio. As
the Internet becomes a more pervasive platform, Mentortech TBT offers Internet
delivery of training and know-how. The content is viewed through popular
Internet browsers such as Netscape and Microsoft Explorer, and supports full
simulation mode, drag and drop simulations, audio, and video delivery.
Intertrainer allows an organization to maintain and support a single point TBT
server accessible for any user with network access. Mentortech TBT is preparing
content and technical competency to exploit this developing platform in the U.S.
and Israeli markets.
In addition to its activity in the IT arena, Mentortech TBT provides
training titles and tools to various other industries:
o Banking: The Company developed a number of titles for leading banks,
both in Israel and in the U.S., providing training for human resources
personnel and bank tellers, and titles supporting the implementation
of, and training in, process and procedures.
o Defense: The Company develops custom projects for the Israeli Ministry
of Defense on various non-IT subjects.
o Insurance: The Company developed a training program supporting remote
agents in developing proposals based on a clients' products.
-6-
<PAGE>
Consulting Services
CSD identifies and provides independent computer professionals, on a
temporary basis, to the Company's client base for special projects. For example,
the Company currently has six help-desk professionals on assignment at large
pharmaceutical company, three end-user analysts on assignment at a multinational
consumer products company and three Lotus Notes application specialists on
assignment at a "Big Six" accounting firm. Such projects include the development
of computer programs in accordance with the client's specifications and
requirements, the linking of client computers to allow the client's employees to
share information, files and devices, providing expertise for the client's
software programs and providing troubleshooting services for software problems.
The Company charges its clients for such services on an hourly or daily basis.
The Company currently furnishes its full-time employees, as well as independent
contractors, to satisfy its clients' requirements.
Projects undertaken by the CSD have included:
o The development of computer programs in accordance with the client's
specifications.
o The installation of network operating systems and networking and
communications software tools.
o Troubleshooting software problems and help-desk support.
o Staffing end-user help desks.
The CSD provides various services for its corporate customers including:
o Temporary consulting services provided by the Company's full time
employees.
o Temporary consulting services provided by the Company to its corporate
clients using independent subcontractors.
o Project development services in which the Company provides fixed-bid
software development projects. The Company executes these projects
using either its full time employees or independent subcontractors.
o Recruiting individuals identified by the Company for permanent IT
positions.
The Company is expanding its U.S.-based consulting practice by implementing
an incentive program for consultants and by developing a database of active IT
professionals, in addition to increasing recruiting initiatives, advertising,
and expanding the sales force. Management believes that this strategy will
enable the Company to retain a cadre of qualified, highly-trained IT
professionals for placement into short-term and long-term consulting assignments
or permanent positions.
-7-
<PAGE>
Management believes that the key for success in this area is the ability to
recruit and retain suitable consultants. Currently demand for professionals with
advanced skills far exceeds supply. Management believes that supporting the
Company's consulting services with vocational training offerings will allow the
Company to expand both its training activity and its CSD operation.
Training Programs
Methodology
The Company's training programs incorporate traditional ILT classes,
varying in length from several hours to several months. The Company's ILT
programs offer a wide range of courses in operating systems, including Microsoft
Windows, Windows NT, Novell NetWare, programming in basic languages such as C
and C++ and programming courses in new development tools such as Microsoft, VB,
J++ and other development tools, word processing, spreadsheets, databases,
communications, executive overviews, integrated software packages, computer
graphics, desktop publishing and groupware products including Lotus Notes. Such
programs generally are devised for use in connection with computing based on
networks. The Company currently offers over 160 different courses.
Each of the Company's live classroom training programs is divided into
modules consisting of introductory lectures, computer exercises with the
assistance of a trainer, and independent exercises without a trainer. Each of
the Company's TBT products is divided into tasks and sub-tasks. This format
allows the product to be used as either a training tool, where the entire TBT is
followed from beginning to end, or as a reference tool, where an end-user
directly accesses the task or sub-task that needs to be studied.
The Company's training model is based on a training model developed by
Sivan in Israel. Sivan's model differs from the prevalent approach to technical
training of IT professionals in two key respects: (i) duration of courses and
(ii) emphasis on practical applications.
Training Services
The Company offers several ILT programs to satisfy customer needs,
including public and private courses and special tutorial services.
Public seminars are scheduled on a regular basis at the Company's own
training facilities. The Company offers a variety of public courses that are
designed to accommodate varied levels of expertise, background and objectives.
The Company distributes its public seminar schedule to existing and potential
customers on a quarterly basis and publishes its schedule in its Internet sites.
Private seminars are classes which are designed specifically for groups of
employees from one business on a specific topic. Private courses generally are
held either at the Company's training facilities or at the customer's premises.
The curriculum for such private seminars is generally
-8-
<PAGE>
identical to the standardized curriculum provided at public seminars; however,
the curricula may be adapted to accommodate customer specifications.
The Company also provides special tutorial services to address particular
needs of customers requiring individual attention for their employees.
Consulting services, which are provided either at the Company's own facilities
or those of its customers, typically provide for a trainer to meet with one to
three employees and may involve a customized curriculum.
In furtherance of the Company's belief that hands-on application is
essential to computer training, a personal computer is furnished to each student
for his or her exclusive use during ILT programs. Classes that are conducted on
a customer's premises utilize either the customer's own personal computers or
computers furnished by the Company. The Company either owns or leases the
computers utilized for its training programs, with lease terms generally being
three years or less due to the rapid obsolescence of technology. The Company
also provides, without charge, a post-class telephone support line during normal
business hours to answer questions from any enrollees or former enrollees in the
Company's training programs. In providing ILT services, the Company utilizes
professional trainers who possess both teaching skills and a technical command
of the subject matter.
Software Manufacturers' Authorized Training Centers
The Company is authorized to act as a training center by many software
manufacturers, including Novell, Lotus and Microsoft. The Company was the
recipient of the LAEC Award for training the most students in Lotus' Windows
application software. The Company also received a Top Performing Microsoft
Authorized Training Center Award for training the most students in Microsoft
products. The Company is authorized by Lotus Development Corporation ("Lotus")
as a LAEC for its "Notes" product and was recently upgraded to Platinum Business
Partner status. As a Platinum Business Partner, the Company is entitled to
receive specific referrals for new students from Lotus, such that Lotus actually
forwards the name of the student prospect to the Company. Additionally, Lotus
provides marketing support to the Company. The Company expects that training
with regard to Lotus Notes software products specifically, and work group
computing in general, will be an increasing percentage of its revenues. Work
group computing refers to the software that enables groups of people to
collaborate together.
Courseware and TBT Product Development
The Company's TBT products are currently developed by Mentortech TBT's R&D
group in Israel, which group consists of 15 programmers, designers and education
specialists with extensive experience in training and education development. The
Company's training staff provides the product and educational design expertise,
while the designers supply the authoring tool expertise. The Company's R&D team
develops titles for the end-users market, which are sold under the Sivan brand
name. The Company also sells its titles to OEM clients in Israel who bundle the
titles with their computers. In addition, the Company develops general-purpose
titles and provides adaptations
-9-
<PAGE>
to the titles according to the requirements of a client and develops custom
projects for its corporate clients. In such projects the Company's education
designers develop a specific curriculum for the client. The Company has
developed many custom projects in various areas.
Protection of Proprietary Technology
The protection of proprietary information developed by the Company and used
in its training programs is limited to the protection that the Company is able
to secure under copyright laws and confidentiality agreements. However, there is
no assurance that the scope of the protection that the Company is able to secure
will be adequate to protect its proprietary information, or that the Company
will have the financial resources to engage in litigation against parties who
may infringe on copyrights. In addition, there is no assurance that competitors
will not develop similar training programs independently of the Company.
Marketing
The Company directs its ILT, TBT and CSD marketing efforts to those
industries and public sector organizations that devote substantial resources to
computer technology for employees. The Company has solid client relations
resulting from its 18 years of operation in Israel and 12 years of operation in
the United States.
Direct mail as well as print and radio advertising are the primary media
which are used to reach the small office and home office market segment. The
Company believes that word-of-mouth, as generated by individual and corporate
clients, has the largest potential for gaining new customers.
The Company, in conjunction with software vendors, has established
informational seminars on new software products. These seminars inform potential
customers about the Company's training programs and staffing services. In
addition to these efforts, the Company's account managers act as liaisons with
customers to ensure that the customers select appropriate training programs.
These account managers are knowledgeable about the customer's specific computer
training needs, and can therefore recommend and promote newly offered services.
The Company's marketing efforts include:
o Direct mail solicitation
o Telephone contact
o Radio and print advertisement
o Computer trade show exhibits throughout the U.S. and
o World Wide Web site.
-10-
<PAGE>
Program Costs
In the U.S., the Company typically charges its customers from $75 (for
introductory classes) to $5,000 per enrollee to conduct ILT programs. In Israel,
the Company typically charges from $200 to $5,000 per enrollee to conduct ILT
programs. Pricing considerations vary depending on the length and complexity of
the program, the number of enrollees, whether the course is a private one or
offered on an open enrollment basis, and the physical location of the training.
The Company's refund policy provides that dissatisfied trainees may either
attend the same program without charge or the trainee's employer may request a
full refund.
Pricing of Courseware and TBT Products
The Company's Mentortrain Technology Series products are currently marketed
in the U.S. under various site license agreements at prices of between $1,000
and $10,000 per title. The Company also offers custom TBTs to its customers at
prices ranging from $8,000 to $15,000 per hour of TBT training.
Customers
No one customer accounted for more than ten percent of the Company's
revenues during the two years ended December 31, 1997.
Competition
The Company's primary competitors are providers of training products and
services, including education and training specialists, internal corporate IT
departments, software vendors and Big Six consulting practices. Some of these
competitors offer course titles and programs covering similar topics as those of
the Company. Many competitors have significant financial, technical, sales,
marketing and other resources, as well as widespread name recognition. In
addition, some of the larger instructor-led training organizations have the
capacity to develop technology-based training products that they could then
distribute through their existing distribution channels to their current client
base. Management believes that the Company is not a major competitor in the ILT
or CSD markets in the New York metropolitan area, but believes that Sivan is the
largest ILT provider in Israel.
Employees
As of December 31, 1997, the Company employed approximately 292 full-time
persons, including 72 full-time employees in its New York operations and
approximately 220 full-time persons in its Israeli operations. In its New York
operations, the Company employed 17 persons as full-time trainers, 19 persons as
consultants, 19 persons in sales, marketing and sales administration and 17
persons in management, finance and operations and also employs 12 freelance
trainers. Sivan employed approximately 85 part-time persons as trainers, 64
persons in sales, marketing and
-11-
<PAGE>
sales administration, and 54 persons in management, finance and operations.
Sivan also employs approximately 33 freelance trainers. Mentortech TBT employs
15 persons in research and development, 2 persons in sales and marketing and 2
persons in administration.
Item 2. Description of Property.
The Company occupies approximately 16,000 square feet of space at 462
Seventh Avenue, New York, New York where the Company's executive offices and ten
classrooms are located. These premises are occupied under a lease agreement
expiring on January 14, 2004 at a current base annual rental of $288,000, with a
rental increase to $320,000 per annum effective January 14, 1999. The Company
leases approximately 2,500 square feet of classroom space in Garden City, New
York at a base annual rental of $50,260 under a lease which expires on September
30, 1998. In addition, the Company leases approximately 1,200 square feet of
classroom space in Melville, New York at an annual rental of $28,700 under a
lease which expires on October 14, 1998.
