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, 1996

                         Commission File Number: 0-17419

                                PC ETCETERA, 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, $.001 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: $7,042,089

The aggregate market value of the voting stock held by non-affiliates  computed,
as of April 11, 1997 was: $168,419(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: 11,267,308 shares outstanding as of April 11,
1997

Transitional Small Business Disclosure Format   Yes ___     No X 



<PAGE>



                                     PART I


Item 1. Description of Business.

     (a) Business Development.

General

     PC ETCETERA,  INC. (the "Company")  develops and offers  instructor-led and
computer-based  personal computer  training  programs,  and provides  consulting
services,  primarily to large business and public sector  organizations.  During
the past year,  the  Company  expanded  its  marketing  efforts  with  regard to
computer-based   training  ("CBT")  to  include  the  small  office-home  office
marketplace.  The Company's  instructor-led  training ("ILT") programs include a
wide range of introductory and advanced classes in operating systems,  including
MS/DOS,  Microsoft Windows,  Windows NT, OS/2 and Apple Macintosh  ("Macintosh")
System 7.0, word processing, spreadsheets, databases, communications,  executive
overviews,  integrated software packages, computer graphics, desktop publishing,
and groupware  products  including Lotus Notes.  The Company's CBT software line
includes  offerings  on  Lotus  Notes,  CC  Mail,  Microsoft  Office  and  Lotus
Smartsuite, as well as end user titles.

     The  Company's  ILT  programs   include  advanced   technical   courses  to
professionals in addition to end user proficiency courses. 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 Status. The Company
has  been  authorized  as a  training  center  by  many  software  and  hardware
manufacturers,  including Aldus, Alpha Software,  Apple, Borland, Claris, Corel,
Dataease, Lotus, Micrografx,  Microsoft, and Software Publishing.  The Company's
clients are mostly information technology ("IT") professionals and corporations.

     The Company develops and offers CBT programs for use in connection with its
ILT  classes as well as to home users who do not find  classroom  training  cost
effective.  Whereas live classroom  training is delivered in a classroom setting
by one of the Company's  qualified  instructors  to students who sit in front of
personal  computers,  CBT  products  for the home and  employee  user  utilize a
different  training  methodology.  The Company  supplies  CBT programs on either
floppy disks,  compact disks or over a  communication  line directly to desk-top
personal computers,  local area networks,  wide area networks, and the Internet,
eliminating the need for either classrooms or instructors.  The Company believes
that certain software packages and other computer-related topics lend themselves
to being  taught in this manner.  CBT  programs,  for  example,  are a more cost
effective way of delivering  training on new features made available in software
upgrades,  as well as in delivering training in geographically remote locations.
In addition to its CBT titles, which are based on popular end user applications,
the Company develops custom projects for large



                                       -2-

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corporations.  These  custom CBT titles  assist  corporations  in  training  and
integration of internal applications.

     The Company's  Consulting  Services  Division  ("CSD") is  responsible  for
identifying and providing independent computer personnel,  on a temporary basis,
to the Company's  client base for special  projects.  At the present  time,  the
Company  provides  its  clients  with  its  full  time  employees,  as  well  as
independent contractors, to satisfy its clients' requirements.

     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 also assumed its present name. The Company's executive offices are
located at 462 Seventh Avenue, New York, New York 10018 (telephone number: (212)
736-5870).

Recent Developments

     Pursuant to a Stock Purchase Agreement dated February 6, 1997 and effective
February  13,  1997 (the  "Stock  Purchase  Agreement")  between the Company and
Mashov Computers Marketing Ltd. ("Mashov"), the Company acquired Sivan Computers
Training  Center  (1994) Ltd.  ("Sivan"),  and Mashov  Computer  Based  Training
(C.B.T.) Ltd. ("Mashov CBT").  Both Sivan and Mashov CBT are incorporated  under
the  laws  of the  State  of  Israel.  Sivan  and  Mashov  CBT  are  engaged  in
instructor-led  personal  computer  training  and the  development  and  sale of
technology-based  training  products  and  services.  Sivan is Israel's  largest
provider  of computer  training  courses,  operating  over 60  classrooms  in 11
different  locations.  Sivan is the leading ILT  delivery  company in Israel and
offers  over 150  different  courses in six  teaching  departments  providing  a
comprehensive IT training syllabus.  Sivan trained approximately 40,000 students
in 1996. Sivan is certified by numerous software  publishers,  including Novell,
Microsoft,  Borland, SCO, Lotus, MSE and others, and its diplomas are recognized
both by  leading  Israeli  technology  companies  and the  Israeli  government's
Ministry of Labour.  Sivan offers one year  professional  acquisition  programs,
training  participants  to become  programmers,  PC  technicians,  communication
technicians and system analysts.  Sivan  implements an original  teaching method
which is based on a  session  model  (as  opposed  to the full day  model),  and
provides  substantial  practice,  lab and project work for its  students.  Sivan
believes  that  this  model  offers a much  better  training  level and leads to
increased knowledge retention.

     Mashov CBT is engaged in developing  technology based training products and
content.  Mashov CBT currently  offers a number of CBT titles in Hebrew directed
at the Microsoft Office training market.  The titles are sold by over 200 stores
throughout Israel and to OEM customers in Israel. In addition to its own titles,
Mashov CBT develops custom  projects.  Mashov CBT has developed  custom projects
for leading  Israeli  banks,  insurance  firms and other Israeli  companies.  In
addition to content  development,  Mashov CBT develops  delivery  technology for
delivering training via the Internet and other public networks. Its Intertrainer
1.0 product  supports  delivery of training  content on the Internet  supporting
full simulation, interactivity, sound and graphics.




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     The  financial  statements of Sivan and Mashov CBT are not included in this
report.  They will be  included  in a Form 8-K to be filed on or about April 24,
1997.

     (b) Business of the Company.

Introduction

     The pace at which new technologies are introduced and implemented,  coupled
with  the  increasing  need  for  corporations  to  continuously   update  their
technological base, is re-defining the training and education paradigm.  The old
model of  education  in which  one  acquired  a  profession  and  skills  in the
classical  education  system  simply does not take into account the realities of
the workplace.  IT  professionals  who do not refresh their technical skills may
find themselves  obsolete and thus IT professionals must refresh their knowledge
and master new technologies  continuously  throughout their careers. The Company
offers  courses  that allow  professionals  to stay on top of new  technologies,
products  and  platforms  while still  maintaining  their  current  careers.  In
addition to professional  education,  the Company offers proficiency training in
computers for end users.

     The Company provides a wide range of training products,  among them ILT and
CBT based  programs.  Moreover the Company also offers  professional  consulting
services to corporations.  Recruiting external expertise allows a corporation to
quickly  acquire  and  implement  new skills  and  technologies.  The  Company's
professionals  provide  two basic  functions:  implementation  of new skills and
knowledge  propagation.  The Company also provides independent personal computer
consultants  to assist its clients in the  implementation  of personal  computer
software  programs and systems,  for desk to desk  support,  and for hotline and
help desk implementation.

Training Programs

     Methodology

     The Company has developed a variety of computer  training  programs for the
U.S. market utilizing  different  methods.  One method utilizes  traditional ILT
classes,  varying in length from several hours to several days. Another training
method utilizes the computer and interactive  video  instruction  tapes to teach
the student.  Certain employers request a combination of these training methods.
The Company currently provides both live instructor-led  traditional classes and
computer-based training software products,  since it believes that these are the
best methods for teaching personal computer skills.  However,  as the market for
interactive  software expands, the Company plans to explore alternative training
methods  which  will  effectively  address  the needs of its  client  base.  See
"Presentation; Training Personnel."

     The Company's ILT programs offer a wide range of introductory  and advanced
classes  in  operating  systems,   including   Microsoft  Windows,   Windows  NT
workstation   and   server,    word   processing,    spreadsheets,    databases,
communications, executive overviews, integrated software



                                       -4-

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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 has  developed a  standardized  curriculum  designed to promote
uniformity  and  consistency  in its training  programs in both the  traditional
classroom  environment  and across its CBT  product  line.  Such  uniformity  is
generally  desired by the Company's  customers  such that all of the  customer's
employees   participating  in  the  training  receive  similar  information  and
instruction  on  particular  software  packages.   In  addition,   the  standard
curriculum,  for  both  ILT  and  CBT,  may be  customized  to  meet  the  exact
specifications of individual  clients. In addition to an original curriculum the
Company uses programs developed by software developers such as Microsoft,  Lotus
and others.  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  CBT  products is divided into tasks and  sub-tasks.  This format
allows the product to be used as either a training tool, where the entire CBT 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.

     Presentation; Training Personnel

     The  Company  offers  several  ILT  programs  to  satisfy  customer  needs,
including public and private seminars and special tutorial services.

     Public seminars are usually one-day classes scheduled on a regular basis at
the Company's own training  facilities.  The Company  offers a variety of public
seminars that are designed to accommodate varied levels of expertise, background
and  objectives.  Although  most  classes are one day in  duration,  some of the
Company's  programs are offered on a half-day or multiple day basis. The Company
distributes its public seminar schedule to existing and potential customers on a
quarterly basis.

     Private seminars are classes which are designed  specifically for groups of
employees from one business on a specific topic.  Private seminars generally are
held either at the Company's training facilities or at the customer's  premises.
The  curriculum  for  such  private  seminars  is  generally  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.  The  Company  also
develops  customized  applications for certain software programs utilized by its
customers.

     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



                                       -5-

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programs. Classes that are conducted on a customer's premises utilize either the
customer's  own  personal  computers  or  portable  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.
The Company presently has over 250 trainers available.

     Courseware and CBT Product Development

     There has been a general  consolidation  in the  software  market such that
most of the Company's  corporate  clients have  standardized on either Microsoft
Office or Lotus  Smartsuite.  This  consolidation  has  allowed  the  Company to
downsize  its  courseware  development  group  and  to  purchase  high  quality,
customizable  courseware  from third party vendors.  Some trainers  occasionally
develop special  courseware for clients and work at customizing an off the shelf
curriculum.  The Company's CBT products are currently developed by one full-time
designer in North  America and 14 designers in Israel.  The  Company's  training
staff provides the product and educational design expertise,  while the designer
supplies the authoring tool expertise. During the fiscal year ended December 31,
1996 and 1995 the Company spent $58,214 and $891,686,  respectively, on research
and  development  activities  relating  to CBT  programs.  Due to the  Company's
financial  situation,  all research and development  related to CBT programs was
discontinued  during  1996.  The  Company's  Israeli  subsidiary  ("PC  Israel")
suspended  operations in March 1996 until a restructuring  plan for PC Israel is
under consideration.

     Unlike certain of its  competitors,  the Company provides only training and
consulting services and does not sell any computer hardware, software or related
products other than CBT programs as discussed above. This enables the Company to
focus on the  development of its training  programs,  without  preference to any
specific computer-related products except as merited by performance.

     Software Manufacturers' Authorized Training Centers

     The  Company  is  authorized   as  a  training   center  by  many  software
manufacturers,  including Lotus and Microsoft. Presently,  approximately 24% and
52% of the Company's  training  programs  utilize  Lotus and Microsoft  software
programs,  respectively.  The  Company  was a  former  recipient  of  the  Lotus
Authorized  Training  Center  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 was recently  authorized by Lotus  Development
Corporation as a Lotus  Authorized  Education Center for its "Notes" product and
was recently  upgraded to Platinum  Business  Partner.  The Company expects that
training with regard to Notes specifically, and work group computing in general,
will be an increasing  percentage of its revenues.  Other  software and hardware
manufacturers for which the



                                       -6-

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Company has been authorized as a training center include Aldus,  Alpha Software,
Apple, Borland, and Corel.

