<PAGE>
U.S. SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File Number 0-22351
FirstQuote Inc.
---------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 98-0162893
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12, Ave des Morgines, 1213 Petit-Lancy 1, Geneva, Switzerland N/A
- ------------------------------------------------------------- ---
(Address of principal executive offices) (Zip Code)
+41-22-879-0879
---------------
(Issuer's telephone number)
(Not applicable)
----------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
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 _
--- ---
As of November 8, 1999 the Registrant had 6,227,959 shares of its common stock,
par value $0.001, issued and outstanding.
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
FIRSTQUOTE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,676,939 $ 229,450
Trade accounts receivable, net 450,901 191,229
Prepaid expenses and other receivables 460,153 62,108
------------ -----------
Total current assets 3,587,993 482,787
------------ -----------
NON-CURRENT ASSETS
Property and equipment, net 1,101,488 1,130,563
Other assets 338,264 28,487
------------ -----------
Total non-current assets 1,439,752 1,159,050
------------ -----------
Total Assets $ 5,027,745 $ 1,641,837
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 982,686 $ 658,700
Accrued liabilities 438,831 102,274
Current portion of capital lease obligations 149,371 146,481
Advances/convertible loans from stockholders/related parties -- 1,000,000
Deferred income 299,938 170,808
------------ -----------
Total current liabilities 1,870,826 2,078,263
------------ -----------
LONG TERM CAPITAL LEASE OBLIGATIONS
Capital lease obligation, net of current portion 57,260 166,621
------------ -----------
STOCKHOLDERS' EQUITY
Preferred Stock, $0.001 par value,
10,000,000 shares authorized;
Class A: 6,500 and 68,500 shares issued and outstanding 7 69
Class B: 1,923,716 shares issued and outstanding 1,924 1,924
Class C: 3,783,784 shares issued and outstanding 3,784 --
Common Stock, $0.001 par value, --
20,000,000 shares authorized; 6,176,959 and 5,781,309 shares
issued and outstanding 6,228 5,781
Additional paid-in capital 14,213,922 6,381,315
Cumulative translation adjustment 360,135 (148,610)
Accumulated deficit (11,486,341) (6,843,526)
------------ -----------
Total stockholders' equity 3,099,659 (603,047)
------------ -----------
------------ -----------
Total Liabilities and Shareholders' Equity $ 5,027,745 $ 1,641,837
============ ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
<PAGE>
FIRSTQUOTE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
ended September 30, ended September 30,
------------------------- -----------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE $ 565,703 $ 143,626 $ 1,210,065 $ 363,029
OPERATING EXPENSES
Cost of Revenue 759,884 248,487 1,599,416 765,193
Selling & Market Development Expenses 171,110 79,074 308,501 174,049
General & Administrative Expenses 1,231,721 764,743 3,356,281 1,977,389
----------- ----------- ----------- -----------
2,162,715 1,092,304 5,264,198 2,916,631
----------- ----------- ----------- -----------
OPERATING RESULT (1,597,012) (948,678) (4,054,133) (2,553,602)
OTHER INCOME AND EXPENSES
Interest Income / (Expense) 28,313 2,004 86,222 10,038
Foreign Exchange Gain / (Loss), net 292,540 514,421 (674,904) 347,261
----------- ----------- ----------- -----------
320,853 516,425 (588,682) 357,299
----------- ----------- ----------- -----------
NET LOSS (1,276,159) (432,253) (4,642,815) (2,196,303)
=========== =========== =========== ===========
Basic and diluted weighted average number
of common shares 6,202,459 5,578,291 6,004,634 5,578,291
=========== =========== =========== ===========
Basic and diluted net loss per common share $ (0.21) $ (0.08) $ (0.77) $ (0.39)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
<PAGE>
FIRSTQUOTE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
ended September 30, ended September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,276,159) $ (432,253) $(4,642,815) $(2,196,303)
Adjustments to reconcile net loss to net cash used in
operating activities:
Exchange (gain) / loss (292,540) (514,421) 674,904 (347,261)
Depreciation and amortization 155,114 136,480 444,425 375,968
Provision for doubtful debtors 14,975 - 55,779 2,302
Interest accrued on loans payable - - - 5,417
Stock and stock options issued as compensation cost 31,250 - 93,750 -
Increase / decrease resulting from changes in:
Trade accounts receivable (39,033) (26,575) (315,452) (71,307)
