-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J8fkjk7jgTp6iuVf9cZZ978HvjlNi2SSEvDlpOyYY5L0nTKykofGSLCbLqdNZ/ta q4Ze0qOCeAUSIQa31LMKsg== 0001047469-98-019517.txt : 19980513 0001047469-98-019517.hdr.sgml : 19980513 ACCESSION NUMBER: 0001047469-98-019517 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PC QUOTE INC CENTRAL INDEX KEY: 0000745774 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 363131704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11108 FILM NUMBER: 98617225 BUSINESS ADDRESS: STREET 1: 300 S WACKER DR STREET 2: STE 300 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129132800 MAIL ADDRESS: STREET 1: 300 S WACKER STREET 2: SUITE 300 CITY: CHICAGO STATE: IL ZIP: 60606 10-Q 1 10-Q 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, 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: 12,502,164 shares of the Company's common stock ($.001 par value) were outstanding as of May 9, 1998. Page 1 PC QUOTE, INC. INDEX PAGE PART I. Financial Information Item 1. Balance Sheets as of March 31, 1998 and December 31, 1997 3 Statements of Operations for the three month periods ended March 31, 1998 and 1997 4 Statements of Cash Flows for three month periods ended March 31, 1998 and 1997 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of: Results of Operations and Financial Condition 11 Liquidity and Capital Resources 12 PART II. Other Information Item 2. Changes in Securities 14 Item 6. Exhibits and Reports on Form 8-K 15 Company's Signature Page 16 Page 2
PC QUOTE, INC. BALANCE SHEETS MARCH 31, 1998 AND DECEMBER 31, 1997 MARCH 31, DECEMBER 31, 1998 1997 ASSETS (UNAUDITED) (AUDITED) ----------- ------------ CURRENT ASSETS Cash and cash equivalents $363,820 $1,113,130 Accounts receivable, net of allowance for doubtful accounts of: 1998: $450,000; 1997: $346,000 1,556,897 1,435,450 Prepaid expenses and other current assets 58,973 61,981 ----------- ------------ TOTAL CURRENT ASSETS 1,979,690 2,610,561 ----------- ------------ PROPERTY AND EQUIPMENT Satellite receiving equipment 900,396 895,126 Computer equipment 7,381,616 7,266,576 Communication equipment 2,830,688 2,716,415 Furniture and fixtures 314,208 293,240 Leasehold improvements 366,325 366,325 ----------- ------------ 11,793,233 11,537,682 Less accumulated depreciation and amortization 9,323,955 9,035,571 ----------- ------------ 2,469,278 2,502,111 ----------- ------------ OTHER ASSETS Software development costs, net of accumulated amortization of: 1998: $5,565,080; 1997: $5,045,080 5,140,350 5,126,473 ----------- ------------ Deposits and other assets 276,207 297,303 ----------- ------------ TOTAL ASSETS $ 9,865,525 $10,536,448 ----------- ------------ ----------- ------------ March 31, December 31, 1998 1997 LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) (Audited) ----------- ------------ CURRENT LIABILITIES Note payable, bank, current $300,000 $300,000 Note payable, credit facility 2,250,000 $2,250,000 Accounts payable 3,241,356 2,834,460 Accrued expenses 928,940 604,916 Accrued compensation 444,469 618,289 Accrued interest 525,865 388,253 Income taxes payable 5,192 5,192 Unearned revenue, current 964,344 635,275 ----------- ------------ TOTAL CURRENT LIABILITIES 8,660,166 7,636,385 LONG-TERM LIABILITIES Note payable, bank, noncurrent 724,634 799,634 Convertible subordinated debenture bond payable net of unamortized discount of: 1998: $892,946 1997: $1,096,402 1,607,054 1,403,598 Unearned revenue, noncurrent 496,291 442,953 Accrued expenses, noncurrent 180,941 187,549 ----------- ------------ Total long-term liabilities 3,008,920 2,833,734 ----------- ------------ TOTAL LIABILITIES 11,669,086 10,470,119 ----------- ------------ STOCKHOLDERS' EQUITY Common stock, par value $.001; 50,000,000 shares authorized: 1998: 12,502,164 and 1997: 12,436,800 shares issued and outstanding 12,502 12,437 Additional paid-in capital 17,398,124 17,386,591 Additional paid-in capital-convertible subordinated debenture and warrants 2,750,491 2,750,491 Accumulated deficit (21,964,678) (20,083,190) ----------- ------------ TOTAL STOCKHOLDERS' EQUITY (1,803,561) 66,329 ----------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,865,525 $ 10,536,448 ----------- ------------ ----------- ------------
The accompanying notes are an integral part of these financial statements Page 3