     The  Company  expends  substantial  efforts in seeking  authorization  as a
training center by software  manufacturers,  including recently  established and
start-up  software  vendors.  Management  believes that such  authorization  has
several  advantages,  including  referrals from software  manufacturers and free
listings  in  the  advertising  literature  published  or  distributed  by  such
manufacturers.  As an  authorized  training  center,  the Company also  receives
pre-release  copies  of  new  software  products  enabling  the  development  of
instruction  programs prior to the public  distribution of these  products.  The
Company also engages in joint promotions with software manufacturers relating to
specific products.  To secure designation as an authorized  training center, the
Company is  required  to pay  certain  software  manufacturers  an annual fee of
between $300 to $5,000 per  facility  and is obligated to furnish  manufacturers
with  periodic  reports  on the  number  of  trainees  and  similar  statistical
information.

     Program Cost

     In the U.S.,  the  Company  typically  charges its  customers  from $75 per
enrollee  (for  introductory  classes) to $2,125 per enrollee (for advanced five
day certified training courses) 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.

     The Company's  STAR CBT products are currently  marketed in the U.S.  under
various site license agreements at prices of between $1,000 and $10,000 per hour
of STAR CBT  training.  The Company also offers  custom CBTs to its customers at
prices ranging from $8,000 and $15,000 per hour of STAR CBT training.

     Proprietary Protection

     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.



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<PAGE>




     Consulting Services

     CSD identifies and provides independent computer personnel,  on a temporary
basis, to the Company's client base for special projects. 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.

     Marketing

     The  Company  directs  its  ILT,  CBT and CSD  marketing  efforts  to those
industries and public sector organizations that devote substantial  resources to
computer  technology  for  employees.  In  particular,  the Company's  marketing
activities  are aimed at national and  international  corporations,  since these
companies  have a greater  awareness of the advantages of uniform and consistent
training programs and have a need for consulting  services.  In addition,  these
companies  have  established  centralized  decision-making  authority  regarding
employee computer training programs, facilitating ongoing training relationships
and  scheduling  of  training   programs.   The  Company  recently  retained  an
advertising agency in order to enhance is marketing efforts.

     The Company's marketing efforts consist of direct solicitation of potential
customers through direct mailing of brochures and seminar schedules  followed by
telephone  contact.  Such direct mailing is generally done on a quarterly basis.
The Company also conducts  exhibits at computer trade shows  throughout the U.S.
The Company, in conjunction with software vendors, has established informational
seminars  on new  software  products  to inform  potential  customers  about the
Company's training programs and consulting services.

     In addition,  the Company's account managers act as liaisons with customers
to ensure that customers select  appropriate  training  programs.  These account
managers are knowledgeable as to the customer's specific industry needs relative
to computer training  programs.  Since the Company markets its training programs
in the United  States to  businesses  and public  sector  organizations  for the
benefit of their employees,  and costs of training, in most instances, are borne
by such employers rather than the individual trainees, the Company believes that
it is not a school and  consequently  is not  subject to  educational  licensing
requirements  under applicable state laws and regulations.  No assurances may be
given,  however,  as to the validity of such belief or the Company's  ability to
comply with any such laws or regulations, if applicable.







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     Customers

     The Company's present customer base includes companies from a wide range of
industries including banking, finance, manufacturing,  insurance and government,
as well as, regarding to retail CBT distribution,  software retailers and office
supply  stores.  No one  customer  accounted  for more than ten  percent  of the
Company's revenues during the year ended December 31, 1996.

     Competition

     The Company competes with a number of firms that provide computer  training
services,  consulting  services and CBT products,  similar to those furnished by
the Company.  Many of these firms have substantially greater marketing resources
than the Company.  The Company also competes with educational  institutions that
provide computer training programs,  including universities,  colleges and adult
education centers,  as well as customers'  in-house training staffs. The Company
believes that it is an effective  competitor  for all of its product lines based
upon  the  skill of its  training  personnel,  its  training  center  management
services,  and the relationships  between the Company's account managers and its
customers.

     Employees

     As of March  1,  1997,  the  Company  employed  approximately  73  persons,
including 70 full-time  employees,  in its New York  operations.  As of March 1,
1997,  Sivan  employed  approximately  146  persons,  and Mashov CBT employed 16
persons.


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 also leases a training facility at the Manhattan Seaport in New
York City.  The lease  provides  for a base rent of $38,400 and expires on April
15, 1997.  The Company  intends to shut down the facility upon the expiration of
the lease.

     As a result of the Stock  Purchase  Agreement,  the Company  also leases in
Israel,  through its  subsidiaries  Sivan and Mashov CBT,  approximately  51,000
square  feet  of  space  in  various   locations  at  an  annual  base  rent  of
approximately $900,000.

Item 3. Legal Proceedings.

     The Company is not party to any material litigation.



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Item 4. Submission of Matters to a Vote of Security Holders.

     None.

                                     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 "PCEZ". 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  inter-dealer prices
without retail markup,  markdown or commission and may not necessarily represent
actual transactions.


                              High           Low
                              ----           ---
1996 Calendar Year          
First Quarter               $ 9/16         $ 9/16
Second Quarter                1/2            1/2
Third Quarter                 1/2            1/4
Fourth Quarter                1/4            1/4


1995 Calendar Year
First Quarter                $2-1/8        $ 5/16
Second Quarter                2-1/4         1
Third Quarter                 1-1/2          1/2
Fourth Quarter                1              1/4


     (b) Holders.

     As of April 11,  1997,  there were 53  holders  of record of Common  Stock,
$.001 par value.

     (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 film earnings, if any, in order to finance



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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.

     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
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.  All
references  in this Annual  Report on Form 10-KSB to numbers of shares of Common
Stock  and per  share  information  give  retroactive  effect  to the  Company's
one-for-five  reverse split of its shares of Common Stock  effectuated  in April
1995.

Year Ended December 31, 1996 Compared with Year Ended December 31, 1995

     Revenues related to instructor-led training are recognized over the life of
the training  course.  CBT revenues are recognized upon delivery of the program.
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 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
availability  basis and as such the Company incurs no financial exposure related
to these retakes.

     Revenues for the year ended  December 31, 1996 declined to $7,042,089  from
$11,148,929 in 1995. The decline in sales was primarily attributable to the sale
or termination of operation of several of the Company's  subsidiaries as part of
the Company's effort to improve operating results.

     Effective  January 1, 1996 the Company sold the assets of its  wholly-owned
Canadian subsidiary ("PC Canada"), which accounted for $3,335,461 of revenues in
the year ended  December 31, 1995. In addition,  Management  temporarily  ceased
operations  of PC Israel,  which  accounted  for  $656,898  of revenues in 1995.
Effective  April 1, 1996,  the Company sold its San  Francisco,  California  and
Boise, Idaho operations,  which accounted for approximately $714,121 of revenues
in 1995. Total revenues for the Company's New York City operations  increased by
10% in 1996 as compared to 1995.

     In 1994 and 1995 the Company  began to broaden  and  augment  its  personal
computer support activities,  introducing new service and product lines designed
to enhance its established ILT business.  In 1996,  Management changed the focus
of its CSD operations to place more emphasis on contract consulting.  Consulting
revenues grew from $2,230,238 in 1995 to $3,939,720 in 1996, an increase of 77%.
The Company intends to expand this part of its operating activity in 1997.



                                      -11-

<PAGE>



     During  the  year  ended  December  31,  1996,  the  Company  continued  to
experience  declining end-user ILT revenues.  However,  the rate of the decrease
has  declined.  In the New York  region,  end-user  ILT  revenues  decreased  by
approximately 26% in 1996 compared to 1995.  Management attributes the declining
end-user ILT revenue to the fact that software  vendors did not release many new
versions of existing software in 1996 and those that were released required less
training because of knowledge in prior versions. In addition, Windows NT, a more
advanced  network  operating  system,  has caused  organizations  to re-evaluate
desktop application  strategies and back office  applications  together and thus
has further delayed application or conversion  projects.  Increased  competition
and lower pricing was also a factor in the decreased end-user ILT revenues.  The
Company's  ILT  revenues  are  expected  to  increase in 1997 as a result of the
acquisition of Sivan. In 1996, Sivan had revenues of approximately $9,150,000.

     The Company is  aggressively  pursuing a move into the higher end  training
market, as many organizations require  certification  training for Microsoft and
Lotus back office applications and operating systems which historically have had
higher margins. Management believes that this technical training environment has
a better synergy with the Company's  growing  consulting  business.  In 1995 the
Company was awarded Lotus  Authorized  Education Center status and also received
Microsoft Authorized Technical Education Center status in 1996. During 1996, the
Company's  Business  Partner status with Lotus was upgraded to Premium  Business
Partner.  The Company recognized  technical training revenue of $397,638 in 1996
compared to  $204,453  in 1995,  an  increase  of 94%.  During  1996,  technical
training accounted for approximately 16% of all ILT revenues.

     In 1996,  the Company  developed  and  offered CBT  programs to augment and
supplement  its live training  classes.  However,  the CBT programs  resulted in
operating  losses and the Company  temporarily  suspended its efforts to develop
new CBT products while it attempted to obtain additional financing. Although the
Company's U.S. based CBT operations  were  suspended,  the Company  continues to
sell existing CBT products through its ILT and CSD sales force. CBT revenues for
the year ended  December 31, 1996,  were  approximately  $324,803 as compared to
$606,000 in 1995 for corporate  sales.  In September  1995, the Company began to
ship its CBT  products  through  retail  channels  in  addition  to  selling  to
corporate  clients.  All products sold to retailers are returnable if not resold
to  end-users.  Since the Company has no  historical  basis of  estimating  such
returns,  it recognizes  revenues only when such retail sales occur. The Company
does not have any  obligations  to the  end-user  once the product is sold.  The
Company only recognized revenues of approximately  $16,500 during the year ended
December 31, 1996 from such retail sales.  Retail sales were lower than expected
and the Company  was forced to limit its  efforts  due to its limited  marketing
resources.  Management expects that the Company's CBT business will grow in 1997
as a result of its  acquisition of Mashov CBT. In 1996,  Mashov CBT had revenues
of approximately $242,000 for the nine months since its inception.  No assurance
can be given that the Company will be successful in this market in the future.

     The Company's cost of revenues in 1996 were 70% of revenues compared to 65%
of  revenues in 1995.  Cost of  revenues  for  contract  consulting  were 67% of
revenues in 1996



                                      -12-

<PAGE>



compared to 70% in 1995.  Cost of revenues for ILT were 68% of revenues in 1996.
With ILT revenues  decreasing,  cost of revenues increased,  because fixed costs
such as classroom rental and equipment  depreciation  remain  constant.  Cost of
revenues for CBT were actually greater than revenue because of the poor sales of
the  retail  product.  The  Company  expects  that  its  cost of  revenues  as a
percentage  of revenue will  fluctuate in the future  depending on the amount of
its revenues and the mix of CSD, CBT and ILT revenues.

