<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q


              Quarterly Report Pursuant to Section 13 or 15(d) of
                      the Securities Exchange Act of 1934
                                        
                For the Quarterly Period Ended January 31, 1997

                        COMMISSION FILE NUMBER:  0-24420

                               PMT SERVICES, INC.
             (Exact name of registrant as specified in its charter)


            TENNESSEE                                  62-1215125
(State or other jurisdiction of          (I.R.S. Employer Identification No.) 
 incorporation or organization)          
                        

                               TWO MARYLAND FARMS
                                   SUITE 200
                              BRENTWOOD, TN  37027

                    (Address of principal executive offices)
                                   (Zip Code)
                                        
                                 (615) 254-1539
              (Registrant's telephone number, including zip code)


                                 NOT APPLICABLE


             (Former name, former address and former fiscal year,
                        if changed since last report.)


   Indicate by check mark whether the registrant: (1) has filed all
   reports required to be filed by Section 13 or 15(d) of the Securities
   Exchange Act of 1934 during the preceding 12 months (or for such shorter
   period that the registrant was required to file such reports), and (2) has
   been subject to such filing requirements for the past 90 days. YES [X] NO [ ]

     As of March 17, 1997,  37,279,003 shares of the Registrant's Common Stock,
   $.01 par value, were outstanding.
<PAGE>
 
                              PMT SERVICES, INC.

                          CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
                                                               JANUARY 31,       JULY 31, 
                                                                   1997            1996
                                                               -----------       --------
<S>                                                            <C>               <C>  
     ASSETS
     Current assets:
        Cash and  cash equivalents.........................   $ 22,301,220    $106,329,848
        Investments........................................     72,393,934              --
        Accounts receivable................................     11,770,330       8,403,918
        Inventory..........................................        969,118         760,620
        Deferred income taxes..............................        214,165         265,661
        Other current assets...............................      2,911,906         798,266
                                                              ------------    ------------
           Total current assets............................    110,560,673     116,558,313
        Purchased merchant portfolios, net of accumulated
           amortization of $13,836,009 and $9,668,705......     70,683,405      62,075,590
        Property and equipment, net........................      6,979,531       4,751,080
        Deferred income taxes..............................      1,695,832       1,343,867
        Intangible and other assets........................      8,065,080       6,219,235
                                                              ------------    ------------
           Total assets....................................   $197,984,521    $190,948,085
                                                              ============    ============
 
     LIABILITIES AND SHAREHOLDERS' EQUITY
     Current liabilities:
        Current portion of long-term debt..................   $    200,000    $     40,000
        Accounts payable...................................      4,592,662       4,736,939
        Accrued liabilities................................      3,134,925       4,937,445
        Deferred revenues..................................        247,858         230,496
                                                              ------------    ------------
           Total current liabilities.......................      8,175,445       9,944,880
        Long-term debt.....................................      1,288,894       1,014,991
                                                              ------------    ------------
            Total liabilities..............................      9,464,339      10,959,871
                                                              ------------    ------------
 
     Shareholders' equity:
     Preferred stock, $0.01 par value, authorized:
        10,000,000 shares; no shares outstanding
     Common stock, $0.01 par value, authorized:
         100,000,000 shares; issued and outstanding:
         37,279,003 and 36,435,860 shares..................        372,790         364,359
      Additional paid-in capital...........................    169,142,477     166,637,622
      Treasury stock.......................................        (12,000)        (12,000)
      Accumulated earnings.................................     19,016,915      12,998,233
                                                              ------------    ------------
                                                               188,520,182     179,988,214
                                                              ------------    ------------
 
     Commitments and contingent liabilities (Note 4)
      Total liabilities and shareholders' equity...........   $197,984,521    $190,948,085
                                                              ============    ============
</TABLE>

    The accompanying notes are an integral part of this financial statement.

                                       2
<PAGE>
 
                               PMT SERVICES, INC.

