<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 June 30, 1998
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: 13,288,677 shares of the Company's
common stock ($.001 par value) were outstanding as of July 28, 1998.
Page 1
<PAGE>
PC QUOTE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. Financial Information
Item 1. Balance Sheets as of June 30, 1998 and
December 31, 1997 3
Statements of Operations for the six month periods
ended June 30, 1998 and 1997 5
Statements of Operations for the three month periods
ended June 30, 1998 and 1997 6
Statements of Cash Flows for six month periods
ended June 30, 1998 and 1997 7
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis of:
Results of Operations and Financial Condition 14
Liquidity and Capital Resources 15
PART II. Other Information
Item 2. Changes in Securities 17
Item 6. Exhibits and Reports on Form 8-K 18
Company's Signature Page 19
</TABLE>
Page 2
<PAGE>
PC QUOTE, INC.
BALANCE SHEETS
JUNE 30, 1998 and DECEMBER 31, 1997
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 28,346 $ 1,113,130
Accounts receivable, net of allowance for
doubtful accounts of: 1998: $460,827; 1997:
$346,000 1,824,819 1,435,450
Prepaid expenses and other current assets 134,338 61,981
----------- ------------
Total current assets 1,987,503 2,610,561
----------- ------------
PROPERTY AND EQUIPMENT
Satellite receiving equipment 921,392 895,126
Computer equipment 7,472,649 7,266,576
Communication equipment 2,875,223 2,716,415
Furniture and fixtures 314,208 293,240
Leasehold improvements 366,325 366,325
----------- ------------
11,949,797 11,537,682
Less: Accumulated depreciation and amortization 9,630,589 9,035,571
----------- ------------
2,319,208 2,502,111
----------- ------------
OTHER ASSETS
Software development costs, net of accumulated
amortization of: 1998: $4,280,059; 1997:
$5,045,080 5,116,585 5,126,473
Deposits and other assets 259,090 297,303
----------- ------------
TOTAL ASSETS $ 9,682,386 $10,536,448
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
PC QUOTE, INC.
BALANCE SHEETS (CONTINUED)
JUNE 30, 1998 and DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31,
1998 1997
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Note payable, bank, current $ 300,000 $ 300,000
Convertible subordinated debenture bond payable 2,500,000 -
Note payable, credit facility 2,250,000 2,250,000
Accounts payable 3,952,391 2,834,460
Accrued expenses 478,825 604,916
Accrued compensation 418,854 618,289
Accrued interest 665,007 388,253
Income taxes payable - 5,192
Unearned revenue, current 1,109,287 635,275
------------ ------------
Total current liabilities 11,674,364 7,636,385
------------ ------------
LONG-TERM LIABILITIES
Note payable, bank, noncurrent 649,634 799,634
Convertible subordinated debenture bond payable,
net of unamortized discount of $1,096,402 - 1,403,598
Unearned revenue, noncurrent 342,496 442,953
Accrued expenses, noncurrent 174,334 187,549
------------ ------------
Total long-term liabilities 1,166,464 2,833,734
------------ ------------
TOTAL LIABILITIES 12,840,828 10,470,119
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $.001; 50,000,000
shares authorized: 1998: 13,197,166 and
1997: 12,436,800 shares issued and
outstanding 13,197 12,437
Additional paid-in capital 18,408,290 17,386,591
Additional paid-in capital - convertible subordinated
debenture and warrants 2,750,491 2,750,491
Accumulated deficit (24,330,420) (20,083,190)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (3,158,442) 66,329
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 9,682,386 $ 10,536,448
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE>
PC QUOTE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue
Satellite and terrestrial services $ 6,207,232 $ 6,168,190
Internet products and services 4,529,073 2,058,214
------------ ------------
Total revenue 10,736,305 8,226,404
------------ ------------
Operating expenses
Operations and customer service 4,238,967 4,073,117
License and exchange fees 2,954,842 2,181,202
Sales 2,390,496 1,703,071
Depreciation and amortization 1,572,018 1,395,114
General and administrative 1,635,345 2,454,454
Product and market development 784,260 818,150
Restructuring expense - 1,146,647
------------ ------------
Total operating expenses 13,575,928 13,771,755
------------ ------------
Loss from operations (2,839,623) (5,545,351)
Other income (expense)