     Selling,   general  and   administrative   expenses  in  1996  declined  to
$3,307,242,  a  significant  decrease  from  $5,521,837  in 1995.  Approximately
$1,620,483 of the decline was  attributable to the sale of PC Canada and the San
Francisco  operations as well as the  suspension of the operations of PC Israel.
Management  has devoted  substantial  efforts to  implement an  aggressive  cost
containment  plan.  This  led to  the  Company  reducing  selling,  general  and
administrative  expenses for its remaining  United  States  operations by 28% in
1996 compared to 1995.  Corporate overhead decreased by 31% in 1996. At year end
1996, the Company further reduced expenses by approximately  $150,000 a month by
eliminating  three Vice President  positions,  reducing the number of CBT design
staff, reducing  administrative payroll obligations and subletting office space.
Selling, general and administrative expenses are expected to increase in 1997 as
a result of the acquisition of Sivan and Mashov CBT.

     Research  and  development  expenses  were  $58,214  in 1996,  compared  to
$891,686 in 1995.  This  decrease was due to a  determination  by the Company to
scale back significantly its CBT research and development  operations until such
time as proper  funding can be  obtained.  The Company  expects to increase  its
research  and  development  expenses in 1997 as a result of its  acquisition  of
Mashov CBT and  Management's  decision to devote  additional  resources  to this
area.

     As a result of the foregoing the Company  incurred a net loss of $1,213,135
for the year ended  December 31, 1996 compared to a net loss of  $3,845,975  for
the year ended  December 31, 1995.  With  increased  CSD revenues as well as the
implementation of the restructuring and cost containment  plans, the Company was
profitable  on an operating  basis during most of the last two quarters of 1996.
The improved  operating  results  were  attributable  primarily to  Management's
aggressive  cost  containment  plan,   increased  consulting  revenues  and  the
suspension of the Company's CBT research and development  expenses,  offset by a
$248,443  gain  on the  sale  of PC  Canada  and the  San  Francisco  and  Boise
operations, including licensing fees.

Recent Developments

     Effective  February 13,  1997,  the Company  entered into a Stock  Purchase
Agreement  with Mashov,  whose shares are publicly  traded on the Tel-Aviv Stock
Exchange. Mashov is a subsidiary of Mashov Computers Ltd., whose shares also are
publicly traded on the Tel-Aviv Stock Exchange and which controls Magic Software
Enterprises  Ltd.,  a publicly  traded  company  in the U.S.  Based on the Stock
Purchase Agreement, Mashov acquired 8,438,924 shares of Common Stock and 658,412
shares of Series C Preferred Stock of the Company,  where each share of Series C
Preferred  Stock is  convertible  into 10 shares of Common Stock and has 10 to 1
voting rights in relation to



                                      -13-

<PAGE>



shares of Common  Stock.  As a result of the  transactions  provided  for in the
Stock  Purchase  Agreement,  Mashov owns 69% of the Company's  equity and voting
securities on a fully diluted basis.

     In  connection  with the  execution of the Stock  Purchase  Agreement,  the
Company  executed a Conversion and Waiver  Agreement  dated February 6, 1997 and
effective  February  13,  1997 (the  "Conversion  and  Waiver  Agreement").  The
Conversion and Waiver Agreement  provides that the parties who had made loans to
the Company in December 1995 and October 1996 (the "Conversion Parties") receive
Common Stock for the  cancellation  of the loan debt owed by the Company and the
dilution of options and warrants owned by the Conversion Parties.  Specifically:
(i) the 1,000,000  shares of Series A Preferred  Stock held by Elron  Electronic
Industries  Ltd.  ("Elron")  were  converted into 200,000 shares of Common Stock
(see note 4 to the  Financial  Statements,  Item 7);  (ii) the loans the Company
received from certain stockholders  aggregating $437,500 as of December 31, 1996
were  converted  into  1,750,000  shares  of  Common  Stock  (see  note 3 to the
Financial  Statements,  Item 7); and (iii) the holders of Company  warrants (see
note 4 to the  Financial  Statements,  Item 7)  agreed  to  convert  a total  of
1,432,519  warrants  (consisting of 922,508 warrants  outstanding as of December
31,  1996  (see  note  4  to  the  Financial  Statements,  Item  7)  which  were
subsequently  adjusted  pursuant to the  Conversion and Waiver  Agreement  under
anti-dilution  provisions)  into 344,464  shares of Common  Stock.  After giving
effect to the  Conversion  and Waiver  Agreement,  and  aggregating  their prior
holdings,  the  Conversion  Parties own  4,812,509  shares of Common Stock as of
March 31, 1997.

Liquidity and Capital Resources

     The  Company's  working  capital  deficiency  increased to $1,946,663 as of
December 31, 1996 compared to  $1,234,834 as of December 31, 1995.  The increase
was due primarily to the operating  losses  experienced  during 1996,  offset in
part by the sale of PC Canada and the sale of the San Francisco regional office.

     As a result of the execution of the Stock  Purchase  Agreement with Mashov,
the  Company's  working  capital  position  has  improved.  The  Stock  Purchase
Agreement  provided  that  Sivan  and  Mashov  CBT have net  tangible  assets of
$2,200,000,  where  such  assets  included  a cash  contribution  by  Mashov  of
$1,500,000 to the Company.  It is the  intention of Mashov to provide  continued
financial  support  of  the  company,  if  necessary,   to  meet  the  Company's
obligations for the next twelve months.

     The Company is a party to a financing  agreement  by which it finances  its
trade  receivables.  The agreement is scheduled to expire on April 30, 1997. The
balance  outstanding  under the  agreement,  which is limited to 75% of eligible
receivables,  is reported as a current liability under "Loans Payable - Others."
The Company is allowing the receivables  agreement to expire and is retiring any
balance outstanding.




                                      -14-

<PAGE>



     The Company  used  $821,291 in operating  activities  during the year ended
December  31,  1996,  primarily  due to its net loss of  $1,213,135  during such
period.  Such loss was offset by increased  accounts  payable of $760,156 during
such period as well as  depreciation  and  amortization  expenses  of  $236,091.
During 1996, the Company's  investing  activities provided cash in the amount of
$732,213 as a result of the sale of PC Canada and the San Francisco operations.

     During the fourth  quarter of 1995,  in  connection  with the  decision  to
temporarily  suspend  operations of PC Israel, the Company determined that there
would be no continuing  value to PC Israel.  As a result,  the Company wrote off
the entire  remaining net book value of $1,202,100 of the Subsidiary in December
1995.  Effective  December 5, 1995, the Company  borrowed  $500,000 from certain
stockholders of the Company for working capital  purposes.  The notes evidencing
the loans  provided for interest at the rate of 10% per annum and the payment of
the principal  amount one year from the date of issuance.  Effective  October 6,
1996 the Company  borrowed an additional  $187,500 from certain  stockholders of
the  Company  for  working  capital  purposes.  The notes  evidencing  the loans
provided  for  interest  at a rate of 10% per annum.  In  addition,  the parties
agreed to extend  the  terms of the  December  5,  1995  loan.  Pursuant  to the
Conversion and Waiver Agreement, the loans obtained in December 1995 and October
1996 were  converted  into Common  Stock of the Company  effective  February 13,
1997.

     Effective  January 1, 1996, all of the  outstanding  stock of PC Canada was
sold to a private Company for net proceeds of $704,000, including the license of
certain computer software. Of such amount,  $250,000 was used to repay a portion
of the December 1995 loans described above. Effective April 1, 1996, the Company
sold the operating assets of its San Francisco,  California  training office and
Boise,  Idaho business location for an aggregate cash purchase price of $42,000.
In addition,  the purchaser agreed to assume certain obligations and liabilities
of the Company.

     Effective  October  15,  1996,  the  Company  entered  into  a  composition
agreement  with certain  vendors.  The agreement  provided for specific  payment
terms  based  on the  total  debt  to  the  vendor.  Class  A  creditors  (total
indebtedness in excess of $3,000 each) would be paid in full through a four year
payment  plan.  The  composition  agreement  pertained  to all past due balances
through  July 15,  1996.  The  Company  also  agreed to keep  current  on future
invoices.

     The Company expects to open one new state of the art training facility this
year in the U.S. The expected cost of opening this new office is estimated to be
approximately $250,000.






                                      -15-

<PAGE>



Item 7. Financial Statements.




                          Index to Financial Statements



Independent Auditors' Reports........................................F-1

Financial Statements:

     Consolidated Balance Sheet .....................................F-3

     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







                                      -16-

<PAGE>
                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Stockholders of
PC Etcetera, Inc.:


We have audited the accompanying consolidated balance sheet of PC Etcetera, Inc.
as of December 31, 1996, and the related consolidated  statements of operations,
stockholders'  equity  (deficit)  and cash flows for the year then ended.  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 audit.

We conducted our audit 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 audit provides 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 PC
Etcetera,  Inc. as of December 31,  1996,  and the  consolidated  results of its
operations  and its cash  flows  for the year  then  ended  in  conformity  with
generally accepted accounting principles.


                                            /s/ERNST & YOUNG LLP


New York, New York
March 28, 1997



                                       F-1

<PAGE>



                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Stockholders of
PC Etcetera, Inc.:


We  have  audited  the  accompanying   consolidated  statements  of  operations,
stockholders'  equity  (deficit)  and  cash  flows  of  PC  Etcetera,  Inc.  and
subsidiaries  for the year ended December 31, 1995.  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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the result of operations and cash flows of PC Etcetera,
Inc. and  subsidiaries  for the year ended December 31, 1995 in conformity  with
generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, certain factors raise substantial doubt about
the  Company's  ability to continue as a going  concern.  Management's  plans in
regard to these matters are also  described in Note 1. The financial  statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.



                                            /s/ARTHUR ANDERSEN LLP


New York, New York
March 8, 1996




                                       F-2

<PAGE>



                                PC ETCETERA, INC.
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1996


ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents                                           $   50,445
Accounts  Receivable,
  net of allowance for doubtful accounts of $20,189                    947,327
Prepaid Expenses and  Other Current Assets                              31,985
                                                                        ------
Total Current Assets                                                 1,029,757
                                                                     ---------

PROPERTY AND EQUIPMENT,
  Net of accumulated depreciation and amortization of $446,038         319,730
OTHER ASSETS                                                            37,667
------------                                                            ------
TOTAL ASSETS                                                       $ 1,387,154
                                                                   ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses                              $ 1,685,391
Loans Payable -  Current Portion                                       663,589
Loans Payable - Related Party                                          470,833
Capital Equipment Obligations - Current Portion                         36,299
Deferred Revenue                                                       120,308
                                                                     ---------
Total Current Liabilities                                            2,976,420
                                                                     ---------

LONG TERM LIABILITIES:
Capital Equipment Obligations                                            6,834
Accounts Payable - Long Term                                           324,980
Deferred Revenue                                                        66,656
                                                                     ---------
TOTAL LIABILITIES                                                    3,374,890
                                                                     ---------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
Preferred Stock,
  $.001 Par Value, 5,000,000
  Shares Authorized, 1,000,000 Series A
  Issued and Outstanding                                                 1,000
Common Stock,
  $.01 Par Value, 15,000,000
  Shares Authorized,
  3,169,129 Issued and Outstanding                                      31,691
Additional Paid-In Capital                                           5,279,367
Accumulated Deficit                                                 (7,299,794)
                                                                    -----------
Total Stockholders' Deficit                                         (1,987,736)
                                                                    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                        $ 1,387,154
                                                                   ===========