                        CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
                                                     THREE MONTH PERIOD ENDED           SIX MONTH PERIOD ENDED
                                                             JANUARY 31,                     JANUARY 31,
                                                 ---------------------------------  -----------------------------
                                                     1997              1996             1997             1996
                                                 -----------       -----------      ------------      -----------
<S>                                              <C>               <C>              <C>               <C>
Revenues......................................   $61,312,821       $44,041,888      $125,685,455      $86,249,587
Cost of revenues..............................    45,250,159        33,090,719        94,319,755       65,192,709
                                                 -----------       -----------      ------------      -----------
  Gross margin................................    16,062,662        10,951,169        31,365,700       21,056,878
                                                 -----------       -----------      ------------      -----------
                                                                                                  
Selling, general and administrative expenses..     8,308,951         6,251,673        15,638,117       11,971,577
Depreciation and amortization expense.........     2,954,214         1,724,331         5,771,843        3,215,165
Nonrecurring operating expense, net...........       118,616                --           584,753               --
Provision for merchant losses.................       291,448           354,871           584,837          743,254
                                                 -----------       -----------      ------------      -----------
                                                  11,673,229         8,330,875        22,579,550       15,929,996
                                                 -----------       -----------      ------------      -----------
  Income from operations......................     4,389,433         2,620,294         8,786,150        5,126,882
Interest income...............................     1,267,195           296,390         2,559,417          429,626
Interest expense..............................       (19,517)          (53,814)          (30,074)        (305,281)
Other expense, net............................      (412,792)               --          (533,710)              --
                                                 -----------       -----------      ------------      -----------
  Income before provision for income taxes....     5,224,319         2,862,870        10,781,783        5,251,227
Provision for income taxes....................     1,950,763         1,149,561         4,025,918        2,136,016
                                                 -----------       -----------      ------------      -----------
  Net income..................................   $ 3,273,556       $ 1,713,309      $  6,755,865      $ 3,115,211
                                                 ===========       ===========      ============      ===========
                                                                                                  
Net income per share..........................   $      0.09       $      0.05      $       0.18      $      0.10
                                                 ===========       ===========      ============      ===========
 
</TABLE>


    The accompanying notes are an integral part of this financial statement.

                                       3
<PAGE>
 
                               PMT SERVICES, INC.

           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

                                        
<TABLE>
<CAPTION>
 
                                               ADDITIONAL                                    TOTAL
                                    COMMON       PAID-IN      ACCUMULATED    TREASURY    SHAREHOLDERS'
                                     STOCK       CAPITAL       EARNINGS        STOCK         EQUITY
                                   ---------  -------------  -------------  -----------  --------------
<S>                                <C>        <C>            <C>            <C>          <C>
Balance at July 31, 1996.........   $364,359  $166,637,622    $12,998,233   $  (12,000)   $179,988,214
  Stock Options exercised........      3,431     2,508,855                                   2,512,286
  Data Transfer Associates 
   Pooling.......................      5,000        (4,000)      (115,762)                    (114,762)
  Distributions to Subchapter S
    Corporations, prior 
    to merger....................                                (621,421)                    (621,421)
  Net income for the period......                               6,755,865                    6,755,865
                                    --------  ------------    -----------   ----------    ------------
Balance at January 31, 1997......   $372,790  $169,142,477    $19,016,915   $  (12,000)   $188,520,182
                                    ========  ============    ===========   ==========    ============
</TABLE>

    The accompanying notes are an integral part of this financial statement.

                                       4
<PAGE>
 
                               PMT SERVICES, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                          SIX MONTH PERIOD ENDED
                                                                                JANUARY 31,
                                                                       ---------------------------
                                                                           1997           1996
                                                                       ------------   ------------
<S>                                                                    <C>            <C> 
     Cash flows from operating activities:
      Net income...........................................            $  6,755,865   $  3,115,211
     Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation and amortization expense................               5,771,843      3,215,165
      Gain on sale of property and equipment...............                 (47,875)            --
      Provision for merchant losses........................                 584,837        743,254
      Deferred income taxes................................                (300,469)      (420,559)
      Changes in assets and liabilities:
       Accounts receivable.................................              (3,302,938)        (4,516)
       Inventory...........................................                (103,229)         3,445
       Other assets........................................              (1,635,933)        81,714
       Accounts payable....................................                (350,372)       (81,689)
       Accrued liabilities.................................                (625,388)      (153,859)
       Deferred revenues...................................                 (90,622)        (6,645)
                                                                       ------------   ------------
       Net cash provided by operating activities...........              (6,655,719)     6,491,521
                                                                       ------------   ------------
     Cash flows from investing activities:
      Purchase of merchant portfolios......................             (15,358,039)    (9,217,082)
      Purchase of Investments..............................             (72,393,934)            --
      Purchase of property and equipment...................              (3,214,741)    (1,554,100)
      Proceeds from sale of equipment......................                 293,000             --
                                                                       ------------   ------------
       Net cash used in investing activities...............             (90,673,714)   (10,771,182)
                                                                       ------------   ------------
     Cash flows from financing activities:
      Payments on long-term debt...........................                      --    (15,072,306)
      Proceeds from issuance of common stock...............                 610,788     41,294,266
      Distributions to Subchapter S Corporations...........                (621,421)      (202,946)
                                                                       ------------   ------------
       Net cash (used) provided by financing activities....                 (10,633)    26,019,014
                                                                       ------------   ------------
 