Prepaid expenses and other receivables (194,477) 82,200 (398,045) 40,419
Trade accounts payable 124,106 12,789 323,986 (141,578)
Accrued liabilities and provisions 223,099 403,701 336,558 495,908
Deferred income 26,751 30,619 129,130 69,057
----------- ----------- ----------- -----------
Net cash used-in operating activities (1,226,914) (307,460) (3,297,780) (1,767,378)
CASH USED IN INVESTING ACTIVITIES:
Purchase of equipment (250,078) (243,999) (415,350) (334,371)
Other non-current asset expenditures 25,777 (1,589) (153,527) (4,947)
----------- ----------- ----------- -----------
Net cash used-in investing activities (224,301) (245,588) (568,877) (339,318)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Issuance of stock - - 7,000,000 -
Commission on issuance of stock - - (70,000) -
Issuance of stock upon exercise of warrants 178,500 - 656,775 -
Collection of stock subscriptions receivable - - - 2,000,000
Reimbursements of advances from stockholders and related parties - - (1,000,000) (96,089)
Payment of capital lease obligations (27,590) (64,312) (106,471) (284,996)
----------- ----------- ----------- -----------
Net cash provided by financing activities 150,910 185,688 6,480,304 1,868,915
Effect of Exchange Rate Changes on Cash and cash equivalents 25,495 95,849 (166,158) 67,597
NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS (1,274,810) (271,511) 2,447,489 (170,184)
CASH AND CASH EQUIVALENTS AT BEGINNING 3,951,749 670,591 229,450 569,264
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END $ 2,676,939 $ 399,080 $ 2,676,939 $ 399,080
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
<PAGE>
FIRSTQUOTE INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at September 30, 1999, and for all periods
presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these unaudited condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 1998 audited
financial statements. The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the operating results for
the full year.
NOTE 2 - CONVERTIBLE LOANS FROM STOCKHOLDERS
As at December 31, 1998 the Company owed $1,000,000 in respect of a loan
convertible into preferred stock of the Company upon the conclusion of
additional equity financing, or redeemable, at the option of the lender. In
January 1999, the loan was converted into 540,541 shares of Series C Preferred
Stock (see Note 3.)
NOTE 3 - ISSUANCE OF COMMON AND PREFERRED STOCK
During the nine months ended September 30, 1999, 62,000 shares of Series A
Preferred stock were converted into 124,000 common shares.
During the nine months ended September 30, 1999, the Company issued 187,650
shares of its common stock upon the exercise of 187,650 warrants previously
issued with the Series A Preferred stock and certain stock units. The warrants
are exercisable at $3.50.
During the nine months ended September 30, 1999, the Company issued 135,000
shares in settlement of half of the amount due to a financial software solution
provider.
In January 1999, the Company sold 3,783,784 shares of its Series C Preferred
Stock for a total consideration of $7,000,000, including the conversion of the
$1,000,000 loan from stockholder (see Note 2.)
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Background
FirstQuote is a European technology provider of financial information and
electronic brokerage solutions. The Company offers a comprehensive range of
real-time market data and order execution systems for both the institutional and
individual investor. The financial information systems are offered via the
Internet or through virtual private networks using Internet technology. The
Company also provides related network services to users of its financial
information and electronic brokerage products. Further description of the
Company's activities and products can be found at http://www.firstquote.com/
--------------------------
Effective May 7, 1999, the Company amended its Certificate of Incorporation to
change its corporate name to FirstQuote Inc.
Unless the context otherwise requires, all references to the Company include its
wholly owned subsidiaries, FirstQuote SA (previously Virtual Telecom SA), a
Swiss corporation, and FirstQuote Ltd., a UK company.
Regarding the Company's plan of operations for the 1999 fiscal year, it has
targeted strategic alliances in key European financial centers from which to
leverage its growth. It plans to market its financial market information,
analytical tools and online order entry/matching systems both under its own
product names and as co-branded implementations with institutional clients.