PC QUOTE, INC. STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 1997 (UNAUDITED) (UNAUDITED) ----------- ------------ REVENUE Satellite and terrestrial services $3,020,247 $3,118,307 Internet products and services 1,964,947 936,760 ----------- ------------ TOTAL REVENUE 4,985,194 4,055,067 ----------- ------------ OPERATING EXPENSES Operations and customer service 2,147,979 2,246,083 License and exchange fees 1,373,096 892,464 Sales 1,102,116 666,148 Depreciation and amortization 808,384 687,000 General and administrative 726,642 936,687 Product and market development 352,088 373,504 ----------- ------------ TOTAL OPERATING EXPENSES 6,510,305 5,801,886 ----------- ------------ LOSS FROM OPERATIONS (1,525,111) (1,746,819) OTHER INCOME (EXPENSE) Interest income 7,662 9,342 Interest expense (364,039) (163,278) ----------- ------------ NET LOSS ($1,881,488) ($1,900,755) ----------- ------------ ----------- ------------ NET BASIC AND DILUTIVE LOSS PER COMMON SHARE ($0.15) ($0.26) ----------- ------------ ----------- ------------
The accompanying notes are an integral part of these financial statements. Page 4
PC QUOTE, INC STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1998 1997 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($1,881,488) ($1,900,755) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization of property and equipment 288,384 282,000 Amortization of software development costs 520,000 405,000 Amortization of discount on convertible subordinated debenture bond payable 203,456 68,250 Changes in assets and liabilities: Accounts receivable, net of allowance (121,447) 158,006 Prepaid expenses and other current assets 3,008 30,615 Deposits and other assets 21,096 (51,755) Accounts payable 406,896 1,240,731 Unearned revenue 382,407 11,781 Accrued expenses 281,208 (73,720) ------------ ------------ Net cash provided by operating activities 103,520 170,153 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVTIES: Purchase of property and equipment (255,551) (117,100) Software development costs capitalized (533,877) (596,667) ------------ ------------ Net cash used in investing activities (789,428) (713,767) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 3,000,547 20,180 Repurchase of common stock (2,988,949) -- Principal payments under capital leases obligations -- (70,954) Principal payments on note payable to banks (75,000) (75,000) ------------ ------------ Net cash used in financing activities (63,402) (125,774) ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS (749,310) (669,388) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 1,113,130 1,321,512 ------------ ------------ CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $363,820 $652,124 ------------ ------------ ------------ ------------ ==================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $22,970 $37,218 Income taxes paid None None ====================================================================================================
The accompanying notes are an integral part of these financial statements. Page 5 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 6 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 long-term unearned revenue. (2) RECLASSIFICATIONS The statement of operations has been modified to enhance information to the shareholder. The 1997 statement of operations has 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 7 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); (d) certain negative covenants were added to the Debenture Agreement; and (e) the rights offering contemplated by the Debenture Agreement will be at such time as determined by the Company and at a price as determined by PICO. Interest under the Debenture will continue to be payable in cash or, at the option of PICO, in shares of the Company's Common Stock at the market value of such shares at the time of payment. 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 8 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, and March 10, 1998 the Company and Holdings executed the third, fourth, and fifth 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 and April 30, 1998, respectively. No further warrants were issued in connection with the third, fourth or fifth 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. 