     Net increase (decrease) in cash and cash equivalents..             (84,028,628)    21,739,353
     Cash and cash equivalents at beginning of the period..             106,329,848      1,351,311
                                                                       ------------   ------------
     Cash and cash equivalents at end of the period........            $ 22,301,220   $ 23,090,664
                                                                       ============   ============
     Cash paid during the period for:
       Interest............................................            $     29,336   $    229,681
       Income taxes........................................               2,588,588      2,769,657 

</TABLE>

SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:

     In connection with the purchase of a merchant portfolio in August 1996, the
Company issued 500,000 shares of common stock. The acquisition was accounted for
as a pooling of interests which did not require retroactive restatement.

    The accompanying notes are an integral part of this financial statement.

                                       5
<PAGE>
 
                               PMT SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - INTERIM FINANCIAL STATEMENTS:

          The accompanying interim consolidated financial statements are
unaudited, except for the balance sheet at July 31, 1996.  Certain information
and disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted,
although the Company believes the disclosures included herein are adequate to
make the information presented not misleading.  These interim consolidated
financial statements should be read in conjunction with the Company's
consolidated financial statements for the fiscal year ended July 31, 1996.

          The accompanying interim consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position at January 31, 1997 and
the results of its operations and its cash flows for the fiscal six month
periods ended January 31, 1997 and 1996.  The results of operations for the
interim periods presented are not necessarily indicative of results for the full
fiscal year.  The growth in the Company's income and profitability from fiscal
year 1996 has resulted largely from the purchase of merchant portfolios.  Future
growth is dependent upon, among other factors, the Company's ability to continue
to consummate such purchases of merchant portfolios.

          The consolidated financial statements give retroactive effect to
certain acquisitions consummated in the fourth quarter of fiscal 1996 and the
second quarter of fiscal 1997 which were accounted for as poolings of interests
(Note 3).

          The Company presents its consolidated statement of cash flows on the 
indirect method as allowed by FAS 95.  Certain amounts in the prior periods 
presented have been reclassified to conform with this presentation.

          Net income per share for the three month periods ended January 31,
1997 and 1996 is calculated based on the weighted average number of shares of
common stock outstanding of 38,483,877 and 31,929,999, respectively.  Net income
per share for the fiscal six month periods ended January 31, 1997 and 1996 is
calculated based on the weighted average number of shares of common stock
outstanding of 38,479,344 and 30,014,862, respectively.
 
NOTE 2 - PUBLIC OFFERINGS:

          In October 1995, the Company consummated a second public offering of
2,156,250 (6,468,750 post-splits) shares of common stock, 1,931,250 (5,793,750
post-splits) of which were offered by the Company.  The Company received net
proceeds of approximately $40.8 million, after deducting underwriting discounts
and commissions and expenses of the offering, and repaid all borrowings
outstanding under its revolving line of credit.

                                       6
<PAGE>
 
                               PMT SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          The Company offered 3,910,000 (5,865,000 post-split) shares of its
common stock in a third public offering in April 1996.  The Company received net
proceeds of approximately $100 million after deducting underwriting discounts
and commissions and estimated expenses of the offering.

NOTE 3 - MERGERS AND ACQUISITIONS:

          The Company purchased certain merchant portfolios which provide the
Company the right to service specific merchants under contract to processing
banks for electronic authorization and payment processing.  In fiscal 1996, the
Company consummated five acquisitions and in the six months ended January 31,
1997, the Company consummated eight acquisitions.  In conjunction with the
purchase of most of the merchant portfolios, the Company enters into
noncompetition agreements with the sellers of the portfolios.  A portion of the
purchase price for each of these merchant portfolios is allocated to the related
noncompetition agreement.

          The Company consummated one of the acquisitions in fiscal 1996 and
four of the acquisitions in the six months ended January 31, 1997 by issuing
common stock in exchange for all the outstanding common stock of the companies
acquired. These transactions were accounted for as poolings of interests and are
summarized below.
<TABLE>
<CAPTION>
 
     COMPANY ACQUIRED                         DATE               SHARES ISSUED
<S>                                           <C>                <C>
 
     Martin-Howe Associates ("MHA")           July 1, 1996             594,011
     Fairway Marketing Group ("Fairway")      December 23, 1996        424,999
     Bancard Systems, Inc. ("BSI")            January 27, 1997       3,131,250
     Retail Payment Services, Inc. ("RPS")    January 30, 1997         567,519
</TABLE>

     PMT's consolidated financial statements have been restated to include the
accounts of MHA, Fairway, BSI and RPS for all periods prior to the mergers.  In
addition to these transactions, the company completed a merger during the first
quarter of 1997 which was not considered material for retroactive restatement.

