<PAGE>
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
------------------------------------------------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended March 31, 1997
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from
-----------to------------
------------------------------------------------
Commission file number 0-13093
I.R.S. Employer Identification Number 36-3131704
PC QUOTE, INC.
(a Delaware Corporation)
300 S. WACKER
CHICAGO, ILLINOIS 60606
TELEPHONE (312) 913-2800
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 twelve months, (or
for such shorter period that the Company was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date: 7,365,254 shares of the
Company's common stock ($.001) par value) were outstanding as of May 13, 1997.
Page 1 of 10
<PAGE>
PC QUOTE, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Balance Sheets as of March 31, 1997 and
December 31, 1996 3
Statements of Operations for the three month period
ended March 31, 1997 and 1996. 4
Statements of Cash Flows for three month period
ended March 31, 1997 and 1996. 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of:
Results of Operations and Financial Condition 7-8
Liquidity and Capital Resources
PART II. OTHER INFORMATION
Item 5. Other Information 9
Item 6. Exhibit 27 9
Company's Signature Page 10
Page 2 of 10
<PAGE>
PC QUOTE, INC.
Balance Sheets
March 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
ASSETS (Unaudited) (Audited)
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $652,124 $1,321,512
Accounts receivable, net of allowance for doubtful
accounts of $425,095 (1997) and $234,000 (1996) 942,247 1,100,253
Income tax refunds receivable 40,000 40,000
Prepaid expenses and other current assets 154,456 185,071
------------- -------------
Total current assets 1,788,827 2,646,836
------------- -------------
PROPERTY AND EQUIPMENT:
Satellite receiving equipment 870,976 865,454
Computer equipment 6,474,280 6,382,179
Communication equipment 2,667,788 2,656,057
Furniture and fixtures 293,786 293,240
Leasehold improvements 366,326 359,126
------------- -------------
10,673,156 10,556,056
Less accumulated depreciation
and amortization 8,073,849 7,791,849
------------- -------------
2,599,307 2,764,207
------------- -------------
Software development costs, net of
accumulated amortization of
$4,005,204 (1997) and $3,600,204 (1996) 5,981,512 5,789,845
Deposits and other assets 404,937 353,182
------------- -------------
TOTAL ASSETS $10,774,583 $11,554,070
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Note payable, bank, current 300,000 300,000
Capital lease obligations 71,731 142,685
Accounts payable 3,015,121 1,774,390
Accrued expenses 845,198 918,918
Income Taxes Payable 6,264 6,264
Unearned revenue 978,455 995,600
------------- -------------
Total current liabilities 5,216,769 4,137,857
------------- -------------
Note payable to bank, noncurrent 1,025,000 1,100,000
Convertible Subordinated Debenture Bond Payable 918,250 850,000
Net of Unamortized Discount of $1,581,750
Unearned revenue, noncurrent 163,562 134,636
------------- -------------
Total liabilities 7,323,581 6,222,493
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STOCKHOLDERS' EQUITY:
Common stock, par value $.001; 10,000,000
shares authorized; 7,365,254 (1997) and 7,355,621
(1996) shares issued and outstanding 7,365 7,356
Paid in capital 12,636,166 12,615,995
Paid in Capital - Convertible Subordinated Debenture 1,650,000 1,650,000
Accumulated deficit (10,842,529) (8,941,774)
------------- -------------
Total stockholders' equity 3,451,002 5,331,577
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,774,583 $11,554,070
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PC QUOTE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------------
1997 1996
-------------------------------
NET REVENUES
Services $4,055,067 $3,974,483
Direct costs of services 3,438,699 1,841,770
------------- ---------------
616,368 2,132,713
------------- ---------------
OPERATING COSTS AND EXPENSES
Amortization of software development 405,000 240,000
Research and development 236,696 151,726
Selling and marketing 831,014 719,043
General and administrative 890,477 694,796
------------- ---------------
2,363,187 1,805,565
------------- ---------------
OPERATING INCOME (1,746,819) 327,148
OTHER INCOME (EXPENSE)
Interest income 9,342 1,227
Interest expense (163,278) (23,597)
------------- ---------------
NET INCOME(LOSS) ($1,900,755) $304,778
------------- ---------------
------------- ---------------
NET INCOME(LOSS) PER
------------- ---------------
COMMON SHARE ($0.26) $0.04
------------- ---------------
------------- ---------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
PC QUOTE, INC
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ($1,900,755) $304,778
--------------- -------------
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization of property and equipment 282,000 309,360
Amortization of software development cost 405,000 240,000
Amortization of discount on convertible subordinated
debenture bond payable 68,250 0
Changes in assets and liabilities:
Accounts receivable, net of allowance 158,006 (74,403)
Prepaid expenses and other current assets 30,615 111,623
Deposits and other assets (51,755) (65,173)
Accounts payable 1,240,731 (445,307)
Unearned revenue 11,781 (56,610)
Accrued expenses (73,720) 121,511
--------------- -------------
Total adjustments 2,070,908 141,001
--------------- -------------
Net cash provided by operating activities 170,153 445,779
--------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (117,100) (179,022)
Software development costs capitalized (596,667) (810,913)
--------------- -------------