Sivan and Mashov CBT lease space in Israel in accordance with the following
table:
<TABLE>
<CAPTION>
Square Monthly
Location Lease Expiration Option Footage Rent
- -------- ---------------- ------ ------- ----
<S> <C> <C> <C> <C>
Tel-Aviv, Sderot August 31, 1998 -- 9,900 $17,000
Yehudit
Tel-Aviv, Beit Hilel December 31, 1999 Two options of 2 7,650 $15,300
years each
Tel-Aviv, Barak August 31, 1998 -- 36,000 $ 8,500
Rishon Le' Zion December 31, 1998 -- 2,000 $ 3,400
Rishon Le' Zion February 28, 1998 Two options of 1 900 $ 1,200
year each
Jerusalem July 31, 1998 1 year option 1,300 $ 2,100
Jerusalem December 31, 1998 1 year option 2,000 $ 2,580
Or-Yehuda February 28, 2000 -- 1,110 $ 2,056
</TABLE>
Item 3. Legal Proceedings.
The Company is not party to any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
-12-
<PAGE>
PART II
Item 5. Market For Common Equity and Related Stockholder Matters.
(a) Market Information.
The Company's shares of common stock (the "Common Stock") are traded in the
over-the-counter market on the National Association of Securities Dealers'
Bulletin Board under the symbol "MNTKD". The following table sets forth the
range of high and low bid prices for the Company's Common Stock as reported by
the National Quotation Bureau Inc. The quotations below reflect the
one-for-eight reverse split effected on March 3, 1998 inter-dealer prices
without retail markup, markdown or commission and may not necessarily represent
actual transactions.
High Low
---- ---
1997
- ----
First Quarter........................................... $3 $2
Second Quarter.......................................... 2-1/2 2
Third Quarter........................................... 1-3/4 1-1/2
Fourth Quarter.......................................... 4 3/4
1996
- ----
First Quarter........................................... $2-1/4 $2-1/4
Second Quarter.......................................... 4 4
Third Quarter........................................... 4 2
Fourth Quarter.......................................... 2 2
(b) Holders.
As of March 10, 1998, there were 111 holders of record of the Company's
Common Stock.
(c) Dividends.
The Company has neither declared nor paid any dividends on its shares of
Common Stock since inception. Any decisions as to the future payment of
dividends will depend on the earnings and financial position of the Company and
such other factors as the Board of Directors deems relevant. The Company
anticipates that it will retain future earnings, if any, in order to finance
expansion of its operations. Accordingly, it is not anticipated that cash
dividends will be paid in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 which are subject to risks and
uncertainties. Actual results could differ materially from the forward-looking
statements in this report. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Description of
-13-
<PAGE>
Business," 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.
Overview
Effective February 13, 1997, a change of control of PCE U.S. occurred
pursuant to the Stock Purchase Agreement between PCE U.S. and Mashov, whose
shares are publicly traded on the Tel-Aviv Stock Exchange (the "TASE"). Mashov
is a majority-owned subsidiary of Mashov Computers Ltd., whose shares are also
publicly traded on the TASE. Based on the Stock Purchase Agreement, Mashov
acquired 1,054,865 shares of Common Stock and 658,412 shares of Series C
Preferred Stock of PCE U.S. (collectively, the "Sale Stock"), with each share of
Series C Preferred Stock convertible into 1.25 shares of Common Stock. In
consideration for the Sale Stock, PCE U.S. acquired two of Mashov's
subsidiaries, Sivan and Mashov CBT. Pursuant to the Stock Purchase Agreement,
Mashov acquired 69% of PCE U.S.'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 U.S., Sivan and Mashov CBT. Such adjustment was made on
August 4, 1997 when Mashov contributed 43,199 shares of Common Stock to the
capital of the Company. In addition, on August 4, 1997, the 658,412 shares of
Series C Preferred Stock were converted by Mashov into 823,015 shares of Common
Stock.
The Stock Purchase Agreement provided that Sivan and Mashov CBT have net
tangible assets of $2.2 million, including cash of $1.5 million. In connection
with the execution of the Stock Purchase Agreement, PCE U.S. executed the
Conversion Agreement effective February 13, 1997 with certain holders of the
Company's equity securities and debt (the "Conversion Parties"). Pursuant to the
Conversion Agreement, the Conversion Parties received 340,423 shares of Common
Stock in consideration for the cancellation of the debt owed them by PCE U.S.
and as a result of antidilution provisions relating to the securities owned by
the Conversion Parties.
In October 1997, the Company acquired the assets of GLTN Computer
Consultants, Inc., a Long Island, New York, ILT training company in
consideration of $130,000 and the issuance of 15,909 shares of Common Stock.
In 1995, 1996 and 1997 the Company and its predecessor derived
substantially all of their revenues from ILT training and consulting services.
As reflected in the following table, revenues from ILT training services
declined in the U.S. during this period while increasing in Israel and revenues
from U.S. consulting services grew.
-14-
<PAGE>
Year ended December 31,
-----------------------
1995 1996(1) 1997(2)
---- ------- -------
(Pro forma)
(in thousands)
U.S. ILT................................. $8,136 $3,038 $ 1,972
Israel ILT............................... 6,651 9,158 11,231
Consulting services...................... 3,940 4,003 4,435
TBT...................................... -- 242 523
- -------------
(1) Includes the operations of PCE U.S. for the period January 1, 1996 through
December 31, 1996
(2) Includes the operations of PCE U.S. for the period January 1, 1997 through
February 13, 1997, the effective date of the Stock Purchase Agreement.
Year Ended December 31, 1997 as Compared with the Year Ended December 31, 1996.
Revenues. The Company's revenues are derived from ILT services, contractual
consultation services, and TBT product sales. The Company's ILT revenues are
recognized over the life of the training course. Franchise revenues from centers
operating with the Sivan trade name in Israel and utilizing Sivan's training
materials are included in ILT revenues. Contract consulting revenues are
recognized as the services are performed. TBT revenues are recognized upon
shipment of the software provided that no significant vendor obligations remain
and collection of the related receivable is probable. The Company's refund
policy provides that dissatisfied trainees may either attend the same course
without charge or the trainee's employer may request a full refund. It is
Company policy to reserve for potential refunds; however, an allowance for
refunds has not been established because historically minimal refunds have been
issued. Retakes of a course are provided on a seat available basis. Accordingly,
the Company does not incur any financial exposure with respect to such retakes.
The Company's revenues for the year ended December 31, 1997 increased 87%
to $17.6 million from $9.4 million in the comparable 1996 period. Sivan's ILT
revenues increased by 22% to $11.2 million in 1997 from $9.2 million in 1996.
Sivan Jerusalem, a company in which Sivan had held a 50% equity investment until
January 1997, when Sivan purchased the remaining equity, accounted for
approximately $1 million of Sivan's increased revenues for the year ended
December 31, 1997. Sivan's share of Sivan Jerusalem's results of operations were
reported as equity in earnings of an affiliate in 1996. The remaining $1 million
increase in Sivan's revenues in 1997 was
-15-
<PAGE>
due primarily to its success in offering more profitable technical courses as
well as an increase in the number of application courses offered. The Company's
1996 financials reflect nine months of operations for Mashov CBT, as it did not
begin operations until April 1996.
The revenues of the Company's U.S. operations were $6.4 million in 1997, a
decrease of 9%, compared to revenues of $7 million in 1996. In 1997, the U.S.
operation placed a greater emphasis on the growth of its Consulting Services
Division. Consulting revenues for the New York metropolitan area increased to
$4.4 million in 1997 from $4 million in 1996, an increase of 10%. The rate of
growth in consulting revenues decreased in the third quarter and fourth quarters
of 1997 primarily due to termination of assignments and delays in the start
dates of new assignments. In 1997 management 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 year ended December 31, 1997, the Company continued to
experience declining ILT revenues in the U.S. ILT revenues in the U.S. decreased
by approximately 35% in 1997 compared to the same period in 1996. Management
attributes the decline in ILT revenues to increased competition and the slow
pace at which companies migrated their installed base to new applications and
product versions. The Company's 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, pending
the market's experiences with Office 97.
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. 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 1997, technical training revenues increased by
25% compared to 1996.
The cost of ILT revenues 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 for custom TBT projects. Cost of revenues rose to 62% of
revenues in 1997 compared to 50% of revenues in 1996. Cost of revenues for Sivan
was 58% of revenues in 1997 compared to 51% in 1996. This increase was 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 64% in 1997 as compared to 1996. Cost of
revenues for the U.S. operation was 72% in 1997. As training revenues decrease,
cost of revenues as a percentage of sales has increased due to the fixed costs
of classroom facilities and depreciation.
-16-
<PAGE>
Sales 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 to $2.7 million during 1997 from $1.4 million in 1996. Sales
and marketing expenses of Sivan, excluding Sivan Jerusalem, increased by 16% in
1997 compared to 1996. This increase was due to Management's decision to
increase the Company's sales and marketing budget in an attempt to obtain
increased revenues. Sivan's increase in sales and marketing expenses correlates
with its increase in revenue. Sales and marketing expenses in the U.S. increased
to $943,000 in 1997 from $881,000 in 1996.
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 to $4.2 million during 1997, from $3.4 million in 1996. This increase
was due to the expansion and the inclusion of the results of Sivan Jerusalem,
Mentortech TBT and the U.S. operation. General and administrative expenses were
approximately $1.9 million for the U.S. operation, $2.2 million for Sivan, and
$232,000 for Mashov CBT in 1997. General and administrative expenses for Sivan
(excluding Sivan Jerusalem) decreased by $1.2 million (37%) in 1997 compared to
1996.
Research and development expenses consist primarily of salaries of the
employees who are engaged in ongoing research and development activities of TBT
materials and other related costs. Research and development expenses amounted to
$450,000 in 1997, compared to $248,000 in 1996.
The Company incurred an operating loss of $618,000 in 1997 compared to an
operating loss of $366,000 in 1996. The increase in the Company's operating loss
in 1997 was principally due to decreased revenues in the U. S., coupled with
increased sales and marketing expenses, and research and development expenses.
Management believes that the increased investment in sales, marketing and
research and development should permit the Company to attain profitability in
1998.
Equity in earnings of affiliates 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 1997.
In 1996, the Company paid $45,000 in income taxes.
Interest expenses, net, consists primarily of bank charges and interest
expenses offset by interest income. Interest expenses decreased to $233,000 in
1997 from $455,000 in 1996. This decrease was due principally to the conversion
by Sivan of $4.1 million of shareholder loans into equity in the first quarter
of 1997 and the repayment of the U.S. operation's receivables financing facility
with Rosenthal and Rosenthal during the second quarter of 1997.
As a result of the foregoing, the Company incurred a net loss of $851,000
in 1997 compared to a net loss of $798,000 in 1996. The Company's Israeli
operations achieved a profit of $226,000
-17-
<PAGE>
in 1997 compared to a net loss of $798,000 in 1996. The Company's U.S.
operations incurred a loss of $1 million during the year ended December 31,
1997.
Liquidity and Capital Resources
At December 31, 1997, the Company had $1.7 million in cash and cash
equivalents and a working capital deficiency of $147,000. At December 31, 1996,
the Company's Israeli subsidiaries held $283,000 in cash and had a working
capital deficiency of $1.6 million, while PCE U.S. had $50,000 in cash and a
working capital deficiency of $1.9 million. The Company's improved cash position
at December 31, 1997 was a result of a private placement of securities, as
discussed below, as well as Mashov's infusion of approximately $1.2 million in
cash and equity into the Company pursuant to the Stock Purchase Agreement. These
capital infusions were offset by operating losses as well as an increase in
accounts receivable and the purchase of computer equipment and other fixed
assets.