                             See Accompanying Notes


                                       F-3

<PAGE>



                                PC ETCETERA, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                             1996                1995
                                                             ----                ----
<S>                                                    <C>                <C>        
Net Sales                                              $7,042,089         $11,148,929
Cost of Sales                                           4,964,144           7,231,364
                                                       ----------         -----------
Gross Profit                                            2,077,945           3,917,565

Selling, General and Administrative Expenses            3,307,242           5,521,837
Research and Development                                   58,214             891,686
Write Down of Software Investment                               0           1,202,100
                                                       ----------          ----------
Operating Loss                                         (1,287,511)         (3,698,058)

Gain on Sales of Subsidiaries                             181,771                   0
Other Income                                               66,672                   0

Interest Expense, net of interest income of 
  $3,476  and  $34,944                                   (174,067)           (147,917)
                                                       ----------          ----------
Net Loss                                              ($1,213,135)        ($3,845,975)
                                                       ==========          ==========
Net Loss Per Share                                         ($0.39)             ($1.36)
                                                            =====               =====
Weighted Average Number of Shares                       3,137,879           2,827,462
                                                        =========           =========

</TABLE>

                             See Accompanying Notes




                                       F-4

<PAGE>



                               
<TABLE>
<CAPTION>
                                                                                           ADDITIONAL                  STOCKHOLDERS'
                                    PREFERRED        STOCK         COMMON       STOCK        PAID IN     ACCUMULATED      EQUITY
                                       SHARES       AMOUNT         SHARES      AMOUNT        CAPITAL       DEFICIT      (DEFICIT)
                                       ------       ------         ------      ------        -------        -------      ---------
<S>                                 <C>             <C>        <C>            <C>         <C>            <C>            <C>       
Balance,  December 31, 1994         1,000,000       $1,000      9,637,308     $96,374     $3,754,689     $(2,240,684)    $1,611,379
One for five reverse stock split                               (7,709,846)    (77,099)        77,099                              0
Issuance of common stock                                        1,200,000      12,000      1,452,495                      1,464,495
Net Loss                                                                                                  (3,845,975)    (3,845,975)
                                    ---------       ------      ---------     --------     ---------      -----------    -----------
Balance December 31, 1995           1,000,000        1,000      3,127,462      31,275      5,284,283      (6,086,659)      (770,101)
Issuance of common stock                                           41,667         416           (416)                             0
Expenses related to 1995 share
registrations                                                                                 (4,500)                        (4,500)
Net loss                                                                                                  (1,213,135)    (1,213,135)
                                    ---------       ------      ---------     -------     ----------      -----------    ----------
Balance December 31, 1996           1,000,000       $1,000      3,169,129     $31,691     $5,279,367     ($7,299,794)   ($1,987,736)
                                    =========       ======      =========     =======     ==========     ============   ============
</TABLE>


                             See Accompanying Notes


                                       F-5

<PAGE>
                                PC ETCETERA, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
                                                                                1996              1995
                                                                                ----              ----
<S>                                                                          <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                          
Net Loss                                                                     ($1,213,135)      ($3,845,975)
ADJUSTMENTS TO RECONCILE NET  LOSS TO NET
CASH (USED IN)  OPERATING ACTIVITIES:
Write Down of Software Investment                                                      0         1,202,100
Depreciation and Amortization                                                    236,091           814,591
Provision for (recovery of) Doubtful Accounts                                    (12,246)           32,435
Gain on Sale of Property and Equipment                                                 0            (6,690)
Gain on Sale of Subsidiaries                                                    (181,771)                0
Amortization of Deferred Revenue                                                 (66,672)                0

Changes in Operating Assets and Liabilities:                                    (204,198)           93,584
Prepaid Expenses and Other Current Assets                                        (10,030)          (58,329)
Inventories                                                                       32,467           (32,467)
Assets held for Sale                                                             379,611                 0
Accounts Payable and Accrued Expenses                                            760,156           402,946
Deferred Revenue                                                                  23,254           (49,588)
Liabilities held for Sale                                                       (564,818)                0
                                                                               ---------        ----------
NET CASH  (USED IN) OPERATING ACTIVITIES                                        (821,293)       (1,447,393)
                                                                                --------        ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Other Assets                                                                      35,330            32,116
Purchase of  Property and Equipment                                              (49,306)         (160,640)
Proceeds from Sale of Property and Equipment                                           0            72,672
Proceeds from Sale of License                                                    200,000                 0
Proceeds from Sale of Subsidiaries, net                                          546,191                 0
                                                                                 -------          --------

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                              732,215           (55,852)
                                                                                 -------           -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Repayment of Loans Payable - Related Party                            (252,374)          (53,774)
Proceeds from Loans Payable - Related Party                                      187,500           500,000
Net Proceeds (Repayment) - Short Term Borrowings                                 209,587          (118,693)
Repayment of Capital Equipment Obligations                                      (152,152)         (183,541)
Net Proceeds(Expenses)from Issuance of Common and Preferred Stock                 (4,500)        1,464,495
                                                                                ---------        ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                              (11,939)        1,608,487
                                                                                --------         ---------

NET(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS                              (101,017)          105,242
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                     151,462            77,777
LESS CASH AND CASH EQUIVALENTS INCLUDED IN NET ASSETS HELD FOR SALE                    0          (31,557)
                                                                                --------          --------
CASH AND CASH EQUIVALENTS, END OF YEAR                                           $50,445          $151,462
                                                                                 =======          ========

     SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for
Interest                                                                        $142,101          $173,758
Income taxes                                                                     $10,733            $4,217

</TABLE>

     SUPPLEMENTAL  SCHEDULE  OF  NON-CASH  INVESTING  AND  FINANCING  ACTIVITIES
     ---------------------------------------------------------------------------
Capital lease  obligations  of $150,026  were incurred when the Company  entered
into lease  arrangements  for new equipment  during the year ended  December 31,
1995.
     The  Company  effectuated  a 1 for 5  reverse  stock  split in  April  1995
resulting  in a  reclassification  between  common  stock and paid in capital of
$77,099.
     Concurrent  with the reverse  stock  split,  1,000,000  shares of preferred
stock were converted into 1,000,000 (post reverse split) shares of common stock.

                             See Accompanying Notes

                                       F-6

<PAGE>



                                PC ETCETERA, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996




NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES


     PC ETCETERA,  Inc. (the "Company")  develops and offers  instructor-led and
computer-based  personal  computer  training  programs,  and  provides  contract
consulting   services,   primarily   to  large   business   and  public   sector
organizations.  For the years ended  December 31, 1996 and 1995,  revenues  from
instructor led training  comprised 39% and 61% of total revenues,  respectively,
while consulting services and computer-based training ("CBT") revenues accounted
for 56% and 27% and 5% and 12% of total revenues, respectively.

     The consolidated  financial  statements include the accounts of the Company
and its  wholly-owned  subsidiaries  until  the time they  were  either  sold or
closed. All material intercompany balances and transactions have been eliminated
in consolidation.

     As of December 31, 1996,  the Company had two  facilities  operating in New
York City.

     As  reflected in the  Consolidated  Financial  Statements,  the Company has
experienced  continuing  net  losses,  negative  cash flows from  operations,  a
negative  working  capital  and  a  stockholders'  deficiency.  The  Company  is
currently  working  under a plan which has reduced  overhead  and  expenses  and
improved  profitability  Additionally,  the Company sold its Canadian subsidiary
and  California and Idaho  training  facilities and suspended  operations at its
Israeli  subsidiary.  Further, as described in Note 13, in February 1997, Mashov
Computers  Marketing Ltd. (MCM) acquired 69% of the common stock of the Company.
It is the intent of MCM to provide  continued  financial support to the Company,
if necessary, to meet its obligations for the next twelve months.

     A summary of the Significant  Accounting Policies  consistently  applied in
the preparation of the accompanying financial statements is as follows:



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



                                       F-7

<PAGE>



statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.


Cash and Cash Equivalents

     The  Company  considers  all highly  liquid  financial  instruments  with a
maturity of three months or less when purchased to be cash equivalents.


Concentration 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.  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, 1996.


Property and Equipment

     Property and equipment are carried at cost.  Depreciation is computed using
the  straight-line  method over the useful lives of the assets.  Amortization of
leasehold  improvements is computed on a straight-line basis over the shorter of
the period of the lease or the useful life of the asset.


Revenue Recognition

     Revenues related to instructor-led training are recognized over the life of
the training  course.  CBT revenues are recognized upon delivery of the program.
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 Company  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.

                                      F-8

<PAGE>


Research and Development


     All research and development costs are charged to expenses when incurred.


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.


Foreign Currency

     As of December 31, 1996,  the Company  suspended  operations  in Israel and
sold its Canadian  subsidiary.  The financial records of the Israeli  subsidiary
are  maintained  in U.S.  dollars  because the currency of the primary  economic
environment  in which  the  operations  of the  subsidiary  are  conducted  (the
functional  currency)  is the U.S.  dollar.  Transactions  and  balances  in the
Canadian subsidiary were maintained in Canadian dollars and translated into U.S.
dollars in accordance  with the  principles  set forth in Statement of Financial
Accounting  Standards No 52. Exchange gains and losses were not material for the
years ended December 31, 1996 and 1995.


Reverse Split

     Except as otherwise  indicated,  all references herein to numbers of shares
of Common Stock and per share amounts give  retroactive  effect to the Company's
one-for-five reverse split effectuated on April 19, 1995.


Earnings per Share

     Earnings per share calculations are based on the weighted average number of
shares of  common  stock  outstanding  and  dilutive  common  stock  equivalents
outstanding. All earnings per share amounts have been adjusted to give effect to
the reverse stock split.





                                       F-9

<PAGE>




Long-Lived Assets

     It is the Company's  policy to estimate  future gross  revenues  from,  and
costs related to long-lived  assets and to write off any amount in excess of the
net realizable value. No such write off was necessary at December 31, 1996.


Inventories

     Inventories  consist of computer  software and components.  Inventories are
carried at the lower of cost or market  determined  by the  first-in,  first-out
method.


NOTE 2 - PROPERTY AND EQUIPMENT

     Major  classifications of property and equipment and their respective lives
are summarized below:


                                December 31, 1996         Depreciable lives
                                -----------------         -----------------
Furniture and Fixtures             $191,188                   5-8 years
Computer Equipment                  373,898                    3 years
Leasehold Improvements              200,682               Shorter of term of 
                                    -------               lease or useful life
                                    765,768               
                                    -------                   
Accumulated Depreciation
   and Amortization                (446,038)
                                    -------

Net Property and Equipment         $319,730
                                   ========


Depreciation and amortization  expense for the years ended December 31, 1996 and
1995 were $236,091 and $458,284,  respectively.  During the year ended  December
31, 1996,  $437,415 of property and equipment was fully  depreciated and written
off.

At December 31, 1996,  property and equipment  includes computer equipment under
capital leases with a cost of $200,713 and accumulated amortization of $130,079.

NOTE 3 - LOANS PAYABLE

Short-Term Financing

     In 1990,  the Company  entered into a financing  arrangement to finance its
trade  receivables  (excluding  those  from  the  Company's  subsidiaries).  The
arrangement expires on April 30, 1997. The



                                      F-10

<PAGE>



balance  outstanding  under  the  arrangement  is  limited  to 75%  of  eligible
receivables  and  bears  interest  at the rate of 4% above  prime per annum . In
addition,  the Company pays a facility fee of $7,500 per contract  year or 2% of
the  average  monthly  daily  cash  balances  of the  loan,  whichever  is less.
Borrowings  under  the  arrangement  are  secured  by  the  Company's   accounts
receivable. At December 31, 1996, the loan balance was $441,428.