     Fairway and RPS were Subchapter S Corporations for income tax purposes; 
therefore, these entities did not pay U.S. federal income taxes. Fairway and RPS
will be included in the Company's U.S. federal income tax return effective 
December 23, 1996 and January 30, 1997, respectively.

                                       7
<PAGE>
 
                              PMT SERVICES, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        
     Separate revenues, net income and related per share amounts of the merged 
entities for the periods prior to the mergers are presented in the following 
table. In addition, the table includes unaudited pro forma net income per share 
amounts which reflect the elimination of the norecurring merger costs and 
expenses in 1997 and pro forma adjustments to present income taxes on the basis 
on which they will be reported in future periods.

<TABLE>
<CAPTION>
 
                                Three month period ended        Six month period ended
                                       January 31,                   January 31,
                             ----------------------------  --------------  -------------
                                 1997           1996            1997           1996
                             -------------  -------------  --------------  -------------
<S>                          <C>            <C>            <C>             <C>
Revenues
  PMT                         $49,306,971    $27,697,712    $101,122,607    $54,400,032
  BSI                           6,195,404      5,233,569      12,218,404     10,431,987
  Other                         5,810,446     11,110,607      12,344,444     21,417,568
                              -----------    -----------    ------------    -----------
Revenues, as reported          $61,312,821    $44,041,888    $125,685,455    $86,249,587
                              ===========    ===========    ============    ===========
Net income (loss)
  PMT                         $ 2,413,395    $ 1,908,961    $  5,273,711    $ 3,431,742
  BSI                             480,531        (88,244)        745,665        (29,541)
  Other                           379,630       (107,408)        736,489       (286,990)
                              -----------    -----------    ------------    -----------
Net income, as reported       $ 3,273,556    $ 1,713,309    $  6,755,865    $ 3,115,211
Merger costs and expenses         412,792                        533,710
Tax effect of Subchapter S
   Corporations                  (147,609)        14,045        (285,903)        15,892
                              -----------    -----------    ------------    -----------
Pro forma net income          $ 3,538,739    $ 1,727,354    $  7,003,672    $ 3,131,103
                              ===========    ===========    ============    ===========
Net income per share
  As reported                 $      0.09    $      0.05    $       0.18    $      0.10
  Pro forma                   $      0.09    $      0.05    $       0.18    $      0.10
                              ===========    ===========    ============    ===========
</TABLE>

NOTE 4 - COMMITMENTS AND CONTINGENCIES:

     In connection with the purchase of a merchant portfolio from Bankcard
America, Inc. ("ABC") in April 1995, the Company signed a guaranty for a
$1,000,000 note payable to the current processing bank by ABC expiring May 9,
1998.  The Company received a security interest in stock warrants to purchase
120,000 shares of the Company's common stock currently held by a shareholder of
ABC.

                                       8
<PAGE>
 
                               PMT SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The Company entered into an agreement in July 1995 to purchase the rights
to service merchant accounts to be generated by another independent sales and
service provider ("service provider") under a contract with the Company's
primary processing bank.  The Company's option to purchase may be exercised upon
the earlier of default by the service provider under its loan agreement with a
third party or December 1, 1997 and expires on January 31, 1998.  The purchase
price will be derived as a multiple of average monthly cash flow generated by
the merchant accounts for the three months immediately prior to the purchase.

     The Company's agreement with its primary processing bank was amended to
require the Company to purchase the service provider's merchant accounts by
January 31, 1998.  Additionally, the Company has indemnified the processing bank
for any losses incurred by the processing bank with respect to the service
provider's merchant accounts.

     In connection with the option agreement, the Company has guaranteed the
service provider's loan to a third party in the amount of $250,000.  The Company
has also entered into a service agreement whereby the Company will provide
customer service, processing equipment deployment and related services to the
service provider's merchant accounts for a monthly fee of $4.75 per merchant
account.