The Company completed a private placement of securities in December 1997,
wherein it issued and sold 511,364 shares of Common Stock and warrants to
purchase 255,682 shares of Common Stock. The Company obtained net proceeds of
approximately $2 million from the private placement. The Company's financial
position was further improved by Mashov's conversion of $1,162,000 of debt into
264,090 shares of Common Stock and warrants to purchase 132,045 shares of Common
Stock.
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 December 31,
1997, Sivan had borrowed approximately $601,000 from such bank.
The Company's operating activities used $703,000 net cash in the year ended
December 31, 1997. Accounts receivable increased by $100,000 during the same
period. This increase was due primarily to the increase in revenues. Accounts
payable and accrued expenses decreased by $523,000 during the same period. The
Company's investing activities used $1.3 million mainly from the purchase of
$1.2 million in fixed assets and $119,000 used to purchase Sivan Jerusalem and
GLTN. Financing activities provided $3.4 million, principally from the private
placement sale of securities as well as the Mashov transactions.
In October 1997, the Company acquired the assets of GLTN Computer
Consultants, Inc., a Long Island, New York, ILT training company in
consideration of $130,000 and the issuance of 15,909 (post-split) shares of
Common Stock.
Based on its improved financial condition and working capital commitment,
the Company believes that it has sufficient working capital to fund its
operational and capital requirements through 1998. The Company does not have any
material capital commitments for 1998. To the extent the Company increases the
scope of its activities significantly, it may be required to obtain additional
financing.
-18-
<PAGE>
Seasonality
While the Company's revenues have not been substantially affected by
seasonal variations, the revenues of the Company's Israeli subsidiary, Sivan,
are affected by the timing of the national holidays, when classes are suspended.
The Year 2000 Issue
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00 " as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The total Year 2000
project cost is estimated at approximately $75,000. the costs the Company has
incurred to date primarily for assessment of the Year 2000 issues have not been
significant.
-19-
<PAGE>
Item 7. Financial Statements.
Index to Financial Statements
Report of Independent Auditors.........................................F-1
Financial Statements:
Consolidated Balance Sheet ...................................F-2
Consolidated Statements of Operations.........................F-4
Consolidated Statements of Stockholders' Equity (Deficit).....F-5
Consolidated Statements of Cash Flows.........................F-6
Notes to Consolidated Financial Statements....................F-7
-20-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Mentortech Inc.
We have audited the accompanying consolidated balance sheet of Mentortech Inc.
and Subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the two years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Mentortech Inc. and Subsidiaries as of December 31, 1997 in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
New York, New York
January 27, 1998, except for the
First paragraph in Note 9, as to
which the date is March 3, 1998
F-1
<PAGE>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(In thousands except share and per share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,659
Accounts receivable, net of allowance for doubtful
accounts of $93 3,503
Prepaid expenses and other current assets 351
Inventory 34
-----
Total current assets 5,547
-----
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 3,900
less accumulated depreciation and amortization (1,536)
------
2,364
OTHER ASSETS:
Goodwill, net of accumulated amortization of $446 5,001
Other assets, net 585
-----
5,586
TOTAL ASSETS $13,497
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $2,831
Deferred revenue 2,155
Loans payable - current portion 601
Loans payable - related party 33
Due to related parties 69
Capital equipment obligations - current portion 5
-----
Total current liabilities 5,694
-----
LONG-TERM LIABILITIES:
Accounts payable - long-term 271
Accrued severance pay 556
Loans payable - long-term 136
-----
F-2
<PAGE>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(In thousands except share and per share amounts)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000
shares authorized, 3,446,176 issued and outstanding 34
Preferred Stock,
$.001 par value, 5,000,000 shares authorized,
none issued
Additional paid-in capital 8,722
Cumulative foreign currency translation adjustment (145)
Accumulated deficit (1,771)
-------
Total stockholders' equity 6,840
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,497
=======
See Accompanying Notes
F-3
<PAGE>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except for share data)
1997 1996
---- ----
Net revenues $17,560 $9,400
Cost of revenues 10,859 4,713
------ -----
Gross profit 6,701 4,687
General and administrative expenses 4,171 3,359
Sales and marketing expenses 2,698 1,446
Research and development 450 248
--- ---
Operating loss (618) (366)
Interest expense, net (233) (455)
---- ----
Loss before income taxes (851) (821)
---- ----
Income taxes 0 45
Loss before equity in earnings of affiliate (851) (866)
Equity in earnings of affiliate 0 68
--- ---
Net loss ($851) ($798)
===== =====
Basic loss per share ($.40) ($0.43)
Weighted average number of shares 2,124 1,875
===== =====
See Accompanying Notes
F-4
<PAGE>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
CUMULATIVE
ADDITIONAL FOREIGN STOCKHOLDERS'
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED CURRENCY EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TRANSLATION (DEFICIT)
------ ------ ------ ------ ------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1995 - $- - $- $ - ($122) $ 7 ($115)
Issuance of shares of CBT - - - - 150 - - 150
Foreign currency translation - - - - - - 16 16
Net loss - - - - - (798) - (798)
------------------------------------------------------------------------------------------------
Balance as of December 31, 1996 - - - - 150 (920) 23 (747)
Acquisition of PC Etcetera, Inc.
and related conversions (Note 9) - - 820 8 (1,640) - - (1,632)
Issuance of preferred and common
stock to Mashov 658 1 1,012 10 6,967 - - 6,978
Conversion of Mashov preferred
stock to common stock (Note 9) (658) (1) 823 8 (7) - - -
Acquisition of GLTN (Note 9) - - 16 - 47 - - 47
Mashov loan conversion to common
stock (Note 9) - - 264 3 1,159 - - 1,162
Private placement offering (Note 9) - - 511 5 2,046 - - 2,051
Foreign currency translation - - - - - - (168) (168)
Net loss - - - - - (851) - (851)
------------------------------------------------------------------------------------------------
Balance as of December 31, 1997 - $- 3,446 $34 $8,722 ($1,771) ($145) $6,840
================================================================================================
</TABLE>
See Accompanying Notes
F-5
<PAGE>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ($851) ($798)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 1,114 456
Gain on sale of fixed assets 5 -
Equity in earnings of affiliate - (68)
Changes in operating assets and liabilities:
Accounts receivable (100) (721)
Prepaid expenses and other current assets 42 29
Inventory 50 (91)
Accounts payable and accrued expenses (523) 768
Due to related parties (771) 454
Deferred revenue 454 606
Other assets (53) -
Accrued severance pay (70) 30
--- --
Net cash (used in) provided by operating activities (703) 665
---- ---
Cash flows from investing activities:
Purchase of property and equipment (1,235) (1,006)
Proceeds from sale of property and equipment 71 2
Purchase of subsidiaries, net of cash acquired (119) -
---- ---
Net cash used in investing activities (1,283) (1,004)
------ ------
Cash flows from financing activities:
Proceeds from loans payable - related party 42 382
Proceeds from short-term bank credit borrowings 601 -
Repayment of capital equipment obligations (68) -
Cash received from Mashov transaction, net of expenses of $140 760 -
Net proceeds from issuance of Common Stock 2,051 150
----- ---
Net cash provided by financing activities 3,386 532
----- ---
Net increase in cash and cash equivalents 1,400 193
Cash and cash equivalents, beginning of year 283 93
Effect of exchange rate changes on cash and cash equivalents (24) (3)
--- --
Cash and cash equivalents, end of year $1,659 $283
====== ====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $282 $-
Income taxes $53 $16
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
- --------------------------------------------------------------------
Loans from Mashov in the amount of $2,961 and $1,162 were converted to
equity during the year ended December 31, 1997
See Accompanying Notes
F-6
<PAGE>
MENTORTECH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts are in thousands except for share data)
NOTE 1 - THE COMPANY
Mentortech Inc. (the "Company") develops and offers instructor-led training
("ILT") and technology-based training ("TBT") courses for information technology
professionals and end-users and also provides consulting services, in both the
State of Israel and the New York tri-state area. The Company's ILT programs
include a wide range of introductory and advanced classes in a multitude of
subjects ranging from full vocational training programs which are geared to
training individuals to become information technology ("IT") professionals to
end-user computer proficiency courses. The Company's Consulting Services
Division ("CSD") provides short to medium term technical consulting to large and
mid-sized corporations in the Northeast region of the U.S. The Company develops
and offers TBT programs for use in conjunction with its ILT classes, as well as
for home and corporate users who use self-study tools for training and
reference. The Company's TBT software line includes offerings on Lotus Notes,
cc:Mail, Microsoft Office, and other end-user titles. In addition, the Company
develops TBT products for corporations in Israel and the United States.
For the years ended December 31, 1997 and 1996, revenues from ILT comprised
74% and 97% of total revenues, respectively, while consulting services and TBT
revenues accounted for 23% and 0% and 3% and 3% of total revenues, respectively.
The Company was incorporated in New York in March 1985 as PC Executive
Center, Inc. It changed its corporate domicile to Delaware in December 1987, at
which time it assumed the name PC Etcetera, Inc. The Company changed its name to
Mentortech Inc. on August 4, 1997.
Effective February 13, 1997, Mashov Computer Marketing Ltd. ("Mashov"), the
parent company of Sivan Computers Training Center (1994) Ltd. ("Sivan") and
Mashov Computer Based Training (C.B.T) Ltd. ("Mashov CBT"), transferred to PC
Etcetera, Inc. all of its holdings in Sivan and Mashov CBT for 8,438,924 shares
of Common Stock (1,054,866 after giving effect to the stock split-see Note 9)
and 658,412 shares of convertible preferred stock of PC Etcetera, Inc. ("PCE
U.S"). Under generally accepted accounting principles, the stock purchase
transaction has been accounted for as a reverse acquisition such that Sivan and
Mashov CBT are considered the surviving entity, although Mentortech Inc.
(formerly PCE U.S.) remained the Registrant for purposes of filing periodic
reports with the Securities and Exchange Commission.
F-7
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Significant Accounting Policies consistently applied in
the preparation of the accompanying financial statements is as follows:
Foreign Currency
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars, in accordance with FASB Statement No. 52, "Foreign
Currency Translation." All balance sheet amounts have been translated using the
exchange rates in effect at the balance sheet date. Statement of operations
amounts have been translated using the average exchange rate for the year. The
gains and losses resulting from the change in exchange rates from year to year
have been reported separately as a component of stockholders' equity (deficit).
Cash equivalents
The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents.
Inventory
Inventory, mainly finished products, are presented at the lower cost of
market value. Cost is determined using the "first-in, first-out" method.
Investments in affiliate
Sivan's 50% investment in Sivan Computers Jerusalem (1988) Ltd. ("Sivan
Jerusalem") is presented by the equity method of accounting for the year ended
December 31, 1996. On January 1, 1997, Sivan purchased the remaining 50% of
Sivan Jerusalem for $45.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed by the
straight-line method, on the basis of the estimated useful lives of the assets,
as follows:
Years
-----
Computers and peripheral equipment 3 - 5
Office furniture and equipment 5 - 10
Leasehold improvements The lesser of the remaining lease
period or useful life
F-8
<PAGE>
Goodwill
Goodwill, which is attributable to the acquisitions of PC Etcetera, Inc.,
Sivan Computers Ltd.'s personal computer tutorial services and GLTN Computer
Consultants Inc., is stated at cost and amortized by the straight-line method
over 20 years.