Interest income 11,956 13,134
Interest expense (1,419,563) (554,059)
------------ ------------
Net loss ($4,247,230) ($6,086,276)
------------ ------------
------------ ------------
Net basic and diluted loss per common share ($0.34) ($0.83)
Shares used in computing net basic and diluted
loss per common share 12,615,262 7,360,807
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5
<PAGE>
PC QUOTE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
-----------------------------------
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue
Satellite and terrestrial services $ 3,186,985 $ 3,049,883
Internet products and services 2,564,126 1,121,454
----------- -----------
Total revenue 5,751,111 4,171,337
----------- -----------
Operating Expenses
Operations and customer service 2,090,988 1,827,034
License and exchange fees 1,581,746 1,288,738
Sales 1,288,380 1,036,923
Depreciation and amortization 763,634 708,114
General and administrative 908,703 1,517,737
Product and market development 432,172 444,646
Restructuring expense - 1,146,677
----------- -----------
Total operating expenses 7,065,623 7,969,869
----------- -----------
Loss from operations (1,314,512) (3,798,532)
Other Income (Expense)
Interest income 4,294 3,792
Interest expense (1,055,524) (390,781)
----------- -----------
Net loss ($2,365,742) ($4,185,521)
----------- -----------
----------- -----------
Net basic and diluted loss per common share ($0.19) ($0.57)
Shares used in computing net basic and diluted
loss per common share 12,749,435 7,355,843
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 6
<PAGE>
PC QUOTE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss ($4,247,230) ($6,086,276)
Adjustments to reconcile net loss to cash
used in operating activities
Depreciation and amortization of property
and equipment 595,018 564,000
Amortization of software development costs 977,000 831,114
Amortization of deferred debt on warrants - 177,830
Amortization of discount on convertible
subordinated debenture bond payable 1,096,402 136,079
Write-off of capitalized software development costs - 571,647
Changes in assets and liabilities:
Accounts receivable, net of allowance (389,369) 82,186
Income tax refunds receivable - 40,000
Prepaid expenses and other current assets (72,357) 17,775
Deposits and other assets 38,213 (81)
Accounts payable 1,117,931 2,028,286
Accrued expenses (67,179) 854,503
Unearned revenue 373,555 156,753
----------- -----------
Net cash used in operating activities (578,016) (626,184)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (412,115) (142,152)
Software development costs capitalized (967,112) (783,810)
----------- -----------
Net cash used in investing activities (1,379,227) (925,962)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 4,011,408 20,180
Repurchase of common stock (2,988,949)
Net borrowings under credit facility - 740,000
Principal payments under capital lease obligations - (120,837)
Principal payments on note payable, bank (150,000) (150,000)
----------- -----------
Net cash provided by financing activities 872,459 489,343
----------- -----------
Net decrease in cash and cash equivalents (1,084,784) (1,062,803)
Cash and cash equivalents:
Beginning of period 1,113,130 1,321,512
----------- -----------
End of period $ 28,346 $ 258,709
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid $ 46,407 $ 142,419
Income taxes paid $ 3,480 None
Supplemental disclosures of non-cash investing
transactions and financing activities
Additional paid-in-capital from issuance of warrants $ 470,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 8
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
(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, 1997 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, 1997.
SOFTWARE DEVELOPMENT COSTS: 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 product 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 commences at the time of capitalization or, in the case of a new
product or service offering, at the time the new product or service becomes
available for use. Unamortized capitalized costs determined to be in excess of
the net realizable value of the product are expensed at the date of such
determination. The accumulated amortization and related software development
costs are removed from the respective accounts effective in the year following
full amortization.