Currency Exchange Rates: Although the Company reports its results in US dollars,
virtually all of its revenues and expenses are denominated in other currencies,
primarily Swiss francs, Euros and Pounds sterling. Consequently, the Company's
net results are directly affected by any changes in the exchange rate between
the US dollar on the one hand, and the Swiss franc, Euros or Pounds sterling on
the other. Transactions of the Company and its subsidiaries are recorded based
on the functional currency of each particular company. The Company's main
operating subsidiary maintains a Swiss franc functional currency and has a US
dollar denominated current account with its parent company. This results in
foreign exchange differences being recorded based on variations in the USD/CHF
rate of exchange, which are carried forward on consolidation.
Assets and liabilities of the Company and its subsidiaries are translated at the
exchange rate in effect at each year-end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from differences in exchange rates from period
to period are included in the cumulative translation adjustment account in
stockholders' equity.
Results of Operations
Revenue for the nine months ended September 30, 1999 was $1,210,065, an increase
of 233% over that of $363,029 for the corresponding prior nine months. Revenues
in the third quarter of 1999 were 47% above those of the second quarter of 1999.
Revenue is comprised of financial market data and online dealing services, and
related network connectivity services, including web services. While market data
services related revenues accounted for 31% of total revenue for the prior half-
year, the relative importance of this source of revenue is increasing as the
Company's FirstQuote user base expands. For the nine months ended September 30,
1999, financial market data and online dealing services accounted for 51% of
revenue, network services for 35% and financial web services for 14%.
Cost of revenue for the nine months ended September 30, 1999 was $1,599,416, an
increase of 109% above the amount of $765,193 for the corresponding prior nine
months. Cost of revenue as a percentage of revenue has decreased to 132% from
211% in the corresponding prior nine months, reflecting the economies of
operation at a larger scale. Cost of revenue includes network expenses, data
feeds and commissions.
Selling & Market Development expenses for the nine months ended September 30,
1999 were $308,501 or 77% above the amount of $174,049 for the corresponding
prior nine months. Corporate and product marketing expenses have increased in
conjunction with the corporate name change to FirstQuote and the continued
rollout of the Company's services in Europe.
General and administrative expenses for the nine months ended September 30, 1999
were $3,356,281, an increase of 70% from the amount of $1,977,389 for the
corresponding prior nine months. Staff costs represent the major component of
this expense and have increased 106% from $822,076 to $1,691,811. Operating
expenses have increased 26% from $619,567 to $780,266, and depreciation charges
have increased by 18% from $375,968 to $444,425.
<PAGE>
Operating loss for the nine months ended September 30, 1999 was $4,054,133, an
increase of 59% from the amount of $2,553,602 for the corresponding prior nine
months. Expressed as a percentage of revenue the operating loss has improved
from 703% to 335% of revenue.
Foreign exchange gains and losses arise essentially from the revaluation of
amounts due by FirstQuote SA to FirstQuote Inc., which are denominated in US
dollars. The functional currency of FirstQuote SA is the Swiss Franc, and the
resultant loss on revaluation in Swiss Francs is carried forward in
consolidation. The USD/CHF rate of exchange was 1.3760 at December 31, 1998 and
1.5040 at September 30, 1999.
Net loss for the nine months ended September 30, 1999 was $4,642,815, compared
with $2,196,303 for the corresponding prior nine months.
Liquidity and Financial Condition
As of September 30, 1999, the Company had working capital of $1,717,168 and
stockholders' equity of $3,099,658.
In January 1999 the Company secured equity financing through the sale of
3,783,784 shares of Series C Preferred Stock for $7,000,000, including the
conversion of a loan of $1,000,000 due from a related party.
During the nine months ended September 30, 1999, the Company has also received
$656,775 following the exercise of 187,650 warrants at $3.50. A further 300,131
warrants are in existence, all exercisable at $3.50.
The Company continues to generate negative cashflows from operations since its
cost base exceeds its revenues from operating activities. The net cash burn rate
from operations was approximately $409,000 per month during the third quarter of
1999 compared with approximately $345,000 per month during the first half of
1999, reflecting the increased level of operations.