The carrying value of goodwill is periodically reviewed by management based
on the expected future undiscounted operating cash flows over the remaining
goodwill amortization period. Based upon its most recent analysis, management
believes that no impairment of goodwill exists at December 31, 1997.
Income Taxes
Income taxes are accounted for under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Under this method, deferred
tax assets and liabilities are determined based on differences between the
financial reporting and income tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Revenue recognition
Revenues related to ILT are recognized over the life of the training
course. TBT revenues are recognized upon delivery of the program. Revenues from
sales of products are recognized upon shipment of the software provided 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 refund policy provides that dissatisfied trainees may
either attend the same course without charge or the trainee's employer may
request a full refund. It is the Company's policy to reserve for potential
refunds, however, an allowance for refunds has not been established because
historically minimal refunds have been issued. Retakes are provided on a seat
availability basis and as such the Company incurs no financial exposure related
to these retakes.
Research and development costs
Research and development costs are expensed as incurred. Statement of
Financial Accounting Standard (SFAS) No. 86 "Accounting for the Costs of
Computer Software to be Sold, Licensed or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility.
Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs incurred by
the Company between completion of the working model and general release of the
product have been insignificant.
F-9
<PAGE>
Concentrations of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts receivable.
The Company maintains its cash balances on deposit with one financial
institution in the U.S. and several major banks in Israel. Concentrations of
credit risk with respect to accounts receivable are limited because the
Company's customers are from a wide range of industries and no one customer
accounts for more than ten percent of total revenue or accounts receivable as of
December 31, 1997.
Fair value of financial instruments
The financial instruments of the Company consist of non-derivative assets:
cash and cash equivalents, trade receivables and loans payable in view of their
nature, the fair value of financial instruments approximates their carrying
value.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Earnings (loss) per share
The basic earnings per share calculation is based on the weighted average
number of shares of common stock outstanding. Diluted earnings per share is not
presented as the effect of including the impact of outstanding stock options and
warrants would be antidilutive.
All references to per share data have been retroactively adjusted to give
effect to a one-for-eight reverse stock split effective March 3, 1998 (see Note
9).
Impact of recently issued accounting standards
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued SOP 97-2, Software Revenue Recognition, which changes the
requirements for revenue recognition, effective for transactions entered into
beginning January 1, 1998. This statement will not have an impact on the
Company's financial statements.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 130 (FAS 130), "Reporting
Comprehensive Income", and No. 131 (FAS 131), "Disclosure About Segments of an
Enterprise and Related Information". These
F-10
<PAGE>
statements are effective for fiscal years beginning after December 15, 1997.
These statements do not have measurable effects on the financial statements but
require additional disclosure.
NOTE 3 - PROPERTY AND EQUIPMENT
Major classifications of property and equipment at December 31, 1997 are as
follows:
Computers and peripheral equipment $3,531
Office furniture and equipment 187
Leasehold improvements 182
---
3,900
Accumulated depreciation and amortization (1,536)
======
$2,364
======
Depreciation and amortization expense, was $763 and $356 for the years
ended December 31, 1997 and 1996, respectively. At December 31, 1997, property
and equipment includes computer equipment under capital leases with a cost of
$48 and accumulated amortization of $43.
NOTE 4 - ACCRUED SEVERANCE PAY
Under Israeli law, the Company is required to make severance payments to
dismissed employees (including officers) and to employees leaving employment
under certain other circumstances. This liability is calculated based on the
years of employment for each employee, in accordance with the "severance pay
laws." The Company's liabilities for required severance payments are covered by
funding into severance pay funds, insurance policies and by an accrual.
Severance pay expense for the years ended December 31, 1997 and 1996 was $22 and
$157, respectively.
NOTE 5 - DEFERRED REVENUE
The Company enters into agreements with certain clients whereby blocks of
training coupons are purchased in advance at discount prices. The purchases are
recorded as deferred revenue ($2,088 at December 31, 1997) which is recognized
as revenues as classes are attended.
In connection with the sale of the Canadian subsidiary in 1996, the Company
sold a non-refundable license fee for certain computer software for $200. This
license fee has been deferred
F-11
<PAGE>
and is being recognized over three years which is equal to the term of the
license. At December 31, 1997, the deferred revenue amounted to $67, which
amount has been included in current liabilities in the accompanying consolidated
balance sheet.
NOTE 6 - LOANS PAYABLE
Bank Debt
In 1994, the Company's wholly-owned Israeli subsidiary obtained a working
capital loan from a bank in Israel which was guaranteed by the Company. The loan
balance at December 31, 1997 is $136 and carries an interest rate of 10% per
annum and will mature in the year 2000.
In 1997, the Company obtained a line of credit from its Israeli bank to
provide Sivan up to $1.1 million in working capital loans. The loan is not
secured by any assets but the Company has agreed to a negative pledge, which
means the Company can not apply for any other credit of any kind without the
bank's permission. The loan is a demand loan and is included in the current
liabilities section of the consolidated balance sheet. The interest rate is in
New Israeli Shekels linked to the U.S. dollar which was approximately 7% at
December 31, 1997. The balance outstanding at December 31, 1997 was $601.
Accounts Payable - Long-Term
In October 1996, the Company entered into an agreement with certain
vendors. The agreement provided for specific payment terms based on the total
debt owed to the vendor. Class A creditors (total indebtedness in excess of $3
each) will be paid in full through a four-year payment plan. Those payments
which will be paid during periods greater than 12 months (amounting to $271 at
December 31, 1997) have been reflected as long-term.
Loans from Related Parties
In 1991, the Company obtained a loan from an unrelated party in the amount
of $100 with a 10% interest rate. During the year ended December 31, 1993, the
note was assigned to a then member of the Company's Board of Directors. The loan
is payable on demand and is currently unsecured. At December 31, 1997, the loan
balance was $33.
NOTE 7 - LEASES
The Company leases its office and classroom space under operating leases
that expire on various dates through the year 2004. The Company has also entered
into capital lease arrangements for certain fixed assets. Future minimum lease
payments with respect to leases in effect at December 31, 1997 are as follows:
F-12
<PAGE>
Capital Operating
------- ---------
1998 $7 $ 701
1999 0 549
2000 0 339
2001 0 331
2002 0 322
Thereafter 0 320
-- ---
$7 $2,562
Less: amounts representing interest 2 0
-- --
$5 $2,562
== ======
Rental expense for the years ended December 31, 1997 and 1996 was $945 and
$608, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company, and its Executive Vice President are parties to an agreement
which requires the Company, upon the death of such person, to purchase from the
estate of such person up to $500 of the Company's Common Stock at a price per
share equal to the Company's revenues for the last four completed fiscal
quarters immediately preceding the date of death divided by the number of
outstanding shares of Common Stock at the time of death. The Company's purchase
obligation is conditioned upon its receipt of, and is only to the extent of,
life insurance proceeds on such persons.
NOTE 9 - STOCKHOLDERS' EQUITY
Effective March 3, 1998, the Company effectuated a one-for-eight reverse
stock split. The number of shares issued at December 31, 1997 after giving
effect to the split was 3,446,176 (27,569,404 shares before the split). All
share and per share data, including stock options and warrants is stated to
reflect the split.
Effective February 13, 1997, a change of control of the Company occurred
pursuant to the Stock Purchase Agreement between PCE U.S. and Mashov, whose
shares are publicly traded on the Tel-Aviv Stock Exchange (the "TASE"). Mashov
is a subsidiary of Mashov Computers Ltd., whose shares are also publicly traded
on the TASE. Based on the Stock Purchase Agreement, Mashov acquired 1,054,866
shares of Common Stock and 658,412 shares of Series C Preferred Stock of PCE
U.S. (collectively, the "Sale Stock"), where the share of Series C Preferred
Stock was convertible into 823,015 of Common Stock and proportionate has 10 to 1
voting rights in relation to shares of Common Stock. In consideration for the
Sale Stock, PCE U.S. acquired two of Mashov's subsidiaries, Sivan and Mashov
CBT. Pursuant to the Stock Purchase Agreement, Mashov acquired 69% of PCE U.S.'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 U.S., Sivan and
Mashov CBT. Such adjustment was made on August 4, 1997 when Mashov contributed
43,199 shares of Common Stock
F-13
<PAGE>
to the capital of the Company. In addition, on August 4, 1997, the 658,412
shares of Series C Preferred Stock were converted by Mashov into 823,015 shares
of Common Stock.
In connection with the execution of the Stock Purchase Agreement, PCE U.S.
executed a conversion agreement (the "Conversion Agreement") effective February
13, 1997 with certain prior holders the Company's equity securities and debt
(the "Conversion Parties"). Pursuant to the Conversion Agreement, the Conversion
Parties received Common Stock in consideration for the cancellation of the debt
owed by PCE U.S. (amounting to $437) and as a result of antidilution provisions
relating to the securities owned by the Conversion Parties. These transactions
resulted in the issuance of a total of 340,423 shares of common stock. In
addition, 83,566 shares of Common Stock were issued to PCE U.S.'s financial
adviser, Helix Capital, LLC, in the transaction. Prior to the acquisition date
there was 396,141 of shares of Common Stock outstanding, resulting in a total
shares outstanding of 820,131 after the Conversion Agreement was executed on
February 13, 1997.
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) authorize the conversion
of the 658,412 outstanding shares of the Company's Series C Preferred Stock into
823,015 of Common Stock; and (iii) ratify the Company's 1997 Stock Option Plan.
On October 24, 1997, the Company acquired substantially all of the assets
of GLTN Computer Consultants, Inc., ("GLTN") a Long Island, New York-based ILT
Company, for $130,000 in cash and 15,909 shares of Common Stock.
Effective December 11, 1997, the Company completed a private placement of
255,682 Units, each Unit consisting of two shares of Common Stock and one
two-year Warrant to purchase a share of Common Stock. The price per Unit was
$8.80 and the exercise price of the Warrant contained in each Unit is $4.40 per
share of Common Stock.
In connection with, but separately from the private placement, Mashov
converted $1,162,000 of debt owed to it by the Company into 132,045 Units (or
264,090 shares of Common Stock) and warrants to purchase 132,000 shares of
Common Stock at $4.40 per share.
OPTIONS
Under the Company's 1997 Stock Option Plan, 625,000 shares of the Company's
Common Stock have been reserved for issuance to employees and non-employee
Directors, among others.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No, 123, "Accounting for Stock-Based Compensation" requires use of
options valuation models that were not developed for use in valuing employee
stock options. The exercise price of the Company's employee stock options was
equal to or above the market price of the underlying stock on the date of grant
and, therefore, no compensation expense was recognized.
F-14
<PAGE>
Pro forma information regarding net loss and net loss per share is required
by FASB Statement No. 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996: risk free interest rate of 5.6% and 6.6%,
respectively, volatility factor of the expected market price of the Company's
Common Stock of 1.11 and .72, respectively, and the weighted-average expected
life of the options of 3 and 5 years, respectively. Dividends are not expected
in the future. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options vesting period. The
Company's 1997 pro forma net loss is $881 and net loss per share is $.41. The
fair value of the options was determined to be deminimus for the year ended
December 31, 1996.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics of
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Stock option activity is summarized as follows:
WEIGHTED-
AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding December 31, 1995 (36,012
exercisable at option prices $7.52 to $50.00) 55,150 $25.36
Options Granted 2,500 $40.00
Options Canceled (38,400) $16.24
-------
Outstanding December 31, 1996 (19,250
exercisable at option prices $7.52 to $50.00) 19,250 $28.48
Options Granted 98,125 $ 5.60
Options Canceled (9,700) $19.12
------
Outstanding December 31, 1997 (43,925
exercisable at option prices $4.67 to $50.00) 107,675 $ 8.74
=======
F-15
<PAGE>
Options outstanding and exercisable at December 31, 1997 are as follows:
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
SHARES EXERCISE PRICE LIFE
------ -------------- ----
425 $20.00 1.5
625 $22.00 .01
250 $40.00 .01
7,500 $40.00 2.5
31,875 $4.67 4.6
3,250 $50.00 4.75
- -------
43,925
At December 31, 1997 517,325 options are available for grant.