     VISA and MasterCard require merchants accepting VISA and MasterCard credit
cards to contract directly with a processing bank that is a member bank of the
VISA or MasterCard associations.  The Company is not a party to the merchant
processing agreements and is therefore dependent upon its contractual
arrangements with its processing banks in order to continue to service its
merchant portfolio.  Generally, the Company has a contractual right to receive
revenues derived from the discount rate and fees earned on its merchant
portfolio so long as the merchant continues to process transactions on the
processing bank's system and the Company provides adequate service to the
merchant and remains in compliance under its agreement with the processing bank.
Under the terms of the Company's agreement with its primary processing bank, the
Company is permitted to transfer merchants to another processing bank subject to
time limitations and termination fees.  This agreement provides mobility for a
substantial portion of the Company's merchant base.  However, in order to
transfer merchant contracts, the Company must pay the processing bank a fee
determined by a formula related to the annualized aggregate transaction volume
of the merchants transferred.

                                       9
<PAGE>
 
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

          PMT Services, Inc. is an independent service organization which
markets and services electronic credit card authorization and payment systems to
retail merchants located throughout the United States.  The Company's principal
sources of revenues are discount and merchant service fees. The remaining
revenues consist of rentals, commissions and sales relating to credit card
processing equipment and installation fees.  The Company initiates the credit
card processing relationship with a merchant and negotiates a "discount rate,"
within the terms of the Company's agreements with processing banks.  The
discount is a percentage of the dollar amount of each credit card transaction.

          Revenues derived from the electronic processing of transactions are
recognized at the time the merchants' transactions are processed.  Revenues
related to the direct sale of credit card authorization equipment are recognized
when the equipment is shipped.  Fees related to both the direct sale and
marketing of this equipment are recognized when installation is completed.  Fees
received in advance of shipment or installation are deferred until realized.

Acquisitions and Mergers

          In fiscal year 1996, the Company purchased five merchant portfolios
consisting of approximately 34,500 merchants.  One of these purchases,
consisting of approximately 5,000 merchants, was consummated in the first
quarter of fiscal year 1996.  In the third quarter of fiscal year 1996 the
Company purchased approximately 22,000 merchants through two merchant portfolio
acquisitions.  Additionally, the Company acquired two merchant portfolios, in
the fourth quarter of fiscal year 1996, one of which was accounted for as a
pooling of interests.

          The Company purchased a merchant portfolio from Imperial Bank
consisting of approximately 5,000 merchant accounts effective October 1, 1995.
The Company paid $8,650,000 for the portfolio from proceeds of the Company's
second public offering.  In the third quarter of fiscal year 1996 the Company
purchased two merchant portfolios.  The Company purchased approximately 15,000 
merchant accounts from UMB Bank, N.A. ("UMB") for a purchase price of
$13,500,000 effective March 1, 1996. Effective April 1, 1996 the Company
purchased approximately 7,000 merchant accounts from Bankcard America, Inc.
("ABC") for a purchase price of $6,300,000.

          In the fourth quarter of fiscal 1996, the Company acquired two
merchant portfolios consisting of approximately 7,500 merchant accounts.  The
Company accounted for the larger of these two acquisitions as a pooling of
interests.  On July 1, 1996 the Company issued 594,011 shares of its common
stock in exchange for all the outstanding common stock of MHA.  The Company's
consolidated financial statements have been restated to include the accounts of
MHA for all periods prior to the merger.

                                       10
<PAGE>
 
          In the first quarter of fiscal 1997, the Company acquired three
merchant portfolios consisting of approximately 13,500 merchant accounts.  On
August 2, 1996, the Company issued 500,000 shares of its common stock in
exchange for all the outstanding stock of Data Transfer Associates, Inc.
("DTA").  The acquisition was accounted for as an immaterial pooling of
interests.  The shares were issued to the shareholders of DTA in reliance upon
the exemption provided by Section 4(2) of the Securities Act of 1933 (the
"Act").

          The other two merchant portfolio acquisitions accounted for
approximately 9,500 merchant accounts and operating results of the merchant
portfolios have been included in the Company's financial statements beginning
August 1, 1996, the effective date of the purchases.

          In addition to these acquisitions, on September 16, 1996, the Company
paid cash and issued warrants to purchase 10,000 shares of the Company's common
stock as consideration in a transaction related to the purchase of certain
rights and obligations with respect to the solicitation and maintenance of a
merchant portfolio.  The warrants were issued to the two individual sellers in
reliance upon the exemption provided by Section 4(2) of the Act.  The warrants
are currently fully exercisable, at an exercise price of $17.00 per share, and
expire September 16, 2006.