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"). Page 9 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. (5) SUBSEQUENT EVENTS The Company's Loan Agreement with PICO Holdings, Inc. was amended on May 5, 1998 extending the due date for borrowings by the Company, plus accrued interest, from April 30, 1998 to May 31, 1998. Page 10 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) maintain its relationships with key suppliers and providers of market data, (v) pay, refinance, or extend the up to $2.25 million loan from PICO Holdings, Inc. on or before May 31, 1998, and (vi) the effect of economic and business conditions generally. RESULTS OF OPERATIONS: FOR THE THREE MONTHS AND QUARTER ENDED MARCH 31, 1998 Total revenue increased 22.9% to $4,985,000 for the quarter ended March 31, 1998, as compared to $4,055,000 for the same period in 1997. The increase is the result of continued growth in the Company's Internet product and service offerings, which accounted for $1,965,000, or 39.4%, of total revenue for the period, a 110% increase over the first quarter of 1997. Satellite and Terrestrial Service revenue decreased $98,000 to $3,020,000 for the period, a 3.1% decline versus $3,118,000 for the prior year period. The decrease is due to the discontinuation of i) service to Global Financial Services, (formerly Bridge Information Systems), ii) an unprofitable product offering, Priceware, in June of 1997, and iii) the Company's 19.2 and 56 kbs (kilobits per second) transmission services. Many of the customers who had used the 19.2 and 56 kbs services upgraded to the Company's faster 112 kbs transmission, while others migrated to the Company's PCW 6.0 on the Internet product. Total Operating Expenses increased 12.2% to $6,510,000 for the first quarter of 1998 from $5,802,000 for the comparable 1997 period. Increases in License and Exchange Fees, Sales expenses, and non-cash charges for Depreciation and Amortization were offset to a degree by decreases in Operations and Customer Services, General and Administrative, and Product and Market Development costs. Costs of Operations and Customer Service declined $98,000, or 4.4%, to $2,148,000 for the first three months of 1998 from $2,246,000 for the same period in 1997. The decline reflects savings from the expiration and elimination of certain satellite leases, in addition to communication cost savings from the elimination of 19.2 and 56 kbs service during 1997. These savings were partially offset by 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 increased 53.9% to $1,373,000 in 1998 from $892,000 for the comparable three month period in 1997. The increase is a result of the growth in revenue and subscribers. Page 11 PART I. ITEM 2 Management's Discussion and Analysis of Results of Operations and Financial Condition Sales expenses were $1,102,000 for the first quarter of 1998, $436,000, or 65.4%, greater than the first quarter of 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 a significant increase in advertising expenses. Depreciation and Amortization for the quarter ended March 31, 1998 increased 17.7% over the prior year period from $687,000 to $808,000. 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 planned release of new product and service offerings in 1998. General and Administrative expenses decreased $210,000, or 22.4%, to $727,000 for the period versus the first three months of 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 year to year periods. Interest expense increased 123% to $364,000 for the three months ended March 31, 1998, versus $163,000 for the same period in 1997. 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 THREE MONTHS AND QUARTER ENDED MARCH 31, 1998 Net cash and cash equivalents declined $749,000 from year-end 1997 to $364,000 at the end of the first quarter of 1998. Expenditures for new equipment were $256,000, $138,000 or 118% higher for the first three months of 1998 versus 1997 as operating cash was used to effect new purchases. Capitalized software costs of $534,000 were $63,000, or 11%, lower for the quarter ended March 31, 1998, compared to the same period for 1997, as the Company decreased its overhead allocation to capitalizable projects. There were no new direct borrowings during the period, and the Company repaid $75,000 of the principal balance on the bank term loan. The Company received approximately $3.0 million in net proceeds from the sale of shares of Common Stock underlying rights exercised pursuant to its rights offering and the sale of shares of Common Stock to employees, who purchased shares pursuant to the Company's Employee Stock Purchase Plan. 