WARRANTS
The following is a summary of warrants outstanding and exercisable at
December 31, 1997:
NUMBER OF
EXPIRATION DATE WARRANTS EXERCISE PRICE DESCRIPTION
- --------------- -------- -------------- -----------
December 11, 1999 387,727 $4.40 (1)
December 31, 1998 4,500 $20.00 (2)
Total 392,227
=======
(1) Warrants issued in connection with the December private placement and
Mashov loan conversion
(2) Warrants granted to a consultant
At December 31, 1997, the Company has 392,227 shares of common stock
reserved for issuance to the warrant holders.
NOTE 10 - TAXES ON INCOME
There was no income tax expense or benefit recorded for the year ended
December 31, 1997. The income tax expense of $45 for the year ended December 31,
1996 was incurred in the State of Israel.
The Company has net operating loss carryforwards of approximately $10,344
expiring from 2006 to 2012. In addition, the Company has a capital loss
carryforward of approximately $1,202,
F-16
<PAGE>
which expires in 2000. However, pursuant to Section 382 of the Internal Revenue
Code, the future utilization of approximately $9,475 of the net operating loss
carryforwards and the entire capital loss carryforward is significantly limited
due to an ownership change which occurred in 1997. The full utilization of these
losses in the future is dependent upon the Company's ability to generate taxable
income and also is subject to certain annual limitations due to the change in
control; accordingly, valuation allowances of equal amounts have been
established.
Components of the Company's deferred tax asset and liability at December
31, 1997 is as follows:
Net operating loss carryforwards $4,197
Capital loss carryforward 481
4,678
-----
Valuation allowance (4,678)
------
Net deferred tax asset --
======
NOTE 11 - PRO FORMA RESULTS OF OPERATIONS (Unaudited)
The consolidated financial statements for 1997 included in this report
reflect the operations of Sivan and Mashov CBT for the year ended December 31,
1997, and Mentortech Inc. since February 13, 1997, the date of the stock
purchase transaction. Because of the change in control, the stock purchase
transaction between Mashov and Mentortech Inc. was accounted for as a reverse
acquisition. Based on such accounting treatment, Sivan is reported as the
surviving entity. The year ended December 31, 1996 includes the year of
operations of Sivan and the six months of operations (since inception) of Mashov
CBT. It does not include the operations of PCE U.S.
On a pro forma basis had the acquisition occurred January 1, 1997, the pro
forma results of operations for the year ended December 31, 1997 would have been
as follows:
Revenues $18,161
Net (loss) ($959)
Net (loss) per share ($0.45)
F-17
<PAGE>
NOTE 12 - GEOGRAPHIC DATA
<TABLE>
<CAPTION>
For the year ended December 31, 1997
% %
U.S. OF TOTAL ISRAEL OF TOTAL
-------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from unrelated
third parties $ 5,806 33% $11,754 67%
Intercompany revenue 0 0
------- ---
Total revenue $ 5,806 33% $11,754 67%
======= =======
Net income (loss) ($1,029) (122%) $ 178 22%
======= =======
Identifiable assets $ 6,025 45% $ 7,472 55%
======= === =======
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1996
% %
U.S. OF TOTAL ISRAEL OF TOTAL
-------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from unrelated
third parties $ 0 0% $9,400 100%
Intercompany revenue 0 0
--- ---
Total revenue 0 0% $9,400 100%
=== ======
Net income (loss) $ 0 0% $ (798) 100%
=== ======
Identifiable assets $ 0 0% $6,970 100%
=== === ======
</TABLE>
NOTE 13 - RETIREMENT PLAN
The Company sponsors a defined contribution plan under Section 401(k) of
the Internal Revenue Code for its employees. Participants can make elective
contributions subject to certain limitations. The Company can make a
discretionary matching contribution on behalf of all participants. The Company
made contributions of $14 and $16 in 1997 and 1996, respectively.
F-18
<PAGE>
NOTE 15 - RELATED PARTIES
Year Ended
December 31,
------------
1997 1996
---- ----
Revenues (1) $- $50
Expenses (1):
Cost of revenues $- $41
Rent (2) $- $138
Management fees to Mashov (2) $- $748
Interest on Shareholder loans $- $434
(1) Related balances are unlinked and do not bear interest
(2) The management fees and rent were paid according to an agreement which
ended December 31, 1996
F-19
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
-20-
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The executive officers and directors of the Company are as follows:
Director
Name Age Position with the Company Since
- ---- --- ------------------------- -----
Roy Machnes 37 Chairman, President, Chief 1997
Executive Officer and Director
Elan Penn 45 Chief Financial Officer and 1997
Director
Terry I. Steinberg 42 Executive Vice President and 1985
Director
Adrienne Haber 40 Controller and Chief Accounting --
Officer
David Assia 45 Director 1997
Jack Dunietz 42 Director 1997
Martin F. Kahn 46 Director 1995
David Assia. Mr. Assia has served as a director of the Company since
February 1997. He is a co-founder with Mr. Dunietz of Mashov Computers Ltd. and
has been its Chairman since 1989. Mr. Assia has been Managing Director, since
its inception in 1983, of Magic Software Enterprises Ltd. ("Magic"), a developer
and provider of network software products and services for departmental,
client/server and Internet/Intranet applications, and has been Chairman of Magic
since 1986. He also serves as a director of Mashov and Aladdin Knowledge Systems
Ltd. Mr. Assia holds a B.A. and an M.B.A. from the Tel-Aviv University.
Jack Dunietz. Mr. Dunietz has served as a director of the Company since
February 1997. He is a co-founder with Mr. Assia of Mashov Computers Ltd. of
which he has been the Chief Executive Officer since 1987. Mr. Dunietz also
serves as a director and interim Chief Executive Officer of Magic and a director
of Mashov and Paradigm Geophysical Ltd. & Data Automation Ltd. Mr. Dunietz holds
a B.SC. in Computer Science from the Technion Israel Institute of Technology.
Adrienne Haber. Ms. Haber has served as the Company's Controller since
February 1997 and served as Controller of PCE U.S. for the eight years prior
thereto. Ms. Haber holds a B.S. in Accounting from Lehman College and is a
Certified Public Accountant.
Martin F. Kahn. Mr. Kahn has served as a director of the Company since May
1995 and was Chairman of the Board of the Company from May 1995 until February
1997. He has served since 1989 as Chairman of Ovid Technologies, Inc., a leading
producer of medical, scientific and technical CD-ROM and network products; since
September 1993 as Chairman of OneSource Information Services, which develops and
markets a comprehensive set of integrated business information and
-21-
<PAGE>
software products; since 1991 as a Director of Vista Information Solutions, Inc.
(formerly DataMap, Inc., a successor through merger to Vista Environmental
Information, Inc.) which supplies site-specific risk information about real
estate for the insurance, banking, and environmental engineering markets; since
April 1995 as Chairman and CEO of Shoppers Express, Inc., which offers home
grocery shopping through dial-up and on-line services; and since March 1996 as
Managing Director of Cadence Information Associates L.L.C. (and its
predecessor), a consulting and management services firm. Mr. Kahn holds a
Bachelors Degree in Administrative Sciences from Yale College and an M.B.A. from
Harvard Business School.
Roy Machnes. Mr. Machnes has served as the Company's Chairman of the Board,
President and Chief Executive Officer and a director since February 1997. Since
January 1994, he has been Chairman and Chief Executive Officer of Mashov, and
prior thereto, from 1988, he served as Vice President Sales of Mashov Computers
Ltd. Mr. Machnes is also a director of Mashov Computers Ltd. He holds a B.A.
from the University of California at Berkeley.
Elan Penn. Mr. Penn has served as the Company's Chief Financial Officer and
a director since February 1997. He also serves as the Chief Executive Officer of
Mashov and Chief Financial Officer of Mashov Computers Ltd. Mr. Penn joined
Mashov Computers Ltd. and Magic as their Vice President of Finance and
Administration in June 1992. In February 1997, he resigned his position at Magic
to assume the position of Chief Financial Officer of the Company. From January
1991 until May 1992, Mr. Penn was employed by Solgood Representatives Ltd., an
electronics equipment sales representative firm, where he acted in an executive
capacity. Prior to January 1991, he was Vice President of Finance of Mashov
Computers. Mr. Penn holds a B.A. in Economics from the Hebrew University of
Jerusalem and a Ph.D. in Management Science from the University of London.
Terry I. Steinberg. Mr. Steinberg has served as the Company's Executive
Vice President, responsible for North American Sales and Marketing since
February 1997, and as a director since 1985. He served as President and Chief
Executive Officer of PCE U.S. since its inception in 1985 until February 1997
and has served as its Treasurer from August 1991. He currently serves as
Secretary. For more than five years prior to PCE U.S.'s inception, he was the
Director of Decision Support for Paramount Pictures Corporation, with
responsibility for all end-user computing. Mr. Steinberg holds a Bachelor's
Degree in Applied Mathematics and Computer Science and an M.B.A., both from
McGill University.
Messrs. Machnes, Penn, Assia, and Dunietz own 1.51%, 0.4%, 0.56% and 3.15%
of the voting equity of Mashov, respectively. Mashov is an 80%-owned subsidiary
of Mashov Computers Ltd., a publicly-held company in Israel. Messrs. Assia and
Dunietz are directors of Mashov Computers Ltd. and are the beneficial owners of
approximately 30% of its issued and outstanding shares.
Mr. Machnes is a resident of New York City and expects to spend
approximately 50% of his work time in the U.S. and the remainder in Israel. Mr.
Penn is a resident of Israel and expects to spend approximately 75% of his work
time in Israel and the remainder in the U.S. Mr. Steinberg is a resident of
Nassau County, New York and devotes substantially all of his time to the
Company's
-22-
<PAGE>
operation in the U.S. Due to the fact that a substantial portion of the
Company's operations are located in Israel and the availability of facsimile,
Internet and telephone communications technologies, the Company expects that the
domicile arrangements of the Company's officers will have no material impact on
the operations of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance. The federal
securities laws require directors and executive officers and persons who own
more than 10% of the Company's common stock to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes of
ownership of any equity securities of the Company. To the Company's knowledge,
based solely on a review of the copies of filings furnished to the Company and
written representations that no other reports were required, during the fiscal
year ended December 31, 1997, all Section 16(a) filing requirements applicable
to the Company's officers, directors and 10% stockholders were complied with.
Item 10. Executive Compensation
The following table sets forth information concerning the compensation
during the last three fiscal years of the Company's executive officers whose
total salary during any of the three prior fiscal years was $100,000 or more.
The Company has a 401(k) savings plan for its executives which is available to
all Company employees. The current value of all perquisites and other personal
benefits furnished in each of such years to each of the executive officers named
below was less than 10% of such officer's salary for such year.