PC Quote, Inc.'s policy is to amortize capitalized software costs by the
greater of (a) the ratio that current gross revenue for a product bears to the
total of current and anticipated future gross revenue for that product or (b)
the straight line method over the remaining estimated economic life of the
product including the period being reported on, principally three to five
years. The Company assesses the recoverability of its software development
costs against estimated future undiscounted cash flows. Given the highly
competitive environment and technological changes it is reasonably possible
that those estimates of anticipated future gross revenue, the remaining
estimated economic life of the product, or both may be reduced significantly.
FINANCIAL INSTRUMENTS: The Company has no financial instruments for which the
carrying value materially differs from fair value.
INCOME TAXES: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Page 9
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
REVENUE RECOGNITION: Revenue from service contracts is recognized as the
contracted services are rendered. The Company bills for services one month in
advance; billings are due within 30 days. The unearned revenue has been
reflected net of the related receivable on the balance sheet. Customers'
deposits or prepayments are classified as unearned revenue. Customers' deposits
on contracts greater than one year are classified as non-current unearned
revenue.
(2) RECLASSIFICATIONS
The statement of operations has been modified to enhance information to the
shareholder. The 1997 statements of operations have been reclassified to conform
with the 1998 presentation.
(3) INCOME TAXES
At December 31, 1997, the Company had federal income tax net operating loss
carryforwards of approximately $23,183,315 for federal income tax purposes and
approximately $20,387,000 for alternative minimum tax purposes. The future
utilization of these net operating losses will be limited due to changes in
Company ownership. The net operating loss carryforwards will expire, if not
previously utilized, in the years 1999 to 2012.
(4) FINANCING AND RELATED PARTY TRANSACTIONS
On November 14, 1996, the Company entered into an agreement (the "Debenture
Agreement") with Physicians Insurance Company of Ohio, ("PICO"), which then
owned approximately 30% of the Company's outstanding shares of Common Stock.
Pursuant to the Debenture Agreement, PICO invested $2.5 million in the Company
in exchange for a Subordinated Convertible Debenture (the "Debenture") in the
principal amount of $2.5 million with interest at 1% over prime. Interest is
payable semiannually, beginning January 1, 1998. PICO made the investment and
the Debenture was issued on December 2, 1996. The Debenture was to mature on
December 31, 2001 and was convertible at any time by PICO into 1.25 million
shares of Common Stock of the Company (subject to adjustment in certain cases).
On May 5, 1997, the Company and PICO Holdings, Inc. ("Holdings") entered into a
Loan and Security Agreement (the "Loan Agreement"), under which Holdings agreed
to make a secured loan to the Company in an aggregate principal amount of up to
$1.0 million at a fixed rate equal to 14% per annum. Unless otherwise extended,
the entire principal balance and all accrued interest due under the Loan
Agreement were payable on September 30, 1997. All advances under the Loan
Agreement are secured by a pledge of substantially all of the assets of the
Company. These liens are subject to the prior lien of the Company's primary
lender, Lakeside Bank. Holdings was also entitled to be paid a "facility fee"
of $40,000 on the maturity date of the loan contemplated by the Loan Agreement.
Page 10
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
In connection with the Loan Agreement, the Company and PICO entered into a
First Amendment to the Debenture (the "Debenture Amendment"), pursuant to which
the terms of the Debenture were restructured as follows: (a) the maturity date
of the Debenture is now April 30, 1999 instead of December 31, 2001: (b) the
Debenture may not be prepaid or redeemed without the consent of PICO; (c) the
conversion rate on the Debenture was changed from $2.00 per share to the lower
of (i) the mean of the closing bid price per share for the 20 trading days
preceding exercise of the Debenture or (ii) $1.5625 per share (the market price
of the Company's Common Stock on the date of the Debenture Amendment); and (d)
certain negative covenants were added to the Debenture Agreement. Interest under
the Debenture continues to be payable in cash or, at the option of PICO, in
shares of the Company's Common Stock.