Bank Debt

     In  1994,   the  Company   obtained  a  bank  loan  for  the   purchase  of
state-of-the-art  computer  equipment  and  other  fixed  assets.  The bank loan
matures in May 1997 and carries an interest rate of 9% per annum.  The bank loan
at December 31, 1996 was $38,161 (all current).

     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, 1996 is $184,000  (all  current) and carries an interest
rate of 10% per annum.


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 to the vendor.  Class A creditors  (total  indebtedness in excess of $3,000
each) will be paid in full through a four-year payment plan.

Loans from Related Parties

     In 1991, the Company  obtained a loan from an unrelated party in the amount
of $100,000 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 . The  security  agreement
whereby the loan was secured by all personal property,  other than that property
secured  pursuant to the financing  agreement  described above, was subsequently
released. At December 31, 1996, the loan balance was $33,333.

     In 1995, the Company  obtained a loan from certain  related  parties in the
amount of $500,000 with a 10% interest rate. The loan is due on October 25, 1997
and is  currently  unsecured  until  such time as the  Company is able to obtain
waivers  from  certain   lien  holders  of  the  Company.   Simultaneously,   in
consideration of the loans, the lenders were issued warrants for the purchase of
an aggregate of 75,000 shares of the Company's  common stock at a price of $1.50
per share.  These warrants were issued at a price in excess of market value. The
loan agreement also provided that  additional  warrants be issued to the lenders
equal to 11.25% of the outstanding  principal amount on June 5, 1996, divided by
$1.50. At June 5, 1996, the principal  balance was $250,000 and as such,  18,750
additional warrants



                                      F-11

<PAGE>



were  issued.  The total  warrants  issued  of 93,750  are  subject  to  certain
anti-dilution  provisions which increased the number of warrants  outstanding at
December 31, 1996 to 97,656. At December 31,1996, the loan balance was $250,000.

     In 1996,  the Company  obtained an  additional  loan from  certain  related
parties in the amount of $187,500 with a 10% interest rate.  Simultaneously with
the receipt of the loan,  each lender extended the maturity of the loans made by
them pursuant to the above described 1995 loan  agreement,  to October 25, 1997.
In  consideration  for  making  the loans,  the  Company  agreed to issue to the
lenders  warrants for the  purchase of an aggregate of 150,000  shares of Common
Stock of the Company at a price of $0.25 per share.  The warrants are subject to
certain anti-dilution provisions.

Fair Value

     The  following  methods  and  assumptions  were  used  by  the  Company  in
estimating its fair value disclosure for loans payable:

          Short Term Financing:  The carrying amount of the Company's borrowings
     under its short term financing agreement approximates fair value.

          Bank Debt: The carrying amount of the Company's  borrowings  under its
     bank loans approximates fair value.

          Accounts  Payable - Long Term:  The carrying  amount of the  Company's
     long term accounts payable approximate fair value.

          Loans from Related Parties: The carrying amount of the Company's loans
     from related parties approximate fair value.


NOTE 4 - STOCKHOLDERS' EQUITY

     Effective  April 19, 1995, the Company  effectuated a one-for-five  reverse
split of the shares of Common Stock.

     In August  1994,  the Company  issued  3,300,000  shares of common stock in
connection  with the acquisition of  substantially  all of the assets of the ACE
Division of Elron Electronic  Industries Ltd. ("Elron") and Adar  International,
Inc.  ("Adar").   PC  Etcetera  Israel,  Ltd.,  ("PC  Israel"),   the  Company's
wholly-owned  subsidiary,  which  operated  the acquired  businesses,  suspended
operations on March 31, 1996. In connection  with the  acquisition,  the Company
issued, or subsequently issued upon exercise of warrants, which were also issued
in connection  with the  transaction  with Elron,  1,000,000  shares of Series A
preferred  stock.  After the  above  transactions  there  were  40,000  warrants
outstanding.



                                      F-12

<PAGE>



     In March 1995,  the Company  issued an  aggregate  of  1,000,000  shares of
Series B preferred stock and four-year warrants for the purchase of an aggregate
of 2,500,000 shares of common stock (500,000 post split) at an exercise price of
$.55 per share ($2.75 post split) for an aggregate purchase price of $1,500,000.
Effective  with the  April  19,  1995  reverse  split,  the  shares  of Series B
preferred  stock were  converted  into  1,000,000  shares of common  stock (post
split) and the warrants  became  exercisable.  These  warrants were issued at an
exercise  price  above  market  value.  In  addition,  pursuant  to the Series B
preferred  stock  agreement the Company had  undertaken  to file a  registration
statement  with the SEC to register the shares  issuable upon  conversion of the
Series  B  preferred  stock  and  upon  exercise  of the  warrants.  Since  this
registration statement had not been declared effective by December 31, 1995, the
Company issued 200,000  additional shares of common stock and 101,103 additional
warrants at an exercise price of $2.75 per share,  in accordance with the Series
B preferred stock agreement.  The above mentioned common stock and warrants were
issued with  anti-dilution  provisions  if either  common  stock or warrants are
subsequently issued by the Company below specific amounts. Based on certain 1995
and 1996  transactions  described  in Note 3, 41,667  shares of common stock and
33,749 warrants to purchase additional shares of common stock were issued.


OPTIONS

     The  Company has adopted an Amended  and  Restated  1987 Stock  Option Plan
under which 600,000 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.

     Pro forma  information  regarding  net  income  and  earnings  per share is
required  by  Statement  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 1995 and 1996:  risk  free  interest  rate of 6.6%,  volatility
factor of the expected  market price of the  Company's  common stock of .72, and
the weighted-average  expected life of the options of 5 years. Dividends are not
expected in the future.  Since the fair value for the options was  determined to
be de minimus, proforma information is not disclosed.




                                      F-13

<PAGE>



     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.

     All of the options  were  granted at or above fair  market  value as of the
date of grant and no compensation expense was recorded.

     Stock option activity is summarized as follows:


                                                                     WEIGHTED-
                                                                      AVERAGE
                                                         SHARES   EXERCISE PRICE
                                                         ------   --------------

Outstanding December 31, 1994                           435,800       $3.31

Options Granted                                          30,000       $3.90
Options Canceled                                        (24,600)      $3.79
                                                        -------
Outstanding December 31, 1995(288,100 exercisable
at option prices $.94 to $6.25)                         441,200       $3.17

Options Granted                                          20,000       $5.00
Options Canceled                                       (307,200)      $2.03
                                                       ---------
Outstanding December 31, 1996 (154,000 exercisable
at option prices $.94 to $6.25)                         154,000       $3.56
                                                       ========





                                      F-14

<PAGE>




Options outstanding and exercisable at December 31, 1996 are as follows:


                                        WEIGHTED-
                                         AVERAGE
                                        REMAINING
                                       CONTRACTUAL
     SHARES         EXERCISE PRICE        LIFE
     ------         --------------        ----
     16,900             $.94               .2
     30,000            $1.05               .2
      5,100            $2.50              1
     10,000            $2.75              1
     66,000            $5.00              3
     26,000            $6.25              5.75
    -------
    154,000
    =======

     At December 31, 1996, 600,000 options are available for grant.

WARRANTS

     The  following  is a summary of warrants  outstanding  and  exercisable  at
December 31, 1996


                           NUMBER OF
EXPIRATION DATE            WARRANTS         EXERCISE PRICE     DESCRIPTION
---------------            --------         --------------     -----------
August 12, 1999             40,000              $5.00              (1)
March 15, 1999             634,852              $2.60              (2)
December 31, 1998           36,000              $2.50              (3)
December 5, 2000            97,656              $1.44              (4)
October 25, 2001           150,000              $0.25              (5)
                           -------
         Total             958,508
                           =======



(1)  Warrants issued in connection with the Elron acquisition
(2)  Warrants  issued with the Series B preferred stock  agreement,  as adjusted
     for anti  dilution  provisions  
(3)  Warrants granted to a consultant
(4)  Warrants issued in connection with the 1995 loan from related parties 
     (Note 3), as adjusted for anti dilution provisions
(5)  Warrants issued in connection with the 1996 loan from related parties 
     (Note 3)

     Subsequent  to the balance  sheet date 922,508 of the above noted  warrants
were converted into shares of common stock (See Note 13)


                                      F-15

<PAGE>



     At December  31,  1996,  the Company  has  958,508  shares of common  stock
reserved for issuance to the warrant holders.


NOTE 5 - LEASES

     The Company  conducts its operations  principally  from leased  facilities.
These  facilities  consist  of office  and  classroom  space at eight  locations
pursuant to leases  which  expire  through  the year 2003.  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, 1996 are as
follows:


                                          Capital            Operating
                                          -------            ---------
1997                                      $44,566             $316,426
1998                                        8,215              298,794
1999                                            0              330,794
2000                                            0              330,794
2001                                            0              330,794
Thereafter                                      0              641,799
                                        ---------            ---------
                                          $52,781           $2,249,401
                                                            ==========
Less: Amounts representing interest        (9,648)
                                           ------ 
                                          $43,133           
                                          =======           


Rental  expense for the years ended  December 31, 1996 and 1995 was $456,083 and
$1,010,138, respectively.


NOTE 6- 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 ($53,636 at December 31, 1996) which is recognized
as revenues as classes are attended.

     In connection  with the sale of the Canadian  Subsidiary (see Note 12), the
Company  sold a non  refundable  license fee for certain  computer  software for
$200,000.  This license fee has been deferred and is being recognized over three
years which is equal to the term of the  license.  At  December  31,  1996,  the
deferred  revenue  amounted to $133,328  of which  $66,672 has been  included in
current liabilities in the accompanying consolidated balance sheet.







                                      F-16

<PAGE>



NOTE 7 - SOFTWARE

     The Company's  capitalized software consisted of the authoring tool used to
develop the Company's CBT products. The total amount of software costs amortized
for the year ended  December 31, 1995 was $343,457.  These costs are included in
research and development  since the software is only used for the development of
CBT products.  It is the Company's policy to project future gross revenues from,
and costs  related to, the software and to write off any amount in excess of the
net realizable value.  During the fourth quarter of 1995, in connection with the
decision to suspend  operations of PC Israel, the Company determined there would
be no  continuing  value to the  asset.  As a result,  it wrote  off the  entire
remaining net book value of $1,202,100 in December, 1995.


NOTE  8 - COMMITMENTS AND CONTINGENCIES

     The Company,  and its former  President  and Executive  Vice  President are
parties to an agreement  which  requires  the Company,  upon the death of either
such  person,  to purchase  from the estate of such person up to $500,000 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.