Summary Compensation Table
Long-Term
Compensation
------------
Annual Securities
Compensation Underlying
Name and Principal Position Year Salary ($) Options (#)
- --------------------------- ---- ---------- -----------
Roy Machnes
President and Chief Executive
Officer................................... 1997 $163,789 40,625
Elan Penn
Chief Financial Officer................... 1997 120,000 25,000
Terry Steinberg
Executive Vice President (1).............. 1997 168,500 30,000
1996 (2) --
1995 131,700 --
- --------------
(1) Effective February 13, 1997, Mr. Steinberg, the former President of the
Company, was named Executive Vice President pursuant to an employment
contract dated February 6, 1997.
(2) Less than $100,000.
-23-
<PAGE>
The aggregate value of all other perquisites and other personal benefits
furnished in each of the last three years to each of these executive officers
was less than 10% of each officer's salary for such year. The Company has not
paid any cash remuneration to any of its outside directors as directors in the
last three years.
Directors' Compensation
Directors, whether or not they are also employees of the Company, are not
paid any fees or other remuneration for service on the Board. The Company
reimburses all of its directors for their out-of-pocket expenses incurred in the
performance of their duties as directors of the Company.
Stock Options
The following table provides information concerning exercises of stock
options during 1996 by each of the executive officers named above in the Summary
Compensation Table, and the number and value of unexercised options held by each
of them at December 31, 1997.
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of shares Value of unexercised
underlying unexercised in-the-money options
Shares options at FY-end (#) at FY-end ($)(1)
acquired on exercisable/ exercisable/
Name exercise (#) unexercisable unexercisable
- ---- ------------ ------------- -------------
<S> <C> <C> <C>
Roy Machnes..................... -- 13,542/27,083 --
Elan Penn....................... -- 8,333/16,667 --
Terry I. Steinberg.............. -- 10,000/20,000 --
</TABLE>
- ----------------
(1) None of the outstanding options were in the money at December 31, 1997. The
exercise price of the outstanding options was $4.67 while the average of
the bid and the asked prices of a share of Common Stock on December 31,
1997 was $4.56.
Employment Agreements
Pursuant to the Stock Purchase Agreement and effective February 13, 1997,
the Company entered into employment contracts with each of Roy Machnes, Terry I.
Steinberg and Elan Penn, providing for their employment as Chief Executive
Officer, Executive Vice President and Chief Financial Officer, respectively, of
the Company. Pursuant to such contracts, and effective as of August 4, 1997,
Messrs. Machnes, Steinberg and Penn were granted incentive stock options to
purchase 40,625, 30,000 and 25,000 shares of Common Stock, respectively, which
options vest over
-24-
<PAGE>
a three-year period commencing in August 1997. The exercise price of such stock
options is $4.672 per share.
The base salaries of Messrs. Machnes and Steinberg are each $155,000. Mr.
Penn's salary is paid at a rate of $10,000 per month, adjusted monthly in a
percentage amount equal to the increase in the Consumer Price Index as published
by the Israeli Bureau of Labor Statistics.
Mr. Machnes's employment agreement provides that, although he may perform
the services contemplated by such agreement in the U.S. or Israel, the Company
will pay for or reimburse certain of Mr. Machnes's relocation and living
expenses should Mr. Machnes choose to live in the U.S. during the period of his
employment. Specifically, the Company must pay (or reimburse Mr. Machnes) if he
incurs such expenses for the following: (1) $20,000 for expenses incurred during
any relocation of Mr. Machnes, his family and their possessions to New York; (2)
all expenses associated with the education of Mr. Machnes's children including
private school tuition and associated expenses (estimated at $20,000 per annum)
in the United States; (3) an apartment in Manhattan, New York, including any
associated real estate broker's fees, less the amount of any rental payments
received from the lease of Mr. Machnes's home in Israel, net of associated
expenses; and (4) any expenses incurred by Mr. Machnes in connection with a
visit by his family to Israel once each year. If any of the above constitute
taxable income to Mr. Machnes, such amounts are to be grossed up to account for
the payment of any taxes due, and are to be adjusted upwards annually in a
percentage amount equal to the Consumer Price Index for all urban consumers in
the New York, New Jersey and Connecticut area as published by the Bureau of
Labor Statistics. Should Mr. Machnes' employment be terminated for any reason,
Mr. Machnes is to be reimbursed for relocation expenses of no more than $20,000
in connection with Mr. Machnes's relocation to Israel.
During the year ended December 31, 1997, the Company paid approximately
$19,000 for Mr. Machnes's relocation expenses to New York and pre-paid
approximately $15,000 for tuition for Mr. Machnes' children. The Company also
pre-paid approximately $76,000 for the rental of an apartment in New York which
it leased for the use of its executives. The apartment is being used by Mr.
Machnes at the present time. No expenses have been incurred by the Company for
any visits by Mr. Machnes (or his family) to Israel. Any amounts that are
taxable to Mr. Machnes will be grossed up to compensate Mr. Machnes for any
taxes due.
Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities that
they may incur in such capacities, including liabilities under the Securities
Act. The Company's By-Laws provide that the Company will indemnify its directors
and officers to the fullest extent permitted by law and require the Company to
advance litigation expenses upon receipt by the Company of an undertaking from
the director or officer to repay such advances if it is ultimately determined
that the director or officer is not entitled to indemnification. The By-Laws
further provide that rights conferred under the
-25-
<PAGE>
By-Laws will not be deemed to be exclusive of any other right such persons may
have or acquire under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
The Company's Certificate of Incorporation provides that, pursuant to
Delaware law, its directors will not be liable for monetary damages for breach
of the directors' fiduciary duty to the Company and its stockholders. This
provision in the Certificate of Incorporation does not eliminate the duty of
care, and, in appropriate circumstances, equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to the Company or its stockholders, for acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law, for actions leading to improper personal benefits to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
Stock Option Plan
The Company's 1997 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors on June 25, 1997 and ratified by the Company's stockholders
on August 4, 1997. The Option Plan provides for the granting of incentive stock
options ("Incentive Stock Options"), within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, to employees, and for the granting of
nonstatutory stock options ("Nonstatutory Stock Options") to employees,
non-employee directors, consultants and advisors. A total of 625,000 shares of
Common Stock have been reserved for issuance under the Option Plan. As of
December 31, 1997, 95,625 shares were subject to outstanding Incentive Stock
Options under the Option Plan. In addition, 12,050 shares were subject to
outstanding options under the Company's 1987 Stock Option Plan. No further
options may be granted under the 1987 Stock Plan.
The exercise price of all Incentive Stock Options must be at least equal to
the fair market value of the Common Stock on the date of grant and the option
term may not exceed ten years. The exercise price of all Nonstatutory Stock
Options granted under the Option Plan may be less than the fair market value of
the Common Stock on the date of grant and the option term may be greater than
ten years. Incentive Stock Options and Nonstatutory Stock Options ("Options")
may be exercised by delivery to the Company at its principal office of written
notice of the number of shares with respect to which the Option is being
exercised. Such notice must be accompanied by payment of the full option price
of such shares with a check payable to the order of the Company in such amount.
The Option Plan may be amended or terminated by the Board or the Company's
stockholders, but no such action may impair rights under a previously granted
Option. No Options may be granted under the Option Plan after June 25, 2007.
-26-
<PAGE>
401(k) Plan
Effective as of January 1, 1993, the Company adopted a 401(k) Employee
Savings Plan (the "401(k) Plan"). The 401(k) Plan covers all employees of the
Company who have attained the age of 21 and are employed by the Company six
months after their employment commences, except those employees who work sixteen
or fewer days per month. A participating employee (a "Participant") may elect to
defer, in the form of pre-tax contributions to the 401(k) Plan, an amount up to
15% of his or her compensation for each year. A Participant's before-tax
contributions cannot exceed $9,500 per year, as adjusted for inflation. For each
year, the Company may contribute for each Participant a matching contribution
equal to 25% of so much of the Participant's before-tax contributions for the
year as does not exceed 2% his or her compensation. In addition, for each year,
the Company may make a contribution, in any amount determined by the Company in
its sole discretion, to the 401(k) Plan that will be allocated to Participants
in accordance with a formula set forth in the 401(k) Plan.
Contributions to the 401(k) Plan made on behalf of a Participant are
invested in the manner directed by the Participant. Before-tax contributions and
Company matching contributions are fully vested and nonforfeitable at all times.
Company discretionary contributions vest according to a five-year graded vesting
schedule, based on a Participant's years of service.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of March 16, 1998
with respect to any stockholder who owns greater than 5% of the outstanding
Common Stock, each of the Company's directors and the Company's officers and
directors as a group.
Number Percentage of
of Shares
Shares(1) Outstanding
--------- -----------
Mashov Computers
Marketing Ltd.(2)(3)........................... 2,214,567 59.9%
Elron Electronic Industries Ltd.(3)(4) .......... 253,800 7.3%
David Assia (5)(6)............................... -- --
Jack Dunietz (5)(6).............................. -- --
Martin F. Kahn (5)............................... 2,500 *
Roy Machnes (5)(6)............................... 14,166(7) *
Elan Penn (5)(6)................................. 8,333(8) *
-27-
<PAGE>
Number Percentage of
of Shares
Shares(1) Outstanding
--------- -----------
Terry I. Steinberg (5)........................... 48,807(9) 1.4%
All executive officers and directors as a group.. 67,557(10) 2.0%
- ----------------
* Less than 1%
(1) Calculated pursuant to Rule 13d-3 promulgated under the Exchange Act.
Accordingly, with respect to each particular beneficial owner, the number
of shares of Common Stock gives effect to the deemed exercise of such
owner's options and warrants (which are currently exercisable or
exercisable within 60 days). Except as otherwise disclosed in the footnotes
below, the shares listed in this column for a person named in this table
are directly held by such person, with sole voting and dispositive power.
(2) Address is 5 HaPlada Street, Or-Yehuda, Israel. Mashov Computers Marketing
Ltd. is an 80% owned subsidiary of Mashov Computers Ltd., which is also
located at 5 HaPlada Street, Or-Yehuda, Israel. Mashov Computers Ltd. may
be deemed the beneficial owner of the shares registered in the name of
Mashov Computers Marketing Ltd.
(3) Includes shares of Common Stock issuable upon exercise of currently
exercisable warrants held by: Mashov Computers Marketing Ltd. (132,045
shares) and Elron Electronic Industries Ltd. (22,500 shares).
(4) Address is Advanced Technology Center, P.O. Box 1573, Haifa, Israel.
(5) Serves as a director of Mentortech.
(6) Serves as a director of Mashov Computers Marketing Ltd.
(7) Includes 13,542 shares issuable upon currently exercisable options.
(8) Includes 8,333 shares issuable upon currently exercisable options.
(9) Includes 10,000 shares issuable upon currently exercisable options.
(10) Include 31,875 shares issuable upon currently exercisable options.
-28-
<PAGE>
Item 12. Certain Relationships and Related Transactions.
Effective February 13, 1997, a change of control of PCE U.S. occurred
pursuant to the Stock Purchase Agreement between PCE U.S. and Mashov, whose
shares are publicly traded on the TASE. Mashov is a subsidiary of Mashov
Computers Ltd., whose shares are also publicly traded on the TASE. Based on the
Stock Purchase Agreement, Mashov acquired 1,054,866 shares of Common Stock and
658,412 shares of Series C Preferred Stock of PCE U.S., where each share of
Series C Preferred Stock is convertible into 1.25 shares of Common Stock. In
consideration for such stock issuances, PCE U.S. acquired two of Mashov's
subsidiaries, Sivan, and Mashov CBT. Pursuant to the Stock Purchase Agreement,
Mashov acquired 69% of PCE U.S.'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 U.S., Sivan and Mashov CBT. Such adjustment was made on
August 4, 1997 when Mashov contributed 43,199 shares of Common Stock to the
capital of PCE U.S. In addition, on August 4, 1997, the 658,412 shares of Series
C Preferred Stock was converted by Mashov into 823,015 shares of Common Stock.
