<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 March 31, 1999
Commission File Number 0-22351
FirstQuote Inc.
---------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 98-0162893
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(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
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(Issuer's telephone number)
(previously Virtual Telecom, Inc.)
----------------------------------
(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 May 10, 1999 the Registrant had 6,018,309 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>
March 31, December 31,
1999 1998
---------- ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $4,955,635 $ 229,450
Trade accounts receivable, net 220,558 191,229
Prepaid expenses and other receivables 99,659 62,108
---------- ----------
Total current assets 5,275,852 482,787
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NON-CURRENT ASSETS
Property and equipment, net 1,003,570 1,130,563
Other assets 437,500 28,487
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Total non-current assets 1,441,070 1,159,050
---------- ----------
---------- ----------
Total Assets $6,716,922 $1,641,837
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
2
<PAGE>
FIRSTQUOTE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable $ 680,286 $ 658,700
Accrued liabilities 150,407 102,274
Current portion of capital lease obligations 148,522 146,481
Advances/convertible loans from stockholders/related parties 1,000,000
Deferred income 158,049 170,808
----------- -----------
Total current liabilities 1,137,264 2,078,263
----------- -----------
LONG TERM CAPITAL LEASE OBLIGATIONS
Capital lease obligation, net of current portion 130,696 166,621
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, $0.001 par value,
10,000,000 shares authorized;
Class A: 18,500 and 68,500 shares issued and outstanding 19 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, 6,018 5,781
20,000,000 shares authorized; 6,018,309 and 5,781,309 shares
issued and outstanding
Additional paid-in capital 13,564,345 6,381,315
Cumulative translation adjustment 291,719 (148,610)
Accumulated deficit (8,418,847) (6,843,526
----------- -----------
Total stockholders' equity/(deficit) 5,448,962 (603,047)
----------- -----------
----------- -----------
Total Liabilities and Shareholders' Equity $ 6,716,922 $ 1,641,837
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
3
<PAGE>
FIRSTQUOTE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1999 1998
----------- ----------
(Unaudited) (Audited)
<S> <C> <C>
INCOME $ 260,404 $ 95,533
EXPENSES
Selling & Market Development Expenses 362,212 285,267
General & Administrative Expenses 999,908 573,248
----------- ----------
1,362,120 858,516
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OPERATING RESULT (1,101,716) (762,983)
OTHER INCOME AND EXPENSES
Interest Expense 24,425 (676)
Foreign Exchange Loss, net (498,030) (169,074)
----------- ----------
(473,6055) (169,751)
----------- ----------
NET LOSS (1,575,321) (932,734)
=========== ==========
Basic and diluted weighted average number of common shares 5,899,809 5,527,291
=========== ==========
Basic and diluted net loss per common share $ (0.27) $ (0.17)
=========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
4
<PAGE>
FIRSTQUOTE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1999 1998
(Unaudited) (Audited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,575,321) $ (932,734)
Adjustments to reconcile net loss to net cash used in operating activities:
Exchange loss 498,030 169,074
Depreciation and amortization 143,371 117,651
Provision for doubtful debtors 21,022 2,302
Interest accrued on loans payable - 5,417
Stock and stock options issued as compensation cost 31,250 -
Increase / decrease resulting from changes in:
Trade accounts receivable (50,351) (10,276)
Prepaid expenses and other receivables (37,551) (6,802)
Trade accounts payable 21,588 (105,397)
Accrued liabilities and provisions 48,133 (52,784)
Deferred income (12,759) 10,990
----------- ----------
Net cash used-in operating activities (912,587) (802,559)
CASH USED IN INVESTING ACTIVITIES:
Purchase of equipment (16,378) (52,630)
Other non-current asset expenditures (190,263) (2,831)
----------- ----------
Net cash used-in investing activities (206,642) (55,461)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Issuance of stock 7,007,000 -
Commission on issuance of stock (70,000) -
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 (33,885) (219,684)
----------- ----------
Net cash provided by financing activities 5,903,115 1,684,227
Effect of Exchange Rate Changes on Cash and cash equivalents (57,701) (39,747)
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,726,185 786,460
CASH AND CASH EQUIVALENTS AT BEGINNING 229,450 569,264
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CASH AND CASH EQUIVALENTS AT END $ 4,955,635 $1,355,724
----------- ----------
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
5
<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 March 31, 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 three months ended March
31, 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 three months ended March 31, 1999, 50,000 shares of Series A
Preferred stock were converted into 100,000 common shares.