Also on May 5,1997, in consideration of the loan by Holdings to the Company,
the Company issued a Common Stock Purchase Warrant (the "Warrant") to Holdings
entitling Holdings to purchase a minimum of 640,000 shares of the Company's
Common Stock at a price per share (the "Warrant Price") equal to the lesser of
(a) the mean of the closing bid price per share for the 20 trading days
preceding exercise of the Warrant or (b) $1.5625 per share (the market value of
the Company's Common Stock on the date the Warrant was issued). The Warrant
expires on April 30, 2000. In lieu of exercising the Warrant for cash, Holdings
may elect to receive shares of the Company's Common Stock equal to the "value"
of the Warrant determined in accordance with a formula specified in the Warrant
(the "Conversion Value"). The number of shares of the Company's Common Stock
subject to the Warrant and the Warrant Price will be adjusted to reflect stock
dividends; reclassifications or changes of outstanding securities of the
Company; any consolidation, merger or reorganization of the Company; stock
splits; issuances of rights, options or warrants to all holders of shares of
the Company's Common Stock exercisable at less than the current market price
per share; and other distributions to all holders of shares of the Company's
Common Stock. In the event of any sale, license or other disposition of all or
substantially all of the assets of the Company or any reorganization,
consolidation or merger involving the Company in which the holders of the
Company's securities before the transaction beneficially own less than 50% of
the outstanding voting securities of the surviving entity (an "Acquisition"),
if the successor entity does not assume the obligations of the Warrant and
Holdings has not fully exercised the Warrant, the unexercised portion of the
Warrant will be deemed automatically converted into shares of the Company's
Common Stock at the Conversion Value. Alternatively, Holdings may elect to
cause the Company to purchase the exercised portion of the Warrant for cash
upon the closing of any Acquisition for an amount equal to (a) the fair market
value of any consideration that would have been received had Holdings exercised
the unexercised portion of the Warrant immediately before the record date for
determining stockholders entitled to participate in the proceeds of the
Acquisition, less (b) the aggregate Warrant Price. The Warrant also provides
for certain piggyback registration rights and a one-time demand registration
right.
Page 11
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
In August 1997, the Company and Holdings agreed to amend the Loan Agreement and
related documents to increase the amount of the secured loan from Holdings to
the Company from $1.0 million up to $2.0 million. The terms of the Loan
Agreement otherwise remained substantially the same, except that the "facility
fee" of $40,000 was eliminated for new advances. In connection with the
increase of the loan amount pursuant to such amendment, the Company granted
Holdings an additional Common Stock Purchase Warrant for a minimum of 500,000
shares of the Company's Common Stock. The terms of the additional warrant are
substantially the same as those contained in the Warrant, except that the
conversion price is the lesser of (a) $2.00 per share or (b) the mean of the
closing bid price per share for the 20 trading days preceding exercise of the
additional warrant. The additional warrant also provides for certain piggyback
registration rights and a one-time demand registration right.
On September 22, 1997 the Company and Holdings executed a second amendment to
the Loan Agreement to further increase the amount of the secured loan from
Holdings to the Company from $2.0 million to $2.25 million. The terms of the
Loan Agreement otherwise remained substantially the same, except that the
maturity date was extended to December 31, 1997. In consideration of the
amendment to the Loan Agreement, the Company granted Holdings another Common
Stock Purchase Warrant for up to 129,032 shares of Common Stock. The terms of
such warrant are substantially the same as contained in the Warrant, except
that the conversion price is the lesser of (a) $1.9375 per share or (b) the
mean of the closing bid price per share for the 20 trading days preceding
exercise of this warrant. This warrant also provides for certain piggyback
registration rights and a one-time demand registration right.
On December 30, 1997, February 5, 1998, March 10, 1998, May 5, 1998, and June
1, 1998, the Company and Holdings executed the third, fourth, fifth, sixth and
seventh amendments to the Loan Agreement, respectively, extending the due
date for borrowings by the Company, plus accrued interest, to January 31,
1998, February 28, 1998, April 30, 1998, May 30, 1998 and August 31, 1998,
respectively. No further warrants were issued in connection with the third,
fourth, fifth, sixth or seventh amendments to the loan agreement.