As a result of the adjustment discussed above and such conversion, Mashov
currently owns 60.4% of the Common Stock. All dollar amounts in this section are
in thousands.
In 1996 certain departments of PCE Israel (including employees and
equipment) were transferred to Mashov CBT. PCE U.S. originally owned 30% of the
ordinary shares of Mashov CBT. This ownership was subsequently sold to Elron
Electronics Industries Ltd. ("Elron"). Mashov owned 70% of the ordinary shares
of Mashov CBT. Pursuant to a purchase agreement dated February 6, 1997, between
Mashov and Elron, Mashov purchased the remaining 30% of the outstanding shares
of Mashov CBT held by Elron. In consideration of the purchase, Mashov
transferred 130,000 shares of Common Stock to Elron upon the execution of the
Stock Purchase Agreement. Pursuant to the Stock Purchase Agreement, 100% of the
ownership of Mashov CBT was transferred to PCE U.S.
Prior to the execution of the Stock Purchase Agreement, Sivan owned 312,547
shares of Mashov and 234,918 options to purchase shares of Mashov (collectively,
the "Mashov Option Shares"). Pursuant to an agreement dated February 5, 1997,
Sivan granted to Mashov Computers Ltd. the option to purchase the Mashov Option
Shares at the average market value of the Mashov Options Shares during the five
day period immediately following the consummation of the transactions
contemplated by the Stock Purchase Agreement, as quoted on the Tel-Aviv Stock
Exchange. The Mashov Option Shares were purchased by Mashov Computers Ltd. in
consideration of approximately $175.
Mashov granted Sivan a shareholders' loan in October 1994 of approximately
$2.6 million which was converted into equity in the first quarter of 1997 as
part of the Stock Purchase Agreement. The loan was linked to the Israeli
Consumer Price Index and interest was charged at a rate of 6% per annum. Mashov
charged Sivan interest and linkage charges of $434,000 in 1996. In addition, in
1996 Mashov charged Sivan and Mashov CBT management fees of $691,000 and
-29-
<PAGE>
$57,000, respectively. In December 1997, Mashov converted $1,162,000 of debt
owed to it by Sivan into 265,965 shares of Common Stock and 132,045 warrants.
In connection with the execution of the Stock Purchase Agreement, the
Company executed the Conversion Agreement, which provides that the Conversion
Parties (Elron, Rho Management Trust I (formerly Gibraltar Trust), the Star
Group (comprised of Justy Ltd., SVE STAR Ventures Enterprises No. II Gbr, SVE
STAR Ventures Enterprises No. III Gbr, SVE STAR Ventures Enterprises No. IIIA
Gbr, and Yozma Venture Capital Ltd)., Gilbert H. Steinberg, Special Situations
Fund III, L.P., and Special Situations Cayman Fund, L.P.), receive Common Stock
for the cancellation of debt owed by the Company and the dilution of warrants
owned by the Conversion Parties. Specifically: (i) the 1,000,000 shares of
Series A Preferred Stock held by Elron were converted into 25,000 shares of
Common Stock; (ii) the Bridge Loans the Company received from certain
stockholders aggregating $436,000 as of December 31, 1996 were converted into
218,700 shares of Common Stock; and (iii) the holders of Company warrants agreed
to convert a total of 179,064 warrants (consisting of 115,315 warrants
outstanding as of December 31, 1996 which were subsequently adjusted pursuant to
the Conversion and Waiver Agreement under anti-dilution provisions) into 340,423
shares of Common Stock.
-30-
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
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)
2.2 Form of Subscription Agreement (2)
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 (3)
3.2 Certificate of Amendment of Certificate of Incorporation with regard to
reverse split
3.3 Certificate of Incorporation, as amended (4)
3.4 By-Laws (5)
4.1 Specimen Common Stock Certificate (6)
10.1 Lease for premises situated at 462 Seventh Avenue, 4th Floor, New York, New
York (7)
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 (8)
10.4 1997 Stock Option Plan (3)
10.5 Employment Agreement of Roy Machnes (9)
10.6 Employment Agreement of Elan Penn (9)
10.7 Employment Agreement of Terry I. Steinberg (9)
21 Subsidiaries
21.2 Published Report Regarding Matters Submitted to Vote of Security Holders
27 Financial Data Schedule
99 Additional Information Regarding Forward Looking Statements
_________
(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.
-31-
<PAGE>
(2) Filed as an exhibit to the Company's Registration Statement on Form SB-2
(File No. 333- 45173) and hereby incorporated by reference thereto.
(3) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1997 and hereby incorporated by reference
thereto.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989 and hereby incorporated by reference thereto,
as amended by document filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1993, as amended by document
filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1997 and hereby incorporated by reference
thereto, as amended by document filed herewith.
(5) Filed as an exhibit to the Company's Registration Statement on Form S-18
(File No. 33-19521) and hereby incorporated by reference thereto.
(6) Filed as an exhibit to the Company's Registration Statement on Form S-2
(File No. 33-93842) 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, 1993 and hereby incorporated by reference
thereto.
(8) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1992 and hereby incorporated by reference
thereto.
(9) Filed as a "Related Agreement" to the Stock Purchase Agreement, which
Related Agreement 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.
(10) Filed as an exhibit to the Company's Current Report on Form 8-K/A Amendment
No. 2 for an event dated February 24, 1997 and hereby incorporated by
reference thereto.
(b) Reports on Form 8-K.
None.
-32-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Mentortech Inc.
Dated: March 23, 1998 By: /s/Roy Machnes
---------------
Roy Machnes
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Company and in the capacities and on the
dates indicated.
/s/Roy Machnes
- --------------
Roy Machnes Chairman, President, and March 23, 1998
Chief Executive Officer
/s/Terry Steinberg
- ------------------
Terry Steinberg Executive Vice President, March 23, 1998
and Director
/s/Elan Penn
- ------------
Elan Penn Chief Financial Officer March 23, 1998
and Director
/s/Adrienne Haber
- -----------------
Adrienne Haber Controller (Principal March 23, 1998
Accounting Officer)
/s/David Assia
- --------------
David Assia Director March 23, 1998
/s/Jack Dunietz
- ---------------
Jack Dunietz Director March 23, 1998
/s/Martin Kahn
- --------------
Martin Kahn Director March 23, 1998
-33-
<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)
2.2 Form of Subscription Agreement (2)
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 (3)
3.2 Certificate of Amendment of Certificate of Incorporation with regard to
reverse split
3.3 Certificate of Incorporation, as amended (4)
3.4 By-Laws (5)
4.1 Specimen Common Stock Certificate (6)
10.1 Lease for premises situated at 462 Seventh Avenue, 4th Floor, New York, New
York (7)
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 (8)
10.4 1997 Stock Option Plan (3)
10.5 Employment Agreement of Roy Machnes (9)
10.6 Employment Agreement of Elan Penn (9)
10.7 Employment Agreement of Terry I. Steinberg (9)
21 Subsidiaries
21.2 Published Report Regarding Matters Submitted to Vote of Security Holders
27 Financial Data Schedule
99 Additional Information Regarding Forward Looking Statements
___________
(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.
<PAGE>
(2) Filed as an exhibit to the Company's Registration Statement on Form SB-2
(File No. 333- 45173) and hereby incorporated by reference thereto.
(3) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1997 and hereby incorporated by reference
thereto.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989 and hereby incorporated by reference thereto,
as amended by document filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1993, as amended by document
filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1997 and hereby incorporated by reference
thereto, as amended by document filed herewith.
(5) Filed as an exhibit to the Company's Registration Statement on Form S-18
(File No. 33-19521) and hereby incorporated by reference thereto.
(6) Filed as an exhibit to the Company's Registration Statement on Form S-2
(File No. 33-93842) 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, 1993 and hereby incorporated by reference
thereto.
(8) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1992 and hereby incorporated by reference
thereto.
(9) Filed as a "Related Agreement" to the Stock Purchase Agreement, which
Related Agreement 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.
(10) Filed as an exhibit to the Company's Current Report on Form 8-K/A Amendment
No. 2 for an event dated February 24, 1997 and hereby incorporated by
reference thereto.
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MENTORTECH INC.
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
----------------------------
Mentortech Inc. (the "Corporation"), a corporation organized and existing
by virtue of the General Corporation Law of the State of Delaware (the "Delaware
GCL"), by its duly authorized officers, hereby certifies as follows:
FIRST: That the Board of Directors of the Corporation, acting pursuant to
Section 141(f) of the Delaware GCL, has duly adopted a resolution authorizing
the Corporation to reclassify, change and convert each eight (8) outstanding
shares of the Corporation's Common Stock, par value $.01 per share, into one (1)
share of Common Stock, par value $.01 per share.
SECOND: That the Board of Directors of the Corporation, acting pursuant to
Section 141(f) of the Delaware GCL, has duly adopted a resolution authorizing
the Corporation to reduce the number of common shares the Corporation is
authorized to issue from forty million (40,000,000) shares of Common Stock, par
value $.01 per share, to twenty million (20,000,000) shares of Common Stock, par
value $.01 per share.
THIRD: That, pursuant to authorization by the affirmative vote, in
accordance with the provisions of the Delaware GCL, of the holders of a majority
of the outstanding Common Stock of the Corporation entitled to vote thereon at a
special meeting of stockholders of the Corporation held on February 26, 1998,
the Certificate of Incorporation of the Corporation be amended as follows:
1. By striking out Article IV, paragraph (a) and inserting a new
Article IV, paragraph (a) to read as follows:
"(a) The aggregate number of shares of stock which the Corporation
shall have the authority to issue is 25,000,000, of which 20,000,000 are
shares of Common Stock, with a par value of $.01 per share, and 5,000,000
are shares of Preferred Stock, with a par value of $.001 per share."
<PAGE>
2. By adding new paragraph (d) to Article IV to read as follows:
"(d) Each eight (8) shares of the Common Stock, par value $.01 per
share, of the Corporation issued and outstanding or held in treasury as of
5:00 p.m. New York time on the date on which this Certificate of Amendment
is filed by the Secretary of State of the State of Delaware (the "Effective
Time") shall be reclassified as and changed into one (1) share of Common
Stock, par value $.01 per share, of the Corporation, without any action by
the holders thereof. Each stockholder who, immediately prior to the
Effective Time, owns a number of shares of Common Stock which is not evenly
divisible by eight (8) shall, with respect to such fractional interest, be
entitled to receive from the Corporation cash in an amount equal to such
fractional interest multiplied by the average of the closing bid and
closing asked prices of the Common Stock as reported on the Nasdaq Bulletin
Board at the Effective Time"
FOURTH: That the amendments to the Corporation's Certificate of
Incorporation set forth herein have been duly adopted in accordance with the
provisions of Section 242 of the Delaware GCL.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed on its behalf by Roy Machnes, its President, on March 3, 1998, hereby
declaring and certifying that this is the act and deed of the Corporation and
that the facts herein stated are true.