During the three months ended March 31, 1999, the Company issued 2,000 shares of
its common stock upon the exercise of 2,000 warrants previously issued with the
Series A Preferred stock. The warrants are exercisable at $3.50.
During the three months ended March 31, 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.)
6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Background
The Company is engaged in the business of developing and providing various real-
time market data and financial information services as well as online dealing
capabilities via a range of client interfaces based on Internet technologies.
Its services are marketed under the brand name "FirstQuote". Its services are
available via its own wide-area Internet network by dial-up or dedicated access,
as well as from any other Internet access point. The Company also provides
related supporting network services to users of its financial information
services
Unless the context otherwise requires, all references to the Company include its
wholly owned subsidiary, 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.
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 of $260,404 was reported for the three months ended March 31, 1999 which
amounts to an increase of 173% over that of $95,533 for the corresponding prior
year quarter. Revenues in the first quarter of 1999 were 52% above those of the
fourth quarter of 1998. Revenue is comprised of financial market data services
and related network connectivity services, including web services. While market
data services related revenues accounted for 41% of total revenue for the prior
year, the relative importance of this source of revenue is increasing as the
Company's FirstQuote user base expands. Financial market data services accounted
for 56% of revenue for the first quarter of 1999.
Selling & Market Development expenses for the three months ended March 31, 1999
year were $362,212 or 27% above the amount of $285,267 for the corresponding
prior year quarter.
General and administrative expenses were $999,908 for the three months ended
March 31, 1999, an increase of 74% from $573,248 in the corresponding prior year
quarter. Staff costs represent the major component of this expense and have
increased 128% from $204,382 to $466,937. Operating expenses have increased 35%
from $190,753 to $258,238, and depreciation charges have increased by 22% from
$117,651 to $143,371.
The net loss for the three months ended March 31, 1999 was $1,575,321, which is
69% above the loss for the corresponding prior year quarter of $932,734.
The foreign exchange gains arise essentially from the revaluation of amounts due
by Virtual Telecom SA to Virtual Telecom Inc., which have been denominated in US
dollars.
7
<PAGE>
Liquidity and Financial Condition
As of March 31, 1999, the Company had working capital of $4,138,586 and
stockholders' equity of $5,448,961.
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 $1,000,000 due from a related party.
The Company has continued to generate negative cashflows since its cost base
exceeds its revenues from operating activities. The net cash burn rate during
the first quarter of 1999 was approximately $300,000 per month, which was lower
than the fourth quarter of 1998 due to increases in revenue.
Based on the current levels and trends of revenue and operating expenses, the
Company believes that it has sufficient capital to continue its activities for
the next twelve months. However, the plan of operations for the 1999 fiscal year
will require increases in the amounts of operating and capital expenditure above
those incurred to date. While revenues are similarly projected to increase
during the year, it is not certain that these revenues and the above-mentioned
financing will be sufficient to cover these expenditures until the time that a
breakeven situation may be achieved. 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 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.
8
<PAGE>
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, and the
processing of that information using software licensed to the Company by third
parties such as Townsend Analytics. 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 $25,000, 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 these parties
in order to assess further steps to be taken.
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
$20,000 of internal resources relating to a number of planned projects. The
further findings of this committee will be disclosed in due course.
No assurance can be given that any 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 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.
9
<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 to one of the parties, the Company paid a
finders' fee to a nonaffiliated 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.
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 From 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports of Form 8-K
Inapplicable.
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.
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(Registrant)
Dated: May 15, 1999 By /s/ Neil Gibbons
----------------
Neil Gibbons
Chief Executive Officer
/s/ Mark Benn
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Mark Benn
Chief Financial Officer
10
<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> MAR-31-1999
<CASH> 4,955,635
<SECURITIES> 0
<RECEIVABLES> 278,525
<ALLOWANCES> 33,745
<INVENTORY> 0
<CURRENT-ASSETS> 5,275,852
<PP&E> 1,873,020
<DEPRECIATION> 869,450
<TOTAL-ASSETS> 6,716,922
<CURRENT-LIABILITIES> 1,137,266
<BONDS> 0
0
5,727
<COMMON> 6,018
<OTHER-SE> 5,437,216
<TOTAL-LIABILITY-AND-EQUITY> 6,716,922
<SALES> 260,404
<TOTAL-REVENUES> 260,404
<CGS> 0
<TOTAL-COSTS> 1,362,120
<OTHER-EXPENSES> 473,605
<LOSS-PROVISION> 21,022
<INTEREST-EXPENSE> 4,189
<INCOME-PRETAX> (1,575,321)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,575,321)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