In October 1997 Imprimis Investors LLC and Wexford Spectrum Investors LLC
(collectively, the "Wexford Affiliates") purchased five million shares of
Common Stock and warrants to purchase five hundred thousand shares of Common
Stock at an exercise price of $2.00 per share, exercisable at any time prior to
October 15, 2002 (the "Initial Warrants"), in exchange for $5.0 million.
On May 19, 1998 Holdings exercised 320,000 Warrants and purchased 320,000
shares of Common Stock of the Company for $500,000.
The Wexford Affiliates acquired the Common Stock and the Warrants for
investment purposes pursuant to a certain Stock and Warrant Purchase Agreement
dated October 15, 1997, between PC Quote and the Wexford Affiliates (the
"Purchase Agreement"). Up to four million of the shares of Common Stock
purchased by the Wexford Affiliates were subject to repurchase by PC Quote at a
purchase price of $1.00 per share pursuant to the terms of the Purchase
Agreement (the "Repurchase"). Pursuant to the terms of the Purchase Agreement,
PC Quote was required to use its best efforts to consummate the Repurchase from
the proceeds of a rights offering.
Page 12
<PAGE>
PC QUOTE, INC.
NOTES TO FINANCIAL STATEMENTS
On October 31, 1997 the Company filed a Form S-2 Registration Statement with
the Securities and Exchange Commission in contemplation of the rights offering.
The Registration Statement was amended on November 20, 1997 and became
effective on November 21, 1997. The Company distributed 7,402,246 transferable
subscription rights to shareholders of record as of the close of business on
November 21, 1997, entitling them to purchase one additional share of Common
Stock for each right at a price of $1.00 per share.
On January 23, 1998, the Company completed the rights offering. The Company
received approximately $3.0 million in gross proceeds from the sale of shares
underlying exercised rights. Pursuant to the Purchase Agreement, the entire
proceeds were used to fulfill the Company's obligation to repurchase shares
from the Wexford Affiliates, and the Additional Warrants reverted back to the
Company.
During the second quarter of 1998, the Wexford Affiliates exercised 143,300
Warrants and purchased 143,300 shares of Common Stock of the Company for
$286,600.
(5) SUBSEQUENT EVENTS
On July 24, 1998 the Company and Holdings executed the eighth amendment to
the Loan Agreement to extend the due date for the borrowings by the Company,
plus accrued interest, from August 31, 1998 to December 31, 1998.
On July 31, 1998 the Company and Holdings executed the ninth amendment to the
Loan Agreement to further increase the amount of the secured loan from
Holdings to the Company from $2.25 million to $3.25 million. No further
warrants were issued in connection with the eighth or ninth amendments.
Page 13
<PAGE>
PART I. ITEM 2
Management's Discussion and Analysis of
Results of Operations and Financial Condition
INTRODUCTION - SAFE HARBOR DISCLOSURE
The statements made herein that are not historical facts may contain
forward-looking information that involve substantial risks and uncertainties.
The Company's actual results, performance or achievements could differ
materially from the results, performance or achievements expressed in, or
implied by, these forward-looking statements. Among the factors that could
cause or contribute to such differences are those set forth in the Company's
filings with the Securities and Exchange Commission and include the Company's
ability to (i) obtain adequate financing to continue as a going-concern and
fund its current and future business strategies, (ii) attract and retain its
key employees, (iii) compete successfully against competitive products and
services, (iv) pay, recapitalize, refinance, or extend the up to $3.25
million loan from PICO Holdings, Inc. on or before December 31, 1998, (v)
maintain its relationships with key suppliers and providers of market data,
and (vi) the effect of economic and business conditions generally.