/s/Roy Machnes
--------------
Name: Roy Machnes
Title: President
ATTEST:
/s/Terry I. Steinberg
- ---------------------
Name: Terry I. Steinberg
Title: Secretary
2
EXHIBIT 21
Subsidiaries of the Registrant
Subsidiary Jurisdiction of Incorporation
- ---------- -----------------------------
Mentortech TBT Ltd............................... Israel
Mentortech Systems (1996) Ltd.................... Israel
Sivan Computers Training Center (1994) Ltd....... Israel
EXHIBIT 22
Published Report Regarding Matters Submitted to Vote
of Security Holders
On February 26, 1998 at a Special Meeting of Shareholders, the Company's
shareholders approved a one-for-eight reverse split and reduction in the number
of share of authorized Common Stock to 20 million shares. The vote on this
matter was as follows:
FOR: 22,831,483 AGAINST: 2,960 ABSTAIN: 2,900
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,659
<SECURITIES> 0
<RECEIVABLES> 3,596
<ALLOWANCES> 93
<INVENTORY> 34
<CURRENT-ASSETS> 5,547
<PP&E> 3,900
<DEPRECIATION> 1,536
<TOTAL-ASSETS> 13,497
<CURRENT-LIABILITIES> 5,694
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> 6,806
<TOTAL-LIABILITY-AND-EQUITY> 6,840
<SALES> 17,560
<TOTAL-REVENUES> 17,560
<CGS> 10,859
<TOTAL-COSTS> 7,319
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233
<INCOME-PRETAX> (851)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (851)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
EXHIBIT 99
ADDITIONAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS
The Company's Annual Report on Form 10-KSB for the year ended December 31,
1997 (the "Annual Report") contains various forward-looking statements which
reflect the Company's current views with respect to future events and financial
results. Forward-looking statements usually include the verbs "anticipates,"
"believes," "estimates," "expects," "intends," "plans," "projects,"
"understands" and other verbs suggesting uncertainty. The Company reminds
shareholders that forward-looking statements are merely predictions which are
inherently subject to uncertainties and other factors which could cause the
actual results to differ materially from the forward-looking statement. Some of
these uncertainties and other factors are discussed in the Annual Report. See
Item 6 "Management Discussion and Analysis of Financial Condition and Results of
Operations." In this Exhibit 99, the company has attempted to identify
additional uncertainties and other factors which may affect its forward-looking
statements.
Shareholders should understand that the uncertainties and other factors
identified in the Annual Report and this Exhibit 99 do not constitute a
comprehensive list of all the uncertainties and other factors which may affect
forward-looking statements. The Company has merely attempted to identify those
uncertainties and other factors which, in its view at the present time, have the
highest likelihood of significantly affecting its forward-looking statements. In
addition, the Company does not undertake any obligation to update or revise any
forward-looking statements or the list of uncertainties and other factors which
could affect such statements.
Capitalized terms not otherwise defined below have been defined in the
Annual Report.
Business and Market Risks
Operating Results May Fluctuate. The Company has experienced and may in the
future experience significant fluctuations in revenues and operating results
from quarter to quarter due to a combination of factors, many of which are
beyond the Company's control. These factors include: the timing of significant
revenues for the Company's services; new services introductions by the Company
or its competitors; changes in the Company's product or service mix that may
affect revenues, prices, margins or both; further expansion of the Company's
marketing and service operations; disruptions in sources of personnel; changes
in personnel costs; regulatory changes; general economic conditions and other
factors. The Company's operating expenses are based on anticipated revenue
levels, and a high percentage of such expenses are relatively fixed. The Company
believes that its quarterly operating results will continue to be subject to
significant fluctuations.
History of Unprofitable Operations; Accumulated Deficit; Working Capital
Deficiency. During the fiscal years ended December 31, 1995, 1996 and 1997, the
Company's operations were unprofitable. No assurance can be given that it will
operate on a profitable basis in the future. The ability of the Company to
continue its operations successfully is materially dependent upon the marketing
of its services and products in a profitable manner and the raising of any
additional capital which it may require.
<PAGE>
Recent Merger; Failure to Manage Growth Effectively Could Have a Material
Adverse Effect on the Company. The Company has grown significantly in 1997 as a
result of the Stock Purchase Agreement. The Company's ability to manage its
growth will require it to continue to improve its operational, financial and
management information systems, and to motivate and manage its employees
effectively. In addition, the Company's management must manage operations which
are international in scope. If the Company's management is unable to manage the
Company's growth and geographically dispersed operations effectively, the
quality of the Company's services, its ability to retain key personnel and its
business and operating results and financial condition could be materially and
adversely affected.
Company Depends upon Major Customers. There can be no assurance that the
Company's current customers will continue to retain the Company or that the
Company will be able to sell services to new customers. The loss of any one or
more of the Company's major customers could materially and adversely affect the
Company's business, operating results and financial condition.
Market for Company's Services is Highly Competitive. The market for the
Company's services is highly competitive and subject to rapid technological
change. The Company faces competition from a number of entities which presently
provide computer training and consulting services, or market TBT products,
similar to those furnished by the Company. The Company also encounters
competition from educational institutions providing personal computer training
programs, including universities, colleges and adult education centers, and
customers' in-house training staffs. Many of the entities which provide ILT and
consulting services, and market TBT products, have greater financial and
marketing resources than the Company. Increased competition could materially and
adversely effect the Company's results of operations through price reductions
and loss of market share. There can be no assurance that the Company will be
able to continue to compete successfully against its existing competitors or
that it will be able to compete successfully against new competitors.
Cancellation of Software Manufacturers' Authorizations. The Company is
authorized to act as a training center by various software manufacturers.
Management believes that such authorizations have several advantages, including
referrals from the software manufacturers and free listings in the advertising
literature published or distributed by such manufacturers. No assurance can be
given that the Company will continue to maintain its authorizations or that it
will be successful in obtaining new authorizations in the future. The inability
to maintain such authorization or obtain new ones could make the Company's
training courses and consulting services less attractive to its clients and thus
materially adversely effecting its financial results and financial condition.
The Loss of Key Employees Could Have a Material Adverse Effect on the
Company's Business. The Company's success depends to a significant degree upon
its executive officers. The loss of any of Roy Machnes, Chairman and Chief
Executive Officer, Terry I. Steinberg, Executive Vice President for North
American Sales and Marketing, or Elan Penn, Chief Financial Officer, could have
a material adverse effect on the Company's business. The Company's success also
depends upon its ability to attract and retain highly skilled technical,
management and other personnel. Competition for such personnel is intense, and
the inability to attract and retain additional
-2-
<PAGE>
qualified employees or the loss of current key employees could materially and
adversely affect the Company's business, operating results and financial
condition.
Company's Proprietary Technology Has Limited Protection. The Company
possesses limited patent or registered intellectual property rights with respect
to its TBT technology. The Company depends in part upon its proprietary
technology and know-how to differentiate its products and service from those of
its competitors. The Company relies on a combination of contractual rights and
trade secret laws to protect its proprietary technology. There can be no
assurance that the Company will be able to protect its technology or that third
parties will not be able to develop similar technology independently.
Risks Associated with Allegations of Patent Infringement in the Software
Industry. The software industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement. There can be no assurance that third parties will not assert
infringement claims against the Company in connection with its products, that
any such assertion of infringement will not result in litigation, or that the
Company would prevail in such litigation or be able to license any valid and
infringed patents of third parties on commercially reasonable terms.
Furthermore, litigation, regardless of its outcome, could result in substantial
cost to and diversion of effort by the Company. Any infringement claims or
litigation against the Company could materially and adversely affect the
Company's business, results of operations and financial condition.
Company Will Continue to be Controlled by its Principal Stockholder. Mashov
Computers Marketing Ltd. ("Mashov") currently owns an aggregate of approximately
60.4% of the Company's outstanding Common Stock. As a result, Mashov will be
able to exert controlling influence over the outcome of actions requiring
stockholder approval, such as the election of the Company's directors,
amendments to the Company's Certificate of Incorporation and mergers. Roy
Machnes, Chairman of the Board of Directors and the Company's Chief Executive
Officer is also the Chairman of the Board of Mashov, and Elan Penn, a Director
and the Company's Chief Financial Officer is also the Chief Financial Officer
and a Director of Mashov. In addition, David Assia and Jack Dunietz are both
Directors of the Company and of Mashov. Messrs. Machnes, Penn, Assia, and
Dunietz own 1.51%, 0.4%, 0.56% and 3.15% of voting equity of Mashov,
respectively. Mashov is an 80%-owned subsidiary of Mashov Computers Ltd., a
publicly-held company in Israel. Messrs. Assia and Dunietz are directors of
Mashov Computers Ltd. and are the beneficial owners of approximately 30% of its
issued and outstanding shares.
Illiquidity of Trading Market; Sales of Shares Eligible for Future Sale
Could Adversely Affect Market Prices for the Company's Common Stock. The Company
does not currently meet the initial listing requirements for the Nasdaq SmallCap
Market. Accordingly, trading in the Company's Common Stock is conducted in the
over-the-counter market on the Nasdaq Bulletin Board where there is presently
only a limited trading market for such securities. As a consequence, purchasers
of the Shares could find it difficult to dispose of, or obtain accurate
quotations as to the market value of such Shares. Sales of substantial amounts
of Common Stock of the Company in the public market following the effective date
of the Registration Statement of which this Prospectus forms a part could
adversely affect the market price for such Common Stock. At present, less than
2% of the Company's outstanding shares are believed to be in the public market.
-3-
<PAGE>
Anti-takeover Provisions of the Company's Certificate of Incorporation and
By-Laws May Adversely Affect Holders of Common Stock or Delay or Prevent
Corporate Takeovers. Certain provisions of the Company's Certificate of
Incorporation and By-Laws could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. Certain of such provisions allow the Company to
issue preferred stock with rights senior to those of the Common Stock and impose
various procedural and other requirements which could make it more difficult for
stockholders to effect certain corporate actions. The issuance of preferred
stock and certain of the provisions in the Company's Certificate of
Incorporation and By-Laws may delay, defer or prevent a change in control of the
Company. The mere existence of these provisions could limit the price that
certain investors might be willing to pay in the future for shares of the Common
Stock and therefore may have a depressive effect on the market price of the
Common Stock.
Delaware Anti-takeover Provisions May Adversely Affect Holders of Common
Stock or Delay or Prevent Corporate Takeovers. Section 203 of the Delaware
General Corporation Law restricts certain business combinations with any
"interested stockholder" as defined in such law. This statute may delay, defer
or prevent a change in control of the Company.
Risks Relating to the Company's Operations in Israel
Operations in Israel. The Company's two Israeli-based subsidiaries were
responsible for approximately 6% of the Company revenues in 1997. Accordingly,
the Company's operations are directly affected by economic, political and
military conditions in Israel. For information with respect to certain factors
concerning the State of Israel, and risks related to its economic and political
situation,
Some of the Company's employees are currently obligated to perform annual
reserve duty in the Israeli Defense Forces and are subject to being called for
active duty at any time upon the outbreak of hostilities. While the Company has
operated effectively under these requirements, no shareholder prediction can be
made as to the effect on the Company of any expansion of such obligation.
Impact of Inflation and Currency Fluctuations. Substantially all of the
Company's Israeli operations' expenses were in unlinked New Israeli Shekels
("NIS") and all of the expenses of the Company's Israeli subsidiaries continued
to be denominated in unlinked NIS. The Company's results are influenced by the
extent to which any inflation in Israel is not offset (or is offset on a lagging
basis) by the devaluation of the NIS in relation to the dollar. The inflation
rate in Israel was 10.6% in 1996 and 10.7% in 1997. At the same time, the
devaluation of the NIS against the dollar was limited to 3.7% in 1996 and 3.7%
in 1997. The Company could be adversely affected in the future as a result of
currency fluctuations.