Net cash used by investing activities (713,767) (989,935)
--------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 20,180 128,052
Principal payments under capital leases obligations (70,954) (162,814)
Principal payments on note payable to banks (75,000) (25,000)
Net borrowings under line of credit 0 500,000
--------------- -------------
Net cash used by financing activities (125,774) 440,238
--------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH & CASH EQUIVALENTS 0 0
--------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (669,388) (103,918)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 1,321,512 1,043,478
--------------- -------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $652,124 $939,560
--------------- -------------
--------------- -------------
- ---------------------------------------------------------------------------------- -------------
- ---------------------------------------------------------------------------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid $37,218 $23,597
Income taxes paid None None
- ---------------------------------------------------------------------------------- -------------
- ---------------------------------------------------------------------------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PC QUOTE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(1) BASIS OF PRESENTATION
The accompanying interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and in conjunction with the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The interim financial
statements include all adjustments that, in the opinion of management, are
necessary in order to make the financial statements not misleading. The
amounts indicated as "audited" have been extracted from the Company's
December 31, 1996 annual report. For further information, refer to the
consolidated financial statements and footnotes included in PC Quote's annual
report on Form 10-K for the year ended December 31, 1996. Certain
reclassifications have been made to conform to the current presentation.
Costs associated with the planning and designing phase of software
development, including coding and testing activities necessary to establish
technological feasibility of computer software products to be sold, leased or
otherwise marketed, are charged to research and development costs as
incurred. Once technological feasibility has been determined, costs incurred
in the construction phase of software development, including coding, testing
and product quality assurance, are capitalized.
Amortization is provided over an estimated life of the software products and
commences when the product is available for general release to customers.
Unamortized capitalized costs determined to be in excess of the net
realizable value of the product are expensed at the date of such
determination. It is reasonably possible that the estimated anticipated
future gross revenues, the remaining estimated economic life of the products,
or both will be reduced significantly in the near term. Accumulated
amortization and related software development costs are removed in the year
following full amortization.
(2) INCOME TAXES
At December 31, 1996, the Company had federal income tax net operating loss
carryforwards of approximately $12,059,000 federal income tax purposes and
approximately $9,794,000 for alternative minimum tax purposes. The net
operating loss carryforwards will expire in the years 1999 to 2011.
Page 6 of 10
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
FOR THE THREE MONTHS AND QUARTER ENDED MARCH 31, 1997
Service revenues for the first quarter ended March 31, 1997 increased 2% from
the first quarter in 1996. The increase in service revenues primarily
resulted from PCW 6.0 in the Company's core and internet businesses and the
sale of advertising on the internet. This change in business mix more than
offset the loss of two major customers that accounted for over 25% of last
year's first quarter revenue.
Direct costs increased for the quarter 86.7% from the first quarter in 1996.
Direct cost increases were partially due to the significant growth of the
internet operations, and the addition of customers on the PCW 6.0 product.
The principal areas of increases were leased equipment, royalties,
compensation and communication costs. These costs increased
disproportionately due to the change in business mix.
Research and development costs increased 56% for the quarter ended March 31,
1997 for the same quarter last year. The increase was due to additional
internet staffing over the prior year.
Selling and marketing costs increased 15.6% for the quarter ended March 31,
1997 from the same quarter last year. The increase was mainly due to
compensation and commissions.
General and administrative expenses increased 28% for the quarter ended
March 31, 1997. The main increases were due to an increase in the provision
for doubtful accounts and an increase in professional fees compared to the
same quarter in 1996.
Interest expense increased 592% for the three months ended March 31, 1997.
This reflects the increase in term loan amount outstanding and the $2.5
million convertible debenture issued in December 1996.
Page 7 of 10
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF
RESULT OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES:
FOR THE THREE MONTHS AND QUARTER ENDED MARCH 31, 1997
Although the company continued to generate positive cash flow from operating
activities due mainly to an increase in accounts payable of over $1.7
million, net cash provided declined by 62%. New equipment and capitalized
software costs were 28% lower than last year and no new direct borrowings
were incurred.