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 12 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, which may be available to the Company, with the purpose of raising capital to fund operations and enhancing shareholder value. Such alternatives include refinancing existing debt, 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 13 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. The Company issued 65,360 shares of its Common Stock to employees, who purchased the shares pursuant to the Company's Employee Stock Purchase Plan. Page 14 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 first quarter of the period covered by this report. (c) EXHIBITS 4(a) Form of First Amendment to the Amendment of the Convertible Subordinated Debenture Agreement, dated as of March 30, 1998, located at the end of this Report. 4(b) Form of Sixth Amendment to Loan and Security Agreement dated as of May 5, 1998 between the Company and PICO Holdings, Inc., located at the end of this Report. 4(c) Form of Amendment No. 2 to the Amendment of the Convertible Subordinated Debenture Agreement, dated as of May 11, 1998, located at the end of this Report. 27. Financial Data Schedule Page 15 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 12, 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 Page 16 EX-4.A 2 EXHIBIT 4-A EXHIBIT 4(a) AMENDMENT TO FIRST AMENDMENT TO CONVERTIBLE SUBORDINATED DEBENTURE DUE 2001 AND DEBENTURE AGREEMENT PC QUOTE, INC., a corporation duly organized and existing under the laws of Delaware (the "Company"), and PHYSICIANS INSURANCE COMPANY OF OHIO, a corporation duly organized and existing under the laws of Ohio ("PICO"), for value received, hereby amend and modify that certain First Amendment to Convertible Subordinated Debenture Due 2001 and Debenture Agreement dated May 5, 1997 (the "First Amendment") as follows: 1. Revised Section 5.4 is to read as follows: 5.4 QUICK RATIO. The Company shall maintain, as of the last day of each calendar month, a ratio of Quick Assets to Current Liabilities of at least .1 to 1.0. From and after April 30, 1998, the Company shall maintain, as of the last day of each calendar month, a ratio of Quick Assets to Current Liabilities of at least 1.15 to 1.0. 2. Revised Section 5.5 is to read as follows: 5.5 CURRENT RATIO. The Company shall maintain, as of the last day of each calendar month, a ratio of Current Assets to Current Liabilities of at least .12 to 1.0. From and after April 30, 1998, the Company shall maintain, as of the last day of each calendar month, a ratio of Current Assets to Current Liabilities of at least 1.15 to 1.0. 3. Revised Section 5.6 is to read as follows: 5.6 DEBT-NET WORTH RATIO. From and after April 30, 1998, the Company shall maintain, as of the last day of each calendar month, a ratio of Total Liabilities less Subordinated Debt to Tangible Subordinated Debt of not more than 1.0 to 1.0. 4. No other provision of the First Amendment shall be affected by this Amendment other than as set forth above. Further, this Amendment shall not constitute, nor shall it be claimed to be, a waiver of any of the Company's duties or PICO's rights in connection with the First Amendment or the Convertible Subordinated Debenture Due 2001 described in the First Amendment, nor shall this Amendment constitute, nor shall it be claimed to be, a waiver of any claim that PICO now has against the Company. Dated: March 26, 1998 ATTEST: PC QUOTE, INC., a Delaware corporation By: ____________________________________ By: __________________________ Title: _______________________________ Title: _____________________ ATTEST: PHYSICIANS INSURANCE COMPANY OF OHIO, an Ohio corporation By: ____________________________________ By: __________________________ Title: _______________________________ Title: _____________________ EX-4.B 3 EXHIBIT 4-B EXHIBIT 4(b) SIXTH JOINT AMENDMENT TO AGREEMENT TO PROVIDE INSURANCE; DISBURSEMENT REQUEST AND AUTHORIZATION; PROMISSORY NOTE; AND LOAN AND SECURITY AGREEMENT This Sixth Joint Amendment to Agreement to Provide Insurance; Disbursement Request and Authorization; Promissory Note; and Loan and