                                      F-17

<PAGE>



NOTE  9 -  FOREIGN OPERATIONS

<TABLE>
<CAPTION>
RESULTS OF FOREIGN OPERATIONS                                                 
                                                                       YEAR ENDED DECEMBER 31, 1996
                                        -----------------------------------------------------------------------------------------
                                                              %                            %                              %
                                               US            OF           CANADA           OF           ISRAEL           OF
                                                            TOTAL                        TOTAL                          TOTAL
                                        ---------------- -----------  -------------- -------------- --------------  -------------
<S>                                        <C>               <C>                <C>        <C>       <C>               <C>
REVENUE FROM UNRELATED                                                                                                            
THIRD PARTIES                              $6,982,928        99%                $0         0%          $59,161           1%       
INTERCOMPANY REVENUE                                0                            0                           0             
                                            ---------                           --                      ------             
TOTAL REVENUE                              $6,982,928        99%                $0         0%          $59,161           1%
                                           ==========                          ===                     =======
NET LOSS                                   ($889,289)        80%                $0         0%        ($223,846)         20%
                                           ==========                          ===                    ========
IDENTIFIABLE ASSETS                        $1,387,154                           $0                          $0
                                           ==========                          ===                         ===
</TABLE>
<TABLE>
<CAPTION>
                                                                           
                                                                       YEAR ENDED DECEMBER 31, 1995
                                        -----------------------------------------------------------------------------------------
                                                              %                            %                              %
                                               US            OF           CANADA           OF           ISRAEL           OF
                                                            TOTAL                        TOTAL                          TOTAL
                                        ---------------- -----------  -------------- -------------- --------------  -------------
<S>                                       <C>                <C>        <C>               <C>        <C>                <C>
REVENUE FROM UNRELATED                
THIRD PARTIES                              $7,097,409        64%        $3,335,461        30%         $716,059           6%        
INTERCOMPANY REVENUE                                0                            0                     174,517           
                                            ---------                    ---------                     -------            
TOTAL REVENUE                              $7,097,409        63%        $3,335,461        29%         $890,576           8%
                                           ==========                   ==========                    ========
NET INCOME (LOSS)                         ($3,166,529)       82%          ($23,106)        1%        ($656,340)         17%
                                          ===========                   ==========                    ========
IDENTIFIABLE ASSETS                        $1,542,623                     $644,771                    $379,611
                                           ==========                    =========                    ========
</TABLE>


NOTE 10 - 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 a contribution of $15,824 and $11,064 in 1996 and 1995, respectively.


NOTE 11 - INCOME TAXES

     There was no income tax  expense or benefit  recorded  for the years  ended
December 31, 1996 or 1995.



                                      F-18

<PAGE>



     The Company has a net operating  loss ("NOL")  carryforward  for income tax
purposes  which is available to offset future  taxable  income.  This NOL totals
$5,485,000 and expires in the years 2006 through 2011. The Company has a capital
loss  carryforward for income tax purposes,  which totals $1,202,000 and expires
in 2000.

     Components  of the  Company's  deferred tax asset and liability at December
31, 1996 is as follows:


Net operating loss carryforwards                 $2,194,000
Capital loss carryforward                           481,000
Deferred revenue                                    (53,000)
                                                  ---------
                                                  2,622,000
Valuation allowance                              (2,622,000)
                                                 ---------- 
Net deferred tax asset                                   --

     The change in  valuation  allowance  amounted  to $828,000  and  $1,559,000
respectively, for the years ended December 31, 1996 and 1995.

     The  change  in  stock  ownership  discussed  in Note 13 will  result  in a
limitation on the annual utilization of net operating loss carryforwards.


NOTE 12 - GAIN ON SALE OF SUBSIDIARY

     Effective  January 1, 1996, all of the  outstanding  stock of the Company's
Canadian subsidiary was sold to a private company for net proceeds of $504,000.

     Effective  April 1, 1996 the Company sold the San Francisco  California and
Boise Idaho training operations for net proceeds of $42,000.


NOTE 13 - SUBSEQUENT EVENTS

     Effective  February  6, 1997,  Mashov  Computers  Marketing  Ltd.,  ("MCM")
acquired a 69% interest in the Company.  In consideration of the foregoing,  MCM
transferred  to the Company  all of its  interest  in Sivan  Computers  Training
Center ("Sivan") and Mashov Computer Based Training ("Mashov CBT"). MCM received
8,438,924 shares of common stock and 658,412 shares of preferred stock par value
$.001, each share of preferred being convertible into ten shares of common stock
having a ten to one voting  right in  relation to shares of common  stock.  This
transaction will be accounted for as a reverse acquisition.

     Concurrently with the above purchase transaction,  the Company entered into
a conversion and waiver agreement whereby the following took place:



                                      F-19

<PAGE>


     The 1,000,000  shares of Series A Preferred Shares held by Elron Electronic
Industries was converted into 200,000 shares of common stock. (See Note 4).

     The  loans the  Company  received  from  certain  stockholders  aggregating
$437,500 as of December 31, 1996 were converted into 1,750,000  shares of common
stock. (See Note 3).

     The holder of warrants  (See Note 4) agreed to convert a total of 1,432,519
warrants  (consisting of 922,508 warrants  outstanding at December 31, 1996 (See
Note 4) which were subsequently adjusted in 1997 under anti dilution provisions)
into 344,464 shares of common stock.





                                      F-20

<PAGE>


Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure.


     On February 24, 1997, the Company  dismissed the accounting  firm of Arthur
Andersen LLP, who was  previously  engaged as the principal  accountant to audit
the Company's  financial  statements.  The principal  accountant's report on the
financial  statements  for either of the  Company's two most recent fiscal years
did not contain an adverse opinion or a disclaimer of opinion,  or was qualified
or  modified  as  to  audit  scope,  or  accounting  principles.  The  principal
accountant's  report on the financial  statements for the Company's  fiscal year
ended December 31, 1995 contained a  qualification  as to uncertainty  regarding
the Company's ability to continue as a going concern.

     The  decision to change  accountants  was  recommended  and approved by the
Board of Directors of the Company.  During the  Company's two most recent fiscal
years  and  the  interim  period  through   February  24,  1997  there  were  no
disagreements with the former accountant on any matter of accounting  principles
or practices,  financial statement  disclosure,  or auditing scope or procedure,
which  disagreements,  if  not  resolved  to  the  satisfaction  of  the  former
accountant,  would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its report. No "reportable events" as defined
in Item 304 (a)(1)(v) of Regulation  S-K occurred  during the Company's two most
recent fiscal years or the interim period through February 24, 1997.

     On February 25, 1997,  the Company  engaged  Ernst & Young LLP to audit the
Company's  financial  statements.  Kost,  Levary & Forer,  C.P.A.s,  independent
accountants  in Israel,  a member firm of Ernst & Young LLP, are the auditors of
Sivan, Mashov CBT and PC Israel.

                                    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
                                Executive Officer and Director      1997
Elan Penn               45      Chief Financial Officer and
                                Director                            1997
Terry I. Steinberg      42      Executive Vice President and
                                Director                            1985
David Assia             45      Director                            1997
Jack Dunietz            42      Director                            1997
Martin F. Kahn          46      Director                            1995




                                      -17-

<PAGE>



     In connection with the execution of the Stock Purchase Agreement  effective
February  13,  1997,  Mr. Avi Peri,  Mr. Joe  Sabrin,  and Mr.  Avshalom  Aderet
resigned from the  Company's  Board of  Directors.  Mr. Terry  Steinberg and Mr.
Martin Kahn  remained on the Board and were joined by Mr. Roy Machnes,  Mr. Elan
Penn,  Mr. David Assia and Mr. Jack Dunietz.  Mr. Machnes now serves as Chairman
of the Company.

     Roy Machnes currently serves as the Company's  Chairman and Chief Executive
Officer and a Director. In January 1994, Mr. Machnes became and remains Chairman
and Chief Executive Officer of Mashov.  Mr. Machnes is also a Director of Mashov
Computers Ltd., Mashov and Magic Software Enterprises Ltd. From January 1988 and
until  January  1994,  Mr.  Machnes  served  as Vice  President  Sales of Mashov
Computers  Ltd. and has been a Director of Mashov  Computers  Ltd. since January
1988. Mr. Machnes holds a B.A. from the University of California at Berkeley.

     Elan Penn serves as the Company's Chief  Financial  Officer and a Director.
Mr. Penn also serves as the Chief Financial Officer of Mashov Computers Ltd. and
Mashov.  Mr. Penn joined Mashov  Computers Ltd. and Magic  Software  Enterprises
Ltd.  as their Vice  President  Finance  and  Administration  in June  1992.  In
February  1997,  Mr. Penn resigned his position at Magic  Software 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.
Mr. Penn was Vice  President  Finance of Mashov  Computers  Ltd. from March 1987
until  December  1990.  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 currently serves the Company as Executive Vice President
and a Director.  Mr.  Steinberg was President of the Company since its inception
and as Treasurer since August 1991 until February 1997. For more than five years
prior to the Company's  inception,  he was the Director of Decision  Support for
Paramount Pictures Corporation,  with responsibility for all end-user computing.
Mr.  Steinberg  was  primarily  responsible  for the  introduction  of  personal
computer utilization at Paramount in October 1981. At the time he left Paramount
in May 1985,  Mr.  Steinberg  was  responsible  for the support of more than 200
personal  computers  and the  training of all  personnel  in  personal  computer
technology and  utilization.  Mr.  Steinberg holds a Bachelors Degree in Applied
Mathematics and Computer Science and a Masters in Business Administration,  both
from McGill University.

     David Assia serves the Company as a Director.  Mr. Assia is a co-founder of
Mashov Computers Ltd. of which he was a Managing  Director between 1980 and 1986
and has been its Chairman  since 1989.  Mr. Assia has been Managing  Director of
Magic Software  Enterprises  Ltd. since its inception in 1983 and has been Chief
Executive  Officer and Chairman  since 1986. Mr. Assia 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.




                                      -18-

<PAGE>



     Jack Dunietz serves the Company as a Director.  Mr. Dunietz is a co-founder
of Mashov Computers Ltd. of which he was Managing  Director from 1978 until 1987
and has been the Chief Executive  Officer since 1987. Mr. Dunietz also serves as
a Director of Mashov,  Magic Software Enterprises Ltd., and Paradigm Geophysical
Ltd. & Data Automation  Ltd. Mr. Dunietz holds a B.Sc. in Computer  Science from
the Technion Israel Institute of Technology.

     Martin F. Kahn serves the Company as a Director.  Mr. Kahn was  Chairman of
the Board of the Company from May 1995 until  February 1997. Mr. Kahn has served
as Chairman of Ovid  Technologies,  Inc. since 1989 (formerly CDP  Technologies,
Inc.),  a leading  producer  of medical,  scientific  and  technical  CD-ROM and
network  products;  since 1993 as Chairman  of  OneSource  Information  Services
(formerly Lotus One Source),  which develops and markets a comprehensive  set of
integrated business information and software products; since 1991 as Chairman 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  of  ShopperVision  Express,
Inc., which offers home grocery  shopping through dial-up and on-line  services;
and since 1990 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 a Masters
degree in Business Administration from Harvard Business School.

     Executive  officers  of the Company  serve at the  pleasure of the Board of
Directors  and until the first  meeting of the Board of Directors  following the
next annual  meeting of the Company's  stockholders  and until their  successors
have been chosen and  qualified.  Directors  of the Company  hold their  offices
until the next  annual  meeting of the  Company's  stockholders  and until their
successors  have  been  duly  elected  and  qualified  or  until  their  earlier
resignation or removal from office.  The Board of Directors  intends to nominate
and elect a seventh  Director as soon as possible.  Reference is made to Item 12
hereof for a  discussion  of certain  agreements  with regard to the election of
Directors 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,  1996,  all
Section  16(a)  filing  requirements   applicable  to  the  Company's  officers,
Directors and 10% stockholders were complied with.