The Company's $1.0 million line of credit expired in February 1997. The
company is experiencing working capital constraints which has hindered
operations. To lessen such constraints, on May 5, 1997 the Company entered
into a loan and security agreement with its principal shareholder, PICO
Holdings ("PICO"), to provide working capital loans of up to $1.0 million. In
connection with the extension by PICO of such $1.0 million facility, the
Company and PICO restructured the terms of its $2.5 million subordinated
convertible debenture ("Debenture") and agreed that the contemplated Company
rights offering of 1.25 million shares to the Company's common stockholders
(other than PICO), at a price of $2.00 per share with PICO purchasing all
shares which remained unsubscribed, would occur at a time to be determined by
the Company and at a price to be determined by PICO.
The Company believes general inflation does not materially impact its sales
and operating results nor is it expected that the effect of existing tax
reform will significantly affect the Company's future position, liquidity or
operating results.
Page 8 of 10
<PAGE>
PART II. OTHER INFORMATION
ITEM 5.
OTHER INFORMATION
On May 5, 1997, the Company executed a Loan and Security Agreement (the
"Loan Agreement") with Physicians Insurance Company of Ohio ("PICO"), under
which PICO agreed to make a secured loan to the Company of up to $1,000,000.
Borrowings under the Loan Agreement bear interest at a fixed rate equal to
14% per annum, and are payable on September 30, 1997, the maturity date of
the loans. All advances under the Loan Agreement will be secured by a pledge
of substantially all the Company's assets, which liens are subject to the
prior lien of the Company's lender. The consummation of the loan transaction
is subject to the consent of the Company's lender.
At the time of the Loan Agreement, PICO was the beneficial owner of
3,396,400 shares of the Company's outstanding common stock which includes
1.25 million shares deliverable upon conversion of a $2.5 million Convertible
Subordinated Debenture purchased on November 27, 1996 (the "Debenture"). In
connection with the $1,000,000 Loan, the terms of the Debenture were amended.
The maturity date of the Debenture was changed from December 31, 2001 to
April 30, 1999, the Company's ability to prepay or redeem the Debenture was
eliminated, the conversion rate was changed from $2.00 per share to the
lesser of $1.56 per share (the market value on the date of the Loan
Agreement) or the average trading price of the Company's stock over the
twenty (20) trading days prior to conversion and certain restrictive
covenants were added to the Debenture.
In addition, the agreement made in connection with the sale of the
Subordinated Debenture was amended to provide that the contemplated Company
rights offering of 1.25 million shares to the Company's common stockholders
(other than PICO), at a price of $2.00 per share with PICO purchasing all
shares which remained unsubscribed, would occur at a time to be determined by
the Company and at a price to be determined by PICO.
The Company has also granted PICO a Common Stock Purchase Warrant for
640,000 shares. The Warrant is exercisable until April 30, 2000 at the lower
of $1.56 per share (the market value of the Company's common stock on the
date of the Agreement) or the average price per share during the fifteen
consecutive trading days preceding the exercise of the Warrant. The Warrant
also provides for certain anti-dilution protection, piggyback rights and a
one-time demand registration right.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT 27
(b) REPORT ON FORM 8-K - NONE
Page 9 of 10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the Company caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
PC QUOTE, INC.
Date: May 20, 1997 By: /s/ Louis J. Morgan
--------------------
Louis J. Morgan
Chairman and Treasurer
By: /s/ Michael A. Press
--------------------
Michael A. Press
Chief Financial Officer
Page 10 of 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 652,124
<SECURITIES> 0
<RECEIVABLES> 942,247
<ALLOWANCES> 425,095
<INVENTORY> 0
<CURRENT-ASSETS> 1,788,827
<PP&E> 10,673,156
<DEPRECIATION> 8,073,849
<TOTAL-ASSETS> 10,774,583
<CURRENT-LIABILITIES> 5,216,769
<BONDS> 1,025,000
0
0
<COMMON> 7,365
<OTHER-SE> 3,443,637
<TOTAL-LIABILITY-AND-EQUITY> 10,774,583
<SALES> 4,055,067
<TOTAL-REVENUES> 4,055,067
<CGS> 3,438,699
<TOTAL-COSTS> 3,438,699
<OTHER-EXPENSES> 2,363,187
<LOSS-PROVISION> 195,000
<INTEREST-EXPENSE> 163,278
<INCOME-PRETAX> (1,900,755)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,900,755)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