The plan of operations for the next 12 months will require increases in the
amounts of operating and capital expenditure above those incurred to date. As
of the date of this report, the Company believes that it will require $5,000,000
of additional capital in order to finance its operations and capital
expenditures over the next 12 months. At this time there are no firm
commitments or agreements on the part of any party to provide any additional
debt or equity capital to the Company and there can be no assurance that the
Company will be able to obtain additional capital. The Company's inability to
increase revenue or obtain additional debt or equity capital on a timely basis
will, in all likelihood, materially adversely affect its future planned growth
of operations and revenues.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European Union
("EU") establish fixed conversion rates between their existing sovereign
currencies and the Euro, and adopted the Euro as their common legal currency.
Switzerland is not a member of the EU and the Company currently denominates most
of its transactions in Swiss francs, the unit of currency of Switzerland.
Furthermore, subscribers to the Company's services are typically invoiced in the
currency of their resident jurisdiction. The Company has successfully adapted
its information systems and practices to accommodate the Euro in those EU member
countries in which it offers its services. Moreover, the content within the
financial information distributed by the Company (notably security quotations)
has successfully begun to be denominated in Euro, commencing on January 1, 1999.
Euro conversion is expected to generally increase cross-border price
transparency among the participating countries and result in a more competitive
European market. The Company is uncertain as to the effect, if any, that Euro
conversion will have on its ability to sell its products and services in the
European market. Euro conversion could potentially impact pricing strategies and
demand for the Company's services in the European market, lead to increased
competition within the European market for the specific types of services sold
by the Company, or impact the Company's relationships with vendors and
licensors. As a result of competitive pressures, the Company could also
potentially be required to denominate future transactions in the Euro and incur
currency risk and conversion costs as a result.
There can be no assurance that Euro conversion will not have a material, adverse
effect on the Company's business, financial condition and results of operation.
Year 2000 Compliance
The Year 2000 problem results from the use by computers of two digits rather
than four digits to define the applicable year. The use of only two digits was
common during the period when computer resources were much
<PAGE>
more expensive than today. As a result, when such computer systems must process
dates both before and after January 1, 2000, the two-digit year identification
may create processing errors and system failures. These effects may be apparent
in both information processing systems as well as mechanical operations
controlled by computers (embedded microprocessors). The effects of this issue
are further compounded by the interdependence of computer systems between
suppliers and customers.
The Company utilizes computer software applications and operating systems in
distributing its financial information service, operating its network
infrastructure and various administrative and billing functions. In addition,
the Company's financial information service is reliant upon the receipt of
financial data from external vendors such as Standard & Poor's Comstock, FIDES
Information Services and the processing of that information using software
licensed to the Company by third parties such as Townsend Analytics Ltd.
To the extent the Company's computer software applications, or those of its
information vendors and software licensers, are unable to operate accurately
after January 1, 2000, some degree of modification, or even possibly replacement
of such applications, may be necessary. In the event that the Company's systems
or the systems of its third party information vendors and licensers are not
materially Year 2000 compliant, the Company could experience a disruption in the
provision of its financial information and network access services.
The Company has appointed a Year 2000 Committee to assess the scope of the
Company's risks in this regard and adopt appropriate measures to bring its
applications into compliance. To date the costs associated with this project
have amounted to approximately $60,000, all of which are internal expenses.
The committee has completed the process of identifying the core processes,
internal equipment as well as external services and software licenses that may
not be Year 2000 compliant. The cost of replacing internal IT equipment and
applications known to be not Year 2000 compliant is approximately $20,000.
Internal non-IT systems employed are not critical and have been determined not
to pose significant risks.
Where external risks have been identified, the Company has sent confirmation
letters to information vendors and software licensors to ascertain their
progress in identifying and addressing problems that their own computer systems
may face in correctly processing date information related to the Year 2000. The
Company is in the process of reviewing the responses received from as well as
monitoring related ongoing developments within these parties in order to assess
further steps to be taken. Currently, nothing has come to the Company's
attention that would indicate that the external risks identified would have a
material effect on the Company's operations.