RESULTS OF OPERATIONS:
FOR THE SIX MONTHS AND QUARTER ENDED JUNE 30, 1998
Total revenue increased 31% to $10,736,000 for the six months ended June 30,
1998, and 38% to $5,751,000 for the quarter ended June 30, 1998 versus the
comparable prior year periods. The increase is the result of continued growth
in the Company's Internet product and service offerings, which accounted for
42% of total revenue for the six month period, a 120% increase over the first
six months of 1997, and 45% of total revenue for the quarter, a 129% increase
over the quarter ended June 30, 1997. Satellite and Terrestrial Service
revenue increased 1% for the six months ended June 30, 1998 and 4% for the
quarter ended June 30, 1998 as compared to the same periods in the prior
year. The increase is due to the addition of new satellite customers, as well
as an increase in services for existing customers.
Total Operating Expenses decreased 1.4% to $13,576,000 for the six months
ended June 30, 1998 from $13,772,000 for the comparable 1997 period, and
decreased 11% to $7,066,000 for the quarter ended June 30, 1998 as compared
to $7,970,000 for the comparable 1997 period. Increases in License and
Exchange Fees, Sales expenses, Operations and Customer Services and non-cash
charges for Depreciation and Amortization were offset by decreases in General
and Administrative, Product and Market Development costs and Restructuring
expenses for the six months and quarter ended June 30, 1998 compared to prior
year periods. In June 1997, the Company underwent a significant management
reorganization and restructuring of operations. As a result, for the six
months and quarter ended June 30, 1997 the Company wrote off approximately
$572,000 of unamortized software development costs for previously capitalized
software projects that were discontinued. The management reorganization in
1997 resulted in the Company incurring employment related termination costs
of $425,000 and $150,000 was paid to terminate a contractual arrangement
related to unprofitable operations. For the six months and quarter ending
June 30, 1998, there were no such restructuring charges incurred.
Costs of Operations and Customer Service increased 4% and 14% for the six
months and quarter ended June 30, 1998, respectively, over the same periods
in 1997. The changes reflect increases in Internet access and service
provider costs and the cost of additional personnel required to service and
support the Company's subscriber growth.
License and Exchange Fees for the six months and quarter ended June 30, 1998
increased 35% and 23%, respectively, from the same periods in 1997.
The increase is a result of the growth in revenue and subscribers.
Page 14
<PAGE>
PART I. ITEM 2
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Sales expenses increased 40% and 24%, respectively, for the six months and
quarter ended June 30, 1998 over the same periods in 1997. The increase is
due to compensation costs for additional sales personnel hired in December
1997 and January 1998, higher total commission payments directly attributable
to increased sales, and an increase in advertising expenses.
Depreciation and Amortization for the six months and quarter ended June 30,
1998 increased 13% and 8%, respectively, over the same periods in 1997. The
increase reflects the Company's decision to amortize and depreciate new
capitalized software projects and computer equipment purchases over a three
versus five year period, in addition to the commencement of amortization of
previously capitalized software costs related to the release of new product
and service offerings in 1998.
General and Administrative expenses decreased 33% and 40%, respectively, for
the six months and the quarter ended June 30, 1998 from the same periods in
1997. The decrease is attributable to reductions in i) compensation costs, as
a result of the management restructuring that occurred in June of last year,
ii) professional fees due to lower utilization of outside assistance, and
iii) bad debt expense, as a result of increased collection efforts.
Product and Market Development expenses were essentially unchanged for the six
months and quarter ending June 30, 1998 as compared to the same periods for
1997.
Interest expense increased 156% and 170% for the six months and quarter ended
June 30, 1998 as compared to the same periods in 1997. The primary reason
for the increase is the acceleration of the convertible debenture
amortization due to the potential conversion of the debenture to equity.
During the quarter ended June 30, 1998 a total of $892,945 was charged to
interest expense relating to the amortization or the convertible subordinated
debenture. In addition, the increase reflects the interest payable for
borrowings on the credit facility, which was established in May 1997 and
increased in August 1997 and September 1997.