          In the second quarter of fiscal 1997, the Company consummated five
acquisitions representing approximately 19,000 merchant accounts.  Three of the
acquisitions in fiscal 1997 were accounted for as poolings of interests.  On
December 23, 1996 the Company issued 424,999 shares of its common stock in
exchange for all the outstanding common stock of Fairway.  On January 27, 1997,
3,131,250 shares of the Company's common stock were issued in exchange for all
the outstanding common stock of BSI.  On January 30, 1997 the Company issued
567,519 shares of its common stock in exchange for all the outstanding common
stock of RPS.  The other two acquisitions' operating results have been included
in the Company's financial statements beginning November 1, 1996 and December 1,
1996, the effective dates of the transactions.

          The growth in the Company's revenues and profitability from fiscal
year 1996 has resulted largely from the purchase of merchant portfolios.  Future
growth is dependent upon, among other factors, the Company's ability to continue
to consummate such purchases of merchant portfolios.  There can be no assurance
that the Company will be able to make successful portfolio acquisitions or that
the attrition of merchants from acquired portfolios will not exceed anticipated
attrition, thus resulting in lower revenues from the purchased portfolios.

                                       11
<PAGE>
 
Results of Operations

          The following table presents, for the periods indicated, the
percentage of revenues represented by certain line items in the Company's
statement of income:
<TABLE>
<CAPTION>
 
                                  Three Month Period   Percentage/Increase   Six Month Period       Percentage/Increase
                                   Ended January 31,       (Decrease)        Ended January 31,          (Decrease)
                                  --------------------  --------------  --------------------------  --------------------
                                     1997       1996                        1997          1996      
                                  ----------  --------                    -------       --------
<S>                               <C>         <C>         <C>           <C>             <C>         <C>
Revenues                              100.0%    100.0%         39.2%      100.0%         100.0%            45.7%
Cost of  revenues                      73.8      75.1          36.7        75.0           75.6             44.7
                                     ------     -----                     -----          -----        
Gross margin                           26.2      24.9          46.7        25.0           24.4             49.0
Selling, general and                                                                                  
   administrative expenses             13.5      14.3          32.9        12.4           13.9             30.6
Deprec. and amortization                4.8       3.9          71.3         4.6            3.7             79.5
Non-recurring expense                   0.2        --            --         0.5             --               --
Provision for merchant losses           0.5       0.8         (17.9)        0.5            0.8            (21.3)
                                     ------     -----                     -----          -----        
Income from operations                  7.2       5.9          67.5         7.0            6.0             71.4
Interest (income) expense, net         (2.0)     (0.6)        414.3        (2.0)          (0.1)              --
Other expense, net                      0.7        --            --         0.4             --               --
                                     ------     -----                     -----          -----        
Income before provision for                                                                           
   taxes                                8.5       6.5          82.5         8.6            6.1            105.3
Provision for income taxes              3.2       2.6          69.7         3.2            2.5             88.5
                                     ------     -----                     -----          -----        
Net Income                              5.3%      3.9%         91.1%        5.4%           3.6%           116.9%
                                     ======     =====                     =====          =====
</TABLE>

-- = Not meaningful

Revenues

          Revenues for the second quarter of fiscal year 1997 increased to $61.3
million, an increase of 39.2% over the same period last year. For the first six
months of fiscal year 1997, the Company reported revenues of $125.7 million,
45.7% higher than revenues of $86.2 million for the same period in the last
fiscal year.  The growth in revenues has resulted in an increase in the
Company's accounts receivable.  The increase in revenues resulted primarily from
the purchase of merchant portfolios, revenue enhancement programs, growth from a
Visa and MasterCard sales solicitation program launched in fiscal year 1995 with
one of the Company's major association relationships and growth generated from
new merchants added through internal sales.  The fiscal year 1996 and 1997
merchant portfolio purchases accounted for 75.5% of the increase in revenues in
the second quarter of fiscal year 1997 and 70.5% of the increase in the first
six months of fiscal year 1997.

Cost of Revenues

       Cost of revenues increased from $33.1 million in the second quarter of
fiscal year 1996 to $45.3 million in the second quarter of fiscal year 1997.
Additionally, for the six month period ended January 31, 1997, cost of revenues
increased to $94.3 million or 44.7% from $65.2 million for the same period in
fiscal year 1996. Cost decreased as a percentage of revenues in both periods
principally as a result of revenue enhancement programs including approximately
$1.1 million in annual fees charged to merchants and earned in December, 1996.
In December 1995, the Company charged to and earned from to merchants
approximately $382,000 in annual fees.