The major element of technology in use by the Company relates to the market data
and online dealing platform and client interfaces licensed from Townsend
Analytics Ltd. According to test results published by Townsend Analytics Ltd.,
the Company is currently operating Year 2000 compliant versions of all elements
of the technology platform and client interface.
In addition, and independent from Year 2000 issues but having the effect of
reducing risks related thereto, the Company has diversified the equipment and
data suppliers that it uses and has identified alternative suppliers where
needed, should failures occur.
The most likely worst case scenario for the Company would involve the loss of
data feeds from external sources. If such were to occur the Company would have
to switch to alternate data suppliers which may result in certain disruptions to
its service and potential revenue losses as a result.
The future costs estimated to be required to resolve Year 2000 issues amount to
$10,000 of internal resources relating to a number of planned projects.
No definitive assurance can be given that all of the Company's or third party
systems is or will be Year 2000 compliant. Neither can assurance be given that
the eventual costs required to address remaining unresolved Year 2000 issues or
that the impact of the Company's failure to achieve substantial Year 2000
compliance will not have a material adverse effect on the Company's business,
financial condition or results of operations.
Safe Harbor
This report contains various forward-looking statements that are based on the
Company's beliefs as well as assumptions made by and information currently
available to the Company. When used in this report, the words "believe,"
"expect," "anticipate," "estimate" and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks, uncertainties and assumptions referred to herein, and in the Company's
1998 Annual Report on Form 10-KSB, including, without limitation, the Company's
recent commencement of commercial and marketing operations and the risks and
uncertainties concerning the market acceptance of its services and products;
technological changes; increased competition; and general economic conditions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, or projected. The
<PAGE>
Company cautions potential investors not to place undue reliance on any such
forward-looking statements, all of which speak only as of the date made.
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings.
Inapplicable.
Item 2. Changes in Securities and Use of Proceeds
In January 1999, the Company issued 3,783,784 shares of Series C
Preferred Stock to five parties for the total consideration of
$7,000,000. The issuance took place pursuant to Section 4(2) of the
Securities Act of 1933. In connection with the sale of 756,757 shares
of Series C Preferred Stock, the Company paid a finders' fee to a non-
affiliated party consisting of $70,000 and a warrant to purchase 37,838
common shares of the Company at an exercise price of $1.85 per share.
In March 1999, the Company issued 135,000 shares of common stock to
Townsend Analytics, Ltd. in consideration of certain distribution
rights granted to the Company. The issuance took place pursuant to
Section 4(2) of the Securities Act of 1933. There were no underwriters
involved in the issuance.
During the nine months ended September 30, 1999, 62,000 shares of
Series A Preferred stock were converted into 124,000 common shares.
During the nine months ended September 30, 1999, the Company issued
187,650 shares of its common stock upon the exercise of 187,650
warrants previously issued with the Series A Preferred stock and
certain stock units. The warrants are exercisable at $3.50.
Item 3. Defaults Upon Senior Securities
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information
Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports of Form 8-K
Inapplicable.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRSTQUOTE INC.
---------------
(Registrant)
Dated: November 12, 1999 By /s/ NEIL GIBBONS
-----------------------
Neil Gibbons
Chief Executive Officer
/s/ MARK BENN
-----------------------
Mark Benn
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,676,940
<SECURITIES> 0
<RECEIVABLES> 611,284
<ALLOWANCES> 66,489
<INVENTORY> 0
<CURRENT-ASSETS> 3,587,994
<PP&E> 2,261,009
<DEPRECIATION> 1,159,521
<TOTAL-ASSETS> 5,027,746
<CURRENT-LIABILITIES> 1,870,827
<BONDS> 0
0
5,715
<COMMON> 6,228
<OTHER-SE> 3,087,716
<TOTAL-LIABILITY-AND-EQUITY> 5,027,746
<SALES> 1,210,065
<TOTAL-REVENUES> 1,210,065
<CGS> 0
<TOTAL-COSTS> 5,264,198
<OTHER-EXPENSES> 588,681
<LOSS-PROVISION> 55,779
<INTEREST-EXPENSE> 19,838
<INCOME-PRETAX> (4,642,815)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,642,815)
<EPS-BASIC> (0.77)
<EPS-DILUTED> (0.77)
</TABLE>