Security Agreement is entered into this 5th day of May, 1998, by and between PC Quote, Inc., a Delaware corporation ("PC Quote") and PICO Holdings, Inc., a California corporation ("PICO"). WHEREAS, PC Quote and PICO are parties to that certain Agreement to Provide Insurance; Disbursement Request and Authorization; Promissory Note; and Loan and Security Agreement, as amended August 8, 1997, September 22, 1997, December 30, 1997, February 5, 1998, and March 10, 1998 (collectively, the "Definitive Agreements"). NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, PC Quote and PICO hereby agree to amend the Definitive Agreements as follows: I. PROMISSORY NOTE DATED MAY 5, 1997, AMENDED AUGUST 8, 1997, SEPTEMBER 22, 1997, DECEMBER 30, 1997, FEBRUARY 5, 1998, AND MARCH 10, 1998. The Amended Promissory Note is hereby again amended as follows: A. In the second paragraph, on the third line delete "April 30, 1998" and insert "May 31, 1998." II. Except as expressly provided herein, all of the terms and provisions of the Definitive Agreements shall remain in full force and effect. III. This Sixth Joint Amendment may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Sixth Joint Amendment as of the date first written above. PC QUOTE, INC. By: ______________________________________ Its: ______________________________________ PICO HOLDINGS, INC. By: ______________________________________ Its: ______________________________________ EX-4.C 4 EXHIBIT 4-C EXHIBIT 4(c) AMENDMENT NO. 2 TO FIRST AMENDMENT TO CONVERTIBLE SUBORDINATED DEBENTURE DUE 2001 AND DEBENTURE AGREEMENT PC QUOTE, INC., a corporation duly organized and existing under the laws of Delaware (the "Company"), and PHYSICIANS INSURANCE COMPANY OF OHIO, a corporation duly organized and existing under the laws of Ohio ("PICO"), for value received, hereby amend and modify that certain First Amendment to Convertible Subordinated Debenture Due 2001 and Debenture Agreement dated May 5, 1997 (the "First Amendment") as amended further on March 26, 1998, as follows: 1. Revised Section 5.4 is to read as follows: 5.4 QUICK RATIO. The Company shall maintain, as of the last day of each calendar month, a ratio of Quick Assets to Current Liabilities of at least .1 to 1.0. From and after May 31, 1998, the Company shall maintain, as of the last day of each calendar month, a ratio of Quick Assets to Current Liabilities of at least 1.15 to 1.0. 2. Revised Section 5.5 is to read as follows: 5.5 CURRENT RATIO. The Company shall maintain, as of the last day of each calendar month, a ratio of Current Assets to Current Liabilities of at least .12 to 1.0. From and after May 31, 1998, the Company shall maintain, as of the last day of each calendar month, a ratio of Current Assets to Current Liabilities of at least 1.15 to 1.0. 3. Revised Section 5.6 is to read as follows: 5.6 DEBT-NET WORTH RATIO. From and after May 31, 1998, the Company shall maintain, as of the last day of each calendar month, a ratio of Total Liabilities less Subordinated Debt to Tangible Subordinated Debt of not more than 1.0 to 1.0. 4. No other provision of the First Amendment shall be affected by this Amendment No. 2 other than as set forth above. Further, this Amendment No. 2 shall not constitute, nor shall it be claimed to be, a waiver of any of the Company's duties or PICO's rights in connection with the First Amendment or the Convertible Subordinated Debenture Due 2001 described in the First Amendment, nor shall this Amendment No. 2 constitute, nor shall it be claimed to be, a waiver of any claim that PICO now has against the Company. Dated: May 11, 1998 ATTEST: PC QUOTE, INC., a Delaware corporation By: ____________________________________ By: __________________________ Title: _______________________________ Title: _____________________ ATTEST: PHYSICIANS INSURANCE COMPANY OF OHIO, an Ohio corporation By: ____________________________________ By: __________________________ Title: _______________________________ Title: _____________________ EX-27 5 EXHIBIT 27
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 363,820 0 1,556,897 450,000 0 1,979,690 11,793,233 9,323,955 9,865,525 8,660,166 2,453,082 0 0 12,502 (1,816,063) 9,865,525 4,985,194 4,985,194 0 0 6,510,035 104,000 364,039 (1,881,488) 0 (1,881,488) 0 0 0 (1,881,488) ($0.15) ($0.15)
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