                                       12
<PAGE>
 
Selling, General and Administrative Expenses

          Selling, general and administrative expenses were $8.3 million in the
second quarter of fiscal year 1997 and $6.3 million for the second quarter of
fiscal year 1996.  This reflects a 32.9% increase over the same period in fiscal
year 1996. For the first six months of fiscal year 1997, selling, general and
administrative expenses were $15.6 million or 30.6% higher than the same period
in fiscal year 1996. As a percentage of revenues, selling, general and
administrative expenses have decreased for the second quarter of fiscal year
1997 and for the six month period ended January 31, 1997 when compared to the
same periods in fiscal year 1996. The decrease in selling, general and
administrative expenses as a percentage of revenues continues to reflect the
Company's overall improvement in utilization of personnel. The addition of
revenues from purchased merchant portfolios have not caused a proportionate
increase in selling, general and administrative expenses. Additionally, the
Company's selling expenses decreased as a result of the Company's purchase of
agent residual rights thereby lowering referral compensation.

Depreciation and Amortization

          Depreciation and amortization expense increased from $1.7 million for
the quarter ended January 31, 1996 to $3.0 million for the quarter ended January
31, 1997 which represents a 71.3% increase. For the first six months of fiscal
1997, depreciation and amortization increased 79.5% to $5.8 million from $3.2
million for the same period in fiscal year 1996.  The increase in depreciation
and amortization was primarily the result of additional expenditures related to
the Company's management information systems and amortization of purchased
merchant portfolios.

Nonrecurring Operating Expense

          In the second quarter of fiscal 1997, and the six months year to date,
the Company incurred nonrecurring duplicative net costs of approximately
$119,000 and $585,000, respectively.  These net costs relate to a sales force
included in a merchant portfolio acquisition.

Interest Expense

          For the second quarter of fiscal year 1997, the Company recognized
$1.2 million net interest income.  For the same quarter in fiscal year 1996, the
Company recognized approximately $243,000 net interest income.  For the six
month period ended January 31, 1997 and 1996, the Company recognized $2.5
million and approximately $124,000 net interest income, respectively.  The
Company consummated an initial public offering in August 1994, a second public
offering in October 1995 and a third public offering in April 1996.  The Company
received net proceeds from the initial, second and third public offerings of
approximately $15.9 million, $40.8 million and $100 million (after deducting
underwriting discounts and commissions and expenses of the offerings),
respectively.  With the first two offerings, the Company repaid all borrowings
outstanding under its credit facility.  The Company received interest income
from the investment of the remaining net proceeds from the initial and second
offerings and on the total net proceeds from the April 1996 offering.

                                       13
<PAGE>
 
Income Tax

          Income tax expense increased in the second quarter and year-to-date
periods of fiscal  1997 in relation to the comparable periods in the prior
fiscal year, principally as a result of the Company's increased profitability in
fiscal 1997.  For the six months ended January 31, 1997, the income tax expense
of $4.0 million represented an effective income tax rate of 37.3% as compared to
the income tax expense of $2.1 million (40.7% effective income tax rate) in the
first six months of fiscal 1996.  The principal reasons for the decrease in
effective rate were losses without a corresponding income tax benefit incurred
by a subsidiary of MHA prior to its combination with PMT, partially offset by
income generated in the restated prior year by Subchapter S corporations which
were not taxed at the corporate level.

Liquidity and Capital Resources

          The Company received net proceeds from the initial, second and third
public offerings of approximately $15.9 million, $40.8 million and $100 million
(after deducting underwriting discounts and commissions and expenses of the 
offerings), respectively. The Company's management invests excess cash in 
overnight investments and U.S. Government Treasury notes and bills.

          The Company's cash flow is generated by collecting monthly revenues 
from the merchants. Payments to suppliers and vendors are typically paid within 
30 days, except for interchange which is paid daily to the card-issuing banks.
Historically the Company's primary uses of its capital resources include debt
service, acquisitions of merchant portfolios, capital expenditures and working
capital.

          The Company expects that cash generated from operations and the excess
cash on hand will be adequate to meet the Company's immediate cash needs. In
addition, on January 31, 1997 the Company amended and restated its credit
facility with First Union National Bank of Tennessee to provide a $20.0 million
revolving credit .

Working Capital

          Net cash flow provided by operating activities was $6.7 million for
the first half of fiscal year 1997 as compared to net cash flow provided by
operating activities of $6.5 million for the first half of fiscal year 1996.
Merchant portfolio purchases and increased interest income as a result of the
Company's public offerings accounted for most of the increase in cash provided
by operating activities. However, this increase was partially offset by
increased income tax payments in fiscal year 1997.