                                      -19-

<PAGE>



Item 10. Executive Compensation

     The  following   table  sets  forth   information   concerning   the  total
compensation  during the last three  fiscal  years for the  Company's  executive
officers whose total salary in fiscal 1996 totaled $100,000 or more:

                           Summary Compensation Table

                                                             Long-Term
                                                           Compensation
                                             Annual         Securities
                                          Compensation      Underlying
Name and Principal Position      Year      Salary ($)       Options (#)
---------------------------      ----      ----------       -----------
Terry Steinberg                  1996         --(2)             --
President (1)                    1995         --(2)             --
                                 1994        131,750            --
Joseph Sabin
Executive Vice President (3)     1996         --(2)             --
                                 1995        103,680            --
                                 1994        110,400            --
--------------
(1)  Effective  February  13,  1997,  Mr.  Steinberg  was named  Executive  Vice
     President pursuant to an employment contract dated February 6, 1997.
(2)  Less than $100,000.
(3)  In March 1997 and effective May 1997, Mr. Sabrin resigned from the Company.
     Mr. Sabrin was granted severance of three months' salary.

     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.

     Pursuant to the Stock Purchase  Agreement and effective  February 13, 1997,
the Company entered into employment contracts with each of Terry Steinberg,  Roy
Machnes  and Elan  Penn,  providing  for  their  employment  as  Executive  Vice
President, Chief Executive Officer and Chief Financial Officer, respectively, of
the Company.  Messrs.  Machnes,  Steinberg and Penn have been granted  incentive
stock  options in  connection  with their  respective  employment  agreements of
325,000,  240,000 and 200,000 stock  options,  respectively,  where such options
vest over a three-year period. The exercise price of the stock options is $0.584
per share.

     The base  salaries  of Messrs.  Machnes and  Steinberg  are  $155,000.  Mr.
Machnes'  employment  agreement provides that the Company will reimburse certain
of Mr. Machnes' relocation and living expenses.  Specifically,  the Company must
reimburse Mr. Machnes for the



                                      -20-

<PAGE>



following  expenses:  (1) $20,000 for expenses incurred during the relocation of
Mr. Machnes, his family and their possessions;  (2) all expenses associated with
the education of Mr.  Machnes'  children  including  private  school tuition and
associated  expenses;  (3) rental  payments for an apartment in  Manhattan,  New
York, including any associated real estate broker's fees, less the amount of any
rental payments  received from the sublease of Mr. Machnes' home in Israel,  net
of  associated  expenses;  and (4)  any  expenses  incurred  by Mr.  Machnes  in
connection with the  repatriation of his family to Israel once each year. All of
the  expense  reimbursements  are to be grossed up to account for the payment of
any taxes due if such  reimbursement  constitutes  taxable income to Mr. Machnes
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 by any means, Mr. Machnes is to be reimbursed
for relocation expenses of no more than $20,000 in connection with Mr. Machnes's
relocation to Israel.

     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.

Stock Options

     The following table provides  information  concerning stock options held in
1996 by each of the executive  officers named above in the Summary  Compensation
Table. There were no options granted to any officers in 1996.


                       AGGREGATED OPTION EXERCISES IN LAST
                  FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                  Number of Shares
                                                                     Underlying                  Value of Unexercised
                       Shares                                  Unexercised Options at            in the Money Options
                     Acquired on          Value                 FY-End (#) Exercis-             at FY-End ($) Exercis-
Name                Exercise (#)        Realized ($)             able/Unexercisable               able/Unexercisable
----                ------------        ------------             ------------------               ------------------
<S>                     <C>                <C>                     <C>                                  <C>   
Terry Steinberg          --                --                      20,000/--                            --
President

Joseph Sabin             --                --                      20,000/--                            --
Executive Vice
President

</TABLE>






                                      -21-

<PAGE>



Item 11. Security Ownership of Certain Beneficial Owners and Management.

     (a) Security Ownership of Certain Beneficial Owners

     The  following  table sets forth certain  information  as of April 11, 1997
regarding the ownership of the Company's equity securities for each person known
by the  Company to be the  beneficial  owner of more than 5% of the  outstanding
shares of a class of the Company's securities:

<TABLE>
<CAPTION>
                                                                                      Percent
Title of           Name and Address                          Amount and Nature of        of
Class              of Beneficial Owner                        Beneficial Owner         Class(1)
-----              -------------------                        ----------------         --------
<S>                <C>                                       <C>                        <C>    
Series C           Mashov Computers Marketing                 658,412 shares(3)(4)      100%
Preferred          Ltd.
Stock (2)          5 HaPlada Street
                   Or-Yehuda, Israel 60218

Series C           Mashov Computers Ltd.                      658,412 shares(3)(4)      100%
Preferred          5 HaPlada Street
Stock              Or-Yehuda, Israel 60218

Common             Mashov Computers Marketing                8,308,924 shares(3)(4)      55.3%
Stock              Ltd.

Common             Mashov Computers Ltd.                     8,308,924 shares(3)(4)      55.3%
Stock

Common             Elron Electronic Industries Ltd.          1,490,405(5)                 9.9%
Stock              Advanced Technology Center
                   P.O. Box 1573
                   Haifa, Israel 31015

Common             Rho Management Trust I                    1,166,671(6)                 7.8%
Stock              c/o Rho Management Co., Inc.,
                   767 Fifth Avenue
                   New York, New York

Common             Star Group                                  871,304(7)                 5.8%
Stock              Management Ltd.
                   Herzelia Pitauch, Israel 46733

Common             Dr. Meir Barel                              871,304(7)                 5.8%
Stock              SVM STAR Ventures
                   Management Ltd.
                   Herzelia Pitauch, Israel 46733

</TABLE>


                                                       -22-

<PAGE>

<TABLE>
<CAPTION>
                                                                                      Percent
Title of           Name and Address                          Amount and Nature of        of
Class              of Beneficial Owner                        Beneficial Owner         Class(1)
-----              -------------------                        ----------------         --------
<S>                <C>                                       <C>                          <C>    
Common             Gilbert H. Steinberg                      1,448,123(8)                 9.6%
Stock              Six Nevada Drive
                   Lake Success, New York

Common             Terry I. Steinberg                        1,448,123(8)                 9.6%
Stock              462 Seventh Avenue
                   New York, New York

</TABLE>

(1)  Percentages  give effect to the Conversion and Waiver  Agreement  effective
     February 13, 1997.

(2)  All of the Company's  Series A and B Preferred  Stock were  converted  into
     Common Stock pursuant to the Conversion and Waiver Agreement. Each share of
     Series C Preferred Stock is convertible  into 10 shares of Common Stock and
     has 10 to 1 voting rights in relation to shares of Common Stock.

(3)  Mashov  Computers  Marketing  Ltd. is a wholly owned  subsidiary  of Mashov
     Computers Ltd.  Mashov  Computers  Ltd. is publicly  traded on the Tel-Aviv
     Stock Exchange with 17,697,453 million shares outstanding.  David Assia and
     Jack Dunietz own approximately 20% and 10%, respectively,  of the shares of
     Mashov Computers Ltd. The remaining shares are owned by the public.

(4)  Based on the Stock Purchase Agreement,  Mashov acquired 8,438,924 shares of
     Common Stock and 658,412 shares of Series C Preferred Stock of the Company,
     where each share of Series C Preferred Stock is convertible  into 10 shares
     of Common  Stock and has 10 to 1 voting  rights  in  relation  to shares of
     Common  Stock.  As a result of the  transactions  provided for in the Stock
     Purchase Agreement,  Mashov (and by virtue of its control of Mashov, Mashov
     Computers Ltd.) owns 69% of the Company's equity and voting securities on a
     fully diluted basis.

(5)  Includes 130,000 shares of Common Stock of the Company transferred to Elron
     by Mashov Computers Marketing Ltd. upon the execution of the Stock Purchase
     Agreement.

(6)  Rho Management  Partners L.P. ("Rho") may be deemed the beneficial owner of
     shares  registered in the name of Rho Management Trust I (formerly known as
     Gibraltar Trust), pursuant to an investment advisory agreement that confers
     sole voting and investment control over such shares to Rho.




                                      -23-

<PAGE>



(7)  Pursuant to information  available to the Company, the Star Group includes:
     SVE  STAR  Ventures  Enterprises  No.  II GbR  (112,610  shares),  SVE STAR
     Ventures   Enterprises  No.  III  (297,422   shares),   SVE  STAR  Ventures
     Enterprises No. IIIA GbR (25,260 shares),  Justy Ltd.  (261,392 shares) and
     Yozma Venture Capital Ltd.  (174,260  shares).  Dr. Meir Barel has the sole
     power to vote or direct  the vote,  and the sole power to dispose or direct
     the  disposition  of, the shares  beneficially  owned by the members of the
     Star Group.

(8)  Includes shares  beneficially  owned by Terry I. Steinberg  (305,458 shares
     including  20,000  exercisable  options),  Joseph  Sabrin  (335,458  shares
     including  20,000  exercisable  options) and Gilbert H. Steinberg  (807,207
     shares)  pursuant to a Voting Trust  Agreement  expiring in December  1997,
     wherein the Messrs.  Steinberg and Sabrin  exercise joint voting control as
     co-trustees.   Each  of  the  Messrs.   Steinberg  and  Mr.  Sabrin  retain
     dispositive control over their respective shares.


     (b) Security Ownership of Management

         The following table sets forth certain information as of April 11, 1997
regarding the ownership of the Company's  equity  securities  for each executive
officer and Director,  and for the Company's executive officers and Directors as
a group:

<TABLE>
<CAPTION>
                             Beneficial
                             Ownership of
                             Officer, Director or         Amount and Nature of
Title of Class               Group                        Beneficial Owner          Percent of Class
--------------               -----                        ----------------          ----------------
<S>                          <C>                            <C>                          <C> 
Series C Preferred           Roy Machnes(1)                  658,412(2)                  100%
Stock
Common Stock                 Roy Machnes                    8,308,924(2)                  55.3%
Series C Preferred           Elan Penn(1)                     658,412(2)                 100%
Stock
Common Stock                 Elan Penn                      8,308,924(2)                  55.3%
Series C Preferred           David Assia(1)                   658,412(2)                 100%
Stock
Common Stock                 David Assia                    8,308,924(2)                  55.3%
Series C Preferred           Jack Dunietz(1)                  658,412(2)                 100%
Stock
Common Stock                 Jack Dunietz(1)                8,308,924(2)                  55.3%
Common Stock                 Terry Steinberg(1)               305,458(3)                   2.0%

</TABLE>



                                      -24-

<PAGE>

<TABLE>
<CAPTION>
                             Beneficial
                             Ownership of
                             Officer, Director or         Amount and Nature of
Title of Class               Group                        Beneficial Owner          Percent of Class
--------------               -----                        ----------------          ----------------
<S>                          <C>                            <C>                         <C> 
Common Stock                 Martin Kahn                       40,000(4)                  0.3%
Series C Preferred           All Executive                    658,412                   100%
Stock                        Officers and
                             Directors as a group
                             (6 persons)

Common Stock                 All Executive                  8,654,382(3)(4)               57.6%
                             Officers and
                             Directors as a group
                             (6 persons)

-------------------
</TABLE>

(1)  Address is c/o PC Etcetera,  Inc., 462 Seventh  Avenue,  New York, New York
     10018.
(2)  Denotes voting control by virtue of holding positions as Director of Mashov
     and Mashov  Computers  Ltd. 
(3)  Includes 20,000 shares issuable upon the exercise of currently  exercisable
     stock  options.  
(4)  Includes 40,000 shares issuable upon the exercise of currently  exercisable
     stock options.



Item 12.  Certain Relationships and Related Transactions.