LIQUIDITY AND CAPITAL RESOURCES:
FOR THE SIX MONTHS AND QUARTER ENDED JUNE 30, 1998
Net cash and cash equivalents declined $1,085,000 from year-end 1997 to
$28,346 at the end of June 30, 1998. Expenditures for new equipment were
$412,000, $270,000, or 190%, higher for the first six months of 1998 versus
1997 as operating cash was used to effect new purchases. Capitalized software
costs of $967,000 were $183,000, or 23%, higher for the six months ended June
30, 1998, compared to the same period for 1997. Although the Company
decreased its overhead allocation to capitalizable projects, there was an
increase in development resources devoted to the construction phase of new
systems and products. There were no new direct borrowings during the period,
and the Company repaid $150,000 of the principal balance on the bank term
loan. The Company received approximately $4.0 million in net proceeds from
(i) the sale of shares of Common Stock underlying rights exercised pursuant
to its rights offering, (ii) the purchase of Common Stock by PICO Holdings
and the Wexford Affiliates through exercise of previously issued warrants
(iii) the sale of shares of Common Stock to employees pursuant to the
Company's Employee Stock Purchase Plan (iv) the sale of shares of Common
Stock to employees who exercised options previously granted to them under the
Company's Employee Incentive Stock Option Plan, and (v) the issuance of
shares to the Chairman and CEO in lieu of cash payment for deferred and
current compensation. The Company repurchased 2,988,949 shares of its Common
Stock, at one dollar per share, from Imprimis Investors LLC and Wexford
Spectrum Investors LLC (collectively, the "Wexford Affiliates"), fulfilling
its obligation under its October 1997 Stock and Warrant Purchase Agreement
with the Wexford Affiliates. Agreements were reached with various vendors to
extend payments under negotiated payment plans.
Page 15
<PAGE>
PART I. ITEM 2
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Due to the decline in cash flow to levels expected to be insufficient for
working capital, capital expenditures, and debt services, the Company is
exploring multiple alternatives available to the Company, for the purposes of
raising capital to fund operations and enhancing shareholder value. On July
31,1998 the Company increased its borrowings under the Loan Agreement by $1.0
million pursuant to the ninth amendment to the Loan Agreement. Additionally,
the Company and PICO Holdings are negotiating terms for the conversion of the
convertible subordinated debenture, the borrowing under the Loan Agreement
(including the $1.0 million borrowed on July 31, 1998) and related accrued
interest into convertible preferred shares. There can be no assurances,
however, that the Company will be successful in concluding such a transaction.
The Company anticipates that any agreement would be subject to shareholder
approval.
The Company continues to explore additional alternatives to fund operations
and enhance shareholder value. Such alternatives include a merger, a
spin-off or sale of part of the Company's business, a strategic relationship
or joint venture with another technology or financial service firm or other
financing to further fund the Company's business. Any capital raised may be
costly to the Company and/or dilutive to stockholders. There can be no
assurances, however, that the Company will be successful in concluding a
transaction, or that if a transaction is concluded that such transaction will
result in alleviating the Company's present financial situation. If the
Company is not able to secure additional capital, the lack of funds may
significantly limit the Company's ability to realize value from its assets
and its product offerings, and its ability to continue its business as
currently conducted.
Page 16
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In October 1997 Imprimis Investors LLC and Wexford Spectrum Investors LLC
(collectively, the "Wexford Affiliates") purchased five million shares of
Common Stock and warrants to purchase five hundred thousand shares of Common
Stock at an exercise price of $2.00 per share, exercisable at any time prior to
October 15, 2002 (the "Initial Warrants"), in exchange for $5.0 million.