                                       14
<PAGE>
 
Capital Expenditures and Investing Activities

          Cash used in investing activities was approximately $90.7 million for
the six month period ended January 31, 1997 as compared to $10.8 million for the
same period in fiscal year 1996. During fiscal 1997 approximately $72.4 million
of the net proceeds received in the third public offering in April 1996 have
been reinvested in U.S. Treasury securities. Following the consummation of the
second public offering in October 1995, the Company purchased a merchant
portfolio from Imperial Bank. In the first six months of fiscal 1997, the
Company purchased three merchant portfolios. The increase in capital
expenditures was also attributable to additional expenditures related to the
upgrade of the Company's management information systems and the purchase of
additional credit card terminal and peripheral equipment for lease to
merchants.

Financing Activities

          Net cash provided by financing activities for the first six months of
fiscal 1996 was $26.0 million, which reflects the net proceeds of the
public offering after retirement of the Company's outstanding indebtedness to
First Union National Bank of Tennessee. For the first six months of fiscal 1997
the Company did not complete an equity offering.

Future Capital Needs

          Management believes that significant expenditures for the purchase of
additional merchant portfolios may be required for the Company to sustain its
growth in the future.

          Management expects to fund such purchases through cash on hand, cash
generated from operations and bank borrowings.  The Company believes
that the combination of these sources will be sufficient to meet the Company's
anticipated liquidity needs and its growth plans through fiscal year 1997.  The
Company, however, may pursue additional expansion opportunities, including
merger agreements accounted for as poolings requiring the issuance of additional
shares of stock.  Additionally, the Company may make purchases of additional
merchant portfolios, which may require additional capital, and the Company may
incur, from time to time, additional short-term and long-term indebtedness or
issue, in public or private transactions, equity or debt securities, the
availability and terms of which will depend upon then prevailing market and
other conditions.  There can be no assurance that any such financing will be
obtained on terms acceptable to the Company.

          In October 1995, the Company repaid all indebtedness on its revolving
credit facility to First Union National Bank of Tennessee from the proceeds of
its second public offering.  The revolving credit facility was amended and
restated during fiscal year 1997 to increase the facility to $20.0
million.  The current amendment expires January 31, 1998.  Borrowings under the
new credit facility will be used to finance future purchases of merchant
portfolios and equipment and for general corporate purposes.

                                       15
<PAGE>
 
          This report contains certain forward-looking statements.
Specifically, the forward-looking statements relate to future growth through
portfolio acquisitions and the availability of capital to support such
acquisitions.  The ability of the Company to achieve the expectations expressed
in these forward-looking statements will be subject to several factors that
could cause actual results to differ materially from those expressed in the
forward-looking statements, such as merchant attrition, difficulties in
integrating newly acquired businesses and portfolios, the availability of
capital, the cost of acquired businesses and portfolios, the Company's continued
ability to account for acquisitions as poolings of interests, industry price
increases and the ability of the Company's processing banks to process merchant
transactions effectively.  Results actually achieved thus may differ materially
from the expectations expressed in such statements.

                                       16
<PAGE>
 
                          PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

        At the Annual Meeting of Shareholders of the Company held on December 
16, 1996, the following proposals were adopted by the vote specified:

        1. Richardson M. Roberts and Leslie D. Coble were elected to serve on 
the Board of Directors of the Company for a term of three years.

                                                      Withhold
                                         For          Authority
                                        -----        -----------
        Richardson M. Roberts         29,695,572       220,282
        Leslie D. Coble               29,379,962       535,892
        
        2. The Shareholders voted to amend the Company's 1994 Incentive Stock 
Plan by increasing the number of shares that may be issued thereunder from 
2,295,000 to 3,795,000 by a vote of 28,528,977 for, 1,353,560 against and 33,317
abstentions.

        3. The Shareholders voted to amend the Company's Amended and Restated 
Charter increasing the amount of authorized shares of Common Stock of the 
Company from 40,000,000 shares to 100,000,000 shares by a vote of 23,832,501 
for, 5,977,594 against and 25,235 abstentions.

Item 6. Exhibits and Reports on Form 8-K

        (a) Exhibits

        4   Second Amendment to the Amended and Restated Loan Agreement dated as
            of January 31, 1997, between the Company and First Union National
            Bank of Tennessee.

       27   Financial Data Schedule

                                      17

        


<PAGE>
 
                                   SIGNATURES



          Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                                  PMT SERVICES, INC.



                                                  By:/s/Clay M. Whitson  
                                                     --------------------
                                                  Clay M. Whitson  
                                                  Chief Financial Officer


Date: March 17, 1997