Transactions  Effected In Connection  With the  Execution of the Stock  Purchase
Agreement

         Prior to the execution of the Stock  Purchase  Agreement,  Mashov owned
70% of the issued and outstanding  ordinary shares of Mashov CBT.  Pursuant to a
purchase  agreement  dated February 6, 1997,  between  Mashov and Elron,  Mashov
purchased  from  Elron all of the  ordinary  shares of Mashov CBT held by Elron,
such shares then representing 30% of the issued and outstanding shares of Mashov
CBT. In consideration of the purchase and sale, Mashov transferred to Elron upon
the execution of the Stock Purchase  Agreement 130,000 shares of Common Stock of
the Company.

         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 $175,000.




                                      -25-

<PAGE>



     The Stock Purchase  Agreement further provides that Mashov will convert its
Preferred  Stock of the  Company  into  the  Company's  Common  Stock as soon as
possible  following  the  closing of the  transaction.  In the event of a rights
offering by the Company,  Mashov may call due and payable $600,000 of debt owing
to Mashov  from Sivan for use in the  purchase  by Mashov of  securities  of the
Company offered pursuant to such rights offering.

     In  connection  with the  execution of the Stock  Purchase  Agreement,  the
Company  executed the Conversion and Waiver  Agreement,  which provides that the
Conversion Parties (Elron,  Rho Management Trust I [formerly  Gilbralter Trust],
the Star  Group [as  defined  in Item  11(a)],  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 options and warrants owned by the Conversion Parties.  Specifically:  (i) the
1,000,000  shares of Series A Preferred  Stock held by Elron were converted into
200,000 shares of Common Stock; (ii) the loans the Company received from certain
stockholders  aggregating  $437,500 as of December 31, 1996 were  converted into
1,750,000 shares of Common;  and (iii) the holders of Company warrants agreed to
convert  a  total  of  1,432,519   warrants   (consisting  of  922,508  warrants
outstanding as of December 31, 1996 which were subsequently adjusted pursuant to
the Conversion and Waiver Agreement under anti-dilution provisions) into 344,464
shares  of Common  Stock.  After  giving  effect to the  Conversion  and  Waiver
Agreement,  and  aggregating  their prior holdings,  the Conversion  Parties own
4,812,509 shares of Common Stock of the Company as of March 31, 1997.

Repurchase Agreement

     The  Company,  Terry I.  Steinberg  and  Joseph  Sabrin  are  parties to an
agreement which requires the Company,  upon the death of either such person,  to
purchase from the estate of such person up to $500,000 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.


Item 13.  Exhibits and Reports on Form 8-K.



Exhibit
Number          Description of Exhibit
------          ----------------------
2.1  Asset Purchase Agreement dated as of August 12, 1994 among the Company,  PC
     Israel, Elron, Adar International, Inc. and Elron Technologies Inc. (1)

2.2  Stock  Purchase  Agreement  dated as of  January  31,  1996 by and  between
     Training Holdings L.L.C. and the Company.(2)




                                      -26-

<PAGE>




Exhibit
Number          Description of Exhibit
------          ----------------------
2.3  Stock Purchase  Agreement dated February 6, 1997 and effective February 13,
     1997 by and between the Company and Mashov.(3)

3.1  Certificate of Designation with regard to Series C Preferred Stock.

3.2  Certificate  of Amendment of Certificate  of  Incorporation  with regard to
     reverse split.(4)

3.3  Certificate of Incorporation, as amended. (5)

3.4  By-Laws.(6)

9    Voting Trust Agreement  dated December 29, 1987 between Gilbert  Steinberg,
     Terry I. Steinberg and Joseph Sabrin,  individually,  and Gilbert Steinberg
     and Terry I. Steinberg as Co-Trustees.(6)

10.1 Lease for premises situated at 462 Seventh Avenue,  4th Floor New York, New
     York.(4)

10.2 Lease for premises  situated at 462 Seventh Avenue,  18th Floor,  New York,
     New York.(7)

10.3 Amended and Restated 1987 Stock Option Plan.(8)

10.4 Financing  Agreement for  receivables  dated  November 20, 1990 between the
     Company and Rosenthal & Rosenthal, Inc.(5)

10.5 Stockholders'  Agreement  dated as of August 12,  1994  among the  Company,
     Elron,  Adar  International,   Inc.,  Elron  Technologies  Inc.,  Terry  I.
     Steinberg, Joseph Sabrin and Gilbert H. Steinberg. (1)

10.6 Stock  Purchase  Agreement  dated as of March 15,  1995 among the  Company,
     Special  Situations Fund III, L.P.,  Special  Situations Cayman Fund, L.P.,
     Gibraltar Trust,  Justy Ltd., Yozma Venture Capital Ltd., SVE STAR Ventures
     Enterprises  No. II GbR, SVE STAR Ventures  Enterprises No. III GbR and SVE
     STAR Ventures Enterprises No. IIIA GbR.(4)

16   Arthur  Andersen LLP letter dated March 7, 1997 pursuant to Item  304(a)(3)
     of Regulation S-K.(9)

21   Subsidiaries.(10)



                                      -27-

<PAGE>

(1)  Filed as an  exhibit  to the  Company's  Current  Report on Form 8-K for an
     event dated August 12, 1994 and hereby incorporated by reference thereto.

(2)  Filed as an  exhibit  to the  Company's  Current  Report on Form 8-K for an
     event dated January 31, 1996 and hereby incorporated by reference thereto.

(3)  Filed as an  exhibit  to the  Company's  Current  Report on Form 8-K for an
     event dated February 13, 1997 and hereby incorporated by reference thereto.

(4)  Filed as an exhibit to the  Company's  Annual Report on Form 10-KSB for the
     fiscal year ended  December 31, 1994 and hereby  incorporated  by reference
     thereto.

(5)  Filed as an exhibit  to the  Company's  Annual  Report on Form 10-K for the
     fiscal year ended December 31, 1989 and  incorporated  herein by reference,
     as amended by document  filed as an exhibit to the Company's  Annual Report
     on Form  10-KSB for the  fiscal  year ended  December  31,  1993 and hereby
     incorporated by reference thereto.

(6)  Filed as an exhibit to the  Company's  Registration  Statement on Form S-18
     (File No. 33- 19521) 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)  Reference is made to Item 1(a) of this Form 10-KSB, "Recent Developments."

(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.

     No report  on Form 8-K was  filed by the  Company  during  the three  month
period  ended  December  31,  1996.  The  following  forms 8-K were filed  since
December 31, 1996:

     A Current Report on Form 8-K ("Form 8-K") was filed by the Company with the
Commission  on February  27,  1997 with  respect to the  execution  of the Stock
Purchase Agreement and the change of the Company's auditors.




                                      -28-

<PAGE>



     An  Amendment  No. 1 to the Form 8-K was filed by the  Company  on March 4,
1997 with respect to the change of the Company's auditors.

     An  Amendment  No. 2 to the Form 8-K was filed by the  Company on March 13,
1997 with respect to the change of the Company's auditors.






                                      -29-

<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.

                                            PC ETCETERA, INC.


April 15, 1997                              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            Chairman, President, and              April 15, 1997
---------------
Roy Machnes                Chief  Executive Officer

/s/ Terry Steinberg        Executive Vice President,             April 15, 199
-------------------        and Director                     
Terry Steinberg            

/s/ Elan Penn              Chief Financial Officer               April 15, 1997
-------------              and Director                    
Elan Penn                  

/s/ Adrienne Haber         Controller (Principal                 April 15, 1997
------------------         Accounting Officer)                           
Adrienne Haber             

/s/ David Assia            Director                              April 15, 1997
---------------
David Assia

/s/ Jack Dunietz           Director                              April 15, 1997
----------------       
Jack Dunietz

/s/ Martin Kahn            Director                              April 15, 1997
---------------
Martin Kahn
               
                                      -30-

<PAGE>

                                    EXHIBIT INDEX


Exhibit                                                                     Page

2.1  Asset Purchase Agreement dated as of August 12, 1994 among the Company,  PC
     Israel, Elron, Adar International, Inc. and Elron Technologies Inc. (1)

2.2  Stock  Purchase  Agreement  dated as of  January  31,  1996 by and  between
     Training Holdings L.L.C. and the Company.(2)

2.3  Stock Purchase  Agreement dated February 6, 1997 and effective February 13,
     1997 by and between the Company and Mashov.(3)

3.1  Certificate of Designation with regard to Series C Preferred Stock.

3.2  Certificate  of Amendment of Certificate  of  Incorporation  with regard to
     reverse split.(4)

3.3  Certificate of Incorporation, as amended. (5)

3.4  By-Laws.(6)

9    Voting Trust Agreement  dated December 29, 1987 between Gilbert  Steinberg,
     Terry I. Steinberg and Joseph Sabrin,  individually,  and Gilbert Steinberg
     and Terry I. Steinberg as Co-Trustees.(6)

10.1 Lease for premises situated at 462 Seventh Avenue,  4th Floor New York, New
     York.(4)

10.2 Lease for premises  situated at 462 Seventh Avenue,  18th Floor,  New York,
     New York.(7)

10.3 Amended and Restated 1987 Stock Option Plan.(8)

10.4 Financing  Agreement for  receivables  dated  November 20, 1990 between the
     Company and Rosenthal & Rosenthal, Inc.(5)

10.5 Stockholders'  Agreement  dated as of August 12,  1994  among the  Company,
     Elron,  Adar  International,   Inc.,  Elron  Technologies  Inc.,  Terry  I.
     Steinberg, Joseph Sabrin and Gilbert H. Steinberg. (1)

10.6 Stock  Purchase  Agreement  dated as of March 15,  1995 among the  Company,
     Special  Situations Fund III, L.P.,  Special  Situations Cayman Fund, L.P.,
     Gibraltar Trust,  Justy Ltd., Yozma Venture Capital Ltd., SVE STAR Ventures
     Enterprises  No. II GbR, SVE STAR Ventures  Enterprises No. III GbR and SVE
     STAR Ventures Enterprises No. IIIA GbR.(4)




                                      

<PAGE>



Exhibit                                                                     Page

16   Arthur  Andersen LLP letter dated March 7, 1997 pursuant to Item  304(a)(3)
     of Regulation S-K.(9)

21   Subsidiaries.(10)


(1)  Filed as an  exhibit  to the  Company's  Current  Report on Form 8-K for an
     event dated August 12, 1994 and hereby incorporated by reference thereto.

(2)  Filed as an  exhibit  to the  Company's  Current  Report on Form 8-K for an
     event dated January 31, 1996 and hereby incorporated by reference thereto.

(3)  Filed as an  exhibit  to the  Company's  Current  Report on Form 8-K for an
     event dated February 13, 1997 and hereby incorporated by reference thereto.

(4)  Filed as an exhibit to the  Company's  Annual Report on Form 10-KSB for the
     fiscal year ended  December 31, 1994 and hereby  incorporated  by reference
     thereto.

(5)  Filed as an exhibit  to the  Company's  Annual  Report on Form 10-K for the
     fiscal year ended December 31, 1989 and  incorporated  herein by reference,
     as amended by document  filed as an exhibit to the Company's  Annual Report
     on Form  10-KSB for the  fiscal  year ended  December  31,  1993 and hereby
     incorporated by reference thereto.

(6)  Filed as an exhibit to the  Company's  Registration  Statement on Form S-18
     (File No. 33- 19521) 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)  Reference is made to Item 1(a) of this Form 10-KSB, "Recent Developments."

(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.