The Wexford Affiliates acquired the Common Stock and the Warrants for
investment purposes pursuant to a certain Stock and Warrant Purchase Agreement
dated October 15, 1997, between PC Quote and the Wexford Affiliates (the
"Purchase Agreement"). Up to four million of the shares of Common Stock
purchased by the Wexford Affiliates were subject to repurchase by PC Quote at a
purchase price of $1.00 per share pursuant to the terms of the Purchase
Agreement (the "Repurchase"). Pursuant to the terms of the Purchase Agreement,
PC Quote was required to use its best efforts to consummate the Repurchase from
the proceeds of a rights offering. In the event that the rights offering was
not completed on or prior to January 24, 1998, the Wexford Affiliates would
have been entitled to receive, out of escrow, warrants to purchase an
additional 250,000 shares of Common Stock with the same terms as the Initial
Warrants and, in the event the Rights Offering was not completed on or prior to
February 28, 1998, the Wexford Affiliates would have been entitled to receive,
out of escrow, warrants to purchase an additional 250,000 shares of Common
Stock with the same terms as the Initial Warrants (together the "Additional
Warrants").
On October 31, 1997 the Company filed a Form S-2 Registration Statement with
the Securities and Exchange Commission in contemplation of the rights offering.
The Registration Statement was amended on November 20, 1997 and became
effective on November 21, 1997. The Company distributed 7,402,246 transferable
subscription rights to shareholders of record as of the close of business on
November 21, 1997, entitling them to purchase one additional share of Common
Stock for each right at a price of $1.00 per share.
On January 23, 1998 the Company completed the rights offering and issued
2,988,953 shares of Common Stock underlying rights exercised pursuant to the
rights offering. The Company repurchased 2,988,949 shares of its Common Stock,
at one dollar per share, from Imprimis Investors LLC and Wexford Spectrum
Investors LLC (collectively, the "Wexford Affiliates"), fulfilling its
obligation under the Purchase Agreement, and the Additional Warrants reverted
back to the Company.
On May 19, 1998 PICO Holdings, Inc. exercised 320,000 warrants and purchased
320,000 shares of the Company's Common Stock for $500,000. During May and
June 1998 the Wexford Affiliates exercised 143,300 warrants and purchased
143,300 shares of the Company's Common Stock for $286,600.
During the first six months of 1998, the Company issued 167,436 shares of its
Common Stock to employees, who purchased the shares pursuant to the Company's
Employee Stock Purchase Plan.
During the second quarter ended June 30, 1998, 93,200 shares of the Company's
Common Stock were purchased by employees who exercised stock options granted
to them under the Company's Employee Incentive Stock Option Plan.
In June 1998 the Chairman and Chief Executive Officer and the Board Of
Directors of the Company agreed that in lieu of cash for payments previously
deferred and current salary due to the Chairman and C.E.O., the Company would
issue and the Chairman would receive shares of Common Stock of the Company at
the market price. A total of 36,326 shares were issued pursuant to this
agreement.
Page 17
<PAGE>
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS and REPORTS on FORM 8-K
(a) FINANCIAL STATEMENTS
The financial statements of the Company are filed herewith in Item 1 of this
report.
(b) REPORTS ON FORM 8-K
No Reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1998.
(c) EXHIBITS
4(a) Form of Seventh Amendment to Loan and Security Agreement dated as of
July 16, 1998 between the Company and PICO Holdings, Inc., located at the end
of this Report.
4(b) Form of Amendment No. 3 to the Amendment of the Convertible Subordinated
Debenture Agreement, dated as of July 16, 1998, located at the end of this
Report.
4(c) Form of Eighth Amendment to Loan and Security Agreement dated as of July
24, 1998 between the Company and PICO Holdings, Inc., located at the end of
this Report.
4(d) Form of Amendment No. 4 to the Amendment of the Convertible Subordinated
Debenture Agreement, dated as of July 24, 1998, located at the end of this
report.
4(e) Form of Ninth Amendment to Loan and Security Agreement dated as of July
31, 1998 between the Company and PICO Holdings, Inc., located at the end of
this Report.
27. Financial Data Schedule
Page 18
<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: August 14, 1998
By: /s/ Jim R. Porter
-----------------
Jim R. Porter
Chairman and Chief Executive Officer
By: /s/ John E. Juska
-----------------
John E. Juska
Chief Financial Officer
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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